Advancing Fintech with Blockchain
Blockchain has been among the top technologies to gain investors’ attention in the last decade. It led to a wave of revolutionary innovations such as cryptocurrencies, non-fungible tokens (NFT), digital identity security, secure banking, etc. Among them, the Fintech industry has realized the most transformative capability of blockchain with various applications and utilities emerging from it.
How Blockchain can help Fintech?
Blockchain functions using three main components – block/node, network and hash. Consider the main unit of data about the transaction to be a block/node and when all of these nodes are put together it creates the decentralized network. The blocks are linked to each other using a hash that functions like a chain connecting two physical entities, hence the name blockchain. The hash creates a unique digital fingerprint and protects the integrity of the data in each block securing them against counterfeiting. This capacity to operate from a decentralized network without affecting data integrity makes it a powerful tool for financial transactions.
In financial terms, the blockchain becomes a distributed ledger. By leveraging the power of decentralization enabled by distributed ledger technology (DLT), Fintech transactions can be processed and approved faster than ever. This proves very effective in the case of cross-border transactions that can take hours to days in some cases. Data suggests that once harmonized globally, transactions enabled by blockchain will cut down cost per transaction by 45 percent. The traditional process to enable the same uses heavy mainframes and data centers that are vulnerable to malware attacks while leaving a huge carbon footprint.
Real-world Applications
While transaction speeds are the reason why blockchain is in news, that is not the only application their functionality is limited to. The DLT allows them to be repurposed for various other areas.
Digital Signatures - The hashing mechanism perfectly fits to secure digital signatures and make their encryption simple for the intended users but non-fungible for hackers. This makes them authentic and highly reliable for users.
User password verification – A hashed password does not reveal the original password but creates an extension (hashed version) that can be used to authenticate and identify the user, allowing them to secure their identity against brute force attacks.
Cryptocurrency – The most obvious application for blockchain, companies like Bitcoin and Ethereum have been actively using blockchain capabilities to generate universally accepted digital currencies to simplify and extend their reach without being delayed by third-party verifiers that delay the process. Right now, they are used by people with awareness and face a considerable amount of pushback due to a lack of understanding. While different cryptocurrencies are trying to make their way into the market, their application is best suited for generating crypto versions of national monetary units (decentralized finance development). This can extend their utility and bring them closer to general users for day-to-day transactions.
Smart Contracts and recurring transactions – Fintech businesses are continuously engaged in making contracts and transactions. Applying blockchain that uses Hyperledger (a more intricate network) and a deterministic approach (bound by conditions) simplifies the transfer of digital assets while enforcing the terms and conditions. The same can be extended to securities, trade bonds, etc., making them secure and trustworthy without involving third-parties, allowing multi-party signatures if required.
The use cases and real-world applications are currently isolated. Once they are used in tandem with other technology, the reach as well as the utility will increase by multiple folds. Banking institutions and financial companies can use it for Know-Your-Customer (KYC) verification, tracking trades and securities, document authentication, insurance settlements, and many other functionalities as they emerge. The Fintech-blockchain collaboration is only going to increase owing to its natural fitment with the industry requirements. They are eventually expected to spawn into enterprise-wide applications.
Ask Exalogic Consulting to learn how businesses can use decentralization to secure and improve their Fintech operations. Integrate the distributed ledger capability with business operations, today and claim share from the projected business value for blockchain.
