📍 Austin, TX, USA. on 9th Jun 2022 at 00:00
3 mins read
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Following Russia’s invasion of Ukraine, the U.S., Canada, and Europe tightened sanctions on Russia and some of those sanctions are targeting the SWIFT banking system.
SWIFT is an acronym that stands for Society for Worldwide Interbank Financial Telecommunication. Located in Brussels, Belgium, it’s been the basis of cross-border bank-to-bank money transfers since 1973. If Russian banks can’t get access to money from other banks around the world, will they seek alternatives and attempt to get around sanctions using cryptocurrencies? That’s been a growing fear among some people in the sanctioning countries in recent weeks.
RippleNet has long been considered the most prominent crypto-based SWIFT alternative. It turns out that it’s making headway in the Arab world. While it might seem that RippleNet’s decentralized nature would work in Russia’s favor, the blockchain still has to abide by international law and Office of Foreign Assets Control regulation.
Stellar Lumens is a RippleNet alternative that was founded by a co-founder of Ripple. While decentralized with super-fast transactions, it’s still bound by law to act within U.S. interests.
Hedera Hashgraph isn’t a blockchain. Rather, it’s a distributed ledger that deploys smart contracts and creates consensus through virtual voting. It’s still subject to the same laws as RippleNet and Stellar Lumens, but considering its consensus mechanism, I can’t imagine anyone associated with it would approve Russian bank transactions.
Iran is in the process of creating a cryptocurrency that could help Russia get around sanctions. The cryptocurrency will be a national cryptocurrency that could deepen an alliance between Iran and Russia. However, while that could happen, the reality is the Iranian cryptocurrency doesn’t exist yet.
Japan is attempting to create a global cryptocurrency payments network similar to SWIFT. Again, while this is a future development as of now, Japan does have the blessing of the G7. Being that this effort has the approval of the G7, which includes the U.S., UK, Canada, France, Germany, Italy, and Japan, it’s not likely Russia will ever be able to leverage it to get around sanctions.
Lightning Labs has raised $70 million to enable stablecoin transactions through the Taro Protocol. Being on the Bitcoin network, it could be a channel for Russia to avoid sanctions, but The Taro Protocol is at the beginning stages of development. It will face the same legal challenges RippleNet and Stella Lumens.
The most likely SWIFT-alternative scenarios to benefit Russia are those that involve cross-border bank-to-bank money transfers using a system created by a Russia-friendly nation. So far, there doesn’t seem to be one on the market. We’re likely a few years away from anything like that existing. U.S.-based blockchains and ledgers must conform to U.S. law or face penalties, and no amount of decentralization is going to change that.
Outside of geopolitical and technological realities, SWIFT itself is working on its own distributed ledger solution.
Legacy organizations stay competitive by deploying new technologies and upgrading their technology stacks every few years. SWIFT is managed by a group of savvy business people who have been organized and focused on cross-border bank-to-bank money transfers for decades. They’re not likely to let an upstart technology uproot their business model overnight without a fight. It’s likely that SWIFT will eventually have a blockchain-based or distributed ledger solution for cross-border bank-to-bank money transfers sooner rather than later. What it will look like is anyone’s guess.
Admittedly, the competition for cross-border bank-to-bank transfers is heating up. SWIFT has more competition today than it’s ever had, but it does have a head start over its competition. As for Russia, there aren’t many options on the table for the country to thwart international sanctions.