Cross-border payments are a crucial part of international trade and commerce in the modern global economy. Traditional cross-border payment methods can be complicated, costly, and ineffective. However, blockchain technology has the ability to completely change how we conduct international transactions.
Blockchain-based payment systems provide many benefits over conventional banking systems, including a faster, more secure, and more transparent means to transmit money. In this article, we will look at some of the aspects of cross-border payments done in blockchain as well as the advantages and drawbacks of using blockchain for global transactions. So let’s dig in and discover the fascinating world of blockchain-based cross-border payments.
How do blockchain transactions work?
Blockchain can be defined as a ledger that is distributed over a network of computers called nodes. These nodes verify and record every transaction done on the blockchain. Since every transaction is recorded on all the nodes it becomes impossible to alter the transaction. Below is a detailed explanation of every step involved in the transaction:
Step #1- The first step is initiation when a user creates a digital record of the transaction. This record contains the address of the sender and the receiver and network details.
Step #2- This transaction is then processed through a network of nodes that verifies the addresses of both the parties, and whether the sender has sufficient funds. However, note that if the address of the receiver is not correct, the fund may get lost.
Step #3- A block is created after verification is done. This block is then added to the blockchain via a process known as mining. Mining, in simple terms, is solving complex mathematical problems and it requires a ton of power to do so. The first node that solves the puzzle gets the reward of the block, as done for Bitcoin.
Step #4- After the transaction is done, the block is added to the blockchain, and now the transaction can not be changed. This makes the blockchain network a highly secure method of transaction.
Step #5- The transaction is then recorded on the ledger, which contains all the history of the previous transaction. Since this is a method of decentralized transaction, all the transactions are available on the network for anyone to see.
In general, blockchain transactions provide a secure and transparent mechanism to transfer money without the use of middlemen like banks. Blockchain transactions may be confirmed fast and securely, and they can be finished in a matter of seconds or minutes by employing a decentralized ledger and digital signatures.
Top Blockchains for cross-border payments
You will lose count if you start to find blockchains for cross-border payments. There are tons of blockchain networks available for making cross-border payments. However, we have curated the top 5 trusted networks that are secure, fast, and specially designed for such transactions:
- Ripple (XRP): Ripple was designed to make global payments easier and faster. XRP is the native currency of Ripple. Ripple transactions are done in seconds, while a normal bank transfer can take hours or days to complete a cross-border payment.
- Ethereum (ETH): Ethereum is another very popular blockchain network that uses smart contracts to write transactions between buyer and seller. Ether or ETH is the native currency of the Ethereum blockchain and is the second biggest cryptocurrency in terms of market capitalization. Ethereum recently upgraded its network from PoW or Proof of Work to PoS or Proof Of Stake. This made Ethereum faster and more energy efficient.
- Bitcoin (BTC): While Bitcoin may not be the best currency for cross-border platforms, it is still in the top 3 due to BTC being relatively more stable than other currencies. Bitcoin is the biggest cryptocurrency in the world in terms of market cap and is also very secure due to its PoW algorithm. Bitcoin transactions are a bit slow compared to other cryptocurrencies, but with the introduction of Layer 2 platforms like Lightning Network, the transactions are done in seconds.
- Steller (XLM): Another blockchain network that focuses on international payments is Stellar (XLM). It is intended to make it possible to transact quickly, securely, and affordably between many currencies and payment systems.
- Bitcoin Cash (BCH): In order to offer quicker transaction processing times and reduced transaction fees, Bitcoin Cash (BCH)was created. It is a fork of the original Bitcoin. As it provides many of the same advantages as Bitcoin but at a lower price, it is frequently used for international payments.
You will find many blockchain networks offering low fees or some of them even offer zero transaction fees, but they are not reliable or secure to make global transactions. You must do your own research before making any such transactions.
Are blockchain transactions safe?
Yes, due to its decentralized nature, encryption, immutability, transparency, and efficiency, blockchain technology is a safe and secure way to conduct cross-border payments. The system is difficult to hack or manipulate due to the distributed and encrypted network, and an auditable and reliable record is ensured by the transactions’ immutability and transparency. Cross-border payments are more effective and cost-efficient because there are no intermediaries involved. For security and dependability, it is crucial to use blockchain networks that have been carefully developed and tested.
Conclusion
In conclusion, blockchain technology presents a positive approach to international payments. Traditional cross-border payment methods are complicated, costly, and frequently filled with fraud and mistakes. Blockchain technology provides a decentralized, transparent, encrypted network that makes it possible to send money quickly, securely, and affordably across borders. Blockchain can aid in lowering costs and raising efficiency in the global payments sector by removing intermediaries and offering a transparent and unchangeable record of all transactions.
However, it is crucial to employ blockchain networks that provide a high level of security and dependability that have been carefully constructed and vetted. As blockchain technology develops and becomes more sophisticated, we may anticipate the emergence of even more ground-breaking solutions for international payments and other financial applications.
Editor’s Note: Any financial information or opinions contained in this article are the author’s own and do not represent endorsement or support of any products, services, or strategies by SmallBizClub.com.
Author: Stacy Dubovik is a financial technology and blockchain researcher. She joined ScienceSoft in 2020, bringing in her expertise in large-scale digital transformation projects and practical knowledge of the finance domain. Stacy frames ScienceSoft’s service offerings and technology guides in corporate finance, BFSI, DeFi, and blockchain. She works side by side with business analysts, software architects, and developers to help create innovative solutions that bring unique client value. Stacy continuously monitors customer expectations and technology trends in the BFSI market and explores the newly-emerging fintech and blockchain products.
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