Despite several recent hiccups in valuation, lawsuits, and calls for regulation in the media, Bitcoin remains a hot topic for speculators and investors. Looking beyond cryptocurrency, though, there’s the technology — known as blockchain — on which the currency operates.
Does blockchain technology really have the power to upend the payments status quo? Or, is it all hype?
Blockchain is Cheaper (in the Long Run)
One of the predominant attractions of blockchain technology is the cost-efficiency and speed built into each blockchain.
Payment processing and mediation are big business for banks and financial institutions. Facilitating payments is a lucrative, but demanding enterprise. It requires persistent innovation and incredible amounts of investiture to maintain.
Thus, banks can — and often do — charge complex fees for processing privileges. Offering a more efficient, cost-effective way to conduct payments could be a revolutionary step.
Building out the infrastructure will be a significant up-front investment. However, the long-term costs associated with maintaining a blockchain ledger could offer significant savings.
Traditional Payments are Slower and Less Secure
Blockchain transactions generally take around 25-30 minutes to settle. At the extremes, it can take up to a day for more complex transactions to enter the ledger. While this is not perfect, it is by far faster than your average bank transfer conducted via automated clearinghouse, which can take 3-5 business days on average.
ACH payments require reconciliation between separate ledgers. In contrast, blockchain payments allow for real-time updates to a shared ledger, significantly cutting down on time and redundancy.
This has ramifications for security as well. Traditional payments are undercut by the constant risk of fraud and the need to validate and authorize payment credentials per transaction. While most of the time, validation takes just a few seconds via a POS terminal or online payment portal, blockchain is faster and technically more secure.
Blockchain technology offers an encrypted and cheap way of sending payments that cuts down on the need for verification from third parties and processing times for traditional bank transfers. Essentially, since blockchain entries cannot be duplicated or fabricated, the need for third-party verification during cross-border payments is largely nullified.
Many Companies Now Accept Cryptocurrency Payments
Blockchain technology is often associated with cryptocurrency, though the two are not necessarily related. Regardless, broader adoption of crypto payments can, in turn, promote greater familiarity with blockchain.
An increasing number of multinational businesses are getting into the crypto payments game, and that trend doesn’t seem to be slowing. Many mainstream companies like Starbucks, Whole Foods, and Home Depot now accept blockchain payments as an alternative to traditional credit and debit card transactions. Even third-party payment facilitators like PayPal and Square have added cryptocurrency payment options to their checkout rosters.
What this signifies is broader general adoption for the cryptocurrency marketplace. This could be a boon for both consumers and retailers, respectively.
One downside is that, depending on the use case, a decentralized blockchain payment structure could make it difficult for cross-border governance. It might be more difficult to regulate or cancel transactions. This lack of transparency and regulation, while sold as a feature to some parties, is really the main roadblock slowing broader adoption.
Maybe Not Yet
While cryptocurrency is lauded as a payments disrupter, the truth is that this likelihood is massively dependent on the sort of market stabilization that stems from regulation.
Ultimately, with widespread blockchain adoption between businesses and consumers, regulation will provide necessary stabilization and legitimacy. This could be on the horizon; 90% of members of the European Payments Council have predicted that blockchain technology will fundamentally change the industry by 2025. It’s too soon to predict any imminent transformation, though.