The economic world is at an extraordinary inflection point. We are living in a “blockbuster moment,” as the promise of cryptocurrency upends the status quo of legacy finance. Lim Qiaoyun is a Web3 editor interested in how we can use technology to create a more equitable world. She looks at the threats to legacy finance from crypto disruption, analyzes the benefits of blockchain and provides concrete steps for finance professionals to take. The rise of decentralized finance (DeFi) and blockchain technology are riveting changes taking place in the financial landscape. Traditional institutions need to embrace this new reality or run the risk of being disrupted themselves. DreamingCrypto believes a decentralized world is on the way. In this magical era, enchanted protocols stir, courageous startups trod the Web3 wilds, VC guilds fund frontiers anew, and the Web3 oracle foretels aplenty.

The Blockchain Advantage: Speed, Cost, and Transparency

Blockchain technology has some distinct advantages compared to fiat currency systems. These benefits include faster transaction speed, lower transaction costs, and improved transparency. Getting a grasp on these advantages is key for financial industry executives wanting to build blockchain-based efficiencies into their businesses.

Transaction Speed

One of blockchain’s most oft-cited benefits is faster transaction processing. Traditional financial transactions typically require several intermediaries, resulting in longer transaction times and higher fees. Blockchain, on the other hand, can eliminate all of that by allowing the use of peer-to-peer transactions validated through a distributed ledger.

While some blockchains, like Bitcoin, have slower transaction speeds (around 7 transactions per second or TPS), others boast impressive capabilities. Solana as just one example has a throughput of 1,504 TPS and EOS’s max throughput was over 4,000 TPS. Scalability solutions like Optimistic Rollups on Ethereum, sidechains like Polygon, and even increasing block sizes or block times can all significantly accelerate transaction processing. In addition, these improvements will greatly increase network capacity overall.

Cost Reductions

…blockchain technology holds real potential to drastically lower costs compared to the current, expensive financial service model. By removing the requirement for third-party verification and intermediaries, blockchain can create efficiencies and reduce transaction costs. This is especially true in the case of cross-border payments, where legacy banking institutions usually cost a pretty penny.

For all its advantages, it should be recognized that there can be considerable technology costs to implementing and maintaining blockchain solutions. Financial institutions must prudently consider these costs in addition to any savings realized when deciding whether to implement blockchain.

Transparency and Data Integrity

Transparency is another key advantage of blockchain. Since each transaction added to a blockchain is permanent and open to verification by anyone, transparency is built in, creating higher trust and greater accountability. The decentralized nature of the blockchain system ensures that no single user can change or remove blocks without the entire network being aware. This collaborative methodology ensures data accuracy and transparency.

Public transparency has a very important role to play in accountability and avoiding greenwashing. Brands can use blockchain or other similar technologies to trace the origin and movement of goods across their supply chain, ensuring ethical sourcing while reducing opportunities for fraud. Companies in other resource intensive industries are implementing blockchain solutions to manage Scope 3 emissions, improving overall transparency and traceability. Leveraging blockchain technology for automated cybersecurity compliance detection builds integrity and trust in complex, multi-stakeholder distributed environments. Blockchain-based solutions can help prove that products are ethically sourced. In fact, more than 80% of consumers say they’re prepared to spend additional for such responsibly sourced products.

Real-World Examples and Use Cases

Here are a few examples of how blockchain is already being used in the industry:

  • Cross-border payments: Blockchain can facilitate faster, cheaper, and more transparent cross-border payments, reducing reliance on traditional correspondent banking networks.
  • Supply chain management: Blockchain can be used to track the origin and movement of goods, ensuring ethical sourcing and reducing the risk of fraud.
  • Decentralized threat data: Blockchain technology allows for decentralized threat data, adding trust for major players in countries with strict regulations, such as PCI-DSS compliance, EU's GDPR law, and HIPAA Security Rule.
  • Cybersecurity Compliance: Blockchain technology enables foolproof detection for cybersecurity compliance, enhancing trust in complex, multi-stakeholder environments.

Actionable Advice for Financial Professionals

For financial professionals looking to navigate the crypto landscape and integrate blockchain solutions into their operations, here are some actionable steps to consider:

  1. Understand the benefits and limitations: Recognize the advantages of blockchain technology, such as improved accuracy, cost reductions, decentralization, secure and private transactions, and transparent technology. Also, be aware of the potential drawbacks, including significant technology costs, low transaction processing capacity, and regulatory uncertainty.
  2. Identify areas for application: Determine which areas of the business can benefit from blockchain integration, such as cross-border payments, letter of credit processing, and KYC/AML data management.
  3. Explore blockchain platforms and solutions: Research and evaluate blockchain platforms and solutions, such as R3 Corda, Hyperledger, and Ethereum, to determine which ones align with the organization's needs.
  4. Develop a proof of concept: Create a proof of concept to test the feasibility and potential impact of blockchain technology on the organization's operations.
  5. Build partnerships and collaborations: Consider partnering with other financial institutions, technology companies, or blockchain startups to leverage their expertise and accelerate the integration process.

Wall Street's Response: Adaptation or Irrelevance?

Absent a crash … Wall Street’s response to the rise of crypto has been deeply ambivalent. Institutions have been a mixed bag in terms of their response. Some are more cautiously optimistic, but others are downright skeptical.

Charles Schwab recently announced plans to introduce spot crypto trading. CEO Rick Wurster pointed out that regulatory signals are starting to flash “pretty green,” meaning it’s a great time for large firms to grow in the crypto space. It’s not just JPMorgan – other large U.S. banks are publicly weighing their own entrance into the crypto space. First, they’ll be conservative, starting with pilots, partnerships, or even modest levels of crypto trading.

Not everyone is convinced. Jamie Dimon, CEO of JPMorgan Chase, has ruled out getting into custody or expanding significantly into crypto, even if regulations ease. On the other hand, Eric Trump has been cautioning that if Wall Street doesn’t embrace this nascent, burgeoning crypto revolution, they are going to become dinosaurs. Donald Trump has made no secret of his crypto ambitions. He promises to be the first “crypto president” and will establish a strategic bitcoin reserve.

The future of finance is uncertain, but one thing is clear: crypto and blockchain technology are here to stay. Financial institutions that adopt these innovations to serve their customers will win. The ones that embrace the new, evolving reality will guarantee themselves a winning hand in 2025 and beyond.