The blockchain is a decentralized ledger which is unchangeable and fully transparent. An example of blockchain used as a form of payment is bitcoin. What is bitcoin? Bitcoin is a transaction database shared by all nodes participating in a system. A full copy of a currency’s blockchain contains every transaction ever execution in the currency.
Blockchain acts as a public ledger, where every transaction is recorded and registered by a group of users. Bitcoin is a decentralized virtual currency. Users confirm transactions through a process referred to as mining, where users lend their computer processing power to solve mathematical equations to confirm and register bitcoin transactions. Another example of decentralized virtual currency is ethereum.
What does blockchain mean for mobile payments industry?
- Boasts consumer confidence with its secure nature.
- Blockchain can provide an immutable database for user’s personal data, adding an extra layer of security.
- It can also help track illegitimate transactions made.
- Customers hesitant to put their credit cards on their phones can use blockchain powered mobile payment solutions, allowing users to use tokens instead of credit cards.
How can fintech and traditional banking utilize the blockchain?
Banks are currently experimenting with how they can use the ethereum blockchain to power smart contracts. Smart contracts can help automatically verify and enforce the terms of a contract, which can be a major boom for banks and fintechs.
Financial institutions can also use blockchain to identify management or to settle loans more quickly and efficiently than older processes.
The blockchain can also help simplify trade and finance by enabling instant payments for big overseas shipments, which would normally take weeks to finalize with paper trails.
Merits of using blockchain as a form of payments
- Enables cheap transfer of funds.
Other services such as paypal usually charge sizable amounts of fees per transaction.
- Global transactions can be done
Other peer to peer payment services have some restrictions such as location restrictions. Therefore more users are beginning to prefer cryptocurrency for international transfers. Users are therefore granted more freedom when it comes to the movement of their funds.
- Secure transfer of fund
Digital decentralized ledgers are much harder to hack because they are wrapped in cryptography, which is one of the most secure forms of encryption. Hackers cannot get in and edit the data. An in the rare cases where the system is hacked, the blockchain would store all changes made therefore any change that is made can be identified.
Challenges when using blockchain as a form of payment
- Blockchain is network driven and therefore will only work when everyone on your supply chain agrees to use it.
- One of the frequently noted criticisms of bitcoin’s blockchain network is the fact that it relies on intensive computing power and hence a lot of electricity in order to run.
- With an increasing number of players in an ever-expanding industry like blockchain, some worry that with so many different networks, no standard exists to allow them to interact with each other.