Let’s look at such terms popular in the modern financial world as blockchain and fintech: what are these technologies, and how do they work? And is blockchain a fintech? These are essential questions that require detailed consideration.
What is blockchain in simple words?
Blockchain is an advanced mechanism for a decentralized database distributed between blocks of the same chain located on different computers.
Together, these blocks form a single chain, that is, a blockchain. Their structure is chronologically sequential. Blocks cannot be removed or changed without consensus from the network. Blockchain is a technology that uses such a decentralized chain.
With the properties described above, the blockchain allows the creation of immutable or perpetual ledgers to keep track of orders, invoices, payments, and other transactions. Therefore, blockchain technology is primarily used in the financial world.
What is fintech?
Fintech is an abbreviation for the expression financial technology.
Fintech is a set of technologies that help organizations and their individual services manage the financial component of a business. This concept refers to certain business models and processes, software, and smartphone apps.
The fintech industry brings together companies that use modern financial technologies to compete with traditional banks. In ordinary life, the term fintech is mentioned when describing startups that use new financial technologies for payment solutions.
For example, the Advcash payment platform is representative of the fintech industry. In addition to e-wallet services, it issues plastic debit cards for its customers, just like regular banks do. That is, in this area, it competes with banking institutions.
Is blockchain a fintech?
It is impossible to put an equal sign between the terms blockchain and fintech. Fintech refers to the entire list of modern technologies used in the financial world. Blockchain is a key technology in fintech, that is, one of its main components.
Fintech is more about integrating technology into financial service offerings to use them more effectively and meet customer needs. Blockchain is the technology itself.
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How are fintech and blockchain related?
The fintech industry is mainly influenced by blockchain technology. It is radically changing financial institutions. With its help, a completely new market is being created, and the banking paradigm is changing.
Blockchain-based new financial solutions are being created. Their scaling is becoming cheaper, faster, and safer for ordinary consumers. This technology removes intermediaries and barriers to accessing financial services while enhancing security and transparency.
In the business based on blockchain technology, representatives of the fintech sector occupy a significant share. According to the forecasts of various experts, the size of the fintech blockchain market will reach $36 billion in 5 years.
The main financial technology based on blockchain is called Decentralized Finance (DeFi). It radically changes the construction of digital registries for storing, managing, and transferring funds. DeFi is weakening banks’ control over financial services around the world. They are increasingly being provided by fintech projects with lower fees.
DeFi is the fusion of fintech with blockchain. This technology is based on the use of decentralized smart contracts. Blockchain is a technology for storing information about transactions and operations in the form of blocks interconnected and forming a chain. It is a decentralized, secure data transfer technology that provides a high degree of transparency and protection against fraud.
However, a complete replacement of conventional banking institutions with fintech projects using blockchain technology is unlikely to happen. There are several reasons for this.
For example, having your own bank account is better for preventing money theft and fraud. In the world of cryptocurrencies, the information regularly appears about so-called scam projects – fictitious organizations that steal digital money while providing financial services.
It is possible to keep assets in the form of cash in any stable currency. Payment platforms built on blockchain technology do not provide such an opportunity due to the high volatility of the cryptocurrency market. Many people are reluctant to use cryptocurrencies for fear that their value can be highly volatile in the long run.
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