As the code name implies, ISO 20022 is basically a global level standard that provides the basis for the transfer of electronic messages between financial firms with the help of the Society of Worldwide Interbank Financial Telecommunication (SWIFT). SWIFT is in short, a communications network that is utilized by several banks worldwide to process digital payments.
The ISO 20022 standard is based on distributive ledger technology and contains a much more complex format, through XML and abstract syntax notation.
With the integration of the ISO 20022 standard, there will be quite a significant change in the communications and operations of banks. The ISO 20022 standard will allow increased message traffic, providing support for the transfer of larger messages and will also help to stimulate interoperability, meaning that a larger number of banks will gain an impressive level of compatibility with each other.
While its main goal is to transform the old banking methods and services, changing from conventional SWIFT communication to the ISO 20022 standard will also have a significant effect on the cryptocurrency space as well. This means that the coins and cryptos that follow the ISO 20022 standard, will not only gain more reach, but will also gain an increased adoption rate becoming attractive choices for investors and traders to play around with.
If there is a possibility that major cryptocurrencies like Bitcoin and Ethereum can become compatible with SWIFT and are provided with their unique ISO values, it will result in a massive change towards how both traditional fiat and cryptocurrencies will work in the financial space.
ISO 20022 Message classes
As of now, every single SWIFT communication message is referred to as “MT” messages. The meaning of MT is ‘message type/text’ and is accompanied by a number which has three digits, highlighting the message’s categorization, its group and its class. MT messages are currently complaint with the ISO 15022 standard, which is the standard that will be retried, letting ISO 20022 take its place.
Once the change of standard has taken place, the communication messages, being referred as “MT” messages, will also change into “MX” messages. Although the ISO 20022 will be a newer and much more advanced standard, the ISO 15022 will still maintain its place as one of the most popular SWIFT communications standards, but not for long.
SWIFT ISO 20022 chronology
The shift to ISO 20022 is scheduled to launch in a series of phases. International level transfers having significant major value from the European Union are scheduled to shift towards the ISO 20022 standard in the month of November of 2022. These transfers usually include the Traget2 complex, which is a real-time transaction processing complex that has been utilized by many different central banks and have been present in the European Union.
Connections with the Federal reserve
Moving towards the east, the United States federal reserve, is scheduled to adopt the ISO 20022 standard also in the month of November, but in next year of 2023. Despite the widespread adoption of the ISO 20022 standard, the previous ISO 15022 standard will also continue to function, but will only last till the year of 2025, after which payments complaint to the ISO 15022 will no longer be allowed to pass through systems.
According to the analyses by SWIFT, if the shift towards ISO 20022 standard completes in compliance with the schedule, more than 75% of expensive transfers, based on both volume and value will be compliant to the ISO 20022 messaging standard by the end of next year, 2023, gaining support from major countries around the world.
ISO 20022 Coins and Cryptos
As of now, there are eight different cryptocurrencies that are following the ISO 20022 standard of transfer. These include:
- Ripple (XRP)
Compliant to ISO 20022, XRP is used to reduce the gap between cryptocurrencies and traditional fiat currencies, while also being used for other intentions like international payments. The crypto supports around 1500 transactions in just a second of time.
Cardano is basically a decentralized blockchain network that follows the proof-of-stake (POS) consensus and is said to be one of the largest POS blockchain in the world, however its compliance with ISO 20022 is still questioned by many. Founded by popular figure named Charles Hoskinson, the cryptocurrency has managed to take part in many successful projects around the world, thereby increasing its overall value.
- Stellar Lumens (XLM)
Being a subordinate crypto from Ripple, this cryptocurrency works very similarly to XRP, however it focuses more on cross-currency conversions and has double the speed of XRP, supporting around 3000 transactions in a single second, but its real-time speed is slower than XRP.
- XinFin (XDC)
XinFin is a blockchain that also follows the proof-of-stake (POS) consensus, is compatible with Ethereum Virtual Machines (EVMs) and its main functionality is to bring public and private blockchain to be compatible with smart contracts. XinFin supports around 2000 transactions in a single second with a finality of a minimum of two seconds.
