Financial technology, or “fintech”, is broadly defined as the use of innovative technology in finance. The main focus of fintech is not limited to payment services, but also includes the creative use of technology across financial systems. Some examples include money-transfer platforms such as PayPal, fundraising platforms such as Patreon, and cross-border transactions via blockchain as enabled by Bitcoin or other cryptocurrencies. Over the years, the fintech sector has impacted the broader technology market as seen with Alipay, Venmo, Stripe, GrabPay, DBS paylah, and Uber. It has also provided easier and more convenient access for loans, funds, subscriptions, and payment services without the need for banks.
Fintech has transformed the overall digital industry, creating a new industrial revolution known as Industry 4.0.
In this article, we will be going deep into how Hydro blockchain technology will be the fintech industry standard as the global operating system.
An operating system is a form of program that allows users to run applications designed to control the hardware and software of a certain set of computing devices. For example, Apple’s iPhone runs in its own operating system called iOS, Android devices run on the Android OS, Macbook runs on OS X, and Microsoft uses Windows. Many more examples exist such as Linux, Ubuntu, Debian, etc.
Gaps in Traditional Methods
For decades, financial technology has improved steadily in banking sectors such as wire transfer, faster cross border remittance. However, it is not all smooth sailing and plenty of issues in the field of fintech still exist, including a disconnected interbank system, slow money transfers, and high fee remittance banking. In a report by Dr. Yoon S. Park, an expert on global financial markets, cross-border payments are intrinsically inefficient because there is not one single ubiquitous global payment system (Park, 2006). Even cryptocurrencies like Bitcoin offer a faster and cheaper alternative for cross-border payments than traditional methods.
Table 1. Comparison of remittance & bank companies in the speed of transaction (Michelini, 2019).
These factors existed before modern globalization and have improved at a snail’s pace due to the centralized nature of the existing banking system, with the main inefficiencies being linked to lack of alignment across back-office operations, the costs of managing interbank claims and pricing, fraud and AML management (McKinsey & Company, SWIFT, 2018).
The lack of competition due to regulation has not allowed the market to encourage innovation. As technology flourished – central authorities have proved to be an inefficient alternative. The idea of being centralized is itself a vulnerability; the data breach of social media giant Facebook is a clear example of a centralized entity abusing its position of power in respect to privacy and security.
Existing operating systems of today are outdated.
Though interconnected at a scale never seen before in history, networks are in fact more disconnected than you may think. Traditional financial institutions have privatized their systems to make their services faster for their consumers. However, this jeopardizes security and hinders interoperability and transparency. According to Graeme Boy, Software Engineer at Dharma Protocol, centralized solutions are fragile and insecure in numerous ways and blockchain projects don’t have this insecurity due to their consensus mechanisms and the immutability of contracts once deployed (Boy, 2018). Introducing a more unified ecosystem such as the Hydro Blockchain gives rise to a more frictionless way to exchange information between parties in the more intelligent and paradigm-shifting WEB 3.0.
Background and Introduction
Hydro Labs, previously known as Project Hydro, is a community-driven blockchain project that was incubated by award-winning fintech designer, Hydrogen Platform, whose global community is dedicated to making widespread crypto adoption a reality.
Hydro Labs is armed with a set of smart contracts built on top of Ethereum, which include protocols for security, identity, document signing, peer-to-peer capabilities, tokenization and AI (refer to Img.1). This makes it an ideal solution for businesses as it provides a variety of tools to execute contracts in a trustless, secure, and decentralized manner. In addition, the entire ecosystem is interoperable, meaning that information can be securely exchanged between peers, businesses and third-party developers without jeopardizing any data.
At the beginning of 2019, Project Hydro was handed over to the decentralized community, initially known as decentralized ambassadors, who then branched off and registered as Hydro Labs – an entity incorporated in the Cayman Islands. Being a non-funded project (no ICO + no VC funding), Hydro Labs has been hindered for the past year in its marketing and exchange listing efforts. Recently, however, Hydro Labs has entered into a service agreement with Hydrogen to further develop Hydro technology with 500 million Hydro tokens (now worth in the region of USD$432,000).
Fig. 1. An infographic illustration of the Hydro Blockchain protocols
Structure of Hydro Blockchain
The Hydro blockchain is robust and interoperable, making it possible for existing and new systems to easily implement it as a blockchain layer. Hydro’s digital identity aggregator known as Snowflake is facilitated by an ethereum identity standard known as the ERC-1484. This standard serves as the backbone of the ecosystem and is the main engine for identifying each user. The Snowflake protocol provides interoperability within any system (private or public) making it simpler for KYC/AML on-boarding. This is only one use case and the possibilities are endless, from e-commerce to payment services, healthcare, banking, and governance – essentially anything that requires identity management.
