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What is the role of Blockchain in the FinTech industry?

Blockchain will focus on rising complexity and delivery timeframes, with an increased focus on the payments area, closely followed by securities and trade finance. This blog defines Fintech and explains how Blockchain technology plays a crucial role in the financial services business.

What Is The Definition Of Fintech?

Fintech (financial technology) is a term that refers to the ever-evolving intersection of financial management and technology. It refers to the technology used in the backends of established consumer and trade financial institutions. Since the internet revolution, the word “fintech” has been used to describe technology that disrupts traditional financial services such as mobile payments, money transfers, loans, fundraising, and asset management. It relates to the technology used in the financial services business in its broadest definition. Nonetheless, it includes any other company in which the financial services industry is involved.

Financial technology is used every time you go online to view your economic activities or utilize applications to manage your spending and investments.

Blockchain is another famous phrase in the financial world nowadays. Blockchain is the backbone technology driving the Fintech revolution and plays a vital role in economic developments.

Defining Blockchain

A blockchain is a distributed; decentralized ledger used to retain a permanent, immutable record of transactional data in chronological order: blocks, a continuously expanding list of entries, and storing transactional data in a blockchain. Blockchain uses encryption to connect and secure these blocks. Each block usually consists of three parts:

  • A link to the previous block via a Hash pointer.
  • Transaction data
  • A timestamp

The primary aspects of Blockchain can be grouped as follows for a better understanding:

Decentralized: A decentralized network powered by Blockchain works on a peer-to-peer basis. Blockchain eliminates the risks associated with data maintained centrally by keeping data across its network.

Distributed ledger: A distributed ledger lets several parties share a log of activities, such as arbitrary data or essentially anything of value. To ensure transparency and prevent a single point of failure (SPOF), each computer in the distributed network keeps a copy of the ledger. All papers are concurrently updated and authenticated.

Immutable record: Blockchains are, by definition, resistant to data changes. The data in any given block cannot be modified after being recorded without impacting all subsequent blocks, necessitating network majority consensus. All blockchain networks follow the same protocol for validating new blocks.

Blockchain opens up new doors of opportunity for all players in the financial industry. The future of the financial services business is determined by how various stakeholders use technology and interact with one another.

Now that you know what Blockchain and Fintech are and how Blockchain disrupts the Fintech business let’s look at some of the existing blockchain use cases in financial services. It is evident that a lot of main sectors for utilizing blockchain technologies are emerging, but these appear to be the most important at the moment:

Blockchain technology is being used in various ways in the financial services industry.

Smart Contracts: A smart contract is a piece of computer code that runs on top of a blockchain and includes a set of rules that govern how the smart contract’s participants interact. Smart contract code can make negotiating or executing a contract or transaction easier, more secure, and transparent. The agreement is automatically enforced when these set parameters are met.

Digital Identity: Users can select how they identify themselves and with whom their identities are shared when identity management is shifted to blockchain technology. Users must, of course, register their identities on the Blockchain. They don’t have to register each service provider individually if they’re all connected to the Blockchain.

Share Trading: Several intermediaries, such as brokers and the stock exchange, purchase and sell stocks and shares. Removing intermediaries from the stock trading process speeds up the settlement process and improves deal accuracy. A blockchain is a distributed, secure ledger that gives each participant a say in transaction validation and removes certain “middlemen” while changing the responsibilities of others.

Blockchain Technology’s Future in Fintech

Although the Fintech industry is ecstatic about Blockchain, it will take several years for the technology to become a mainstream financial paradigm. Blockchain faces hurdles that must be overcome to fully realize its potential in the financial services business like any new technology.

Even though Blockchain technology is still in its early stages and the possibilities are still being explored, it is clear that it is critical to investigate and keep up with new advances to revolutionize how we conduct financial transactions in our daily lives.

Digital Payments: Historically, transferring value or assets has been time-consuming and costly. If you want to send money from the United States to a friend in India who has a local bank account, you’ll have to go through several banks and organizations to get the money. This process is streamlined and speedier with Blockchain, and it costs far less than traditional banking institutions.

Blockchain technology’s future in Fintech

Although the Fintech industry is ecstatic about Blockchain, it will take several years for the technology to become a mainstream financial paradigm. Blockchain faces hurdles that must be overcome to fully realize its potential in the financial services business like any new technology.

Even though Blockchain technology is still in its early stages and the possibilities are still being explored, it is clear that it is critical to investigate and keep up with new advances to revolutionize how we conduct financial transactions in our daily lives.

Conclusion

Blockchain technology has transformed the fintech industry; the digital revolution has swept the finance industry and continues with daily innovations. Fintech has evolved to update traditional financial institutions, and blockchain technology has proven successful in this endeavor. In the fintech business, the data privacy advantage of Blockchain has helped to develop much-needed trust between customers and suppliers.


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