Cryptocurrency has had a huge impact on the financial services sector since its inception. It has disrupted the traditional banking system and is now starting to change the fintech industry in a big way. With the emergence of cryptocurrencies, payment systems have changed considerably. The rise of mobile wallets and contactless payments has allowed people to send and receive cryptocurrency.
This year, blockchain technology is becoming more mainstream, and a lot of cryptocurrencies have had big price movements. Cryptocurrency is revolutionizing the global financial system, and here are some of the changes in financial software development that you can expect.
1. The Underlying Value Exchange Protocol
Cryptocurrency is a form of decentralized autonomous payment network that enables value exchange. Value is the base unit of information that is transferable across different exchanges and channels. Cryptocurrency creates the foundation of value exchange by creating an encrypted ledger that stores the public record of all transactions.
These transactions can be exchanged to and fro from the blockchain. With this value exchange layer, cryptocurrency can become a viable and scalable alternative to conventional financial networks, institutions, and legacy payment infrastructures. The blockchain acts as a decentralized, trusted, shared, and immutable ledger which is transparent and open to the world.
Participants (users, merchants, organizations, and exchanges) are able to record and settle their transactions with ease. The whole process is a peer-to-peer network that is free of centralized control, manipulation, and censorship. With all these possibilities and technical specs, cryptocurrencies are being massively integrated in big financial systems by a fintech software development company building the product.
2. How Participants, Organizations, and Assets Interact
Cryptocurrency is the only medium of exchange in the value exchange protocol. It is not a medium of exchange for conventional payment channels, such as banking and card payments. As mentioned earlier, it is a decentralized peer-to-peer payment network.
The network is a decentralized platform where anyone can create, issue, and maintain digital currency. There is no centralized authority like a central bank or the stock exchange. As a result, it can facilitate instant, frictionless, trustless, and scalable transactions. A cryptocurrency’s ability to be converted into other cryptocurrencies allows users to exchange value in a simple, fast, secure, and effective manner.
Users are always in charge and in control. With cryptocurrency, users control their money and are empowered to spend, save, and transfer funds as they choose. There is no exchange agent like a bank.
Cryptocurrency enables us to have direct, instant, and cost-efficient interactions. We can spend and transfer value directly through our digital wallets. We can access financial services without relying on any intermediaries. And we can conduct peer-to-peer and open-ended financial transactions without borders and intermediaries.
3. How Information Is Transmitted and Exchanged
The value exchange protocol enables the creation of fast, frictionless, transparent, secure, and cost-effective payment channels among participants. It also enables the establishment of an efficient, cost-effective, and secure ecosystem of smart contracts on the blockchain.
Smart contracts are programs which allow for contractual obligations. For example, smart contracts on the blockchain enable real-time price-ledger settlement and automatic credit-scoring of individuals. It is a mechanism that is used to automatically implement rules, processes, and procedures in electronic networks.
You can think of smart contracts as digital contracts. With them, we can automate our interactions and processes. Smart contracts can facilitate transactions and other economic activities. They can also be used for peer-to-peer financial services such as microfinancing and microloans. With smart contracts, users can set rules to execute automatically. These rules can help to reduce or remove operational inefficiencies.
All in all, the rise of cryptocurrencies is changing the global financial system. Cryptocurrency-enabled value exchange has the potential to become a viable and scalable alternative to conventional financial networks, institutions, and legacy payment infrastructures. And it is something that is expected to happen in the fintech market very soon.