Blockchain Payment Processing

Traditional payment processing has been around for centuries. At first, all notes were made on sheets of paper,then, with the development of technology, digitalregistries. Later, with the advent of the Internet, another revolution was made that made it possible to transfer money worldwide through a computer. The latest revolutionary development in the field of payment processing is blockchain. Although initially this technology owed its popularity to the growth of Bitcoin, experts soon realized its potential. A boom in blockchain payment processing platforms is expected in the near future as more companies become aware of the benefits that distributed registries can offer the industry.

What is blockchain based payment processing?

Before moving on to talking aboutblockchain processing of payments, we will define the blockchain itself. A blockchain is a sequence of information blocks interconnected using cryptography. Its main advantage is that the transaction history is unchanged - that is, after an entry has been made to the blockchain, it can no longer be changed.

Now back to the blockchain processing of payments. This type of transaction processing, in essence, is built on a distributed registry, and this allows you to maximize the benefits of blockchain technology.

At the heart of all blockchain payment processing systemsdistributed data registries. Such shared registries collect, synchronize and verify all input data. Thanks to distributed registries, the blockchain remains decentralized, since all transactions are repeatedly confirmed by independent network nodes located around the world.

Payment Processing Industry

Payment processing is essential in today's worldin almost any field. Regardless of the type of activity or service provided, the exchange of goods for money moves the world economy forward. According to BNP Paribas' 2018 report (PDF), the number of non-cash transactions increased by more than 10 percent in 2016, reaching 482.6 billion worldwide. Payment processing activity is growing in all of the world's top 10 markets, including the United States, the Eurozone and China. The average number of transactions per person per year is also increasing.

UK Finance, in its report (PDF) on payment markets, predicts that by 2028 the volume of quick payments and remote banking services will double.

Given how fast the world is changing, inwhich we live in, the three most important qualities of payment processing for each user are security, speed and flexibility. Despite the significant development of traditional services in recent decades, processing and, most importantly, verification of transactions still require time.

Merchant Savvy forecasts sharemobile payments in the world by 2020 will increase from 15 to 28 percent. The study also reports that consumers are most concerned about the security of mobile payments: 40 percent of those surveyed fear the safety of their data.

Blockchain offers the industry a complete solution,possessing all the qualities that are most important for processing payments. Transactions recorded on the blockchain are verified in a distributed peer-to-peer (p2p) network, which significantly complicates the falsification of sending and receiving funds. In addition, thanks to smart contracts that help automate processes, transactions are completed in seconds. And finally, the blockchain processing of payments can be adapted to the needs of almost any type of service, which makes it one of the most universal options.

Lightning network

Payment protocol «second layer»,operating on blockchains (usually Bitcoin is used). Lightning is a network consisting of nodes and payment channels initiated between pairs of such nodes. Payment channels can be unidirectional (for example, to pay for goods in a store) or bidirectional. Each node blocks the amount it allocates for a given channel in the blockchain. Subsequently, settlements between these two nodes are carried out instantly and without commissions until the “channel depletion” occurs, that is, the amount blocked for the channel by one of the nodes completely (or almost completely) goes to the second. In this case, in order to continue settlements between the parties, it is necessary to either return funds in favor of the first node, or initiate a new payment channel between them. Thus, the Lightning Network increases the throughput of the blockchain by moving a number of routine small transactions beyond its boundaries and recording only two transactions in the main blockchain: opening and closing a channel, recording the final balance of the parties.

But the most interesting thing for users isin that, as the name implies, the above-described public (yes, there are also private) payment channels form a single network, as a result of which the new user Pete does not need to open his own channel for settlements with the user Masha, if their nodes are indirectly connected through the channels, open between other network nodes. That is, it is enough for users to connect to the network through any node to be able to send and receive transactions with any other users: Lightning Network smart contracts will build the optimal route for the transaction through existing channels. In this case, a small commission is charged in favor of the intermediary channels through which the transaction will go.

Lightning Network - Essential Decentralizeda solution to the problem of blockchain scaling (and, first of all, Bitcoin), which allows for almost instantaneous, cheaper and, more importantly, more confidential transactions between users. The Lightning network is developing rapidly, more and more crypto exchanges (including Bitfinex, Hodl Hodl, Zebpay, etc.) and wallets (including Electrum) are announcing its support, there are services for booking housing and payment, as well as new experimental scenarios for its use.

Ripple, Stellar and Ethereum

Ripple, Stellar and Ethereum are some of the most important alternative distributed registries. A distributed registry is the foundation of any blockchain-based payment processing system.

Ripple has developed its own processingxCurrent system, which attracted the attention of several world banks, including Turkish Akbank. xCurrent provides fast and secure transactions guaranteed by the Ripple blockchain and distributed registry.

Ethereum is an open platform offeringAn ideal environment for creating decentralized applications, including payment processing software. In addition, the Ethereum blockchain has its own native cryptocurrency, which also provides faster and more secure payments.

And finally, Stellar. This blockchain platform appeared relatively recently, however, it is perhaps one of the most promising payment processing environments. According to Traxalt, a leading provider of payment processing services, the Stellar blockchain has significant advantages over Ripple and Ethereum. Stellar's biggest plus is a significant reduction in funds transfer costs.

Traditional banks and blockchain-based operations

Traditional banks are still late in termsintroducing blockchain-based payment processing. This slowness of banks is largely due to the fact that cryptocurrencies and fiat money are something like antagonists.

Banks still don't show much desireimplement blockchains in their activities, as they are mainly used for the exchange of crypto assets. Nevertheless, the undeniable advantages that blockchain technology brings to the field of payment processing are so significant that banks will soon be forced to admit that the future of the industry lies with the blockchain.

Blockchain payment processing is notonly faster and more reliable, but also cheaper. This means that both banks and their customers will benefit from the use of blockchain technology. Therefore, the blockchain will certainly come to the banking sector, even if it happens a little later than in other areas. There are already a number of examples of banks using blockchain technology to accelerate international money transfers.

Implementation of blockchain-based payment processingcan open up endless possibilities for further improvement of the system. Assuming that all banks in the world agree to join a common blockchain platform for processing payments, their customers from any country will be able to send and receive money around the world in a matter of seconds.

Blockchain revolution

Now the blockchain technology is still onlyare being studied, but sooner or later it will revolutionize the processing of payment transactions. Many companies have already started using blockchain to optimize payment processes. This includes business relationships with suppliers, delivery and distribution. The blockchain makes it easy to track and execute various processes, while maintaining an enormous amount of data.

Thanks to this combination, blockchains are beautifulSuitable for processing business payments. Blockchains can store an almost infinite amount of information, which makes them a good solution for developing enterprises.

After a period of rapid growth of Bitcoin in 2016-2017. Blockchain technology is gaining ground in many areas of business and research.

Many industries are beginning to recognizebenefits of using distributed registries in terms of management, productivity, and cost savings. Examples are residue tracking and drug distribution, medical records, goods and food controls, or ticket reservations. Payment processing is one of those areas that benefit most from the blockchain, as this new technology covers all the basic functions of the platforms currently in use.

Posted by: Vargoz

Based on Nulltx.com Material