The growing influence of centralized organizations over user data and the Internet itself necessitates the decentralization of the latter. People have had access to web3 for more than ten years, but they are just now starting to realize how crucial a decentralized web ecosystem is. Web3, which is envisioned as the future, enhanced version of the internet, is anticipated to solve issues with the current, highly centralized web. Over the past few decades, major players in the payment processing market, such as Visa and Mastercard, have been actively exploring the potential of web3. Both companies announced their partnerships with bitcoin wallets and exchanges. In the fourth quarter of 2021, $2.5 billion in Visa card payments with cryptocurrency connections were made, out of a total of $47.6 trillion in Visa payments.
Because of its decentralized architecture, Web3, even in its early phases of development, promises safer, easier, and more intelligent payments. Web3 payments are peer-to-peer, global, and able to support several coins and blockchains. We will discuss web3 payments and their role in the decentralized web3 ecosystem in this blog.
Now let’s get going!
- What Exactly is Decentralized Finance?
- How Does Decentralized Financing Work?
- Web2 and Web3 Payment Differences
- Web3 Payment Features
- How Can I Use Web3 to Make Payments?
- Using Web3 Wallets as Payment Browser Extensions
- What Does a Web3 QR Code Mean?
- What Does Web3 Payment “FIAT Payment On-Ramping/Off-Ramping” Mean?
What Exactly is Decentralized Finance?
Before we get further into them, let’s first familiarize ourselves with the idea of decentralized finance (DeFi), which forms the basis of web3 in payments. DeFi’s main objective is to revolutionize traditional lending and banking. DeFi allows its customers to earn income through cryptocurrency tokens that borrow money and get insurance on their own without assistance from a third party.
The blockchain can operate efficiently without the need for a mediator since it is decentralized. An intermediary could be a developer, bank, individual, or other entity. The main benefit of DeFi development lies in its ability to facilitate trustless financial transactions inside the ecosystem. Users can access DeFi with software known as decentralized apps (dApps). In contrast to conventional centralized finance, clients can open an account with a bank in this scenario without having to apply.
DeFi can be accessed via the following techniques:
- Users can lend their cryptocurrency every 60 seconds to earn rewards and interest.
- Now, getting a loan is easy. To obtain a loan, users do not need to submit any paperwork. They can apply for “flash loans,” which are short-term loans that banks don’t usually offer.
- Peer-to-peer exchange is possible for some cryptocurrency assets. It is possible to buy and sell stocks directly from the market without using a brokerage.
- Users can also deposit cryptocurrency into savings accounts to earn interest. The interest that people receive from cryptocurrency will be greater than what they typically receive from banks.
- We can also take future contracts or stock options into account when making long or short bets against specific cryptocurrency assets.
How Does Decentralized Financing Work?
DeFi offers financial services through the use of smart contracts and cryptocurrencies. This does away with the need for intermediaries like guarantors. Among these services is lending, which enables users to save bitcoin, borrow their own cryptocurrency, trade without a broker, borrow money instantaneously, and earn interest in a matter of minutes. Users also have the ability to buy derivatives like stock options and futures contracts.
Users utilize dApps to facilitate peer-to-peer business transactions. The majority of these dApps are accessible on Ethereum. Among the most well-liked dApps and DeFi services are tokens like Ether, Solana, Polkadot, and Stablecoins. Tokens, decentralized DeFi mining, yield farming, liquidity mining, staking, trading, and digital wallets like Coinbase and MetaMask are also included in them.
Given that DeFi is open-source, users have the ability to inspect and alter its applications and protocols. Users can create new possibilities by combining several DeFi protocols while creating their dApps.
Web2 and Web3 Payment Differences
Web2 enables peer-to-peer transactions on a worldwide scale. It also involves a go-between who acts as a trustworthy intermediary between two strangers or people who are unfamiliar with one another. The middlemen also define the rules for transactions. Unlike web2 payments, decentralized web3 payments are not susceptible to transaction blockage by other parties. The technology behind blockchain offers anonymity. Globally, Web3-based payments are also fueled by robust computers. Because several nodes take over in the event of a node failure, singular points of failure are hence avoided.
Delivering apps to production is much faster and easier with the recently announced peer-to-peer web3 payment mechanism. There is bureaucracy in blockchain. As a result, people will be able to send money to one another without having to register for banking services. Customers can make online payments without creating an account for banking services or giving businesses access to their personal and financial information because Web3 data is encrypted.
The lack of bureaucracy in web3 allows payments to be processed much faster. Web2 payments may take days to settle, but web3 payments on the blockchain clear in a matter of minutes or seconds. A web3 payment method eliminates the need for costly remittance fees and difficult currency translation, which further simplifies international transactions.
Web3 Payment Features
The payment system in use now is more complicated than it has ever been. There are significant processing costs and protracted settlement periods. Web3, a replacement for the problematic currency payment system, offers strong security, resistance to censorship, speedy translation times, and ample incentives.
The Web3 in payments mechanism, which offers a decentralized and permissionless system, can be used to construct dApps. As such, they are immune to financial censorship. These products and services are accessible to everybody with an internet connection, wherever in the globe they may be.
