1.4 Electronic Payment

Electronic payment methods can be classified based on two fundamental concepts: cash-based and credit-based.

Credit card transactions are one of the main online payment methods today. For example, when a user is shopping on Amazon, they need to enter their credit card information to process the payment. Amazon receives the account information and feeds it back to the payment "system," involving processors, banks, issuing companies, and other intermediaries.

If using third-party payment tools like PayPal or Alipay, the user experience involves the intermediary company collecting the user's bank card information, approving each transaction, and settling payments with the seller at the end of each transaction day.

Credit-based electronic payments are convenient, but their security cannot be guaranteed. If the buyer's user information or payment channel itself is compromised, the payment system becomes vulnerable. However, cash-based payment systems increase the complexity of the payment system while avoiding the security risk of directly providing the buyer's bank card information. Users and sellers cannot directly communicate and must have accounts with third-party payment companies.

Cryptocurrencies, represented by Bitcoin, support both user-to-merchant transactions and user-to-user transactions. In fact, the Bitcoin system does not differentiate between users and merchants. The success of Bitcoin is largely because it supports transactions between users. From the beginning, every Bitcoin user could send to other Bitcoin users. Therefore, cryptocurrency is likely to become an alternative to credit card companies and third-party payment institutions in the future. It will genuinely offer peer-to-peer real-time transactions without trust as the primary choice for electronic payments.

Furthermore, whether it is cash-based or credit-based, high fees for cross-border payments are one of the pain points in the market. According to McKinsey's report "Global Payments 2016: Strong fundamentals despite uncertainty," cross-border payments account for less than 20% of global payments but contribute to 40% of the global payment transaction fees. In 2015, cross-border payment revenue was $300 billion. Improving efficiency and reducing costs are urgent needs that blockchain technology must address.

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