The classic methods employed by many financial institutions so far are based on obsolete solutions using password access stored centrally in poorly structured databases. It is not safe for customers and can lead to data leakage during hacker attacks or trivial errors. Classic approaches are gradually been displacing by blockchain solutions able to prevent data loss and leakage, ensuring the integrity and lack of change in them because they do not have a single data storage and use authentication algorithms to perform operations.
The blockchain technology offers solutions to many financial and technical problems associated with digital identification and protection of customer data. Thanks to this technology, authentication can be carried out in an irrefutable, invariable and secure way.
Here are a few situations in which blockchain is the real alternative to the vulnerable technologies.
The blockchain for person’s identity and data protection
The most promising in the fintech start-ups area are financial projects that focus on long-term trends related to the protection of personal data and person’s identity.
The main trend is the ability to obtain a digital ID with a combination of identity authentication mechanisms and a distributed ledger. Such an identifier can be assigned to each transaction that affects personal assets. The digital identity created with the use of blockchain technology allows any person to protect their personal data and independently determine who and how will have an access to them.
The blockchain protects consumers from duplicating accounts
A new developing domain of blockchain-based fintech is a platform for paying bills. Let’s consider one of the elements of such platforms using a conditional example, namely protection against duplication of bills.
The consumer conducts all his financial calculations through the blockchain platform. He has an access to the archive of all paid bills for all time. Data on all his accounts are stored in the blockchain.
If the payer receives a bill that he/she has already paid before, the record in the chain of blocks will not allow him to make a mistaken payment because all data records in the blockchain are permanent and unchangeable.
The consumer can not only prove that the repeated bill was sent to him by mistake but also will receive a strong evidence of his consumer rights violation, which he can later use against the organization which repeatedly billed him.
This opportunity protects the rights of consumers, preventing their financial mistakes and protects them from financial fraud.
Many financial organizations are moving towards the blockchain:
1. The exchange operator Nasdaq filed a patent application with the US Patent and Trademark Office (USPTO), which described the use of distributed ledger technology to track ownership of assets.
2. The Cambridge Centre for Alternative Finance came to the conclusion that 20% of the world’s central banks will switch to the use of open distributed ledger technology by 2019.
There are many examples of the rapid transformation of the financial sector into distributed ledger technologies. And the reasons for such a rapid transition to the blockchain will be identical everywhere: financial institutions want to meet requirements of the new growing market and they are always interested in effective ways to protect their own data and financial assets as well as their customers’. So, in the near future, along with a technological upgrade of major financial giants, we can expect the emergence of a huge number of new startups in this business domain.
Author: ASD team