The Decade of Missed Opportunities in Banking and Blockchain
Financial institutions and big banks have navigated the evolution of digital technology over the past decade, yet their interaction with blockchain technology remains strikingly minimal. This period has provided ample opportunity for banks to experiment with crypto rails for cross-border and interbank settlements, yet many have failed to seize this chance. While isolated initiatives like JPMorgan’s Onyx (now rebranded as Kinexys) show that institutional blockchain solutions can effectively function, a widespread consensus hasn’t emerged. Instead, the industry persists in its reliance on antiquated systems, incurring substantial costs that echo throughout the global economy.
The Inherent Costs of Traditional Finance
Inefficiencies within traditional finance are problematic. Securities settlement queues, cumbersome bank cut-off times, and lengthy foreign exchange transactions all contribute to an outdated financial landscape that operates at a snail’s pace. This sluggishness means idle capital accumulates in intermediary accounts, depriving investors and businesses of opportunities to earn yield or finance innovative projects.
Consider Brazil, for example. Retail cross-border payments are often routed through offshore bank branches—commonly located in the Caribbean—before reaching their final destinations in the U.S., Europe, or other Latin American countries. Each additional stop not only furls increasing costs but also adds compliance complications and delays. For retail consumers, these delays manifest as higher fees, while businesses face liquidity challenges and diminished capital efficiency.
The Unacknowledged Cost of Inefficiency
Every second that settlement lingers translates into financial losses—just as risk in credit markets influences interest rates. Despite recognizing these inefficiencies, why have banks not acted? The opportunity to streamline their operations has been present, yet they have largely chosen inertia over innovation.
Transforming Perceived Risks
“Smart contract risk” might currently be a concern, much like the “internet risk” that analysts considered around the turn of the millennium. As the internet evolved into an unquestioned backbone of modern commerce, the skepticism surrounding it faded away. The same will likely happen to blockchain technologies over time. By 2030, banks will view smart contract risk as an antiquated concern, as they embrace efficient, secure blockchain systems designed to enhance operational robustness.
Rethinking Liquidity Dynamics
The traditional financial industry’s inefficiencies result in palpable opportunity costs. Investors locked into 10–20 year commitments in private equity or venture capital find themselves at a stark disadvantage compared to the crypto world, where tokens can vest within a fraction of that timeframe. Additionally, liquidity is not merely theoretical; crypto assets can be actively utilized within ecosystems, lending themselves to collateralized operations or staking during periods of non-transferability. This seamless mobility of capital defies the slower cycles implicit in traditional investments.
In the realm of fixed income and private credit, comparison highlights the advantages of blockchain technology. Traditional bonds offer semiannual coupon payments, whereas on-chain yields accrue instantaneously, block by block. Moreover, the instant movement of collateral in decentralized finance starkly contrasts the lag in traditional systems, particularly evident during significant market events.
The Impact of Blockchain on Developing Economies
Emerging economies often feel the weight of legacy banking inefficiencies the most, as exemplified in Brazil. In many cases, residents are unable to hold foreign currencies directly, necessitating complex foreign exchange steps for international transactions. This inefficiency is amplified when multiple trades need to occur—such as converting Brazilian reals to Chilean pesos via the U.S. dollar—each leg compounding costs and delays.
With the advent of blockchain technology, however, these currencies can directly settle via stablecoins. Additionally, legacy systems impose strict cut-off times on transactions, hampering businesses operating across different time zones. Since blockchains operate continuously, they nullify these time constraints and allow for real-time settlements.
The Case for Adoption
These examples illustrate a glaring gap in the banking sector’s willingness and ability to adopt blockchain solutions over the years. In countries that have had a comparatively less contentious relationship with cryptocurrency regulation, such as Brazil, opportunities for enhancement have been ignored.
Ultimately, finance has always priced waiting as a risk, and rightly so. However, as blockchain technologies minimize this risk by allowing instantaneous transactions, banks continue to sidestep the benefits that consumers and businesses could access. The reluctance of financial institutions to adopt these more efficient systems has direct implications for their customers, perpetuating a cycle of costs and inefficiencies that should have been addressed years ago.
About the Author: Thiago Rüdiger
Thiago Rüdiger is the CEO of the Tanssi Foundation, where he oversees ecosystem growth and decentralization for Tanssi’s modular blockchain infrastructure. With a keen insight into the intersection of finance and technology, Rüdiger advocates for the transformative potential of blockchain in reshaping the future of financial systems worldwide.
