BICYCLE WITH JET ENGINE: WHY BANKS FAIL TO IMPLEMENT BLOCKCHAIN

Imagine a bicycle equipped with a jet engine.Sounds ludicrous, right?It’s the perfect analogy for many banks’ attempts to integrate blockchain technology. Understanding the common pitfalls can provide invaluable insights into planning and executing a successful enterprise blockchain deployment. This blog post will delve into five key reasons why enterprise blockchain projects often fail and how we can mitigate these risks. 1. Lack of Clear Objectives and Use-Case.They see the potential for explosive growth and efficiency but often misapply the technology, leading to failure.Blockchain, with its promise of decentralized, secure, and transparent transactions, has tantalized the financial industry for years. Varying legal standards make it difficult for banks to implement blockchain solutions uniformly, especially for cross-border transactions. Scalability: Blockchain networks can be slow, especially those with large numbers of transactions. This scalability issue makes it difficult to process high transaction volumes, impacting the technology sBanks envision streamlining payments, revolutionizing foreign exchange, and securing securities trading.But the path to blockchain implementation is paved with pitfalls. Blockchain technology has transcended its origins in the realm of cryptocurrencies and is now poised to revolutionize various industries. One such domain where blockchain holds immense promise is bike ownership and management. By leveraging the decentralized, tamper-proof nature of blockchain, weWhy do so many promising blockchain projects within financial institutions sputter and stall?Is it a lack of technical expertise, a fear of the unknown, or a fundamental misunderstanding of the technology's core principles? Over the last 18 months, a lot has been written about Blockchain for banks. The benefits to financial services companies in adopting distributed ledger technology (DLT) are clear to see. It s all about reputational risk. After all, who can forget Enron? Or the subprime lending scandal?Or maybe, they are too reluctant to overhaul the familiar systems that made them successful.

This article delves into the key reasons why banks often fail to successfully implement blockchain, examining the challenges related to decentralization, scalability, regulatory hurdles, and the critical importance of a clearly defined use case.Understanding these pitfalls is the first step towards unlocking the true potential of blockchain in the banking sector and avoiding the disastrous fate of our hypothetical jet-powered bicycle.

The Decentralization Dilemma: A Core Misunderstanding

The foundational principle of blockchain is decentralization.This concept, however, often clashes with the traditional, centralized structure of banks. Blockchain technology, especially in public blockchains like Bitcoin and Ethereum, faces scalability challenges. As the number of transactions increases, so does the strain on blockchain networks. Slow transaction speeds and high fees have raised concerns about whether blockchain can scale effectively for large businesses.Many institutions fail because they attempt to force a decentralized technology into a centralized framework.They often try to control the blockchain, defeating its very purpose.

Banks are accustomed to being the central authority, the trusted intermediary.Blockchain, in its purest form, eliminates the need for this intermediary. Q4: What is the Cost of Implementing Blockchain in Banking? A4: The cost of implementing blockchain in banking varies, but it usually involves initial investments in technology, integration, and training, often running into millions for large institutions. While upfront costs can be high, blockchain can lead to long-term savings by reducingThis shift in power dynamics can be unsettling for institutions accustomed to control.The lack of understanding decentralization is the key factor behind the many failures of financial institutions to implement blockchain.

Consider a scenario where a bank implements a ""blockchain"" solution that requires all transactions to be validated by the bank itself. Best for: Blockchain startups and fintech companies that want to come up with a unique product or service. A blockchain network is designed and developed from scratch. Other architecture components are then built on it to get a required blockchain solution. Benefits: The ability to implement a blockchain solution fully tailored to your businessThis is not a true blockchain.It's merely a distributed database with added complexity, offering little to no benefit over existing systems.

Scalability Challenges: A Transaction Bottleneck

One of the most significant hurdles banks face when implementing blockchain is scalability.Public blockchains like Bitcoin and Ethereum, while groundbreaking, struggle to handle the high transaction volumes required by large financial institutions. Banks looking to implement blockchain must consider the scalability limitations of the technology and explore potential solutions. Some blockchain platforms, such as Ethereum 2.0, are working on improving scalability through technologies like sharding and proof-of-stake consensus algorithms.The technology can be slow, leading to delays and increased costs.

