Written by: Bill Qian

Every war is a testing ground for various innovations: tanks on the Somme battlefield in 1916, aircraft carriers in the Pearl Harbor attack in 1941, atomic bombs over Hiroshima and Nagasaki in 1945, and drones in the Russo-Ukrainian battlefield in 2022 and the Middle Eastern conflict in 2026. This time, the Strait of Hormuz sees cryptocurrencies participate as an innovation in financial technology—also telling us from another perspective that the "anti-censorship" and relative "decentralization" of cryptocurrencies have become a convenient means for transactions in turbulent times.

Iranians are about to start settling payments using cryptocurrencies and the yuan. I believe the probability of using mainstream stablecoins like USDT and USDC is very low, as these can essentially be frozen at the discretion of the U.S. government; compared to that, Bitcoin is more likely to be accepted, as it is currently almost the only payment tool in the world without "counterparty risk." Some may say gold also does not have this risk, which is true, but this is not the 19th century; no one wants to trade with physical gold anymore.

Looking back at history, we can compare the Suez Crisis of 1956 and see how Egyptian President Nasser responded under circumstances without Bitcoin. On July 26, 1956, Nasser announced the nationalization of the Suez Canal Company. The compensation agreement between the Egyptian government and the original shareholders stated that the compensation would be denominated in Egyptian pounds, but at the actual payment time, "not less than 40% must be paid in pounds, and the remainder can be paid in francs," with the exchange rate pegged to the IMF's regulated dollar parity. Therefore, the entire settlement system still belonged to the pound and dollar system from start to finish since Egyptians also needed the world's "hard currency" at that time.

The UK, France, and the US quickly froze all of Egypt's foreign exchange assets within their territories—including the frozen balances of Egyptian pounds in London, totaling approximately £128 million. This money remained frozen for three years. Until February 28, 1959, the UK and Egypt finally signed the Anglo-Egyptian Financial Agreement, gradually resolving the issue.

Nasser won on the battlefield, but the monetary battle was bought back with payments. The deeper outcome was that in 1979, Egypt signed the Camp David Accords, becoming the first Arab country to recognize Israel and subsequently receiving about $2 billion in aid from the U.S. annually, thus becoming one of Washington's most important allies in the Middle East. The dollar revenues from the canal have never been frozen since then—not because Egypt found a way to bypass the system, but because Egypt chose to join the system. This was Nasser's only way out back then, and today's Iran cannot choose that path.

Today's Iran and the story of the Strait of Hormuz are somewhat different: Iran could threaten to block the passage, but as long as its oil export revenues are settled within the SWIFT and dollar system, there is always a risk of being frozen. Egypt's solution was submission, which Iran completely cannot choose. Therefore, Bitcoin is the first tool that truly makes "bypassing" possible, simply because it has no counterparty that can be politically pressured.

Three iterations of global fintech over 70 years after World War II

Since the establishment of the Bretton Woods system in 1944, global fintech has gone through various stages of development, which can essentially be divided into three levels: what currency do you use? What settlement system do you use? What front-end application services do you use?

First phase (1944-1990): The reshaping of order empowered by IT technology, with the dollar and SWIFT becoming the core financial order after the war

The core of this phase is the reshaping of order—America crowned as the "New Roman Empire," along with the initial application of digital technologies. After World War II, on the currency level, the world first adopted the dollar; on the settlement system level, organizations such as SWIFT (established in 1973, officially launched in 1977), Visa, Mastercard, JCB, and China UnionPay emerged; on the front-end service level, the introduction of plastic cards took place— the first credit card was Diners Club in 1950, and the first debit card was a pilot project by Delaware Bank in 1966. Additionally, in 1967, a fascinating fintech invention—the ATM—made its appearance globally. At one time, Japan boasted about its modernization by counting the number of ATMs per 100,000 people.

It is important to note that during this process, the old paradigm did not completely exit. In fact, until the 1960s, the traditional "hard currency" pound still accounted for over 50% of the global settlement share. Therefore, the pace of change was sometimes quite slow.

Second phase (1990-2009): While internet technology continuously accelerated global financial efficiency at the application level, the underlying structure remained unchanged

Starting from the 1990s, the global currency layer did not change, nor did the settlement system, but at the front-end application layer, a large number of innovations emerged, such as PayPal, Brazil's Nubank, Europe's Revolut, and China's Ant Financial, continuously promoting the improvement of financial efficiency.

Third phase (2009 to present): The birth of Bitcoin, the marginal innovation of cryptocurrency technology, creating a new paradigm of open finance 24/7

Driven by blockchain technology, Bitcoin was born in 2009, and Ethereum's main network launched in 2015, marking a milestone for this phase. The key to this round of innovation, in my opinion, is that it enables finance to develop further in terms of efficiency and freedom—allowing for 24/7 operations and acting as a political tool of rule makers (to a relative extent). This innovation has just begun, comparable to the level of internet penetration in 1999.

Firstly, at the currency level: Stablecoins have emerged, allowing strong currencies to capitalize on blockchain technology to achieve strategic delivery worldwide. Of course, this "strategic delivery" was initially undertaken by grassroots entrepreneurs. For example, the founder of USDT became one of the top 20 richest people in the world because of this.

Secondly, at the settlement layer: The biggest problem with the SWIFT system is, first, that the U.S. can just turn it off at will, making it a political tool in extreme cases, and such extreme situations are increasingly common; second, the efficiency is slow, with cross-border transfers taking at least 1 to 3 business days, and the fees ranging from about $15 to $25. The emergence of the Ethereum blockchain network has become an alternative option for a 24/7 global clearing and settlement network.

Thirdly, at the application layer: This round of innovation has given rise to many new species, encompassing trading, payments, acquiring, brokerage, and new types of digital banks, with nearly everything fintech applications can do also being pursued in this phase of the cryptocurrency industry. For instance, the 24/7 exchange Binance and the stablecoin payment card RedotPay.

So, will Iran and the Strait of Hormuz become a new scene for the third generation of global fintech after the war? Let's wait and see.

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