Gilbert Verdian, our Founder and CEO, identifies and interprets the most significant blockchain trends for 2024 and explores the profound impact they will have across the financial services sector.
Last year it was more important than ever to distinguish crypto from the technology that powers it. Although 2023 was tumultuous for cryptocurrencies – with the heads of several high-profile exchanges facing criminal proceedings, and the UK government announcing its plans to regulate the industry – blockchain technology continued its path towards broader use, with more successful central bank digital currency experiments and the launch of prominent commercial bank digital coins. Our prediction for 2024 is that it will be the year of widespread institutional adoption of this transformative technology.
CBDC adoption isn’t slowing down
The momentum behind CBDC adoption remained strong in 2023, with several of the world’s largest central banks and monetary authorities seeking advice on how to successfully implement CBDCs. In fact, according to the Bank for International Settlements, it is expected that there could be as many as 15 retail and nine wholesale CBDCs in circulation by 2030. Research also found that 130 countries are now in the explorative phase of CBDCs, and all G20 countries, with the exception of Argentina, are now in the advanced phases. The uptake in CBDCs represents a paradigm shift in the way financial institutions and governments perceive digital currencies – and we can expect to see further implementation throughout 2024.
It’s clear the introduction of CBDCs is inevitable, but to succeed, commercial and wholesale banks must have the infrastructure in place to support this transition. CBDCs are not just a means of exchange, they have the potential to transform current payment systems, offering a multitude of benefits from efficiency and accessibility to increased security, transparency and cost effectiveness. CBDCs can help financial institutions to address inefficiencies, manual processes and continual fraud threats, but it is important to ensure they are implemented correctly.
Having said that, we expect the adoption of CBDCs to be gradual, partly to ensure that they are built upon stable foundations that reflect the prudence and care we expect from financial services, but also to allow for sustainable growth and for regulatory parameters to be established and implemented.
Programmable payments
The introduction of CBDCs has added a new dimension to blockchain technology that will transform the future of payments for businesses and individuals. However, banks needn’t wait for CBDCs to issue their own digital currencies. We’ve already started to see the likes of JP Morgan instituting programmable payments functionality in their own currency, JPM Coin, via Onyx their blockchain platform. The first of its kind, this new functionality is now available to all its institutional clients, and promises to enable real-time, programmable treasury functionality and new digital business models.
Siemens, the first of their clients to implement the new functionality, is now benefiting from the ability to apply a wide range of rules to conventional payments. The feature can specify rules for how to top up a bank account if there’s a shortfall and enables payments to respond to events such as margin calls or if an asset or good is delivered.
This use case is a perfect example of blockchain technology being used in a way that allows commercial banks to develop new, innovative products for their customers. Following the success JP Morgan has seen by adding programmability to payments, we can expect to see more banks harnessing the power of this technology in 2024.
An evolving regulatory landscape
We know from the collapse of FTX and the Binance trial that cryptocurrency-related crime had risen in 2023, with a number of key players found guilty of fraud and money laundering. It’s now clear to all involved: the industry needs regulating. In October 2023, the UK government confirmed plans to introduce formal legislation for crypto activities in 2024. Similarly, the EU announced the Markets in Crypto-Assets Regulation (MiCA) which seeks to support market integrity and financial stability, by regulating public offers of crypto-assets and ensuring consumers are better informed about their associated risks.
Crypto is just the beginning though. In 2024, we can expect further movement towards the implementation of additional regulatory frameworks, laws and policies related to digital assets of all kinds that will spearhead the widespread adoption of blockchain technology. Far from being a burden, this kind of regulatory certainty is what most financial institutions with ambitions in digital assets are crying out for.
Similarly, establishing technical standards for blockchain is fundamental in ensuring the security, reliability and future innovation of the industry. Not only do they help to authorise commonality through guidelines, rules and technical criteria, but it also allows for increased interoperability, trust and sustainable growth. According to the GSMI Global Blockchain Business Council, there were 63 technical standards bodies advancing blockchain developments in 2023, which reflects how much the industry has grown, as well as the importance of setting clear, formalised standards.
However, whilst 2023 saw progress within the standardisation of blockchain technology, such as ISO TC307 and other standards setting organisations such as IETF, there is more to be done, by bringing together and combining existing standards and a framework to create a blueprint for the industry.
The need for interoperability
As the introduction of blockchain standards come into play, so will the need for truly interoperable solutions that allow for the seamless transfer of assets. In 2024, we can expect to see improved communication between new and existing blockchains, as part of a shift towards building an intertwined ecosystem. There will be real emphasis on cross-chain compatibility, to allow for frictionless asset transfer between different networks.
We also saw a huge number of crypto-related threats and attacks last year, with crypto payments to ransomware attackers reaching $449.1 million in the first half of 2023. As part of the move towards a regulated landscape, we’ll likely see institutions investing in robust security measures and infrastructure to help safeguard assets and mitigate risk, especially as businesses operate across multiple networks. Failure to deliver against these security requirements could be detrimental to a business’s reputation, resulting in a loss of trust amongst users and potential financial losses. It is imperative that institutions prioritise security when they are looking to achieve interoperability – without it they risk being susceptible to interception by attackers.
Striking a balance between innovation and responsibility
In 2024, the blockchain sector will experience a new era of maturity, as a result of tighter regulation and widespread institutional adoption. However, success is reliant upon a commitment to ensuring any projects or solutions prioritise security, compliance and trust. Those that can achieve this will be the ones who reap the benefits of this technology in 2024 and beyond.
How Quant can help
