Unfazed by the recent tumult in the crypto world, some of the world’s largest banks have been quietly working on ways to bring digital assets to institutional customers, and a plan has emerged. Under the guidance of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a global financial communication and payments network, there will soon be testing for permissioned bank-owned blockchains to not only talk to each other but also communicate with public blockchains like Ethereum.
Participants in this global experiment include more than a dozen financial heavyweights, including Citi, Lloyds Banking Group, BNP Paribas, BNY Mellon, and the Australia and New Zealand Banking Group. Chainlink, the decentralized oracle network, is developing the technology to “bridge” these various blockchains.
The problem is that digital assets today are tracked on a wide range of blockchain networks that are not interoperable. Each chain has its own functionality and liquidity profile, and there is a lot of technical “friction” when institutions try to interact with one another, let alone public blockchains like Ethereum or Polkadot.
This test phase will look at three specific use cases, according to SWIFT. The first involves the transfer of tokenized assets between two wallets on the same public blockchain network (Ethereum Sepolia testnet). The second involves the transfer of tokenized assets from a public blockchain (Ethereum) to a permissioned blockchain. The third use case will test the transfer of tokenized assets from Ethereum to another public blockchain.
Chainlink, for its part, “will be used as an enterprise abstraction layer to securely connect the SWIFT network to the Ethereum Sepolia network, while Chainlink’s Cross-Chain Interoperability Protocol (CCIP) will enable complete interoperability between the source and destination blockchains,” SWIFT stated.
Building “bridges” so private and public chains can share information won’t be easy. Historically, cross-blockchain bridges have been vulnerable to hacks, with some $2 billion stolen from bridges in 13 separate heists by mid-way through 2022, according to a Chainalysis report. Is security still a challenge?
“I would say it’s the main problem,” answered Chainlink co-founder and CEO Sergey Nazarov, adding that Chainlink has been working on interoperability issues for years. Chainlink, by comparison, has built an active risk management network, or ARM network, that “monitors that bridge, whether it’s for information or for value, or whether it’s misbehavior.”
As more banks and financial institutions begin to interface with blockchains, overcoming fragmentation among networks will be crucial to the long-term scalability of the market. This is emphasized by SWIFT, which pledges to work “with our community to explore a potential solution.”
Source: Cointelegraph
