For credit card
payments, the charged amount is shared between two intermediaries — namely the
card issuing bank and the card network, e.g., Mastercard and Visa. In online
shopping, the fees go to the e-wallet provider. People who pay with cash incur
costs when withdrawing money from their bank account.
technology seeks to eliminate these intermediaries by decentralizing money and
enabling transparent and anonymous peer-to-peer transactions. Simply put, the
distributed ledger technology is providing a platform where third parties such
as banks and other financial institutions are not needed in order to exchange
value. With intermediaries being nudged out of the game, transaction costs could
become a thing of the past.
While the idea
behind decentralized payment systems is a noble one, the pioneer
blockchain-powered payment solutions face significant challenges, among which
are scalability and volatility.
scalability, blockchain platforms such as Bitcoin and Ethereum have been
painstakingly slow, with the former allowing seven transactions per second and
the latter supporting roughly 15 transactions per second. This means that with
payment methods such as Bitcoin, there can sometimes be a need to wait as long as 16 hours for a transaction to be processed. The
slow transaction speeds are indicative of the resources required to facilitate
the transactions and often translate into high energy consumption.
with blockchain-based payments is that most cryptocurrencies are highly
volatile and therefore not fit to serve as media of exchange. No one wants to
hold money that can drastically change in value within seconds unless doing so for
price speculation. This explains why most cryptocurrency holders are short-term
speculators, attracting to the space even more speculators rather than
long-term users. However, all is not lost, given the rate at which new
solutions are being worked on.
For instance, Ripple can now process over 1,500 transactions
per second and can scale to handle the same throughput as Visa. Its main goal
is to enable smooth and less costly cross-border money transfers between
financial institutions, digital asset exchanges and corporations rather than
day-to-day transactions by the average person.
Stellar is another
highly scalable cryptocurrency with the capacity to facilitate over 1,000
transactions per second. However, just like Ripple, Stellar is targeting
cross-border transactions with a focus on payment systems and banks. Also, it
is highly volatile and therefore not fit to be a payment option for day-to-day
Perhaps the project
closest to addressing the issue of scalability and volatility simultaneously,
while focusing on day-to-day transactions, is the Singapore-based company Tosblock. In terms of scalability, the project can
process over 1,000 transactions per second, making it a good candidate for
retail and commercial payments.
Tosblock is targeting
crypto volatility from a unique angle. It has separated between the investment
function and the medium of exchange function by introducing two coins, namely
TOSC and TOSP, giving TOSC all the characteristics of traditional
cryptocurrencies and making TOSP usable in payments exclusively, tying its
value to fiat currency.
This means that
users can buy TOSC for speculative purposes and convert their holdings to the
supposedly more stable TOSP or fiat currency. TOSP is as stable as the fiat currency
backing it and incurs very low commissions when used as a medium of exchange.
Even though TOSP
dependence on the fiat system does not sit well with most blockchain
enthusiasts, it is one of the closest examples that cryptocurrency has to being
accepted as a payment method for the masses.
This is just the
beginning, and there are high hopes that in the near future, crypto will be
able to maintain stability without having to depend on traditional
systems. The journey to blockchain-powered payment systems is on course,
and with new solutions and innovations being brought to the space, it's
possible that in the near future, we won't have to depend on costly
intermediaries to facilitate transactions. Undoubtedly, projects such as
Ripple, Steller and Tosblock are just the beginning of better things