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 enables people to buy Bitcoin on Paybis, exchange it, or lend and gain interest.

This article will discuss 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 only talk about blockchain by first mentioning Bitcoin. It was the original cryptocurrency that introduced us to this revolutionary technology.

Initially 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 valuable 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, allows to completely circumvent any third parties when 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 is the slow money transfers paired with high fees. Blockchain gets rid of both, providing near-instant remittance at a meager 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 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 and the price of cryptocurrencies increases.

Best use cases of blockchain in fintech

While blockchain technology is used in various 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 must deposit funds in 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. No central authority is involved, and the intelligent 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 those who borrow these funds. It's an attractive option for lenders, as they can access another income stream from their cryptocurrencies besides simply holding them.

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

Payment gateways

Payment gateways are third-party providers that link 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 industry's disruption is happening.

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