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.
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.
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.
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.
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.
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.