CHENNAI: Whichever way we look at it cryptocurrencies are revolutionising the financial industry rapidly. With the rise of cryptocurrencies and blockchain technology, there is no denying that fintech is taking on an entirely new meaning. Let’s dive in and see how cryptocurrencies are reshaping fintech and the world economy at large. Now, we already know that blockchain technology is best known as the tech that underpins cryptocurrencies making it one of the most important recent innovations in finance. Here is how it adds value to fintech. One of the most obvious but most relevant benefits is that it creates an immutable digital ledger. Now, we have pages recording transactions, which are time-stamped and annotated, and blocks in a blockchain record transactions in the same way. By time-stamping, every transaction and recording them chronologically, a blockchain digitally logs the entire life cycle of money as it flows and changes hands. This vastly improves the efficiency of the process of recording transactions, reducing the amount of time needed to record ledgers, and the costs of recording them manually.
Next, it’s immutable feature ensures protection against fraud. A blockchain is also decentralised, meaning no one has control of the chain. It can’t be altered in any way. Using distributed ledger technology each transaction, or block, is recorded via a node which can be any smartphone, computer, or larger server, and there is nothing linking the nodes. This means a blockchain can log a complete, unchangeable financial record of every transaction, offering huge protection from fraud. In fact, Bitcoin is a classic example. Established in 2008 as the world’s first cryptocurrency and blockchain, the chain has never been hacked, because of its decentralised structure. Another key benefit is that it removes third parties from transactions. Its heightened security offers multiple advantages. First we can bypass traditional fraud prevention methods which require multiple parties to validate transactions. Every financial transaction requires an authority to validate it, whether that is Visa or Amex processing your card payment, or the many people employed in investment banks as transaction validators. In fact, at time there are up to 12 parties booking and resolving transactions, and that is a huge cost! If we look back, in 2020, Citigroup, mistakenly made a $900 million payment due to failures in their validation process. Blockchain completely mitigates this because of the decentralized network. Transactions on a blockchain are automatically validated as they are sent to all the nodes in the network for authentication.
A critical advantage is that blockchain democratises money management. The most high-profile use of blockchain in fintech has been cryptocurrencies, which allow us to hold our money without a bank. Wallet holders have a private key, which is needed to send and spend crypto, and a public address allowing us to receive payments from others. Those who have the keys are the sole owners of that coin. Unlike traditional currency there is no bank holding the money. I truly believe that this is where the true value of blockchain in fintech lies as cryptocurrencies provide that freedom and ownership back to the population! In conclusion, blockchain will make business and government operations faster, more secure, efficient and accurate. There are several ways in which FinTech companies can leverage this tech, including using virtual currencies, smart contracts, transparent, immutable digital ledgers to track transactions. And this is just the beginning!