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How the blockchain is revolutionizing cross-border payments
How the blockchain is revolutionizing cross-border payments
Blockchain

How the blockchain is revolutionizing cross-border payments

By Marco Cavicchioli - 18 May 2020

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The blockchain is starting to revolutionize the cross-border payments system. 

The reality is that the international payment system with classic fiat currencies has more than one flaw in this respect: cross-border payments are often limited, slow and expensive. 

For example, there is an initial problem with currency exchange when payments are made between countries that do not support the same currency. 

In such cases, it is often necessary to obtain the currency used by the recipient before making the payment, or to use an intermediary to convert the currency. 

These processes inevitably make the process slower, longer and more expensive, especially where intermediaries are needed. 

With blockchain payment systems, on the other hand, it is possible to manage everything without intermediaries, although there are not yet any systems operating on a large scale and with enough history behind them to be considered secure.

In other words, blockchain-based systems that allow multi-currency payments widely used nowadays are either centralized or require the intervention of an intermediary. 

However, thanks to DeFi and stablecoins supported by fiat currencies, for example, it would already be possible at a technical level to create a decentralized multi-currency payment system without intermediaries. 

These systems actually already exist, but so far they only involve a handful of fiat currencies and have too little history to be deemed secure enough to be widely used worldwide. 

For single currency payments, such as dollar or euro, or bitcoin or USDT, blockchain-based solutions are already available.

In particular, it is stablecoins such as USDT that enable fast, cheap and unlimited payments worldwide. 

Indeed, genuine cryptocurrency payments, such as BTC or ETH, are not yet particularly widespread, because they are not yet commonly accepted as a means of payment due primarily to their volatility.

But given the ease with which it is possible to exchange, for example, US dollars into USDT, stablecoins are more easily accepted and can move around the world as quickly and cheaply as any blockchain payment. 

For example, a USDT transaction on Ethereum takes about 14 seconds to be confirmed and costs on average less than half a dollar. This is always the case, regardless of who the recipient is or where they are. 

As a result, cross-border payments on blockchain become extremely competitive, compared to classic fiat currency transfers, and without the risk associated with the volatility of cryptocurrencies, since on average, 1 USDT for example is worth exactly 1 USD. 

In addition, there are also other stablecoins pegged to the dollar, or other fiat currencies, such as USDC or DAI. These are easily exchangeable for fiat currencies on the most common exchanges, so both those who need to make a payment and those who need to receive it should have no particular problem exchanging them for fiat currencies on a common public exchange, as long as they are able to justify the origin of the funds. 

According to Deloitte research, B2B cross-border payments on blockchain could lead to a reduction in transaction costs of between 40 and 80%, and could take on average 4 to 6 seconds to execute, compared to 2-3 days for standard processes. The tools to achieve this are already largely in place, and it may not be many years before they are implemented, making traditional ones completely obsolete. 

A very important step in this direction could be that of Libra, for example, which could make international payments to Facebook users easy, fast and cheap, but also Visa seems to be studying a similar solution. 

Therefore, many companies are already experimenting with these new technologies in order to reach, or even exceed, the goals set by Deloitte some time ago, while on the other hand, DeFi is showing that there could exist an almost completely decentralized international and multi-currency payments system even tomorrow. 

This is a revolution already underway, at an advanced stage of experimentation, although not yet ready to dominate the markets, however, it may not be long before this happens.

 

Marco Cavicchioli
Marco Cavicchioli

Class 1975, Marco teaches web-technologies and is an online writer specializing in cryptocurrencies. He founded ilBitcoin.news, and his YouTube channel has more than 25 thousand subscribers.

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