Blog Post by Emils Kragis, Business Development Officer at PayPugs
After years of technological advancements and integration into the finance domain, it continues to operate as a centralized model. With governments and financial institutions having control over every aspect of financial services, many users have started doubting the age-old model.
Even though the term “blockchain” has been around for quite some time, it only now is gaining the much-deserved attention of the public as a technological advancement being able to disrupt the financial system.
Before we explore how blockchain technology is disrupting the fintech industry, we must first understand what it is and what is driving its development.
What is blockchain?
In simple terms, blockchain is a type of database. A database, just like a spreadsheet, is a collection of information that is stored electronically on a computer system. Information is easily accessible and allows for filtering and searching information based on specific criteria.
However, the difference between a spreadsheet and a database is that a database is designed to store greater amounts of information and it can be accessed, filtered, and used by any number of users at the same time.
What is driving blockchain development?
The question of data and our privacy has been a relevant topic in recent years. With many companies being accused of selling personal data, different alternatives have been looked at. One of them is blockchain technology.
Due to all information being stored publicly and it being accessible to anyone in the world, many have considered blockchain technology as a solution. While we wouldn’t be sure what kind of information companies have about us and how it is used, then the blockchain ensures that data is not deleted or edited. It provides a secure way to protect sensitive data that can not be altered in any way by any malicious action.
2. Smart Contracts
Many skeptics have expressed their opinions of blockchain’s flaws which are hindering its mainstream adoption. With issues preventing blockchain from reaching its full potential, smart contracts were created to ease the process of using and adopting blockchain technology.
Smart contracts are agreements between a buyer and seller written in code on the blockchain database. The code controls the execution, and transactions are trackable and irreversible. The contracts are executed without a central authority overseeing the operation or having any enforcement.
Smart contracts are allowing enterprises to switch from paper contracts to digital contracts. They can be used for many cases such as breach contracts, property law, credit enforcement, financial services, legal processes, crowdfunding agreements, not just transactions.
The first use of blockchain technology – cryptocurrency. Many businesses and industries have adapted to accepting cryptocurrency payments. Amazon, Microsoft, and IBM all accept cryptocurrency payments, while others are looking to explore the different use cases of blockchain technology and how it can improve business operations.
With Bitcoin being the front runner of the cryptocurrency sector and is being used as a legal tender, blockchain technology has raised the attention and exploration of many interested people.
How blockchain technology is disrupting fintech?
One of the biggest challenges that Fintech faces is a lack of trust. How to make people feel comfortable about the financial product. Banks have had decades to create a loyal customer base who are sure of the stability and security of their funds.
As fintech doesn’t have excess funds, it cannot develop high-level security systems for facilitating worldwide operations. The rise of blockchain technology is enabling more fintech to create these high-level security systems for a relatively cheap price. Due to blockchain information being transferred in data blocks, financial institutions can oversee the complete lifecycle of a financial transaction. The nature of the blockchain structure is allowing fintech to create a safe and reliable product for users worldwide.
Another issue that most people have experienced when sending money internationally is the transaction taking up to 5 days to complete. This is due to the involvement of any third-party institutions delaying the process. The unpredictability of international transactions leaves many people and businesses uncertain about their business operations.
However, as blockchain technology is digitally connected to a network of computers, usually a cryptocurrency transaction does not take more than 10 minutes to send any amount of money. Moreover, the beauty that comes with it is that you can send any amount of money in the same timeframe.
Of course, the Fintech industry is excited to have blockchain technology. However, it will take time before its use will be mainstream as several issues and challenges need to be overcome. Even though blockchain could be considered to be in the development stage then different possibilities are being explored.
At the moment, we can see the potential of blockchain technology as the force that reinvents the payments and banking sector. Nevertheless, future exploration and research need to be conducted to see the technological compatibility of blockchain for different industries like insurance, food, and fashion.