Crypto began as a whitepaper, titled “Bitcoin: A Peer-to-Peer Electronic Cash System”. Within it, the 2008 paper written by Nakamoto promised a digital currency that would be secure, efficient, and without the need for intermediaries.
Since then, crypto has mostly descended into a financial nihilism that has reduced the currencies to a speculative asset – a get-rich-quick scheme. Unfortunately, this has produced such volatility that it’s gotten in the way of legitimate attempts to create new online payment infrastructure.
It’s not that the blockchain has failed so far, but the market frenzy that’s happening over the top of it. And, although crypto is used for payments by an audience that seeks out certain areas of retail, it has essentially not gotten off the ground yet.
Implementing Blockchain into Digital Payments
One of the more realistic ways to create a blockchain payment system has been to create one from the top down, rather than bottom up. Major financial institutions like JPMorgan Chase have launched blockchain-based payment platforms like Onyx.
While it’s not quite what many visionaries envisioned, Chase has given legitimacy to a bank-led blockchain solution that uses smart contracts to facilitate safe translations. Plus, JPM Coin is a US-dollar-backed stablecoin created by JPMorgan that, at least to many, appears more stable.
Whether or not the project is run by a large intermediary, it doesn’t necessarily mean the payments must go through them. Truly decentralized systems are still achievable, and the technology is more important than the provider. Similarly, best new online casino sites are integrating blockchain technology to offer users enhanced security and transparency in their transactions. These platforms leverage cutting-edge payment systems, providing an advanced and secure gaming experience that reflects the broader adoption of blockchain in digital finance.
Zero-Knowledge Proofs and Decentralized Identity
One of the most important emerging technologies are ZKPs, which aim to boost privacy. It’s a cryptographic method that allows one party to prove to another that a given statement is true, all while not revealing any information beyond the validity in and of itself. So, ZKPs can verify transactions without giving away sensitive information like account balances.
Ethereum is one of the leading blockchain platforms, and they are currently integrating ZKP to improve their privacy and scalability.
Meanwhile, Decentralized Identity (DID) is helping user authentication when it comes to practical digital payments. DID allows individuals to have full control over their personal information, all while providing verifiable credentials for transactions. Both of these solutions are what is needed to edge closer to implementing the blockchain into mainstream digital payments.
Data Security, Compliance and Automation
One of the biggest barriers when it comes to digital payments is that it’s one of the most regulated sectors in the world. To prevent things like money laundering and fraud, there are robust hoops that providers must make customers jump through.
Smart contracts can help with this. They’re able to perform tasks automatically, such as real-time verification and transaction monitoring, against a predefined set of rules. Certain risk thresholds can therefore be flagged immediately. But this technology can be very fast too, which can significantly improve customer experience, as KYC checks are a large obstacle in allowing customers access to a service, often waiting days.
Smart contracts can also help regarding data security, as they can help standardize the sharing of KYC data between different institutions. This creates a more updated customer profile and a fully immutable audit trail.
Interoperability
Perhaps the last piece of the puzzle for blockchain to become more accepted into online payments is interoperability. Currently, there is an issue with products and services being made for their own provider and nobody else – a lack of integration.
Blockchain opens up the door to better interoperability, with projects like Poladot and Cosmos developing cross-chain communication standards. Information can therefore be exchanged between networks. Wrapped Bitcoin (WBTC) is a good example of interoperability, as it allows Bitcoin holders to participate in Ethereum’s extensive DeFi ecosystem without selling their BTC. This solves the issue of having many different currencies to the point where it highlights global FX frictions. This also boosts the liquidity of the market, making it more efficient.
Final Word – Keeping Data Safe
Data management in the financial sector is a contentious area due to the sensitivity of the data. Projects like Filecoin are helping create blockchain-based storage, where platforms can distribute data across many different nodes. In simple terms, this eliminates single points of failure, and thus reduces the issue of data breaches.
Ultimately, the success of blockchain-based digital payments will lie in whether it can offer a more secure solution to financial data and compliance, all while maintaining high levels of interoperability.
Brought to you by Harry Jones
