Blockchain in Fintech: How It Reshapes the Industry?

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Blockchain has revolutionized the way data is handled and transactions are conducted online, thanks to distributed ledger technology.

Among many niches, the financial sector is one of the main beneficiaries of this technology. The fintech blockchain industry is forecast to see a compound annual growth rate of 27% through 2028, and with a good support system.

All motivated by greater efficiency, security and transparency in financial transactions. But with so much controversy surrounding the topic, how is this possible?

Join us as we explore the 4 ways in which the fintech world has been revolutionized by this technology. You'll find surprises you can apply to your business or even your personal finances. Care to get started? Read on!

4 ways blockchain connects to the fintech world

1. Buying Bitcoins

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Buying cryptos is one of the most popular ways to use this technology in the fintech sector. 

When buying cryptocurrencies, users can use the blockchain to record and verify transactions, allowing them to make online payments quickly and securely without the need for financial intermediaries.

Some of the key benefits of using Blockchain to buy cryptocurrency are:

• High security: each transaction is recorded on a chain, which is encrypted and distributed across multiple nodes or computers in the network. This makes it extremely difficult for hackers or fraudsters to forge or alter the information, reducing the risk of fraud or identity theft

• Increased transparency: each block is publicly visible, which means that anyone can access the information and verify the validity of a transaction. Users can be confident that their transactions are legitimate and that there is no risk of double spending or sending funds to the wrong address

• Speed: transactions are completed in a matter of seconds or minutes, compared to the days often required for traditional wire transfers or credit card payments

• Lower cost: using cryptocurrencies is cheaper because there are no financial intermediaries to charge transaction fees

Provides greater security, transparency and speed in online financial transactions. This has allowed users to make payments and transfers more efficiently and economically, which has driven the need to buy bitcoin worldwide.

2. International money transfers

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Through the use of cryptography, the blockchain allows multiple parties to share a database in real time without the need for a centralized intermediary such as a bank or financial institution.

Traditionally, international transactions are costly and can take several days to complete due to the number of intermediaries involved in the process. In addition, the lack of transparency and security in the transaction process has led to concerns about the protection of personal and financial data.

Blockchain transforms this process by enabling:

• Transactions can be made directly and securely between the parties involved

• Condensed information: each transaction is recorded in blocks that are linked together and contain information such as the amount of money transferred, the time and date of the transaction, and the addresses of the virtual wallets involved

• Accuracy and reliability: as each block in the chain is validated and verified by multiple nodes in the network. Distributed ledger technology also makes transactions faster and more efficient, significantly reducing costs and latency

• Increased transparency in the process: allows parties to monitor and track in real time. Users can easily verify the authenticity of the transaction and the identity of the parties involved, helping to prevent fraud and data manipulation

Blockchain has transformed the fintech sector by providing a faster, safer, and more efficient alternative to traditional international transactions. Fintech companies can now offer cheaper and more reliable transactions to their customers, even when using secure mobile wallets, which has led to increased trust and retention.

3. P2P Loans

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P2P financing is lending between individuals without the intermediary of a traditional financial institution. 

Instead of going to a bank or credit union, borrowers can apply for a loan through a P2P lending platform, where individual investors can fund these loans in small increments. 

Lenders get a return on their investment in the form of interest, and borrowers get an alternative source of funding. Great deal for everyone.

So how can blockchain improve the P2P lending process? In several ways:

• It enables a decentralized and secure record of all financial transactions: meaning that all parties involved can trust that the information is accurate and has not been tampered with

• Automates P2P lending processes: meaning loans can be processed and approved faster and more efficiently

• Eliminates any type of intermediaries: with blockchain, financial transactions can occur directly between borrowers and investors without the need for a financial third party system to act as an interface. This reduces the costs associated with intermediation and can enable loans with lower interest rates

• Increased transparency: all parties involved in a financial transaction can see the same information in real time. This means that the terms of a loan can be clearly seen, and investors can see exactly what they are investing their money in. Transparency can also reduce the risk of fraud.

• Improve risk management: P2P lending platforms can track the credit history of borrowers, which can help reduce the risk of default

• Improve default risk: by being used to create smart contracts that are automatically executed when certain loan conditions are met or not met

As this technology evolves and becomes more widely adopted, it's likely to continue to disrupt even more the financial sector and change the way loans are made and managed. Even big banks are now investing in digital technologies, largely due to blockchain.

4. Digital Identity

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Digital identity is a set of data that allows a person to be identified in the digital world. This data can include personal information such as:

• Full name

• Date of birth

• Physical address

• Identification number

As such, it's used in a variety of financial applications, such as opening bank accounts, transferring money, obtaining credit, verifying age, and more.

The problem with traditional digital identity is that it is centralized in the hands of third parties, such as identity verification companies or government agencies. 

This means that identity data is stored on centralized servers and can be vulnerable to hacking or data breaches. In addition, the identity verification process can be costly and time-consuming, making financial inclusion difficult for people without official identification.

Blockchain transforms digital identity by enabling:

• Create a dispersed and secure electronic identification system: every person has a unique and secure electronic identifier that allows them to access financial services without revealing their true identity

• Data is stored in a remote network of nodes: each node has a copy of the entire database, and transactions are validated through a consensus process among the nodes. This means that identity data is distributed across a global network and is immutable and secure

• Create autonomous digital identity systems: that do not require third-party intervention for identity verification. This reduces the cost and complexity of the identity verification process and enables the financial inclusion of people without official identification

This makes it more than possible to create secure and autonomous management systems. It reduces security risks and costs associated with digital character recognition and facilitates the financial inclusion of people without official identification.

Greater security, greater reliability, greater speed

Offering a faster, safer, and more efficient alternative to traditional financial transactions, blockchain has reshaped the fintech world for the better and for the long run.

With the intention of seamlessly joining the trend of blockchain and fintech pairing, traditional financial institutions are putting all their eggs in the new financial technology basket. These are 4 ways to best use it:

• Cryptocurrency purchases: users can use the blockchain to record and verify transactions, allowing them to make online payments quickly and securely without the need for financial intermediaries

• Direct and secure international transactions: this significantly reduces transaction costs and waiting time. In addition, the decentralized and secure record of all financial transactions means that all parties can trust that the information is accurate and has not been manipulated

• P2P Lending: enables the automation of processes and the elimination of intermediaries. This reduces the costs associated with intermediation and can enable more affordable lending for borrowers

• Customer identification and verification: this can improve the security and protection of personal and financial data. The ability for distributed, secure and autonomous digital identity management is unparalleled.

Blockchain certainly makes it possible to shield financial processes in a world of fraud, security breaches and increasingly distrustful users. It's about designing and tracking personal or business transactions and changing the face of financial technology.

Don't waste your time, these are 4 ways to learn and apply.

Author’s Bio:

Guillermo is a Venezuelan SEO content writer currently living between Uruguay and Argentina. He is currently a head content writer for Skale. His articles have reached more than two million people across the Americas. He is a firm believer in love, dulce de leche and Kelly Clarkson.