The day is coming when blockchain will change finance forever, just as other technological advancements have immutably changed other industries. The institutions that fail to prepare for this digital evolution are preparing to fail.
Don’t believe it? Consider the case of camera company Kodak, once one of the most profitable and best-known companies in the world. Back in 1975, when the world still relied on physical film, an innovative Kodak engineer named Steve Sasson brought the concept of the digital camera to his employers. Their response, according to Sasson: “That’s cute — but don’t tell anyone about it.”
Kodak made the fatal mistake of believing that the way things had been done was the way they would remain. While Kodak eventually adapted, it did so too late in the game to capitalize on the opportunities brought by new technology. Financial institutions and businesses thinking the same way as Kodak in the 1970s might find themselves in the same position — outpaced by innovation and irrelevant when it comes to competition, market position and consumer expectation.
There are examples of this in the financial world, too, such as with the two Swiss banking giants UBS and Crédit Suisse. UBS has become an innovation leader in Switzerland’s financial sector, partnering with startups to drive innovative projects. UBS has also prioritized digitalization, seeking technical solutions to meet consumer needs in Switzerland. Crédit Suisse, on the other hand, took a markedly different approach to fintech integration. Former employees have spoken of an aversion to innovation and a reluctance to diversify and innovate. The bank failed to provide support for technical upskilling and digitalization.
While Crédit Suisse’s downfall can’t be blamed solely on failure to adapt to tech, we nonetheless know how this story ended — with UBS taking over Crédit Suisse in a moment of grave crisis which nearly saw the outright collapse of the storied bank.
‘The legacy systems of many banks, governments and organizations are increasingly unfit for purpose.
Technological change in the form of blockchain is coming for finance, and coming rapidly. In the past year and a half, unprecedented regulatory and compliance developments have opened up blockchain to traditional financial institutions in a way that hasn’t been seen before. The U.S. Securities and Exchange Commission (SEC) has approved spot Bitcoin ETFs. That builds upon the momentum that is being seen across the space, with payments, credit intermediation, trade settlement and other transactions increasingly being carried out through the blockchain. Traditional financial firms, including BlackRock, HSBC, JP Morgan and Goldman Sachs, have recently shown a growing interest in blockchain. These firms have all publicly announced initiatives to deepen their engagement with blockchain technology.
There is a financial incentive to these changes, of course. Fortune Business Insights forecasts the global blockchain market to grow from $27.84 billion in 2024 to $825.93 billion by 2032. Bank of America predicts that blockchain infrastructure will transform finance and impact every industry by changing how value is exchanged and stored. The World Economic Forum anticipates that by 2027, 10% of global GDP could be tokenized and stored on the blockchain.
But while blockchain leaders are applying the technology to solve global issues, from helping refugees to dismantling fraud, this changing tide poses another question. How can blockchain be best used for every single stakeholder in the financial system?
The bell curve of adoption
Technological advancement doesn’t happen in a vacuum. There’s a well-worn path first identified by Everett Rogers in 1962. In the technological adoption bell curve, first come the innovators, then the early adopters. They are followed by the early majority, and then finally by the laggards (such as Kodak or Crédit Suisse). From my perspective, blockchain is on that cusp between early adopters and the early majority — tipping from the evangelists who recognize the immense value that the blockchain can bring to those who can see that evolution is needed to compete.
It’s the latest big technological change to shake up how financial systems operate, but far from the only one. The evolution of financial markets over the past half century and beyond is fascinating to consider. From Instinet and NASDAQ revolutionizing electronic orders to Bloomberg’s iconic Terminals, the progress that has come with technological advancement has changed financial systems.
The greatest value from blockchain technology is not going to come from spot ETFs and the growth in crypto trading by more traditional financial institutions, which are currently the focus of many. Instead, it will be in the immutable, fully traceable and secure technology that the blockchain offers to financial institutions. Put bluntly, the legacy systems of many banks, governments and organizations are increasingly unfit for purpose. Take the European Union, which has more than 30 different security depositories that work independently from each other, on systems that are inaccessible to those in other security depositories. More collaboration and integration of these systems could revolutionize efficiency, pooling knowledge and resources among the people working for central securities depositories.
If blockchain could serve as the common infrastructure for all market players, costs would decrease, innovation could accelerate and no single entity could unfairly shape the market. This could redefine value creation in the entire financial sector. Legacy systems won’t disappear overnight, but their transformation may be inevitable. As market dynamics shift towards more transparent and equitable systems, those adapting to empower consumers and leverage new tech like blockchain will lead.
What awaits is a financial system where everything that is required to operate efficiently and compliantly can be done through blockchain technology. That includes smart contracts, or digital contracts that are stored on a blockchain and automatically executed when predetermined terms and conditions are met; know-your-customer and anti-money laundering record keeping; on-chain digital identities that are verifiable and reduce the potential for fraud; ledgers that can trace every moment and input in a transaction’s history; and instantaneous transactions replacing those that take days because they require manual interventions. All of these features are already made possible by blockchain technology. The future looks even brighter.
