An in-depth understanding of Blockchain in the Fintech industry

To understand how blockchain software development can change the financial technology industry, it’s important to know what the technology entails and how it works. To start, think of blockchain as an online ledger that records transactions across multiple computers, or nodes, in such a way that they can never be erased, hacked, or tampered with. By connecting various servers together into one network of verified transaction information, blockchains ensure accountability and transparency across the board. Once you understand how it works, it becomes easier to see how blockchain technology can change the FinTech industry.

What is blockchain?

Blockchain technology became mainstream in 2017. However, most people are still unfamiliar with what blockchain actually is. With so much hype around cryptocurrencies like Bitcoin and Ethereum, it can be hard to separate fact from fiction when it comes to blockchain in fintech.

Here's a look at what you need to know about blockchain and how you can use it in your company. If you're thinking of investing or creating your own secure financial service system, knowing what blockchain is will also help guide your decision-making process.

So, how do fintech and blockchain work?

Blockchain technology functions as an open ledger that efficiently, permanently, and verifiably records transactions between two parties. When used for financial transactions, all participants can see every transaction that has ever occurred with a given currency/asset. This provides transparency and prevents fraud by ensuring everyone knows exactly where funds have come from and where they’re going. Every transaction gets encrypted into blocks that link back to previous blocks—hence why they’re called blockchains—and these blocks are stored across thousands of computers globally (instead of one central database). Because there’s no centralized system controlling it, no single person or entity owns or controls blockchain technology.

Blockchain technology promises greater control and safety

With a traditional database, an organization holds one copy of its data. If hackers get into that database, they have access to everything. But with blockchain technology, each user gets their own personal copy of the database; if one is compromised, all other copies remain safe. In addition to security advantages, blockchain tech offers increased privacy and accountability; it’s nearly impossible for someone to alter or erase records because blockchain’s decentralized structure makes data sharing more difficult. The result: trusted and transparent record-keeping infrastructure where transactions are recorded in blocks across a shared digital ledger. Because they're encrypted and verified by multiple parties, blockchains are considered secure from hacking or manipulation. This means that companies using blockchain can be sure their financial records are accurate. And as a bonus, most blockchain databases aren't stored in any single location—they're distributed among users around the world. This prevents tampering and revisionism (i.e., altering past entries).

Proof of stake, proof of work

​Proof of stake is a method of securing a financial network and achieving distributed consensus through requesting users to show ownership of a certain amount of currency. It is different from proof of work systems that run difficult hashing algorithms to validate electronic transactions. The scheme is largely dependent on how it reaches consensus about new blocks being added to its blockchain, usually via digital signatures. In PoS-based payment, instead of wasting energy on solving arbitrary equations, nodes (aka stakeholders) will be required to lock up their funds for a certain period, which then determines how much money they are willing to bet as collateral for their block submission in order to buy computer power; hence, there's no mining involved in PoS networks. As long as these coins have value, users have an incentive to keep them safe by staking them.

Permissioned vs. permissionless blockchains

There are a couple of different blockchain-based platforms to choose from. One, known as permissioned or private, requires users to first be granted access before they can begin a transaction.

The other, referred to as permissionless, doesn't require that level of approval and allows access for anyone with an internet connection. Most blockchain projects today use permissionless blockchains because of their openness and transparency, two features considered beneficial for many businesses. But there's also value in having a more secure platform, which is why some companies have opted for permission blockchains.

What Advantages Do Permissionless Blockchains Offer?

• Decentralization: Since permissionless blockchain networks don't place any restrictions or access controls on validators, they are truly decentralized. No one is permitted to have greater authority than the others; everyone is on an equal level.

• Greater security: The absence of validator cap incentives boosts blockchain maintenance participation. As a result, the majority of permissionless ledgers have many validators, which raises the network's security.

• Community governance: The majority of permissionless blockchains are run by the project's community rather than a business, the government, or another centralized body.

• Resistance to censorship: Permissionless blockchains successfully thwart censorship thanks to their high degree of decentralization and a large number of validators.

What Advantages Do Permissioned Blockchains Offer?

• Speed and scalability: Permitted blockchains have a limited number of validators. As a result, they achieve exceptional scalability and performance and reach consensus far more quickly than their permissionless equivalents.

• Access restrictions for validators: With the help of these, businesses employing permission blockchains may create their own rules and tailor the network to their requirements.

• Compliance: Businesses may easily meet compliance regulations thanks to the increased network infrastructure flexibility that permission ledgers give them.

• Limited hostile presence: By properly limiting validators' access, permission blockchains may successfully eliminate the presence of malicious players in the ecosystem.

• Cost-effectiveness: The network's scalability and throughput are both boosted due to the sparsely populated validator pool, which also results in cheaper operating expenses.

Industry use cases of blockchain in Fintech

The usage of blockchain software development services in fintech may provide more efficient and seamless financial services that are profitable to both the bank and the clients thanks to cost savings and a decrease in traditional banking bureaucracy.

Blockchain is being embraced by the fintech sector and will continue to be.

By assisting in the management of data breaches and other fraudulent actions, blockchain enables financial businesses to interact and transfer safe and unaltered data across a decentralized network. It will make it easier to monitor, comprehend, and audit AI decisions, improving the level of transparency required for people to comprehend artificial intelligence. Using algorithms to secure data, even in encrypted form, can assist with the use of blockchain technology.

Additionally, other questionable stock market activities, including stock manipulation, processing costs, middleman charges, and others, may also be removed.

Let's examine a few blockchain usage examples that highlight the true advantages for the banking industry led by Blockchain:

• Transactions and expenses were cut in a couple of minutes
• Global Network with no geographic restrictions
• Outstanding management and auditing
• Smart Contracts and the Management of Secure Digital Identity

Final thoughts

Building on the ideas of equality and decentralization, blockchain in fintech can provide us with a banking option that is much more frictionless and efficient. Fintech built on blockchain technology provides quick money transactions, top-notch security, and open financial tracking.

At BJIT, we have a wealth of expertise integrating cutting-edge technologies into our customers' businesses and are knowledgeable about how to apply blockchain technology based on the demands and specifications of the client for various domains while preserving privacy, confidentiality, and scalability. We can assist you in determining the best course of action for expanding your company.