What is SWIFT Banking System? SWIFT Vs Blockchain and Bitcoin

SWIFT says it preparing to comply with curbs on Russian banks

What is SWIFT?

The Society for Worldwide Interbank Financial Telecommunication (SWIFT), legally S.W.I.F.T. SC, is a Belgian cooperative society providing services related to the execution of financial transactions and payments between banks worldwide.

Its principal function is to serve as the main messaging network through which international payments are initiated.

It also sells software and services to financial institutions, mostly for use on its proprietary “SWIFTNet”, and ISO 9362 Business Identifier Codes (BICs), popularly known as “SWIFT codes”.

Who uses SWIFT?

SWIFT is used widely across financial markets, capital markets, and banks. Although it was originally designed only to facilitate transactions, its flexible and scalable messaging format allows for expansion into other areas such as securities, treasuries, trades, and system transactions.

SWIFT currently provides services to many different types of financial institutions, including (but not limited to):

Banks
Exchanges
Depositories
Brokerages
Asset management organizations
Currency exchanges
Securities dealers
Corporate treasuries

In addition to facilitating an array of financial services, SWIFT also helps enforce violations against international laws.

The United Nations and its member states may limit access to SWIFT as a way to enforce international sanctions. For example, from 2012-2016, Iran banks were cut off from the SWIFT network due to sanctions against its nuclear program.

What is blockchain?

Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system.

A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. The decentralised database managed by multiple participants is known as Distributed Ledger Technology (DLT).

Blockchain is a type of DLT in which transactions are recorded with an immutable cryptographic signature called a hash.

What exactly is blockchain?

This means if one block in one chain was changed, it would be immediately apparent it had been tampered with. If hackers wanted to corrupt a blockchain system, they would have to change every block in the chain, across all of the distributed versions of the chain.

Blockchains such as Bitcoin and Ethereum are constantly and continually growing as blocks are being added to the chain, which significantly adds to the security of the ledger.

Simplilearn : What Is Blockchain Technology?

JUST IN: The U.S., EU and U.K. have agreed to put in place crippling sanctions on the Russian financial sector, including a block on its access to the global financial system and restrictions on its central bank in retaliation for its invasion of Ukraine. https://t.co/IRhN6II4fX
— CBS News (@CBSNews) February 26, 2022

SWIFT says it preparing to comply with curbs on Russian banks https://t.co/x1MJMpn3sO pic.twitter.com/AU2ipBa3jZ
— Reuters (@Reuters) February 27, 2022

What Is a Blockchain Platform?

A blockchain platform allows users and developers to create novel uses of an existing blockchain infrastructure.

One example is Ethereum, which has a native cryptocurrency known as ether (ETH). But the Ethereum blockchain also allows the creation of smart contracts and programmable tokens used in initial coin offerings (ICOs), and non-fungible tokens (NFTs). These are all built up around the Ethereum infrastructure and secured by nodes on the Ethereum network.

How Many Blockchains Are There?

The number of live blockchains is growing every day at an ever-increasing pace. As of 2022, there are more than 10,000 active cryptocurrencies based on blockchain, with several hundred more non-cryptocurrency blockchains.

SWIFT Vs Blockchain

SWIFT is a centralized service and on the other hand, Blockchain is a decentralized service. In the case of SWIFT, you rely on financial institutions and in the case of Blockchain, the miners do the job. Let’s understand the difference between these two systems with an example.

Consider SWIFT as a walled city wherein no outsiders are allowed and those who are in the city use code words to communicate and trade with trusted people. On the whole, SWIFT is reliable and trustworthy. Blockchain technology, on the other hand, is completely opposite. It is an ‘unwalled city’ where there is no restriction on anyone’s entry and exit. Here in this city, the trades are carved onto a large stone which is visible to everyone present in the city.

Now that we understand the difference between the two systems, the real question is whether SWIFT really needs to be worried about Blockchain technology or not. To assess the situation better, let’s weigh the pros and cons of the two systems.

Is Blockchain Faster Than SWIFT?

