Why use blockchain? The answer, contrary to appearances, is no – you don’t necessarily need it. Not every business is better for it. There are clear benefits coming from implementation but applying this technology doesn’t make your company more relevant. It just generates unnecessary costs. However, some products do benefit and here are 7 reasons why blockchain is important in today’s FinTech market.
Table of contents
- Why is blockchain useful?
- Why is blockchain important?
- Blockchain as a Service (BaaS)
- If you want a blockchain structure, start with foundations
Why is blockchain useful?
We have already answered the question of how blockchain works. In a nutshell – it’s a method of managing assets (mainly: money) in a way that makes them public and global, decentralized, trustworthy and secure. If you have all these checkboxes, you got yourself a recipe for success.
Why use blockchain?
- Nobody can take your assets away from you
- It’s safe and convenient
- Transfers can be done in minutes, verified and secured in hours
- All transactions are public, anyone can verify them in seconds
- You can create decentralized applications
- You can safely move wealth
- The cost of transferring value between accounts is very low, especially in comparison to many cryptocurrencies’ worth
All these reasons are enough to even consider blockchain but if you’re still on the fence, read the piece on the FinTech blockchain market. There you will find the groundwork, leading us up to this moment.
Why is blockchain important?
Because of its nature, blockchain reduces operational costs. It removes intermediaries from the process of managing wealth, opening up resources for more efficient allocation. There’s no need of keeping track, the system manages itself.
There’s also the case of enhanced transparency and reliability. Both are increasingly important for FinTech audiences. Paying customers expect security, transparency and quality services. Blockchain adds to that, bringing more people to products that adopted this technology. In reality, it’s still only the beginning.
7 good reasons why we need blockchain
1. Security. Cracking blockchain is virtually impossible. An attacker would need extremely good hardware and also an equally extreme amount of free time. It doesn’t compute, no one has these resources. Thanks to the decentralized nature of blockchain, assets are secured like in a vault. Theoretically, it’s still possible to crack this safe open. In reality, it doesn’t make sense for anyone to try.
2. Transparency. Every member of the community that uses blockchain (or even folks that don’t) can see details of the transaction. When it was made, what sum of money changed hands. No risky details, just the basics. Because of that, transactions are crystal clear and visible to all. No one can lie and claim the money “just went out” and be there in a day or two. Under blockchain, they land on designated accounts in minutes and that fact can be verified by anyone with even the least amount of knowledge. Users can even potentially prefer FinTech products with blockchain features and invest their trust in companies that adopt it early on, even at the minimum viable product (MVP) stage.
3. Operational efficiency. If there’s one reason to even consider blockchain, it would be it. Many executives ask why blockchain is important and the shortest answer is that it simplifies everything for everyone. The company, its business partners and customers. The cost of every transaction is minimal and paid through microtransactions. Time of these transactions is dramatically cut, so you can spend more time thinking about business improvements and less about money flows. Increased efficiency also builds market credibility. You can gain in the eyes of potential investors. You can attract new customers that will think about the product as reliable. The beauty of blockchain is that, at least in some cases, it’s a low-hanging fruit with sound business outcomes.
4. Fraud protection and compliance coverage. Security risks, frauds and data leaks can be very costly. Especially in FinTech, which falls into many compliance categories. With many very demanding regulations existing in both the U.S. and European Union (not to mention the rest of the world), it’s very difficult to run the business. With blockchain, nothing is ever hidden. Since every transaction is out in the open, laundering money by bad actors or any different kind of criminal activity is no longer possible. And even if someone would try it, every swindle is easily detected and tracked to the account’s owner.
5. Solid base for InsurTech products. Digital insurance products are very useful but vulnerable. Some users might want to take advantage of that and push their agendas, such as false claims or overestimated amounts for a car crash or holiday accident. With blockchain, it’s not that simple. Everyone has access to all records, even historical ones. Everyone can eliminate suspicious or duplicate transactions by simply reporting them to the product’s owners. With little time needed for every verification, every fraud attempt can be recorded and possibly eliminated. Insurance technology is at the forefront of change and the blockchain wave can help it grow.
6. Permanent digital footprint. If I steal something from a shop around the corner, cameras might catch me but not if I’m smart enough. People could see me but not if I’m a true pro. With blockchain, there’s nowhere to hide. If I do something bad, people can link my account to the act and make me suffer by implementing higher insurance costs, for example. That forces discipline and honesty.
7. Data immunity. If data is stored under blockchain, it can’t be modified or altered in any way. That means it’s easily traceable by anyone who wants to verify any given transaction and form an opinion about an entity or a person.
Blockchain as a Service (BaaS)
Everyone is jumping the hype train. Many IT providers saw the potential lying in blockchain technology and want their piece of the pie. There’s nothing wrong with that; especially when many of them provide quality services for products around the world.
Blockchain as a service is similar to banking as a service. These business models use continuous support, with blockchain being a B2B type of cooperation, while banking is faced to serve the individual clientele.
Here’s the list of providers you can use for blockchain:
- Amazon Managed Blockchain
- Azure Blockchain Workbench
- IBM Blockchain
- SAP Cloud Platform Blockchain
- Samsung Nexledger
- Oracle Blockchain Applications Cloud
Alphabet, Google’s parent company, works on a similar solution as well. Given that there’s a lot to do on the market, and the FinTech sector alone is worth billions globally (look at FinTech Wire for proof), players want to jump at the opportunity. You can browse for solutions but keep in mind that building software projects still requires a lot more than blockchain. You can read an article about questions to ask a software development company to make an informed choice.
If you want a blockchain structure, start with foundations
We have answered a question of why use blockchain technology but there’s still plenty to talk about. For example, how this affects FinTech applications. What companies use blockchain to power their products. Why the FinTech sector can benefit as a whole and what regulations out there could boost further adoption.
All this and more in our future articles. For now, start by thinking about partnering up with a company that understands your challenges. Blockchain technology is a big part of digital transformation efforts. We believe in quality software development and tailored solutions but it all starts with a conversation. About blockchain or anything else. After all, we are here for you.