Every aspect of the business has been digitized. The world is gradually transitioning to a paperless society. When we look at fintech firms, however, we notice that they still rely on antiquated conventional methods. Fintech businesses operate as a centralized model, but no more transparent solutions guarantee the procedure’s integrity. In combination with other technologies and applications, Blockchain Technology is the Answer. Blockchain isn’t just applicable to cryptocurrencies. It can completely revolutionize the fintech industry. This technological upheaval may bring about a significant change in the financial sector. Due to its robustness, blockchain will soon be an essential component of fintech businesses. In fact, by 2023, worldwide spending on blockchain solutions is projected to be worth $15.9 billion. The real gold rush is just ahead, and it’s poised to be a lucrative journey for anyone ready to go. The following article will tell you where the most incredible opportunities can be found. Also, read our latest blog post based on Hot Wallet vs Cold Wallet Comparison – it will also enlighten you further.
What Is Blockchain Technology?
It’s critical to grasp the fundamental idea of blockchain before getting into further detail. Blockchain is a data recording method that makes it hard or nearly impossible to tamper with, misuse, or exploit the system. A blockchain is a decentralized database for transactions that are kept on many computers in a network. Every block of chain contains transactions, and each member’s ledger is linked to the blockchain’s history when a new transaction occurs. Distributed Ledgers (DLT) are a type of decentralized database that many individuals manage. For a more in-depth analysis, we highlighted the most essential blockchain characteristics as follows:
A blockchain-powered network eliminates the threats of centrally maintained data because it records it across the network. The distributed ledger is a synchronized database that may be accessed by numerous users from numerous locations and countries. The entire chain of blocks must be consistent, as each computer in the distributed network maintains a copy of the ledger to guarantee transparency and avoid SPOF.
2. Evolution Of Fintech
Finance is one of the first industries to start using IT, and its members have started to benefit from it. Fintech has a quick learning curve, and now financial companies are capitalizing on it to add more value-adds to the market and enhance their security.
3. Immutable Record
The procedure for validating new blocks is similar on every blockchain network. The data in any block may not alert without modifying all subsequent blocks, which requires the approval of the network. Adopting innovative techniques frequently necessitates modifications to the regulatory process, limiting the transformation of the traditional financial sector in specific ways. Conventional financial firms nowadays are eager to adopt methods and technologies to keep up with cutting-edge tech businesses, risking defeat in the battle. According to Statista, the banking sector has by far the most significant blockchain spend, with a market share of almost 30%.
Every block added to the blockchain has a “hash” of the previous block. When the block is confirmed, the node modifies its database copy. As a result, removing a block from the chain will wreak havoc on the system. Blockchain technology enables the creation of a highly secure and indestructible digital record of activities. The components work together to provide an extremely high degree of protection. This appears to be the main advantage of blockchain technology. Many other advantages include:
- Authorizing The Users
- Removing A Higher Specialist Need
- Make Faster Transactions
- Decreasing Operating Costs
- Unparalleled Transparency
Blockchain Technology In Fintech
Even if blockchain’s primary focus is financial services, this essay focuses on fintech firms using it to boost their stack. First, let us examine the distinctions between the three primary blockchains before getting into the specifics of this decentralized database. Blockchain is a fantastic invention, and its original name, blockchain, is truly incredible. Satoshi Nakamoto invented bitcoin, and they wrote the bitcoin on white paper. It’s a leader in digital business transactions that can’t tamper with or change. It’s intended to keep track of finances and all other activities with a predetermined price tag. NFT technology allows for cross-distribution and copying digital data across numerous nodes. Any error in the hash connections will be detected easily since it is designed to be difficult to tamper with. This is due to the technical complexity and intricacy behind it.
Blockchain’s Benefits For Fintech: What It Means To You?
These are some of the most amazing factors. And here is what they will signify for you guys.
1. Dependent on a Centralized System
Blockchain technology has revolutionized the financial sector. Fintech solutions, on the other hand, provided a feeling of convenience. The actual power continues to be in the hands of third parties; consumers are still waiting for confirmations in their favor. With blockchain’s arrival, this was one of the first issues solved in fintech.
2. Lower-speed Procedures
Blockchain’s second advantage is its capacity to put the whole financial system on a level playing field. Because of this, the involvement of several third parties frequently slows down procedures. As a result, satisfaction rates and market volatility go down.
3. No Trust Issues
Users of fintech applications are unfamiliar with what happens on the other side when they do anything. This generates a lot of confusion and anxiety about identity theft, ultimately lowering faith in the procedure. Blockchain application creation services address this fintech problem by providing features such as transparency and immutability.
4. Overall Operational Cost
In the financial technology sector, time is money. As a result, Blockchain technology has been demonstrated to be one of the fintech trends that may cut costs by nearly 50%. While you might have gotten a hint of the role of blockchain in finance in the preceding section, let’s go through how blockchain-driven decentralized finance (Defi) is changing the financial world.
The Best Blockchain Use Cases in Fintech
Let’s look at how financial firms use blockchain-based FinTech software to gain an advantage over their competition.
(1) Performing Financial Activities
FinTech companies use blockchain technology and large enterprises to execute global and domestic transactions. Because this technology is entirely internet-based, individuals from all over the world can conduct financial transfers. These peer-to-peer operations are managed using public and private keys that may be accessed only by the two parties involved. Furthermore, blockchain technology can substantially and by as much as several times reduce commission costs for cross-border transactions. This is mainly important in developing nations, where it can give users access to several financial services.
