I just saw that the EU is talking about using permissionless blockchains in traditional finance. Isn’t that unusual? I thought banks avoided public blockchains.

It is unusual, but this new report suggests they might be worth considering. Permissionless blockchains could bring benefits like more competition and better interoperability in finance.

What do they mean by permissionless? Does it mean anyone can use it, like Ethereum or Bitcoin?

Exactly. Permissionless blockchains are open to everyone, unlike permissioned ones that are restricted to certain users. They’re public, decentralized, and let anyone participate without needing approval.

But why would banks or TradFi companies want that? Wouldn’t it be too risky?

That’s one of the concerns. Public blockchains do have challenges, like scalability, privacy, and governance. But the report explains that there are ways to address these, like adding permissions at the smart contract level.

Smart contracts? Oh, like programs that run on the blockchain. How would they help?

Right! Smart contracts can add specific rules to transactions, even on a permissionless blockchain. For example, they can require that only certain approved users interact with the system, while still keeping the network itself open.

Okay, so it’s like mixing public and private features. But what’s the advantage of using permissionless blockchains over private ones?

One big advantage is neutrality. Public blockchains don’t belong to any single organization, so they can reduce silos and promote fairness. They also allow for better composability, meaning different financial applications can work together more seamlessly.

Composability? Like putting pieces of a puzzle together?

Exactly! Imagine building a system where different apps or blockchains connect easily. With permissionless blockchains, smart contracts on the same chain can interact directly, making the system more flexible and powerful.

That sounds useful. But what about risks like front running? I heard miners can reorder transactions to their advantage.

Great point! That’s called maximal extractable value, or MEV. The report addresses this and suggests ways to monitor and prevent it, like using market surveillance or even moving assets to another blockchain if needed.

Interesting. So, is the EU already using permissionless blockchains in finance?

Not widely yet, but they’re testing it. The EU’s DLT Pilot Regime allows for experimentation with blockchain in areas like trading and settlement. One project, 21x, is using a permissionless blockchain but adding safeguards like limiting participants to known entities.

It sounds like they’re being cautious, which makes sense. What’s the next step for this idea?

For now, it’s about research and testing. The report encourages careful adoption and emphasizes learning from these pilot projects. If successful, it could reshape how traditional finance integrates with blockchain.

It’s cool to see the EU taking this seriously. Do you think permissionless blockchains could become mainstream in TradFi?

It’s possible, but it’ll take time. There are still challenges to solve, like scaling and regulation. But if they can balance innovation with safety, permissionless blockchains could definitely play a bigger role in finance.