Blockchain is the solution required to tamper-proof payment proceedings in real life. Using distributed computer algorithms, it works as an open or shared ledger which can result in processing transactions with no use for third-party verification. The introduction of this technology is rather ironic. When it was revealed to the public in 2008, its initial function was to enable electronic cash transfer directly between users with the need to go through the banks, and this created a lot of drama between institutions as of that time. After eight years, it is now championed by most institutions, and the technology behind bitcoin is used to improve the bank’s financial and operational services.
In this blog, we are going to be looking at the history of blockchain, what a blockchain payment system is, and how it works.
The history of blockchain
To first understand what a blockchain payment system is, we have to dig into the history of the blockchain as a whole. David Chaum, a cryptographer in 1982 first introduced the concept of a blockchain-like protocol to his essay “Computer Systems Established, Maintained and Trusted by Mutually Suspicious Group”. A more comprehensive explanation was given in 1991 by Stuart Haber and W. Scott Stornetta. They needed to use a system where document timestamps could not be touched or changed. Later in 1992, Stornetta, Haber, and Dave Bayer added Merkle tries to their idea which improved their previous work by making several certificate documents to be stored in one block.
In 2008, the first computerized version of the blockchain was created by Satoshi Nakamoto and he improved on the design using a hashcash-like method to put a timestamp on blocks without needing the help of a third party. He also found a way of stabilizing the rates at which blocks are included in the chain. This design made by Satoshi was created as a core component for the rolling out of the first cryptocurrency bitcoin. In 2014, the blockchain file size of bitcoin which included all the information and records of mining, transaction, and exchanging reached 20GB. Few months after that, the file size grew again to 30GB and in January of 2016 and 2017, the file size grew to about 50GB and 100GB respectively. By the beginning of 2020, the size reached about 200GB.
Initially, the words block and chain were used separately in Nakamoto’s whitepaper but later in 2016, this was changed to be a single word, blockchain. About Accenture, the application of the theory of diffusion of innovations states that this technology has an adoption rate of 13.5% in monetary services during 2016. This means that blockchain technology reached the early adopter’s phase hence industry trade groups came together to create the global blockchain forum, an initiative of the chamber of Digital commerce in 2016.
What is a blockchain payment system?
Before diving into switching to a bitcoin payment system, you need to know how payment systems work. A payment system is a system that is used to settle and process a financial transaction through the transfer of monetary value from one point to the other. This includes people, instruments, rules, organizations, institutions, standards, procedures, and technology that makes monetary exchange possible. For example, a person may try to make a payment or initialize a transaction and the payment system makes this possible.
So, what is a blockchain payment system?
A blockchain payment system is a system of promising technology that helps individuals make and process transactions involving cryptocurrencies. Block gain payment system gives underbanked individuals access to monetary value which is known as cryptocurrencies and then the services provide a way for them to send out these values to other people while using smart contracts to ensure its safety and speed. Countless businesses offer blockchain payment system services, and they also convert the transactions carried out into any currency you want.
How does it work?
Most established blockchain payment system functions and process mostly bitcoin payments. Some of them are designed for just small businesses who want to collect and process transactions in bitcoin. But other blockchain payment systems can be used at a larger scope by using the blockchain technology bitcoin makes use of to transfer other unconventional cryptocurrencies. This gives them the ability to skip the traditional banking structure to reduce costs and speed up payment. The system converts the payer’s cash into bitcoin, which then later converts the bitcoin into the receiver’s traditional currency. Hence payment can reach speeds from one to three days.
Should you switch to a blockchain payment system?
The current traditional financial system is very difficult at the moment and this difficulty results in risks. A blockchain payment system made of a decentralized financial system can make payments much easier by getting rid of the layers of intermediaries that crowd the traditional payment system. It is one of the weapons we have to fight against risks in the current payment system and by also sending and receiving money in various ways, we may come across the probability of having countless financial products.
Blockchain technology could allow the financial system for people who are one way or the other excluded from it by lowering borders or boundaries and triggering payment competitions amongst organizations. Payment regulators would then restructure the financial system by finding the best possible ways to achieve policies without diminishing the standards. Systematic risk can be drastically reduced and regulators, users suffer from opacity. Researchers found out that making a payment system more transparent induces trust and reduces the cost as well as the intermediary chain for its users. If you would like to know more about the technologies of such payment systems, we invite you to visit websites like Elly.com, where you can read more about the type of technology products that could actually help your business substantially.