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In late 2021, the People’s Bank of China cracked down on cryptocurrency. From September, all crypto-related activities became illegal, including trading digital assets, order matching, token issuance, and derivatives. Along with making crypto illegal in mainland China, the order also forbade overseas crypto exchanges from providing services within China.
In part, this is because crypto is unregulated, a situation that doesn’t mesh with China’s top-down command economy. But while cryptocurrencies and trading is illegal, the underlying technology, blockchain, has a lot of support from China’s leadership.
China has determined it will become a global leader in technology and manufacturing through its Made in China 2025 plan. This plan has two goals – to reduce China’s reliance on foreign countries and to become a high-tech, high value-add manufacturing hub. And blockchain has a part to play in these goals, with Chinese President Xi Jinping calling on the country in 2019 to adopt blockchain technologies as a way of promoting innovation.
China’s efforts to adopt blockchain were bolstered in April 2020 with the establishment of the National Blockchain and Distributed Accounting Technology Standardization Technical Committee. Committee members include big players like JD.com, Ant Financial, Huawei, and others. It will also bring in researchers from academic institutions, as well as members of local governments.
The nation’s commitment to blockchain technology is underscored by the fact China has established a national Blockchain-Based Service Network (BSN), of which Tezos is a part. The BSN is designed as a hosting platform for small and large companies engaged in blockchain-related activities.
The BSN framework is composed of government departments, banks, and tech companies and is designed to allow participants the ability to construct their own blockchain applications at a minimal cost. The blockchain service is built on the Alibaba cloud.
The main government regulatory agency for blockchain within China is the Cyberspace Administration of China (CAoN). All blockchain-related activities must register with this agency, but it’s not the only blockchain regulatory agency: others include The People’s Bank of China, The Ministry of Industry and Information Technology (MIIT), the State Administration for Industry and Commerce, and the China Banking Regulatory Commission.
Despite banning cryptocurrencies, the People’s Bank Of China has expressed interest in creating a central bank digital currency (CBDC) – the digital yuan. China is leading the world in CBDC; in April 2021, the nation had finished research and development, built a technology platform and launched a live version of its CBDC, known as DC/EP, or Digital Currency Electronic Payment.
This platform is under trial in a number of cities, including Chengdu, Shenzhen and Suzhou, while the Chinese central government has also flagged that it is going to release the digital yuan by the 2022 Winter Olympics. This move has boosted public awareness and acts as a hard deadline for implementation.
Finance, technology, and energy are the primary industries using blockchain in China at present; in line with its plan to become a technology leader by 2025.
For example, the Baidu Credit Collection Platform has partnered with Shanghai Pudong Development Bank to use blockchain for collection tasks, increasing information sharing and transparency.
Other notable initiatives include Tencent Cloud for warehouse pledge financing to record the authenticity of goods. At the same time, JD Finance and UnionPay have created a platform to share credit information to guard against fraud.
With China leading the world in terms of blockchain patents and its stated goal to become a global leader in technology, blockchain has a powerful role in getting the country to where its vision lies. Banning cryptocurrency doesn’t undermine the importance of blockchain technologies to China in both the short and medium-term.
Blockchain holds significant promise for Southeast Asia, a region often hampered by regulatory, jurisdictional, and geographic inefficiencies. While the region has around 69 percent of people connected to the internet, it remains underbanked, with approximately 73 percent of its population relying on cash instead of banking services.
For these unbanked citizens, blockchain offers the most opportunities. The growth in e-commerce, as well as the rise of value-add industries like manufacturing and digital services, means that using blockchain to provide funds transfer is a huge potential market. But it might be banks that miss out, as much of the action in the funds transfer space is being led by new generation fintech companies. Traditional financial institutions will need to adapt quickly or risk getting left behind.
One report from Boston Consulting Group found that 49 percent of urban residents in SEA already use a digital wallet for payments, a number it estimates will reach 84 percent by 2025.
The Association for Southeast Asian Nations (ASEAN) has embraced blockchain in its Economic Community 2025 Strategic Action Plan for Financial Integration, driving this growth in blockchain uptake. This program is designed to promote financial inclusion via blockchain-based banking and financial services platforms.
In addition to these efforts, countries including Thailand, Malaysia, Singapore, Vietnam, and the Philippines have invested in blockchain education efforts. Singapore, for example, has launched a $9 million program called The Singapore Blockchain Innovation Program, intended to bolster research and development in blockchain applications.
Singapore also announced in 2017 that it was regulating digital token offerings, and in the same year, it introduced a tokenized version of the Singapore dollar. Singapore’s government has also been a pioneer in revolutionizing cross-border payments. Project Ubin (now named Partior) is a collaborative project with DBS and J.P. Morgan to explore the use of Blockchain and Distributed Ledger Technology (DLT) for clearing and settlement of payments and securities.
Over in Thailand, blockchain has been boosted by the introduction of cryptocurrency laws in 2018. Its central bank has also supported efforts to integrate blockchain-powered solutions in cross-border payments, security settlement, and supply chain management.
The Philippines has also been an early adopter of blockchain to distribute government bonds. This collaboration between the Philippine Bureau of Treasury, UnionBank, and the Philippine Digital Asset Exchange has created an app powered by blockchain technology to make it easier and more efficient for citizens to invest in retail treasury bonds.
Blockchain is one key way governments across the region are looking to increase efficiency and reduce friction within the financial system and bring citizens who remain unserved by traditional banks, into the digital ecosystem.
It is also a significant plank in policies to improve supply chains and boost energy markets across the region.
Blockchain has the promise to disrupt industries globally. In this section, we look at a range of businesses where blockchain technology is already having an impact. Additionally, we scope a handful of others where the potential of blockchain is just beginning to be felt.
