New technologies based on the development of encryption systems and network computing can potentially become a decisive factor in changes in the global economy. An important phenomenon in this process was the emergence of cryptocurrencies and the underlying distributed ledger technology (blockchain).
Blockchain is the latest technology, interest in which is growing along with the popularity of cryptocurrencies. They are trying to use this technology in many fields of activity and are already trying to use it for storing and processing personal data and identification, in marketing and computer games.
The use of the revolutionary blockchain technology in money transfers significantly reduces transaction fees and accelerates the speed of cash flow, especially compared to the long-outdated interbank transfer system.
Remittance, in fact, is a money transfer from one country to another, most often by individuals. The most common example is an immigrant sending money to his native country. Or it is remote workers who receive transfers from companies from developed countries for which they work remotely.
Actual problems
The central challenges facing banks, exchanges, governments and international organizations are consumer protection and money laundering prevention. The amounts per year can reach hundreds of millions, which is a very large amount, especially for developing countries. According to the World Bank, the average worldwide commission for sending a small money transfer (within $ 200) is about 7 percent. And if we take into account that in 2019 the total value of such transfers amounted to 689 billion dollars, then intermediaries were able to enrich themselves by almost 48 billion.
Third, third-party services. All of them not only take their part of the commission, but also require a certain amount of time to confirm transactions. In the worst case – up to several weeks. And it happens that in developing countries intermediaries can dictate their terms to users. From this point follows another problem - the speed of transactions. Fast delivery of funds to another country may be difficult due to all the above points.
And only an established system with modern and unique characteristics, such as there is in the blockchain, can set up the process.
Why blockchain?
It is obvious that the use of decentralized financial systems based on blockchain can seriously improve the current situation. Therefore, it is necessary to constantly adapt legislation to developing business models.
But why can blockchain be a solution to the problem?
The answer is simple - knowing all the qualities of the blockchain and the way this technology works, we can immediately assume how it will help. It can be said, that the problem with the speed of transactions is solved automatically – there are no unnecessary confirmations and approvals. Of course, this means that any transfer will be irreversible, but for many it is an acceptable risk. Plus, everything happens without the participation of human operators (third parties), so the speed of such transactions is extremely high.
The absence of intermediaries means that transactions will be much cheaper.
Transparency of all information stored on the blocks gives confidence that everything is fair, money laundering does not occur and such information is unchanged and will be stored in the system for a long time. Therefore, at any time you can track what, when and where it was sent.
So in general, the main problems of international money transfers will be eliminated.
Solutions
Let's move on to how solutions to problems are already being implemented using blockchain technology. After all, the introduction of blockchain technology allows you to take a fresh look at the existing structure of banks. The following are active and successful projects of the financial sector that contribute to the ubiquity of blockchain and cryptocurrencies. For example, Circle company became one of the blockchain companies included in the list of the most innovative fintech companies of 2019 according to Forbes.
Among their developments is the technology of P2P payments. One of the company's main products is the Circle Pay platform, which allows users to store, send and receive traditional funds.
The Robinhood company.
The Robinhood Crypto platform, released in early 2018, allows users to buy and sell digital currencies such as Bitcoin, Litecoin, Ethereum, Ethereum Classic, Bitcoin Cash and Dogecoin. Immediately after the launch of the application, more than 1 million users joined it. The high popularity of the application can be explained not only by the lack of commissions, but also by the low level of entry.
Along with Circle and Robinhood, Veem is also worth mentioning.
Veem is a P2P payment platform created for small businesses. The company's goal is to simplify cross-border electronic transfers and payments to suppliers and contractors.Companies usually use Veem to avoid complex processes that arise when contacting a bank. Customers can quickly make payments through the Veem website, and the system decides on its own which transfer method to use — the client will never know whether he uses blockchain or another method.
And of course Ripple.
This system is a cryptocurrency platform for payment systems. This global system allows you to instantly transfer almost any currency to anywhere in the world. One of the main advantages of the network is that the transaction processing time is only 4 seconds. The system is also well scaled and can process about 1500 transactions per second. To carry out transactions, Ripple uses its own blockchain network — RippleNet. At the moment, more than 200 banks and financial institutions have already joined the network, including Union Credit, UBS, Merrill Lynch, Santander, SED and others.
Bottom line
The prospects for the use of blockchain technology are quite optimistic, we see positive results already now. Blockchain has every chance to change the banking sector beyond recognition by making transfers and payment transactions faster, cheaper and more reliable.
