Larry Fink, CEO and Chairman of the world’s largest asset manager BlackRock, touched on three blockchain related topics in this year’s annual letter. The first part of his letter was about how private markets have been out of reach for most investors and BlackRock is in the process of changing that. For the same reason, the digital assets sector often sees private assets as low hanging fruit for tokenization, as illustrated in this State Street survey.

Later he moved on to tokenization, highlighting how fractionalization can democratize access. Finally he referenced Bitcoin. On the one hand, BlackRock manages the largest Bitcoin ETF. However, his concern is more about getting control over the United States’ government debt.

“Decentralized finance is an extraordinary innovation. It makes markets faster, cheaper, and more transparent. Yet that same innovation could undermine America’s economic advantage if investors begin seeing Bitcoin as a safer bet than the dollar,” he wrote.

He also shared that half of the demand for the Bitcoin ETF has been retail, and three quarters of those investors are new to iShares ETFs.

Private assets and tokenization

On the tokenization front, Mr Fink noted that the “world’s money moves through plumbing built when trading floors still shouted orders and fax machines felt revolutionary.” He was less than complimentary about payments network SWIFT saying it was like routing emails through a post office. SWIFT currently dominates cross border payments, which are seen as a major real world use case for stablecoins. And it’s worth remembering that BlackRock looks after most of the reserve assets for the second largest stablecoin issuer, Circle.

He is bullish on tokenization because he sees it as democratizing access, shareholder voting and yield. The access is because tokenization enables fractionalization, lowering the barrier to entry. Even for relatively wealthy people, lower investment amounts will allow them to diversify their investment. Of course, people can vote already, but blockchain can potentially make it easier. He had one caveat about tokenization 👉 the need for digital identity.

Despite BlackRock managing the largest Bitcoin ETF, there was a striking omission in Fink’s projections for the future of investing: cryptocurrency itself. While he outlined a shift from the traditional 60:40 split between stocks and bonds toward a 50:30:20 allocation (stocks, bonds, and private assets), cryptocurrency doesn’t fit neatly into any of these categories.

Fink acknowledged that 20% of investments already exist in private assets, currently accessible primarily to institutional investors. And he highlighted how BlackRock plans to democratize access to these investments, including infrastructure and real estate. Potentially, that could include tokenization. Yet the absence of cryptocurrency in this long-term investment framework is notable, given BlackRock’s current role as a crypto asset manager.

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Hashgraph (formerly Swirlds Labs), the founder of the Hedera Hashgraph distributed ledger, is expecting to launch a permissioned DLT, HashSphere, in Q3. One of the current beta testers is Australia Payments Plus, which operates key Australian payment infrastructures and is a long standing governing council member of Hedera.

The DLT company sees a gap with the current permissionless and permissioned offerings. On the one hand, the challenge with permissionless chains for institutions is the need to repeat KYC and compliance steps that their clients have already done internally. Additionally, institutions want greater privacy and control. At the same time, many are looking for a path to interoperability with the permissionless world and stablecoins, an area where HashSphere is positioned as a good example.

There was much excitement when Australia’s eftpos joined Hedera years ago, with the hope of bringing regulated payments to DLT. Eftpos merged with other Australian payment infrastructures which are part of Australia Payment Plus. With stablecoins now on the cusp of going mainstream, perhaps that time has come. Hedera developed various solutions to make onboarding with stablecoins simple. Filipino banks plan to launch the PHPX stablecoin on Hedera this year.

Rob Allen from Australia Payment Plus commented, “As a Hedera Governing Council member, we are interested in HashSphere primarily for its enhanced privacy and regulatory compliance, while also needing network interoperability for the seamless and transparent interchange of stablecoins between public Hedera and private HashSphere, and other Layer1 protocols.”

HashSphere versus incumbent permissioned chains

The arguments about compliance, privacy and control are for those firms not comfortable with permissionless chains. But without additional details (which we don’t have yet), it’s less clear how HashSphere will compete with the existing permissioned chains, although we can make some guesses.

Hyperledger Besu is currently doing well in the institutional space because it offers a path to integration with the Ethereum mainnet. HashSphere can potentially compete because of its EVM (Ethereum) compatible smart contracts. Assuming HashSphere performs similarly to Hedera, it will have a speed and scalability performance advantage over Besu. HashSphere will use many of the features of Hedera, including its consensus, token service and the Ethereum compatible smart contract service.

