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Singapore and Blockchain Technology – A Beginner’s Guide (Updated Jan 2018)

Singapore has embarked on an ambitious plan that seeks to leverage the benefits of blockchain technology. The country’s central bank, Monetary Authority of Singapore, has teamed up with a consortium of banks and technology companies as part of an effort that seeks to explore the use of the technology for payments, securities clearing and settlement.

Blockchain has already reshaped how business is done around the globe, even though it is still in the early stages of adoption. Adoption of the technology is gaining momentum in the financial markets, as governments come to the realisation that the technology has more to offer, compared to growing skepticism around cryptocurrencies.

 

What is Blockchain Technology?

A brainchild of Satoshi Nakamoto, blockchain is an incorruptible digital ledger that contains a record of all economic transactions. It can also be viewed as a technology that enables fast and secure transfer of digital goods such as money and intellectual property.

Blockchain technology consists of an algorithm and distributed data structure. It has grown in popularity in part because it allows value exchange between two people or a network, without the need for a trust or a central authority.

Startups around the globe are increasingly adopting the blockchain technology, attracted by the idea of removing middlemen and the move towards democratisation. Even big brands have started to adopt the technology, Microsoft having forged a partnership with blockchain firm ConsenSys.

Contrary to perception, blockchain and bitcoin are two different things. Bitcoin is a form of virtual currency commonly referred to as cryptocurrency. Blockchain, on the other hand, is the underlying technology that supports and verifies transactions carried out with cryptocurrencies.

 

How Blockchain Technology works

Blockchain technology is the underlying technology that powers cryptocurrencies such bitcoin and Ethereum. It consists of a ‘blockchain’ which is a digitised, decentralised public ledger of all cryptocurrencies transactions.

The ledger is not stored in any centralized entity server such as a bank. Instead, it is distributed across the world via a network of computers. Each computer in a network represents a node on a blockchain and has a copy of the ledger file.

A blockchain is constantly growing and changing with the completion of a transaction which is added in a chronological order.

Once a transaction is completed, it is recorded in a block and inserted in a blockchain as a permanent database. Each time a block is completed, a new one is created and linked to a blockchain. The block contains complete information about a user address as well as their balances, right from the genesis of the block to the most recent.

The technology is currently being used to verify transactions involving digital currencies such as bitcoin. The technology is also being digitized to insert practically any document of value such as contracts and agreements into an immutable blockchain.

 

Uses Of Blockchain Technology

Blockchain framework and underlying code can be useful in a variety of applications because of its ability to provide digital alternatives to banking processes. While attention so far has been on the use of the underlying technology to support transactions, the technology is slowly finding its ways into other industries.

Digital cash transactions could soon be a small part of blockchain overall footprint.

 

Smart Contracts

Blockchain technology is leading a digital revolution in the legal industry. The legal profession is synonymous with tons of paperwork. With the help of blockchain technology, law firms have started to digitize the process of keeping track of paper trail. Some law firms are using blockchain to record everything on a shared ledger, which becomes irrefutable digital proof that a legal event happened between two parties.

 

Lowering clearing and settlement costs

The financial industry incurs clearing and settlement costs of up to $20 billion a year. The use of blockchain technology could offer consumers lower fees for transactions involving wire transfers and clearing fees, for instance.

 

Voting Applications

Blockchain technology has also found its way into the voting booth. The technology has the potential to serve as a medium for casting, tracking and counting of votes given its ability to curtail incidences of voter fraud or hacking.

The use of blockchain would make it possible for voters to agree on the final count because of the blockchain audit trail, which is verifiable and cannot be changed or removed.

 

Secure healthcare data

The health industry has come under scrutiny amidst a string of data breaches that has left patients data exposed. Healthcare institutions also suffer from the inability to guarantee secure transfer and sharing of crucial data. With the use of bitcoin technology, that could be a thing of the past.

 

Insurance contracts

Blockchain technology is currently being used to develop and host smart contracts that provide transparency and irrefutable record in the insurance sector. Fraud and duplicate claims in the sector could soon be a thing of the past with the streamlining of the claims process.

 

MAS pushes Blockchain Technology forward in Singapore


Source: Shutterstock

The Monetary Authority of Singapore (MAS), has taken note of the kind of impact blockchain technology could have on the financial and tech industry and is taking a more proactive approach in encouraging the use of technology.

MAS has unveiled Project Ubin, a collaborative project targeting banks and tech companies. While the idea behind the project is to come up with ways applying blockchain technology on payments and securities clearing, the ultimate goal is to put the Singapore dollar on the blockchain.

Project Ubin is split into five phases, with the first phase focused on establishing a proof of concept design for conducting inter-bank payments via blockchain technology. The second phase has already resulted in the development of three different models for inter-bank payments using blockchain technology.

A blockchain infrastructure is currently being used to develop a digital currency to be issued by MAS. MAS is also exploring the possibility of connecting a number of banks systems through a distributed ledger technology. When fully developed, the technology should simplify the payment process, consequently reduce the time it takes to process transactions. The system should also enhance transparency in the industry in addition to reducing the cost of long-term record keeping.