Fighting financial friction
As blockchain technology evolves, so does the scope of what it can offer. In traditional finance, one of the most promising frontiers is tokenizing of real-world assets. Tokenization is not a completely novel concept for the financial sector; banks and financial service providers have been using tokens and cryptography for decades to protect confidential information. What is new is some of the technology and a wider-scale application of tokenization beyond encrypting sensitive data — for both tangible and intangible assets — and the appetite of those traditional industries to adopt it, including for precious metals, real estate and in the art world.
The tokenization of real-world assets (RWA) has the potential to transform how we invest in and manage tangible assets. It provides increased transparency, more trustworthy authentication and better record-keeping of a transaction than any other system in existence. That transparency and simpler verification of an asset requires less human intervention, reducing costs and making it easier and quicker for investors and buyers to trade an asset at any time and from anywhere in the world. Crucially, tokenization also opens up markets to a much larger pool of investors, as it can be done completely online. That has the potential to break down some of the traditional barriers to entry that barred smaller investors or those from outside an industry from participating, including from a technical standpoint.
Already, many traditional financial institutions are investigating and adopting tokenization, including Deutsche Bank, which announced in May that it was working with the Monetary Authority of Singapore to test the feasibility of tokenizing assets in regulated financial markets. It won’t be the last such announcement. With the international trade finance market size expected to reach $87.81 billion by 2031, tokenizing trades leads to automating and reducing friction in trade documentation with the help of smart contracts in the settlement process. Tokenizing invoices or receivables also gives the company faster access to working capital. Moreover, tokenized trade finance can significantly reduce the cost and paperwork that existed during the traditional process.
Firms are also exploring the potential of blockchain solutions for simplifying cross-border payment processes. To date, the ability of financial institutions to successfully make cross-border payments has been shackled by high costs, slow processing times, security concerns, limited access and a lack of transparency. Blockchain can ease these pain points by facilitating fast, low- cost international transfers, circumventing the slow and costly intermediaries usually involved. This improves the efficiency of global trade and benefits individuals and businesses by reducing transaction costs and times.
Unlocking ESG through compliance
There’s one more area where blockchain will be a boon for financial institutions, and for many, it’s an unexpected one. Too often, headlines and political discussions about cryptocurrency and blockchain have focused on their role in evading regulation and financial oversight. However, blockchain could be the tool that supervisors and governments have been searching for when it comes to ensuring compliance with regulatory regimes, as well as Environmental, Social, and Governance (ESG) requirements, particularly in the European Union.
Whereas ESG initiatives and reporting were once considered a nice-to-have feature, the EU’s Corporate Sustainability Reporting Directive (CSRD), which entered into force this year, now mandates clear and standardized reporting for a broad range of companies operating within the bloc. This includes non-EU companies generating more than 150 million euros in revenue within the EU market. According to the European Commission, the new rules ensure that investors and stakeholders can access the necessary information to assess the impact of companies on people and the environment, as well as evaluate financial risks and opportunities related to climate change and other sustainability concerns.
‘Money has evolved from a mere store of value to a programmable asset with the power to manage complex, interconnected actions.’
Previously, many companies were able to embellish reports, sometimes engaging in so-called “greenwashing.” However, with more stringent regulations in place, such practices will become increasingly difficult—precisely where blockchain technology can offer a solution. By leveraging an immutable ledger to track initiatives and record all actions, financial institutions can transparently demonstrate their ESG efforts and compliance measures.
As governments and regulators, particularly in the EU, intensify their focus on ESG accountability across industries, blockchain presents an opportunity to set new standards for transparency, verifiable data, and accountability. This technology has the potential to guide traditional industries toward a more transparent and trustworthy framework, reinforcing confidence in ESG commitments.
Blockchain 2.0
Finance is the first frontier of blockchain, and real-world assets (RWA) represent its first true test. With the evolution of cryptocurrency, money has transformed from a simple store of value into a programmable asset capable of managing complex, interconnected actions and specialized use cases. As we stand at this pivotal moment, it is evident that blockchain is no longer just a buzzword—it is the foundation upon which the future of finance is being built.
The convergence of regulatory clarity, technological advancements, and institutional interest is driving blockchain into the mainstream financial ecosystem. From the approval of spot Bitcoin ETFs to the implementation of comprehensive regulations like the EU’s Markets in Crypto-Assets (MiCA) framework, the stage is set for the widespread adoption of blockchain technology. This transition promises to enhance transparency, efficiency, and accessibility in financial services while addressing critical ESG considerations.
As traditional financial institutions increasingly adopt blockchain-based solutions to tackle challenges such as cross-border payments and asset tokenization, we are witnessing the emergence of a more interconnected, sustainable, and inclusive global financial system. The future of finance is being rewritten on the blockchain, unlocking new opportunities for innovation and growth in the years ahead.
