Blockchain Technology: Southeast Asia is an Innovation Hub

Just as the calculator once revolutionized accounting or the internet made light work of communication, there is another disruptor fast making inroads. Blockchain technology holds promise in enhancing efficiencies across sectors. More importantly, the key area that blockchain addresses is trust; it removes human biases.

Several governments now view blockchain technology positively. Although most economies do not have well defined blockchain frameworks in effect, several Southeast Asian countries do. They have even initiated blockchain education programs. A key enabler is the region’s high internet penetration rates. However, with over 70 percent of its population unbanked, and large remittances from migrant workers needing cashflow security, there is need for greater trust. Even e-commerce and global supply chains demand a higher trust quotient.

In this regard, is there any implementation hesitation across the region? Do geopolitics within the regional trade accords cause management issues? How will regional blockchains be integrated?

Horasis is organizing the Horasis Asia Meeting on 26 November 2021. The one-day virtual event will see participation from a diverse range of people, spanning members from governments, businesses, academia, and the media. The goal is to deliberate on pressing issues that undermine progress in emerging economies and arrive at solutions that can ensure collective prosperity.

An Overview of Global Remittance Volumes

The highest remittance recipients in 2020 were India at $83 billion, followed by China at $60 billion. India has been the top recipient for over a decade now. Mexico ($43 billion), the Philippines ($35 billion) and Egypt ($30 billion) ranked third, fourth and fifth, respectively. Remittances—viewed as a share of national GDP—were highest in Tonga, Lebanon, Kyrgyz Republic, Tajikistan, and El Salvador. In Tonga’s case, remittances accounted for 38 percent of its GDP, in 2020.

Meanwhile, Western Union is the world’s oldest and largest remittance organization. The company reported $4.8 billion in revenues last year. It has facilitated money transfer for a large global diaspora, but there is need for greater efficiencies that offer lower transaction fees.

Coupled with the problem of financial exclusion that millions in Southeast Asia continue to face, blockchain technology could well be the solution – both in terms of efficient remittances and financial inclusion. It will decentralize banking and widen the scope of opportunity for the large numbers of people who—owing to financial exclusion—are unable to access financial products that allow them to invest or store value in digital assets. Also, trust deficits can be eliminated.

Addressing Trust Deficits by Using Smart Contracts

Smart contracts were first proposed in the 1990s. It is best explained with an example. Let’s say an individual wishes to invest in a plot of land, a traditional store of value in most economies. To complete this transaction, he or she will have to pay an advance to the seller and make an agreement that is legally binding. Thereafter, the payment is made and the land title is transferred. Here, the element of trust is in the agreement and the legal system. But by using smart contracts, this trust can now be transferred to the blockchain.

In smart contracts, when certain pre-defined conditions are fulfilled, the agreed upon sum of money is automatically released. In case of the land purchase example, the buyer will transfer the funds for the plot of land to the smart contract account on the blockchain. The contract specifies that when the registration is transferred, the specific sum will be transferred to the seller automatically, and without any human intervention.

An Innovation Hub

There are several blockchain startups in the region such as Hara in Indonesia and Electrify in Singapore. Hara caters to the food and agriculture sector while Electrify is power supply focused. Singapore is also among the world’s first countries to outline blockchain regulatory frameworks.

Similarly, in Thailand too, there has been active support from its administration to enable greater uptake of blockchain technology. It also has regulations in place, and is encouraging blockchain startups in areas such as international payments and logistics.

Vietnam is prioritizing developing its e-governance framework. Blockchain is among the key technologies being embraced to this end. In the Philippines, meanwhile, its government is using blockchain to distribute government bonds.

What is interesting to note is that blockchain, and the crypto assets that are built on them, are often viewed with distrust. However, it is this very technology that enhances trust and removes human biases. A major reason for the distrust possibly stems from inadequate understanding of blockchain technology. But the fact that Southeast Asian governments are taking a proactive approach towards blockchain education is commendable. Going forward, this technology will be central to the region’s inclusive growth.

Photo Caption: Singapore downtown at night. The city-state is among the first countries to regulate blockchain technology. Photo by Lily Banse on Unsplash.