While we now use phones to initiate transactions and ask AI-powered chatbots to check our savings, the very core of how our finances work failed to keep up with the 21st century. Despite all the tech at their disposal, financial regulators still operate exactly the same as they did decades ago.
Although they’re fueled by our hard-earned money, financial entities hold the power to block our transactions, take countless fees, collect and keep personal data, and dictate the terms of how we use our own paychecks. It’s astonishing how little control we actually have in this arrangement despite the fact banks and other financial regulators are supposed to be helping us manage assets that belong to us, not them.
While most of us have been programmed to think centralized models are the only viable way of handling large amounts of money, the fintech industry has been pioneering various alternatives for years. Yet, while there have been some amazing achievements resulting from fintech trends, challenging the fundamental status quo of how our money is stored and handled proved itself too big of a barrier to overcome – at least, until now.
With blockchain, fintech might finally have the type of technology needed to make a true dent in our obsolete financial sectors. By leveraging this new factor in the financial equation, fintech companies can use properties inherent to blockchain systems to truly transform how our economy works.
Fintech and Blockchain, a Recipe for a Perfect (Financial) Storm
In a nutshell, fintech can be described as a root of innovation operating at the intersection of financial services and technology. Whenever you go online to examine past transactions or use a piece of software to manage spendings, chances are you’re relying on solutions that rolled out from the fintech sector.
The main calling card of fintech companies is enhancing traditional financial services through the use of applications. Figuring out how to improve processes such as mobile payments, money transfers, loans, fundraisings, and asset management can be regarded as the focal point of the fintech industry.
Obviously, the nature of these kinds of processes is right up blockchain’s alley.
While its reach extends far beyond economics, blockchain makes for a hand-in-glove fit with what fintech hopes to accomplish. This is, of course, in part due to its origins – the very first functional blockchain was used to run Bitcoin, so enabling secure and fair transactions is what distributed ledgers do best.
The use of blockchain in fintech opens a whole new world of opportunities for the financial world. With a little bit of luck and ingenuity, the rise of blockchain in fintech industry could pave the way to completely democratized methods of managing our money.
The Value of Blockchain in Fintech Industry
Essentially nothing more than a series of immutable blocks, blockchain tech can serve as a foundation for all sorts of fintech apps. In the hands of a proficient developer, a blockchain can transform regular financial processes into fully democratic and transparent procedures with secure, efficient transactions.
What’s more, fintech blockchain apps can eliminate the ever-present issue of trust between two transacting parties operating on equal terms. Between bulletproof identity authentication protocols and governance of smart contracts, applications of blockchain in fintech would be some of the most secure pieces of software on the market.
If we play our cards right, blockchain can be used to create a fintech spiral that completely revamps the industry. Financial transactions that require no middleman, peer-to-peer networks, lightning-fast transactions, no hefty fees or geographical boundaries, bullet-proof security, total transparency, etc. – these are all massive steps in the right direction, so it’s only natural that both fintech startups and industry giants have already started to push the envelope with blockchain financial networks.
Yet, while impressive, the aforementioned list does not truly capture the gist of what fintech blockchain apps can do – with such pieces of software, owners of assets can be handed back the control and power over what they own. At first glance, this may seem like a small tilt in the right direction, but in fact, it would arguably be the most remarkable reform the financial world has seen in the last century.
A Closer Look at How Blockchain Fits the Fintech Landscape
The main reason why fintech and blockchain make for such a seamless fit can be bottled down to a single inherent property of blockchain-powered networks – like all DLT (Distributed Ledger Technology) systems, they are totally decentralized in the way they operate.
Obviously, this is a direct contrast to how our current economy works. Banks and governments, the two main spearheads of FIAT currencies, are heavily reliant on centralization, which means introducing blockchain fintech solutions would entail bringing the entire financial structure down. We’d get an opportunity to reform our economy from the ground up – and that’s precisely what blockchain fintech companies are trying to do right now.
Here’s a list of some key benefits and real-life applications that will paint a clear picture of why blockchain fintech use cases are garnering so much hype across the globe:
Faster transactions with no middleman
Transferring funds or assets has always been an infuriatingly drawn-out process if you rely on traditional banking routes. Sending a mere 50 bucks can take ages to complete while two banks go through all the necessary hoops and protocols needed to green-light the transaction.
With blockchain fintech apps, the process of sending money, regardless of how much, is significantly faster – what’s currently a matter of days can easily become a matter of minutes. Furthermore, a quality fintech app can have a real-time data updating feature that even further ensures smooth, transparent, and error-free transacting.
