Inexpensive Direct Payments
When you send or receive a payment, the funds typically move through banks, credit card processing networks, and other intermediaries. Each step adds complexity, and every service provider expects to earn a fee for the part they play in your payment.
Merchants can benefit from blockchain technology in several ways:
When customers pay with plastic, merchants pay processing fees, and those fees eat into profits. Less-expensive blockchain payment networks may be an option for some merchants. If nothing else, more competition should lower prices.
Customers who pay by check may bounce checks, causing losses and fees for merchants. Electronic payments from customer checking accounts may also fail. But blockchain-based payments can provide merchants with certainty within a few minutes (or less).
Individuals also enjoy receiving payments with confidence. Online “buyers” may try to scam you, but blockchain-based payments should be quick and irreversible. Plus, they’ll likely be easier and less expensive than bank products. For example, if you’re selling a high-priced item like a vehicle, it’s critical to receive payment before handing over the keys. The safest ways to get paid currently include cash, wire transfers, or cashier’s checks. But cash is dangerous, wire transfers are labor-intensive, and cashier’s checks can be faked.
Banks can use blockchain for more than moving money. The technology is excellent for keeping track of transactions, and that may be useful in several areas.
Because ledgers are hard to tamper with, they can make it easier and more efficient to track ownership. Each transfer of ownership (as well as liens and other events) can go in the ledger, resulting in a trustworthy source of information about almost any type of property.
It may be possible to automate activities that previously added cost, complexity, and delays to transactions. One such method is with the creation of smart contracts. These computer protocol contracts can monitor when a buyer makes a payment, when a seller delivers on her end of the deal, and handle a variety of problems that may arise. Plus, they don’t take vacations or make mistakes—assuming they are programmed correctly. Smart contracts can be as simple as an indifferent third-party between a buyer and seller (like the escrow providers we know today), and they can get substantially more complicated. Combined with open banking, encrypted smart contracts could lead to faster, automated lending decisions in a marketplace of bidders.
By keeping costs low and allowing startups to compete against big banks, blockchain, and other technologies can promote financial inclusion. Blockchain-based solutions may better serve those who avoid bank accounts because of high fees, minimum balance requirements, and lack of access. Instead of needing assets and regular income for banks, they need a mobile device. In situations where it’s traditionally hard to identify individuals, digital IDs can provide a large-scale solution.
Blockchain technology resists hacking, DDOS attacks, and other forms of fraud. It can also help banks and others identify individuals quickly and accurately through a blockchain-enabled digital ID. With less fraud, the costs of doing business decrease, and presumably, the savings benefit everybody.
What We Don’t Know
Blockchain is still relatively new, although banks and other industries are already innovating with blockchain technology. At this point, the technology is probably ahead of regulations, and it’s not always clear what to expect in terms of protection, privacy, potential risks, and dispute resolution. Those issues can all be solved, but it’s critical to research and understand what problems may arise before using blockchain for significant transactions. thebalance.com