Blockchain 101: What Wall Street Needs to Know

Welcome back to Old Man New Money. I'm Douglas Borthwick, and today we're starting module two of our educational series on digital securities. In module one, we covered what digital securities are, the regulatory framework, how STOs work, and the infrastructure layer. If you haven't listened to those four episodes yet, go back and start there, they're the foundation. Now in module two, we're gonna dive into the blockchain technology itself. Not the crypto hype, not the get rich quick stuff, the actual technology that finance professionals need to understand. Today's episode is Blockchain 101.

What it is, how it works, and why it matters for securities. I'm gonna explain it without technical jargon because I spent 30 years on Wall Street before I got into this space. I know how traditional finance people think. Here's your 30 second version. A blockchain is a distributed ledger that records transactions across many computers. It's tamper resistant because changing one record requires changing every subsequent record across the entire network. Public blockchains like Bitcoin and Ethereum are permissionless and transparent. Private blockchains restrict access to approved participants.

Smart contracts are self-executing code that automates agreements. For securities, blockchain enables instant settlement, fractional ownership, transparent cap tables, and programmable compliance. We're at this weird moment where everyone's talking about blockchain, but very few people actually understand what it is or why it matters. I've been in board meetings where executives not along about blockchain strategy, but if you ask them to explain how it works, they couldn't. And that's a problem. Because major financial institutions are making billion dollar infrastructure decisions based on blockchain technology they don't fully understand.

BlackRock is putting over $500 million into tokenized treasuries on Ethereum. Galaxy Digital just tokenized their public equity on Solana. These aren't experiments anymore. This is real capital. And if you're going to invest in these companies, advise these strategies, or implement these technologies, you need to understand the basics. Let me tell you when blockchain first clicked for me. It was around 2017. I was still deep in FX trading over at TPI cap, and we were moving billions of dollars a day across currencies. The technology was sophisticated.

Our algorithms, our risk systems, our infrastructure, but settlements, settlement took two days, T plus two. Your trade executes on Monday, it settles on Wednesday. Why? Because that's how long it takes for all the banks to reconcile their internal ledgers. Move the money through correspondent banking networks, update everyone's records, and confirm everything matches. Two days for what is essentially updating a database. Then someone showed me how Bitcoin settlement works. Trade executes and within 10 minutes it's settled. Final, irreversible, no intermediaries, no reconciliation process, no T plus two. And that's when I understood.

This isn't just a new currency. This is a fundamentally different way to record and settle ownership. All right, let me explain what a blockchain actually is using an analogy that makes sense. Think about your bank accounts. When you check your balance on your phone, you're looking at a database owned by your bank. That database says you have X dollars. The bank controls that database, they can update it, they can block your access, they can freeze your account, but you trust them to maintain accurate records.

Now imagine instead of one bank having one database, there are thousands of computers around the world and they all have identical copies of the same database. Every transaction that happens gets broadcast to all of them. They all verify it using mathematical rules. Once they agree it's valid, they all update their copies simultaneously. That's a blockchain. A database replicated across thousands of computers that all stay synchronized through cryptographic rules and economic incentives. No single entity controls it. No one can unilaterally change the records. The history is transparent and verifiable by anyone.

Now let's talk about why it's called a blockchain. Transactions get grouped together into blocks. Think of a block like a page in a ledger. Each block contains maybe 100 or 1,000 transactions depending on the blockchain. When a block gets full, it's sealed using cryptography. This creates a unique fingerprint for that block based on all the transactions inside it. Then that fingerprint gets included in the next block. So block two contains a fingerprint of block one. Block three contains a fingerprint of block two. Block four contains a fingerprint of block three. They're chained together. And this is why it's tamper resistant.

If someone tries to change a transaction in block two, it changes block two's fingerprint. But block three already has block two's old fingerprint embedded in it. So now block three doesn't match. Neither does block four. Five, six are any subsequent block. To successfully tamper with the blockchain, you'd have to change that one transaction and then recalculate every single subsequent block faster than the rest of the network is adding new blocks. With thousands of computers working on this simultaneously, it's mathematically infeasible. And that's the security model.

Not because encryption is unbreakable, but because the cost of attack exceeds any possible benefit. Now here's where it gets important for finance. There are two fundamentally different types of blockchains. Public blockchains are permissionless. Anyone can run a node. Anyone can verify transactions. Anyone can see the full transaction history. Bitcoin, Ethereum, Solana. These are public blockchains. The entire point is that you don't need to trust any central authority. The network itself enforces the rules. Private blockchains, though, are permissioned. Only approved participants can run nodes. Only approved users can submit transactions.

