Web 3 is a term that refers to the next generation of the internet, where decentralized applications (dApps) run on peer-to-peer networks, powered by blockchain technology and smart contracts. Web 3 promises to enable more trustless, transparent, and democratic interactions among users, without intermediaries or centralized authorities.
However, Web 3 also poses significant challenges for payments, especially for cross-border and cross-chain transactions. The current payment infrastructure is not designed to handle the complexity and diversity of Web 3 ecosystems, where multiple currencies, protocols, and platforms coexist. Moreover, the existing payment solutions are often siloed, fragmented, and incompatible with each other, resulting in high costs, inefficiencies, and risks for both users and developers.
To address these challenges, a new approach to payment orchestration is needed. Payment orchestration is the process of coordinating and optimizing the execution of payment transactions across different channels, methods, and providers. Payment orchestration can help Web 3 users and developers to:
Tekedia Mini-MBA edition 16 (Feb 10 – May 3, 2025) opens registrations; register today for early bird discounts.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
Access a wider range of payment options and services, such as fiat, crypto, stablecoins, DeFi, NFTs, etc. Reduce the complexity and friction of payment integration and management, by abstracting away the technical details and providing a unified interface and API.
Enhance the security and reliability of payments, by leveraging smart contracts, encryption, and multi-signature schemes. Improve the performance and scalability of payments, by optimizing the routing, batching, and splitting of transactions. Lower the costs and fees of payments, by minimizing intermediaries, network congestion, and gas prices.
The Future of Web 3 Payments
One of the key aspects of Web 3 is the use of cryptocurrencies and tokens as the native means of payment and exchange. Unlike traditional fiat currencies, which are issued and controlled by central authorities, cryptocurrencies are digital assets that are secured by cryptography and governed by algorithms. Cryptocurrencies can facilitate fast, cheap, and borderless transactions, as well as enable new forms of incentives and rewards for users and developers.
However, the current state of Web 3 payments is far from ideal. There are several challenges and limitations that hinder the adoption and usability of cryptocurrencies and tokens in Web 3 applications. Some of these include:
Scalability: The most popular cryptocurrencies, such as Bitcoin and Ethereum, suffer from low throughput and high fees, which make them unsuitable for high-frequency or low-value transactions. Moreover, different blockchains have different protocols and standards, which create interoperability issues and fragmentation among Web 3 applications.
Usability: The user experience of Web 3 payments is often complex and confusing, especially for non-technical users. Users have to deal with multiple wallets, addresses, private keys, gas fees, network congestion, confirmation times, etc. Additionally, users have to trust third-party custodians or exchanges to store and manage their funds, which exposes them to security risks and regulatory uncertainties.
Privacy: The transparency of public blockchains also comes with a trade-off in terms of privacy. Every transaction on a blockchain is visible to anyone who can access it, which can reveal sensitive information about users’ identities, behaviors, preferences, etc. Furthermore, some Web 3 applications require users to provide personal data or identity verification in order to access certain features or services, which can compromise their anonymity and sovereignty.
Regulation: The legal and regulatory status of cryptocurrencies and tokens is still unclear and varies across different jurisdictions. This creates challenges for both users and developers who have to comply with different rules and regulations depending on where they operate or reside. Moreover, some governments and regulators are hostile or skeptical towards cryptocurrencies and tokens, which can limit their adoption and innovation potential.
These challenges and limitations pose significant barriers for the development and growth of Web 3 payments. However, they also present opportunities for improvement and innovation. In this blog post, we will explore some of the emerging trends and solutions that aim to address these challenges and enable a more efficient, user-friendly, private, and compliant future of Web 3 payments.
Some of the emerging trends that are shaping the future of Web 3 payments are:
Layer 2 solutions: These are protocols that run on top of existing blockchains, such as Ethereum, to provide faster, cheaper, and more scalable transactions. Layer 2 solutions use various techniques, such as sidechains, state channels, rollups, etc., to process transactions off-chain and only settle them on-chain when necessary. This reduces the load on the main blockchain and improves the user experience of Web 3 payments.
Cross-chain bridges: These are mechanisms that enable the transfer of value and data across different blockchains. Cross-chain bridges use smart contracts or trusted relayers to facilitate interoperability and compatibility among Web 3 applications that run on different platforms. This allows users to access a wider range of services and opportunities in the Web 3 ecosystem.
Decentralized exchanges (DEXs): These are platforms that allow users to trade cryptocurrencies and tokens without intermediaries or centralized servers. DEXs use smart contracts or peer-to-peer protocols to match buyers and sellers directly, without requiring them to deposit their funds in a third-party custodian. This enhances the security, efficiency, and autonomy of Web 3 payments.
Stablecoins: These are cryptocurrencies that are pegged to a stable asset, such as a fiat currency or a commodity. Stablecoins aim to provide price stability and reduce volatility in the crypto market. Stablecoins can be used as a medium of exchange or a store of value in Web 3 applications, as well as a bridge between the crypto world and the traditional financial system.
Privacy-enhancing technologies: These are tools that enable users to protect their privacy and identity in Web 3 payments. Privacy-enhancing technologies use various methods, such as encryption, zero-knowledge proofs, mixers, etc., to obfuscate or hide the details of transactions or users on public blockchains. This allows users to enjoy the benefits of transparency without compromising their confidentiality or sovereignty.