Secure digital identities
Digital identity management has long been hailed among the most promising blockchain use cases out there. Unsurprisingly, this relates extremely well to a financial context, especially since we’re talking about peer-to-peer networks used for exchanging money.
As long as blockchain fintech companies ensure that the registration process is sound, end-users will never have to worry about who the person on the other end of the transaction is. There would be no risk of accidentally dealing with the wrong person, while most know-your-client and anti-money laundering procedures would be boiled down to mere formalities.
Furthermore, if we were to build a high-end blockchain fintech app, registering on it would only have to be performed once. Every subsequent login would never require additional info other than the private key, plus it would be possible to use the same profile on other blockchain systems (as long as the networks are connected in some form, of course).
Smart contracts guarantee peer integrity
Smart contracts are deceptively simple chunks of code within blockchains that are essentially multiple-outcome arrangements that get executed if certain conditions are met. Vital cogs within any fintech blockchain app, smart contracts would basically take on the role of what banks do in current financial settings – they guarantee that certain funds will be transferred if certain conditions are met.
Smart contracts introduce a strong sense of integrity between the peers in the system as any arrangement would be enforced impartially and automatically.
Of course, the capacity to create apps in which there’s no need to doubt the validity of arrangements can do wonders for fintech startups which still don’t have the track record needed to automatically raise trust among new and potential users.
Decreased transaction costs
A study by McKinsey from a while back states that remittance companies are making around $40 billion per year thanks to fees they take from orchestrating transactions. Sadly, this situation did not change too much in the last half a decade as financial regulators are still making a fortune by essentially permitting us to use our own money.
Blockchain fintech applications can drastically decrease the cost of sending and receiving funds. They enable direct, peer-to-peer transactions that eliminate any and all intermediaries, meaning all unnecessary costs and fees are taken out of the picture as well.
A global network without geographic restrictions
Blockchain technology is entirely internet-based, so it does not need any specific setup for operating. There’s no need to tie into any local regulation or entity, so people can access their data and manage funds from every corner of the world. All a user needs is his or her private key to access the account and they’re ready to start transacting.
Obviously, this would be a massive upgrade to how our finances are currently being managed. Right now, transferring funds from one country to another can take days to complete, while regional banks even retain the right to deny transactions if certain parameters are not met.
With decentralized systems, however, blockchain fintech companies can turn global transactions into swift, routine protocols with only a single requirement – access to the Internet.
High-end regulation and auditing
Of course, placing blockchain in the center of our economy would not eliminate the need for regulatory services. In fact, as we’re pushing for a single network available to anyone who has a connection to the Internet, the need for quick and effective auditing of transactions would be at an all-time high.
Luckily, building apps on top of blockchain would enable fintech developers to create top-of-the-line auditing protocols. A blockchain functions as a storage of linear blocks that adds a new entry for every new action, but it never tampers with old blocks no matter how big the system gets. This can provide all the data needed to conduct a quick and secure audit of transactions, which is precisely why transparency is something experts hail as the main upside of blockchain networks.
Security improvements across the board
One of blockchain’s main calling cards is its ability to protect whatever kind of data is stored on it. Of course, this aligns perfectly with what fintech companies need in order to make reliable pieces of software.
Fintech blockchain systems decentralize the data stored within them and keep it in separate storage spaces. They also deploy robust security algorithms backed by high-level identity verification protocols and cryptography, adding layer upon layer of security measures.
Furthermore, the use of blockchain in fintech helps curb data breakings and other fraudulent operations from taking place. This enables fintech businesses to create systems that share safe and unaltered information through a completely decentralized network.
Blockchain Fintech Solutions Are About to Become the Backbone of the Financial Revolution
Blockchain in fintech industry can provide us with a far more seamless and effective alternative to banking, one built around the ideas of fairness and decentralization.
However, while blockchain use cases like supply chain management and real estate tokenization are enjoying relatively quick deployments, it will take a few years for decentralized networks to become a truly mainstream financial model. We’re simply dealing with something too radically different to what we’ve currently got in place for anyone to expect a quick, painless transition and no amount of enthusiastic fintech trends can change that.
Nevertheless, it’s hard to deny that we’re on the verge of something really big.
Quick transfers of funds, dirt low transaction fees, top-of-the-line security, transparent financial tracking, sovereign resource management with no greedy middleman. Fintech blockchain apps can bring all of that and much more to the table, displaying a clear potential to transform one of the most essential aspects of our day-to-day life.