Typical Wire Transfers
Let us start by looking at how things have been for the past 150 years, since wire transfers were first introduced. Transferring funds via wire transfer through a bank is a multi-step process, not a single step. It works like this:
The sender goes to his or her bank and requests that funds be transferred to an account. The sender provides the bank with unique codes such as BIC and IBAN codes so that the bank knows exactly where the funds need to be transferred.
The sender's bank contacts the receiver's bank by sending a message via a security system, such as Fedwire or SWIFT, indicating the need for a transfer. The receiver's bank receives this message, which includes settlement instructions, and then requests that the amount specified in the message be transferred by the sender's bank.
The amount is now transferred by the sender's bank. This is done bit by bit, so it can take anywhere from a few hours to a couple of days to transfer the entire amount.
The two banks must have a reciprocal account with each other in order to make the transfer. If this is not the case, the transfer is routed through a correspondent bank that maintains such an account.
As can be seen, this method of transfer is overly reliant on a middleman, takes longer than necessary, and can be costly because banks charge a fee for their services. Bitcoin and other distributed currencies offer a viable alternative to this process.
What distinguishes Bitcoin from traditional services is that it does not rely on a central mediator and instead operates through cryptographic protocols. As a result, the process is much faster, simpler, and more efficient. The system is also quite transparent to both end users, whereas traditional systems are vulnerable to fraud due to the complex process involved.
However, there is a drawback to this as well. With services like Bitcoin, it is simple to trace a transaction back to the creation of each unit value.
Solution? A Point of Contact
People are increasingly turning to services like Bitcoin and peer-to-peer mobile transfers, in which a network operator can assist users in transferring funds by simply sending an SMS. Although these are more efficient, they are still a long way from widespread adoption because many people do not have bank accounts, and there is also the issue of limited user identification in such services.
What would be ideal for everyone is for banks to tap into the potential of decentralized currencies by combining the source code of services such as Ripple with their existing system to form a hybrid of the two. It would be like killing two birds with one stone because:
Decentralized currency systems enable faster transfers.
Bank systems ensure that only registered users have access to the service, removing the possibility of foul play.
Since the last time an indigenous financial service system was introduced, the world has come a long way. There is a clear need to improve this traditional service, and decentralized currencies such as Bitcoin have shown them the way.
Although these are two distinct services and proper cyber security measures, each with its own shortcomings, if used together, they could perfectly fill each other's gaps, resulting in a system that once again revolutionizes the financial services system."""