HK FinTech Week: What’s Next for Blockchain in Finance?

Hong Kong FinTech Week 2019 was packed with important announcements, presentations, and panel sessions covering all key aspects of financial technology (FinTech), with panels of experts and leading developers from around the globe and some of the world’s biggest FinTech companies.

The event was presented by Invest Hong Kong (InvestHK). It featured keynote speakers and panelists, which included leaders from the Hong Kong Monetary Authority, the Securities and Futures Commission of Hong Kong, and the Hong Kong Stock Exchange. In addition, the event hosted ten global FinTech unicorns and was attended by delegations from China, the UK, Ireland, Switzerland, Israel, New Zealand, Japan and Luxembourg.

Topics such as virtual banking and virtual insurance, and their respective potential to create further global financial inclusion, featured heavily and many new innovative services and developments, were announced along with the issuance of a landmark regulatory framework for crypto exchanges by the Hong Kong Securities and Futures Commission (SFC). 

Blockchain.News attended the event to gain further insights into the latest applications, developments, and regulations pertaining to blockchain in FinTech and global financial systems.  

Enterprise Blockchain For Finance

In the financial space, blockchain is being implemented and applied to everything from financial transactions and remittance to the creation of new and alternative digital assets and even the creation of new markets that serve them. Blockchain has long been forecasted as the technology that will impose significant changes to how traditional banks and financial institutions will do business in the future. The integration of the technology is forming new business models, innovating the delivery of new value propositions, and solving longstanding challenges, with the well-needed transparency and security in transactions that nowadays involve multiple parties and large amounts of secure data. Why is this technology so revolutionary? The answer lies in the three specific in-build properties of blockchain: decentralized, distributed, and immutable.   

From the topics and conversations being discussed it is crystal clear that enterprises no longer question the validity of blockchain integration into their services, but are now proactively seeking new ways of leveraging the technology to enhance their legacy systems. On the Global Stage at the event, Angie Lau, Founder, CEO & Editor-in-Chief, Forkast.News stated that “Blockchain in finance, is not only innovative, it is equally disruptive and equally creating the kind of opportunities unlike any we have ever seen. From an individual point of view to the world’s 1.7 billion unbanked all the way through to industries that are now serving in the financial transaction space, and not just banks.”.

Lau moderated a panel discussion featuring Joseph Lubin, Founder, ConsenSys; Yuval Rooz, Co-Founder & CEO, Digital Asset and David Rutter, Founder & CEO, R3 who each gave their take on the growing value of blockchain in enterprise and how the technology is likely to be leveraged, specifically by their own organizations.

Moments before the panel assembled, Ashley Ian Alder, JP, CEO, SFC announced that the new regulatory framework for digital assets and crypto exchanges would be issued that afternoon. Commenting on the development, Rutter said, “In order for this new market to grow up, we need regulatory certainty and I feel this (SFC framework) is a good start.” Coming from a brokerage background, Rutter expressed his amazement at the state of ICOs over the last six years, which he described as a ‘wild west’ situation. He continued, “I believe that period will be historically reflected on as one of the biggest for frauds ever, but it seems the regulators are finally catching up. Everyone’s talking about the tokenization of digital assets, and I do think we will soon have responsible trading on regulated exchanges, so it’s a very good start.”

Rooz shared Rutter’s sentiments regarding the regulatory announcement bringing it back to Lau’s comments regarding banking the unbanked. He said, “I believe a lot of what has actually been happening is taking advantage of the unbanked, so bringing regulatory certainty is extremely important.” On the new-found sophistication and maturity of the market towards blockchain, Rooz highlighted that conversation regarding how the technology works are rapidly diminishing and being replaced with questions regarding how blockchain can transform the financial business and how enterprises can enter the production space. “When we entered this space four or five years ago, it was a lot of initiation, but now the questions are more concrete towards business applications.”

