• Jaime González Gasque

Blockchain provides the technology that could revolutionize the means of payment


If you follow the news of FinTech, cryptocurrency, Ethereum or Bitcoin, you have probably heard the word “Blockchain”. There are many news about Blockchain, and blogs that try to explain what it is about. But you are probably confused by all the technical words they use.

Today, we are going to explain What is Blockchain? in the simplest way possible. Blockchain is a type of DLT (Distributed Ledger Technology) is a technology that records transactions in a database managed by different entities or nodes. DLT works without a centralized authority, meaning that the data is located and stored among multiple users in different locations.


Traditional registries use a centralized system, where a central authority has all control over user data and transactions. Blockchain is NOT the only type of DLT. There are other types of DLT like DAG, Hashgraph, Holochain, etc. But it is very important to remember that Blockchain is a type of a DLT. A distributed ledger technology.


Blockchain?


Going back a bit, now we are going to explain why this technology is called “Blockchain”. "Block" or the block refers to "packed" data and the "chain" or chain, refers to the record (database). Blockchain blocks, as we have said before, are the digital information of a transaction. When you buy a book, the block can record information such as


・ The transaction date (Purchase Date)

・ The transaction amount (Book Price)

・ The transaction time (Purchase time)

・ Transaction recipient (Who receives the money)

・ Issuer of the transaction (Who pays the money)


Each transaction will have a "Hash", or a unique code to identify each transaction. The "Hash" are cryptographic codes created by algorithms. Generally the blocks can record several transactions depending on the type of Blockchain. For example, the blocks of the Bitcoin Blockchain can record 1MB of information. The "Chain" of Blockchain refers to the record, or the combination of the blocks.


How does the "Blockchain" work?


The blocks, as we have said before, are the transaction data. And the "chain" is the register, the combination of the blocks. When there is a transaction, we need to verify that this transaction is true. In a centralized registry, generally the authorities will verify this transaction. For example, in a library, the librarian will check whether the books are returned or not. In a Blockchain system, the computers will do this verification process. For example, when you buy a guitar from your favorite online store, the computers (not only yours, but ALL computers on the network) will verify if you have really paid, and if you have received the product. When the transaction is confirmed, the data (the time, the date, the amount, the product) will be registered in the block. Each transaction has a "Hash" the unique code of the transaction, to identify this transaction. The block will always have the hash of the previous transaction and the verified transaction. So the blocks are in order. The digital transformation has taken over the different areas of the economy, and commercial transactions, of course, have not been the exception. Here electronic payment methods, especially with the pandemic, have taken off without turning back. A market in which Blockchain has burst into force, promoting changes that point to new paradigms and are projected as the future.

Is the traditional financial system prepared for the irruption of new digital means of payment?


It has all the tools at its disposal to be able to face the emergence of electronic means of payment, it is relatively easy to obtain the technology and the costs are more than accessible. The most important challenge for companies in the traditional financial system is to change the existing paradigms seeking to add greater value to their clients. If you look recently, several banks are already innovating in terms of payment methods, entering a more digital world. As an example, we can mention: Bci with MACH, Bank Santander with Superdigital, among others.


How does the arrival of Blockchain affect the electronic

payment market?


This is an exciting topic wherever you look. Clearly, when talking about Blockchain, it is tempting to focus on it only as a means of payment, however, it is a technology with many other very interesting use cases. There is an introductory book of one of the Blockchain referents worldwide, in which a play on words is made, in my opinion, very good; the author mentions that Bitcoin is the 'Internet of money' and 'not money on the Internet'. This game seems very nice to me, but it clearly marks the objective that is pursued with some of the cryptocurrencies, such as Bitcoin, whose purpose is to replace paper money and the paradigm behind it, that is, it is to change the standard, and connect faster and smarter, lockable, secure, etc. The Blockchain provides the technology that could revolutionize the means of payment, banking, insurance, foreign trade, etc. It gives users not only the possibility of having an account to carry out transactions, but also of creating a bank, insurance, a means of payment, etc., which makes it one of the technologies with the greatest power of disruption for various markets and, of course, electronic payment. What changes can be observed in this regard? It is complex to be able to make predictions. Let us understand that this technology was made available in 2009 after the subprime crisis. From that moment until 2017 we could see that the currency market had more than 1,300 cryptocurrencies with various functionalities, currently there are more than 5,700 cryptocurrencies, with Bitcoin as the main one in market value. This is in addition to the actions of various countries such as China, which in 2019 made the decision to digitize the Yuan and focus on Blockchain as one of its main state investments in technology, which generated movement in other countries. That is why the US is discussing a possibility similar to China. This is pushing to seek regulations for cryptocurrencies, including the creation of a Central Bank of digital currencies, which is seen as a very interesting debate, since many of the cryptocurrencies what they seek is precisely to free from all types of regulation , which at some point is about the paradigm they intend to break. On the other hand, there is a sustained growth in the fintech industry, and that can give way to a greater use of Blockchain and endless possibilities. It's like QR codes: at first everyone went crazy talking about them, they had their downfall and it was even thought that they would never come back, and today they are on the rise. We will see something similar with the Blockchain, where there are two issues to be solved: education, that is, that people really understand what it is about and the possibilities it brings, and that it becomes normal. The latter is the most complex and reminds me of Nikola Tesla and the use of ionosphere energy: it is too spectacular to be true, but it is real, and it came for us to implement it.


What advantages and strengths can Blockchain bring?


Depending on the type of payment that is intended to be made, it can generate different advantages, for example, in the case of international payments or movements of funds, a traditional movement can involve many days and important costs; and this technology can offer almost instantaneous movements of funds at really very low costs. When one looks at the use cases for small payments, it becomes a little more complicated, however, the development ecosystem is large and is in a permanent search to improve technology, with which solutions appear to be able to make this type of micro-payments of very agile way and at very competitive costs. One of the strengths of the Blockchain is its traceability, since all transactions, once validated, are registered and maintained on the chain.

Does blockchain print competitiveness to the payment market?


Clearly the emergence of this technology is key to the payment media market, although I'm not sure if the risk is just lower margins, or rather the total change in the rules of the game. It's like wondering if Netflix's entry will make the video store market more competitive; Perhaps in its beginnings it may have been a factor, today what we see is that the video rental business no longer exists. With this I do not want to be apocalyptic, however, the function that many cryptocurrencies are looking for is not to digitize money, but to replace the paradigm; that the value of the currency is backed by cryptography and digital technology, and not by a series of technicians who define monetary policies.


In your opinion, is Blockchain the future in payment methods?


It is a very interesting question. I would say that it is the future in many things, not only in the means of payment. In the 90s when the expansion of the Internet began, one might have wondered if the web would be the future of the newspaper or magazines, however, the potential of the Internet was far beyond the publication of content, with Blockchain something similar happens. We can talk about the fact that many of the means of payment in the future will be supported by this technology, but we can also think of property records of registrable goods with the same technology as support, among a myriad of functionalities and utilities. It is important to note that these technologies do not work alone, but are enhanced with others. Thus, for example, the hyperconnectivity offered by APIs today, the existence of well-orchestrated fintech and open banking, play a relevant factor for development and innovation.


PwC. Price Waterhous eCoopers Consultants Auditors

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