Since this is a potential time of learning (and in my case, baking and eating), I’m sharing some FinTech terms and information to help us become overnight “experts”.
FinTech is changing the way people trade and invest in the markets, and if you want to keep track of your investment performance and profit, a stock market calculator would be useful.
Blockchain Technology and Cryptocurrency
Blockchain Technology, sometimes referred to as Distributed Ledger Technology (DLT), makes the history of any digital asset unalterable and clearly seen by anyone through decentralisation and cryptographic hashing. An apt example of the blockchain model is cloud-based, shared-document editing. The document itself can be edited by multiple parties simultaneously and previous versions are saved to the cloud and become unalterable. However, the data can still be analysed by all parties using software such as dune api, providing information on several market metrics that may come in useful.
Users can revert to a previous version but cannot alter the version history as the new version will count as a new iteration since the chronology of changes is locked. Also, changes are made by all users in tandem, allowing everybody to see them, making the alterations transparent. Blockchain technology is more complex than this but as an analogy, shared editing illustrates the basics of the concept.
Blocks, Nodes and Miners
To simplify the blockchain technology even further: a blockchain contains three important aspects – blocks, nodes and miners.
Blocks
Blocks are the rudimentary matter within the chain, which contains multiple blocks. Each block contains:
Data
A 32-bit whole number called a nonce is randomly generation when the block is created and generates a block header hash.The hash is a 256-bit number linked to the nonce. It starts with an incredibly large number of zeroes, making it quite small in terms of numbers.
Miners
Miners create new blocks on the chain through a process called mining. In a blockchain, even though every block has its unique hash and nonce, the hash of the previous block in the chain is referenced in the new hash, making mining a new block difficult, especially in large chains.
Miners use specialised software to solve the mathematical problem of finding a nonce which generates an accepted hash. There are approximately 4 billion nonce-hash combinations which have to be mined before the correct combination is found. When this happens, the new block can be added to the chain.
A security feature which makes this entire process so appealing is that making a change to any block earlier in the chain requires re-mining not only the block with the change, but all of the blocks that come after it. The amount of computation needed for that, including the time, is undesirable for most people. This makes blockchain technology difficult to manipulate.
Nodes
Nodes are the decentralised aspect of blockchains. No one device can own an entire blockchain, it is distributed as a ledger via the nodes connected to the chain. Any electronic device which keeps the blockchain network functioning can be considered a node.
Each node has a copy of the blockchain and any new blocks which must be added to the chain must be approved by the entire network before the blockchain can be updated and verified. Each person in the blockchain has a unique alphanumeric identification number that shows their transactions and everybody with access to a copy of the blockchain, via the network, can see the entire blockchain transaction history.
Cryptocurrency
Cryptocurrency is, therefore, a financial means of using blockchain technology to make payments and other transactions. All the main aspects which make blockchains viable including decentralisation, transparency and inalterability are what make cryptocurrency a powerful concept. It is not controlled by a central authority and can be sent directly between two parties with minimal processing fees. In this way, people avoid the high fees charged by some traditional financial institutions.
An interesting fact: cryptocurrencies are named such because their existence within the blockchain structure is secured by strong cryptography. They are secured by complex mathematics.
Another added benefit is that the unique alphanumeric identifier each user in the network gets cannot be connected to any real-world entity. It may be possible to analyse the transaction flow, but this does not equate with finding the real-world identity of the network’s users. Finally, cryptocurrencies do not have any gatekeepers or permission structures. It is simply software that you download for free and once installed; you can trade any cryptocurrency supported by the software.
Big Data and AI
Machine learning (essentially the most lucrative form of AI for business currently) and big data go together. Machine learning is already being used in the financial sphere to detect strange activity on bank accounts such as foreign transactions or large sums of money being either withdrawn or deposited.
This is done by a few highly specialised algorithms that monitor behaviour patterns in your account and then aggregate them to detect anomalies. This is, of course, user specific. A millionaire’s daily spend will obviously differ from that of a waitress or office worker.
How big data enters this is through similar pattern recognition. Unlike allowing machines to carelessly make trade options and sink the stock market, sending the world into recession as happened circa 2008; machine learning is now more sophisticated and has extensive parameters which prevent something like that ever happening again.
What machines now do is analyse data from a varied data set (all a database’s relevant entries) and create models and predictions based on that. These predictions still have a long way to go and still require a significant amount of human interaction to decipher, but they help to condense a lot of information into understandable chunks or metrics.
From there, seasoned professionals can then make their analyses and recommendations as they see fit. It can be used for things like behaviour segmentation so financial institutions and other businesses know the behaviours of their client and consumer base. So, for a large financial company such as a retail bank or investment firm, this is invaluable information. You can read more about it here.
How to strategise for industry disruption
Fundamentally, what has been described in this article is FinTech or financial technology. This technology is meant to be an addition to existing systems and measures to make them better.
If you want your finance company to thrive in the future, you need to plan alongside these disruptive giants and create strategies which leverage their immense benefits for your own company’s gain. Perhaps enrol a few of your key financial employees in an introductory online short course focusing on FinTech Disruption. This will help equip them with the skills necessary to ‘take the bull by the horns’ and use the technology at hand to add value to your business. These technologies will only keep evolving and getting a foothold on them while they are still in their infancy will surely allow your company to both grow and prosper in the future.
