In the late 2000s, when Bitcoin first burst onto the scene, the term “blockchain” was introduced into the financial lexicon. Its function as a decentralized, tamper-proof ledger technology was initially used as the foundation for cryptocurrencies—the modern world’s first foray into decentralized finance (DeFi). But even in its infancy, some recognized its potential to challenge traditional financial systems and pave the way for a digital asset ecosystem.

Words like “crypto,” “blockchain,” and “DeFi” soon transitioned from mere buzzwords to markers that threatened to upend global financial traditions and shake the walls of centralized financial institutions.

In the decade that followed, the capabilities of blockchain were pushed well beyond just digital cash, and its popularity and disruptive potential grew. Soon, fintech players started taking notice, showing interest in its ability to make transactions faster, cheaper, and safer, further legitimizing the role of blockchain in fintech.

How does blockchain fit into fintech?

A decade on from when Bitcoin was launched, large financial institutions, like JPMorgan and Fidelity, began dabbling in blockchain to streamline cross-border payments, settlements, asset management, and more. Companies, including IBM, also developed permissioned blockchain platforms targeting enterprises, promising greater privacy and control for banks and financial institutions. These institutions are now finding uses in lending, borrowing, trading, non-fungible tokens (NFTs), and yield farming while attracting significant investment as well.

Below are a few of the key uses of blockchain in fintech:

1. Payments and cross-border transactions

• Through the elimination of intermediaries, blockchain enables faster, cheaper, and more secure cross-border payments than traditional services. Transaction times can be reduced from days to mere seconds.

2. Lending and borrowing

• Blockchain can ensure decentralized lending and borrowing, which allows peer-to-peer transactions without the involvement of traditional banks.

3. Digital identity verification

• Blockchain provides secure, tamper-proof digital identities, streamlining verification processes, protecting against fraud, and simplifying Know Your Customer (KYC) procedures for banks and financial institutions, which is a crucial function in assessing customer risk.

4. Asset tokenization

• It also allows real-world assets (e.g., real estate, stocks, art) to be tokenized and traded. This enables fractional ownership, increased liquidity, and easier asset transfer.

What’s trending in blockchain and fintech?

Increased transaction speeds and scalability with Layer 2 solutions

In an industry where innovation is rapidly expanding possibilities, Layer 2 solutions, particularly Bitcoin Layer 2, have emerged as the latest game-changer. By tackling transactions off the main chain (Layer 1), Layer 2 solutions help alleviate the congestion caused by increasing users. It runs parallel to the main blockchain and can handle large transaction volumes without compromising the security and decentralization of the main blockchain, helping improve scalability, speed, and functionality.

These solutions become highly impactful to fintech companies looking to incorporate blockchain and crypto solutions into their offerings, as they can leverage the Bitcoin network’s security while enjoying better transaction speeds and lower fees. It is also easier to convince consumers to stick to the blockchain they know and trust because of the relatively higher user adoption. This also benefits companies in terms of cost-efficiency and better product offerings, leading to the most important outcome of all—happier customers.

Leveraging pooled security with EigenLayer

EigenLayer is a “re-staking” protocol that operates on a decentralized, open-source blockchain platform called Ethereum. The concept of “staking” involves locking up your crypto assets in a blockchain network for a period to help secure that network. This typically earns you crypto rewards, which you can then reinvest in staking, or “re-stake,” to earn even more rewards. 

As a re-staking protocol, EigenLayer lets Ethereum’s validators (blockchain participants responsible for verifying and validating transactions) secure additional networks and applications without deploying new infrastructure. This allows Ethereum’s security to be shared across protocols and services.

Fintech companies building on Ethereum can leverage EigenLayer's pooled security, making it easier and cheaper to implement robust security measures.

This also means lower entry barriers and access to a “trust marketplace,” allowing smaller firms to launch with the security of Ethereum without needing costly infrastructure.

Which blockchain startups are leading the way in fintech?

One of the many key startups in the industry is ConsenSys, which offers a suite of blockchain solutions like API access to the web, a Web3 mobile wallet, blockchain for business, and “smart contracts,” which are self-executing agreements run on blockchain networks and that automatically carry out actions when predefined conditions are met. These solutions make it easier for businesses and developers to build blockchain-based solutions functioning on the Ethereum network. The company has over 2,000 global clients and partners, with key clients such as Microsoft, Ernst & Young, and Procter & Gamble.

