by Gilbert Verdian, founder and CEO, Quant
The trial of Sam Bankman-Fried was not just about an individual’s actions but rather an emblematic moment in the evolution of the decentralised finance (DeFi) space.
It signifies the decline of the ‘crypto bro’ persona, a much-needed societal shunning that should usher in a shift towards more pragmatic, regulated, and purposeful applications of blockchain technology.
Bankman-Fried’s trial spotlighted not just the allegations of fraud and malpractice that characterised the worst side of crypto hysteria, but also the ‘know-it-all’ attitude and reckless exuberance that typified a particular brand of enthusiast.
The trial offered a glimpse into a world where expertise and ethics are indispensable. But the narrative isn’t just about individuals.
Even prior to the trial, we were a good way through the long goodbye to the unregulated DeFi era. This ‘market’, if it deserves that term, sprung up because the regulation wasn’t there, and unscrupulous firms wanted to cash-in on offering derivative-type lending using crypto.
It is heartening to see that much of the world is now embracing regulation designed to ensure consumer protection, fostering a more stable financial landscape.
Many of those spearheading the early, unregulated DeFi ventures were living in a libertarian fantasy and believed that a blockchain-based financial systems would see the traditional banking sector dwindle into obsolescence.
Ironically, they have introduced financial institutions to this game-changing technology, which will now be implemented profitably in a regulated space. We’re already seeing this happen – a Bitcoin ETF is imminent, and the London Stock Exchange is preparing indexes. Even where consumers do still want access to crypto speculation, they will look to engage with regulated, trustworthy brands.
Much more importantly, financial institutions are swiftly embracing transformative blockchain technology for day-to-day functions.
A question I am often asked is ‘why’ financial institutions would bother with blockchain, when business-as-usual would lead to less disruption and upfront investment. A relatable use case comes via the epidemic of authorised push payment (APP) fraud, which cost victims a staggering £1.2 billion in 2022. APP fraud occurs when individuals are deceived into sending a payment to an account under the control of a criminal, mistakenly believing they are sending money to a legitimate individual or organisation. It is extremely hard for banks to prevent, given the extent to which fraudsters go to manipulate their victims.
In 2024, the Payments Systems Regulator (PSR) is bringing in new rules which will strengthen reimbursement provisions for victims – meaning that banks will be on the hook to repay much of this £1.2 billion. With its programmable payments and smart contract technology, blockchain provides a revolutionary tool for financial institutions to fortify their APP fraud defence mechanisms.
By setting up specific transaction conditions and ensuring fund release only upon meeting predefined criteria, blockchain’s smart lock system could substantially mitigate the risk of fraudulent activities, curbing unauthorised transactions, reducing reimbursement overheads for banks – and saving the victims the shame and stress that often goes with being scammed.
Smart locks are an example of programmable payments that condition digital currency spending based on predefined parameters, enhancing security and accountability in transactions. In mainstream retail banking, it is probable that smart locks would become widespread with the introduction of a central bank digital currency (CBDC).
These locks facilitate the involvement of various parties, meaning users determine when funds are unlocked for specified recipients. For instance, all parties agree to transaction terms during checkout; funds are then locked in the customer’s account, awaiting confirmation of goods delivery; upon verification, the funds are instantly transferred to the seller.
This programmable functionality would not only not only help eliminate purchase scams, but also assures sellers of secure and timely payments, fortifying trust in the transaction process.
This is just one example of how blockchain technology, once hailed for its disruptive potential, is now poised to change industries through pragmatic, everyday applications.
It’s time to welcome the ‘boring’ use cases – those that prioritise security, regulation, and efficiency.
Smart applications like programmable payments exemplify this shift, marking the onset of a new era where blockchain technology is harnessed sensibly, benefiting consumers and institutions alike.