Innovative Ways the Blockchain Could Change Fintech

  • Blockchain
  • 20.07.2022 01:10 pm

As human beings we constantly seek change and innovation within our world, and this is especially true in the worlds of finance and technology. It’s only natural then that these two spheres would combine, and these innovations are used to improve the service offerings and the way things are done. Blockchain is perhaps one of the most exciting innovations that naturally fits into the world of finance, particularly as we become more aware of how private companies and banks are in complete control of our money and finance. What exactly is the blockchain then, why should we care about it, and how is it changing the world of finance?

First, What Is FinTech?

Before we look at the blockchain and how it is changing the world of FinTech, we should make sure that we’re on the same page about what exactly FinTech is. The name is of course a combination of Finance and Technology, and it refers to a specific crossover where the world of finance meets the world of technology. For those studying their Masters in Business Management at Aston University, this crossover of business units is something that they’ll encounter often.

The way finance uses technology and the way these two fields mesh together is FinTech. We all make use of the product of FinTech every day of our lives whenever we do a wire transfer or use a banking app. This might be simple things like finance and payment apps, or it might be more complex things like, well, the blockchain’s use in finance.

And the Blockchain?

The blockchain and blockchain technology can be quite difficult to grasp quickly. The blockchain is something of a very decentralised database made up of blocks of information that are stored and shared amongst the nodes of a computer network.

Like we said, it’s complicated – but the biggest takeaway that you should know is that the blockchain, using its underlying technology, provides a guarantee of the accuracy and fidelity of the data contained within it. This allows it to be used to generate trust without the need for a central company or third party, thus making it a decentralised way of recording and verifying transactions.

Most commonly we see them spoken about in the context of cryptocurrencies like Bitcoin and Ethereum, but the blockchain technology has many more uses than this.

It’s All About the Digital Ledger

That decentralised database is known as the ledger and is at the core of the blockchain and the technology that makes it possible. In a traditional ledger you record all your transactions, time stamp them and annotate them. The blockchain works in exactly the same way, but instead of pages it is made up of blocks that are time-stamped and recorded chronologically. As new data is entered into the ledger, a new block is created and filled with this data. Once the block is full, it is chained to the end of the previous block, thus creating a chronological chain of blocks – or blockchain.

Many different types of information can be stored in a blockchain, but most commonly so far, it has allowed the digital logging of the history of a piece of currency and its flow from person to person or account to account.

It Helps Protect Against Fraud

Blockchain exists in a completely decentralised way, which is where it differs from a standard ledger. No single entity, company or person is able to make any entries and it cannot be changed in any way, ever. Each block is recorded via a node, which is any computational device, and nothing links these nodes together. In practical terms, this means that the blockchain is able to create complete and completely unchangeable records, which is critical in protecting any financial transactions or records of any kind from fraud.

This trust has led to a prolific rise in the use of blockchain for cryptocurrency. It’s estimated that the combined value of all cryptocurrencies is approaching $2 trillion. The biggest of these cryptocurrencies is Bitcoin, which accounts for around 50% of this total market value. Since Bitcoin’s inception in 2008 as the first blockchain, it has never been hacked or altered thanks to this decentralised nature. To alter a traditional company or bank ledger on the other hand, means only gaining access to their single system and making those changes.

It’s a Revolution in Money Management

Like we mentioned at the start of this post, people are becoming increasingly aware of how their money is being used and invested, and how reliant it is on the bank or investment firm they make use of. Holders of cryptocurrency on the other hand, don’t rely on any one single entity or company since their money is recorded in the blockchain.

Individual accounts on the blockchain, called wallets, are protected by means of a private key which is needed to send, spend or transfer cryptocurrency and only the holder of these private keys can access cryptocurrency stored in a wallet. Access to this money is not via a bank or company, and that’s something of a revolution in money management. It’s makes cryptocurrency closer to cash that can be sent and spent digitally – but with a full record via the blockchain ledger for verification.

Bank-like companies (called custodians) still exist and still offer a bank-like experience for those that want to own cryptocurrency but not risk losing their private keys, and thereby access to their crypto wallet. This largely defeats the biggest advantage of the blockchain for individuals as they’re giving control of their cryptocurrency to a company, just like they would with a bank.

While much of this might not sound like a big deal or the revolution in finance and recordkeeping that it’s being made out to be by the media and experts in the field, it most certainly is a big deal. It is challenging the very traditional way that money has been stored and transacted with for a long time and in this challenge comes the biggest opportunity for innovation and change.

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