By now it is clear that blockchain technology is here to stay. Some countries are more lenient towards it while others have stricter regulations (cue China). The blockchain market is set to experience substantial growth in the coming years and is estimated to expand to $69.04 billion by 2027 at a CAGR of 56.1%.
The implementation of blockchain technology in the payments industry is a particular use case of interest and one of the most important for the continued growth of the blockchain industry and its wider acceptance.
Blockchain as an instrument of reducing costs of crypto payments
Giants like Microsoft, Coca-Cola, McDonald’s, Starbucks, PayPal and Expedia have integrated crypto – Bitcoin (CRYPTO: BTC) in particular- into their services. El Salvador’s acceptance of Bitcoin as legal tender is a reason to celebrate.
Talking of global finance, banking organizations like JP Morgan and Goldman Sachs are offering crypto-related services (including payments) to their clients. JP Morgan for example created a digital coin called JPM Coin for instantaneous blockchain-powered payments. It is about time we recognise the potential of blockchain in global finance and explore its applications.
One of the most important applications of blockchain in years to come will be in driving cost reduction of payments and in particular, cross-border payments. According to a report by Juniper Research, implementing blockchain for cross-border payments will lead to significant savings for banks – mounting from $301 million in 2021 to $10 billion in 2030. Of course, there are certain pros and cons that we must take into consideration.
What are the pros and cons of blockchain adoption in global finance?
The deployment of blockchain in cross-border payments will help stakeholders leverage greater transparency, traceability and cost savings. The use of blockchain for cross-border settlement guarantees quick, secure and cheap payments. Countries with high remittance volumes, like the U.S and China in particular will benefit from this move.
According to the same report, an estimated 2 billion blockchain-facilitated cross-border transactions will take place over this decade. Of course, shifting from legacy systems to blockchain-based infrastructure is not easy but there are several players in the market that are working on offering flexible infrastructure to implement blockchain for crypto payments.
We can expect global acceptance of blockchain in global finance when there is proof of cost savings through blockchain and available infrastructure that can be seamlessly integrated into existing financial systems. While the goal is to replace legacy systems, it is important to understand that the transition will take time and will cost a lot of money.
CBDC technology will play an important role in the shift from legacy systems to blockchain infrastructure.
Using blockchain in payments: what will it bring for the industry?
Using blockchain in payments and CBDC technology, in particular, will lead to the rise of many possibilities. CBDCs are a solution for the unbanked and an instrument to bring greater transparency and traceability into financial infrastructure. Governments will be able to track and reduce money laundering and illegal financial activities.
Fast, reliable and cheap payments are a given. In fact, one of the many reasons why El Salvador accepted Bitcoin as legal tender was to facilitate cheap and quick cross-border payments. While Bitcoin is not the standard for cross-border payments, blockchains like Ripple certainly are – the Ripple team is actively working in this direction.
With blockchain, instructions can be built into transactions. For example, you could program a transaction to execute on a particular day if certain criteria are met. It is safe to say that the possibilities are endless.
China is working on CBDC technology and we could see the widespread use of CBDCs in the coming years, with countries like China and Sweden positioned as global pioneers. Using blockchain in payments will further enhance the credentials of the blockchain industry and hasten its global implementation.
Blockchain is a technology that has a great chance of transforming financial services on a global scale and we are already seeing movements in this direction. While the shift from existing legacy systems to modern blockchain infrastructure will be a gradual one, the blockchain industry is poised to grow considerably during this transition.
Using blockchain in payments guarantees quick, secure and cost-effective payments in a transparent manner. CBDC technology is likely to spark a major shift in global finance, as e-payments and related technology are garnering more interest.