The Society for Worldwide Interbank Financial Telecommunication (SWIFT) has been the backbone of safe, secure, and standardized financial transfers around the globe since it was founded in 1973. A majority of banks and other financial institutions rely on SWIFT to reliably facilitate the transfer of funds. Unfortunately, SWIFT transactions can be slow and burdened by unwelcome fees. Over the years, there have been controversies regarding the operation of SWIFT that have somewhat diminished its international reputation. Now that cryptocurrency is increasing in popularity, it’s beginning to give SWIFT a veritable run for its money.
What Is Cryptocurrency?
Cryptocurrency is a digital or virtual currency secured by cryptography. Many cryptocurrencies are decentralized networks that employ blockchain technology. One of the defining features of cryptocurrencies is that they are not usually issued by any central authority. That makes them less vulnerable to government interference, a key benefit of this type of currency. Since the structure of cryptocurrency is decentralized and distributed over a large group of computers, it exists outside of central authority control.
The term cryptocurrency takes its name from the encryption processes used to secure its network. Cryptocurrencies that rely on blockchains enjoy a range of organizational measures that ensure the security and integrity of the data transactions. Many supporters of cryptocurrency also praise it for its ease of portability, transparency, speed of transaction, and apparent resistance to inflation.
Cryptocurrency vs SWIFT
Some progressive industry watchers have predicted that cryptocurrencies and blockchain will disrupt the financial sector as well as many other industries. Supporters of more traditional methods and networks like SWIFT are greatly concerned that cryptocurrencies are easier to adopt for illegal activity. Critics also believe that the underlying structures supporting the cryptocurrencies are not robust enough to be globally dependable plus they’re subject to exchange rate volatility.
Nevertheless, supporters of cryptocurrencies like Bitcoin claim that many bankers simply don’t understand these new technologies, and their lack of comprehensive understanding renders their criticism faulty. A growing number of finance industry experts do believe that blockchain and cryptocurrencies could absolutely reinvent the banking system, but they differ on when seachanges may occur. One reason they believe in the strength of blockchain is that it has more computing power than any other open-source project ever has in history, according to an editorial in American Banker.
Cryptocurrency Change Agent: Bitcoin
Bitcoin, which uses blockchain technology, is open-source. No one owns it—not governments, not banks. Its open-source technology provides a platform for peer to peer transactions—with no middlemen, and that means no banks. It’s the collective network that issues bitcoins and manages transactions. Confusing? Absolutely, which is why many banks and financial institutions are skeptical about the likelihood that it could revolutionize the banking industry.
Yet, upon close examination, Bitcoin is more dynamic than many have supposed. There had been the belief that Bitcoin is merely for payments. But that’s not so. Bitcoin, and other cryptocurrencies for that matter, can be used for recording the digital value of exchanges of any form. For example, Bitcoin can be used to record securities settlements—and that’s, quite literally—about half the transactions performed via SWIFT. In fact, it’s quite easy to record investment activity via the blockchain.
In addition, cryptocurrencies, namely Bitcoin, are demonstrating that they have the scalability and robust security needed to rival an international network like SWIFT. Hacks are unlikely given that the blockchain is constantly reviewed by Bitcoin users, and while it may not be perfect in its ability to withstand some cybersecurity hacks, neither are traditional networks. Even so, increasing industry experts believe that Bitcoin can withstand even the most sophisticated security threats and developers continue to enhance its security.
What Are the Negative Aspects of Cryptocurrencies?
We’ve already mentioned that cryptocurrencies and their technologies are challenging to understand and that’s not all. One criticism of cryptocurrencies that continues to carry weight is that they are difficult to use. Many people report that the technology is loaded with issues that make using it problematic. In spite of the fact that when all works well and transactions are speedy, the system may not be as efficient as it’s touted. For example, many users simply don’t have a requisite internet speed needed to engage in these transactions efficiently. As cryptocurrency speeds get quicker and quicker, problems related to internet speed continue to plague users all over the world.
What Are the Advantages of SWIFT?
SWIFT is still the platform that traditional financial institutions and most of their users are still most comfortable using for money transfers. SWIFT is the household name within the industry. Bitcoin and other cryptocurrencies are still the new kids on the block and, not surprisingly, still have much to prove. SWIFT is still revered for all it does well. People know it. People trust it. And, what’s more, SWIFT is not adverse to change—at least not now.
In the past year, SWIFT has begun to take disruptive technologies like Bitcoin more seriously than before. It is now openly battling for international payments, according to Forbes, with its announcement that it will:
- Make cross-border payments in real-time
- Make cross-border payments as cost-effective as domestic payments
- Increase efficiency and make transactions more seamless and convenient.
In many ways, this is clear evidence that cryptocurrencies are changing the game.
The truth is, if you have the requisite internet speed, you have every reason to expect a convenient cryptocurrency transaction—providing you get familiar with the protocols and processes involved in these new paradigms. On the other hand, if you’re comfortable with SWIFT, you may enjoy the new adaptations that the network is bringing to users in its quest to dominate the field. This continues to be a fluid situation. For now, one simply must decide which platform is more beneficial and preferable for them—and conduct transactions accordingly.