However, both Besu and HashSphere have a disadvantage compared to some of the other permissioned DLTs on privacy. Canton and Corda were both designed as privacy first and only share data with those that need to know. It’s unclear whether HashSphere takes this approach, but we suspect not. So the options for Besu and HashSphere is Zero Knowledge Proofs or something similar. While that’s progressing, there is no definitive solution so far. For example, Brazil’s central bank wants to go this route with Besu, but is waiting for a solution that is good enough.

Digital Asset will argue that the Canton Network is permissionless, although we consider it a work in progress. We classify public Hedera as partially permissioned because the nodes with write permissions are still controlled by governing council members, although that is evolving. However, all transactions are viewable by anyone.

Hashgraph returns to its roots

In many ways, for Hashgraph this is a return to its roots. Hashgraph was previously known as Swirlds Labs, which started out with a permissioned ledger, including partnering with credit union startup CULedger in 2018. However, at the time Swirlds’ solution was not compatible with other technologies, whereas the Ethereum compatible smart contracts make it more open.

The news comes as the enterprise world seemed to be coalescing around three DLTs: the Ethereum compatible Hyperledger Besu blockchain, Digital Asset’s Canton, and R3’s Corda. Yet in the past week we’ve seen two new permissioned distributed ledgers, the other being Google Cloud’s Universal Ledger. On the one hand, fewer options make for simpler choices. But competition will keep the leading three on their toes.

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In the rapidly evolving world of finance, standards play a crucial role in ensuring seamless communication and efficient transactions across different systems and borders. One such standard that has been gaining significant attention is ISO 20022 . But what exactly is ISO 20022, and how is it revolutionizing the financial landscape? Let's dive into the details and explore how this global standard is transforming the way financial institutions and cryptocurrencies interact.

ISO 20022 was created to establish a universal and standardized approach for financial messaging across institutions, markets, and borders. Its primary goal is to replace fragmented legacy systems with a common global language that ensures consistency, interoperability, and enriched data in financial transactions.

The standard provides a structured framework for developing financial messages using a central dictionary of agreed-upon business concepts. This allows institutions to reuse components across various financial domains, simplifying processes and reducing inefficiencies. By incorporating modern technologies like XML and ASN.1 protocols, ISO 20022 enables automation, enhances compliance measures, and improves fraud prevention.

Ultimately, ISO 20022 was designed to streamline financial communication by providing richer, more granular data while supporting end-to-end automation. It addresses the challenges of differing syntaxes and semantics in global finance, paving the way for improved transaction processing, better customer experiences, and the creation of new services.

ISO 20022 offers several improvements over traditional financial messaging standards, making it a game-changer for the global payments ecosystem. Here’s what makes it better:

1. Richer and More Structured Data

ISO 20022 enables financial messages to carry detailed and structured data, improving accuracy and transparency. This richer data format reduces errors, enhances reconciliation processes, and supports better compliance with regulatory requirements.

2. Enhanced Interoperability

By providing a universal messaging standard, ISO 20022 ensures seamless communication between financial institutions, payment systems, and market infrastructures worldwide. This is especially beneficial for cross-border transactions, reducing friction and delays.

3. Improved Efficiency

The standard supports higher straight-through processing (STP) rates by automating processes and minimizing manual intervention. This results in faster transaction times, reduced costs, and fewer errors in payment processing.

4. Cost Savings

Standardizing messaging formats across institutions and borders eliminates the need for multiple legacy systems and reduces operational overhead. It simplifies data management and lowers maintenance costs for financial institutions.

5. Support for Innovation

ISO 20022's flexibility allows financial institutions to leverage cutting-edge technologies like blockchain, digital assets, and smart contracts. This opens up opportunities for new products and services that enhance customer experiences.

6. Better Compliance and Risk Management

The rich data format ensures that all necessary information is included in financial messages, simplifying compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations. It also improves fraud detection through more precise data screening.

7. Future-Proofing Financial Systems

ISO 20022 is designed to accommodate evolving technologies and market needs. Its adaptability ensures that financial systems remain scalable and relevant as the industry continues to modernize.

By addressing inefficiencies in legacy systems while enabling innovation, ISO 20022 sets a new standard for global financial messaging, making transactions faster, safer, and more transparent.

Key Components of an ISO 20022 Message

1. Group Header
   The Group Header contains high-level information about the message, such as the message ID, creation date, and sender details. It acts as the overarching identifier for the transaction.

2. Payment Information
   This section includes details about the payment itself, such as the amount, currency, and payment method. It may also specify instructions for processing the payment.