With many people in developing parts of the world unbanked and many more sending remittances home to their families, blockchain has the potential to make payments smoother, cheaper, and more efficient.
With traditional banking, if one party sends a remittance to another person overseas, they are charged a fee. For example, to send a $100 remittance from the UK to a market like India, the average fee across all providers, including MTOs, banks, and Western Union is around 9%, and to a market like China it is 18.2%. The payment also takes time – anything from several days to a week – and isn’t always secure.
Using a peer-to-peer network like blockchain, the commercial banking system is disrupted as it removes the role of intermediaries when processing a transaction. It removes many of the traditional fees associated with banking, such as minimum balance fees, exchange costs, and overdraft charges. Peer-to-peer transactions via blockchain rely on a transaction fee, which is significantly cheaper and faster to process than the traditional financial system.
Using the previous example, the fee on a $100 payment might only be $1, and the transfer happens instantaneously. And because the blockchain is immutable, the transaction is secure and can’t be erased. With blockchain, there’s no central authority, and so there’s no “ticket clipping” as the funds traverse from one party to another.
One disruptor is Singapore-based ShuttleOne, the first prize winner of the Singapore Fintech Festival Global Fintech Awards. The company, founded by CEO Hongzhuang Lim, uses the Tezos blockchain to help informal workers remit money in a low-fee, transparent way. This represents a huge opportunity, as some estimates indicate there are two billion people around the world who are unbanked.
Blockchain-based finance has the potential to be an inclusive system for unbanked populations, allowing them to have a cost-efficient means of transferring money.
The founder of ShuttleOne integrated the Tezos blockchain, with its correspondingly lower energy consumption and gas fees, because it is secure, scalable, and affordable.
The problem with cloud computing is that there is a single point of entry for bad actors. Databases, while stored in the cloud, are centralized in data centers, making it easy for a hacker to gain access.
On blockchains, nodes are decentralized, so there’s no single point of failure – and if a hacker changes a block, the nature of the blockchain means that it won’t be verified with the distributed nodes. To accomplish anything nefarious, a hacker would need to hack over half the network (a 51 percent attack), which given the decentralized nature of the network and the sheer number of nodes (depending on the scale of the blockchain), is unlikely. This is why blockchains need to hit a critical mass before they become secure. A 51 percent attack on a chain with ten nodes is much easier than an attack on a 100-node chain.
However, data privacy remains one of the main challenges with blockchains. According to Australia’s CSIRO, all information on a blockchain is available to all participants, and new participants who join public chains can access all the data recorded on the chain to date. It poses a cybersecurity paradox for decision-makers who like blockchain’s decentralized nature. Surely then, the only answer is to centralize access, but that nullifies one of the great benefits of decentralization.
The answer is private keys. Private keys allow on-chain data to be encrypted, and preserves the privacy of participants on the chain by encrypting data using symmetric or asymmetric means before adding the data to the chain. Keys are shared off-chain, and only those with access to the key can then decrypt the data embedded in a particular transaction.
Blockchain can also be used for identity management and record-keeping, which means the cybersecurity industry is likely to be disrupted sooner rather than later by innovations in blockchain technology.
Goods in the supply chain can all be verified using blockchain technology from the point they are produced. This includes raw materials (important with minerals and other valuable resources, which could come from illicit sources) and food.
One sector already using blockchain to verify its goods is the Pacific Islands tuna industry in conjunction with the World Wide Fund for Nature (WWF). The partnership’s Blockchain Supply Chain Traceability Project tracks tuna from where it is fished and produced to suppliers and eventually the end consumer.
Apply this logic to all supply chains, and the prospect of blockchain becomes compelling. Goods are traced at every stage of their journey; producers and consumers know they are getting the product they paid for, as its provenance is recorded on the blockchain.
Health data is some of the most personal data anyone has. It’s also a target for hackers, as it’s stored in centralized databases. Stealing healthcare data can lead to identity theft, extortion, or just bad publicity.
With a decentralized ledger, healthcare data is available anywhere in the world. This works well for all types of medical information, but vaccination status is one area where it may be particularly effective. For example, travelers would be able to demonstrate their vaccine status while abroad if the information is stored on the blockchain. This sets a precedent for the existence of a verified ‘universal medical record’ for every individual, which may assist in the management of future health crises.
Therefore, it makes sense to record healthcare metadata with blockchain technology. The data is instantly accessible, secure, immutable, and acts as a single source of truth. Hackers cannot corrupt the data, and there is universal trust that the information is legitimate.
Blockchain can also play a role in the medical supply chain. Counterfeit medicines are a real problem, particularly in the developing world – using supply chain blockchains, every dose of medicine is traceable from the producer to the consumer, with the provenance proven at every step of the chain.
Again, the problem with voting is the mechanism is centralized and open to corruption. Using blockchain technology, identities are verifiable, and each vote is counted and can’t be altered. Once a vote is added to the blockchain, it can’t be changed or erased.
One example is the French village of Verneuil-sur-Seine, in Yvelines, which used an application called Avosvotes on the Tezos blockchain to vote on a road planning decision. When voting on the proposal, individuals’ identities were manually verified, and the proof of vote was stored as a certificate on the blockchain. Those interested were able to follow along and track voting participation in real-time.
Blockchain also offers the potential to minimize citizen ID intermediation for government services. Each citizen’s ID is stored on the blockchain, making it secure and allowing for one-to-one correlation between an individual and their identity.
A new development is decentralized identifiers (DIDs). The W3C DID Working Group is currently developing a standard for DIDs. DIDs have implications for all identity documents, including passports, tax file numbers, and social security. By storing this data on the blockchain, they are immutable and far less vulnerable to fraud.
