What Is a Blockchain-Based Global Payments Network?

Financial transaction between two people

The internet age has brought with it a massive amount of new digital currencies, often coined (pun intended) as cryptocurrencies, which has spurred the innovation of blockchain-based global payments networks. While moving money from point A to point B doesn’t require too much legwork with matching currencies in the same country, it can get messy when stepping outside of those bounds.

So, what is a blockchain-based global payments network? A blockchain-based global payments network is a decentralized payment system that facilitates payment messaging, clearing, and settlement for cross-border fiat and digital currency transactions in a single network.

While a blockchain-based global payments network may seem a bit overkill for an everyday transaction, like buying coffee or paying your phone bill, we all know that moving money from one account to another can take days even when the accounts are with the same bank. Blockchain-based technologies can help improve these processes on a local as well as a global scale, which can save everyone time and money.

Benefits of a Blockchain-Based Global Payments Network

Apart from having given the world Bitcoin, a blockchain can be used in any system that needs to keep track of transactions between parties in an efficient, verifiable, and permanent way. When you think about it, everything we do on a daily basis is a transaction of some sort whether it’s paying for groceries, investing in your retirement, or promising you’ll do the laundry.

If you’re unfamiliar with blockchain technology, it’s essentially a database that stores a set of records in what are known as blocks. Blocks are created periodically and contain a reference to the previous block, a timestamp, and the set of records stored at that time. This creates a set of blocks that are linked together, thus a blockchain.

The culmination of all the records stored in a blockchain produces a ledger, which is shared among all of the distributed network participants. Only records that have been validated by multiple participants in the network can be added to the ledger, resulting in a decentralized, trust-free (i.e, trustable) database. Since everyone has a copy of the ledger, no single participant can destroy it or fraudulently alter its records.

Now that you have an idea of what a blockchain is, you can probably see why a blockchain-based global payments network would be useful. By ensuring transactions are properly recorded and validated, we can focus on more interesting tasks instead of making sure money that’s owed is paid.

A major benefit to having a blockchain-based global payments network is the ability to settle and clear transactions all in one network. On top of that, it’s possible to support all types of currencies; fiat and digital. This can simplify the entire transaction process tremendously.

Settling transactions across multiple currencies of different types means being able to seamlessly convert fiat to cryptocurrency and vice-versa. With new digital currencies entering the global financial system, having a global payments network that can handle them is essential.

One of the biggest headaches of transferring money from one place to another is how slow it can be. With a blockchain-based global payments network, the amount of time a transaction can take is similar to performing a cryptocurrency transaction, which can take minutes if not seconds. As the saying goes, time is money.

As the global economy becomes more collaborative, more people will need access to more inclusive payment processing methods. Blockchain can help provide a more open financial infrastructure to allow unserved people all over the world to participate in the growing global economy. This means more participants transferring value all across the globe.

Giving more people access to the world economy through a blockchain-based global payments network means removing inefficient and unnecessary financial gatekeepers that just add friction to the process. By removing these fee-collecting barriers, costs can be reduced substantially allowing everyone to save.

One important point in removing barriers to producing a more inclusive global economy is that it won’t work unless the process is honest, transparent, and trustworthy. Through the use of a decentralized ledger that’s multi-party validated, transactions and exchange rates between currencies are set in stone once agreed upon.

IBM Blockchain World Wire and Stellar

With the ever-increasing speed at which the global financial system is evolving, IBM has upped the ante with Blockchain World Wire; the world’s first-ever blockchain-based global payments network that facilitates payment messaging, clearing, and settlement in one network. By using the Stellar Consensus Protocol (SCP), Blockchain World Wire can perform transactions in over 70 countries, with over 45 currencies, at over 40 banks, and for over 1,080 unique currency pairs.

With the emergence of IBM Blockchain Wire, financial transactions can be executed between fiat and cryptocurrencies on a global scale. This means all of the benefits of a blockchain-based global payments network are going to be realized by a large number of people around the world.

This global payments network uses Stellar, which is an open-source, decentralized payment protocol to facilitate transactions between digital currencies (or cryptocurrencies) and fiat money. Stellar allows transactions to occur across any currency pair and supports cross-border transactions. You can find the source code on GitHub.

By fusing the technological capabilities of IBM and Stellar, common retail remittance services, such as Western Union and MoneyGram, are being disrupted due to the many added benefits of a blockchain-based global payments network, including increased efficiency, decreased cost, and increased trust.

Technological disruptions happen all the time, and IBM Blockchain World Wire and Stellar are poised to make that a reality when it comes to global payment processors and remittance services.

Global Adoption

As the development of blockchain-based global payments networks continues, countries across the world are choosing to participate in their expansion by joining in the networks. There are likely a lot of untapped resources throughout our global economy, which could change for the better as more countries adopt blockchain-based technologies.

In regards to IBM Blockchain Wire, they’re already working with several international banks to support global transactions and remittances for digital as well as fiat currencies. Apart from using Stellar’s native asset called Lumens, more cryptocurrencies will be included in the payments network, like Bitcoin, Ethereum, and various stablecoins.

As technology evolves, so does the global economy. While some companies will be cautious to experiment and innovate with blockchain-based technologies, those that choose to discover its benefits too late, or even never, will likely be disrupted just like many other industry participants before them.