From a technological point of view, Blockchain is a milestone. The possibility to bypass an intermediary, such as a bank, without having to sacrifice security is groundbreaking. A few years ago, the blockchain was still largely used to make quick money in a dubious way. That has changed fundamentally. It is becoming more and more apparent which applications are useful and beneficial in the long term.
We, as a provider of blockchain-based timestamps, have also experienced a strong increase in inquiries from companies in the fintech sector. And this trend only seems to be getting stronger.
In this blog post, we will explain
- why the blockchain will become a central element in fintech
- how it is currently used
- how you can bring the benefits of blockchain into your fintech business
What is blockchain and why does it matter in fintech?
Technically speaking, the blockchain is a decentralized data storage. Each participant in a blockchain, therefore, has a copy of the blockchain available. In contrast to conventional data storage, data can only be added to a blockchain. Once added, however, data can neither be changed nor deleted.
The blockchain is also unique in that there is no controlling entity on which everything would depend. Every participant has equal rights. Nobody can be forbidden to participate. Anyone can participate at any time, or terminate their participation. There is no central node over which everything runs. Users only connect directly to other users. Therefore there is no possibility to simply switch off Bitcoin, for example. All decisions are made by the majority of users.
The magic happens when two or more participants have a different opinion. For instance, in a traditional system, if two people disagree about the amount of a past bank transfer, the “source of truth” is usually the bank. This enables the bank to resolve this conflict and restore a consistent state. But with a blockchain this “source of truth” does not exist. Nevertheless, the blockchain has a built-in and secure, but quite complicated, consensus-building algorithm. This means that after a finite time all participants agree on a correct state and thus restore the consensus.
Therein lies also the whole disruptive power of the blockchain: consensus-building without a central authority. This means that all participants of a blockchain can agree on who owns how many Bitcoins, for example. Or who owns which artwork. Or when a contract has been signed. In particular, part of the services of financial institutions and notaries can be replaced in this way. This sounds like a threat to existing business models, but in reality it also offers many opportunities.
How to benefit from blockchain
First of all, it is important to understand that the blockchain can only replace a small part of the services of banks & Co. It has become clear in the meantime that the blockchain is still very user-unfriendly. It requires some IT knowledge not to fall for scams and insecure solutions. A bank, for example, can protect its customers much better from fraudsters and at the same time, as a central authority, is much more interested in bringing a user-friendly product to the market. Even if the user-friendliness of some apps can be doubted, there is a world of difference between the secure usage of a banking app and the correct handling of cold storage for Bitcoins.
So how can fintech companies benefit from blockchain? The central keyword here is trust. Customers trust companies to document everything correctly. E.g. that an account balance is always kept correctly. More and more this trust is being questioned as customer relationships become faster and more global. On the other hand, a company relies on its employees and complex processes. It is trusted and checked that nobody changes data unnoticed. This requires high-security environments, expensive employee training, complex processes, and elaborate audits. All things are written down to the smallest detail. At any time a camera or a second person must be able to witness something.
Blockchain can lead to significant cost savings and increased consumer trust. Every action, every document, every invoice, or anything else can be recorded in a dataset. If the dataset is then anchored in a blockchain, a tamper-proof timestamp for this dataset is automatically created. This timestamp can now be verified independently by anyone, including the customers, without much hassle. When using OriginStamp technology, the original document does not need to be disclosed. Anyone who owns the original dataset can check that it already existed at a certain point in time and that it has not been changed since. However, and this is crucial, no one gets unauthorized access. Thus even highly sensitive data can be anchored in the blockchain.
Tips for getting started
There several questions one can ask to see if and where blockchain can be used.
- Which data and documents do I have and which data and documents are particularly important or sensitive? - This should help you to get an overview of which data could be considered for anchoring in the blockchain.
- How important is it for me that customers trust me, my service, and my product? - If it is important for customers to trust me, I can strengthen this trust by using the blockchain to create independent evidence and thus transparency.
- Do all potential customers blindly trust me? Or is there room for improvement? - If there is room for improvement, then the blockchain is certainly a good choice.
- Do I have complex processes to monitor data and documents? - If the answer to this question is yes, then you should be excited. The blockchain can certainly save you a lot of money and time by streamlining processes.
- Are suppliers, service providers, external employees, etc. important for my company but insufficiently transparent? - If that’s the case, blockchain-based timestamping can help to build the necessary trust.
Blockchain and blockchain-based timestamping are not for data which
- you need to change frequently and in very short time intervals.
- is not stored long term.
- is not important.
- is never questioned as to its correctness and provenance.
It is advisable to experiment a bit to see which possibilities the blockchain offers and how and if it can provide benefits in the individual case. To do this, you can, for example, start with OriginStamp free of charge and anchor individual documents in the blockchain even without programming knowledge.
Disrupt Instead Of Being Disrupted
Slowly but surely, the blockchain applications that are useful in the long run are emerging and replacing the get rich quick schemes. As a result, there is the possibility that soon some services in fintech will be rendered unnecessary. On the other hand, there is a whole range of possibilities for fintech businesses to benefit from the blockchain.
In particular, the blockchain can be used
- to strengthen the trust in a customer relationship.
- to protect sensitive data and documents against internal and external manipulation (risk management).
- to streamline auditing and compliance processes.
- to increase transparency.
OriginStamp offers a free tier to explore the benefits of blockchain technology.Visit originstamp.com