Blockchain as a Technological Alternative for Financial Infrastructure

Decentralized Ledgers and Programmable Finance

The essence of blockchain is a distributed ledger maintained jointly by multiple parties, which cannot be arbitrarily tampered with. Unlike traditional finance, where a single institution manages the core database, blockchain ensures all participants reach consensus on the ledger’s state through consensus mechanisms, thereby establishing trust in a decentralized environment.

Blockchain not only records transaction outcomes but also introduces programmability. Financial rules can be directly embedded into protocol logic, allowing fund flows to be executed automatically based on preset conditions, rather than relying on manual operations or back-office approvals. This design brings three key changes to the financial system:

• Trust shifts from institutional endorsement to open and verifiable code
• Rules are transparent and unified, with all participants following the same logic
• Financial products can be rapidly composed and iterated like software

Programmable finance is the technological foundation of DeFi and on-chain financial innovation.

On-Chain Reconstruction of Clearing, Settlement, and Custody

In traditional finance, clearing, settlement, and asset custody are usually handled by different institutions to reduce risk and enhance control. Under blockchain architecture, these functions are highly compressed and reintegrated into a single system.

Once an on-chain transaction is confirmed, clearing and settlement are completed simultaneously, and asset ownership changes are reflected in real time on the ledger. Users control assets directly via private keys without relying on third-party custodians. This reconstruction brings more than just acceleration—it represents a fundamental shift in financial structure:

• Settlement cycles are compressed from T+1 or T+2 to near real-time
• Custody risk shifts from institutional credit to users’ own key management
• Asset status is visible across the entire network, reducing reconciliation and audit costs

Of course, this model also imposes higher requirements for user security awareness and infrastructure stability.

How Smart Contracts Reduce Systemic Friction

Smart contracts are the critical execution layer of blockchain as financial infrastructure. Essentially, they are self-executing programs that carry out fund transfers or state updates when specific conditions are met. Through smart contracts, many financial processes that previously required manual intervention are systematically eliminated.

In practice, smart contracts reduce systemic friction mainly through:

• Automated execution, minimizing human delays and operational errors
• Open and transparent rules, reducing information asymmetry
• No need for intermediaries, lowering middleman fees and approval steps

This does not mean risks disappear; rather, risk shifts from opaque processes to whether the code is reliable. Therefore, smart contract auditing, security design, and formal verification have become indispensable parts of on-chain finance.