MAS is currently working with neighboring countries central banks, in a bid to enable digital ledger technology cross-border payments. The authority is looking at the project as the initial step in leveraging blockchain technology to reconcile trade finance invoices as well as verifying the performance of contracts.

The other phases will explore ways of delivering securities, enabling cross-border payments as well as coming up with a digital version of the Singapore dollar for carrying out real transactions online.

“Future phases of Project Ubin could focus on a decentralized bonds payments system, which could be supported by MAS and the participant banks with execution driven by Singapore Exchange. This could deliver a more efficient fixed income securities trading and settlement cycle through DLT,” MAS in a report.

OCBC Bank became the first financial institution in Southeast Asia to deploy blockchain technology in its cross-border payment funds transfer services. The blockchain solution is poised to increase efficiency, transparency, and security when it comes to transactions done across the border.

 

Singapore Private Sector Blockchain Technology Push

MAS is not the only one spearheading efforts on the adoption of blockchain technology. The private sector has also joined the fray, as everyone looks to get a head start with the havoc-causing technology. Financial institutions and tech startups are investing time and huge resources as they look to keep up with pace in the fast-changing domain.

Local banks such as DBS, UOB, OCBC have all participated in proof of concept of Project Ubin as Blockchain Technology slowly finds its way into the mainstream industry. Companies have also started to take note of cryptocurrencies, going to the extent of accepting some of them as a mode of completing transactions.

Aptoide, one of the largest app stores in the world is in the process of setting up operations in Singapore as it seeks to raise funds through an Initial Coin Offerings. In return, demand for legal services to cater to the industry demands has grown. Law firms Denton’s Rodyk and Wong Partnership have already created departments to provide consultation and services for ICOs.

Financial innovation firm R3 has collaborated with MAS for the launch of the first ever dedicated distributed ledger technology center of excellence in Singapore. The lab is to host a dedicated Research ‘and Development center to accommodate blockchain technology experts, as well as innovators and business leaders.

Tech giant IBM has also announced a blockchain project with FinTech startup KYCK as part of an effort that seeks to make it easy for financial providers to onboard their customers in a secure environment. In October, the tech giant forged a partnership with Singapore startup FreshTurf to build a distributed ledger, capable of managing commercial transactions between merchant’s logistic vendors and customers.

 

Blockchain in Learning Institutions

Singapore universities have not been left behind, as some of them continue to explore ways blockchain technology can be used to revolutionise the education sector. Some of the high learning institutions have started to offer blockchain technology related courses, with the aim of empowering students and enthusiasts with knowledge needed to harness the benefits of the technology. Singapore Management University and Singapore University of Social Sciences are the two learning institutions that have taken the lead on Blockchain related courses.

Even as the high learning institutions continue to offer blockchain courses, demand for people with such skills continues to outweigh the supply. More talent is needed in the market if the country is to maintain its status as a hub for emerging technologies such as Blockchain.

Blockchain focused groups have since emerged in social media groups in Singapore, as enthusiasts look to educate the public about the synergies the technology is set to offer. The groups are also striving to educate the public on how to differentiate authentic projects from frauds and scams.

It goes without saying that blockchain has the potential to have a disruptive effect capable of producing huge opportunities for the country’s growing economy. As more people gain access to the technology, the country should remain an attractive operation hub for blockchain projects.

A report by Broadridge and Bain & Company indicates that 80% of financial executives expect the technology to have a transformative impact in the industry. However, 38% of the interviewed executives indicated they are taking a ‘wait and see’ approach before embracing the technology.

The adoption of blockchain technology into the financial industry is way overdue given the benefits it is poised to bring about. Total cost and capital savings because of the technology could total highs of $15 and $30 billion, according to initial estimates. The Australian Securities Exchange has already taken the lead in using the technology to upgrade its post-trade system

Startups are also coming up with new ways of leveraging blockchain technology capabilities. AgriLedger has unveiled a mobile application that uses distributed crypto ledger technology to provide farmers a secure way of record keeping. Other startups with blockchain powered apps for various applications include Attores, Acronis, Blockchain Foundry and BitX.

 

Calls for “Extreme Caution”

Even as Blockchain technology continues to shape businesses around the world, serious doubts continue to grip the technology. MAS has raised the red flag on investing in cryptocurrencies powered by blockchain technology.

The central bank is advising the public to take ‘extreme caution’ when it comes to investing in digital currencies given the recent escalation in prices. The risk of losing funds on digital currencies investments has more than doubled, given the levels of volatility and the fact that the authority does not regulate the currencies.

“The Monetary Authority of Singapore advises the public to act with extreme caution and understand the significant risks they take on if they choose to invest in cryptocurrencies,” MAS in a statement.

The only measure that MAS can implement with regards to cryptocurrencies is shutting down operations of an intermediary found to have used a digital currency illegally.

Singapore is not the first country to issue a warning when it comes to cryptocurrencies investments. Denmark has already warned its citizens against investing in bitcoin, terming the cryptocurrency as ‘dangerous’.

 

 

This article first appeared on ZUU online.

ZUU online is an Asia-based financial education online portal. Founded in Japan by Kazumasa Tomita, a former private banker at Nomura Securities, the portal seeks to fill the information gap between institutional research houses and the private investor.

(By Neha Gupta)

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