Forget Bitcoin, DEFI is the real tech boom.

There is a lot of buzz surrounding Bitcoin’s price, which has more than doubled since early December before falling this week. While Bitcoin may have further to go, both ways, the most exciting part of the blockchain story is that fintechs can play a key role in decentralising finance.

The last time Bitcoin peaked was in December 2017 amid extreme hype about blockchain’s potential to transform the financial system. Unfortunately, these expectations were ahead of their time. This resulted in a cryptocurrency bear market that saw Bitcoin crash by more than 80 per cent.

Given Bitcoin’s surging price, it appears that another hype cycle is well underway. However, this time around fintechs are busy developing solutions to help consumers participate in the blockchain revolution.

More broadly, institutional investors are waking up to the disruptive potential of blockchain technology. To understand this disruption, one must appreciate a surprising and often overlooked, fact about Bitcoin and other cryptocurrency tokens: they do not exist.

What does exist, however, is a record of information flows between users. Just as your email account holds messages, sent and received, a cryptocurrency balance is the net result of a user’s transactions on a blockchain network.

Moreover, both technologies employ similar security protocols: just as you need a password to send messages from your email account, you need a private key to ‘send’ cryptocurrency tokens on a blockchain.

When someone makes a blockchain transaction, their private key is transformed into a digital signature, which is then used to authenticate transactions. This is like the imprint of a rubber stamp, in that you can see where it came from without looking at the stamp itself. As a result, the digital signature can be shared without revealing the underlying private key, just as we can share email addresses without giving away our passwords.

This allows the network to publish everyone’s transactions without compromising its security. As a result, nobody can falsely claim that they have, or have not, been party to a transaction. However, transparency does not stop there: many blockchain networks make their source code freely available. Can you imagine a bank publishing all of its policies, procedures, and controls?

https://www.youtube.com/watch?v=JcnkrWtIdcs

In addition, blockchain networks are decentralised, which makes them extraordinarily robust. As their transactions are stored in many different locations, they are almost impervious to attack or corruption. Like peer-to-peer file-sharing networks, blockchains are practically impossible to take down.

The inherent robustness and transparency of blockchain systems ensure their integrity, allowing network participants to rely on observable rules – as opposed to financial intermediaries – to manage user interactions. This lack of intermediation reduces transaction costs in the system.

In this way, blockchain technology can help make financial services more efficient. For example, the Saldo app lets Mexicans in the US pay their relatives’ utility bills back home. Saldo runs on Stellar, an open-source blockchain that allows users to affix fiat currencies to the network’s token, the Lumen. This enables them to make international payments for a fraction of the normal cost.

However, not all blockchain transactions require a token. As these are merely transfers of information, blockchain networks can be used to streamline workflows that involve sign-offs and verification checks.

Furthermore, both solutions rely on the security and openness of blockchain-based authentication mechanisms to reduce admin costs behind the scenes. In this way, blockchain has applications in areas where transparency is commonly an issue, such as re-insurance, auditing, and loan syndication − to name a few.

By reducing paperwork and increasing accountability in a multitude of sub-sectors, blockchain can help make financial services cheaper and more accessible. As part of this, fintechs can become conduits between conventional finance and the most promising blockchain networks. That part of the blockchain story is more important than the price of Bitcoin.

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