Moreover, the Web3 payment system is untrustworthy. It is possible for participants to communicate with each other in secret and openly without the help of a third party. Self-executing smart contracts, which only take action when predetermined conditions are met, are utilized in place of an intermediary.
Interoperability is a fundamental principle of Web3 infrastructure design that enables connectivity and mobility among various web3 platforms and applications. Moreover, it is an essential first step toward accelerating the adoption of Web 3.
How Can I Use Web3 to Make Payments?
Web3 payments can be done in a number of ways:
- Web3 SDK and wallets for processing payments via dApps
- Web3 wallets are digital wallets that let you to store and interact with digital assets, including fungible and non-fungible (NFTs) tokens, across many blockchains.
Web3 wallets are available for a variety of blockchains:
- Wallets for Browsers
- Mobile wallets (dApps for iOS and Android)
- Extensions for Browsers
Users can register accounts in web3 wallets in order to retain their digital assets. A web3 wallet account is linked to both public and private keys. To send or swap tokens and other assets to an account, anyone can use the public key, which is the address of the account. If shared with others, there is no security risk. Concurrently, the Private key performs as a password and is required for every transaction inside the associated wallet. It’s a code that must be kept secret in order to avoid security breaches. To import recently created accounts with the same private key into a web3 wallet.
Using Web3 Wallets as Payment Browser Extensions
There is a simple user process involved in enabling seamless Web3 payment solutions through browser extensions:
Activation of Extension
Users download and open the appropriate browser extension to begin the process.
Establishing an Account or Importing Data
Users can choose to create a new account by establishing a wallet password after activation. Alternatively, users can use the private key of an already-existing account to import it.
To improve security, users create a wallet password for new accounts that is different from the private key.
Storage of Seed Phrases
The wallet shows a seed phrase once the password has been specified. In order to facilitate account reinstatement and, if needed, fund recovery, users must safely store this phrase.
Network Management for Blockchain
The wallet allows for the inclusion of custom networks and localhost configurations, and it offers the ability to swap between blockchain networks, including Mainnet, Testnet, and Devnet.
Estimating Gas Fees
A transaction screen shows the approximate gas price needed for blockchain alterations when a transaction is made using a decentralized application (dApp). The native token balance (for example, ETH for Ethereum) linked to the connecting blockchain is used to cover this cost.
By including these procedures, transactions utilizing web3 wallets as browser extensions may be completed in a secure and user-friendly manner, making access to decentralized financial ecosystems simple.
What Does a Web3 QR Code Mean?
Web3 QR codes can be used for a number of purposes, including storing a link to the account data on the blockchain and facilitating asset transfers or payments to other accounts. Every account on Metamask has a QR code that may be scanned in order to transfer funds, assets, or ether to another account. The public key for the account is usually included in the QR code along with any other information that is required. In this case, it acts as a substitute for transferring funds to an account using its public key.
What Does Web3 Payment “FIAT Payment On-Ramping/Off-Ramping” Mean?
Starting Off With Web3, a user can buy bitcoin by “on-ramping,” in which case they can exchange any amount of fiat money for cryptocurrency. On-ramping is critical to supporting users who want to use any blockchain or decentralized apps (dApps). In order to cover the cost of gas for any transactions they might need to make while using a blockchain application, the user requires a specific cryptocurrency.
People who are not familiar with cryptocurrency could not have the required cryptocurrency in their wallets when they first start using the blockchain. A user would have to arrange for the cryptocurrency money required to access the program without easy onramps, while his wallet would have to wait for him to return with the required funds before he could start using it. However, most wallets provide the option to on-ramp fiat funds in order to obtain the required cryptocurrency, resulting in a faster, more successful user experience.
Using credit or debit cards, users may easily convert their fiat currencies (USD, INR, etc.) to the cryptocurrency stored in their wallets.
Users can acquire cryptocurrencies with debit cards, credit cards, and a variety of other payment methods in exchange for their fiat money using wallets such as Metamask, which leverage payment systems such as MoonPay, Transak, and others.
“Off-ramping” in Web3 refers to the process by which a user can convert his cryptocurrency holdings into fiat currency. The global adoption of decentralized finance depends on both the on- and off-ramps of cryptocurrencies, since users must familiarize themselves with their uses and applications.
By off-ramping, customers can sell their digital or cryptocurrency assets on websites and recover their fiat money. As a result, people from all over the world are drawn to blockchain and cryptocurrencies.
The process for accepting cryptocurrencies works as follows:
- Customers select the products and add them to their carts.
- Make a payment.
- Input the payment details by filling in the blank with fiat money.
- The money is going to be transferred and refunded to the merchant’s wallet because of a payment processor that converts fiat to cryptocurrency.
- trade instantly into a chosen coin.
- Merchants are able to withdraw or hold cryptocurrency money.
By converting fiat payment checkout data gathered by the payment gateway to cryptocurrency, Fiat to the Web3 crypto payments processor is a third-party payment company that handles cryptocurrency payments in real-time. After that, the data is run via a security check mechanism.
Fiat onramps and offramps also provide a way for people to transfer money to one another. It is possible to send fiat currency, such USD, to another person. Rather than delivering the recipient’s fiat money in its original form, the central financial authority, like the bank, onramps the fiat into cryptocurrency and then offramps the cryptocurrency back to fiat before putting it into the recipient’s account.