Blockchain vs traditional systems: what is safer for the financial sector?

The reliability of a financial system is its ability to operate smoothly, predictably, and securely. This is the foundation of stability for any business. When a company is confident that payments will come on time and the funds are safe, it can safely plan its development and fulfill its obligations. Any doubts about this process create risks that can undermine even the most sustainable enterprise. Therefore, the issue of choosing between time-tested and new financial technologies is very acute.

Structure of traditional financial networks

Classic payment systems such as SWIFT or the Visa and Mastercard card networks are built on a centralized basis. This means that all operations go through a single management center. Banks and processing companies act as intermediaries who verify, confirm, and record every money transfer. All information is stored on their servers. This model is familiar and has been worked out for years, but it has certain weaknesses.

The main problem is the presence of a single point of failure. If the central server is attacked or goes down for technical reasons, the entire network may be paralyzed. In addition, centralized control creates a hypothetical opportunity for data manipulation or account blocking by decision of the system operator. 

Blockchain technology and its essence

In response to the limitations of centralized models, there has emerged blockchain technology. This is a distributed data registry. Instead of a single central server, information is stored simultaneously on multiple computers connected to a single network. Each transaction is recorded in a special block. It is then cryptographically linked to the previous one, forming a continuous chain. It is almost impossible to change the information in an already created block. To do this, an attacker would have to hack thousands of computers around the world at the same time, which makes the system extremely resistant to data forgery. Bitcoin is the first and most famous application of this technology, which demonstrates the viability of the latter.

Comparative analysis of reliability

Let’s take a deeper look at the security differences between the two approaches. Understanding these differences helps to assess the potential of new technologies for the modern financial sector.

Vulnerabilities of centralized systems

Traditional networks face certain risks due to their very structure. The concentration of all data and management in one place makes them an attractive target for cyber attacks. 

Here are the potential vulnerabilities:

• • Risk of a single point of failure. A failure of the central server or processing center may stop all transactions in the system.
• • Threat of data manipulation. An unscrupulous employee or hacker who gained access to the central database is theoretically able to change or delete transaction records.
• • Dependence on intermediaries. The process of transferring funds goes through several instances, which slows it down and increases commission costs. 

Each of these vulnerabilities can cause serious damage to a business, from financial losses to reputational harm. Therefore, companies are looking for alternative solutions that can minimize such threats.

Resistance of decentralized registries

Elements of decentralization are gradually being explored and implemented in the traditional banking system. This is because distributed registries offer a different level of protection. Due to the lack of a single control center, it is much more difficult to attack such a network. Transaction data is confirmed collectively by network participants, rather than by a single administrator. Once an entry is added to the block chain, it remains there forever, which creates a transparent and unchangeable transaction history. Such an architecture significantly increases the overall reliability of payment systems and reduces fraud risks. 

Advantages of blockchain for business and its future

The integration of blockchain in the banking sector and other industries opens up new horizons. Companies gain access to faster and cheaper cross-border payments, as the need for multiple intermediaries is eliminated. Transparency of the system simplifies auditing and increases trust between partners. Services like OxaPay use these advantages to ensure uninterrupted acceptance of cryptocurrency payments, providing businesses with a simple tool for working with digital assets.

The future of financial technology is likely to be a hybrid one. Blockchain will not completely replace the existing systems, but will complement them. We will see the emergence of new FinTech products that combine the stability of classical finance and the effectiveness of decentralized technologies. This will lead to the creation of a more flexible, secure and accessible global financial infrastructure that meets the demands of the digital economy.