Imagine a major bank processing millions of transactions daily. Top 8 benefits of blockchain . There are several benefits of blockchain for banks. The advantages of blockchain in banking have helped financial institutions find ways to complete more secure transactions and reduce errors. As a result, banks will want to consider using blockchain more often to better meet the needs of its customers. Costs ReducedIf they were to attempt to run all these transactions through a traditional blockchain network, they would quickly encounter bottlenecks. Identifying why blockchain projects fail is the first step in making sure future projects can succeed. From my experience working with organizations attempting to launch blockchain projects, hereTransactions would take significantly longer to process, leading to customer dissatisfaction and operational inefficiencies.The slow transaction speeds and high fees have raised concerns about whether blockchain can scale effectively for large businesses.

Fortunately, there are solutions to address these scalability concerns. Learn how. 6 banks renowned for the use of blockchain in banking. Even though many companies still hesitate to leverage blockchain technology in banking, 68% of banks believe they will lose a competitive advantage without implementing it. 84% are sure that blockchain in banking and finance will soon become mainstream.These include:

• Layer-2 scaling solutions: These solutions process transactions off-chain, reducing the load on the main blockchain network.
• Private or permissioned blockchains: These blockchains, like Hyperledger Fabric, offer higher throughput and faster transaction speeds, making them more suitable for enterprise use.
• Sharding: This technique involves dividing the blockchain into smaller, more manageable pieces, allowing for parallel processing of transactions.

Ethereum 2.0 is actively working on improving scalability through technologies like sharding and proof-of-stake consensus algorithms. There are a variety of reasons blockchain projects within financial institutions fail, some of which boil down to naivety when it comes to live deployment including a lack of understanding of secure deployment procedures for banks.Banks should carefully consider these advancements when evaluating blockchain platforms.

Regulatory Maze: Navigating Legal Uncertainties

The regulatory landscape surrounding blockchain is still evolving, creating significant uncertainty for banks. These trials aim to explore how blockchain can enhance payments, foreign exchange (FX), securities trading and trade finance without requiring banks to overhaul their systems.Varying legal standards across different jurisdictions make it difficult to implement blockchain solutions uniformly, especially for cross-border transactions.

Imagine a bank trying to use blockchain for international trade finance. In addition to the services that commercial banks can provide for decentralized cryptoassets, banks can provide similar services, such as custody or payment services, for centralized, blockchain-based cryptoassets or currency-like instruments, including stablecoins and central bank digital currencies ( CBDCs ).Different countries have different regulations regarding data privacy, anti-money laundering (AML), and know-your-customer (KYC) requirements. Blockchain technology is fundamentally intricate, and herein lies a sizeable challenge for businesses as it can be difficult for businesses to find developers who are familiar with blockchainComplying with all these different regulations can be complex and expensive, making it difficult to implement a seamless blockchain solution.

To navigate this regulatory maze, banks need to:

• Engage with regulators: Proactively communicating with regulatory bodies can help shape the regulatory landscape and ensure compliance.
• Conduct thorough legal research: Understanding the applicable regulations in each jurisdiction is crucial for successful blockchain implementation.
• Implement robust compliance controls: Incorporating AML and KYC procedures into the blockchain solution is essential for preventing financial crime.

Lack of Clear Objectives and Use-Case: The ""Why"" Question

One of the most common reasons for blockchain project failure is a lack of a clear objective and well-defined use-case. The key factor behind the failure of finance and insurance companies attempts to implement the Blockchain is their lack of understanding decentralization.Banks often jump on the blockchain bandwagon without a clear understanding of how the technology can solve a specific problem or create tangible value.

Before embarking on a blockchain project, banks need to ask themselves: What problem are we trying to solve? The rapid progress of Blockchain technology is showing no signs of slowing down. In the past few decades, many things that seemed impossible have turned out to be false, such as high transaction fees, double spending, net fraud, retrieving lost data, etc.Is blockchain the right solution for this problem?What are the potential benefits and risks?Without answering these questions, the project is likely to fail.