- IOTA
It is basically a blockchain ledger which is centralized and has mainly been used to take care of Internet of Things type transactions. Its centralized nature has brought many disadvantages towards it such as security issues, leading to many hacking attacks that have occurred in the past few years.
- Algorand (ALGO)
Mostly known as a Layer-1 blockchain, its purpose it to resolve issues that other cryptocurrencies like Ethereum are unable to handle. It processes about 1300 transactions in a second, however because of its POS consensus, there have been issues regarding whales taking control over the system.
- Hedera Hashgraph (HBAR)
Its compliance with ISO 20022 is a bit questionable. The Hedera Hashgraph is a distributed ledger platform, having similar properties to blockchains, but works in other way. It intends to solve issues with blockchains, supporting an extraordinary transaction speed of 10,000 tpm. Reports have also mentioned this system having a behemoth 500,000 tpm.
Hedera Hashgraph does not require miners to validate transactions, so it uses a feature called directed acyclic graph to process transactions, with no need to arrange them in blocks.
- Quant (QNT)
Quant is a protocol that is intended to resolve compatibility issues amongst top blockchains like Bitcoin and Ethereum by using its compatibility network, that bonds all blockchains using a single operating system.
The protocol also supports EVMs, and its currency has been used to power and support developers involved in the design and creation of decentralized applications. Quant is said to be an Ethereum Layer-2 chain but does not need any changes in its core chain to function as intended.
About Ripple and its relationship with ISO 20022
Ripple currently holds the second positions of the biggest Fintech companies in the United States of America. The company’s coin called, XRP also holds a position in the top cryptocurrencies valued in terms of market capitalization, while also being strictly compliant with the ISO 20022 standard in today’s time.
Since Ripple also has a position in the ISO 20022 standard body, it means that the firm has a significant involvement in the development and implementation of the ISO 20022 standard, providing necessary guidance and suggestions for the ISO 20022 standard to be a worthy competitor.
In comparison to Bitcoin, which still sits at the top of all cryptocurrencies, said to be a gentle giant and commonly used to store value, Ripple’s systems are constructed to in a way that makes Ripple a digital transfer network and protocol, providing massively high-speed transactions and deals between both banks and financial companies.
Ripple’s XRP not only provides the features mentioned above but can also be used as collateral and is also commonly used for speedy currency conversions alongside supporting international remittances. To support the high-speed consensus, Ripple utilizes a consensus governed by polls, in which nodes are to confirm and verify the originality of the transfer taking place. Using this type of consensus also promotes the concept of decentralization.
XRP is the main currency from Ripple that is being utilized for banks and financial institutions, however the subordinate currency from Ripple, named as Stellar Lumens (XLM) is basically designed to support the construction of central bank digital currencies (CBDCs). In addition to support CBDCs, the XLM currency is also used as an agreement basis for different currency conversions.
In terms of overall global support, the XML currency is support by more than three hundred banks and financial companies in around 45 different countries. Some supported banks include Santander, the Canadian Imperial Bank of Commerce, while supported countries include India, Singapore and Brazil, allowing the currency to stretch its legs in almost every continent. As for the United States, major banks supporting Ripple’s currencies include Bank of America, TransferGo, American Express and Xendpay.
Ripple was said to be initially used to retire SWIFT due to its several major advantages, but that isn’t happening anytime soon, however since Ripple’s systems will now be working together with SWIFT with the adoption of ISO 20022, the relation between XRP and SWIFT will grow more stronger than ever, leading to an increase in popularity of XRP in comparison to other cryptocurrencies.
But despite all these bright rainbows, Ripple still must deal with the securities and exchange commission (SEC).
The lawsuit issued by the SEC to XRP has had a major contribution towards the loss in value of XRP, however many market players think that XRP will manage to secure the victory, because other major cryptocurrencies like Bitcoin and Ethereum are now being recognized as commodities and are now subject to regulations issued by the Commodity Futures Trading Commission instead of the SEC.
