8 min read

The Evolution of Crypto Payments: How DApps are Driving the Revolution

Are DApps the future of payments?

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Published on

22 June, 2023

Introduction

It has been over a decade since 10,000 BTC was spent on two pizzas. Fast forward to today, crypto has boomed in popularity. From Lamborghini accepting payments in Bitcoin for their luxury cars to the “Bitcoin accepted here” A4 paper prints taped onto storefronts in Latin America, cryptocurrency has been widely accepted as a legitimate medium of exchange across the wealth spectrum. There have been hurdles, as there are with any emerging technology, from regulatory issues to government scepticism. Nonetheless, we have made great strides towards facilitating better payment systems by leveraging blockchain technology.

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Leading this race to create a new payment ecosystem using blockchain are Decentralised Applications (DApps). DApps are now everywhere in the crypto world and for good reason. In today’s digital era, the prevalence of app-based technology is undeniable to anyone who has ever interacted with a digital screen. DApps are the decentralised version of these apps which show the practical implementation of blockchain technology and demonstrate its capabilities.

Crypto Payments — The Necessity

We have all been there, a relative abroad needs some money and we have to empty our pockets on large amounts of transaction fees. And then we wait for days altogether for our traditional systems to complete the transfer. While we spent our time and money training horses to travel, the crypto car has long zoomed past. And this is not an exaggeration — according to a study by Deloitte, blockchain-based payment systems can be 40 to 80% cheaper while also being way faster. Talking of faster transactions, speed is baked into the very structure of crypto payments — being a peer-to-peer (P2P) system with no involvement of any third parties, the settlement is almost instantaneous.

And if you are a business owner shuddering at the fact that the number of chargeback cases is expected to rise to 409 million this year in the US alone — crypto payments might just be your saving grace. As mentioned earlier, the P2P system also creates a completely transparent network which ensures security. Hence moving towards an architecture that is faster, cheaper and more secure is just a natural progression.

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DApps — A Closer Look

DApps are the physical manifestation of the decentralised future we have envisioned. Traditional apps use frontend technologies and fetch data from a backend which runs on their server. Hence, a centralised approach. DApps on the other hand are run on thousands of computers. They rely on smart contracts for their core logic and use a blockchain to keep track of the state of their users.

Consequently, there is no single point of failure and the possibility of a server failure is eliminated, ensuring uninterrupted uptime. The absence of a centralised authority also thwarts any attempt at censorship. Being open source by nature — this enables faster adoption and development of this technology.

DApps are vital to a web3 future as they demonstrate the capabilities of blockchain technology, promote decentralisation and trust, drive cost savings, incentivize user participation, empower users, and foster innovation. They contribute to the growth and maturation of the blockchain ecosystem, leading to broader adoption and transformative applications across various industries.

Real World Applications

Now that we have a little groundwork for understanding DApp-based payment systems, we shall take a look at the current implementation. For ease of understanding, we shall be looking at certain types of DeFi DApps which form the core of crypto payment system.

Decentralised Finance (DeFi), if you are wondering, is the greater ecosystem of which the payment systems are a part. As the name suggests, DeFi is the vision of an entire financial system based on blockchain concepts.

Akin to real life, before we can start paying we need a wallet. Cryptocurrency wallets such as Metamask and Coinbase enable you to connect to DApps and start experimenting and experiencing DeFi. These wallets are premised on public key cryptography, enabling users to send, receive and monitor their crypto assets with utmost security and privacy

Decentralised Exchanges (DEXes) are the cornerstones of DeFi. These are P2P networks that enable users to exchange cryptocurrencies in a non-custodial manner. These DEXes remove the involvement of a third party by creating a transparent system involving smart contracts — which are used to facilitate asset transfer and Automated Market Makers (AMMs) which connect sellers and buyers and calculate the price of tokens, based on the market. This way there is no intermediary and funds are transferred directly. And yes, by the way, all of this is anonymous and secure. Uniswap, dydx, Matcha and Curve are some popular DEXes.

