The blockchain revolution seems inevitable, and its impact on the future of fintech is immeasurable. But will the advent of blockchain technology be frictionless for financial adopters?
There is little doubt that blockchain will be a major force in fintech in the coming years. The blockchain technology market is Worth $69 billion by 2032This represents an astronomical CAGR of 68% over the past nine years.
Driven by the continued rise of cryptocurrencies, blockchain promises to provide comprehensive solutions to financial problems that seemed insurmountable just a few years ago.
Blockchain is inherently built on decentralization, which has the potential to: Revolutionizing PaymentsData flow, security surrounding fintech, and also challenges the traditional financial system that is closely linked to institutional players in the industry.
But this fundamental change driven by blockchain is not without its risks. Will the blockchain era be as frictionless as its most ardent supporters claim? Let’s take a closer look at a technology full of promise and uncertainty.
Leading the next generation of fintech
While it is unclear what disruption blockchain will cause in the burgeoning fintech market in the coming years, the technology is certainly poised to bring about many positive innovations across the industry.
There is growing excitement around the implementation of blockchain in finance as the movement looks to remove friction, lower costs, and improve efficiency across fintech for both businesses and consumers.
Security Level Up
Perhaps the biggest positive aspect of blockchain technology is its security features. Because information is recorded in a decentralized digital ledger, the immutability of blockchain means that it is virtually impossible to tamper with sensitive customer data.
Shared ledgers help fintechs leverage transactions by enhancing security and reducing the risk of payment errors.
Blockchain transactions today require: It requires two security keys to operate.First, a public key is required that is widely known to all users, and an additional private key is shared between the parties involved in the transaction.
Blockchain is immutable, meaning transaction data cannot be modified after it has been verified in a block.
Achieving Inclusion
According to Santander DataApproximately 1.4 billion adults worldwide are financially unbanked. These unbanked individuals are excluded from the traditional financial system for a variety of reasons, including living in areas without banking infrastructure or not reflecting their ability to use fintech services.
Blockchain can help achieve greater transparency and accountability because it provides a fully transparent and auditable record of every transaction in a block. This makes it easier to identify and take action on fraud and other nefarious activity.
This high level of accountability means that people who are excluded from the financial system can access loans and other credit-based financial services that fairly reflect their financial behavior, rather than being subject to misleading credit checks.
Blockchain-based digital wallets could allow more users to access banking services without having to open a physical account in a store or go through rigorous identity verification.
Accepting Cryptocurrency
Blockchain is essentially a cryptocurrency-centric technology. All major cryptocurrencies use blockchain technology to authorize transactions, which opens up a lot of fintech opportunities for both users and businesses.
Cryptocurrencies and blockchain will open the door to open finance for all participants. It will be built on the freedom to use the currency of your choice to transact as needed.
For businesses that do business internationally, accepting cryptocurrency payments can help lower costs, enable secure, borderless transactions, and expand your user base.
The need for speed
Using blockchain, financial transactions that previously might have taken days to complete can now be completed in seconds.
This depends on the blockchain’s ability to verify transactions. Without the need for a middleman Or a third party. Simply put, when a payment request is made to one node within the blockchain, it is transparently processed by all nodes.
Cost minimization
In addition to being faster, blockchain fintech services can lower associated costs by eliminating intermediaries.
Blockchain transactions are not completely free as they incur gas fees, but these costs are generally much lower than traditional financial frameworks.
This contrast can be seen in remittances, where blockchain provides the following capabilities: Save up to 80% on additional costs Connected to payment.
Assessing the risks of blockchain
While there are clear benefits associated with blockchain, the technology must address risks before it can gain mainstream acceptance. Key concerns in this area include:
Security Vulnerability
Yes, blockchain has a reputation for providing unprecedented levels of security in the fintech space, but it can’t prevent risks that arise from poor implementation.
In most technological fields, a system is only as strong as its weakest link. In blockchain, poorly designed smart contracts, weak private key management, and sophisticated cyberattacks can weaken the system and weaken the chain.
To prevent this, fintech companies should implement: Robust infrastructure It is built on a foundation of strong policies focused on multi-signature authentication, strong access control, and private key usage.
Compliance Tasks
There are many compliance issues surrounding blockchain. As a new technology, regulators must continually catch up to ensure that blockchain is safe for users and compliant.
This can be especially challenging for blockchain-centric fintech companies. Compliance Management Due to the decentralized nature of blockchain, this makes it more difficult to comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations.
Violation of privacy
Blockchain is certainly a secure technology when implemented correctly, but users who use it must accept the risk of privacy breaches related to transactions.
Blockchain cannot prevent transaction information leakage because all information about transactions and balances is public. Accessible via public chain.
That is, in the era of blockchain transactions, managing personal information can be difficult, and problems can arise between consumers in an environment where purchase history on the blockchain is disclosed to the entire world.
Managing the potential of blockchain
Blockchain has the potential to provide unprecedented solutions to some of the biggest challenges facing traditional finance, especially when it comes to security and inclusion.
But when it comes to fintech, we are entering uncharted territory, and the fragile infrastructure built on top of blockchain technology risks undermining its full transformative potential.
With this in mind, fintech companies looking to leverage the power of blockchain must do so responsibly to mitigate the risks expected in the new world of decentralized finance, paving the way for sustainable new technologies that can benefit both businesses and consumers.
Also Read: Everything You Wanted to Know About Bitcoin But Were Too Afraid to Ask