And because Ripple also falls under the category of commodity, there is a huge chance that it will win the lawsuit against the SEC, restoring its glory and valuation. Having an impressive relationship with the ISO 20022 standard means that Ripple will be preferred over other cryptocurrencies, especially banks and firms operating in the United States. Not only will the price of XRP go up, but the overall market capitalization will also see great numbers.
Detailed explanation on the perks of ISO 20022
Compared to ISO 15022, ISO 20022 is a completely different beast, providing companies with perks like rich data, modeling methods, centralized dictionary and some designated rules for XML and ASN.1 designing. For better understanding, the perks mentioned above will not be explained in more detail.
Rich data is basically said to be a collection of data, with each dataset consisting of massive amounts of beneficial and useful information to play around with. Modeling describes both the quality and statistical information of the vital components inside of a system and how those components react with each other. Models are mostly called as scientific theories that somewhat reflect the original system; however, they are not completely accurate.
The methods of modeling are a collection of thoughts and perspectives that surround the construction of models for transaction solutions, also containing the analysis tools to develop it, plus the different phases of fulfillment of the process. The analysis tools are said to a sort of resource that provide a pathway towards getting hands on information to perform research and evaluation. Examples of these tools include dashboards and query constructors.
A financial dictionary contains hundreds of thousands of terms, pages, articles, guides and definitions with respect to different financial subject matters. Some subject matters include accounting information, finance-based modeling, graphical information, business strategies, trading methodologies and strategies, investing information and strategies and business valuations.
Extensible markup language (XML) is a markup language that has its similarities to the HTML language, however it utilizes tags are needed to be defined, unlike HTML which has its tags already defined. Tags are used to highlight different elements inside of a certain document in XML format. Since the tags are defined by the creator of the XML, this allows for better pliability and complication of the XML file.
Autonomous system number (ASN) is a special code number that is widely accessible which enables autonomous systems not transfer routing details among other different systems. The routing details helps funds to be transferred to various accounts around the world. This is not only fast, but also an effective way of shifting funds between different accounts.
Advantages of ISO 20022
ISO might seem to be technically quite complex, however the advantages it will bring will have a significant impact not only on how financial companies will operate but might also provide users with reduced transaction fees. Advantages of ISO 2022 are as follows.
ISO 20022 will lead to better interoperability, leading to a significant rise in compatibility for financial systems, services, banks and companies around the world, while also having support for non-Latin letters. Different message types can be arranged in groups according to their attributes the type of payment methodology they are following.
ISO 20022 will also provide much higher quality of data and in combination with autonomous systems, the standard will provide the basis for more effective methods and systems used to detect fraudulent activities. Having more autonomous systems means that there will be less human involvement, so it will result in improved statistical accuracy.
With ISO 20022, messages will be utilized for several different motives that include local transactions, international transactions, massively valued transactions, ACH and transactions happening in real-time.
Shortcomings of ISO 20022
While the advantages mentioned above are quite impressive and important for the evolution of the financial space, the disadvantages of shifting towards a new standard will continue to haunt the space.
The disadvantage of shifting towards a completely new standard is that majority of the banks might not have the complex systems that can support this standard shift, meaning that there will be a significant increase in cost for these banks to upgrade their technologies and because of this, the banks might not be able to follow the adoption schedules for ISO 20022 that are presented by SWIFT accordingly.
Convincing major banks to upgrade to better technologies will not only take time, but will also require a lot of capital to invest in. It is quite important to provide these major banks with the time they need to adopt towards the new standard and upgrade their systems, because they are already dealing with millions of transactions.
Summary
In conclusion, ISO 20022 is a standard that is surely going to revolutionize the financial space, bringing together traditional interbank communication and the cryptocurrency space. With this bond, a massive rise in the usage of cryptocurrencies is to be expected between both traditional and crypto-based systems and companies.
More cannot be said on the effectiveness of ISO 20022 for now, however if this standard becomes a major hit, it will decrease the requirement of cryptocurrencies in the financial space, but in counter to that, TradFi and crypto industries will start to bond together unprecedently. So, traders and investors might want to keep a close eye on ISO 20022 compatible cryptocurrencies, for changes in price and adoption rates once the major ISO 20022 shift occurs.
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