Benefits of Blockchain: Faster Payment Processing

Blockchain is a relatively young technology that has become trendy on the wave of cryptocurrencies popularity. The theoretical basis was created in the 1960s, and the first practical developments appeared in 2007.

It is a digital registry containing data that cannot be changed but can only be viewed or added to. It is stored as distributed data on multiple computers. If some computers go offline, this database will continue to work. The world’s first functioning “distributed ledger” was the Bitcoin ecosystem, which contains data on transfers and crypto wallets.

Since the mid-2010s, large companies have been interested in this technology to store their data. Early investors included IBM, the Nasdaq, and the Irish IT giant Accenture.

It is still primarily used in finance, but it is being implemented in dozens of other areas: marketing, computer games, trade, logistics, real estate, and even government. Blockchain-based services already have millions of users. This rapid growth in the popularity of technology is the result of its unique advantages, which have proven to be important in the new information age. Below we will discuss blockchain benefits in payment processing.

5 Benefits in payment processing

According to TechJury, this technology can reduce 30% of banks’ infrastructure costs. Around 60% of CIOs planned to integrate it into their operations by the end of 2022. And so far, it has processed over $270B in transactions.

Blockchains are technically different from conventional databases, and these differences are the benefits of this technology in payment processing.

1. High security

It uses cryptographic encryption protocols, so the data in many distributed registries is secure. For example, crypto messengers often use end-to-end encryption (E2EE): only the recipient and the sender can read the message. Also, it does not have a single server that can be hacked to retrieve all the data.

Most “distributed ledgers” allow anonymous logging. For example, online Bitcoin wallets are not tied to the owner’s passport, phone number, or name. This eliminates the possibility that the user’s identity will be established and his or her data and financial transactions made public. Nevertheless, crypto wallets can be hacked because of owners’ mistakes.

2. Increased transaction processing speed

Typically, transactions in commercial banks, money transfer services, credit payment processing centers, and other third-party services take at least a day and charge a fee. Moreover, banks have weekends and holidays, which is not always convenient for customers. Users have no geographical or time restrictions when sending money through this network.

Transferring data or money within the “distributed ledger” is instantaneous. Transactions take only a few seconds, and transaction confirmation takes a few minutes to several hours. All payments are irreversible, so confirmations are essential to protect against online fraud. That is why this technology has gained popularity in finance: cryptocurrencies within the same ecosystem can be transferred to any user in a second. 

Blockchain reduces risks and costs for all market participants. In addition, a vast number of payments are processed fairly quickly. It finds severe applications where information transfer speed and reliability are important, for example, in contracts for the transportation of goods or banking and real estate.

The transparency of the network allows for complex interbank and stock exchange settlements, financial calculations in international holdings, as well as open e-voting, e-notary, e-invoicing, and confirmation of copyright for digital content.

Blockchain processing

3. Decentralization

Do you want to transfer $50 000 as a gift to your sister? The bank will call you and ask where the money comes from. If it doesn’t like the answer, it will block the transfer.

Changing this state of affairs is the basis of the ideology of blockchain payment processing. Its ideology wants to create an ecosystem where people can pay each other directly without intermediaries.

Information is distributed throughout the network. There are no primary or secondary computers in the ecosystem, which is a key advantage. It cannot be harmed by disabling multiple devices. “Distributed ledgers” will only cease if all the computers supporting it are disconnected from the network. Since there is no master computer, gaining control of the system is problematic. That is why large blockchains are independent: they are not controlled by the government, banks, or even development companies.

4. Reliable data storage

You don’t need powerful servers to create and maintain a database; it’s enough to create a network of ordinary computers. Attackers will not compromise the data: no main repository of information can be disrupted. The data cannot be corrected or altered, so any information added to it will be stored as it was. This technology can even be used as a basis for invoicing software providing high security of financial data.

But the amount of storage occupied by blockchain is larger than that of a standard database containing similar information. So as the ecosystem grows, it must attract new participants.

5. Wide application area

It is a substitute for a digital signature: intermediaries who confirm data authenticity are unnecessary. Because the information in its digital system cannot be changed or rewritten, its authenticity is beyond doubt. By eliminating intermediaries, cross-border blockchain payments can result in even faster transfers while significantly reducing costs for merchants and customers. This makes it an in-demand and versatile technology, providing various applications.

It has been called a trust-free economic transactions system. There is no risk associated with trusting an intermediary organization because no intermediary is needed. Transactions are made directly, and information is transparent and reliable. Therefore, it allows the user not to pay for the services of a “third party” (bank, notary, etc.), significantly reducing costs.

benefits of blockchain

Blockchain in finances: faster payment processing

The development of a “distributed ledger” has reduced barriers for investors to enter financial markets and generally made banking services more accessible. According to the World Bank, about 1.7 billion people worldwide cannot freely make any payments. 

In finance, blockchain is most often used to speed up transactions, make them cheaper, and make them more secure. Take, for example, a popular service such as money transfers. Banks today know how to transfer money from one customer to another quickly. But in some cases (for example, when transferring funds abroad), it can take several days to complete the transaction. In addition, the customer will have to pay a fee. By adopting this technology for payment processing, the speed of transactions can be significantly increased, and fees can be reduced or even eliminated. 

Another example is the sharing and use of data. Traditionally, banks have used their internal data warehouses, which can only interact with other banks’ warehouses in a very superficial way. And it costs a lot of money to develop and maintain those data warehouses. “Distributed ledger” could be used to create a shared storage facility that would save considerable costs, ensure data integrity, eliminate human error and ensure complete security. For example, Bank of America CEO Brian Moynihan claims the company has “hundreds” of patents regarding this new technology. 

This technology can make life easier, not only for banks but also for their customers. Every financial transaction today is only possible with identity verification. As a result, bank customers have to use all kinds of codes and passwords all the time. Blockchain allows people to authenticate themself only once to create a unique identification certificate. It can then be used to validate any transaction, with users able to choose to who they agree to present the certificate.

Faster payment processing for business

Modern business is a big data business. Entrepreneurs’ activities involve a large amount of data. The success of transactions and other operations depends on the speed of money payments and transfers. 

Blockchain perfectly meets this need as well. Network participants get shared access to information in an immutable ledger through smart contracts, and transactions are executed quickly and securely. In addition, smart contracts define the conditions for the transfer of corporate bonds and can set the criteria for insurance payments. This approach is to the benefit of businesses.

It took only a few hours to launch the commercial company Drakkensberg, an initiative of an association of law firms and attorneys. The specialists collaborated with Proxeus and IBM.

In addition to legal organizations, traditional banks have also benefited from this technology. Since 2019, China Merchants Bank (the 16th largest bank in the world by revenue) has been actively working on China’s national blockchain platform. The institution has successfully set up an operational platform for interbank trade finance. The bank also collaborates with crypto startups to develop decentralized applications and cryptocurrency wallets. 

Chinese banks are also implementing these principles to improve the security of customers’ personal data.

Conclusion

The speed and transparency of transactions, availability, and reliability of the currency have made this technology popular and brought new opportunities to the global financial sector.

If the international financial infrastructure entirely switches to the blockchain, the entire global economy will feel a powerful impetus for development. It will help to fundamentally change banking processes: make them faster, more transparent, and cheaper with a high level of security.

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