With Bitcoin having climbed the ladder in the tail end of 2020, there are a lot of questions about crypto and blockchain’s refusal to stand down from the financial markets.
If the past five years have told us anything, it’s that there’s little chance that blockchain and decentralised finance or DeFi are going anywhere. Even with increased regulation on the horizon and the banking sector’s attempt at reigning in crypto, both DeFi and Blockchain are continuing to majorly impact Fintech.
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As we step into 2021, we’re likely to see many more adaptations to decentralised finance, and if experts are to be believed, this is going to slowly but surely change the way we buy, transfer and take out loans — for the better.
Let’s take a look at how blockchain and decentralised finance are impacting Fintech.
What is DeFi
To kick things off, we’ll first take a look at DeFi and what this term means.
Keeping things simple, decentralised finance is essentially what crypto assets allow. A financial solution that gives us all the chance to be our own bank, rather than relying on commercial banks to do the job for us.
To add, a decentralised financial system will allow just about all people across the planet to access financial services and undertake their own borrowing, lending and wealth transfer activities with crypto assets through platforms like Independent Reserve— levelling the playing field so to speak.
That in mind, commercial banks and central banks did have this as their primary goal, though, as we’re all going to agree — it hasn’t worked out very well just yet.
DeFi and Blockchain Undercutting Fintech and Banking
One of the biggest ways that DeFi and Blockchain are impacting Fintech is through essentially undercutting these banking services and becoming their own banks.
When we look at a bank or traditional Fintech solutions, there are a plethora of bureaucratic processes that can stunt the underlying services that allow banks to work in the first place.
Cut to DeFi and the blockchain and you’re seeing that these technologies remove just about all of these issues by handing over all of the processes to the user and enable peer-to-peer lending, faster transfer times, the use of mobile apps to do the heavy lifting and much more.
When it comes to the impact of these services on Fintech, we’re essentially seeing banks and other financial organisations do their best to mimic these solutions, or on-board them entirely.
For example, one of Australia’s big four banks has begun to utilise cryptocurrencies to move vast amounts of currency, rather than relying on their own processes. That said, one of the biggest impacts on Fintech may be the arrival of hybrid DeFi-Centralised banking systems.
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The Perks DeFi Brings
When we take a look at the processes, technologies and major changes that DeFi brings to Fintech, we’re able to quite easily see that banking and the movement of liquid assets may change exponentially over the coming years.
For example, with Ethereum-blockchain-backed solutions, Fintech may soon offer (and in some cases already does offer) the following solutions:
Increased Transparency — given that the ether blockchain enables total transparency of all movements on the chain, users can easily see every transaction which can then be verified by other people using the solution.
This creates an improved level of security and trust but keeps everything as secure and anonymous as possible.
Immutability — unlike traditional banking, the ether-based solutions integrate tamper-proof solutions that have been fundamentally designed to make tampering impossible, which further increases security and improves auditing processes.
Program-based Solutions — one of the key underlying features of ether are Smart Contracts which enables Fintech service providers to effortlessly automate and execute their digital asset movements and creations.
With this, both speed and security are kept at the top of the ladder, reducing overhead costs and improving efficiency for customers.
Self-governed Data — utilising innovative Web3 wallets, the DeFi solutions offered by ether essentially enable users to have complete control and custody of their data and their assets alike.
With this, all customers or users, depending on the service, have total control and the ability to safeguard their crypto assets, without relying on a third party such as a bank to do this.
The Fintech Use Cases of DeFi
Delving into how these hyper-decentralised processes can be used in the real world, and are increasingly being used, there are a few things to keep in mind.
One of the more popular and in-demand solutions coming from DeFi is the total self-management of wealth and assets. There is no longer, or will no longer need to be, a third-party or a bank pulling strings with a customer’s wealth or assets as there is complete control provided by the DeFi system.
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A second key use case is transparency-backed analytics and data collection. Even though all data is secure and anonymised, by having access to all user’s data on the blockchain regarding investments and movements Fintech companies are able to better track and predict changes in stock prices, and other asset prices.
That said, there’s a significant increase in the reliability of risk management and financial opportunity discovery.
