According to a Binance report, blockchain technology is set to transform the global payments landscape by addressing inefficiencies in traditional financial systems.
The Binance research report highlights that while current payment methods, such as Visa and Mastercard, offer the convenience of near-instantaneous payment authorization, actual settlement times often lag, sometimes by several days.
This delay is especially pronounced in cross-border transactions, where communication between banks in different countries can extend settlement times.
In contrast, blockchain-based payments offer near-instant settlement. The report cites a 2021 pilot conducted by Visa and Crypto.com in Australia, where the use of USDC (USDC) and the Ethereum (ETH) blockchain allowed cross-border transactions to be settled in a fraction of the time traditionally required.
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Blockchain payments are cheaper than traditional means of payment
The report highlighted some of the cost advantages of blockchain payments. Traditional remittance services charge high fees, particularly in regions like Sub-Saharan Africa, where the average cost of sending money is 7.73%.
Using blockchain for payments is becoming increasingly popular due to its significantly lower costs compared to traditional methods.
By comparison, blockchain networks like Solana (SOL) enable transactions at a fraction of the cost. Sending stablecoins via Solana incurs minimal fees, often amounting to just a fraction of a cent.
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Stablecoin popularity
Stablecoins have become essential for blockchain payments, with the market settling over $10.8 trillion in transactions in 2023, according to the report. When excluding automated activities, the figure is $2.3 trillion.
Source: Coinbase, Binance Research, as of August 2024
The stablecoin market has grown steadily, with a combined market cap of over $160 billion, led by Tether (USDT) and USDC, which dominate 73% and 21% of the market, respectively.
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Challenges in blockchain infrastructure
The report noted that current blockchain infrastructures have their challenges. Scalability remains a key issue, with even the most advanced blockchains like Solana struggling to match the transaction processing speeds of established payment networks.
Solana, the report reveals, has experienced multiple outages since its launch, raising concerns about the reliability of blockchain technology for large-scale institutional use.
“Since the mainnet launched in 2020, Solana has experienced 7 major outages which brought block production to a halt, with the latest occurring in February 2024. Such growing pain problems would understandably cause institutions to be cautious about relying on blockchains for key business operations, such as payments.”
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Despite these challenges, the report suggests blockchains offer a promising alternative to traditional financial systems. Their transparency and decentralized nature foster greater trust and security in financial institutions, qualities that are increasingly sought after in a global financial system where centralization and control can be exploited for geopolitical purposes.
Looking ahead, the report envisions a future where blockchain technology plays a central role in global payments, particularly remittances. As the technology matures and regulatory frameworks evolve, businesses and consumers may increasingly opt for blockchain-based transactions over traditional methods.