Blockchain eliminates the need for a central authority to verify trust and the transfer of value; it rather transfers power and control from large entities to many. Owing to this decentralized system, Blockchain enables safer, faster and cheaper transactions – the only catch being that we are not aware of the entities we are dealing with.

As people transact in the ecosystem of Blockchain, a public record comes into being automatically. With sophisticated algorithms, the computers verify the transactions and create a log for every activity. These computers are not centrally located; in fact, they are spread across the world without the control of any central authority. The transactions take place in real time and are very much secure.

A recent report by Credit Suisse titled, “Bitcoin: The Trust Disruptor”, stated that SWIFT “should watch out for the underlying blockchain technology”. According to the report, Blockchain is seen as a cheap, fast and difficult-to-hack, completely automated transaction system, that delivers a more robust and distributed security architecture for banks.”

The same report described SWIFT as slow, expensive and old-fashioned. Transactions via SWIFT network do not happen in real time. It takes days to settle an international transaction and the fees are more than 10 percent of the total transaction costs.

Can SWIFT be replaced?

Blockchain startups and other fintech companies are applying increased pressure on SWIFT, the legacy solution for cross-border transactions.

While SWIFT is deeply entrenched in global financial networks, blockchain technology could theoretically replace it, at faster speeds and lower cost, if implemented at scale.

Is Swift Used to Sanction Russia?

Cutting country out of global payment system could hit Russia hard, but could also have repercussions for West

Russia’s assault on Ukraine triggered a surge of calls for Western allies to completely sever Russia from the global financial system by disconnecting it from the Swift global financial messaging system. The EU, U.S., U.K. and Canada agreed late Saturday to block some Russian banks from the network, part of an enhanced package of measures that seeks to undermine Russia’s economy and finances.

Who owns SWIFT payment?

The Society for Worldwide Interbank Financial Telecommunication, or Swift, is the financial-messaging infrastructure that links the world’s banks. Swift doesn’t handle actual money transfers itself. It is a messaging system, a secure way banks transmit transfer requests to each other.

Money moving from one account to another often passes by multiple banks before landing in the final destination, particularly if it involves a foreign currency. Swift routes messages with instructions from one bank to another, allowing them to know where the money should ultimately land. The Belgium-based system is run by its member banks and handles millions of daily payment instructions across more than 200 countries and territories and 11,000 financial institutions.

Does Blockchain’s Popularity Mean The End Of SWIFT?

With its distributed ledger and ability to enable transactions with minimal fees, blockchain poses a tangible threat to cross-border funds transfer systems. And none of those systems is more threatened than SWIFT, a consortium of banks that manages a bulk of global transactions. (See also: ‘Zero Knowledge Proofs’ Could Boost Blockchain Adoption On Wall Street.)

SWIFT And Blockchain

Given the similarity in both payment systems’ technologies, it would make sense for SWIFT to investigate blockchain.

Indeed, the messaging network has initiated blockchain projects of its own. The consortium in January announced a proof of concept to test reconciliation of databases for cross-border payments in real time; by August, the project met its objectives. But that success came with a catch. In an interview with Coindesk, SWIFT’s R&D head Damien Vanderveken said its solution would require a significant infrastructure overhaul for banks that had already invested in centralized solutions. “The business value depends on the level of automation of the participants,” he said.

Does This Mean The End Of SWIFT?

To be sure, the share of payment-based messages within the SWIFT ecosystem has been declining even as security and treasury transactions have been gaining share.

Is SWIFT outdated?

Interbank payment systems such as SWIFT are old, inflexible, slow, and increasingly prone to cyberattacks at a time when banks are under tremendous pressure to cut costs and protect customer data from hackers, which blockchain could achieve

How does a SWIFT payment work?

The SWIFT payment system allows you to securely and quickly transfer money to international bank accounts. Transfers can be tracked and you can even specify when you want your transfers to be actioned.

Is swift transfer safe?

Although the SWIFT network is considered a safe messaging system, there are numerous vulnerabilities in the process of traditional wire transfers. A wrong number in a bank account, a forgotten digit of the SWIFT code, and the whole transfer gets sidetracked.