The crypto industry bet the farm on traditional finance ultimately migrating onto public blockchains rather than retreating behind permissioned networks.
The cows are now coming home to roost for the sector, after its failure to get comprehensive crypto regulation passed in Washington. As the dust settles, it’s becoming clear that banks don’t need a blockchain to be public or private. They need financial infrastructure to be shared where coordination creates value and controlled where regulation requires it.
As tokenized deposits, securities and other real-world assets move from pilots toward production, that distinction is becoming more important as the financial sector’s emerging architecture does its best to avoid bitcoin’s transparent and permissionless model despite the interest in banks of experimenting with shared ledgers and interoperable networks that allow approved counterparties to transact against common infrastructure while retaining control over identity, assets, privacy and settlement.
For example, Fiserv’s digital asset platform went live with financial institution clients on Thursday (Oct. 1), with the Bank of North Dakota using the Fiserv platform’s issuance, reserve, custody and settlement infrastructure to deploy its Roughrider stablecoin token. Elsewhere, Charles Schwab noted in a Sept. 30 analysis that Chainlink now has touchpoints across both crypto-native networks and banks, asset managers and payments companies moving on-chain.
In other words, those finance leaders and banking industry decision makers asking whether public or private chains will “win” finance are missing what the industry is actually building.
See also: Banks’ Blockchain Bet Comes Down to Moving the Money
Crypto Can’t Abstract Trust and Privacy Away from the Financial System
The original blockchain proposition bundled several ideas together: a common ledger, decentralized governance, open participation, transparent transaction history and assets capable of moving without a traditional intermediary. Those features do not have equal value across regulated finance.
For banks, decentralization was never necessarily the killer application. Synchronization was. Rather than determining how much anonymity an open blockchain network should permit, banks instead must determine how much controlled information regulated participants need to exchange.
The clearest evidence may be coming from an institution better known for connecting banks than disrupting them. In July, Swift said its blockchain-based ledger was ready for initial use, with 17 banks across six continents preparing to pilot tokenized-deposit transactions. By August and September, banks including HSBC, Standard Chartered, UOB, DBS and OCBC had announced live transactions on the infrastructure.
The important development is not that banks have suddenly embraced blockchain. It is that they are beginning to converge on what they actually want blockchain to do.
Of course, technical feasibility does not equate to user adoption. The June installment of PYMNTS Intelligence‘s Credit Union Tracker Series, “The Wallet Effect: How Credit Unions Can Close the Digital Currency Access Gap,” a collaboration with Velera, revealed that stablecoin awareness falls short for 70% of credit union members.
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Read more: Crypto Lost Its Clarity. Here’s How Industry and Government Are Rebuilding.
Banks Want Shared State, Not Shared Control
Banks can benefit enormously from having multiple institutions work from a synchronized record. A common transaction state can reduce reconciliation, improve liquidity visibility and make complicated multi-party transactions easier to coordinate. But a bank generally gains little from allowing an unknown participant to enter the network, view sensitive transaction information or transfer regulated assets without satisfying identity and compliance requirements.
That creates what could become the defining architectural compromise of institutional blockchain: share the ledger, permission the activity.
JPMorgan offers a relevant example. Kinexys has historically operated blockchain-based deposit accounts on private infrastructure. But JPM Coin’s USD deposit token, JPMD, is also available to institutional clients on Base, a public Ethereum Layer 2. The blockchain is public; access to the bank liability moving across it is permissioned.
Even infrastructure providers are adapting around that architecture. IBM recently announced support allowing financial institutions to connect its digital-asset platform to permissioned networks including Swift’s shared ledger, using familiar ISO 20022 messages rather than requiring banks to rebuild operations around blockchain-native workflows.
A corporate treasurer paying a supplier does not want the transaction exposed simply because transparency is technologically possible. A securities dealer cannot treat counterparty identity as optional. Banks need sanctions controls, transaction limits, authorization hierarchies, dispute procedures and mechanisms for responding to court orders or erroneous transactions.
The future banking network could borrow openness from public chains, privacy from permissioned networks, compliance from the existing financial system and interoperability from both. Assets might live on one ledger, identity credentials somewhere else and settlement occur through another system entirely.
If that architecture wins, blockchain becomes less important than the rules governing who can use it and what can move across it.
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