Advancements in technology since the turn of the 21st century have undoubtedly had a massive impact on the way people pay for goods and services. While cash transactions still have a role to play in society, digital payment technologies have completely revolutionised the landscape over the past couple of decades.
When cashless payments first came into vogue, it would be fair to say that the supporting technology left a lot to be desired from a security perspective. Industries that require a lot of online payments have been crying out for security and transparency in the technology used on their platforms. Fintech solutions have made huge improvements in this area, resulting in fast and secure online payments in the gaming industry and other major sectors that require regular and safe online transactions.
One of the latest innovations driving developments in online payments is blockchain technology, which has changed the way people think about their relationship with finances.
With that in mind, we look at how blockchain works before assessing some of the major benefits it offers as a digital payment solution.
Miriam-Webster describes blockchain as ‘a digital database containing information (such as records of financial transactions) that can be simultaneously used and shared within a large decentralised, publicly accessible network’.
Transactions on the blockchain are approved by ‘validator nodes’ – also known as ‘miners’ – that reach an agreement using a dedicated algorithm or set of rules. Approved transactions are contained in a ‘block’. When a series of blocks are strung together, they become a blockchain which holds the history of each of these transactions. Only users with the appropriate ‘key’ can view the content.
There are two primary types of blockchain – private and public. Only approved users in a private blockchain can access the blocks.
In a public blockchain, all of the blocks in the chain are viewable to anyone in the network. However, the content inside the blocks cannot be accessed, thus ensuring privacy. Information in a block cannot be changed once it has been entered. Errors can only be rectified by the addition of another block, thus ensuring all transactions are completely transparent.
The Advantages of Blockchain in Online Payments
Speed, privacy, transparency, and security are among the primary benefits of using blockchain to facilitate online payments. In simple terms, blockchain is not reliant on a ‘central authority’ to approve and authenticate payments. This effectively removes banks and card providers from the equation.
Blockchain uses private and public keys to encrypt data which ensures no personal financial details are visible to cybercriminals. With transactions recorded on an ‘immutable distributed ledger’, the history of each transaction is completely transparent.
One area where blockchain has really come into its own is cross-border payments, which have historically been a minefield due to varying financial regulations in different countries.
By using a decentralised network, blockchain simplifies payment processes by removing the need for third parties to authenticate transactions.
This allows payments to be sent and received in a matter of minutes, rather than the money disappearing into the ether for days or weeks. Blockchain opens the door for business-to-business (B2B) and peer-to-peer (P2P) cross-border payments to be made far more efficiently.
Blockchain Payments in Action
As mentioned earlier, the gaming industry is among the primary beneficiaries of blockchain technology and the impact it has made on online payments.
The sector is a truly global space which views traditional borders as an inconvenience, but blockchain has helped to break down those barriers. From funding expansion packs for popular online games to making deposits and withdrawals at online casinos, blockchain has made the sector far more accessible to the masses.
By removing third-party financial organisations from the equation, blockchain has created far more diversity in online gaming. For many people worldwide, traditional banking systems are either difficult to access or completely unavailable to them. Other sectors are also benefiting from the security and transparency improvements that blockchain provides, and this is set to grow as more industries adapt to the technology.
The Future of Blockchain Payments
While blockchain has transformed online payments, it is worth noting that there are still some hurdles to overcome before the technology fully crosses into the mainstream.
Education is a major issue, with many people still wary about using something they do not fully understand. The lack of regulation is another problem, particularly where cryptocurrency exchanges are concerned.
Countries which regulate blockchain payments will likely be best placed to benefit over the next few years, as this will give consumers and businesses more confidence to use the technology. Although the world remains in the very early stages of blockchain adoption, better regulation of the sector is guaranteed to accelerate growth.
This could lead to the technology replacing other traditional payment options such as cash and debit cards by the end of the decade.