Comparing Bitcoin to SWIFT

While Bitcoin is a slow and inefficient way to make ordinary everyday transactions, it is a relatively quick and efficient way to make international money transfers. For this reason, I compared Bitcoin to SWIFT in an earlier post.

However, I did not explain my comparison between the two in any detail. I simply noted that a market cap of 120 billion dollars seems excessive for a system that is only one of several alternatives to SWIFT.

What follows is the reasoning behind the comparison:

SWIFT is currently the dominant system for money transfers between bank accounts located in different countries, and is therefore one of many current systems that Bitcoin can bypass.

Bitcoin can also be used for other purposes. It can be used to pay for goods and services from local vendors, if the vendors choose to accept it. However, Bitcoin is slow and inefficient. It takes a lot of time and energy to clear transactions, and will therefore never be the preferred currency for such transactions.

Furthermore, Bitcoin is slow and inefficient by design. The blockchain requires a lot of processing in order to make absolutely sure that transactions are valid. This feature cannot be omitted.

From this, it follows that Bitcoin will never be used in ordinary everyday commerce unless there is a real crisis in the local currency so that there is no choice but to use it. Under normal circumstances, Bitcoin will only be used as an alternative to SWIFT and similar international payment systems.

This means that Bitcoins are tokens used for book keeping during international transfers.

A typical transaction will go as follows:

1. Person in country A buys Bitcoin on an exchange
2. Person in country A transfers Bitcoin to person in country B
3. Person in country B sells received Bitcoin on an exchange

Bitcoin isn't used before nor after the transfer. Instead, it's handed over to investors who sit on it until they choose to sell it again.

The value in this is only the transfer itself. What makes Bitcoin valuable is access to the network on which it resides which only Bitcoin owners can use.

This makes Bitcoin simultaneously a payment token AND a share in the network.

Since the tokens on their own are mere numbers, the only true value of a Bitcoin is the share of the network that it represents.

A Bitcoin is therefore very much the same as a share in SWIFT.

The total market cap of Bitcoin can be directly compared to the total market cap of SWIFT. Add in the uncertainty associated with Bitcoin's future dominance over alternative solutions, and we have a reasonable estimate of Bitcoin's true worth.

Cryptocurrency mining farm

By Marco Krohn - Own work, CC BY-SA 4.0, Link