How Blockchain Is Guiding the Future of Fintech
Fintech is a rapidly growing industry, thanks to the increased popularity of its online financial applications and the convenience that comes with them. While there are various pieces of technology contributing to the rise of financial technology, one of the most important is blockchain. In fact, blockchain is often considered the central driving force behind the entire fintech revolution. Learn how blockchain is guiding the future of fintech.
What Is Blockchain?
At its core, blockchain is a way to store transactional data. What differentiates it from traditional data storage mediums is that it is decentralized, with a distributed ledger that’s accessible by multiple parties. The transactional data is stored in chronological order with individual records called blocks. Multiple blocks connect together to create the blockchain, and each individual block, as well as the blockchain, is secured and linked using cryptography. Each individual block includes a link, known as a pointer, to the previous block, a time stamp, and the transaction data itself.
Blockchain is different from traditional data storage due to three primary concepts. First, blockchain is decentralized, as the blocks in the chain are stored across a network of computers. Second, blockchain features a distributed ledger, which creates transparency and prevents a single point of failure since all versions of the ledger are updated at the same time. Finally, blockchains always have accurate data since they inherently can’t be modified. Validating a new block requires information from all the previous blocks, so in order to change the data in any given block, all the subsequent blocks would have to be modified as well. Because of the decentralized nature of the blocks, that simply can’t be done without full consensus of the network.
Fintech and Blockchain
What is the most pressing issue when it comes to fintech companies? Given that they’re able to process so much information digitally and easily, the primary concern is security. The technology is easy for customers to use, so that means it would be easy for hackers to compromise, according to many people’s thinking. Security is certainly possible, but fintech companies, especially startups, lack the financial means to establish a comprehensive security system like a traditional bank would be able to. That’s where blockchain can help.
Not only is blockchain adept at creating secure transactions, but it’s relatively cheap compared to other security solutions, making it the perfect answer to fintech companies looking for affordable answers to encryption. With blockchain, the entire lifecycle of a transaction can be tracked and verified. In fact, the mere existence of a block on the chain already demonstrates verification. Not only is this method secure, but it’s also transparent and functionally democratic, which will make a lot of customers, from individuals to businesses, far more comfortable using fintech services.
The Power Behind Blockchain
Blockchain is such an impactful game-changer in the world of finance due primarily to two inherent features. Blockchain is decentralized, and it’s distributed. Traditionally, completing a transaction means going through a third party, like a bank. That third party would hold all the data related to that transaction in a single source. Blockchain eliminates the need for that third party and puts the power back into the parties actually exchanging in the transaction.
With the distributed infrastructure, blockchain ensures data integrity to eliminate fraud and to create a useful way for businesses to build trust among each other and their customers. Given the democratized ledger that everyone involved has access to, third parties are no longer required for record-keeping and management since that function is carried out automatically during the blockchain process.
It’s easy to see how blockchain has already impacted the fintech sector. Smart contracts are growing in popularity, thanks to the blockchain that controls the set of rules necessary for the contracts’ terms to go into effect. Even digital payments are simpler with blockchain, as fewer intermediaries are necessary. This is especially useful for international commerce. Additionally, a blockchain can act as a digital identity marker, so people and businesses can trade with any other institution that’s also connected to the chain without having to register identifying information again.
Blockchain’s Mainstream Future
The future of blockchain in fintech is uncertain, but it’s sure to play a major role moving forward. New possibilities are likely to be discovered, as this adaptive technology works with a variety of different systems and services. It’ll likely be several years before blockchain becomes more mainstream in the realm of fintech, but as traditional banks and online-only financial institutions continue to emulate one another and expand their offerings, blockchain can make the process easy and secure for them all.