Ripple is a blockchain-based payment settlement system and currency exchange network focusing on quick and cost-efficient cross-border transactions. One of its key offerings is “RippleNet,” a global payments network used by banks, payment providers, and financial institutions to facilitate near-instant international money transfers with minimal fees.

Circle is another leading fintech company specializing in “stablecoins” and blockchain-based financial services. A stablecoin is a cryptocurrency that is pegged to a reserve asset, like a fiat currency, so it can maintain a stable value. 

Circle’s flagship product, USD Coin (USDC), is a fully-reserved digital currency backed 1:1 by cash and cash equivalents. Among its many partners are MoneyGram, Mastercard, and Plaid.

Fireblocks is also a significant player in the space, offering products designed to facilitate the secure handling of digital assets. It serves over 250 clients including BNY Mellon and Revolut, as well as various banks, fintechs, exchanges, and hedge funds. Since its launch, Fireblocks has transferred nearly USD 700 billion in digital assets​.

Investments in financial services technology

Meanwhile, several fintech big hitters have already invested in blockchain offerings. These include companies like PayPal, Coinbase, Visa, Mastercard, and Stripe. Blockchain-related partnership activities among fintech companies are also on the rise, with Q3 2024 seeing more deals being completed than the previous quarter. It has also seen a similar level of activity to other fintech-related industries like banking and infrastructure, wealthtech, and insurtech in the same period. 

Companies like PayPal have integrated crypto services into their platforms, enabling users to hold several cryptocurrencies such as Bitcoin, Ethereum, and Litecoin in their wallets.

Some companies that were hesitant to invest in blockchain or pulled out because of high volatility are now coming around. Stripe, for example, dropped crypto payments from its services in 2018 but has now announced that it will bring it back for Circle’s USDC stablecoin.

In the crypto space, Visa and Mastercard have been very active in terms of partnerships. In the last quarter, we saw Visa partner with Web3 money app Wirex and crypto hardware and wallet solutions provider Tangem to broaden its offerings. Meanwhile, Mastercard collaborated with global payments infrastructure company Mercuryo and fintech company Nuvei for similar purposes.

Government, fintech, and blockchain

Many central banks, including the US, UK, EU, and China, are exploring digital versions of national currencies called Central Bank Digital Currencies (CBDCs). Though there is quiet skepticism over the ultimate adoption and implementation of CBDCs, it is an indicator that governments are looking at ways to safely enter the digital currency space.

However, the potential of blockchain fintech to reshape the financial world has understandably brought along with it a strong level of regulatory scrutiny. While recognizing the inevitability of long-term adoption, governments have also looked to bring in regulations to protect investors, prevent fraud, and integrate blockchain safely into the financial system.

The US Securities and Exchange Commission (SEC) and the US Commodity Futures Trading Commission (CFTC) have intensified their scrutiny of crypto companies, leading to several enforcement actions against firms. This recently led companies, including Mango Markets and Uniswap, to reach settlements with the authorities over charges brought against them.

However, Donald Trump’s win in the recently concluded US presidential election means that this scrutiny could take a backseat, with Trump expressing his strong support for cryptocurrencies. This result could signal a period of deregulation and a boost in market confidence.

How to keep up with fast-changing fintech trends

The role of blockchain in fintech has evolved greatly in a relatively short period. While challenges still remain, this technology has grown to be a disruptive force that can bring about a new age in financial services.

With such rapid changes taking place, staying ahead of the curve can be the difference between future-proof decision-making and playing catch-up. Access to all the information out there is no longer the challenge; with the complexity of the technology and its implications, the trick is picking out the relevant trends and contextualizing their impacts. Making sense of all this technology, its uses, and its implications could make or break corporate innovation and corporate strategy. This is where a good market intelligence tool can be a game-changer—unmuddying the waters to provide a detailed view of relevant news, startups, investment trends, regulatory changes, and a host of other information.

How does Speeda Edge fit in?

Speeda Edge is a market intelligence platform that helps organizations make quick, confident decisions about emerging tech industries and their players. With detailed coverage across fintech - DeFi, FinTech Infrastructure, Enterprise Blockchain Solutions, Cryptocurrencies - and beyond, with over 200 other emerging industries, organizations can stay up to date on evolving tech trends, competitors, startups, and industry landscapes.

Contact us for a personalized demo and see how our market intelligence platform can keep you ahead of the trends.