Payments, particularly those spanning international boundaries, are frequently in the spotlight as a primary application aspect of the blockchain sector. However, closer examination of the technology, market competition, and regulatory framework, the practicality of this notion appears to be less convincing. The recent introduction of FedNow by the Federal Reserve in late July offers a fitting opportunity to delve into the reasons why, for the majority of individuals and businesses, the prospect of utilizing cryptocurrencies or blockchains for fundamental payment services lacks strong appeal.
Even if I believe that the likelihood of blockchain payments replacing credit or debit cards is slim, there exist two scenarios where I see blockchain to have extra potential. The initial instance involves domains beyond the scope of traditional fiat currency. The banking system functions as an huge framework, excelling at efficiently and inexpensively handling huge financial transactions. But this framework operates within the currency domain. The brilliance of tokenization lies in its capability to extend the principles that banks apply to currency, such as the prevention of double spending, to encompass any valuable asset.
Blockchains and crypto ecosystems offer big benefits in various domains, but, facilitating fiat payments is not their best field. Primarily, straightforward and high-volume payments are more cost-effective and swifter when handled by centralisms. Blockchains contains intricate consensus protocols and encompass numerous nodes for distributing ledger data. So, whereas centralized payments swiftly navigate through a singular infrastructure, blockchain payments are duplicated across thousands of nodes, leading to differing levels of speed and cost contingent on network congestion.
Instead of pursuing a well-established incumbent payment system, blockchain and crypto enterprises could focus on grabbing opportunities where they present benefits for both consumers and businesses. The versatility and programmability in the blockchain ecosystem come at a cost, but they provide significant advantages as soon as any level of intricacy is introduced to a transaction, ranging from reconciliation to intricate business logic.
