Fintech has hit a wall. Blockchain will break through it.

Financial technology has been an incredible growth sector for investors and innovators. But relatively soon, blockchain will become the only part of fintech that matters.

The success story of fintech over the past 15 years has been defined by tremendous developments on the part of electronic and online payments systems, with companies like PayPal, Venmo and Stripe becoming household brands. (Not to mention the evolution of monoliths like American Express, Visa and Mastercard.)

Only three years ago, venture funding for fintech companies topped $140 billion. But since then, investment in the sector, particularly in early-stage rounds, has dwindled to levels not seen since Barack Obama was in the White House, totalling a mere $25 billion in 2023.

Caveat: I’m a huge admirer of fintech. It’s where I’ve spent most of my career, first at Braintree (acquired by PayPal), and later heading up Product at Venmo. I’ve seen firsthand how these companies have transformed societal habits around money. 

But after diving down the rabbit hole with smart contracts and crypto, it became clear to me that blockchain is the new foundation we’ve been looking for to create a new global financial system.

Building anything involving traditional finance payments is complex and requires developers to take on a lot of scope — collecting user data, integrating payments and handling security, risk and compliance. If any one of those components is deficient, the entire system is doomed to fail. That’s a lot of responsibility for any project, and often requires small armies of developers to sustain.

So much time and resources are invested in overcoming risk-and-compliance barriers that you rarely see real innovation in building fintech products. Ultimately, many of these barriers relate to the complex web of regulations and requirements that have only become more complex as fintech has grown. 

Blockchains not only solve those problems, but preclude them. Universal accounts mean there is no need to collect user data. Blockchains’ public and immutable ledger offers a single, universal and flexible payment system. Self-custody means developers can’t access user funds, which significantly simplifies considerations around security, risk and compliance.

In short, blockchain has eliminated many of the responsibilities that developers normally have to take on to build applications. That enables small teams to deliver uniquely valuable products to millions of people.

Just consider the impact that DEX pioneers like Uniswap and dYdX have had, springing from the heads of individual founders to quickly rival large corporate centralized exchanges in terms of trade volume, and then continuing to maintain absurdly small development teams thereafter.

Critics like to claim that crypto developers “don’t want to follow the rules,” but the reality is that blockchains and public key cryptography make many of the old rules irrelevant.

As a sector, crypto is burdened with regulatory inconsistencies and blind spots, of course. Applying old rules to new systems that have radically different characteristics was never going to make sense.

Innovation in fintech is being held back by the increasingly obsolescent traditional financial system. Blockchain gives fintech a new future because it is developing from a far stronger technical foundation where the possibilities have only just begun to be explored.

Get the news in your inbox. Explore Blockworks newsletters:

• The Breakdown: Decoding crypto and the markets. Daily.
• 0xResearch: Alpha in your inbox. Think like an analyst.