by nevi-me | 2025-09-04 19:48:33+00:00
I was initially going to reply to someone, but maybe this is useful as its own parent.

In my finance experience, the answer to the "why blockchain" question is settlement. Every banking system (local, international) has a settlement process.

Settlement is where bank counterparties have to tally up who owes whom, and pay each other. That process still takes time internationally, and is complex because of the parties involved.

A more concrete example (I've audited interbank settlements for a local bank in my country):

When I buy something from Amazon as a crossborder transaction with my Visa, my bank and the merchant/bank that Amazon use enter into a counterparty obligation, where in a direct way they'd have to pay each other, incl moving funds between countries. If these 2 banks are the only banks in the world, they can both tally up the transfer of funds to each other, and then pay each other the difference. That'd still take time, right?

Now, we have hundreds of counterparties, using different systems, Visa, MasterCard, Amex, local clearing houses for EFTs, etc. There's also merchants like Stripe who'll be doing the processing, central banks who also ultimately settle currencies among each other. They all have to wait for proof of funds clearing at some level.

If I'm doing an international transfer to my friend, their bank won't want to just credit their account instantly because the time it'll take for them to receive settlement of those funds isn't instant. Else they're going to pay the cost of a deposit that isn't there (let's assume my friend earns interest on positive balances).

The process is that the banks have to recon each clearing house's balance, aggregate that to a list of values like:

* Amex: owes us R200m * Visa: pay them R300m * Clearing house: etc.

Typically the bank's treasury department then effects those transfers. Don't know about other banks, but the bank I audited, it was done by a person daily, their responsibilities are to ensure those settlement aggregates are received/paid, and to resolve differences.

Beneath this person, at that bank, was a team of people who did recons all day. This was in 2012, so hopefully things changed, but I know that team still exists.

Once settlement's taken place, there's another team that verifies international settlements and then approves transfers to my local account. As a data point, it used to take me ~7 days to receive my salary from a US employer while in South Africa.

With crypto, my experience has been that settlement gets delayed, virtualised and distributed because you have a single layer (or still fewer layers across chains).

You send me USDC from wherever, we already don't involve:

* Payment processors like Visa * Central banks as no balance of payments processes are affected * Banks who need to reconcile cross-payments and settle them

Instead, if we're using an exchange (if you're using a local exchange), the funds arrive in the exchange's wallet shortly. The exchange has a constant flow of users buying and selling their local currency. They're in charge of settlement between their wallets and bank accounts.

I'll sell my USDC into my local currency ZAR, and if I withdraw it, the exchange keeps ZAR in local banks, and they send me that money immediately. My crypto salary would be in my bank as ZAR in 30-60 minutes.

Now, I said that crypto delays settlement. My exchange will eventually run out of fiat currency, or need to rebalance. They'll trade some other counterparty exchange, and settle that transaction through SWIFT/equivalent. That settlement will take the 5-7 day process. They just delayed it for their client.

I said it's virtualised because they've skipped the whole process of moving net flows and relied on a central entity, the blockchain, to do that. Ultimately it's a faster process than that backoffice of the bank.

And distributed. Every exchange or remitter has now become their own micro clearing house, and they participate in the banking system by earning their own fees, running their own process.

They only need to interact with each other at higher levels if they need to convert their USDC to US dollars. Interestingly that process happens at one place, but as long as cash and tokens move bidirectionally, the process can get relayed to the point where only a few US banks need to deal with the issuer of USDC.