It’s no secret that the cryptocurrency market is experiencing another bull run. The price of cryptocurrencies has more than doubled since the beginning of the year, triggering increased interest in investors.

Thanks to this event, the fintech industry is booming. By combining software solutions with finances, this industry is enabling people to buy bitcoin, exchange it or lend and gain interest.

In this article, we will talk about the best use cases of blockchain technology in fintech. We explore how these two industries are connected and the benefits their combination brings to humankind.

What is blockchain?

We can’t talk about blockchain without first mentioning Bitcoin. It was the original cryptocurrency that introduced us to this revolutionary technology.

Originally created to facilitate Bitcoin transactions, blockchain is a distributed digital ledger where all transactions are permanently recorded. A decentralized network of computers owns a copy of this ledger, allowing for complete transparency and immutability.

Over the years, this technology has seen many upgrades. However, the implementation of smart contracts is the one that completely revolutionized the financial world.

These self-executing applications offer the possibility to automate blockchain processes. As such, they execute only when prerequired conditions are met, allowing decentralized trading, lending, payments, and other useful functionalities.

What is fintech?

Generally speaking, fintech is an industry that marries financial products with software solutions. There are numerous niches that fintech encompasses such as:
  • Payments and international money transfers.
  • Mobile banking.
  • Stock and crypto trading.
  • Crowdfunding.
  • Lending and interest-earning.
  • Liquidity providers.
  • and many more…

Benefits of blockchain in finances

To understand how and why blockchain and fintech are connected, we need to explore the main benefits this technology brings to the industry.
  • Eliminates the reliance on third parties - blockchain technology, and more so the use of smart contracts, allow to completely circumvent any third parties when it comes to transacting value on the network. Users can transfer funds directly to each other, even lend money and gain interest by using smart contracts. 
  • Allows for cheap and fast international money transfers - a big problem in today’s banking system are the slow money transfers paired with high fees. Blockchain gets rid of both, providing near-instant remittance, at a very low cost. 
  • No geographic limitations - blockchains are global, permissionless networks. This allows anyone with an internet connection to access financial services that might be otherwise denied to them because of their poor banking infrastructure. 
  • More efficient and cost-friendly solutions - thanks to the decentralized nature of blockchain and its automatization through smart contracts, software solutions become more efficient (no human error) and cost-effective (no third party). Due to this, adoption increases, and so does the price of cryptocurrencies.

Best use cases of blockchain in fintech

While blockchain technology is being used in a wide range of industries, its applications in fintech remain the most obvious. Below are just a few of the top use cases of blockchain in fintech.

Decentralized Exchanges

Decentralized exchanges (DEX) are one of the first applications of smart contracts in the cryptocurrency space. Traditional cryptocurrency exchanges are centralized and usually governed by a single company. As such, people need to deposit funds on an online wallet to use their services and pay fees for each transaction they execute.

DEXes, on the other hand, are peer-to-peer exchanges powered by smart contracts. There’s no central authority involved, and the smart contracts match the orders of each trader on the platform. This way, the only fees involved are the blockchain transaction fees. The most popular DEXes are Uniswap and Pancakeswap.

P2P Lending and Savings

Another growing niche in decentralized fintech is peer-to-peer lending platforms. Here, crypto holders can lend their holdings to other users and gain passive income from the fees paid by the users borrowing these funds. It’s an attractive option for lenders, as they can get access to another stream of income from their cryptocurrencies in addition to simply holding them.

Borrowers, on the other hand, can put their crypto as collateral and gain access to liquid cash without having to sell their crypto. Some of the most popular lending platforms are Aave, Blockckfi, and Celsius.

Payment gateways

Payment gateways are third-party providers that link the merchants with cryptocurrency users. Simply put, they allow merchants and businesses to receive payments in cryptocurrencies. They can choose to receive crypto or FIAT money. If they choose the latter, they can avoid entering the cryptocurrency ecosystem altogether.

This way they negate the volatility of cryptos, while at the same time conserving the option to propose them as a payment method for their goods and services.

Wrapping up

Blockchain and fintech are two industries that are closely intertwined. The innovative blockchain technology provides countless benefits to the financial world, and the disruption of the industry is happening as we speak.

In the future, we are bound to see even more applications of blockchain come to light, providing both decentralization and efficiency to the fintech sector.