Often the transaction history is only visible to participants. JPMorgan's Onyx network, many enterprise blockchain projects, these are private blockchains. And the trade-offs are real. Public blockchains give you censorship resistance and transparency, but sacrifice some speed and privacy. Private blockchains give you speed and privacy, but require trusting whoever controls access. For digital securities, this distinction matters enormously. When we were building Onyx, we chose public blockchains initially, Ethereum, because we wanted the transparency and we wanted investors to truly own their securities.

Let's just have claims in a private database we controlled. But many financial institutions prefer private blockchains because they can control access and maintain confidentiality. Neither is inherently better. It depends on what you're trying to achieve. Now, let me explain smart contracts because this is where blockchain gets revolutionary for securities. A smart contract is just code that runs on the blockchain. It's a program that automatically executes when certain conditions are met, no intermediary needed. And here's a simple example. Imagine you tokenize ownership of a rental property.

The smart contract can be programmed to automatically distribute rental income to all token holders proportionally every month. The property manager deposits rent into the smart contract. The code automatically calculates each owner's share based on their tokens and sends payments. No intermediary, no manual calculations, no waiting for checks. Or think about compliance. At INX, we program transfer restrictions into our security tokens. Before any transfer happens, the smart contract checks whether the recipient is accredited, whether the holding period has expired, and whether there are any regulatory restrictions.

Only if all conditions are met does the transfer execute. And this is compliance by code. The regulations become part of the technology itself. You can't violate the rules because the system won't let you. Now, let me connect this back to what matters for digital securities. Traditional securities have three massive problems. Settlement takes days, T plus two in the US, sometimes longer internationally. And during that settlement period, you have counterparty risk. What if the other party defaults? Fractional ownership is expensive and complex. Try buying a 10th of a share of real estate in a traditional system.

The paperwork and legal costs would exceed the value of the investment. Cap table management is manual and error-prone. Lawyers and transfer agents spend hours reconciling who owns what, updates are slow, mistakes happen. The blockchain solves all three, settlement is instant. As soon as the blockchain confirms the transaction, ownership has transferred, final, irreversible. The counterparty risk disappears. Fractional ownership is trivial. To divide any asset into a million tokens, each token represents one millionth ownership. The blockchain doesn't care if you own one token or one million. The transaction cost is the same.

Cap tables update automatically in real time. The blockchain is a source of truth. Every token transfer updates a cap table immediately. No reconciliation is needed, no errors from manual data entry. At INX, this is what made our security token offering work. $85 million raised from over 7,000 investors across 74 countries. Can you imagine trying to manage that cap table manually? It'd be near on impossible. The blockchain handled it automatically. And here's something that confused me when I first got into this space. Not all blockchains are equally decentralized and that matters. Bitcoin is extremely decentralized.

Thousands of independent nodes run by people all over the world. No company controls it, no CEO can change the rules. So that's the whole point. Ethereum is also quite decentralized. Thousands of validators take ETH to secure the network. Multiple different software clients, so no single implementation controls a protocol. Solana is less decentralized, but still meaningful. Fewer validators, higher hardware requirements to run a node, but it's a deliberate trade-off for speed and scalability. They're optimizing for different use cases. Private blockchains might have only a handful of nodes, all controlled by one organization or consortium.

That's barely decentralized at all. It's really just a distributed database. For digital security is the level of decentralization you need depends on your trust model. If you're tokenizing shares of a major public company, you probably want a public decentralized blockchain so investors truly own their securities. If you're tokenizing cap table management for a startup with 50 investors who all knew each other, maybe a private blockchain is fine. There's no universal answer, but you need to understand the trade-offs. But you know what drives me crazy?

The number of times I've sat in meetings where someone says we're using blockchain, like it's magic pixie dust that automatically makes everything better. I wrote about this recently in an article called Wall Street's trillion dollar blockchain mistake. Major financial institutions are spending billions building private blockchains that are just slower, more expensive versions of the databases they already have. They're using blockchain technology to recreate the exact same systems they have today. Same permissions, same intermediaries, same delays. They're putting blockchain in the middle just to say they're using blockchain.

And that's not innovation, that's just expensive theater. The value of blockchain comes from either decentralization or programmability or both. If you're not leveraging either of those, you're wasting money. Public blockchains give you decentralization. No single party controls the system. Securities truly owned by holders, not just claims in a bank's database. Smart contracts give you programmability. Compliance by code. Automatic distribution of dividends, transfer restrictions enforced by the system itself. If you're not using these capabilities, why are you using blockchain at all?

Now let's talk about performance because this is where blockchains differ dramatically. Bitcoin processes about seven transactions per second. That's it, seven. It's slow by design because security and decentralization were the priorities. Ethereum processes 15 to 30 transactions per second on the main chain. Better than Bitcoin, but still not great. Transaction fees can spike to $50 or more during congestion. And that's why layer two solutions exist, but now you've fragmented liquidity. Solana processes thousands of transactions per second with sub-second finality. Transactions cost fractions of a penny.

