Written by Edward Jackson, Co-Founder at AlliedBlock.com
Bitcoin has been popularised as the world’s first decentralized payment network. A vehicle for peer to peer transactions without the intervention or requirement of a centralized authority since the network itself provides the required trust. Underlying the noise of the dizzying heights and crashing falls of this financial vehicles rollercoaster value is the underlying technology of blockchain. Blockchain and the Bitcoin use case sitting on top of it have the ability to offer financial services in a very innovative way which has the potential to disrupt some of today’s common practices .
One such practice is cross border money-transfer. There are pain points in the way this service is currently performed. The pain points make up the usual suspects of financial service headaches including: long process procedures, excessive transfer times and excessive fees. Despite these pain points, this service has grown in use over the years as more and more consumers require the ability to send money to friends and family living abroad. In 2015, the entire cross-border payment network transferred over $150 trillion in value. Clearly there is a need for the service. But, there certainly isn’t a need to pay $35 to send an international wire and then have the receiver pay an additional fee upon receipt. And, there definitely isn’t a requirement for it to sometimes take weeks for the money to actually reach its destination.
Looking at the ‘as-is’ cross-border payments system, you can clearly see the inefficiencies. Right now, payments are routed through a network of banks that apply the SWIFT messaging protocol for transactions. Each bank charges fees for every transaction executed which causes the high cost. Along with additional fees, the more intermediaries there are in the process the longer it takes for the transaction to actually work.
Now, blockchain comes into the picture. The technology has the ability to reduce transaction cost and provide speed and transparency to the cross-border payments network. Lets take a close look at Bitcoin. Bitcoin by nature is Global. Value can be exchanged between two neighbors just as easily as it can be exchanged between two people living on different sides of the planet, Bitcoin doesn’t discriminate and sees absolutely no difference between those transactions. Bitcoin also has no intermediaries; once the transaction is sent and verified it’s complete. This new process of transacting reduces time and cost compared to all current cross-border payment systems.
A unique real world application example is Banco Masventas (BMV) which jumped into Bitcoin earlier this year and rolled out a remittance program through which bank customers can send remittance to 50 countries within 24 hours with no involvement of international banks as intermediaries. This move significantly reduced fees and time on all international remittance transactions.
Bitcoin and Blockchain allow for the exchange of token payments outside of the SWIFT messaging protocol and instead use real-time cryptographically secured transactions on a fully decentralized peer to peer network. Initiatives taken like that of BMV in Argentina represent strong proof of concepts but there is still a ways to go to fully take advantage and adopt blockchain in this arena. Stability of value is a cornerstone requirement for real adoption and Bitcoin has remained volatile across it’s now decade long history. There are many projects and initiatives in the blockchain space that are innovating to solve these problems. The foundational elements are in place now let the technology evolve and lets see where we land, disruption is certainly on the horizon for international money movement.
AlliedBlock is a global blockchain research and development firm that is focused on delivering tailored blockchain development solutions. Contact us to learn more about how we can help you tailor a blockchain solution for your business (www.alliedblock.com).