For example, a bank might decide to implement blockchain for supply chain finance. What blockchain platform or technology do banks utilise, and why? Dr. Scott Zoldi, Chief Analytics Officer at FICO, says: Some of the most exciting new uses of blockchain are utilising permissioned and private blockchains, such as Hyperledger Fabric, which allows for controlled access, transaction visibility and simpler consensus models.The objective could be to improve transparency, reduce fraud, and accelerate payments. By Alisa DiCaprio, Chief Economist, R3. Five key blockchain projects failed over the course of 2025. Failures are an inevitable part of any industry, but the collapse of FTX, ASX, Terra/Luna, we.trade and Tradelens in such a short space of time has raised eyebrows, particularly towards the underlying distributed ledger technology (DLT) itself.This is a clear and measurable objective that can be used to guide the development and implementation of the blockchain solution.Remember, understanding the common pitfalls can provide invaluable insights into planning and executing a successful enterprise blockchain deployment.

The Reputational Risk Factor: Protecting the Brand

Banks are highly sensitive to reputational risk.Any perceived failure or security breach involving blockchain can damage their reputation and erode customer trust. [23] Dante Alighieri Disparte, Why Enterprise Blockchain Projects Fail, in Social coordination marks a key point of failure for enterprise blockchain projects, 2025. Syed, Applications, limitations, costs, and benefits related to the use of blockch ain technology in the food industry, in Nofima rapportserie, 2025.This fear of reputational damage often leads to hesitancy in adopting blockchain technology.

Remember the Enron scandal or the subprime lending crisis?These events serve as stark reminders of the potential consequences of financial misconduct and mismanagement. Starting in 2025, Italian bike maker Colnago will fit all of its team and production models with blockchain security. The innovation, it says, will ensure valid proof of ownership for all ColnagoBanks are keen to avoid any association with similar scandals, which can make them risk-averse when it comes to new technologies like blockchain.

To mitigate reputational risk, banks need to:

• Prioritize security: Implementing robust security measures is crucial for protecting against cyberattacks and data breaches.
• Ensure transparency: Communicating openly and honestly with customers about the use of blockchain can build trust and allay concerns.
• Conduct thorough due diligence: Carefully vetting blockchain vendors and partners is essential for ensuring the integrity of the ecosystem.

Finding the Right Talent: The Developer Shortage

Blockchain technology is fundamentally intricate, and finding developers who are familiar with blockchain can be difficult. Explore and discover how Institutional Crypto Adoption is reshaping the Banks vs Cryptocurrency landscape amid the Blockchain Revolution and its challenges. Once viewed as a disruptive threat to traditional banking, blockchain technology is now being integrated into the core global financial systems.This shortage of skilled blockchain developers can hinder a bank's ability to implement and maintain blockchain solutions.

Building and deploying blockchain applications requires specialized knowledge and skills.Banks need to invest in training their existing staff or hiring new talent with expertise in blockchain development, cryptography, and distributed systems.

To address the talent shortage, banks can:

• Partner with universities and training institutions: This can provide access to a pipeline of skilled blockchain developers.
• Offer competitive salaries and benefits: Attracting and retaining top talent requires a competitive compensation package.
• Invest in training and development: Upskilling existing employees can help bridge the skills gap.

The Cost Factor: A Significant Investment

Implementing blockchain in banking involves significant upfront costs, including technology infrastructure, integration, and training.This financial burden can be a barrier to adoption, especially for smaller banks.

The cost of implementing blockchain can run into millions of dollars for large institutions.However, these upfront costs can be offset by long-term savings through reduced transaction fees, improved efficiency, and fraud prevention. Barely a day goes by without a fresh announcement about how banks are seeking to use blockchain technology to transform sizeable chunks of their business. They have failed to find the rightWhile the costs can be high, blockchain can lead to long-term savings by reducing operational costs and improving efficiency.

Banks need to conduct a thorough cost-benefit analysis to determine the financial viability of blockchain implementation.They should also explore alternative funding models, such as partnerships or grants.

Examples of Banks Using Blockchain

Despite the challenges, some banks have successfully implemented blockchain solutions.Here are a few examples:

• Bank of America: Holds the most blockchain patents, exploring uses in supply chain and payments.
• JPMorgan Chase: Developed Quorum, a permissioned blockchain platform used for interbank payments and other applications.
• BNY Mellon: Offers custody services for digital assets, demonstrating institutional adoption of blockchain.

