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Fintech has long been known for its innovation and powerful pushback against traditional banking norms. That’s why, as blockchain rises in popularity, it’s often fintech companies that are leading the charge for adoption.
With so many different applications, I’m one to believe that blockchain isn’t only helpful for fintech, but essential. It brings with it transparency, security, and scalability that the tech leaders of the past could only dream of.
By creating an immutable and distributed ledger, blockchain is able to help protect against possible points of failure in the system, as well as reduce fraud and cost associated with back-end operations. If that sounds like something you want in on, let’s dive in and find out how your business can be transformed through blockchain.
Key Applications of Blockchain in Fintech
There are countless ways that blockchain can help give your company a competitive edge. Here are a few of my favorites.
Lower Cost-Per-Transaction
Stop me if you’ve heard this one: you’re all set up for a transaction online. You’re working with PayPal or Stripe, and they charge a transaction fee for processing the payment. The deal is international, so you have to take out another chunk to convert the currency.
All these middlemen not only up the cost of any transaction, they also slow the process way down. Now you’ve wasted time and money just trying to transfer funds from one person to another.
Working with the Blockchain allows you to make these same transactions without any outside interference. People can move funds from person to person quickly and with no additional cost.
Top Notch Security
Identity theft is on the rise, with over 15 million Americans being affected in 2021 alone. It’s the shared responsibility of FinTech companies and their users to keep everyone’s data safe.
Blockchain features several key mechanisms that make this easy.
- Decentralization - Rather than having all data stored in a single location, every transaction through Blockchain is stored and verified on several computers. In order for a malicious actor to manipulate a record, they would need to gain control of over 50% of the network’s computational power
- Encryption - Data on the blockchain is encrypted using cryptographic algorithms and digitally signed with a sender's private key to ensure legitimacy. Cryptographic hashes also link transactions together, forming a secure chain
- Immutable Ledger - Every single transaction on the Blockchain is a permanent and unchangeable part of its transaction history. This provides an unprecedented level of transparency and accountability.
- Digital Identity Verification - Blockchain creates a secure digital identity that an individual can control. This digital identity is secured by cryptographic methods, reducing the risk of identity theft
All of these factors work together to make each and every transaction as secure as possible.
International Trading
The decentralized setup that is key to blockchain usage means that connections and transactions can be made from any and all corners of the world. This freedom for international trading is a huge pull towards the blockchain for many people, with yearly international transactions projected to reach over one billion as soon as next year.
Without having to deal with currency exchange and regulated borders, this system can open up a whole new level of international trading for you and your team.
Simple and Effective Audits
As I mentioned before, each transaction is held as a permanent part of the blockchain. This means you can look back at any time and see what happened and when.
This makes auditing easier than ever because you can collect all the relevant data in one place.
Nearly Infinite Scalability
Blockchain platforms have the capability to quickly process huge volumes of transactions without any delays, giving them a clear edge over the competition. If your team is looking to scale up their operations or handle a huge influx of business, this is a huge bonus.
Blockchain also facilitates the development of complex applications and systems. With many teams already working on decentralized apps with the help of blockchain technology, the potential for new and innovative fintech applications is unlimited.
Investments and Loans
Any attempts to secure investments for your business through a bank is going to require a detailed credit history and financial report. This is how they ensure their money is in good hands.
If your business is done through the blockchain, you can quickly and easily pull up those records and show off your financial savvy. The investment ledger is built into every single transaction.
If you’re looking to drum up some funds without a traditional investment firm, you can use the blockchain to attract and facilitate investments from the general public. You can even secure funds from non-accredited investors by setting up your own NFTs or cryptocurrency.
You can also offer Initial Coin Offerings (ICOs) which mirror Initial Public Offerings in traditional finance. Instead of selling shares in a company, ICOs offer tokens that often represent a digital asset or utility within a project or platform. These tokens can have various functions, such as providing access to a specific service, voting rights, or serving as a store of value.
