EU Report Highlights Permissionless Blockchains in Traditional Finance

Exploring the Potential of Permissionless Blockchains in Traditional Finance

Recent insights from a report by the European Union shed light on the role of permissionless blockchains within the realm of traditional finance (TradFi). This report raises important discussions about the implications of integrating permissionless blockchains into existing financial infrastructures.

The Case for Permissionless Blockchains

The European Union's report suggests that permissionless blockchains should be seriously evaluated as viable options for traditional finance and financial market infrastructure. Unlike their private counterparts, these public blockchains are considered more neutral, offering a level playing field that fosters competition.

Unrestricted Access: A Double-Edged Sword

Public blockchains provide unrestricted access, standing in stark contrast to the surge of isolated permissioned blockchains that limit participation. While this openness offers opportunities for various participants, the report also identifies several challenges associated with public blockchains that require careful consideration.

Addressing Challenges through Smart Contracts

While public blockchains face issues such as scalability, privacy, finality, and governance, the report emphasizes that these obstacles are not insurmountable. Smart contracts may be leveraged to introduce permissions that can enhance functionality and address some of these concerns. For instance, when smart contracts are deployed on a single blockchain, they can be interlinked to create more sophisticated functionalities.

Interoperability with Layer 2 Solutions

Another significant aspect highlighted in the report is the potential for permissionless blockchains to serve as an interoperability layer for Layer 2 blockchains, including those regulated by authorities. This layer could streamline processes and foster innovation across diverse blockchain networks.

A Critical Look: Miner Extractable Value (MEV)

The contentious issue of Miner Extractable Value (MEV) is also addressed within the report. As this facet of public blockchains continues to evoke debates, understanding its implications becomes crucial for stakeholders in the finance sector.

Conclusion

In conclusion, the EU report underscores the need for a cautious yet open-minded approach to incorporating permissionless blockchains in traditional finance. While the potential benefits are clear, stakeholders must remain vigilant about the inherent challenges. Continuous innovation and regulatory frameworks will play a pivotal role in shaping the future landscape of finance.