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Blockchain Apps Will Transform P2P Payments




Venmo and other web-based social-finance apps are growing in popularity, but they generally have substantial limitations because of the internet's functionality. Blockchain technology removes these limitations, and will be at the forefront of transforming the way in which value is transferred between individuals throughout the world.

In order to facilitate transactions without incurring the costs of services like eBay and Amazon Marketplace, consumers are increasingly looking for inexpensive or even cost-free ways to transfer money to, and receive money from, other individuals. 

Several emerging web-based peer-to-peer money transfer applications promise to deliver the same basic service: a fast, free, simple way to transfer money to another person. However, all of these apps have significant limitations. For example, many P2P payment (or “social-finance”) apps allow transfers only within a particular geographic region. Further, because they require users to provide personal financial information over the internet, they are all vulnerable to hackers. Blockchain-based payment systems can remove these limitations by providing seamless, worldwide payment functionality.

Venmo is particularly popular with millennials, as it combines social media with a user-friendly, free money transferring platform. Users who create accounts using their Facebook accounts are able to send messages to other Venmo users, and can see how their friends are spending money. While innovative, this platform has substantial limitations and security issues. For example, money transfers are limited to senders and recipients within the United States who have registered for a Venmo account. Further, Venmo’s security has been an issue since its inception, and recent hacks have not helped its image. Users are quick to talk about the many benefits Venmo offers, but they fail to recognize some of the very serious implications of using a third-party application to store and transfer money.

For example, one user was never notified when his Venmo account was hacked, and was only notified of a large transaction by his bank:

Chase had pinged Grey not about a credit to his account, but a debit for $2,850, through Venmo. Confused, Grey tried to pull up his Venmo account, but his password no longer worked. He used the reset option to get in, then inspected his settings. Under email authentications, a new address appeared. Notifications were disabled. Grey’s payment history showed that the funds—slightly below Venmo’s weekly sending limit of $2,999.99—had been sent at 3:09 p.m. the day before to a user he didn’t recognize. Some text listed the transaction’s ominous-sounding purchase: “for about time.” Clearly, something was wrong—yet Venmo hadn’t notified Grey that anything suspicious could be going on. “I never got an email that my password had changed, that another email was added to my account, that another device was added to my account, or that a lot of my settings had changed,” he says. A colleague and I were able to duplicate this lack of notification with a quick test: Venmo doesn’t alert you if your password or email credentials change from within the account.

TransferWise is a social-finance app that permits users to make some cross-border payments, but it cannot handle payments where both parties are in the U.S. TransferWise only permits transactions where a U.S. user is sending money to a recipient in a country in which TransferWise operates. Thus, an individual who wants to engage in transactions both domestically and internationally needs to use two completely separate apps and even then there will not be worldwide coverage.

WeChat is another social-finance app that allows communication between its users. It can be used to facilitate cab-hailing, food-ordering, and appointment-booking. It is most prevalent in China, which permits users to transfer money to personal bank accounts with a WeChat Wallet, but charges a fee of 0.1% for transfers above 1,000 yuan (approximately $153). WeChat currently has 650 million users and is China’s most popular mobile messaging app.

Blockchain technology can easily remedy the weaknesses of web-based social-finance apps, as the distributed apps that run on a blockchain (“Dapps”) provide immutability, security, privacy, and efficiency. Additionally, as the blockchain effectively exists anywhere in the world, it has no geographical limitations. The blockchain-based application, Circle, is a payment application with a simple proposition: “[S]end money anywhere, in any currency, without the friction (transfer delays and fees) of traditional clearance options.”

Most importantly, Circle transactions are not limited to virtual currency:

Circle still runs on the bitcoin blockchain as its rail, but now Circle users can deposit money to Circle from a Visa or MasterCard credit or debit card, and never have to deal with bitcoin at all. (Circle’s website doesn’t even mention the digital currency.) “No one ever sees bitcoin, it’s just underneath,” says co-founder Jeremy Allaire. “If you want to, you can. But we think the number of people who want a non-state-sponsored digital currency as their primary currency is really small.” Circle uses the bitcoin blockchain because it is permissionless, open and global—and that will be its key weapon in the battle over payment apps, which has heated up quickly. 

Because it is built on a public blockchain platform, the process of sending money via Circle is quite simple. It is seamless, like the processes in which people in different countries communicate via email, or where a person in one country views a website that is based in another country. The ability to provide an instant worldwide payment system places Circle far ahead of web-based social-finance applications.

Bitwala, another blockchain-based Daap, recently launched Bitwala Messenger, which allows its users to interact and send money to each other. Users are able to transact using all major Altcoins because of its partnership with ShapeShift. This makes it more convenient for users to exchange money without having to worry about geographical limitations.

Blockchain-based payment Dapps are also attractive to consumers who value their privacy and want to maintain complete control over their personal information. By allowing payments using virtual currency, users are able to transfer virtual currency anywhere in the world without having to create/maintain bank or credit card accounts. This means users will not be required to divulge private financial information such as bank account information or credit card/social security numbers to third-parties.

While web-based social-finance apps are growing in popularity, they generally have substantial limitations because they are limited by the functionality of the internet. Blockchain technology removes these limitations, making it the forefront of transforming the way in which value is transferred between individuals throughout the world.

Jeffrey Berns

Jeffrey K. Berns is the Managing Partner and head of the Los Angeles office for Berns Weiss Inc. Over the course of his 25-year legal career, he has tenaciously fought for the rights of consumers, concentrating his practice on consumer lending and consumer fraud class actions. Among his other accomplishments, he led a group of 20 law firms that prosecuted cutting-edge class action cases against financial institutions, such as Countrywide, Wells Fargo, and JPMorgan Chase, concerning destructive negative amortization loans that unknowingly caused borrowers to assume tens of thousands of dollars of additional debt. These efforts led to settlements comprising hundreds of millions of dollars in cash payments and substantial loan modification relief. Visit for more info.

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