SWIFT Highlights Importance of Blockchain Integration in Financial System

SWIFT, a messaging network for banks, has released a report discussing how it can connect with various blockchains to address the interoperability problem between different networks.

The report, titled “Connecting blockchains: Overcoming fragmentation in tokenized assets,” suggests that a gradual approach to integrating existing systems with blockchains is a more practical solution for market development in the short term, as opposed to combining central bank digital currencies (CBDCs), tokenized deposits, and assets into a single unified ledger.

In the report, SWIFT pointed out a problem with the lack of secure interoperability between different blockchain networks. This results in inefficiencies and a negative user experience. However, SWIFT believes it has the potential to solve this issue.

Through collaboration with financial institutions and blockchain oracle network provider Chainlink, SWIFT demonstrated its ability to offer a single access point to multiple networks using current infrastructure. This helps greatly reduce operational challenges and costs for institutions that support tokenized assets.

In a press release, SWIFT’s Chief Innovation Officer, Tom Zschach, stated that tokenization’s full potential can only be reached when institutions are able to connect to the entire financial ecosystem.

“Our experiments have demonstrated clearly that existing secure and trusted Swift infrastructure can provide that central point of connectivity, removing a huge hurdle in the development of tokenization and unlocking its potential,” Zschach added.

In its report, SWIFT identified several advantages of tokenization, such as improved liquidity, automation, transparency, and security. However, the banking infrastructure also mentioned that tokenization comes with certain obstacles, including legal and regulatory frameworks that are still in the process of being established.

SWIFT acknowledged that these challenges can be daunting for institutions interested in engaging in tokenized asset transactions.