How Competition, Not Technology, Will Drive the Adoption of Blockchain
Exploring how competition among diverse decentralized networks is set to elevate blockchain technology over traditional finance.
The Rise of Blockchain Amidst Competition
The decentralized networks reminiscent of the internet itself aren't always the most efficient. However, the open and permissionless structures of these networks foster intense competition that often benefits users more than mere technical efficiency, according to EY's Paul Brody.
Overcoming Misconceptions
Finance often suffers from various misconceptions. Contrary to popular belief, the traditional financial system (TradFi) is not overly centralized. It is remarkably decentralized, with various national and regional authorities interlinked. Another common misunderstanding is that legacy technology incurs excessive costs and restricts access to banking. Yet, it is often the regulatory framework and limited competition causing higher costs or reduced access.
Blockchain Efficiency in a Competitive Landscape
Interestingly, while blockchains may not match traditional banking systems in efficiency for basic transactions, the stark competition emerging from the blockchain sector is reshaping finance. As competition heats up, transaction costs are decreasing significantly. Research from EY indicates that moving internal financial transactions on-chain could save the company upwards of $100 million annually.
A New Era for Financial Ecosystems
Despite the gradual pace of transitioning to on-chain transactions, notable players like Franklin are offering financial services in both on-chain and off-chain environments at more competitive rates than traditional institutions. As the ecosystem expands, the need for features such as regulatory compliance, fraud prevention, and privacy will only become more critical.
The Next Decade: A Turning Point for Finance
The coming decade is pivotal for traditional finance, reminiscent of the telecom sector's evolution with the rise of the internet and mobile technologies. Banks must take heed of past disruptions and adapt, lest they remain behind in an increasingly competitive landscape.
Disclaimer: These viewpoints are personal and do not reflect EY’s official stance. Note: The opinions expressed herein do not necessarily represent those of CoinDesk, Inc. or its affiliates.
