Harnessing the Potential of Crypto for Banks: Chainlink's Vision for the Future

Core Concepts

• Chainlink co-founder Sergey Nazarov has proposed an ambitious plan for the future integration of cryptocurrencies into mainstream banking, which involves banks creating their own blockchain infrastructures.

• Nazarov believes that the merging of the "public blockchain and the internet of contracts" and the "bank-chain" world could potentially lead to the expansion of the blockchain industry by trillions of dollars.

• The newly launched Chainlink's cross-chain interoperability protocol (CCIP) serves as a technical infrastructure for enabling the transfer of tokens from one chain to another, thereby facilitating the secure movement of assets across blockchains.

• Nazarov envisions three stages of bank adoption for this integration: custody of crypto assets, tokenizing real-world assets, and building financial protocols on their own chains. He also suggests that stablecoins could act as the entry point for this integration.

• Although the technical foundation for connecting public and private blockchains is being established, Nazarov asserts that legal clearance will take time, predicting this will occur within the next three to five years. He concludes by mentioning ongoing successful experiments with financial institutions and expresses optimism about the potential for growth.Chainlink co-founder, Sergey Nazarov, has recently expressed an ambitious plan for the future integration of cryptocurrencies into mainstream banking. His vision rests on the possibility that banks may construct their own blockchain infrastructures and could utilize Chainlink's newly launched CCIP protocol to facilitate connectivity between these various blockchains. This could potentially infuse a significant amount of value into the cryptocurrency domain.

Chainlink unveiled its cross-chain interoperability protocol a few days ago with the objective of simplifying transactions between different blockchains. However, Nazarov's aspirations reach beyond merely connecting public blockchains. He envisions banks and financial institutions developing their own controlled or permissioned blockchains and, at some point, gaining regulatory approval to connect them to public blockchains such as Ethereum. If his prediction is accurate, it could channel a tremendous amount of value into the cryptosphere.

Nazarov believes there is a confluence of two major sectors: the public blockchain and the internet of contracts, mainly characterized by DeFi, and the "bank-chain" world, likely to be dominated by real-world asset tokens. The merging of these two worlds could lead to the expansion of the blockchain industry by trillions of dollars, he argues.

The newly introduced protocol acts as a technical infrastructure, enabling the transfer of tokens from one chain to another. It utilizes the Chainlink network, known for supplying reliable data to blockchains, typically from real-world sources like pricing information. In the context of CCIP, the network orchestrates the exchange of information between blockchains, directing the secure movement of assets. Although the network is currently active on the mainnet, it is still in its early access phase, undergoing testing in partnership with crypto projects such as Synthetix and Aave.

Prior to its launch, the protocol had been trialled within the traditional banking system. Swift, the global inter-bank messaging network, along with several financial institutions, have been exploring the use of CCIP for directing token transfers across public and private chains.

Nazarov's reasoning behind why banks will need their own blockchains hinges on three stages of adoption. The first involves custody of crypto assets on their native chains. The second involves tokenizing real-world assets, raising the question of which chain will host these assets. This leads to the realization of the need for banks to create their own chains for control. The final stage is when banks begin to build financial protocols on their chains, essentially reproducing the current DeFi landscape within a more regulated framework.

Nazarov also suggests that stablecoins could act as the gateway for this integration, with banks developing their own cross-chain stablecoins. He believes CCIP could be a likely choice for these banks, expanding the usage of their stablecoin across numerous platforms.

As for the convergence of public and private chains, Nazarov asserts that while the technical foundation is being laid, legal clearance will take time. He is confident that within the next three to five years, the regulatory environment will accommodate this convergence, leading to an amplification of the reach of financial products offered by banks and fostering a symbiotic relationship between traditional banking chains and public blockchains.

Nazarov concluded by citing the ongoing successful experiments that Chainlink is conducting with various financial institutions. If these tests progress to real-world pilots with value moving between different bank chains, he believes, the possibilities for growth are endless.