Blockchain technology’s role in fintech and finance

Blockchain

Blockchain technology’s role in fintech and finance

At first glance, the world of finance might seem completely different from what it was a few decades ago. After all, we can now make payments via the internet, send money between accounts, purchase stuff online, invest, trade currencies, and more.

However, a deeper, more detailed look would show that things really aren’t that different, apart from a few relatively new possibilities, such as sending money without having to actually enter the bank.

In other words, things have remained mostly the same at their core, despite modern technological advancements and possibilities that they provide. It is still heavily centralized, which means that freezing your account and confiscating your money can happen at any time.

Meanwhile, making transactions is unreasonably slow and expensive, and every service that participates in the transaction wants a piece of the pie, which leads to countless fees. Things are not looking any better when it comes to the amount of personal data that financial services collect.

All in all, it is quite astonishing how little control you have over your own money unless you use cash. This is why people around the world decided that it is time for things to change, and that is why blockchain and fintech are among the fastest-growing industries out there right now.

How can blockchain and fintech impact the financial industry?

Blockchain is a fairly young technology that has only been around for a little over 11 years. It was invented in 2009, alongside Bitcoin, as the coin’s underlying technology.

Since then, it demonstrated its massive potential to not only change the way finances work but pretty much every industry out there. However, today, we will focus on its impact on the financial world, rather than some other sector.

Meanwhile, fintech can be viewed as a root of innovation. This is the name for the area of technological development that operates at the intersection of technology and financial services.

Basically, whenever you use any of the modern features that allow you to manage your funds via a phone app, or view your transaction history, or anything like that — you are relying on fintech solutions.

To put it quite simply, fintech’s role is to enhance traditional financial services by using the software. This is the sector that brought us mobile payments, the ability to manage assets via your smartphone or computer, the ability to take loans online, and more.

Obviously, fintech and blockchain are not that different, as they both aim to make transactions easier, and money-management simpler and more straightforward.  As such, blockchain technology is a perfect fit for what fintech aimed to accomplish for all these years.

Blockchain was made to revolutionize the financial industry

Blockchain technology came alongside Bitcoin, to allow it to operate, and to take away the excessive power that financial institutions and banks have over the funds of regular people.

The way banks tend to operate is flawed, but even so, little has changed to fix these problems. The issues themselves seemed complex and unfixable, but that finally changed a little over a decade ago.

It happened in 2008, when one individual or group, known only as Satoshi Nakamoto to this very day, created the first cryptocurrency — Bitcoin — which ran on top of the blockchain.

Nakamoto created BTC in response to the financial crisis. He offered an alternative way of decentralized payments and money management, and while his inventions does have its flaws, it is also invaluable for its benefits. Many of its problems have yet to be fixed, although many believe that this is the tech of the future and that it deserves proper attention, dedication, and work.

What is blockchain, exactly, and how does it work?

Blockchain is essentially nothing more than a decentralized distributed digital ledger. It is a series of immutable packets of information, called blocks, which can serve as a foundation for all kinds of fintech apps.

Initially, its only use case was to serve for making Bitcoin payments. Over the years, however, projects such as Ethereum expanded its possibilities, leading to decentralized applications, exchanges, and countless new cryptocurrencies that are meant to solve different problems or offer a technologically-superior solution when compared to BTC.

Blockchain has brought speed to making transactions, and with it, even international payments can be done in a fraction of a second. It reduced the cost of payments, where transaction fees now only cost a few cents, or even less, instead of having to pay 5%, or whatever the banks decided you should pay for their service.

It brought transparency by making all transactions completely public, and it allowed the option to track the coins’ movement, which is meant to eliminate things like corruption, smuggling, and plain old theft.

Obstacles on the road ahead

Of course, blockchain technology is not as perfect as of yet, and there are many issues that still require addressing. This is something that has been difficult to solve due to multiple reasons, such as the lack of regulations, as well as the fact that this tech remained relatively hidden from the light of day for a better part of its existence.

On top of that, it is hard to perfect something that is still evolving, and many experts agree on the fact that blockchain evolution has only scratched the surface of its full potential.

Even so, there are great things that developers predict for blockchain, as well as for its ties to the fintech world. Blockchain apps can be the next step in fintech, due to all the benefits mentioned above.

They can eliminate the need for trust while increasing privacy and security, as well as the immutability of transactions. Everything can be done through smart contracts, which are self-executing, and run by software. In other words, there is no need for third parties that would charge fees for their services, and there is definitely no way to change the contract after all participants agree on it.

Conclusion

As things are now, blockchain and fintech go hand in hand, and if we play our cards right, they can forever change the way we approach finances. There is still a lot more work to be done, without a doubt.

However, it will all be worth it in the end, if the world of finance ends up being changed permanently for the better.

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