In 2015, the World Economic Forum estimated the net worth of blockchain to be approximately US$ 20 billion. To ensure maximum security of the transactions being made, in 2018 around 90% of European and U.S-based banks had started looking into the potential of blockchain, with the intention of investing in this technology.
Putting Things Into Perspective
Consider this, as of March 2020, the value of worldwide bitcoins alone had reached US$ 160.4 billion. The estimated net worth of Amazon founder Jeff Bezos in the same year was US$ 115.5 billion. This signifies that the market cap of Bitcoin was just about a third larger than the fortune of the world’s richest man at the time. Based on this, it is no wonder why JPMorgan Chase, Bank of America, and other Wall Street giants are also attempting to get their hands on the blockchain bandwagon. Not only has the blockchain technology wowed the world, the use of cryptocurrency itself in particular has started to gain popularity among the Fintech industry.
With the spread of Covid-19, many financial institutions are looking for ways to mould their companies to the idea of using blockchain-based currency instead of paper currency in order to reduce their exposure to the virus. Additionally, today’s consumers prefer to have complete control over their finances. Previously, a system that was not limited by the government, charged minimal transaction fees and zero banking fees was more of a dream. However, blockchain technology has made all of this possible by setting the stage through Cryptocurrency.
Crypto in FinTech – What Makes It Stand Out
Many organisations have started utilizing blockchain technology to upgrade their outdated systems while also reducing costs along the way. With help of a distributed ledger and an incorruptible, decentralized technology, financial institutions and banks can enable trade with reduced costs at a faster pace to gain more efficiency. Here’s what makes cryptocurrency a game changer in the FinTech Industry:
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Easy Identity Verification
Financial institutions are required to comply with the FATF (Financial Action Task Force) recommendations, which state clearly the importance of drafting and implementing policies and procedures that assist in combating threats of terrorist financing and money laundering. With millions being lost by companies for not complying to these regulations, ML and AI powered verification solution providers make things easier by enabling crypto platforms to comply with KYC and AML regulations.
With unique characteristics which are verified from end-to-end by miners, cryptocurrency is almost impossible to forge, unlike hard currency. As all the transaction phases are verified, from the departure wallet to the destination wallet, including the currency type and amount, this digital trail helps to easily comply with regulations in place and legitimise the currency itself.
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Instant International Payments
With the advancement of technology over the years, instant international payments have become possible through systems Fedwire and CHAPS. These real-time gross settlement systems enable electronic transfer of funds and eliminate the risk of payments not reaching their destinations on time due to unavailability of funds in intermediary banks. However, the fee for using this system is high. On the other hand, if both of the involved parties agree to make the payments using Bitcoin, faster settlements can be made.
Thanks to Cryptocurrencies, you can not only transfer money from business to business within a matter of seconds but that too without any additional fees.
With major companies, such as Microsoft, allowing customers to make payments through Cryptocurrencies, it won’t be long before others follow.
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“Smart Contracts” Improve Contractual Performance
In simple terms, smart contracts are made using a computer code that executes exactly how it is set up to execute by the developer, making it tamper-proof. Instead of two individuals signing a paper agreement, smart contracts use blockchain technology for the same purpose without interference of a middleman, while also promising compliance. The benefits of these contracts are listed below:
- Reduced costs of negotiations
- Enhanced security through encrypted transactions present on a distributed ledger
- Reduced transaction time due to automation
- As they are executed automatically, it reduces settlement risk
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Bringing FinTech to Mobile Phone
Making financial services more accessible to millions of people worldwide has always been a challenge for companies. The good news is, Cryptocurrencies bring convenience and accessibility for people to use services like banking, digital payments and money transfers. By bringing together mobile phones and FinTech services, Cryptocurrency can be used to access loans, pay bills, transfer money and even purchase insurance securely, all thanks to its feature of having a distributed ledger. By doing so, customers are not required to own a bank account, go to a particular ATM branch or carry around paper money when a financial transaction has to be made.
Bottom Line
When it comes to digital currencies, the world is evidently divided. On one hand, we have supporters such as Bill Gates, who believe Cryptocurrencies could empower and transform the lives of the poorest. On the other side, there are people like Warren Buffet who are completely against it. So, although Cryptocurrency is still proving its worth in the FinTech world, its validity is becoming more obvious with each passing day. No doubt, it is exciting to pay attention as this new form of technology improves security and efficiency of financial transactions being made worldwide.
Credit: Data Science Central By: John Murphy
