Blockchain technology, which is believed to be as disruptive for transactions as the internet proved to be for information, is the new buzzword in town. Blockchain is a distributed ledger that is immutable and irreversible once transactions are agreed upon. It’s a speedy, secure and trusted mode of transacting. Hence, the race is on to crack and adopt this technology.
The Early Adopters
Top financial institutions are already conducting mock ups for tracking and clearing their financial transactions with blockchain technology. BNY Mellon, one of the top investment companies with a valued presence in Asia-Pacific, recently collaborated with IBM to design and create a blockchain-based application for securities lending.
In another use case in Asia-Pacific, Bank of Tokyo-Mitsubishi UFJ (BTMU), Japan’s largest bank and one of the world’s largest, is working on using blockchain for real-life contract management. The bank will use blockchain technologies to redesign and better manage service-level agreements. Similarly, ZDNet reported that Singapore-based Acronis plans to develop data protection tools using blockchain as well.
These use cases will help other players in the industry better understand the advantages and disadvantages of the technology, leading to further diffusion of innovation and, ultimately, wider acceptance of blockchain.
Transparency and Anonymity
Because blockchain provides a high level of transparency, financial institutions will inevitably have concerns about the privacy of confidential transactions. Open blockchain expands upon traditional blockchain technologies by incorporating features such as confidentiality, verifiable identification, private transactions and customizable consensus protocols.
This technology provides multiple copies to multiple users simultaneously over a distributed ledger system with a common view and no ambiguities. Built-in permissions allow all participants to see entries that are relevant or permitted. It is also possible to limit who can view or interact with you at different levels in the system. If necessary, individual transactions can be set to 100 percent anonymity.
It’s also possible to de-anonymize a particular transaction if all stakeholders involved are in consensus and all identities are provable and unique on blockchain with secure cryptographic techniques. With open blockchain technology, different sets of unique entities can create their own networks and permissions, which can then be validated by known, whitelisted entities, allowing authority on the network.
A Versatile Technology
With its complex cryptography, blockchain prevents cybercrime by overhauling the existing infrastructure and securing transactions. Other potential uses for this technology could extend far beyond the financial services industry. Sneaker company Chronicled, for example, is already trying to keep knockoff shoes off the market using blockchain. The company installs encrypted devices called smart tags in authentic products. These tags can be scanned using a smartphone.
Companies throughout Asia-Pacific are experimenting with blockchain for everyday purposes. The adoption of this technology could help strengthen the economies in these regions by safeguarding assets and better serving citizens. Companies and government agencies can save a lot of money, energy and time by leveraging the many benefits of blockchain.
India spent around 14 percent of its GDP on logistics and transportation, according to the Logistics India 2016 brochure. The costs are exceptionally high due to the many intermediaries one must pass before getting through to freight forwarders or shipping lines. This prevents many small- and medium-sized businesses (SMBs) from trading freely.
Next-generation blockchain-based trade platforms can help drive down the cost of logistics and improve efficiency by bringing together banks, insurers, logistics players, shipping lines, freight forwarders, customs authorities and warehouse providers. This could help increase SMB adoption. Furthermore, India could benefit from the savings, contributing to national growth.
Consider 10 parties trading in a channel. The process may be overwhelmingly paper-based with many documents. The need to be physically present to authenticate transactions further complicates things and wastes a lot of time, money and energy in a process that could be channeled elsewhere.
Here, blockchain technology could provide a simple solution in the form of distributed ledger shared via a peer-to-peer network. Participants can skip a great deal of reviewing and verifying if they each have a copy of the ledger’s data and a predetermined set of rules. The increased transparency enables faster settlements, free flow of capital and fewer disputes between parties.
Know your customer (KYC) is an integrated process designed to help banking institutions across the world verify the identities of their clients. The process is especially important in Asia-Pacific given the number of people, high churn rate of businesses and other factors. It is essential to avoid the replication that creeps in when systems are continuously updated.
Blockchain can help banks track customers’ identities, addresses and other vital information. Regulator-approved smart contracts can record entire histories of changes to KYC information. This simplifies auditing and monitoring, and transforms the process into a real-time, rather than period-based, activity.
India has an elaborate system for correcting and updating land records. Initially, the task involved survey and settlement operations every 30 years. A majority of states didn’t act on time, however, leading to ambiguity in representing ownership and possession. According to The Economic Times, an estimated 90 percent of land in India is subject to legal disputes over ownership. This highly unregulated and disorganized market is a breeding ground for tax evasion and money laundering, which hampers the development of the country.
Though the Indian government took steps in the right direction by computerizing land records, it could further optimize the system by adopting blockchain technology to record all transactions. Complete historical visibility would help prevent misappropriation, encroachment of land or counterfeiting of documents, promoting hassle-free land registries.
The mortgage market in Asia-Pacific is very small compared to other developed regions, according to the Japan Housing Finance Authority.
Countries such as India should standardize the process and data formats for mortgages and improve transparency into the whole system. This would benefit a large pool of first-time buyers and engender confidence in the system overall. With the help of blockchain, issues involving defaulting on mortgages can be easily tracked, which would benefit financial institutions and open doors for speedy, simple loans to eligible candidates.
Building a Better Tomorrow With Blockchain Technology
These are just a few examples of areas in which blockchain could help change the way we work, live and conduct transactions. Many more use cases are sure to arise as security teams experiment with blockchain based on their organizations’ specific needs.
While it is not meant to be a panacea for all issues in regarding transactions, blockchain technology can help redefine interactions in the digital era and vastly reduce the cost and complexity of getting things done. Widespread adoption and implementation of blockchain will lead to faster growth and development in countries like India. Let’s hope for a better tomorrow at the earliest!