Blockchain technology has been making the headlines lately, but what exactly is it? What can it be used for, and why might it play an important role in the future of international business transactions? This article explores the potential uses of blockchain in SWIFT data processing, and how this technology could benefit companies around the world.
SWIFT: The Current Process
Current SWIFT data transmission relies on messages sent from banks that are members of the network and additional messages from regional service providers and local operators in countries where messages pass through. Messages are sent and then confirmed, at which point they will wait at a node, which is either a bank or an operator before they’re passed on through to their final destination. The time taken for confirmation varies by region – on average, each step takes 30 minutes, but up to three hours in some cases (source: The Telegraph).
This can have consequences when transactions take place over multiple steps, as there is no guarantee that each node has up-to-date information about its counterparts.
Entering into The Blockchain Technology World
Numerous international companies have expressed interest in implementing blockchain technology to optimize SWIFT payments by shortening transaction times and increasing transparency, but some challenges remain. One of these is incentivizing both users and participants of the network with a cryptocurrency or token-based system, so they can act as validators on a given network and earn rewards in exchange for supporting its health through their computing power. It might take some time for this innovation to find traction; however, once implemented successfully, it will improve global trade from start to finish.
The Potential Opportunities
The modern-day banking industry has been using a system called SWIFT for decades. Originally designed in 1973, SWIFT is archaic by today’s standards and can’t keep up with the data demands of 2018. The system processes an estimated 25 billion messages a day – if it crashes, we’re in serious trouble because our world relies on this communication infrastructure being operational at all times. Blockchain technology offers an alternative option with higher bandwidth, which means more transactions per second and lower latency.
Gaining A Competitive Edge Over Other Banks
SWIFT isn’t perfect, but there is one area where its current system of communication still reigns supreme: Speed. And blockchain has that potential as well, thanks to its ability to encrypt and securely transmit information without involving intermediaries like banks. So this means that if two institutions need a speedy transaction, blockchain can take care of it – albeit slower than using SWIFT, at least for now. But over time this might not always be the case; companies are currently exploring different ways in which they can speed up transactions while staying true to the security provided by blockchain systems.
Achieving Higher Scalability With Blockchain Tech
The team over at IBM has developed a blockchain-based system that will, in theory, allow for global transactions and can process more volume with lower costs. Currently, there are only about 2,000 transactions per second around the world – but IBM estimates that this technology can handle up to 50,000 transactions per second with relative ease, which would make it more attractive for financial institutions. It works with existing networks, Jason Kelley tells WIRED in an interview, it supports all currencies; we don’t need special wiring or connectivity.
Sorting Out Regulatory Aspects
SWIFT stands for Society for Worldwide Interbank Financial Telecommunication, which is a messaging system that allows financial institutions all over the world to communicate in an easy, fast and secure way with each other. It has been used since 1973 and is currently owned by more than 10 thousand financial organizations from 200 countries.
However, SWIFT is not without its flaws, many of which have arisen due to shortcomings in its cryptographic processes or because of possible problems with certificates issued by operating system providers or certificate authorities.
