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Are Asean organisations ready for blockchain technology?

Blockchain promises to increase the efficiency and security of transactions in industries way beyond its financial services roots. But what does it mean in the Asean region?

The IT industry regularly comes up with buzzwords that are touted to change the world, and while many turn out to be mere hoaxes and passing fads, a few come to stick around and live up to the hype. Virtualisation, cloud, social media and internet of things (IoT) are some good examples of this.

One technology on the list of the next big wave is blockchain. Simply defined, it is a robust and distributed system of record keeping, primarily associated with bitcoin cryptocurrency. It was designed to ensure that all involved parties could easily verify transactions.

Some technology suppliers are already hyping up this groundbreaking technology in the Association of Southeast Nations (Asean) region.

According to Alan Lim, lead software architect with IBM Software in Singapore, the supplier has adopted Blockchain technology in its Global Financing Business. It has taken elements of Linux Foundation’s open source Hyperledger project and made the framework available within IBM Cloud.

Scott Russell, president of SAP in Southeast Asia, said blockchain would be used in all industries.

“Blockchain will disrupt every industry and enable safer commerce. While the internet is good at moving information, blockchain will move money and value,” he said.

Blockchain is considered so revolutionary that the world’s largest banks, such as JPMorgan, Citibank, BNP Paribas, Wells Fargo, ING and MacQuarie, all joined in a global consortium led by New York-based financial tech firm R3 to discover new ways of using blockchain in financial markets. Microsoft also recently launched a cloud-based blockchain platform allowing financial institutions to experiment with the technology.

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In Singapore, it is the government as well as the private sector that is keenly watching developments in this space. It has urged businesses and regulators to monitor blockchain developments in the financial sector.

Singapore’s central bank, for example, is currently testing out the use of blockchain for banks making payments to each other. The Monetary Authority of Singapore, the country’s central bank, is working with the R3 consortium of financial institutions on a proof-of-concept project to conduct inter-bank payments using blockchain.

Unlocking the potential of blockchain technology

But the scope of blockchain goes beyond the banking system. Logistics, health, retail, security and other industries can all benefit from the technology. According to a 2013 McKinsey report, freely accessible, machine-readable government data will unlock more than $2.6tn in economic value globally.

“In Asia, many have already started to explore the potential of blockchain technology, with banks conducting proof of concepts,” said Yashesh Kampani, head of financial services at IBM Asean.

“However, the potential applications of blockchain in Asia are slightly different, given the maturity of the various markets. For example, the more relevant use cases in Asia would be trade finance, trade solutions and cross-border remittances.”

UK bank Barclays and startup Wave have used blockchain technology to complete a trade finance transaction, which is quicker and cheaper than the heavily paper-based method currently used.

“Blockchain is an area of much intrigue and speculation,” said Olivia Leong, regional head Asia-Pacific at Visa. “We have only recently begun to evaluate blockchain technology, and while it’s early, Visa is very excited about working closely with it to explore its possibilities.

“Visa recognises the potential of blockchain capabilities lending itself to providing a more frictionless B2B payment experience, as well as a more cost-effective model,” she said.

“The interest in blockchain from banks is seeing a huge uptick, with financial institutions actively exploring application areas and use cases,” said Leong.

“Banks are responding to new entrants and tech providers by forming alliances, leveraging accelerators, exploring in-house solutions or investing in blockchain companies. Visa financial institution clients are well represented in the space, increasingly investing time and resources towards blockchain-oriented research, partnership and development,” she said.

Cryptocurrency legitimising blockchain technology

“Cryptocurrency, where blockchain technology was first utilised, seems to be legitimising it,” said Jan Bellens, global emerging markets leader of banking and capital markets at EY

In late 2016, EY ran a global auction from Melbourne, selling over 24,000 bitcoins of confiscated assets. The bitcoins transacted as part of the auction were settled within an hour.

“The significance of these transfers lies in how they took place, without banks or third-party custodians,” said Bellens. “Bitcoin is the first digital asset to be held outside the capture of third-party custodians, and this concept is being built on. If this momentum holds, the financial services industry will want to consider how to remain relevant when people and companies can hold and transfer assets.”

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