No, Russia will not replace Swift with the blockchain
Have you heard that Russia is developing a blockchain platform for international payments to replace the current Swift system?
There is a good chance that you have it, but if you do not have it, you will soon do it, because the story has been stuck in a holding pattern over the news agenda for several weeks. It reappeared this morning via coinbro journalism and tweets like this, from Watcher.Guru to its 1.1 million followers:
JUST IN: The Russian government organization has created a blockchain platform for international payments to replace the current Swift system.
– Watcher.Guru (@WatcherGuru) June 20, 2022
It all stems from a performance by Rostec, Russia’s state-owned military technology developer, at a digitization conference in Nizhny Novgorod that lasted the first three days of June.
Rostec’s software battalion, the Novosibirsk Institute of Software Systems (NIPS), used the event to announce the “CELLS Industrial Blockchain Platform”. Here is the press release via Google translate:
One of the key elements in [CELLS] The platform has become a digital system for making payments in national currencies, which can provide a real alternative to SWIFT in international settlements. The multifunctional system provides international payments, multi-currency transactions, user identification and digital currency storage. Blockchain technology in combination with certified cryptographic information protection tools provides a high level of IT solution reliability.
“The digital payment system on the blockchain platform can be used as a full-fledged replacement for SWIFT, providing high speed, security and irrevocable transactions. The system will make it possible to switch to settlement in national currency, eliminate the risk of sanctions and ensure the independence of the national fiscal policy for clearing participants, says Oleg Yevtushenko, CEO of Rostec Group.
NIPS has a form with bold predictions. In 2019, it presented to the same conference a “roadmap for the development of blockchain technology in Russia” which involved linking the entire state machinery at a cost of up to 85 billion rubles ($ 1.5 billion). Council budgets, transport infrastructure, the industrial complex and municipal elections will all be put on distributed ledgers in order to somehow deliver an estimated economic benefit of up to 1.64 tonnes of rubles within five years.
Distributing a platform such as Ethereum in the Kremlin “is not a sign of dependence on foreign solutions”, since access to the source code can not be restricted for political reasons, Kommersant quoted NIPS as saying in May 2019. Between that date and now, for perhaps obvious reasons why the focus has shifted to a proprietary system.
Not much information is in the public domain about CELLS blockchain other than what is on a product website. From that we learn that it uses proof of Authority mining, which removes all competing mining and depends on a small fleet of validators.
There are advantages to this approach, including that transactions are almost as fast, secure and efficient as in a regular database. The disadvantage is a degree of centralization that is the opposite of blockchain’s theoretical USP, in return for a system that is slightly worse than what it replaces.
Swift’s cross-border money transfer network routes 42 million financial messages a day to connect more than 11,000 institutions and 4 billion account holders in at least 200 countries. NIPS’s proposed compensation is undoubtedly over-specified, and reportedly handles up to 100,000 transactions per second, although capacity is not really the problem here. None of the obstacles are technical. It’s all about Benjamin, as Claire Jones explains:
About half of all global payments are made in dollars. Together with about 90 percent of the trade financing. When instructions are sent via networks such as Swift, many of these dollar payments must be made between institutions that do not have accounts with each other. What this means is that a correspondent bank – probably operating in the US, controlled by US authorities – will act as an intermediary … Even for transactions that are legal, the parties are not willing to take the risk of alienating US authorities by processing payments for businesses based in countries that have fallen in line with Washington.
Which is the bottom line. And what are the chances that any non-Russian counterpart will use a mysterious meat book that is centrally controlled by a company that parades its thoughts through Red Square every May 9? No.
Further reading:
The impact of ousting Russia from Swift – FT Alphaville