The world of DeFi is wide and sophisticated and so are the DApps. 1inch, another popular DeFi app is what we’d call a DEX aggregator — which provides a one-stop solution to DeFi trading. 1inch sources liquidity from various exchanges and is capable of splitting a single trade transaction across multiple DEXes.

If that was interesting, take a look at Sablier — while you were busy streaming Netflix shows, Sablier has been streaming money. As weird as it sounds, it’s a new way to think of payments — where a start date, end date and allocation rate are set. And tokens are transferred in that period. For sudden emergencies, you won’t have to wait for your salary. And you won’t have to make your landlord wait either, hence preventing any complaints you might have received for throwing a huge party — celebrating crypto gains.

Gone are those days when DeFi was constrained to the trade of ETH and BTC. Today’s Web3 ecosystem seems unimaginable without the presence of countless L2 networks. DeFi in DApps has played a critical role in facilitating the adoption of these Layer 2 Blockchains. Layer 2 networks not only offer a secure system of payments as their Layer 1 counterpart but also provide unprecedented speed and low transaction fees. As L1 networks experienced increased participation, their inefficiencies became apparent, making them impractical for direct use in DeFi. In contrast, networks like Polygon and Optimism capitalised on the security features of L1s and embraced a modular approach to development and scalability. As a result, thanks to their developer-friendly DApps which offer efficient payment mechanisms, these networks attracted millions of users who were previously hesitant to enter the DeFi space due to its perceived complexity.

Growth — Slow and Steady

While there is much hubbub about a future with crypto payments, it is still far from mainstream. But for a technology that is still in its rudimentary stages, it shows much promise. Since the pandemic, more and more people are realizing the importance of online payment systems. Traditional payment operators have generally remained sceptical, but the tide is now turning. Many banks and financial institutions are realizing that crypto payments are an industry-disrupting technology which they need to keep up with. Hence, some are trying to incorporate it into their systems and revamp their infrastructure. For example, Santander, American Express and Standard Chartered have been working with Ripple to facilitate cross-border transactions.

Meanwhile, a banking crisis is looming over the traditional financial systems. Amidst the fears of multiple banks collapsing and the hawkish monetary policies of several world governments, people are looking for alternative solutions. One in every five Americans owns some form of cryptocurrency. And comparisons with the rise of the internet are galore. The crypto adoption curve is still going strong and investors say it is cyclic and upwards.

If the thought of landing in London, New York or Dubai and using the same cryptocurrencies to buy a cup of coffee excites you — we are in the same boat. With the rapid proliferation of DApps and DeFi, a decentralised yet global system of payments is no longer a far-fetched idea. Going back to where we started, the rates of cryptocurrency adoption are higher in Latin America because of inflation, political instability and the lack of proper traditional banking services. On the other end of the spectrum, Switzerland, a global economic hub, and home of the affluent has welcomed cryptocurrencies with open arms, including support from local bodies. There is something symbolic about this, which shows that mass adoption is not far.

You can defy a crypto future as much as you want, but DeFi is here to stay. Honestly, the entire purpose of this article was to crack this pun.

About Luganodes

Luganodes is a world-class, Swiss-operated, non-custodial blockchain infrastructure provider that has rapidly gained recognition in the industry for offering institutional-grade services. It was born out of the Lugano Plan B Program, an initiative driven by Tether and the City of Lugano. Luganodes maintains an exceptional 99.9% uptime with round-the-clock monitoring by SRE experts. With support for 36+ PoS networks, it ranks among the top validators on Polygon, Polkadot, Sui, and Tron. Luganodes prioritizes security and compliance, holding the distinction of being one of the first staking providers to adhere to all SOC 2 Type II, GDPR, and ISO 27001 standards as well as offering Chainproof insurance to institutional clients.

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