Our Next Big Thing is Small

Blockchains came to prominence in the widespread media recently. Articles ranged from the
pessimism that blockchains are nothing more than shared databases puffed up by venture
capitalists, to astonishment and surprise about a new technology that has the potential to form
social, societal, and economic modification.

So far, the main target of the discussion around this technology has cantered on blockchains
used as a tool for money services to enhance transparency and potency and cut back value
within the trade. In response, blockchain technology suppliers are being created everywhere in
the globe, incubated severally or by innovation labs sponsored by banks and different entities.
The start-ups are sky-high experimenting on applications of this technology to issues inside the
monetary services domain.

While plenty of the discussion comes from Western Europe and also from America, tinted with
region-specific problems and perspective, we tend to believe that the potential of blockchains
will have the foremost impact to the Southeast Asian economic community. the major
determinant of success in unlocking the potential of this technology is going to be the power
for entities to collaborate closely, if the entities are business firms, financial corporations, or
governments.

With money technology investment in the Asia Pacific rising to US$3.5 billion in the initial 9
months of 2015 from US$880 million in 2014 according to Accenture1, we tend to believe that
this Asian-focused blockchain primer, the initial of our series on blockchains, is timely.

What is Blockchain?

When people point out blockchains, at the broadest level, they mean a network of databases
unfold across multiple entities that are unbroken in synchronize, wherever there's no single
owner or controller of the information. The databases tend to be append-only, that's they will
be written to, however historical
data can’t be altered without broad agreement from the participants of the network. this
suggests that a user or supervisor in one entity can’t alter information prevailed a blockchain
without agreement from the other participants.

Historically, once multiple parties need to believe the same information, we've used golden
sources of information, held and controlled by trustworthy third parties. A classic example is
that the use of a financial institution that's the golden source of information about a trade
between 2 entities. Blockchains will empower teams of parties to agree on events with no need
of the third party, such as that the promise of this new technology.
Benefits of Blockchains

In things wherever trust levels are low, because of variations in operational and regulative
landscapes, like multi-party cross-border transactions, the transparency offered by blockchain
might facilitate by creating the shortage of trust less of a hurdle in these interactions.

Efficiency

Blockchain technology might improve potency once money entities are adaptive trades.
generally, a bank can nominate one in every one of its systems because of the golden source of
trade information for any specific security. That golden source might be an in-house designed
system or an off-the-peg resolution. reconciling this against an external party (whether that’s
the commercialism counterpart or a business third party) has drag and inefficiencies because
of system incompatibilities and processes. This ends up in adaptatively using the “best common
technology” – usually end-of-day batch less. A blockchain will mean that the agreed trade
information is already in-house, removing the necessity to reconcile outwardly because the
blockchain has already done that in real time.

The use of blockchains might also facilitate speed up payments between money entities. As
blockchains will store information, they will also include code snippets that automatize
messages and one-day payments, using the “if-this-then-that” logic. If parties will agree to
upfront on the payoffs (usually this is often agreed in term sheets written in the dry legal
language) and may encode the payoff terms into the trade details itself, then there may be
efficiencies when trade lifecycle events ensue, as well as error reduction and speed will
increase. These code snippets saved onto blockchains are known as “smart contracts”.

Transparency

With trade information printed to a standard platform, regulators or alternative interested

parties will plug into this and acquire a true time view of the trades. this offers regulators
oversight into one common source, instead of receiving reports in completely different formats
at different times from every institution. The transparency offered by blockchains might
facilitate regulators find general risks sooner.
Traditionally for trade payoffs, entities had to rely on significant legal documentation, like
International Swaps and Derivatives Association (ISDA) master agreements. however coding
system, by its very nature, is for a lot of legible and certain than legal language. By writing
payoff structures onto a standard platform in the coding system which may be tested against, a
wise contract on a blockchain provides for abundant higher levels of transparency over
outcomes.
Non-financial parties might conjointly stand to benefit from the transparency offered by
blockchain applications as they allow multiple parties to have access to the same data, where
traditionally, data held by third parties can be obfuscated or withheld.
Resilience

Storing information over an outsized variety of nodes benefits the resilience of the information
– the larger the number of blockchain participants, a lot of sturdy the info, with longer life.
during this respect, a blockchain system is analogous to a massively replicated information.

Governance and Trust

In a blockchain system, a majority of participants got to agree on information being side before
it becomes a part of the definitive blockchain. this is often terribly totally different to central,
usually secretive ledgers held and controlled centrally. once multiple parties have a say over
what information is written, the power to change information or take away dubious
information, it creates a more honest system.

An example would be land register systems. once held centrally, an information administrator
will simply build a modification to records and canopy their tracks without others knowing. If
a land register have prevailed a blockchain system with multiple participants (for example local
authorities, regional government, maybe alternative government branches and even NGOs),
then the opposite parties would want to conform to build a modification to a record, and any
questionable changes would instantly be detected and not added without a majority consensus.

Hurdles for Adoption

Blockchains aren't without their hurdles. though we tend to believe that the foremost worth
would come back from blockchains that may share information over national borders, we also
recognize that this is often also the toughest to attain without a substantial political will and
cooperative effort from all parties involved.

Are we prepared for blockchains? usually within organizations, whether businesses or

governments, the power to tweak historical information could be a comfort blanket which will
not be jubilantly or simply forgone. Total transparency is somewhat of an ambiguous weapon.
The demand for modification here can return either from the grassroots demanding that certain
data go on a blockchain and form a record that can't be subsequently amended or from
regulators and policymakers mandating such modification.

Having aforesaid that, blockchains aren't just about transparency. Blockchains may also be
utilized in trade platforms for the sharing of information that's useful to the trade as a full.
during this case, a majority of players in a business has to come together and agree on what
such a platform would seem like, who would pay for it, and what value every participant would
get from it. This isn’t something which will be done overnight, and it's not an inexpensive
exercise.
Switching technologies also cost money. In any bank, there are legacy systems that are old and
inadequate, nevertheless the benefit of replacement the system doesn’t make sense. Blockchain
solutions can be got to have a transparent business case before being adopted outside of pet
projects.

Regulatory clarity of on- and off-chain assets are some things that are usually mentioned,
within the context of bitcoins and also the issues of data governance of a share certificate on a
blockchain. what's usually neglected is regulative clarity over data sovereignty. In a business
blockchain, an equivalent information is traced over several information centres, usually in
several countries. loads of the information are encrypted so that only the intended recipient can
see it.

In some industries this is fine, however, in money services, management of data is heavily
regulated. are banks comfortable sending, receiving, and storing information without knowing
exactly what they're storing in their information centres? are regulators comfortable with banks
in their oversight storing unknown, encrypted information? are banks comfortable with their
competitors storing their data, encrypted or otherwise? in the end, a blockchain replaces a
trustworthy third party with a network of participants however within the case of a business
blockchain, several participants are going to be competitors.

Reference:
www.blockchain.com
www.entrepreneur.com/article/309214
www.lisk.io/academy/blockchain-business
www.eastwestbank.com/ReachFurther/News/Article/Building-an-International-Business-
Model-on-Blockchain