Leah Callon-Butler, a CoinDesk columnist, is the director of Emfarsis, a consulting firm focused on the role of technology in advancing economic development in Asia.
Done right, international standards are something we can take for granted.
Very few have been caught marveling at the magic of withdrawing cash from an ATM that isn’t owned by their own bank; or the crazy convenience of scanning and reading a QR code with any type of mobile device; or the awesomeness of their computer being able to talk with other computers all over the world, receiving and interpreting an endless flow of data that could come from anyone at anywhere at any time.
Of course you don’t give a second thought to any of that stuff. Because of standards.
In an increasingly globalized and interconnected world, standards are the intangible predecessor to all the fantastic benefits of interoperability and integration. They are the building blocks to efficient coordination, providing a consistent and reliable framework for people and organizations to be able to understand each other and work together.
Not surprisingly, an ex-SWIFT guy was one of the first to cotton on to this. Considered the gold standard for reliable and secure financial messaging, SWIFT is a worldwide network that enables banks and financial institutions to send and receive information about money transfers. Alexandre Kech spent 18 years working there, mostly in the standards department, building and managing ISO International Standards to be used by SWIFT member institutions.
Standards recently became very much a thing for crypto when a new set of rules recommended any registered entity in the business of moving crypto should have to comply with the same global standards against money laundering and terrorist financing as the rest of the traditional financial ecosystem. Intended to increase transparency over illicit activity, these new rules meant Virtual Asset Service Providers (VASPs) such as exchanges would have to start sharing reciprocal data about the sender and receiver on either side of a crypto transaction. To make it work, they would also have to speak the same language. So the need for a global data standard suddenly became clear.
When SWIFT was established back in the 1970s, the real revolution was not the SWIFT network itself – it was the creation of a standard. Before then, there was no common language. No data or messaging rules. No automation. Just free text via the telex! Even currencies did not have a standard code like USD or GBP. It was an operational nightmare resulting in lost funds, legal disputes and very, very slow global trade processes. So, at the time, SWIFT’s new standard helped to streamline coordination efforts to achieve an unprecedented level of efficiency and interoperability. At least, for the institutions that implemented them.
This highlights some irony in the very notion of standardization. Standards only become standard when widely adopted. So how do you distill a rich melting pot of language, custom and culture down to a single global lexicon to be accepted and actioned by all? At some point, somewhere, things are bound to skew, thus enforcing the same type of segregation that we set out to solve.
“Most of the standards we use today have been defined by the western world and imposed on the Asia Pacific,” says Kech, the Belgian who was sent to Singapore in 2012, precisely to deploy standards across the region. He says the reasons behind this are fairly practical: When you’ve got these big, dominant standards bodies based in Europe – such as SWIFT in Belgium or ISO in Switzerland – there are significant language barriers for would-be Asian participants throughout the standards development process, which is generally carried out over a series of committee meetings between technical experts. Also, the timezone for these meetings is rarely convenient for those in Asia.
“So naturally, and technically, you end up with a standard that is more influenced by western views than it is global,” says Kech. “The situation often leads to Asia implementing protocols that don’t always completely fit their reality.”
Kech crossed over to the “dark side” in December 2018, to become CEO of Onchain Custodian, an automated platform for safekeeping and managing institutional digital asset investments. We caught up in Manila, Philippines, after he chaired a forum at the Asian Development Bank about improving interoperability for traditional financial markets across Asia. The tone of the forum was one of frustration, even exhaustion. The central bankers, finance ministers and regulators lamented over decades spent trying to standardize cross-border data flows between a mishmash of domestic regulations and practices.
Later, over Xiao Long Bao and a few Tsingtaos, Kech told me that “we better move our ass” if we [the crypto industry] don't want to end up the same way. The goal is not homogeneity but inclusivity. Global standards should be flexible enough to be implemented at a local level and still respect nuance. We need to create something more versatile than that of our financial ancestry, but the way we are building – too often in silos – is putting the ecosystem in danger of ending up fragmented, western-centric and still struggling with interoperability.
Kech references a joint working group as a good example of how it should be done. Known as the Joint Working Group on interVASP Messaging Standards, the group is convened by an ex-regulator, Siân Jones of XReg Consulting, and was established by three international blockchain industry bodies: the Chamber of Digital Commerce (CDC), Global Digital Finance (GDF) and the International Digital Asset Exchange Association (IDAXA).
They kicked off in December 2019 with the goal of developing a universal common language for messaging between VASPs. The technical experts (Kech being one of them) meet weekly by teleconference on a rotating roster (so at some point, everyone draws a short straw on the timing of the call) and some of the most vocal participants in the 100-strong group are from Asia – including Hong Kong, Singapore and the Philippines.
By May of this year, interVASP aims to turn out a new standard called IVMS101, ready for industry adoption. By comparison, it usually takes two years to get a standard approved by ISO.
This is a reminder of how quickly crypto moves, and also how early-stage this industry is. We have relatively few players to coordinate, no legacy systems or structures holding us back and technology is part of our DNA. In designing these systems today, we need to think about how they will be used in the future. Standards are the seeds of interoperability and this is our chance to do it right.