Fig. 2. An infographic illustration of the Hydro Blockchain Structure
Let us study the Hydro Blockchain and how it is structured; on Layer 1 we have the Ethereum network where the Hydro tokens were minted and can be transferred between users and identities. Without this layer, the Hydro Blockchain would not work (unless we have our own node validators). The Hydro smart contracts sit atop the Ethereum blockchain for many reasons; firstly, it is the most decentralized network in the space with the longest uptime making it the most mature and secure blockchain in today’s time. According to Steven Zheng, Head of Research for The Block, the Ethereum network has over a hundred thousand developers across the globe making the talent pool of dApp creators (or builders) abundant, making it easier for Hydro to outsource bug hunts, bounties and dApp development (Zheng, 2019).
On Layer 2, we have a suite of smart contracts that are easily callable within the Hydro ecosystem (refer to Fig.1). These smart contracts lay the foundation and framework of the creation of industry-level fintech applications that would want to implement a blockchain layer. With the aid of meta transactions via the identity standard ERC-1484, the end user need not worry about paying for gas. This then makes it possible to onboard consumers (with ZERO knowledge of crypto) and get them to use applications that leverage on the blockchain technology without having to know how it works, what an ETH address is, or what gas costs are.
On Layer 3, we have the Hydro dApp Store (decentralized App store) which will comprise a number of dApps with no single entity owning the application. This means there is no middle involved in using the applications and thus cutting down fees by as low as 90%. These apps will leverage the benefits of the distributed ledger technology (DLT). Some dApp concepts of Hydro include a fee-less peer-to-peer app available on the Google Play Store.
On Layer 4, we have the business layer where any existing systems (private or public) can build on top of the Hydro smart contracts. A major partner of Hydro Labs is its parent company Hydrogen Technology Corporation who is building a modular platform (called Molecule) as an enterprise solution for companies looking to add blockchain functionality or services. The Molecule platform is a huge business platform for enterprises much like Fabric, Sawtooth, ConsenSys, or R3 and has many functionalities. It is a gateway for enterprise and their users to access the Hydro smart contracts and consumer dApps. Furthermore, Hydrogen enterprise clients don’t use tokens. Instead, its end users do. This means that if Hydro Labs gets a million users of their app, it is no different if a client of Hydrogen gets a million end users. To sum up, Hydrogen is making it easier to use the platform (Molecule) and tokens at the enterprise level.
The Operating System (OS) of the WEB 3.0
Hydro Labs is focused on building products with superior front end UI and UX so that consumers need not bother how the blockchain operates. As one of the pioneer OS of WEB 3.0, Hydro Labs is focusing its design of Hydro protocols around simplicity of integration and with consumers in mind. This is one of the most important elements as it allows people of all ages to create a blockchain powered application without requiring any background knowledge of what Ethereum, gwei, and gas costs are. Just as how the internet began, Hydro is not only tackling the multi-billion crypto industry, but also the untapped majority of non-crypto consumers.
As a new technological era begins, Hydro is becoming the global fintech OS for the next generation WEB 3.0. Equipped with interoperable protocols and oiled by the Ethereum network, automation in exchanging non-tangible assets is made possible, by increasing technical efficiency, requiring minimal fees and creating a frictionless experience to operate the financial WEB 3.0.
Techopedia. n.d.Operating System (OS). Retrieved from https://www.techopedia.com/definition/3515/operating-system-os.
Park, Y. S. (2006). The Inefficiencies of Cross-Border Payments: How Current Forces Are Shaping the Future. George Washington University. Retrieved from http://euro.ecom.cmu.edu/resources/elibrary/epay/crossborder.pdf.
Michelini, M. (2018). Cross-Border Payment Providers Review and Comparison. Retrieved from https://www.globalfromasia.com/cross-border-payments/
Digiacomo, N., Denecker, O., Höll, R., Niederkorn, M., Meurant, L., Newman, H., Raymaekers, W. (2018). A vision for the future of cross-border Payments. Retrieved from https://mck.co/2PBUYfH
Boy, G. (2018). Confessions of a Recovering Centralized Systems Engineer. Retrieved from https://medium.com/@graeme_boy/confessions-of-a-recovering-centralized-systems-engineer-a5e8f03911cd
Zheng, S. (2019). Mapping out Ethereum’s Developer Ecosystem. Retrieved from https://www.theblockcrypto.com/2019/01/04/mapping-out-ethereums-developer-ecosystem/
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