Financial Blockchain Technology Gains Ground While Crypto’s Future Remains Uncertain

Investing in crypto requires having a lot of optimism about crypto.

And while blockchain technology still holds the potential to transform global payments, the cryptocurrency ecosystem itself has been racking up more high-profile losses than it has won, at least recently.

In the United Kingdom, the country’s Financial Conduct Authority (FCA) is launching a crackdown on cryptocurrency companies that violate new standards around fraud and scams.

And while that may sound like nothing new, the FCA’s director of consumer investments has alleged that “a significant number” of crypto firms won’t be able to make the mark under the new regime. The news comes barely a year after the U.K. attempted to position itself as a global crypto hub. Already in response, a growing number of financial institutions in the U.K. have begun tightening their limits on retail customers’ access to cryptocurrency.

In just one example, Chase UK  will next week (Oct. 16) enact a ban preventing its customers from making cryptocurrency transactions in order to protect them from the rising number of frauds and scams associated with crypto.

The move comes on the heels of other U.K. lenders, including HSBC and Nationwide Building Society, tightening limits on their own retail customers’ access to crypto assets earlier this year.

Meanwhile, the U.S. Securities and Exchange Commission (SEC), which under Chairman Gary Gensler has taken a decidedly anti-crypto tack, is arguing in a court filing that cryptocurrencies lack any “innate or inherent value of its own.”

The agency is seeking to continue its case against the embattled crypto exchange Coinbase, while the latter has filed a motion to dismiss the SEC’s suit.

Unlike fiat currencies, crypto tokens — of which there are over 20,000 — are not backed by any legal government or central bank, and their value is mostly determined by market forces of supply and demand.

While the SEC’s statement is at face value correct, the question of cryptocurrencies’ value has been asked since the earliest days of the technology.

And as the macro environment transitions toward higher interest rates, that question may become more urgent.

The Promise of Decentralization, or Story Without a Center?

As PYMNTS CEO Karen Webster wrote back in 2017, “Bitcoin was an interesting, even fascinating, innovation, but not the salvation of our global financial system — not even close.”

The piece, which could have been written yesterday, adds, “The conversations we are having now about bitcoin and cryptocurrencies seems to have lost sight of the problem that needs solving as we look at the evolution of global financial services and the networks that power them. No one will argue that things could be more efficient — and that the ability to digitize, secure, make smarter, and settle digital assets in real or near real-time is worth exploring — and has a great potential upside. … But does that require Bitcoin [or one of the many thousand cryptocurrencies] to do it? Only if you want to build something that operates completely outside the current global financial services ecosystem … begging the question about the relevance of cryptocurrency beyond using it to do things that cannot be lawfully done with fiat currency.”

And as PYMNTS reported previously, the crypto industry, which entered 2022 riding high and saw funding hit its peak during the first three months of that year, struggled to navigate a sector-wide downturn with the collapse of Terra, followed by the failure of FTX.

Now, the digital asset industry is limping into 2024 with crypto funding and deals at a three-year low.

Gaining Traction on the Path Ahead

While crypto may be facing an existential crisis as it relates to go-forward regulation within the U.S. and beyond, “It’s times like these — bear markets — when changes in crypto technology happen,” Chainalysis Chief Product Officer Pratima Arora told PYMNTS.

The fundamental technical architecture supporting those tens of thousands of cryptocurrencies circulating is steadily being embraced by mainstream and traditional financial players.

“The true intrinsic value of blockchain, which is around programmability of transactions, immutability of transactions, and the ability to do delivery versus payment and always-on types of payments, has yet to be unlocked,” Mastercard Chief Digital Officer Jorn Lambert told PYMNTS in July.

“There’s a huge global trend going on right now into exploring the intricacies, complexities, difficulties, and benefits of leveraging the properties of DLT for the financial system,” Daniel Field, global head of blockchain at UST, told PYMNTS in July.

And as Pat Thelen, vice president of global account management at Ripple, said to PYMNTS on Oct. 6, “Innovation is relentless. And innovation and competition will find a way to apply the technology that is already here. The technology is ready now. You have commercial banks, central banks, and institutional players leaning in.”

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