February 11th, 2020

Why Fintech Adopts Blockchain

A quick explanation of why fintech companies apply blockchain as a part of the package and why they got interested in the technology in the first place.
Once upon a time, a creature named blockchain came out of nowhere and took over the world like a deadly storm. Although many of you could hear that name, only the chosen ones got to know what it really means.
Those, however, who can deem themselves as fintech people, have quickly figured out how much potential the blockchain carried upon itself. Within a few months, they have started adopting this technology to become the leaders in their segment by using disruptive solutions.

But what are these products all about and what does the blockchain stand for? Well, let's check this out.

The easiest way to describe blockchain is to refer to its name—it's a chain of blocks, where each of them contains a certain amount of information. Blocks are responsible for storing the data when the chain is a public database.

And it's not limited by financial data—basically, all types of info can be programmed into each block, so imagine that it's some sort of a digital ledger.

For simple understanding, a block consists of 3 major parts:

- transaction information (time, data, financial transaction amount);
- participants (both parties should be mentioned);
- unique "hash" codes (so that every block is different from each other).

Privacy

Blockchain takes financing to the extreme for the greater good—privacy is among the factors that greatly benefit from the very core of this technology. While being open to users and encrypted for breachers, it is a much safer way to make transactions thanks to a distributed model of storing data.

At its core, a peer-to-peer system implies an increased security level—you don't have to share the transaction data with a third-party member. Furthermore, depending on a platform, you can opt no to connect your PC to blockchain or keep all the info private. For example, when using Bitcoin, you don't have to share any personal data—all you need is a digital signature.

Privacy is what often lags behind when a customer wants to keep transactions confidential; luckily, blockchain eliminates this problem by making it impossible to know who's adding the new blocks. Essentially, all you need is trust in the company that upholds the blockchain system, that's why big banks' adoption plays a large role in making them trustworthy and safe for conducting low-fee, safe transactions.

Security

Another reason to use blockchain is how secure it is. Let's just say that breaching isn't easy—the distributed data model implies that the hacker will need to access thousands or millions of computers just to collect all the transaction pieces.

It's hard to overestimate how financial institutions care about security—it can be banks, currency exchange services, loan ventures—they're often targets for all sorts of malware and digital attacks. No longer do they have to pay for costly IT security departments: a reliable blockchain system is all they need. Just imagine, for February 2019, blocks can reach up to the 562,000th position of their chain after they're added to the end of the line. And even so, these new blocks have no way of knowing the previous ones thanks to their "hash" nature that consists of numbers and letters and changes every time the info inside it is edited.

So, here's what we have: even if a hacker breaches your transaction code to make you go into a panic, even after changing the payment amount, he or she will need to edit every block hash to cover the actions, because every next block will still contain the old hashes. In other words, in order to steal money, a hacker needs an impossible level of computing power just to edit the blocks, not to mention that they're non-deletable.

Another security factor is the "proof" system—it requires every connected PC to go through approval where they need to solve a complex math problem: if it manages to do so, a block is added to a chain. It's basically the "mining" process at its core—the same way people earn their money on platforms like Bitcoin by solving these "riddles," which at this moment have 1 to 5.8 trillion odds of being completed. As a result, this barrier doesn't make hacking impossible, but it becomes costly so that the attack price is no match for the possible benefits.
JavaScript developers salary by company size
Photo by Austin Distel on Unsplash

Speed Factor

"Time is money" is a platitude, but not a dated one. Likewise, the blockchain capitalizes on this notion like no other: transactions are held automatically with almost no delay whatsoever. We have gotten used to banks that operate 5 days a week, 8 hours a day: you can also add in lunch breaks, outages, and maintenance. Good luck at sending a crucial payment at 6.01 p.m. on Friday; just forget about conducting business for 3 days. Meanwhile, blockchain never sleeps and is ready to deliver all sorts of payments any time of the week from every location on the globe.

Adding a block takes up to 10 minutes, so let's think of something that could benefit from this speed. For instance, exchanging funds between institutions is at the next level when using blockchain—10 mins is mind-boggling. Also, when dealing with stock market shenanigans, if you want to trade, the clearing and settlement processes can take up to 3 days (international businesses take even longer), making your money frozen for this period of time, which is not the case for the blockchain-based operations.

Cryptocurrency

This feature is much easier to perceive, more so, basically because everyone knows about Bitcoin, the buzzword king of cryptocurrencies. To make it clear, imagine what it's like regular money but programmable. And as a tech-savvy person may assume: programmable means good, and here's which benefits these currencies offer:

1. Cost-effectiveness

Don't be scared to introduce a new member to the core working process. Much like in professional sports, engaging a newbie out of the frying pan amplifies their learning process by a ton, especially if that dev used to work in a fast-paced scenario. Right from the get-go, an employee will start adopting a new technology stack and learn from the existing corporate practices given that there are a few folks in-the-know around.

It's the best way to make a newbie transform into a full unit and to show your trust—many view this as a crucial asset to establishing an effective partnership. Plus, when paying a full salary, don't expect a worker to go through an internship, rather deliver value to your product. So try to infuse a new worker with a small dose of responsibility, he/she also benefits from getting confidence instead of passing the task to someone who is more experienced.

2. Replacing credit cards

Some don't want to use it, some just can't afford to do so. Despite how exotic the blockchain looks for the masses, it could also be their ticket to the banking services. There's still a large group of people who simply can't afford or don't like having plastic cards—what a compelling amount of clients to grasp. Whether it's a mobile apps' convenience, increased security, fast operations, or a low fee—be sure that this can play a deciding role as client base outreach will only increase after you introduce blockchain services to your list.

3. Smart Contracts

Doesn't sound good for all sorts of clerks but surely good news for business. You can now create a contract upon reaching certain conditions; it's generated automatically, customized by users, and is run autonomously. For example, your client can program an amount of money to be received by another person when he or she reaches 18. Until that moment, the money is stored on a separate account and gets transferred right after a specified date is reached. Regular payments can also use this feature as the seller receives the payment only after you have the product shipped and verified.

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