The European Union (EU) is exploring the potential of permissionless public blockchains to transform traditional financial services.
In a recent report titled “Enhancing financial services with permissionless blockchains”, the European Union expressed interest in delving deeper into the potential of permissionless blockchain technology as applied to traditional finance. The report points out the need for a financial system that transcends current limitations and how blockchain technology can potentially play a role in revolutionizing the financial sector.
According to the organization, blockchain is a transformative technology, which can offer Transparency, inclusion and greater competition.
The EU is exploring permissionless blockchains as an alternative to reduce dependencies and mitigate monopolistic market structures, and open a new chapter in financial evolution.
Permissionless blockchain technology can offer a powerful solution to the current challenges of the global financial system. By removing intermediaries and enabling direct transactions between parties, this technology reduces costs and processing times, facilitating instant and secure payments internationally. Furthermore, its ability to democratize access to financial services represents a unique opportunity for those who have been historically excluded from the traditional banking system. The EU is recognizing this potential, considering more flexible approaches for its possible use and implementation in current financial systems.
Permissionless blockchain can open the door to a new paradigm in the financial world
The European Union is closely examining how this emerging technology, used as an open base layer, can revolutionize the financial sector, improving transparency and financial inclusion and driving greater efficiency.
At the report, highlighted that although the adoption of this revolutionary technology faces some significant challenges, including scalability, the solutions proposed to date, based on academic research and open source development, show a promising path.
The EU is currently considering flexible approaches to the adoption of these blockchains that do not require a centralized gatekeeper, and which may allow for more adaptive regulation focused on specific asset types and applications.
What are permissionless blockchains?
Permissionless blockchains, also known as public blockchains, are decentralized and transparent systems that allow any participant to validate and carry out transactions without the need for prior authorization.
Due to their decentralized nature, these blockchains allow anyone with internet access to participate in the network, transforming traditional models by eliminating the need for intermediaries, such as banks or financial institutions.
Fabian Schär, Professor of Distributed Ledger Technology (Blockchain) and Fintech at the Faculty of Business and Economics at the University of Basel, who wrote the article, highlighted that permissionless blockchains “They represent a promising alternative to licensed platforms”, highlighting that these can be more neutral than private blockchains and can provide greater interoperability in the broader digital ecosystem.
In this context, Schär focused on the Layer 2, which are sidechains, such as Polygon, Optimism, and Arbitrum on Ethereum and Lightning and Liquid Network on Bitcoin, to enable more advanced and interoperable features on public networks.
The advantages of permissionless blockchain in traditional finance
The use of permissionless blockchain in traditional finance can transform the way transactions are conducted. According to World Bank data, around 20% of the world’s population lacks access to bank accounts. However, through blockchains, these people can make payments, save, and even access loans and insurance, which improve their quality of life and foster economic development.
Financial inclusion is one of the main advantages provided by this technological innovation, as well as transparency and the reduction of intermediaries. Furthermore, this technology allows for the immutability of records, guaranteeing the integrity of transactions and fostering greater trust.
Today, companies such as BlackRock and Franklin Templeton are leveraging the disruptive potential of this technology to improve asset management and operations, and exploring cryptocurrency funds that allow investors to access digital assets in a secure and regulated manner. These moves reflect the growing acceptance and transformative potential of blockchain technology in the financial sector.