These examples demonstrate that blockchain can be successfully implemented in the banking sector, but it requires careful planning, execution, and a clear understanding of the challenges involved.

Creating Your Own Blockchain Solution

For blockchain startups and fintech companies aiming for a unique product, consider building a blockchain network from scratch.This approach allows for complete customization, tailoring the solution to specific business needs.However, it requires significant technical expertise and resources.Other architecture components are then built on it to get a required blockchain solution.This provides the ability to implement a blockchain solution fully tailored to your business.

Learning From Failure: Key Projects that Collapsed

It's crucial to learn from past failures in the blockchain space.The collapse of projects like FTX, ASX, Terra/Luna, we.trade and Tradelens serves as a cautionary tale.These failures highlight the importance of:

• Robust governance: Clear rules and oversight are essential for preventing fraud and mismanagement.
• Security audits: Regular security audits can help identify and address vulnerabilities.
• Realistic expectations: Avoid hype and focus on delivering tangible value.

Institutional Crypto Adoption and Banks

The relationship between banks and cryptocurrency is evolving.Once viewed as a disruptive threat, blockchain technology is now being integrated into core global financial systems.Banks are providing services such as custody and payment for blockchain-based cryptoassets, including stablecoins and central bank digital currencies (CBDCs).

This integration signals a growing acceptance of blockchain technology within the traditional financial system.

Top 8 Benefits of Blockchain in Banking

The advantages of blockchain in banking are numerous.Here are some of the top benefits:

1. Increased Transparency: Blockchain provides a transparent and auditable record of transactions.
2. Enhanced Security: Blockchain's decentralized nature makes it resistant to hacking and fraud.
3. Reduced Costs: Blockchain can automate processes and eliminate intermediaries, reducing costs.
4. Faster Transactions: Blockchain can facilitate faster and more efficient transactions.
5. Improved Efficiency: Blockchain can streamline processes and improve overall efficiency.
6. Enhanced Traceability: Blockchain can track assets and transactions throughout the supply chain.
7. Increased Trust: Blockchain can build trust between parties by providing a shared and immutable record.
8. Reduced Errors: By automating manual processes, Blockchain helps reduce errors.

FAQ: Blockchain in Banking

Here are some common questions about blockchain in banking:

What is the Cost of Implementing Blockchain in Banking?

The cost varies, but it usually involves initial investments in technology, integration, and training, often running into millions for large institutions.

What blockchain platform or technology do banks utilise, and why?

Some of the most exciting new uses of blockchain are utilising permissioned and private blockchains, such as Hyperledger Fabric, which allows for controlled access, transaction visibility and simpler consensus models.Public blockchains also exist, but private or permissioned blockchains provide more control and security.

Conclusion: Avoiding the Jet Engine Bicycle

Implementing blockchain in banking is not a simple task.It requires careful planning, a clear understanding of the technology, and a willingness to adapt to a decentralized world.By understanding the challenges and learning from past failures, banks can unlock the transformative potential of blockchain and avoid the fate of the bicycle with a jet engine – a well-intentioned but ultimately misguided endeavor.Banks must carefully consider the scalability limitations of the technology and explore potential solutions.

The future of banking is likely to be shaped by blockchain.Those banks that embrace the technology strategically and address the challenges effectively will be best positioned to succeed in this evolving landscape.Banks looking to implement blockchain must consider the scalability limitations of the technology and explore potential solutions.

Key Takeaways:

• Understand the principles of decentralization.
• Address scalability challenges with appropriate solutions.
• Navigate the regulatory landscape carefully.
• Define a clear objective and use-case.
• Manage reputational risk proactively.
• Invest in talent and training.

The rapid progress of Blockchain technology is showing no signs of slowing down.In the past few decades, many things that seemed impossible have turned out to be false, such as high transaction fees, double spending, net fraud, retrieving lost data, etc.

Considering using blockchain in your business?Start by identifying a specific problem you want to solve and thoroughly research the potential benefits and risks before diving in!