VTS (Value Transfer System) refers to a network and a mechanism that provides the possibility of exchanging money, cheque, or any other trading tool. The payment is made to the amount equal to the received money to the third party in a different geographical location in VTS. Such systems play a significant role in the financial network of the world. Today, different companies, organizations, governments, or even people personally use VTS in various forms to transfer money or any trading tool in the boundaries of a country or out of it. VTS is created and applied formally and informally around the world. In its informal model, there is the possibility of exchanging money out of the banking network or any other financial institute be an intermediary person or organization. Even the main business of that intermediary person or organization might not be money transfer. Informal systems are generally used by migrators to transfer money to their families or receive it from them.
Formal VTS networks have been compared to each other in case of capacity and transfer speed and implemented in different forms. So of them like SWIFT work at the global level and some such as Fedwire, have limited activity just in the U.S. Some of these networks, like Paypal offer services on the internet. A network like SWIFT is used to transfer money in commerce among different countries, while the Paypal network is a suitable option for interpersonal transfers. There are also old methods like using the post besides current developed methods to transfer money.
Through introducing and developing Bitcoin in the last decade, Blockchain technology has drawn the attention of startups as one of the tools in VTS systems to offer services in the field of money transfer in a way that today Blockchain is known as one of the serious rivals for present systems.
Transparency, performance, reliability, decentralization, transfer fee, and security are among the features currently discussed in comparison to Blockchain-based systems. Each of these features will be investigated in the following parts.
Transparency is one of the most important features in Blockchain-based networks. This feature in Blockchain has been implemented in such a way that all the events of the network would be available for all the users while their anonymity and privacy are preserved. In the Blockchain network, every user can generate one or some addresses to send or receive the digital token. Each user’s address is the result of hashing his/her public key. So, there is no mechanism to correspond network users to the addresses.
On the one hand, the blocks chain is available for all the network users, and it can provide the possibility of observing all transactions and checking the balance of all accounts for every user. The possibility of generating many addresses further helps network users’ anonymity and protecting their privacy. There is no transparency and at the same time, anonymity in the current VTS mechanisms; in other words, no user of the systems like Paypal and SWIFT is able to observe network transactions and their status. This feature can attract network users’ attention and allow them to assess the network status.
Although it cannot be said generally that the security of Blockchain-based networks is higher than current networks for transferring money, different mechanisms are predicted and used to avoid disclosing sensitive information like the private keys, impersonation, Blockchain manipulation, the presence of a trespasser to sabotage and the like.
Decentralization and distribution of the Blockchain network are its two other remarkable features compared to current VTS networks. Blockchain is a distributed network, and its different parts can continue working without the presence of other parts. On the other hand, Blockchain doesn’t own a central management and storage while you can see such centrality in the existing value transfer mechanism such as SWIFT and Paypal. The blockchain network has been designed in such a way that it is able to offer services without reciprocal trust among the users. In the centralized networks, there is always the risk of information manipulation by the central management; however, using hash algorithms in the blocks chain guarantees not facing any information manipulation in the Blockchain network.
Today with the development of Blockchain, we can see the networks such as Tangel and ideas like Lightning Network being introduced, which have made transfer fees zero or minimize them to the lowest level possible and have found a relative advantage over VTS systems in this regard. Through removing intermediaries and middlemen, Blockchain networks create an appropriate infrastructure for the people’s personal financial transfers, especially in cases where economic sanctions and issues like this bring about some barriers.
Transfer speed is another important parameter in VTS systems. Although many common Blockchain networks in the world like Bitcoin and Ethereum don’t have acceptable speed in comparison to the internet systems of money transfer like Paypal and Visa, it has not been limited to these cases and entered the competition with such systems via introducing networks such as EOS; however, in general, it can be said that Blockchain has a higher speed than traditional methods of currency transfer and global systems with great capacity like SWIFT.
For instance, Ripple is among successful Blockchains, which could facilitate financial transfers between the banks and decrease its fee through introducing products like xCurrent and xRapid.
All in all, Blockchain features have sufficiently drawn the attentions in the field of value transfer in a way that current famous businesses like SWIFT and Visa have moved toward Blockchain technology to maintain the competition and make benefit from these features. In 2017, SWIFT moved toward adapting its network with Blockchain through introducing GPI, Global Payments Innovations. Presently this platform makes connecting to Blockchain networks possible. Visa is also developing a Blockchain-based platform to make up the weaknesses in value transfer as one of the fastest value transfer systems.
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[Investopedia] “Does Blockchain's Popularity Mean the End Of SWIFT?”, Rakesh Sharma, Jun 25, 2019
[Forbes] “Visa Enters The $125 Trillion Global Money Transfer Market With New Blockchain Product”, Jeff Kauflin, Jun 11, 2019
[Coindesk] “SWIFT Gives Blockchain Platforms Access to ‘Instant’ GPI Payments Following R3 Trial”, Daniel Palmer, Jun 25, 2019
[Ihodl] “SWIFT vs Blockchain — Overthrow of the Almighty?”, Ekaterina Ulyanova, 28 Nov, 2018
[Deloitte] “The Internet of Value-Exchange”, Jeff Garzik
[101blockchains] “Blockchain vs SWIFT: The New Banking!”, Hasib Anwar, June 6, 2018
Dr. Pooyan Ghamari