Blockchain Use Case: Payments

In recent years traditional banking systems → online payments → netbanking→ mobile banking involved traditional currencies. Fiat cash or money and at the present and in the future blockchain – and digital crypto payments have revolutionized the way we make and receive payments by providing a secure, transparent, and efficient system. 

Using blockchain for payments, Traditional payment systems often involve multiple intermediaries, resulting in delays, national holidays and high transaction costs for payments both in domestic and cross-border payments. Blockchain can streamline the payment process by eliminating intermediaries and enabling direct peer-to-peer transactions. This can significantly reduce transaction times and costs, especially for cross-border payments.

Traditional payment systems like PayPal, Stripe, and Wire charge platform handling fees based on the countries and origin, but blockchain eliminates them and transaction happens faster and is settled within a matter of seconds and reduces banking transfer fees or cross border charges. 

• Let’s say Digital Solutions wants to send money to a sister company that is in a different country. Digital Solutions decided to use blockchain technology for cross-border payment.

• Digital solutions initiated the transaction by creating a digital wallet on a blockchain platform and converting their local currency into a cryptocurrency like Bitcoin.

• Digital Solutions enters the wallet address of the sister company and the amount they want to send for example USD 5000.

• The transaction details are encrypted and added to a block in the blockchain. The transaction is verified and validated by multiple nodes in the network, ensuring its security and authenticity.

• Once the transaction is confirmed, the funds are transferred to the sister company’s wallet almost instantly.

• Sister companies can convert the received cryptocurrency into their local currency or use it for other transactions within the blockchain network. 

Here the entire process is transparent, and efficient, and eliminates the need for intermediaries like banks or payment processors.

• In traditional systems, digital solutions need to visit a bank and provide the necessary details, such as bank account number, SWIFT code, and the amount to be transferred.

• The bank initiates the payment process and deducts the funds from the account. The payment request is sent through a series of correspondent banks or intermediaries, which can take several days for the transaction to reach.

• During this process, each intermediary deducts a fee for their services, and the exchange rate. Finally, when the payment reaches the sister company’s bank receives the funds in their local currency, but again, this process can take several days.

Overall, traditional cross-border payments involve multiple intermediaries, longer settlement times, higher costs, and less transparency compared to blockchain-based payments. 

How is Blockchain payment achieved?

1. Smart contracts can automate payment processes which are self-executing contracts with the terms of the agreement directly written into the code. This reduces the need for manual intervention and improves the efficiency of payment settlements.

2. Blockchain technology uses advanced cryptographic techniques to ensure the security of transactions. Each transaction is recorded in a block and linked to the previous block. This makes it extremely difficult for hackers to manipulate or alter payment data.

3. Blockchain provides a transparent and auditable ledger of all payment transactions. Every participant in the network has access to the same information, eliminating the need for intermediaries and reducing the risk of fraud. This transparency also enhances trust between parties involved in a payment transaction.

Blockchain-based payment systems can empower the unbanked and underbanked populations by providing them with access to financial services. Blockchain technology has the potential to revolutionize the payments industry by providing secure, transparent, and efficient payment systems. Reach BSEtec, a leading blockchain development company to start implementing it for your business.

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