Bitcoin Will Replace Swift Before Visa – Bitcoin Magazine
This is an opinion piece by Shinobi, a self-taught educator in the Bitcoin space and tech-minded Bitcoin podcast host.
With the advent of the Lightning Network, the concept of Bitcoin as a medium of exchange has taken off in the last few years in terms of the dominant narrative in the space. Ultimately, it is a necessary ingredient for anything that aspires to become money. Storing value makes no sense in the context of money, which cannot be easily exchanged. Lightning is currently the most promising tool for truly expanding the ability to do just that.
Conceptually, most of the focus of the medium of exchange as a function was around the consumer: fulfilling the needs and daily needs of the average person, such as buying groceries, shopping online, and paying for services. This is not the only one: the scale of exchange in the economy. Businesses must pay their suppliers and pay their contractors and services. International shipping companies need to receive money from customers all over the world. Most of them are businesses, not consumers. Imports flow massively around the world, and the complexities of foreign currency exchange between the currencies of many different countries have to be dealt with.
Medium of exchange means more than just people paying for coffee. The entire function of the medium of exchange occurs at all levels and scales of the economy to purchase far greater value than your daily Starbucks latte.
This is where Bitcoin will begin to shine sustainably at scale as a medium of exchange, rather than Joe buying coffee every day. I’m here. Many Russian banks have been disconnected from his SWIFT system and should understand the potential risks of relying on his SWIFT system for international payments. This follows a curvilinear distribution in which 5% of all payments processed accounted for 95% of the value, with the majority of payments being much lower (mean payment ~$400,000, median ~$5000 in October 2010). increase. So while very large value payments account for the majority of the value transferred over the network, the remaining small percentage of value is not small, but the various types of small payments that are in large schemes. Distributed among various individual actors. This distribution actually shows why SWIFT is ripe for disruption by Bitcoin in the latter category.
As we discussed this same topic in the context of explicit sanctions evasion in this article from March, the main limiting factor in using Bitcoin to process traditional payments denominated in fiat currency is liquidity. Even if 5% of the network, 100% of Iran’s mining hashrate, were fully owned by the government, and the government retained 100% of the revenue, they would still have $700 million worth of bitcoin a year. I have elaborated that you can get a . pay the import bill. It’s in the grand scheme of things, not much. Iran imported her $38 billion worth of goods in 2020, of which $700 million is just a fraction.
This dynamic changes when we begin to consider countries with thriving Bitcoin fiat markets. The situation in Iran was that instead of exporting and selling oil directly, they were considering burning it and using bitcoin mining to fill that gap. It is limited by the amount of mining hardware that can be used. Consider a country that has less severe sanctions but may be at risk of it. The country is still able to export goods and has a thriving bitcoin/fiat currency market worth $10 million a day. If people around the world are willing to pay for exports from that country in bitcoin, there is his $10 million a day market that can convert it into fiat currency every day. This means that $10 million could flow into the country every day to pay for exports (I know… this is an oversimplified analysis and changes in market conditions, Ignoring how it affects market liquidity, bitcoin demand consistency, etc. (although I will stick to a simplified analysis just to get the point across). This equates to approximately $3.6 billion annually. Imagine a market volume of $100 million a day. This is Iran’s annual imports from approximately 2020.
Now imagine that the last 5% of values processed by SWIFT account for 95% of the individual transactions. Imagine a variety of companies and individuals making international payments that all fit into that payment bucket. As long as the source country has liquidity in the fiat/bitcoin market where someone can make a payment to buy it and the destination country has enough liquidity for the recipient to sell it Coin is the perfect vehicle to process international payments that minimize slippage/fees and settle within a few blocks. Add the Lightning Network to your photo and solve it in seconds.
The more speculative liquidity surrounding Bitcoin, the more value can be processed in such a system across different jurisdictions to facilitate international commerce. You don’t even have to be a licensed entity’s country to appreciate this value. Payments can be made literally instantly. SWIFT can take days or even weeks, depending on where the money moves and the checks SWIFT performs on payments. Bitcoin eliminates that delay, removing the possibility of a third party blocking a payment. This boils down to her only two exchange points between fiat currency and bitcoin in their respective jurisdictions in terms of counterparty risk that the two traders are exposed to.
But you can get rid of it by simply storing and managing bitcoin directly yourself.The only risk at that point is the volatility of bitcoin itself. This is also availableAt the simplest level, a company can deposit a small portion of its bitcoin holdings on an exchange with futures contracts and use leverage to short the bitcoin price and hedge against volatility. increase. 10x leverage means that he can hedge that exposure by simply putting his 10% of his bitcoin on such a platform. If the Bitcoin price increases and the short is liquidated, the Bitcoin price increase will make up for it, leaving the same amount of fiat currency. If the value of Bitcoin goes down, the money earned from short positions will compensate for the depreciation of Bitcoin and keep the same amount of fiat currency value.
Discrete Log Contracts (DLC) even offer the possibility to hedge Bitcoin price volatility natively on the network itself through smart contracts. This allows you to directly control your Bitcoin and return the contract to your control when the transaction is closed. Additionally, multiple price oracles can be used to honestly report prices without relying on a single price oracle. Bitcoin.
People are as if we have to reach the point of hyperbitcoinization for bitcoin to become the main backbone of payment processing in the world, or a system as important to the economy as SWIFT. act. it’s not. A certain market size is That amount of bitcoin is actively bought and sold. This means that regardless of the time period you are analyzing, there is a demand to process bitcoin buys and sells regularly within that value range. The same applies to the futures market. Used by people who want to control their own bitcoin, rather than exposing themselves to counterparty risk, so that their business is not ruined if the price of bitcoin suddenly crashes. I can do it. In large amounts.
Bitcoin enthusiasts have become very focused on the concept of grassroots adoption — not a bad thing per se. Because this is an absolutely necessary aspect of Bitcoin adoption to become real money — but they are starting to lose sight of the other side. coin. Big Players, Big Payments. Bitcoin is ripe for massive disruption of systems like SWIFT, and at the rate the world is destabilizing both politically and economically, I think that time will come sooner or later.
I think Bitcoin and Lightning will be widely adopted by businesses as an alternative to SWIFT and other payment systems before they are widely adopted as consumer payment methods. It is easier to convince thousands of companies of added value and utility and work to integrate it into it than to convince hundreds of millions of people to add value and work to integrate into it. Most people tend to follow in the footsteps of those they deem trustworthy, so if the former is accomplished first, the latter task will probably be easier as well.
Constantly hearing about how Bitcoin is being used for international business payments, what can put more trust in the average person’s mind than keeping businesses away from traditional payment systems?
This is a guest post from Shinobi. Opinions expressed are entirely his own and do not necessarily reflect those of his BTC Inc or Bitcoin Magazine.
Bitcoin Will Replace Swift Before Visa – Bitcoin Magazine
Source link Bitcoin Will Replace Swift Before Visa – Bitcoin Magazine
