The Future of Payment Gateways

Public blockchains are the payment protocols that the internet never developed.

Paying for goods and services online seems slower and far more difficult than it ought to be. Even the most sophisticated applications have billing systems that are awkward to use in comparison to their other features. æternity aims to replace the clunky, decades-old electronic payments settlement system by providing a smooth, familiar and seamless payment experience to users just entering the world of cryptocurrencies and blockchain.

Current State of Payment Gateways

Most businesses require merchant services known as payment gateways to process electronic payments, particularly at scale. Their payments must be processed privately and safely, often in differing currencies, credit cards run, refunds issued and coupons applied, and all done in compliance with local regulations.

A few create their own payment gateways but given the complexity and expense of doing so, most opt for a trusted third-party such as PayPal to provide them.

Traditional payment gateways are built on legacy systems such as America’s forty-year-old Automated Clearing House (ACH) network and are dominated by monopolistic companies that have little incentive to innovate or reduce prices. A typical payment gateway adds several percentage points to the cost of each transaction, and settlement can take several business days to process.

Peer-to-Peer Payments

A payment gateway that uses a decentralized peer-to-peer payment system wouldn’t need to rely on such legacy infrastructure, potentially settling payments faster and less costly. By obviating middlemen and third parties, transactions through a blockchain-based payment gateway will be more secure and easier to use than their legacy-based equivalents.

Payment systems based on cryptocurrencies and potentially tokens must be at least ten times better than current solutions for users to seriously consider them.

This is an enormous challenge, but we are slowly getting there.

Users are not the only group that could benefit tremendously from a disruption in payment services. The potential for blockchain-based payment systems to improve merchant services is equally as remarkable not just to replace traditional payment gateways by providing cheaper, more secure and faster services, but also in its ability to grow the global marketplace. In many countries, eCommerce remains a small fraction of retail, in part because slow development and the expense of traditional payment gateways inhibit wider adoption.

Simply reducing the price could make eCommerce more appealing for smaller transactions, increasing the demand considerably and opening the door for mass adoption of mobile payment systems. Banking the unbanked, meaning using the economies created by blockchain-based payment systems to provide the developing world with access to banking and micro-loans, could actually become a reality thanks to the constantly improving global blockchain infrastructure and services.

Nano & Micro-Payments

Eventually, transaction costs could be reduced to the point where nano-payments — the transfer of infinitesimal fractions of value — become feasible. By removing the lower bounds of how much value a coin or a token can transfer, a nano-payment will enable smart contracts and decentralized applications to sieve off minute amounts of value, essentially removing financial frictions, enabling completely new products and reimagining already existing ones.

Suppose you are driving down a road and rather than being charged a flat rate for insurance, car hire or a toll, your wallet is debited according to how far you actually drove. Or, imagine a service where the user is stimulated to provide an answer or perform an action faster as their wallet is being drained on a minute basis or the amount he is to receive is being reduced by the minute.

Nano-payments (and their slightly larger variety, micro-payments) have been proposed as alternative methods of charging for content online, taxation, insurance and even the creation of self-optimizing programs (AIs) that compete in a global, online, free market. Supporting that kind of system would necessitate an extremely efficient network (or networks), which is exactly what the æternity platform strives to be.

Payments on æternity

æternity uses off-chain state channels and Bitcoin-NG for on-chain processing speed boost to enable seamless decentralized payments and do so with enough throughput to make nano-payments feasible.

Essentially a state channel allows computational load to be moved off the blockchain, creating a secure, private, two-way communication channel capable of supporting smart contracts and improving the speed and privacy of interactions and value transfers.

The blockchain is a final arbiter of the state of interactions between users and reserved for final settlement or disagreements between users. Speed and efficiency can be maximized without sacrificing security.

Integrated oracles, an unique value proposition of the æternity protocol, can provide an interface for efficient interaction with real-world information, allowing for the creation of payment gateways that rely on crowdsourced data in order to distribute payments on a global scale.

The cryptocurrency space is unlikely to be dominated by a single currency anytime soon, which means that payment gateways will need to be able to mediate between protocols of different systems (such as АЕ, Bitcoin or Ethereum’s ETH and ERC20 tokens). The æternity platform is being created in order to provide the level of technological flexibility required to become part of a global, unified blockchain infrastructure. Offering four types of virtual machines and improved smart contract languages, æternity strives to make it easy for developers to create powerful applications capable of swiftly and securely interacting with other protocols.

The Rise of FinTech

Internet commerce began in earnest after the creation of PayPal and other centralized ledger services. Unfortunately, they were forced to rely on legacy electronic transfer payment systems. With time the complexity of these “patchwork” solutions increased and introduced various inefficiencies. The cost of those was transferred to users and merchants who started paying higher fees, charge-backs, loss of privacy, blocked accounts and leaked personal information. Public blockchain infrastructure aims to provide a solution to these challenges by presenting a more natural, customizable online payment experience for both business and consumers.

That is the reason why the FinTech sector has been growing in 2017 and more than 77% of companies expect to adopt blockchain technology by 2020.

The æternity platform, and the network behind it, is being positioned as infrastructure for the next generation of internet services, offering users and businesses a new paradigm in payment gateways.

Imagine banking for 3.5 billion people, flexible content monetization, marketplaces for paid API calls, decentralized calling services, paid-by-the-second live video streaming, flexible insurance plans and unimaginable new decentralization-based business models and services, enabling true on-demand and sharing economies — all transacting as effortlessly as doing a Google search seems today.