3. Transaction Details
   The Transaction Details block provides granular data about individual transactions within the message. This can include:

   • Debtor and creditor information

   • Account numbers

   • Financial institution identifiers

   • Payment purpose

4. Address Information
   ISO 20022 messages use discrete fields for address elements like street name, building number, postal code, town name, and country code. This structured approach reduces errors and improves automation compared to free-text formats.

5. Business Application Header (BAH)
   The BAH is mandatory in all ISO 20022 messages and contains metadata about the message type and processing requirements.

6. Message Payload
   The payload is the core business data being communicated, tailored to the specific message type (e.g., credit transfer or remittance advice). It includes detailed transaction-specific information.

Advantages of ISO 20022 Message Structure

• Precision: Each data element is tagged with XML identifiers, making it easy for systems to interpret and process information.

• Flexibility: The hierarchical structure allows for nested tags and detailed data representation.

• Automation: Structured fields enable seamless integration into automated systems, reducing manual intervention.

By providing a standardized framework for financial messaging, ISO 20022 ensures that every component of a transaction is clearly defined and easily understood by both humans and machines. This level of detail enhances efficiency, reduces errors, and supports global interoperability in financial communications.

ISO 20022 has significant implications for blockchain and cryptocurrency, as it bridges the gap between decentralized digital assets and traditional financial systems.

Here’s how it impacts the crypto space:

1. Enhanced Interoperability

ISO 20022 provides a standardized messaging framework that allows cryptocurrencies to integrate seamlessly with traditional banking systems. This interoperability is crucial for enabling smoother cross-border payments and fostering collaboration between decentralized and centralized financial ecosystems.

2. Increased Adoption by Financial Institutions

Cryptocurrencies that align with ISO 20022 standards are more likely to be adopted by banks and central financial institutions. Coins like XRP, Stellar (XLM), and Algorand (ALGO), among others  are already compliant, positioning them as potential tools for cross-border payments, digital reserve currencies, or integration into central bank digital currency (CBDC) systems.

3. Faster and Cheaper Transactions

The structured data format of ISO 20022 reduces errors and manual intervention, leading to faster transaction processing times. For cryptocurrencies, this translates into quicker confirmations and lower costs, making them more attractive for global payments.

4. Improved Trust and Transparency

By ensuring detailed and structured transaction data, ISO 20022 compliance enhances transparency and reduces the risk of fraud. This builds trust in crypto transactions, which is essential for broader institutional adoption.

5. Regulatory Alignment

Compliance with ISO 20022 helps cryptocurrencies align with global regulatory standards. This makes it easier for crypto projects to operate within legal frameworks, enhancing their legitimacy and paving the way for institutional investments.

6. Opportunities for Innovation

The rich data enabled by ISO 20022 opens doors to new blockchain-powered financial services, such as automated reconciliation, advanced analytics, and smart contract-based solutions.

7. Challenges to Overcome

Despite its benefits, integrating blockchain with ISO 20022 systems presents challenges:

• Scalability: Blockchain networks must handle high transaction volumes.

• Interoperability: Connecting diverse blockchain ecosystems with ISO 20022-compliant systems requires technical innovation.

• Regulatory Compliance: Cryptocurrencies need to navigate complex legal landscapes to align with traditional finance.

The current ISO 20022-compliant cryptocurrencies include the following:

1. XRP (Ripple) – Optimized for fast, low-cost cross-border payments and financial institution integration.

2. Stellar (XLM) – Facilitates efficient international payments and asset transfers.

3. XDC Network (XDC) – A hybrid blockchain designed for trade finance and tokenization of real-world assets.

4. Algorand (ALGO) – A scalable blockchain platform supporting secure and fast transactions.

5. Hedera Hashgraph (HBAR) – A distributed ledger offering high throughput and low latency for secure transactions.

6. IOTA (MIOTA) – Focused on the Internet of Things (IoT), enabling secure data transfers and trading streams.

7. Quant (QNT) – Enables interoperability between different blockchains and enterprise systems.

8. Cardano (ADA) – A research-driven blockchain focused on scalability, security, and sustainability.

Conclusion

ISO 20022 represents a major step toward integrating cryptocurrencies into the global financial system. By fostering interoperability, improving transaction efficiency, and aligning with regulatory standards, it positions blockchain technology as a key player in the future of finance. Cryptocurrencies that adopt this standard are likely to see increased adoption, trust, and utility in both traditional and decentralized financial ecosystems.

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