Blockchain technology is gaining momentum in various industries. The payment industry has been witnessing an increasing adoption of blockchain due to its potential to reduce the role of intermediaries and enable faster processing of cross-border payments.
What is blockchain and how it can help facilitate cross-border payments?
Blockchain technology is distributed database of records of all the transactions that have been executed and shared among participants in the blockchain network. It is a decentralized system means it is not controlled by any central authority or it does not require third party to record transactions. This would mean that direct transfers can occur without fear of manipulation even for cross-border payments as it does not involve third parties or banks.
Problems Existing with Present Payment Mode
Cross-border payment is complicated as there is a change of currency involved. There are cross-border transaction fees this is because it includes various steps through the banking system. When a cross-border payment is made, the payer’s bank first transfers the money to its counterpart bank in the seller’s country and there are so many processes included in it there can be multiple banking entities involved in a single cross-border payment that make the transaction process slower.
Why opt for Blockchain Technology for Cross-border Payments?
Blockchain technology replaces the central authority with a decentralized network. Here a network of nodes verifies the transaction. Blockchain technology helps in reducing the cost across the entire payment system by eliminating third parties. Blockchain makes cross-border payments more efficient by allowing users to complete transactions directly without third parties. Blockchain technology provides security to the users as it is based on cryptography. Data stored on a blockchain can be permanently secured. This makes it impossible for hackers to tamper with data on blockchain.
Advantages of Blockchain-Operated Cross-border Payments
Any Blockchain-enabled cross-border payment takes a few seconds or minutes. Unlike regular payment system which takes 3 to 5 days. Various issues such as time-zone differences and currency value differences do not affect the transaction time.
Banks have to take the help of intermediary banks to process the transaction. The third party in between charges a fee. When using a blockchain network for cross-border payments it eliminate the transaction fees.
Blockchain technology provides security to the users as it is based on cryptography. Data stored on a blockchain can be permanently secured. This makes it impossible for hackers to tamper with data on blockchain.
Crypto and Blockchain technology in the Ukraine war
Crypto donations with the help of blockchain technology have supported Ukraine. Since the beginning Ukraine has attained $225 million in donations in cryptocurrencies. Most donations are received in USDT $83 million and then ether $79 million, Bitcoin donations contribute $41 million and the rest of the amount was made by other cryptocurrencies.
Blockchain technology plays a vital role in ongoing digital transformation. It can strengthen the cross-border payment system by offering a decentralized way of making payments and enhancing transparency. Cross-border payments face many challenges that can be easily achieved with blockchain technology, it will reduce the risk of fraud and will be a more transparent way of making payments.
Frequently Asked Questions (FAQs)
How does blockchain relate to cross-border payments?
Blockchain technology facilitates fast, secure, low-cost and transparent method of cross-border payments without the need for a third party.
What are the challenges of blockchain in cross-border payments?
Blockchain payments are not without challenges,however, scalability and interoperability can be hindered by limited capacity and speed. Blockchain networks can be slow and inefficient due to the high computational requirements needed to validate transactions.
How blockchain is different from traditional payment systems?
Traditional payment system includes multiple intermediaries, fees and currency conversions which can take time to make payments. Blockchain can eliminate these intermediaries and enable faster and cheaper transactions.
What are the major components of blockchain?
Nodes, a distributed ledger and a consensus algorithm are the major components of the blockchain.
How blockchain is revolutionizing cross-border payments?
Blockchain is revolutionizing cross-border payments as it offers a range of benefits i.e. security, transparency, decentralization, etc. that can eliminate the traditional payment system which is more complicated.