Analysis of Blockchain’s Impact on Payment Infrastructure

Analysis by Binance Research argues that blockchain technology could transform the current payment infrastructure by allowing self-custody of digital assets and cutting out intermediaries from transactions.

Current State of the Payment Industry

The payments industry, currently one of the largest globally, is estimated to produce $2.83 trillion in revenues as of 2024. Despite its inefficiencies, it remains largely unchanged.

Cash vs Digital Payments

The report highlights the advantages of using cash for in-person transactions, emphasizing the “unique freedom of money” it provides, a feature that modern digital payment systems lack.

Limitations of Current Transactions

According to Binance Research, without blockchain technology, self-custody of digital money is impossible. Today’s global payment system depends on a “lengthy chain of rent-taking banks and other intermediaries,” leading to inefficiencies and high costs.

The Promise of Bitcoin

Introduced in 2009 by Satoshi Nakamoto, Bitcoin serves as peer-to-peer electronic cash, offering the same freedom as cash transactions for digital payments. Its decentralized approach allows direct transactions between individuals, removing the need for financial intermediaries, and enhancing “financial freedom, transparency, and reduced transaction costs.”

Advancements in Blockchain Technology

The analysis highlights significant developments in the crypto industry, including the rise of stablecoins and advancements in blockchain that enable faster transactions at reduced costs. Various Layer 1 and Layer 2 solutions are also noted for easing the adoption of distributed ledgers for mass payment transactions.

The Outdated Industry Infrastructure

Despite these advancements, Binance asserts that the global payments industry continues to operate on outdated, 50-year-old bank-tethered infrastructure. While fintech firms like Stripe, Mastercard, and Visa have improved user experiences, costs associated with multiple intermediaries persist.

Future of Blockchain in Payments

Binance posits that blockchain technology presents a new set of globally-enabled infrastructure for payments, potentially reducing costs and expediting cross-border transactions. Visa’s pilot projects using public blockchains and Binance Pay facilitate peer-to-peer and cross-border transfers at lower fees.

However, the company acknowledges the massive scale of the payments industry, suggesting that blockchain adoption will be gradual, allowing the blockchain sector to mature and address challenges like scalability, improved user experience, and regulatory clarity.