Engineers often assume banks can plug into blockchains the same way they integrate with internal services. In practice, the two environments speak entirely different languages. Banking systems operate on deterministic, regulated workflows; blockchains operate on open, probabilistic, and metadata-poor ledgers. The gap isn’t philosophical — it’s architectural.
1. ISO 20022 vs Ledger Data Structures
Banks process payments using ISO 20022 messages like pain.001 or pacs.008. Each message carries identity fields, purpose codes, remittance info, and compliance metadata.
A blockchain transaction contains only:
- from address
- to address
- amount
- optional contract call data
The missing metadata is not a formatting gap — it’s a structural incompatibility. Without a mapping engine, both systems cannot interoperate cleanly.
2. Auditing and Accounting Constraints
Bank ledgers allow corrections and reversals. Blockchains don’t.
For financial reporting under IFRS/GAAP, positions must:
- be measurable and traceable,
- prove ownership,
- fit valuation rules,
- link to a legal identity.
A blockchain hash alone cannot satisfy auditors. Transparency ≠ auditability.
3. Privacy, Confidentiality, and Finality
GDPR/BAFIA require strict control over personal data, including erasure rights. Public blockchains expose everything permanently.
The conflict is structural:
- Banks need reversible workflows.
- Blockchains enforce irreversible execution.
Meaningful integration requires cryptographic privacy layers, not simple masking.
4. Absence of an Identity Layer (KYC/AML)
Banks cannot operate on pseudonymous data. They need:
- customer identity
- sanctions screening
- source-of-funds context
- travel rule compliance
- purpose-of-payment metadata
None of this exists natively on-chain. Wallet analytics help, but identity must sit above the chain, not come from it.
5. Fragmentation Across Chains
Each chain implements transactions differently:
- Bitcoin: UTXO
- Ethereum / Hedera: account-based
- XRPL: multi-entry ledger with trustlines
- Solana: parallelized runtime
- Kadena: braided chains
A bank integrating all of them directly would be building multiple systems with different data models and different failure modes.
6. Validators Are Not Compliance Systems
Validators confirm technical correctness, not legal correctness.
They cannot:
- evaluate AML rules
- enforce jurisdictional constraints
- perform sanctions filtering
- generate ISO 20022 messages
- produce audit-ready logs
A dedicated compliance computation layer is required — ideally stateless, deterministic, and chain-agnostic.
7. What a Realistic Architecture Looks Like
A workable integration stack requires:
- a compliance middleware that receives raw ledger events,
- a normalization engine for multi-chain data,
- a policy engine for AML, sanctions, and risk rules,
- ISO 20022 message generation for banking core ingestion,
- optional ZK/MPC layers to reconcile transparency with privacy,
- stateless validators to guarantee deterministic compliance outputs.
This is the minimal architecture required for banks to treat blockchain activity as valid financial records.
Reference
For a full technical analysis, refer to the research paper:
“Connecting Banking Systems with Blockchain: Comprehensive Challenges and Solutions”
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5634150
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