Global fintech and funding innovation ecosystem

Cryptocurrency’s Impact On the Fintech Industry

Sep 5, 2023

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In the last few years, we've seen a noticeable uptick in accepting and using Blockchain technology within our contemporary society. It's crucial to understand that Blockchain is fundamentally a complex coding system that documents events, with each record irrevocable. These resources can vary from storage areas to a register of peer-to-peer cryptographic transactions, bypassing a financial institution's need to serve as an intermediary. This technological upheaval has left a significant imprint on the Fintech industry.

Efficient Money Transfer

The process of transaction approval in conventional financial entities is painfully sluggish due to the numerous layers of bureaucracy that need to give their consent. This procedure becomes more complex and exhausting when it involves cross-border or inter-organizational fund transfers.

Traditional money transfers are fraught with bottlenecks and postponements, making cryptocurrency transactions a much more attractive alternative. Cryptocurrencies operate on a decentralized ledger, transferring them significantly quicker than traditional currencies that must navigate through financial institutions at both ends. Eliminating intermediaries, or in this case, multiple intermediaries, considerably lowers the cost of these transactions.

Service Availability is Limited

The process of transaction approval in conventional financial entities is painfully sluggish due to the numerous layers of bureaucracy that need to give their consent. This procedure becomes more complex and exhausting when it involves cross-border or inter-organizational fund transfers. Traditional money transfers are fraught with bottlenecks and postponements. This makes cryptocurrency transactions a much more attractive alternative.

Cryptocurrencies operate on a decentralized ledger, transferring them significantly quicker than traditional currencies that must navigate through financial institutions at both ends. Eliminating intermediaries, or in this case, multiple intermediaries, considerably lowers the cost of these transactions.

Aids in the Opening of New Markets

For the common bank user, cryptocurrencies might be daunting and confusing. They lead to a reluctance to invest in such digital assets. This skepticism is primarily seen in developing nations with relatively stable local currency. In this instance, the need for an alternative currency is not immediately apparent.

However, cryptocurrencies' true potential becomes evident when the national currency is unstable. A case in point is Venezuela, where the local currency, Bolivar, experienced significant devaluation. In response to this financial crisis, Venezuelans turned to cryptocurrencies. It offered a more reliable and stable financial option.  It's worth noting that the value of 1 BTC to USD varies continuously, reflecting the dynamic nature of the cryptocurrency market.

Trade Finance and Trading

The trade finance sector continues to depend heavily on the global distribution of physical paperwork for information verification, meaning that documents are still being sent through mail or fax.

Buying stocks and shares remains a cumbersome process involving brokerage, exchanges, clearing, and settlement. This process usually takes up to three days to settle but can be prolonged over the weekend as each trader must keep their own databases of all transaction-related documents and regularly cross-verify this database for increased accuracy.

Incorporating blockchain technology in this field could provide traders with a means to evade the strenuous task of counterparty checks and enhance the entire process. This reduces the associated risks, quickens the settlement procedure, and increases the accuracy of trades.

Digital Identity

The incidence of fraudulent accounts continues to escalate unabated. Despite the stringent Know Your Customer (KYC) and Anti-Money Laundering (AML) checks implemented by banks, they are not entirely infallible. The lack of a standard procedure for clients to submit identity proof documents further enhances their susceptibility to hacking.

Blockchain technology can be instrumental in establishing a digital identity system. Once clients undergo a one-time validation process, they can conduct transactions worldwide. Additionally, blockchain can facilitate financial users in several ways:

  • Administer their identity information
  • Safely share data with others
  • Use digital signatures for documents such as claims and transactions

Endnote 

Blockchain technology facilitates transactions without the involvement of any official entity, such as a bank or government. From its inception, there's been a growing trend of businesses and organizations utilizing blockchain to simplify and enhance their financial procedures. This approach has been effective to an extent but has also exposed certain disadvantages. As a result, a call for regulation within blockchain technology has emerged. The overall effect of Blockchain on the FinTech sector is complex to pinpoint as either positive or negative, as it varies greatly depending on the unique circumstances of each case.


NCFA Jan 2018 resize - Cryptocurrency’s Impact On the Fintech IndustryThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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