In addition, the current state of interoperability, which allows different DLT networks to connect and exchange information with each other without restriction, makes the implementation of the technology in the most needed areas extremely difficult. Unlike mobile technology, where a person can call or text another person without needing the same cellular network, most DLT applications lack interoperability both with each other and with legacy systems. Each DLT platform typically operates in isolation, which hinders the integration of services with other systems. As a result, DLT applications within the financial services sector remain fragmented and siloed, with many still at the proof-of-concept stage.3
Integrating blockchain and tokenization technologies with legacy financial systems presents additional technical challenges. The current financial market infrastructure is not compatible with the decentralized and digital nature of DLTs and requires substantial investment in new infrastructure, as well as the acquisition of skilled talent and employee training. In the case of tokenization, institutions must invest in updating their middle- and back-office workflows to accommodate tokenized assets. Additionally, during the transition to new technology, institutions will need to run digital-twin operations (e.g., managing both digital and traditional settlement, and other functions) to mitigate operational and regulatory risks. These hurdles mean that institutions need a strong business case to justify making this transition.
DLT Adoption in Emerging Markets
While there is a flurry of experimentation and innovation surrounding DLT in emerging markets, significant disparities with advanced economies introduce additional complexities that hinder the widespread adoption of these technologies. A combination of economic, infrastructure, and social challenges—such as low levels of financial and digital literacy, limited access to essential digital and energy infrastructure, and potential risks to financial stability—pose unique barriers that must be addressed in order to scale DLT effectively.
Due to weak digital and financial literacy, individuals in emerging markets do not fully recognize the risks and benefits of these technologies. Blockchain, in particular, is not well understood by the public and its benefits are not adequately documented and communicated to consumers. In a 2024 survey of 18 developing and advanced countries, most respondents did not get the definition of blockchain right, except for interviewees in Nigeria and South Africa. This skill and informational gap prevents individuals from engaging effectively in decentralized finance.
Moreover, DLT is often confused with cryptocurrency, complete with the latter’s negative connotations. Media coverage frequently centers on examples of cryptocurrency misuse such as authoritarian regimes attempting to circumvent Western sanctions (e.g., Russia’s use of Bitcoin) or cryptocurrency scandals (e.g., the meme coin $Libra and the theft of nearly $1.5 billion in ByBit coins by the North Korean criminal organization known as Lazarus Group), instead of the benefits of the technology.
In addition to the previously mentioned challenges, DLTs require significant investments in hard infrastructure and can consume massive amounts of energy for computing power. As these technologies expand and the world faces an increase in demand for data centers and computing power, the financial and energy costs will only grow. However, many developing countries do not have access to affordable and reliable energy sources and, moreover, lack the resources to invest in digital infrastructure. As of February 2024, the energy demand generated by current crypto assets was between 0.4 and 0.9 percent of global energy usage. Bitcoin mining (the term used to describe the process in which bitcoins are validated and recorded) required the equivalent of about 50 days of power usage by the average U.S. household per bitcoin in 2022. With roughly 200,000 bitcoin “mined” per year, the energy needs are enormous. To put this in the context of expanding DLT and blockchain technology access, approximately 770 million people worldwide do not have access to reliable electricity, mainly in Africa and Asia.
