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We’ve all heard about blockchain. It’s a new technology on which cryptocurrencies run, and it’s going to change how we think about money. But digital currencies aren’t the only way blockchain is going to improve our financial reality. The impact of blockchain on fintech presents an exciting opportunity. It solves some key challenges in the industry and paves the way for a safer, more democratic and decentralized future.
1. A Digital Ledger
We can understand blockchain as a general ledger maintained by an accountant, only digital and unending. With precise timestamps of transactions and no erasure of transaction data, it can follow your money through all the transactions it goes through. What’s so cool about a digital ledger? This work has, to date, been done manually to a large extent. The information from such ledgers has also never been publicly available or verifiable. With blockchain, the ledger is visible to everybody.
By following the money through its entire life cycle, blockchain fulfills urgent needs of accuracy and precision in financial transactions. It also reduces the costs of recording transactions manually, and hence makes the whole transactional process much easier and more efficient. The fintech industry has till now been working very closely with banks in order to serve customers. With blockchain, the industry needs to adapt to serving only as a facilitator of blockchain-based transactions.
2. Protects Against Fraud
For the fintech industry, there is hardly a challenge more daunting than cybersecurity. Hackers are always lurking around the corner, and falling into fraud as a company can be a death sentence. Blockchain can offer the perfect solution for such concerns. Since there are no central authorities managing blockchain transactions, there is almost no possibility of fraud. The decentralization secures blockchain from fraud and hacking.
If blockchain-based currencies could be hacked, the first to be attacked would be coins like Bitcoin and Ethereum, which store billions of dollars. The fact that cryptocurrency networks have remained secure over time with no oversight whatsoever is remarkable. It’s also exactly what the fintech industry needs. We hear news about hacking and losses in the industry too frequently. Adopting blockchain can put an end to all that.
3. Removes Third Parties
Do you know that all transactions you do with your traditional banks need to be verified through multiple channels? Real people are looking over those transactions to prevent fraud and make sure everything is in order. That adds a tremendous cost of transacting for banking and investment firms. With blockchain, you could simply get rid of these third parties. There would be no need for external verification of transactions. Just the blockchain network would be enough.
In blockchain, when a transaction takes place, it is sent to all the nodes in a network for verification. You don’t need people looking over transactions and potentially making costly mistakes. If there is ever any discrepancy, with blockchain you will be able to track it down to the exact transaction where it happened. That is the power of having a decentralized digital ledger: you don’t need facilitating institutions in the middle.
4. Democratizing Money Management
The way cryptocurrencies work on blockchain is a proven example of how blockchain can eliminate third parties. When you buy Bitcoin or any other cryptocurrency, it is stored in your digital wallet with a private key which only you can access. This ownership is defined purely by that key and is not dependent on third parties to affirm it. That is how cryptocurrencies are democratizing money in real-time.
For the fintech industry, the biggest opportunity lies in finding ways to help people participate in blockchain. Companies like Coinbase and WazirX have positioned themselves as custodians of coins, offering more security in case you don’t want to depend too heavily on your private key. By completely decentralizing the process of money management, blockchain can give you real ownership of your wealth.
We have to start recognizing that blockchain technology is inherently revolutionary. For fintech firms to ride this wave, they need to start adapting to a new financial reality. It’s not like the traditional banking sector is going extinct anytime soon, but more and more customers are starting to understand the benefits of blockchain. This is the moment when fintech companies need to step up and capture the lucrative opportunity to revamp financial services as we know it.