“Out of the Blue”, and “quite in the shadow”, IBM recently introduced a new product called Blockchain World Wire. A cross-border payments system for financial institutions based on blockchain technology. This new global financial network will work on the Stellar network and will not only compete with the traditional Swift system, but could also become a tough competitor to Ripple’s xRapid. (See my earlier Blog: Ripple is making blockchain waves, 27 February, 2018).For many of us the Blockchain World Wire offering should be seen as one of the most secret blockchain projects which IBM describes as “the new financial rail that can simultaneously clear and settle cross-border payments in near real-time.” IBM is planning to present its system at the SIBOS banking conference in Sydney, organized by SWIFT in late October.
IBM Blockchain World Wire has been launched in partnership with blockchain company Stellar. Stellar provided a protocol for the payments system The Stellar protocol, which is a key part of the technical framework of Blockchain World Wire, is an open-source, decentralized protocol for transfer of digital currencies to fiat currencies, allowing cross-border transactions between any pair of currencies. This protocol promises simultaneous payment settlement and clearing for faster cross-border transactions.
The Blockchain World Wire converts fiat currencies into digital assets, for transmission across the network. According to IBM, the payments system will thereby use a stable coin as the bridge asset between two fiat currencies. IBM has already run tests of a US dollar-pegged ‘stable coin’ developed by the US financial services start up Stronghold, that will run on the Stellar Lumens network and will use its consensus mechanism to verify transactions. Users will be able to apply this low-volatile stable coin, next in the context of the Blockchain World Wire.
How will Blockchain World Wire work in practice?
The Blockchain World Wire product works by substituting the banking intermediaries normally needed for cross-border payments with digital assets sent over a distributed network. Blockchain World Wire thereby guarantees the simultaneous clearing and settlement of all transactions by eliminating multiple parties while processing the transactions. It will also allow end-to-end transparency and a fixed exchange fee between all the currencies.“Sending money across borders today requires a series of intermediaries for both clearing and settlement, each adding time and cost to the process.” “With IBM Blockchain World Wire, clearing and settlement with finality happens in near real time.” IBM SiteThe cross border payment realised via Blockchain World Wire, is executed using the following stepsThe first step is that two financial institutions transacting mutually will agree to use a stable coin (a central bank digital currency or other digital assets) as the bridge asset between any two fiat currencies. The digital asset facilitates the trade and define the settlement instructions. The financial institutions will thereby use their existing payments systems by connecting them seamlessly to Blockchain World Wire through a set of APIs.Effectively, using World Wire APIs plugged into banks’ existing systems, the first fiat currency is exchanged/converted into a digital asset at bank A. This is the second step.Blockchain World Wire then transmitted that digital currency to bank B, where it is simultaneously converted into the second fiat currency, completing the transaction. All transaction details are thereby recorded onto an immutable blockchain for clearing.“What we really want to do is enable all sorts of digital transactional networks to settle their transactions with digital fiat currency on the same blockchain networks.” Jesse Lund, IBM’s head of blockchain services for financial institutions
But what may Blockchain World Wire bring?
Growing competition with SWIFT and Ripple
XRP versus Lumens XML