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Blockchain technology works as a digital accounting system that records and confirms transactions in cryptocurrency (digital or virtual currency). It stores information about each transaction of purchase, sale or exchange of cryptocurrency in special blocks. These blocks are combined into a chain, creating a chronological history of events.
Sergey Kondratenko, an expert in the field of fintech, reports that the peculiarity of the blockchain is its security and transparency. This is because each block is immutable and viewable by everyone. It is not kept under central management control. The specialist adds that cryptocurrencies such as Bitcoin and Ethereum use blockchain to securely process and record transactions.
Sergey Kondratenko is a recognized specialist in a wide range of e-commerce services with experience for many years. Now, Sergey is the owner and leader of a group of companies engaged not only in different segments of e-commerce, but also successfully operating in different jurisdictions, represented on all continents of the world. The main goal is to drive new traffic, create and deliver an online experience that will endear users to the brand, and turn visitors into customers while maximizing overall profitability of the online business.
Principles of using blockchain and cryptocurrencies in the financial sector
Blockchain and cryptocurrencies are two important elements in the world of digital finance. They are widely used in fintech for various purposes. Sergey Kondratenko highlights some of the most common ways to use them:
- Transfers and international payments. Cryptocurrencies allow you to make fast and relatively cheap international money transfers, without the participation of banks and intermediaries. This is especially useful for international business transactions.
- Accounting systems and registers. Blockchain can be used to maintain asset records and provide ownership transparency. This can be useful in financial reporting, securities administration, and even voting at shareholder meetings.
- Lending and credit transactions. Blockchain-based smart contracts can automate loan origination and management processes, which helps reduce costs and risks for lending institutions and borrowers.
- Stock markets and trading. The securities market uses blockchain technology to speed up and simplify transaction processes. Some companies even issue tokens, which represent securities on the blockchain.
- Financial control and asset management. Cryptocurrency wallets and apps provide investors with the means to manage their assets, monitor their portfolio, and perform financial transactions.
- Funding through ICO and STO. Initial coin offerings (ICOs) and security token offerings (STOs) allow startups and companies to raise investment through the issuance of cryptocurrency tokens.
- Microfinance and donations. Charities can use cryptocurrencies to raise funds and ensure transparency in the use of funds.
- Ensuring data security. Blockchain can be used to protect financial data, such as customer identification and transaction history, from fraud and unauthorized access.
Sergey Kondratenko: Traditional digital payments VS crypto payments
Cryptocurrencies can contribute to financial inclusion due to their affordability, decentralized nature, and ability to conduct cross-border transactions. According to Sergey Kondratenko, they can also create opportunities for people and small businesses that previously had limited access to banking services due to institutional restrictions.
How do cryptocurrencies help expand access to financial services?
Firstly, they are not controlled by any central government or traditional financial institutions, which makes them independent of the banking system. As the expert notes, cryptocurrencies provide the opportunity to conduct cross-border transactions, which facilitates the transfer of funds between countries. They also reduce the cost of financial transactions, making them accessible to low-income people and entrepreneurs.
– Traditional financial institutions often charge high fees for international transfers, which can be a significant burden for residents of developing countries. Cryptocurrencies provide a faster and cheaper way to transfer funds, says Sergey Kondratenko.
In many parts of the world, traditional banking systems are underdeveloped, limiting people’s access to essential financial services such as loans, savings accounts and insurance.
Cryptocurrencies can provide these services through decentralized applications (DApps) running on blockchain networks. For example, DApps such as AAVE, Compound, and MakerDAO allow users to earn interest on their cryptocurrency assets or borrow against them without having to go to a traditional bank.
Cryptocurrencies also provide access to financial opportunities for those who do not have access to banking services. They can also serve as a store of value, especially for residents of countries with high inflation. Thus, they provide an alternative for preserving and increasing savings.
Sergey Kondratenko: What is cryptoprocessing and what is its role in simplifying cryptocurrency transactions?
Cryptoprocessing is the process of processing payments using cryptocurrency. Sergey Kondratenko names a number of key functions that cryptocurrency payment gateways perform:
- Registration of payer data. They record information about the buyer and his order.
- Accepting payments from buyers. Payment gateways accept cryptocurrency payments from buyers.
- Sending transaction data to the blockchain and recording node confirmations. Having received payment data, the gateway sends the corresponding transaction to the blockchain and waits for confirmation from network nodes.
- Converting the received cryptocurrency into fiat (at the seller’s request). Some merchants want to receive payments in cryptocurrency, while others prefer to convert it into traditional money such as dollars or euros.
- Transfer of payments to the seller.When the transaction receives the required number of confirmations, the gateway transfers the received funds to the seller.
- Providing confirmation to the parties to the transaction about payment processing. Once the process is complete, the gateway provides both the buyer and seller with confirmation that the payment has been successfully processed.
– Thus, payment gateways facilitate the process of making payments using cryptocurrency and contribute to the spread of transactions in the field of online trading, Sergey Kondratenko summarizes the key functional areas of cryptoprocessing.
Sergey Kondratenko: How do payments using cryptocurrency work?
The expert reports that cryptoprocessing is currently widely used by online stores, gambling companies, travel agencies and other companies that provide services or goods for money.
To pay for a product or service with cryptocurrency, you are asked to follow a special link to the payment page created by the crypto-processing service. Typically a limited time is given to complete the transaction. This is due to the high volatility of the cryptocurrency exchange rate.
The specialist says that there are two main types of crypto processors for processing payments in cryptocurrency:
- Crypto-fiat processor. With this type of payment processing, the merchant receives fiat money in their bank account after converting the cryptocurrency.
- Crypto-Crypto Processor. With this type, the seller receives cryptocurrency in the category he prefers. No matter how many different cryptocurrencies they accept, payment only takes place in one of them.
Regardless of the chosen type, the cryptoprocessor is responsible for performing conversion operations, managing currency risks and ensuring the transfer of assets to the seller’s crypto wallet, clarifies Sergey Kondratenko.
The expert emphasizes that blockchain and cryptocurrencies provide the modern financial sector with a number of significant advantages. They promote decentralization and provide a high level of security and transparency of transactions. Cryptocurrency transactions, in turn, are characterized by low commissions and instant execution speed, and also provide access to financial services for a wide range of users. That is, blockchain and cryptocurrencies, according to Sergey Kondratenko, stimulate innovation and simplify global trade, which makes them key elements of modern financial transformation.