Why Are Blockchain Transactions More Efficient?
Developing blockchain applications is a complex undertaking, but understanding the potential impact of this revolutionary technology doesn’t have to be.
Most people are familiar with blockchain technology in the way that it has been applied to cryptocurrencies, which is essentially about building infrastructure to allow for decentralised transactions that don’t involve an intermediary (like a bank).
While many of us are still getting our heads around the volatility of certain cryptocurrencies, have we really thought about how blockchain can be applied to even the most simple monetary transaction, with normal currency?
To do that, here is a brief breakdown of why blockchain is such an important technology to consider right now, especially when it comes to payments.
The key element of blockchain technology is the fact that transactions can be made independently of larger legacy organisations, which traditionally slow down the value exchange process due to the number of steps that need to be taken to approve a transaction.
To get an idea about how powerful blockchain technology is, it’s helpful to understand how many steps are currently involved in transferring money.
For example, when you’re making a transaction through a bank, sending or receiving money transaction within the same banking infrastructure might not take that long. But, when you’re trying to make a transaction into an account at a different bank, this can take a while.
Why?
As SovTech Client Manager Dilo Iizyenda says:
“The reason bank payments so long is because the current system in place is no longer compatible with the innovative solutions of today. The accounting principles and anti-fraud measures put in place also add to this timeous process as transactions go through multiple checks before they can be completed.”
With blockchain technology, the payment process will be so much quicker because so many of these checks and steps will be taken out. But how?
With smart contracts, the process of transferring funds can be radically improved, by setting up the kind of infrastructure that allows the receiving body to see exactly where the money is coming from and to authenticate it at the same time.
To expand on this, here is what Iizyenda had to add about how blockchain can improve the efficiency of payments:
“By facilitating transactions through a peer to peer function, a lot of the inefficiencies created by the current bureaucratic system can be removed, offering consumers lower transaction costs and a faster processing system. Blockchain technology also offers trustless execution as a counter to fraud and capital controls through smart contracts which will operate autonomously”.
This kind of efficiency, and autonomy, especially when it comes to transferring funds internationally, is groundbreaking when you consider how much time and energy is currently spent on navigating and negotiating currency exchange rates.
It’s one thing to talk about the potential of blockchain, but how successful are these kinds of applications in practice at the moment?
To get a better understanding of the potential use cases of blockchain technology when it comes to payments, SovTech Lead Solution Architect Roland Wamara had this to say about the value and impact of blockchain technologies:
“Considering payment as an exchange of value, I believe the beauty of blockchain payment is the diversity that it provides, which goes beyond the means of monetary value, as peer to peer value exchange can be implemented via smart contracts with the help of oracles (entities outside of the chain).
For instance, if an individual owns a property in Malawi and would like to buy a property in South Africa, he/she can exchange property with someone else who wishes to buy the property in Malawi, considering the value matches. Title deeds executioners can play the role of oracles. This exchange of value can occur without the need of cash transactions.
Project Ubu (a SovTech product), is another good example, because by sending value directly into the beneficiary’s hands (via mobile phone), third-party providers are no longer needed. This solution can also be exported to non-profit organisations in charge of distributing goods to those in need.”
If we look at the potential of blockchain technologies, it’s clear that decentralised technologies will have a dramatic impact on the way we do business, and make all kinds of transactions. In reality though, entrenched infrastructure means that blockchain technology might take some time to be implemented to its full potential.
Nevertheless, thinking about how blockchain technology can dramatically reduce transaction times is definitely something to get excited about, especially when it comes to growing a business!
