It can be said that Blockchain and Fintech are a perfect match for dependable and transparent financial solutions. Let’s see how.
Blockchain is believed to be advantageous for most of the sectors of IT in the future. But if you ask an expert about which sector is going to get the maximum advantage from the blockchain, the most likely reply is the financial industry or fintech (regarding IT). Let’s see what makes them to say so.
Blockchain And Fintech
Before moving forward, let’s look at the basics.
Blockchain is a shared, immutable ledger that records transactions as they happen. As most of us know that ledger is a book of accounts where no entry is deleted. Even if it is incorrect, it is rectified with another entry. The same is the case with blockchain. You can write a transaction to the blockchain, but you can’t delete it once it has become part of a block. This makes the entry immutable.
A blockchain is not located on a single computer but is shared by a network of computers. The blockchain network doesn’t operate in a client-server model, it works as a peer-to-peer network. That means each computer on the network works as a peer to the other. They are not connected to a server for resources. That is why it is termed to be a decentralized network.
Fintech is a portmanteau of two words, Finance or Financial and Technology. It is about the usage of technology in financial services to provide efficient solutions.
Blockchain vs Database
What makes blockchain different from the conventional database approach is that unlike database it is not stored on a centralized location on a network, all the nodes (peers) on the network carry the separate but identical copy of the whole blockchain record. This is achieved with a set of special mechanisms called blockchain protocols. This unique mechanism makes it almost impossible to make changes to the data stored on the blockchain, that is why it is called an immutable ledger.
What Makes Blockchain Trustable
The mechanism of blockchain in its original form brings some inherent characteristics that make blockchain a dependable technology for financial technology (Fintech). These characteristics include:
A blockchain is a peer-to-peer network with each node having the same status as that of the other node on the network and having all the data of blockchain on its own. A node doesn’t need a server to operate. There is no central authority but the blockchain protocols themselves. In conventional fintech solutions, an intermediary regulator or a financial institution is required to control the operations which adds more to the cost of a transaction. This decentralization in the blockchain model is not only effective but also cost-efficient. Achieving minimum cost of transaction is the goal shared by all the financial world.
An entry once recorded in a block and the block is accepted by the blockchain to be valid, cannot be altered, deleted, or updated. The entry is timestamped which is also not alterable. That makes the entry to be immutable. This immutability is the ideal condition for a financial transaction and blockchain achieves it with its internal mechanism. This is not possible in conventional fintech solutions where the financial record is always prone to be tempered by the controlling authority.
By removing the requirement of an intermediary or regulatory third party, transactions irrespective of the amount and volume can be processed in real-time which is not possible in the conventional fintech mechanism.
In a blockchain, security is achieved through chronological order, immutability, and encryption of the data (transaction). The data on the blockchain can neither be altered/updated nor be removed/deleted. It cannot be hacked into. These security features establish blockchain to be the most suitable adoption for a fintech solution. Conventional fintech solutions don’t offer this security level.
The blockchain is a decentralized peer-to-peer network that enforces a unique trust mechanism making it trustable by all the parties without needing an intermediary body or an institution. Trust is the first and the foremost requirement for a financial transaction. Prior to blockchain, there was no mechanism of ensuring trust besides the central controlling authority.
In the blockchain, everyone can join it and verify transactions on their own. Each entry on the blockchain can be verified by anyone having internet access. This makes it a completely transparent mechanism that can be trusted by all the concerned parties to a transaction. Transparency is among the most desirable features of a financial transaction or a mechanism. In the conventional fintech model, it is the discretion of the controlling authority to allow access to the financial record.
The absence of a 3rd party to control, authorize and facilitate the transactions in the blockchain cuts the transaction processing charges drastically. It also allows the transactions of small amounts to happen over the internet which is not possible in conventional fintech solutions. It also offers a large amount to be transacted at a very nominal cost.
So it can be established that in comparison with a traditional fintech solution, a blockchain-based financial solution would be more secure, transparent, trustable, and cost-Effective. The built-in features and inherent characteristics of the blockchain make it an ideal candidate to replace the costlier, centralized, error and tamper-prone, and insecure financial model currently in place.
Blockchain offers an economical, decentralized, trustable, transparent, and secure fintech model that addresses the issues faced by modern businesses. All of these factors are making more and more fintech solution providers to look for blockchain-based fintech solutions.
InvoiceMate is the world’s first blockchain-based invoice management system that incorporates all the goodness of blockchain in a trustable solution that brings a lot of value to the business.
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