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06 January 2020

The Road Ahead: How Blockchain Technology is Changing the Future of Fintech Industry

In 2020, blockchain is becoming almost synonymous with fintech innovations. Financial startups are largely adopting the technology, finding new uses and improving it in the process. It’s not just an impression - statistics prove the point. According to PwC, over 77% of financial institutions and businesses plan to adopt blockchain as the core of their strategy. From being an additional offer, blockchain went to becoming the key component of the majority of financial companies.



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Understanding Blockchain


Blockchain became a buzzword after famous Bitcoin’s rise in late 2017, and for many, blockchain became associated with cryptocurrencies. In reality, the usage of blockchain isn’t limited to currencies only. The textbook definition of the technology is that it’s a system where financial transactions are stored on several computers and servers, linked to a peer-to-peer network.



Traditional transaction systems are centralized - there is a single server and storage where the data on financial transactions is stored. If that storage is compromised, financial data can easily get leaked and lead to a huge loss of money.

Blockchain, on the other hand, is connected to the devices of all participants. The information can’t be copied or altered - it will cause the links to break. Such an abnormality is obvious to all participants, and the abnormality is detected in the blink of an eye. This is why blockchain is the safest innovation for data storage - there isn’t a single place to target, all tamperings are easily detectable, and the data is saved in its original form.

Influence of Blockchain on the Fintech Industry


Blockchain is the technology that has the biggest potential to reform fintech. Banking and financial institutions are known to be highly centralized - users have to visit physical points of sales, go through complex authorizations, and prepare a lot of documentation to complete large transactions. There is also a problem of commission, especially when it comes to micropayments (when a small amount is transferred, the fee is higher than the cost of the transaction itself) and international payments (transferring money between international banks is expensive).


The banking industry’s globalization


Blockchain solves these issues right away. Firstly, it removes the bureaucracy by establishing smart contracts - a set of conditions that have to be completed before the action. As soon as the contract is fulfilled, the transaction can pass successfully - no need for endless confirmation and verification.



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Smart contracts, with their universality and decentralization, are especially useful in the following scenarios:

  1. The contract requires proof of ownership.

  2. The parties haven’t cooperated before and don’t trust each other to oversee the process - the mediation of the blockchain system will make business easier.

  3. Many types of assets interact - transactions operate with different currencies, metals, valuable papers. Smart contracts reduce human errors and specify impartial code-based requirements for all these complex exchanges.

  4. Automation of transaction - if the institution has previously used only paper documentation, they can digitize their paperwork with smart contracts.


Blockchain makes international transfers easier since it’s not tied to a particular national currency. Bitcoin and Ethereum don’t depend on the situation on a particular national market but are regulated by the worldwide community.

Fintech regulatory landscape gets different


There is no central authority that controls the currency dynamics or contract execution. The success or failure of the deal are determined by objective factors, based on precise algorithms. In traditional fintech, there is always a risk of corruption and human errors - these factors can prevent or slow down transactions. What’s more, you cannot control them.



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Also, blockchain assists in the following aspects:



Blockchain, on the other hand, provides transparency to the regulation process. Regulatory institutions will have access to the database of smart contracts and will easily see what conditions have or have not been fulfilled. Similarly, a client of a banking institution or a businessman who’s settling a transaction can control its financial progress by checking the status of smart contracts and receiving recommendations on fulfilling the conditions.

A growing number of digital-only banks


Blockchain-based banks won’t require a physical office, and clients won’t have to commute in order to solve their financial issues. They don’t have to print physical money or think about optimizing waiting rooms and lines. All operations will be carried out automatically with regular human supervision via smart contracts. Participants will have open data about all of their financial activities in their profiles.



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Most importantly, such banks don’t have to be limited to a particular country. Just like any other online platform - social media or online service - banks will be available for people all over the world as soon as they have Internet access and can operate cryptocurrencies. This is an important step towards financial equality globally, including developing countries.

Simplified stock trades


Blockchain gives all participants of the deal control over the process and allows them to access transaction data immediately and from any device. There is no need for middlemen who carry out the transaction and get the parties to agree - these goals are achieved with smart contracts.



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There are already solutions on the market that target specifically peer-to-peer trading. Changero, OpenLedge, DEx, and other companies allow traders to transfer funds directly to their wallets. Traders will also get detailed data on all of their transactions and smart analytics of their financial activity - it’s a great solution for inexperienced traders who won’t have to struggle with fraud middlemen.

Crypto-based crowdfunding


Fintech allows using tokens to invest in products and crowdfund potential initiatives. We have seen the rise and fall of ICOs - initial coin offerings, used by companies to lure people into investing in their businesses and dumped by the founders. Surely, a lot of ICO-based companies are still active on the market - so perhaps, ICO investment has not fully failed.

The problem with most ICOs was that they didn’t undergo any regulation. Their prices were speculated and successful marketing often made it look as if the coin offering was worth something, even if it wasn't. However, the industry doesn’t have to repeat the same mistakes.



Now, instead of ICOs, we might see Security Token Coins. These offerings are similar to ICO in their function, but they will be regulated by the US Securities & Exchange Commission. These tokens will allow global opportunities for crowd-funding and investment, only their reliability and actual price will be controlled by official institutions. Blockchain Capital already paved the way for STOs by running a campaign, overseen by US SEC - it ended up raising more than $10 million.
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