Ravi Menon, Managing Director of the Monetary Authority of Singapore (MAS), spoke about the intrinsic potential of Blockchain or Distributed Ledger Technology (DLT) at the Global Blockchain Business Conference last week in India. Singapore is the leading Fintech hub in southeast Asia and is keen to maintain the title. Blockchain is a key element for the future of financial services.
Trust is the Linchpin
Menon said that trust is the vital variable in current financial services. Today, that trust variable is scattered across multiple intermediaries – each creating an opportunity for failure or theft. Menon believes “the key breakthrough of blockchain technology is its ability to establish trust in a decentralised system.”
This ability to allow diverse parties to collaborate without intermediaries, or trusted central parties, will usher in a new era of finance.
Data is distributed across all nodes of the Blockchain network. Trust is a shared action because intermediaries are gone.
“When I am confident that what you see is what I see, we can collaborate more seamlessly without a third party to maintain a “golden source of truth”. How does a blockchain make sure that what you see is what I see without third party verification? First, data are recorded and shared in a way that ensures a consistent view across multiple parties … Second, data are heavily encrypted or signed with digital signatures that makes the blockchain secure against tampering,” explained Menon.
DLT will potentially transform many industries, not just financial services thus going beyond its original use in managing Bitcoin. In the land of unintended consequences, DLT now holds more promise than high profile cryptocurrencies.
Beyond financial services and ensuring trust between parties, DLT will eliminate costly and inefficient services elsewhere. Menon cited supply chain management as an example;
“DLT can provide the means for registering, certifying, and tracking the supply chain process at low cost.
All goods will be uniquely identified and transferred through the distributed ledger, with each individual transaction verified, time-stamped, and encrypted in a transparent process.”
MAS has been working with the financial industry, collaborating on Fintech innovation;
“We want to do this to increase efficiency, manage risks better, create opportunity, and improve people’s lives.
Building a strong DLT ecosystem is part of this broader Fintech strategy. And the DLT ecosystem in Singapore has been growing handsomely.”
Today there are 50 Fintech startups in Singapore that are focusing on Blockchain technology. MAS has been supporting these projects helping to co-create solutions. Project Ubin is a prime example. MAS has partnered with the Association of Banks in Singapore on this project. Ubin has successfully developed prototypes for three different models for decentralized inter-bank payment and settlements that include liquidity savings mechanisms. DLT is a prime opportunity for these types of collaborative arrangements.
Blockchain Makes Collaboration Easier
These projects are really the end of the beginning. Working internally with global banks will move to central banks working with each other everywhere. Transactions, payments, smart contracts on Blockchain will engender a higher degree of trust and improve efficiency geometrically. A bigger question may be what value will a bank provide in a future where Blockchain technology is ubiquitous.