Blockchain isn’t only about bitcoin; a growing number of companies and governments in Asia are experimenting with the technology as a secure and transparent way to move and track ownership of assets digitally, an industry conference heard on Wednesday.
Financial institutions such as HKEx, Hong Kong’s exchanges operator, is mulling ways to use blockchain to clear and settle trades in a bid to reduce costs and speed up transactions for customers. Traditional companies such as shipping companies are also working with insurance firms to create a platform that makes auditing a shipping supply chain more efficient and allows data to be shared in real time.
China, quite surprisingly given its wobbly relationship with bitcoin, is exploring the idea of offering its own digital currency. It was once the centre of the cryptocurrency universe, but a sharp rise in interest among ordinary people has get on the nerves of the central bank, prompting a crackdown on non-official cryptocurrency trading and initial coin offerings – platforms to corporate fundraising that could bypass traditional capital markets and regulatory oversights.
“Blockchain used to be sinking oil," meaning it used to be something few cared about, "but now the sinking oil has become the medicine,” Angelina Kwan, head of regulatory compliance at HKEx, said at a conference hosted by Thomson Reuters and FinanceAsia in Hong Kong. “In my personal opinion, a lot of these blockchain technologies will be slowly adopted and that’s the way to go.”
“Clearing and settlement are probably the best things to actually use a blockchain technology, which is essentially two parties passing information to each other in a secured way,” Kwan, a former senior official at the Securities and Futures Commission, Hong Kong’s securities watchdog, said.
In December of 2017, the Australian Securities Exchange said it was planning to use a blockchain type of technology to replace its existing clearing system, becoming the first major bourse to adopt the technology behind bitcoin and other cryptocurrencies.
However, the adoption of blockchain technology in the region remains at an early stage, despite all the hype around bitcoin and its price swings in the past 12 months. One of the key hurdles is that ordinary people often fail to identify the difference between cryptocurrencies like bitcoin and blockchain technology.
Cryptocurrencies provide a way to digitally and anonymously make money transfers between two parties without needing a third party to verify the transaction, while blockchain technology offers an encrypted transaction with the identities of the parties involved.
CHAIN OF BLOCKS
A blockchain is a distributed ledger that is completely open to anyone. It has the potential to speed up transactions and lower costs while mitigating risk of fraud.
Like the name indicates, a blockchain is a chain of blocks that contains information. This technique was originally designed in 1991 by a group of researchers to timestamp digital documents and thereby make it impossible to backdate or tamper with them.
It went by mostly unused until it was adapted by Satoshi Nakamoto in 2009 to create bitcoin. Nakamoto is believed to be a pseudonymous creator of the virtual currency.
“I think the maturity level of the distributed ledger technology (DLT) looking at the banking side isn’t as advanced as the public area such as bitcoin,” Joshua Kroeker, blockchain/DLT head of the global commercial banking unit at HSBC, said. “People are confused by bitcoin as they assume they were trading with anonymous counterparts.”
On a bright note, Douglas Arner, a law professor at Hong Kong University, said the prospect of blockchain and cryptocurrencies remains fairly positive, citing China’s ongoing experiments to create a digital sovereign currency.
“Blockchain is a national strategy and national priority for China,” Arner said. “Non-sovereign cryptocurrencies were effectively almost banned in China... but the People’s Bank of China is [now] actually running advanced pilots in launching its own sovereign cryptocurrency.”
The core strengths of blockchain are its security, transparency and immutability, but these strengths from a legal standpoint could also be some of its biggest challenges, according to Arner. “There is a view in certain part of the community that blockchain gets you out of the legal system; the reality is it doesn’t and it pretty much exposes you to the legal system everywhere,” he said.
HKEx's Kwan made a similar point by noting regional differences in the treatment and regulation of cryptocurrencies, with US regulators seeing bitcoin as a commodity and Asia treating it as a currency.
"There are no pure regulations on what's required for blockchain systems; the regulators have not gotten around it," Kwan said. "In fact, regulators want it in their backyard so they can even watch it closer as it develops."
