Blockchain is a peer-to-peer (P2P) decentralized ledger that keeps track of transactions on an unchangeable, publicly accessible computer network. The technology is not new; it has been widely used in the finance industry for at least six years. It has been around for more than ten years. Decentralized finance, or DeFi, is a new paradigm for financial operations that resulted from the use of blockchain technology in fintech.
Technologies that facilitate distributed financial transactions on blockchain networks are referred to as DeFi. DeFi improves the accessibility, transparency, and security of financial services by fusing fintech with blockchain. Additionally, it facilitates asset exchanges between companies and people without the need for middlemen.
There are flaws in conventional financial systems. Businesses frequently struggle with expensive fees, opaque processes, and long transaction times. Fintech integration with blockchain offers solutions for many of these issues. By incorporating blockchain in finance, transactions can become more transparent, secure, and efficient, reducing costs and speeding up processes.
Increased operating expenses
In the fintech sector, blockchain can lower transaction costs. Even a simple credit card transaction in a typical system includes many parties: The retailer, the bank, and the credit card network. Every organization bills for its services.
Blockchain eliminates intermediaries from financial operations through peer-to-peer transactions and decentralized protocols. For fintech businesses as well as their clients, this results in faster processing times and lower transaction costs.
Restricted accessibility to services
Fintech service access may be restricted in certain situations. When a user is traveling, for instance, access to an app may be restricted by technological limitations or regulatory constraints imposed by the firm. A business could also not have any physical locations or remote support employees.
Fintech businesses may function without being constrained by conventional banking systems thanks to blockchain technology. Clients may perform activities from any place and wherever they choose thanks to decentralized applications, cryptocurrencies, and smart contracts. Put differently, financial services may be accessed anywhere in the world at any time.
Security Threats
Ensuring data security across platforms while maintaining consumer privacy is a significant concern in the financial industry. Security threats can come from the outside (such as fraud and cyberattacks) as well as the inside (poor access restrictions, employee ignorance of cybersecurity, and hasty adoption of cloud computing without appropriate security safeguards are examples of internal weaknesses).
Three essential features of blockchain to lower fraud and cybersecurity risks:
Dispersion- Because blockchain technology is decentralized and without a single point of failure, it is more resilient to security lapses. A network of nodes verifies and encrypts each transaction.
Encoding- Hashing and cryptography techniques are used by blockchain networks to transfer data between users. Next, the encrypted transactions are added across the network’s other blocks.
Unchangeability- In a blockchain ledger, nodes cooperate to verify transactions. The fact that several nodes must agree to change a single action increases the data’s resistance against tampering.
The inability to track
Fintech firms have traceability issues with traditional banking systems. Even basic processes, as we’ve previously seen, require several middlemen, which makes tracking and verification more difficult. Furthermore, the high degree of centralization in conventional systems leads to issues with transparency and increases the possibility of manipulation.
Blockchain technology offers unmatched traceability through the use of a distributed, decentralized, publicly accessible ledger. All transactions are verified and recorded using sophisticated algorithms and consensus mechanisms. As a consequence, auditors can simply confirm fintech operations, and consumers may examine each transaction on the network.
Link: https://www.analyticsinsight.net/blockchain/how-does-blockchain-revolutionize-fintech-applications
Source: https://www.analyticsinsight.net
