To make a payment using blockchain, users typically rely on cryptocurrencies such as Bitcoin or Ethereum. These digital currencies serve as a medium of exchange within the blockchain network. When a transaction occurs, it is broadcasted to the network, verified by a consensus mechanism (e.g., proof-of-work or proof-of-stake), and then added to a block. Once the block is added to the chain, the transaction becomes permanent and cannot be altered.
Benefits of Blockchain Payments:
- Security: Blockchain transactions are secured using cryptographic techniques, making it highly resistant to fraud and tampering.
- Transparency: Every participant in the blockchain network has access to the transaction history, ensuring transparency and accountability.
- Decentralization: Blockchain eliminates the need for intermediaries, allowing for direct peer-to-peer transactions without relying on a central authority.
- Global Accessibility: Blockchain operates on a global scale, enabling cross-border transactions without the need for traditional banking systems.
Understanding UPI: UPI, on the other hand, is a real-time payment system developed by the National Payments Corporation of India (NPCI). It enables users to link multiple bank accounts to a single mobile application and facilitates instant money transfers between individuals and merchants. UPI operates on top of existing banking infrastructure, allowing users to send and receive money using their smartphones.
To initiate a UPI transaction, users need to create a UPI ID or Virtual Payment Address (VPA), which is linked to their bank accounts. Payments can be made by entering the recipient’s VPA or scanning a QR code. The transaction is then authorized through a mobile banking PIN or biometric authentication, and the money is transferred instantly between the linked bank accounts.
Benefits of UPI Payments:
- Convenience: UPI simplifies the payment process by eliminating the need for account numbers, IFSC codes, and other traditional banking details. A single VPA serves as an identifier for transactions.
- Real-time Transactions: UPI enables instant fund transfers, allowing users to send and receive money in real-time.
- Interoperability: UPI works across different banks and supports various payment methods, including QR codes, mobile numbers, and Aadhaar (India’s unique identification number) authentication.
- Integration with Other Services: UPI has expanded beyond peer-to-peer payments and integrated with various services such as bill payments, ticket booking, and online shopping.
Choosing the Right Technology: Determining which payment technology is right for you depends on several factors, including your specific needs and preferences.
“To make an informed decision, you need to assess the strengths and weaknesses of each technology in light of your specific business needs. Consider factors such as the complexity of transactions, the level of transparency you want, security requirements and the nature of your payment system. Matching these considerations with the strengths of blockchain and UPI will help you determine which technology best fits your needs,” said Balaji Jagannathan, co-founder and Director of auto-recurring payment solution provider Paycorp.
“The choice between blockchain and UPI (Unified Payments Interface) depends heavily on the specific needs of your business. If your transactions are complex and require attributes such as transparency, security and decentralisation, then Blockchain is the technology to consider. On the other hand, if you value simplicity, speed and wide acceptance in everyday payments, UPI is the more practical choice,” he said.
Choose blockchain if:
- You value decentralization and trustlessness.
- You want to engage in secure cross-border transactions.
- You prefer using cryptocurrencies for payments.
- You are comfortable with the complexity and potential volatility of blockchain-based systems.
Choose UPI if:
- You primarily make domestic transactions.
- You prioritize instant and convenient payments.
- You prefer using your existing bank accounts for transactions.
- You want to benefit from the expanding UPI ecosystem and integrated services.
It’s worth noting that blockchain and UPI are not mutually exclusive technologies. In fact, some blockchain platforms are exploring integration with UPI to combine the benefits of both worlds.
“Introduced in 2016, UPI has over the years emerged as a widely used alternative for money transfers. It is a real-time, interbank payment system that allows users to transfer money between bank accounts instantly. Blockchain on the other hand is a distributed ledger technology that allows for secure, transparent, and tamper-proof transactions. This technology can also be utilised for fraud prevention as it provides utmost transparency,” Karunya Sampath, Co-founder and CEO of Payoda Technologies said.