It's fast enough for consumer applications. And I personally believe that Solana is gonna win the high throughput use cases for exactly this reason. When Galaxy Digital tokenized their public equity, they chose Solana, not Ethereum, because they needed performance that could compete with traditional stock exchanges. For private equity tokenization with low transaction volume, Ethereum is fine. A $20 fee and a $50,000 equity transaction, that's negligible. But for public equities with thousands of retail investors trading frequently, you need Solana's performance. And the blockchain you choose depends on your use case.

There's no one size fits all answer. Now, let me briefly explain how blockchains actually achieve agreements, because this is the core innovation. Bitcoin uses proof of work. Miners compete to solve complex mathematical puzzles. The first one to solve it gets to add the next block and earns a reward. This requires massive computational power which makes attacks expensive. Ethereum switched to proof of stake. Validators lock up Ethereum as collateral. They get randomly selected to propose blocks. If they behave honestly, they earn rewards. If they try to cheat, they lose their staked ETH. Economic incentives ensure honesty.

Solana uses a hybrid of proof of stake plus something called proof of history, which is a way to timestamp transactions without needing all validators to communicate in real time. This is part of how they achieve such high throughput. You don't need to understand the cryptography, but you do need to understand the economic model. Blockchains work because attacking them is more expensive than playing by the rules. And that's the insight. Now let me give you some numbers to put blockchain adoption in perspective. Bitcoin's been running for 16 years without a single successful attack on the core protocol.

That's over 850 million transactions processed. The security model works. Ethereum has over 500,000 validators staking Ethereum. That's meaningful. Decentralization with real economic security. Solana processed 2.9 billion transactions in August of 2025 alone. That's more than Ethereum's entire history. Real usage at real scale. Total value locked across all DeFi protocols is $150 billion. That's billion with a B as of October 2025. That's real capital trusting blockchain systems. Tokenized real world assets have surpassed $30 billion. This is happening. It's not theoretical anymore.

Now let's talk about the risks because blockchain isn't magic. Smart contract bugs can lock funds forever or enable theft. We've seen this happen. Millions lost because of coding errors. Security audits are essential, but not foolproof. Consensus failures can happen. Solana had network outages in 2021 and 2022. They've since hardened their system, but no network is immune to failure. Regulatory risk is real. Governments could ban or heavily restrict certain blockchain activities. They could strand capital or make certain applications illegal. Key management is hard. If you lose your private keys, your assets are gone.

Though with security tokens, because there's a transfer agent, you can recover unlike with pure cryptocurrencies. Scalability limits exist. Even Solana has theoretical throughput limits. As usage grows, every blockchain will face scaling challenges. And these are real risks, but they're manageable risks if you understand them and plan accordingly. What should you do right now? Set up a wallet and make a test transaction, use MetaMask for Ethereum or Phantom for Solana. Send yourself $10, what should settle. Feel the difference from traditional systems. Understanding comes from experience. Explore a blockchain explorer.

Go to Etherscan or Solscan. Look up a transaction. See the transparency. Understand what information is public and what isn't. Read a smart contract. They're open source. Look at a simple token contract on Etherscan. You don't need to understand all the code, but see what's programmable. Identify one process at your company that could benefit from instant settlement or automated execution. Where are delays caused by manual reconciliation? That's where blockchain creates value. Follow blockchain developers and thought leaders. Vitalik Buterin for Ethereum. Anatoli Yakovenko for Solana, Adam Back for Bitcoin.

Understanding comes from learning from people building this technology. Look, blockchain is not magic. It's a database with some interesting properties. Decentralization, transparency, programmability, instant settlements. For some use cases, these properties are revolutionary. Instant security settlement, global 24/7 trading, fractional ownership of expensive assets, compliance by code, these are real improvements. For other use cases, blockchain adds complexity without value. You need to understand the difference.

At INX, blockchain enabled us to raise $85 million from over 7,000 investors in 74 countries with instant settlement and automated compliance. That was only possible because of blockchain technology. But I've also seen companies waste millions building blockchain solutions for problems that don't need a blockchain. Don't be that company. In the next episode, we're diving into the Ethereum versus Solana debate. This is probably the most important infrastructure decision in digital securities right now. Galaxy Digital chose Solana for their equity tokenization. BlackRock chose Ethereum for their treasury fund. Who's right?

That's what we're covering next. I'm Douglas Borthwick. This is Old Man New Money. If you found this helpful, share it with someone in finance who's trying to understand blockchain.