Monday, May 27, 2013

Bitcoin Comes To SWIFT

By Jon Matonis
Monday, May 20, 2013

Hosted at the palatial and temple-like SWIFT headquarters, this year’s TransConstellation Alumni conference featured a mix of panel representatives from both “new” payment approaches and “established” payment players. I was invited to represent the new approach in an Oxford-style debate which I gladly accepted.

As the mecca for international payments, SWIFT is situated on a sprawling green campus in La Hulpe, Belgium where deer leap through the underbrush and occasionally cross the road in front of you. The member-owned cooperative provides the communications platform to connect more than 10,000 banking organizations, securities institutions and corporate customers in 210 countries. If you have ever made an international wire transfer, it has probably run through the SWIFT network. Also, with global initiatives like Innotribe, SWIFT readily embraces the study of emerging payment paradigms and the potential for disruptive operators to alter the landscape.

It was a pleasure to watch the live bitcoin transaction feed from scroll proudly across the 8-foot screen monitors at both ends of the high-ceiling reception room. That is what decentralization looks like. In the absence of third-party intermediaries, amounts and fees and transaction numbers are on display for all the world to see. Somehow, I doubt that a similar live transaction feed from SWIFT’s network was scrolling on a public web browser anywhere in the building. And from the looks on some faces, I think that realization dawned on the attendees as well.

Interactive audience questions ranged all the way from “how will Bitcoin mining nodes transition to an environment of transaction fees only” to “how can something with no backing be a store of value” to “this is the first time I’ve ever heard of bitcoin,” so hopefully some lives were changed. In general though, the audience and the panel were more aware of Bitcoin than I would have expected, but maybe that’s a result of the recent price run-up too.

The educational evening yielded no clear winner since the majority of the audience concluded that a cryptocurrency like bitcoin may indeed represent the future, but the path will be evolutionary rather than revolutionary.

This European Union approach to money and payments sits in stark contrast to events currently unfolding in the United States where a still-evolving payments exchanger recently had account funds seized via court order on dubious legal grounds. The EU tends to view futuristic payments as a framework opportunity rather than a target-rich environment for arrogant enforcement.

The dichotomy between EU and U.S. approaches to e-money becomes even more apparent when one looks at the uniformity of the EU e-Money and Payment Services Directives versus the almost hostile FinCEN guidance on virtual currencies and the incomprehensible patchwork of state money transmitter laws. Because of this, I estimate that the EU currently enjoys at least a five-year head start over its U.S. brethren in accommodating evolving payments efforts.

Whereas the EU strives to provide reasonably low barriers to entry without sacrificing currency choices, the U.S seems content to extinguish innovations like e-Gold in an effort to maintain complete control over money businesses and to project dollar hegemony within its borders. In Russia, now a surprising bastion for freedom of choice in virtual currencies, e-payments brand WebMoney began integrating bitcoin into their value transfer system (although U.S. customers are blocked).

The undeniable march of Bitcoin definitely left an impression on SWIFT, however Bitcoin as a network is an existential threat. Bitcoin as a non-political, non-corporate unit of account is not. Rhetorically, I posed the question: “In fifty years, would you rather own 100 euros, 100 Amazon Coins, or 100 bitcoins?”

Bitcoin plays for the long game. The very long game. Bitcoin block rewards are set to expire eventually and all units of bitcoin will be created by the year 2140, shifting the mining economics completely to transaction fees. In the end, financial and monetary decentralization will win the day because that is more simply the state of nature. I only hope that I am around to enjoy it.

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