Blockchain in financial intermediation and beyond: institutional barriers, welfare gains, and a pathway to diffusion

Blockchain-enabled instruments have gradually filtered into financial intermediation, disrupting traditional institutions. This paper discusses the benefits of blockchain focusing on financial intermediation services (FIS). We draw upon a collection of theories on technology innovation, barriers, and diffusion. Our main aim is to highlight points of incompatibility with current institutional frameworks and regulations and develop a conceptual model of the main, interconnected, barriers to its widespread diffusion (i.e., regulatory, technological, and environmental). We argue that lowering these barriers would displace traditional institutions with blockchain technology and could raise welfare. While we highlight the few steps that have already been made towards the removal of these obstacles, both at a regulatory and technical level, we outline the main areas that still need addressing if the full benefits of a blockchain-enabled FIS are to be reaped.