(2) Data, Payments, Records, & Assets Security
FinTech firms use cutting-edge blockchain technology to safeguard their assets to the highest degree possible. It’s worth noting that through blockchain, you may transmit money, royalty payments, papers, digital rights, records, and other things. Whatever is entered into the database can’t tamper with or erase, since each block in the chain contains a hash that links it to the one before it. Once something is saved to the database, no modifications are possible. As a result, no one can fabricate false information, one of blockchain’s main benefits.
(3) Making Digital Identity Verification Easier
By the end of 2018, there were 50 more fraudulent accounts. This is one of the most widely used FinTech software solutions since it allows users to create and verify digital identities using a blockchain database. Any participant may read information stored in the blockchain ledger, create their records, monitor transactions, and send them. However, if your financial services firm handles a large volume of sensitive data and must offer the highest level of security, it will have to gain control over the network. In this scenario, you should take advantage of system capabilities such as identity verification, role-based access permissions, and user authentication. Permissioned blockchains are created to meet these commercial demands. Permissioned blockchains, on the other hand, allow any user to join and contribute to the network after their identity and role have been verified. This is particularly advantageous when many parties are involved, such as the company’s employees, a leaderboard, a client, and insurance companies
(4) Ethereum Self-Executing Smart Contracts
Ethereum is a decentralized computing platform launched in 2015 by Vitalik Buterin, an Ethereum developer. Ethereum is an open-source, blockchain-based dispersed figuring platform that permits developers to build decentralized applications (DApps) by using Solidity, LLL, & Serpent. It’s a smart contract platform that enables users to create decentralized apps (DApps) using Solidity, LLL, and Serpent. Self-executing programs with a contract between many parties written into the code are smart contracts. They automatically track the contract’s completion by providing network decentralization and eliminating intermediaries (e.g., notaries). Ethereum’s smart technology has a significant impact on the financial industry. Card payments, currency exchanges, same-day merchant settlements, and international and domestic money transfers are all aided by smart contracts.
(5) Compliance with Regulatory Rules
While the number of cybercrimes and fraudulent activities is increasing, governments, security, and financial rules are continuously changing to deal with them. Blockchain technology can help FinTech firms comply with government regulations. The transaction is then validated, and the data is stored on the ledger. When it’s recorded, it can’t alter or erase. Furthermore, each action carried out on the network, such as uploading or sending information, verifying transactions, etc., is logged with the capacity to examine a performance report. Since all records in the system are readily searchable and accessible, auditors may conduct a verification check on their integrity. This allows accountants to verify documents’ accuracy, look at the original versions, and ensure authenticity. Elliptic, for example, helps banks and other financial organizations from across the world safeguard themselves against fraudulent activities.
(6) Using A Secure Blockchain-Based Scoring Method
Blockchain technology may help financial services organizations reduce expenses and guarantee data accuracy by implementing a new credit scoring system. It’s challenging to get credit in many countries, particularly the United States, without a long-established track record and high score. Furthermore, certain records may lose or amend later than they should be. Blockchain technology can assist firms with these problems. Using real-world scenarios, Colendi introduced a blockchain-powered credit scoring and microloan platform. The solution analyzes distributed financial data information, merchant transactions, shopping data, telco payments, and so on—and generates the score using the decentralized engine and protocol. The financial passport is created with the results.
(7) Using Blockchain For Cryptocurrency Trading & Stock
This cutting-edge technology can help businesses and folks significantly streamline financial activities in finance. You may develop a blockchain-powered FinTech service that allows you to create, purchase, and sell stock. Because you won’t have to connect third parties, the speed of your operations will improve. Furthermore, blockchain contributes to increased security. Invest in digital money by way of a cryptocurrency exchange platform. This blockchain-powered solution provides real-time data visualization, financial metrics analysis, and the ability to refill e-wallets and withdraw funds.
Most Famous Solution of Blockchain Fintech
Below we have highlighted some of the most noteworthy solutions based on Blockchain fintech – and these are:
(A) We.Trade – Blockchain is being used as a single database by IBM’s platform with 12 major European banks, allowing all
counterparties to access the same information on trade transactions and adding an element of security to the system.
(B) Robinhood – Robinhood is another solution disrupting the fintech environment with the aid of Blockchain technology.
(C) Circle – Another fintech firm, Circle, also allows customers to invest in a variety of cryptocurrencies, such as Bitcoin,
Stellar, Ethereum, Zcash, Litecoin, EOS, and Monero.
(D) LAToken – LATOKEN is a crypto trading platform that connects real and virtual economies.
(E) CryptoPay – CryptoPay is one of the fintech firms that offer the greatest blockchain-based payment services.
What Lies Ahead In The Future?
Bank of America has predicted that Bitcoin, Litecoin, and Ethereum will make up half the market by 2020. Traditional cryptocurrencies are on track to gain share due to their low transaction fees (typically less than one penny each), making them more attractive for merchants who benefit from cheaper costs. E-wallets and entirely virtual transactions have a lot of potential. Blockchain projects are looking at ways to use the technology to their advantage, particularly in authorized (non-public) blockchains where efficiency and potential inconsistencies can be removed. A self-verifying network opens a world of new economic transactions conducted at low or large volumes. To summarize, contemporary customers want to have complete financial control. They desire quick and transparent money services. Any fintech firm’s main objective is to satisfy this demand. Until recently, a decentralized system run by its users was thought to be uncontrollable, free of charge, and unrestricted by any government. Thanks to blockchain technology, it is now possible. Many organizations use this technology to provide their consumers with smooth financial services.