How to Implement Blockchain in Your FinTech App
Blockchain is a revolutionary and fast-developing technology that has stepped beyond its only use for cryptocurrency exchange.
Today, a wide range of businesses are on the front line of experimenting with blockchain, trying to discover more cases of its practical implementation in healthcare, supply chains, finance, and many other spheres.
Though the technology is young, it provides lots of benefits, such as transparency, protection from fraud, and quick data exchange. All these features can help businesses break new ground in the way they offer their services, turning them into market leaders in their niches.
Among all the spheres, the use of blockchain in the FinTech industry is one of the most popular and widespread trends. Banking institutions, as well as financial startups, are seeking new ways to leverage the technology in their digital solutions.
In this article, we’ll discover the basics of blockchain and how it can be successfully implemented in FinTech app development.
Understanding Blockchain
Blockchain is known by a variety of names – a distributed ledger as it records every fulfilled transaction; a decentralized database as the transaction data it holds doesn’t belong to anyone; a peer-to-peer (P2P) network as it involves many participants who keep copies of their transactions.
All these definitions are true and describe blockchain from different perspectives.
It’s easy to understand what blockchain is through its work in practice. Blockchain consists of a series of blocks. Each block holds transaction data, hash identity, and some node details that help to form a chain, attaching one block to another.
Here is how it works:
- One of the blockchain participants places a request for a transaction. Transactions can involve different activities, e.g., cryptocurrency exchange, smart-contract execution, selling/buying NFT, or any other asset.
- Each blockchain participant receives a copy of the requested transaction for validation.
- As participants validate the transaction, the user status gets recorded, and blockchain algorithms update it.
- After validation completes, the transaction is packed into a new block and gets attached to the previous block with the help of a hash pointer.
Blockchain-Based Security
Many FinTech developers incorporate blockchain into their solutions as it guarantees these apps maximum security. This is possible due to the characteristics blockchain possesses.
Let’s have a closer look at why this technology is super-reliable.
Decentralization
When a new transaction is created, every blockchain participant needs to verify it. This means that there is no central node responsible for data verification and, as a result, it’s much harder to change any transaction data.
This way, the decentralized nature of the technology saves transaction records from any unauthorized modification.
Transparency
Each chain of blocks with billions of completed transactions can be tracked down to its very first genesis block.
Moreover, all the transaction details become public to all the participants at any time. This can solve the issues of credibility and trust that often arise in the FinTech niche.
Permanence
After network participants create and verify a transaction, it gets into a block and can’t be altered by anyone anymore. This becomes possible due to the technology of hashes used in the blockchain.
Any block holds two hashes – a current hash and a previous block hash. Each hash is generated based on the data placed in the block.
It means that once a block is attached to the chain, the change of data leads to the creation of a new hash that doesn’t fit into the chain. Hashes preserve transaction data from any alterations on the part of fraudsters or malicious users.
Accurate Transaction Record
Blockchain carefully tracks every transaction, ensuring that each record is unique. If a network participant places several equal transactions, the system will remove the repetitive ones when certifying and identifying them.
This way, the technology achieves the accuracy of the data placed in blocks.
Proof of Work
To make system hacking impossible, blockchain creators have introduced the notion of Proof of Work. It means that the system slows down the block creation and transaction recording process to avoid overloads.
As a result, hackers can’t spam the system with messages and launch denial of service (DoS) attacks, ensuring more stable work of the network.
Use of Cryptographic Keys
Each blockchain transaction is well-protected with encryption. This way, even if hackers intercept any blockchain transaction, they’ll need time to decipher it, change the data, and encrypt it again.
Thus, using cryptographic keys causes hackers more trouble and makes breaking the system almost impossible.
What FinTech Apps Need Blockchain?
Blockchain technology ensures that transactions performed are secure, immutable, and transparent. These characteristics have caught the attention of many businesses in the financial world.
In the banking and finance sector, it’s essential to protect deals and agreements from changes and manipulations and make them visible to each party involved.
Here are some cases when FinTech apps can benefit the most from using blockchain in their core:
International banking and finance contracts
When signing an international agreement, contract participants have to consolidate a variety of terms and conditions into a consistent document that satisfies both parties.
As blockchain gathers data into one transparent and accountable chain, it becomes easy to facilitate data and create a joint paper even if law practices substantially vary from country to country.
Cross-border transactions
Blockchain makes it easy and fast to transfer funds from one country to another as it can instantly bypass such constraints as lengthy fund checks.
Besides, the blockchain technology can remove third parties from the payment process (e.g., payment service providers), making it significantly swifter and much cheaper.
Financial contracts or deals with intermediary agents
Sometimes deals or contracts should be approved and verified by certified intermediaries. For example, to sell the property a seller and a buyer have to turn to a real-estate agency to complete the deal.
With blockchain smart contracts, FinTech companies can exclude agents or other central authorities from the process, solely relying on a smart contract code.
Recurring payments
For B2B and SaaS businesses, it can be quite challenging to process each payment operation manually.
Instead, they can use programmable smart contracts that execute a particular action, event, or condition, e.g., automatically pay when goods are delivered.
The Future of Blockchain Usage
For the last 5 years, the popularity of blockchain has been steadily growing.
More and more FinTech companies are turning to blockchain development services to address the issues of the conservative finance system and make their financial operations more flexible, faster, and better protected.
In 2017, the FinTech blockchain market size reached $230 mln. In 2018, it was estimated at $280 mln, whereas in 2021, it was valued at $4.67 bln.
Progressive development of the technology leads to its higher compatibility with financial services, the rise and stabilization of diverse cryptocurrencies, cost reduction in transactions, and the total cost of ownership.
All these demonstrate that the use of blockchain technology in finance will only grow. Markets and Markets forecasts that the FinTech blockchain market size will reach $6,228.2 mln by 2023, growing at an impressive CAGR of 75.9% between 2017 and 2023.
Conclusion
Blockchain is a disruptive technology that can help many industries to advance. A wide range of startups and businesses experiment with the technology, finding new ways to apply it in practice.
Banking and finance are among the spheres where experimenting with blockchain is especially popular, ranging from crypto trading to cross-border fiat money exchange and signing agreements based on smart contracts.
If you’re also seeking ways to incorporate blockchain technology into your FinTech solution to make it better protected, more transparent, and faster, then Scand is ready to help you.
We’ve got blockchain developers who have deep expertise in cryptocurrency app development, smart contract development, DeFi, DEXs and auctions development, crypto contract development and much experience in blockchain practical implementation.