Lubin offered his observations, “Blockchain, at its base, is a trusted platform, from a maximumly or significantly decentralized base you get this ‘trust’ characteristic. The blockchain space is essentially bi-furcated in terms of use-cases in two directions—the issuance and trading of digital assets, and enterprises building these collaboration networks. I think with increased regulation and clarity, we are going to see those two worlds come together. We should have collaborations tokens that are on network that are tradable on regulated exchanges, especially if they are securities.” Lubin also highlighted that a ‘granularization’ of the provision of these collaborated services like trusted transactions, automated agreements on platforms like Ethereum, decentralized storage, decentralized bandwidth, decentralized heavy computing, can be observed in the IT industry. He said, “Instead of being offered to you by large software corporations, these services can be essentially built and offered by these collaboration networks.” He added, “We are also going to need financial instruments, because on these collaborative networks there are people doing the validating, they are lending their storage and computer resources and maintaining the infrastructure, so they need to be paid. We will definitely see these two worlds come together.”

The New Era of Blockchain

Blockchain is still lauded as an emerging and nascent technology, but where are we in this space exactly, and where are we going? Next on the Global stage at HK Fintech Week, Henri Arslanian, FinTech & Crypto Leader, Asia, PwC moderated a discussion on the ‘New Era of Blockchain’ with Elizabeth Rossiello, Founder & CEO, BitPesa, Jason Han, CEO, Ground X, and Brian Behlendorf, Executive Director, Hyperledger, The Linux Foundation. Each panelist briefly shared what their respective company has been doing in the space.

A pain point in Africa has been the high cost of sending funds across borders. Rossiello, who founded BitPesa, a service that provides wholesale cryptocurrency liquidity for individuals and institutions across Africa with fast settlement options, discussed the issue. She said, “The dollarization of the African continent is a big problem, if you look at the trade between Africa and Asia and specifically with Africa and China, you are still seeing the large majority going by the US dollar.” She continued, “That’s something that needs to change as we have our own unique relationship with China and that (dollarization) contributes to a lot of the friction and the costs.” Rossiello highlighted the SWIFT payment reports, which showed the vast majority of transactions for Africans still go via the United States, which results in time-delays, intermediaries, and high fees. “What we’ve done is create direct currency pairs, in Africa to Africa currencies to be traded across the continent and with Asian and European currencies to create liquidity and start the market moving without always having to go via a US correspondent bank.”

In terms of emerging markets, Arslanian put the question to Han if the ‘game-changer’ could be the big technology companies. Ground X is the blockchain subsidiary of Korea's largest mobile platform Kakao which boasts an incredibly dominant 96% national adoption. Han said, “Next year we will embed crypto-rewards into Kakao talk, meaning every Kakao user will receive cryptocurrency rewards for using the service without any installation. It’s the first experiment to give some crypto to mainstream users, and we are very interested in how the market will react.”

While Behlendorf may describe himself as a dinosaur of the industry, he has perhaps the most experience of the group having lived through the intense push back against the open-source ecosystem of Linux. On whether he believes we see that same degree of pushback with digital assets and blockchain, he said, “In the early days of open-sourced software, there were those of us that were kind of the radicals. We saw companies like Microsoft go from calling Linux a ‘cancer’ to purchasing Github in 2019, and I believe we will see the same transformation out there.” He continued, “There are some companies and institutions, many of the members of Hyperledger, who have jumped in with both feet into the blockchain space—companies like HSBC, ANZ, DBS and JP Morgan and even regulators like MAS and HKMA and they are really intent on hearing out how these open-source technologies work. Open-source has kind of become table space, its how we know that we are all building the same ledger, using the same technology, and we can trust what is happening.” 

Behlendorf believes blockchain adoption is part of the continuation of an arc that began with open-standards, the internet, to open source software, like Linux, to blockchain technology. He concluded, “Open-source is how we build these cooperative transaction networks that I think will underpin everything else but leaving plenty of room on top for enterprises and banks for every player to build their commercial activity.”