Technological advancements today have made it possible for the development of blockchain — an innovative database technology which is at the core of nearly all cryptocurrencies. By distributing identical copies of data across the network, blockchain technology makes it difficult to hack a system, offering a more secure platform for a wide range of applications, such as FinTech.
How Does Blockchain Work?
Blockchain is a digital ledger which stores different types of data, while recording information about crypto transactions and NFT ownerships or DeFi smart contracts. It is totally decentralized. Rather than being stored in one location by one administrator, many identical copies of the database are held on multiple computers across a network called “nodes.”
Basically, it works by periodically adding fresh data to the network, resulting in a new “block” attached to the “chain.” Afterwards, all nodes update their version of the blockchain ledger in order to be identical, but first verifies the legitimacy of the new data. For crypto, this may be by confirming whether a coin had not been spent more than once. This is why blockchain technology is highly secure.
Fundamental Changes It Can Bring to FinTech
FinTech (financial technology) is a catch-all term which refers to mobile applications, software, and other similar technologies that automate traditional financial transactions for businesses and consumers. Catering to the financial assets of people across various locations, it is vital for FinTech companies to leverage blockchain technology in order to secure all transactions, keep valuables safe, and foster a safe digital environment for digital asset investors. Specifically, here’s how blockchain technology can bring fundamental changes to FinTech:
Stamp Out Fraud
Blockchain technology stamps out fraud by allowing full real-time access to transparent records, preserving the integrity of data while creating an immutable record of assets.
Since blockchain is decentralized, third party inputs will no longer be needed. This creates more secure transactions as it taps a network of blockchain participants to oversee potential changes to encrypted data.
Difficulty of Altering Data
Blocks tend to be stored linearly and chronologically. After it has been added at the end of the chain, it becomes extremely difficult to alter contents unless a majority of the network reach a consensus to do so, making it difficult for hackers to cheat the system.
Blockchain for Safer FinTech Investments
With blockchain technology revolutionizing FinTech as it secures all transactions, investing in digital assets has never been safer than before, especially in the UAE where legal frameworks for crypto investments have become more robust.