Cryptocurrencies are encrypted and decentralized mediums which play an important role in Financial Technology (FinTech). Cryptocurrencies are the digital form of currency that uses to secure transactions and trading. In the digital world, it reduces the dependency on financial transactions to empower the growth of economies.
In the FinTech era, cryptocurrency does not rely on a central authority, banks, or government interference for several verifications. Although, it’s a peer-to-peer system of payment transactions. Cryptocurrency payments count into account as a digital entry and are recorded in a public ledger. Meanwhile, it is stored in digital wallets and encrypted to verify transactions.
In the financial market, the key data processing technology system helps to improve resource allocation efficiency to reform the trading system. This mining process adds records of transactions that help to distribute the ledgers which is called a blockchain. Digital data is stored and transmitted between public ledgers and wallets using advanced coding.
Cryptocurrencies in Finance Market
Cryptocurrencies are one of the emerging trends for digital transactions in the finance market. It’s a widely growing transaction system to transform the traditional financial system. Over the last decade, digital currencies have gone viral in the financial market. Cryptocurrencies are a secured system through cryptography.
According to the Morning Consult Report, the inflation and interest rate have influenced the financial market and it remains lower than in 2021.
Last year, the crypto prices with Bitcoin dropped at the end of 2022. While it had affected the financial market and declined by billion of U.S. dollars in a few days. That highly collapsed market with numerous crypto fluctuations.
Now recent developments assure that cryptocurrency is still beneficial. Once again currency has gained attraction from a large number of investors, consumers, and regulators. More importantly, this technology can disrupt traditional financial markets. It can make it easier to access the global payment system anywhere and anytime.
Currently, the crypto in the financial market has been changing, with the value of major different digital currencies. Meanwhile, several growth factors influence the market such as the adoption of cryptocurrencies by new consumers, developing engrossment in decentralized finance (DeFi), and usage of cryptos against economic instability.
Moreover, the advanced innovations in block-chain increasing the use of digital currencies for global transactions which contributes the economic growth.
According to Statista, the cryptocurrency market is projected to turn up $37.87bn (U.S Dollars) revenue in 2023. And it is expected to turn up an annual growth rate of 14.40% (CAGR 2023-27) with a nutshell amount of $64.87bn till 2027.
In such a way, the cryptocurrency in the finance market is growing rapidly. The continuous adoption of digital currencies by individuals and businesses is likely to accelerate the growth of the financial market. As with any rapidly evolving and emerging market, the financial market may also experience volatility and correction.
Learn about Crypto:
- The cryptocurrency was invented by Satoshi Nakamoto and introduced via a whitepaper in 2008.
- The first crypto (Bitcoin) was launched in 2009. While Papa John’s pizzas used it for the first transaction.
- Cryptocurrencies’ digital transactions are made possible by blockchain, which acts between electronic ledgers and digital wallets.
- According to CoinMarketCap, almost 24727 different cryptocurrencies are privileged in the market.
- There are round out of the top five sit behind the Bitcoin- Ethereum, Tether, BNB, and USD Coin.
How Will Cryptocurrencies and FinTech Transform Central Banking?
Financial Technology (FinTech) and Decentralized finance (DeFi) probe the financial system and improve the performance of financial regulators. The traditional financial system has been disrupted and faces risk assessments that investing, banking, and transactions could become decentralized.
In this regard, Fintech represents an opportunity to reshape the financial sector. Numerous digital currencies have been created to provide faster payments and improve traditional systems. The growing trend of usage of cryptocurrencies has revolution transformed central banking in the global world.
The fast-growing usage of Bitcoin and other cryptocurrencies dominates the financial market. In addition to decentralized cryptocurrencies such as Bitcoin, technological advances are likely to eventually have a more profound and lasting impact on central banks.
Even though the disruption of traditional central banking concepts seems premature, it is worth considering how looming changes in the finance industry will affect the central bank’s operation and its ability to meet key financial objectives in the future.
Moreover, the changes in the form of money and the emergence of moving funds can also affect international capital flows and exchange rates. And fraud risk makes the blockchain more captivating for the fintech industry. Most importantly, technology makes the financial sector faster and more efficient. It also eliminates the need for negotiators. Thus, most digital currencies grasp the Fintech landscape.
Opportunities of Cryptocurrencies in FinTech
- In FinTech, Cryptocurrencies are a revolutionary, decentralized money paradigm. It’s very helpful to switch from a traditional to a digitalization system. It provides an official and modern electronic payment system. It helps to eliminate the prerequisitefor centralized intermediaries, such as banks or monetary institutions, for transactions between two parties and enforce trust. While technology changes the financial markets which significantly affects monetary policies and implementations.
- Cryptocurrency investmentcan help to generate more profit. Over the past decade, the cryptocurrency market has skyrocketed, reaching almost $2 trillion. According to the crypto market, Bitcoin was valued at over $540 billion (USD) as of April 2023.
- The economy has become one of the most prominent applications. The use of cryptocurrencies such as Bitcoin facilitates money transfers across borders. This efficiency speeds up the system and rebalanced the potential technologies vulnerabilities during the time of financial crisis. Thus, this streamlined method makes the money transfer cheaper.
- Multiple payment applications could improve the payment mechanism to reduce the risk of transactions. Thus, digitalization could provide payment mechanism stability without limiting fintech innovations.
- Financial institutes have an opportunity for cryptocurrenciesto improve their performance in the digital world, by providing offers that help to expand the origin. Additionally, the adoption of decentralized finance is growing rapidly to access financial applications. And it removes the need for a third party which results in streamlined transaction processes.
- It has also the potential to face challenges that the traditional system faced before. It brings substantial advantages to supporting small and medium enterprises (SMEs) rather than establishing traditional finance services.
- Centralized financial models provide unique services to build larger balance sheets, and financial plans, and focus to enhance shareholder value. Nevertheless, these opportunities are unattainable for businesses due to a lack of capital and they are unable to get an advantage in the same way.
Closing Remarks
In Financial Technology (FinTech), cryptocurrencies are an innovative source of transactions that could transform the financial sector. It penetrated the financial sector, disrupted the traditional financial system, and minimize frictions in lending and transactions. This recent development in fintech has improved financial inclusion in the global economy.
Moreover, cryptocurrencies offer a more reliable, fast, and secure system for exchange payments than traditional ones. The interaction between fintech and digital currencies will be stronger, it will be quite interesting to see how financial technology evolves in the future.