SWIFT has long been the go-to standard for international funds transfers between banks, but one German institution has decided that the time is right to make the move towards Bitcoin as a transactional service.
The online-only bank Bitbond has started to use the Blockchain technology and Bitcoin specifically to make the transfer of loan funds to small ecommerce startups. Small online stores can apply to borrow up to €50,000 from the bank, and to get around bank transfer fees, the company will make the transaction in Bitcoin, before converting the funds into fiat currency and depositing the money into the recipient’s bank account.
The vast majority of international banks currently make use of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network to communicate securely with each other using BIC or SWIFT codes, but these transactions can be costly as they pick up fees at every stage along the way. The Blockchain has long promised the ability to circumvent the banking system and allow for secure financial transactions without the need for a costly network of middlemen financial institutions, and Bitbond appears to be one of the first regulated financial institutions to put that promise to the test.
Much of the press around cryptocurrencies in recent years has been their value, with traders making millions as Bitcoin soared to be valued at over $20,000. However, from a technical standpoint, it has always been argued that the real value of crypto is the Blockchain, that can verify transactions without the need for centralised institutions.
Traders are also becoming more wise to the fluctuations in cryptocurrency prices after Bitcoin’s tumble down to under $7,000 earlier this year. Charlotte-based Mark Dukas, a cryptocurrency trader and consultant, recommends traders diversify their cryptocurrency portfolios just like more traditional investors, in order to protect against risk and major currency fluctuations that appear to be a common issue. In fact, in Mark Dukas‘s example he talks of stock volatility because of a possibly unscrupulous CEO of a big tech firm, and that is a situation far more likely with the anonymity offered by cryptocurrencies – so investors should always be very aware of the risks, and try to invest accordingly.
Indeed, the rapid fluctuations in price is still one of the major things holding Bitcoin back from becoming a more widely used standard for financial transactions like those being tested by Bitbank – people want to be sure that the value of the money they send does not change (up or down) by the time it arrives with the recipient. And Bitcoin prices will currently fluctuate by up to 5-6% within a 24 hour period.
Will Bitcoin or another cryptocurrency ever actually replace SWIFT? Only time will tell – and it might go much further.
Photograph by Zach Copley