5 Ways Blockchain Will Make Payments More Secure
If you’re into technology, you probably already know about the blockchain. It’s the decentralized database technology behind bitcoin that’s predicted to become as “big as the internet,” disrupting the way we trade and track goods and services.
How does blockchain work? Essentially, it’s a decentralized database accessed by a peer-to-peer network of computers and people that all share a distributed ledger. In that sense, it’s a little similar to Wikipedia, but instead of storing and sharing information it stores and shares data about who owns what and who transacts with whom.
A barrier for fraudsters
By putting data onto a public ledger that can’t be deleted, blockchain eliminates the need to have a third party, like a bank, oversee transactions. As Martin Murphy, a Support Engineer at Sift Science, explains: “Unlike a centralized bank that holds all of the money in one place, blockchain’s inherently decentralized design makes it difficult for fraudsters to find a single point of failure. Because the shared ledger is spread over thousands of computers. It’s very hard to commit fraud because it would have to be perpetrated simultaneously on shared ledgers that are distributed in numerous locations.”
Early days, but lots of promise
Blockchain has potential applications far beyond finance. It could enable users to verify, process, and track ownership for items such as mortgages, medical records, or even online music. But it’s still in its infancy. “It’s early days for this technology,” says Murphy, “like the internet in ’95, when people were still getting used to having email addresses.”
Although blockchain transactions are encrypted, Murphy says companies that employ blockchain today are just as susceptible to fraud and hacking as other companies. That’s because current adopters – such as cryptocurrency organizations – “still act as traditional banks, storing information the way banks do, and are capable of being hacked into. But,” he adds, “the blockchain technology itself has not been hacked.”
Here’s five ways blockchain will likely make transactions more secure in the future:
1. By decreasing uncertainty about who you’re interacting with during a transaction.
When consumers go to purchase a product on a site like eBay or Etsy, they can search for details about the seller such as their seller rating and site history. Likewise, a seller may be able to see a buyer’s rating. But this information is often piecemeal. Blockchain allows sellers and buyers to permanently upload verified personal documents, such as a government-issued driver’s license, a contractor’s license, or a credit score. This gives both buyers and sellers credible information to help them make decisions and transact together online.
2. By making transparent what is being bought and sold.
When we purchase a product, we may buy a name brand like Nike because we’ve purchased it before and appreciate the quality. However, consumers can’t always be sure that what they purchase isn’t a counterfeit product. Blockchain will remove that possibility by enabling retailers to post verifiable documentation for their supply chain – such as which factory and what materials were used to make a product. In this way, consumers can monitor and validate the supply chain themselves.
3. By providing built-in recourse for unfulfilled contracts.
Think of what happens when you try to purchase a home. Your escrow doesn’t close and funds aren’t released until certain conditions have been met on a mortgage contract. In the same way, blockchain technology can program conditions, such as a buyer receiving an undamaged product, before their funds are released to the seller. With such a condition in place, retailers won’t suffer from chargebacks, because purchases made with cryptocurrency can’t result in a “chargeback.”
4. By increasing the speed of a transaction.
When we purchase something with a credit card or Apple Pay, “on the backend, you have a payment system that is pretty antiquated,” says Murphy. “Systems like ACH and Swift are fairly slow and take several days to process.” Because the blockchain doesn’t use a third party, the transfer of money is immediate.
5. By making “value” native to the internet.
In the early days of the internet, playing video wasn’t a designed feature, “but the internet adapted over time to be able to do so,” explains Murphy. Similarly, by adopting blockchain technology, the internet will evolve to include “value” as an exchange unit. Users will no longer have to enter credit card numbers or log in to a particular website.
There are a number of ways this can be achieved, says Murphy. For example, “a bitcoin startup called 21 has a vision of a machine payable web,” a web where internet users will be charged a micropayment when they view content instead of encountering a paywall. Or money may exchange hands using a system similar to how you receive an InMail on LinkedIn, says Murphy. “So somebody will pay you a micropayment to actually send you an spam email, or if you reply back, you may actually receive money.”
As the internet evolves so that value and trust are traded as currency, it will become a safer place to do business. Blockchain technology is just one piece of that story.
