Integrated Blockchain Layer for Hybrid Banking (IBL-HB): A Decentralized Infrastructure for Seamless Coexistence of Digital Currencies and Traditional Banking

The industry growth of the digital currency market and the existence of the old banking system, in turn, has necessitated an urgent requirement of a hybrid financial infrastructure that will offer an effective, secure, and real-time interoperability. The current banking networks are founded on centralised books, which implies that interbank settlements are slow, untransparent, and involve high fraud risks. In contrast, the decentralisation and immutability of a public blockchain network are associated with the price of scalability, as well as regulatory and integration issues. Such loopholes will be bridged in this research through the introduction of a Decentralised Ledger Architecture of Hybrid Banking (DLHB), a consortium-based permissioned blockchain infrastructure, in which interbank fiat settlements are registered. Nevertheless, open blockchain networks will be used to effect digital currency settlements. Their connection will be based on cross-chain smart contracts that will facilitate the coordination of atomic, secure, and auditable transfers. It is built on recent cryptography-based capabilities, such as zero-knowledge proofs (ZKPs) and secure multi-party computation (SMPC), which can protect sensitive financial information and facilitate compliance. BFT protocols, which are optimised at the consortium layer, are classified under Byzantine Fault Tolerance to ensure that the technology meets both security and high throughput requirements. The public blockchain layer is optimised for the validation of Proof-ofStake (PoS). Simulation experiments indicate that the DL-HB framework is capable of supporting up to 85% higher transaction throughput, 60% reduced latency, and much more audit-friendly and fault-tolerant compared to the traditional banking systems and to the current blockchain solutions. The recommended architecture will allow co-existing between digital and fiat transactions on a transparent basis since the architecture will eradicate bottlenecks in operations, decrease the possibility of fraud, and real-time settlements. This paper proves that a multi-layered high-technical quality blockchain platform can redesign the hybrid banking systems as an efficient, secure, and scaled platform to integrate the emerging digital assets into the traditional financial systems without affecting regulatory compliance or stability of operations.

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