All of this makes crowdfunding a far more viable option for startups than it was in the past.
Top Blockchain Use Cases
Still at a loss for how you can put these applications into practice? Here’s how some of the top Web3 Fintech companies are changing the game. You can use these as jumping-off points for your own innovation.
Chainlink: Secure Smart Contracts
Traditional contracts rely on an outside force to verify and bind their users' intentions. Blockchain allows parties to have secure contracts without that outside person because it is digitally signed and stored.
Creating a long-term agreement without relying on a third party isn't just cost-efficient, but it also creates trust between the parties involved. However, without a connection to the outside world, there's no way for the terms of these online contracts to be enforced.
That's where Chainlink and similar companies come into play. They offer a decentralized oracle network that connects smart contracts to real-world data, such as commodity prices, or off-chain payment calculations.
Smart contracts, then, are programmable contracts that exist on the blockchain and are enforced once certain conditions are met. Rather than relying on a third party to ensure compliance, the contract's code self-executes the terms of a transaction once they've been met.
Circle: A Steady, Global Stablecoin
Picture this: You walk into a candy store with a shiny Bitcoin in your hand, feeling like you could buy all the sweets you want. But hold on, the Bitcoin price decides to do a crazy rollercoaster ride, and suddenly your candy money just flew out the window!
Stablecoins solve the problem of fluctuating cryptocurrency prices. By pegging the currency to a stable asset, like gold, or a fiat currency, these digital assets retain their value. Circle is a leading stablecoin provider that specializes in digital currency backed by the American dollar.
The key benefit of Circle is its global reach. By using blockchain to enable its payments network, Circle is able to offer conversions between fiat currency and digital currency anywhere in the world, quickly and economically. This makes it the perfect tool for individuals and businesses that want to send money overseas.
Benefits of Blockchain
It can be a huge jump to implement this new technology into your business operations, but big risk means big reward. Companies that use blockchain can enjoy
- Security - With its focus on cryptographic security and distributed ledgers, blockchain provides an ideal platform for banking and financial services providers to securely store and transmit transactional data
- Cost Savings - With fewer fees charged by brokers and intermediaries, banks and financial organizations can save a lot of money by using blockchain
- Automation - Blockchain technology enables automatic transfers and payments based on the predetermined rules programmed into the system
- Transparency - All participants in a blockchain have access to the same, up-to-date ledger of transactions, providing complete transparency
- Speed - Transactions processed through blockchain are often significantly faster than those processed through traditional banking systems
- Inclusion - Blockchain is ideal for reaching out to those who cannot access traditional banking services, such as those in developing countries
- Scalability - With its decentralized architecture, blockchain can scale to handle an ever-increasing load of transactions
All of these combined make the jump to blockchain a no-brainer for any fintech startup.
Challenges of Using Blockchain
As excited as I am to get you invested in blockchain, I’d be amiss to not warn you of some of the challenges and kinks still being ironed out. As you start your Web3 journey, keep these potential roadblocks in mind.
- Regulation - Governments are still in the process of figuring out how to regulate and tax blockchain technology, leading to uncertainty for businesses
- Adoption - For blockchain to become commonplace in the finance world, it needs to gain the trust of investors, banks, and institutions
- Cost - Despite the cost savings associated with blockchain, the equipment and infrastructure needed to use this technology can be quite expensive
Even with these factors slowing it down, blockchain can be a vital part to any enterprise, and as more and more companies jump in, the challenges are sure to dissipate soon.
Bottom Line
Being in fintech is an inherently boundary-pushing state. You’re likely invested in the field to find and craft the future of finances. Blockchain can be an invaluable tool in making that dream a reality.
From security to cost-efficiency, fitting blockchain into your operations can make all the difference in a smooth launch and long-term success. With a bit of research, and willingness to take a risk or two, your business can still be one of the first to harness this power and change the financial world.
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