I made a provocative comment, as it turned out, during my keynote at a recent conference. The comment was picked up in a press article that reported I said "the coding behind virtual currency bitcoin could also prove to be enormously transformational, potentially even replacing the Swift network for interbank payments."
This remark created a lot of debate as Swift is the backbone of the banking industry worldwide. Built in the 1970s to replace telex machines with electronic transfers, Swift is a co-operatively funded network by the global banking system to let them send funds with confidence. Its very name shows its cooperative nature: the Society for Worldwide Interbank Financial Telecommunication.
Swift provides a network that enables financial institutions to send and receive information about financial transactions in a secure, standardized and reliable environment. The majority of banks use the Swift network to send money. As of September 2010, more than 9,000 financial institutions in 209 countries, were sending and receiving an average of over 15 million messages per day, compared with just 2.4 million a day in 1995. Furthermore, banks trade something like $5 trillion a day in currencies alone, and most of that is handled by message exchanges to and from the Swift network.
Therefore to say that a new technology, the blockchain, could eradicate a 50-year-old, bank-owned network overnight is provocative. But then, many countering my view showed a complete lack of understanding of what the technology is. Sure, banks are waking up to bitcoin and, more important, the blockchain and its ability to transform banking. But not quickly enough.
Blockchain, a technology that has more compute power behind it on a decentralized basis than any open source project in history, could fundamentally reinvent the banking system. And yet, few bankers understand it. They made this known by expressing views that were clearly incorrect after they read my keynote comment.
First, there was the view that bitcoin is purely for payments. No. Bitcoin, the protocol, and other cryptocurrencies are for the recording of digital value exchanges that can take any form from a payment to a marriage vow.
Second, that bitcoin cannot threaten something like Swift, as Swift is more than just payments. Half of Swift's activities are in securities settlement, for example. Wrong. Bitcoin's technology can record securities settlements as easily as a marriage contract or a payment. This is evidenced by the newly launched investment markets service, Colored Coins, a company that records investment activity on the blockchain.
Third, that the upstart cryptocurrencies could not threaten Swift since Swift has the scalability, security, resilience and history that provide the trust in the network. Wrong. Bitcoin is now using more scalable and capable networking compute power than SETI, the Search for Extraterrestrial Intelligence, which was the world's previously largest networked system.
Fourth, that the bitcoin blockchain is of interest, but not the currency. Some people believe this is wrong, too. They state that you cannot have a blockchain in banking without a native currency—and why would you replace bitcoin as the native currency when it's had five years and thousands of man hours of development effort invested? It's an interesting discussion, and one I disagree with personally as you can have a dollarchain or eurochain, rather than a bitcoin blockchain, but only time will tell on this one.
Fifth, that Mt. Gox's collapse has destroyed all trust in bitcoins and its ecosystem. No. Just because a flaky trading system collapsed does not remove the robustness of the bitcoin protocol. It's similar to Northern Rock collapsing. Does that mean you no longer buy Pounds Sterling?
Sixth, that it is difficult to use. Yes, but that's changing fast thanks to the bitcoin ecosystem. Companies such as Circle and Ripple are changing the game. Bitcoin is like the Internet before Tim Berners-Lee gave us the World Wide Web. But it's becoming easier and faster, so keep watching this space.
Finally, that it's not relevant because it's just a cryptocurrency. Wrong. It's a protocol, a commodity, a technology, a smart contracts system, a general ledger, a secure exchange — a many splendored thing.
Now, I write about bitcoin all the time. Not because I'm promoting it but because it has the potential to reinvent banking, money and regulation as we know it. Its technology — the blockchain — is the core technology of the ValueWeb. That is why leading exponent and investor in bitcoin startups, Marc Andreessen, is regularly quoted as saying this is important. In February 2012, he told TechCrunch, "Every single smart computer science person I've had look into it has reached the same conclusion — blockchain is a fundamental breakthrough in technology."
Andreessen told Bloomberg in October 2014: "We have a chance to rebuild the system. Financial transactions are just numbers; it's just information."
And on Twitter in February 2014, he wrote, "I am dying to fund a disruptive bank."
In other words he, and many other highly intelligent investors, are betting the farm that this technology will succeed.
A final point of clarification. What I said was, "Bitcoin even has the potential to replace Swift for financial transaction processing." I didn't say it would. The fact that Swift is highly inclusive of Ripple, Colored Coins, the bitcoin community and more in its internal and external discussions shows that Swift is just as keen as I to highlight the importance of these developments to its financial community.
Chris Skinner is an author, expert and speaker on banking, finance and fintech. He can be reached @Chris_Skinner.
Corrected March 7, 2016 at 12:55PM: This article is adapted from the forthcoming book "ValueWeb: How Fintech Firms are Using Bitcoin Blockchain and Mobile Technologies to Create the Internet of Value."