Banking Giant SWIFT Wins Big By Teaming Up With Crypto Startup Chainlink
The next major step for blockchain will be boring but hugely important: helping big financial players behind the scenes.
SWIFT (@swiftcommunity), the most important financial network in the world, is working with blockchain/crypto startup Chainlink to make the global banking system more efficient and more secure.
SWIFT is a decades-old international network that connects over 11,000 banks in over 200 countries. They see blockchain, otherwise known as distributed ledger technology, otherwise known as tokenized assets, as an indispensable tech to bring the financial system into the 21st century.
Why it matters: For many years now, blockchain skeptics have asked, “what is the real-world practical use case for blockchain technology?” Meanwhile, the biggest financial players in the world, including SWIFT, have been exploring ways that blockchain can help them improve their own infrastructure.
The Background: The problem that blockchain solves is how to improve efficiency and cut costs on a cumbersome system of intermediaries. Whenever Claire in Chicago sends money to Paul in Paris, a whole series of intermediaries spring into action.
These systems are way more complicated than they look on the surface. They require a lot of labor-intensive work behind the scenes. (Hard to get info when you want it, opportunities for errors and mistakes, delays in transferring assets and payments, sometimes mistakes in transfers or payments)
They worked to rework and refactor the way that assets work and move around the system. For that, they turned to a blockchain startup, Chainlink (@chainlink).
Currently, our whole financial system depends on 5, or 10, or 15 or more intermediaries sending messages back and forth, and each intermediary has to check its records against every other.
We’d like to automate all this, but there’s a problem: these intermediaries don’t trust each other. Because they didn’t trust each other, each had to keep its own records of whether the order was for 900 shares at $7.00 or 700 shares at $9.00. Because of the complexity of our systems, there were more than two parties, more like ten, each keeping track of its own records, each having to reconcile with everyone else.
Zoom In: Blockchain to the Rescue. Blockchain fixes this. As you can see above, each step of this multi-step process has to be verified. Did the payment make it from Alice’s bank to the central bank? Did the central bank confirm the payment to Charlie’s bank? Up to now, the only way to verify all this is for each of these intermediaries to check independently. That’s a lot of duplicated effort.
The promise of blockchain is that we can eliminate all this wasted effort. A single, transparent network of computers verifies each step in each transaction. And each computer on the network verifies that each other computer verified every transaction.
Blockchain means that we are automating things that before couldn’t be automated.
So what does this automation mean for the rest of us? Is this just another example of how Wall Street gets richer? No.
Faster payments, especially but not only cross-border payments
Better fraud detection – fewer delays, and fewer intermediaries means that we can detect fraud sooner
Better tracking of things like supply chains – all data is stored in one place
Easier to raise money
Easier to borrow money
Easier to hedge risk
Think of how many business transactions are cumbersome: applying for a loan, waiting for payment to clear, buying insurance and settling an insurance claim, detecting fraud, figuring out whether your cash flow is going to allow you cover an upcoming expense
All of these get much easier when we have digitized information stored in one place, that is shared by all concerned parties.
It’s happening. And sooner than you think.