- Green Growth
- Your Consultant
Vietnam is a microcosm of the world blockchain stage, ranked eighth globally by cryptocurrency activity with 2.5 million monthly visit counts on global exchanges. Although much of the sector was developed in just the last two years, the country’s involvement with blockchain actually stretches back nearly a decade to the early days of Bitcoin mining, where the community’s fondness for trading and speculation were seeded.
Initial successes led to controversy as multi-level marketing schemes found traction by masquerading under Bitcoin’s good reputation. Many were imported from well-funded, global franchises that sought to take advantage of the local market’s appetite for high returns, and lack of experience in consumer protection experience. Last year a marketing company called Modern Tech, promising double-digit monthly returns, disappeared with up to $660 million of investor funds.
Along with scandals came arguably Vietnam’s greatest achievement to date. In a space with a dearth of investment opportunities, 10 early-stage startups raised more than $140 million through public token offerings, skirting the traditional venture capital funding route. The resulting positive press coverage advanced the national focus from cryptocurrency speculation to deep technology research and development. This has created new blockchain products and services for the digital economy with far-reaching applications. In contributing to the global quest for a faster and more scalable solution, some of the country’s brightest young minds are at work on transforming the very fabric of digital commerce by inventing new business models, better applications, and key enabling technologies that will have a direct bearing on Vietnam’s economy.
In fintech, blockchain-based services could unlock the latent economic power within rural communities by extending the reach of alternative credit markets beyond banking as we know it. Particularly, the possibility of removing the need for an intermediary (usually a financial institution) in a transaction between Customer A and Customer B, while keeping a high level of security and confidentiality, can reduce transaction time and costs significantly.
|As in many nations, Vietnam will have to create a suitable framework in order to properly regulate blockchain potenial, Photo: Shutterstock|
Making the most of blockchain
In addition, blockchain applications for the real estate market might also increase efficiency in and could unlock the potential of the Vietnamese market through several ways. Firstly, in light of the current real estate registry system primarily based on paperwork and therefore prone to forged documents or loss of documentation, bringing ownership registration of a real estate product onto blockchain could increase the security and clarity of information on ownership titles.
Secondly, once information on the ownership of property or land is secured and can be easily verified, this would remove the tightest bottleneck in the process of ownership transfer, paving the way for a digital economy with digitised assets that can be easily bought and sold online.
Finally, real estate could be divided into tokens which then can be traded, enabling many small private backers to invest in the real estate market with low starting capital, which in turn boosts the liquidity of the entire market.
For logistics and the supply chain, blockchain could bring an additional layer of trust and security on the information on goods that move along the value chain. Moreover, trade finance could be facilitated in such a way so that the exporter could receive payments faster and easier though the usage of tokens that can be directly issued and traded in the secondary market.
One of the biggest hurdles for the development of blockchain in Vietnam, like in many other countries, is the lack of a regulatory framework for products. Striking the balance between a regulatory framework that promotes innovation and investment in blockchain, while minimising the risk for investors as well as consumers is particularly challenging, as there is limited international experience to learn from.
In 2017, the State Bank of Vietnam stated that the issuance, supply, and use of cryptocurrencies such as Bitcoin as a payment method is prohibited in Vietnam and relied here on provisions of Decree No.101/2012/ND-CP issued in November 2012 on non-cash payment, as amended by Decree No.80/2016/ND-CP issued in July 2016. Apart from that, there is little guidance on what tokens or digitalised assets are and might be used for.
In particular, it is not clear whether tokens are property, and if so which types are securities and which are commodities. Moreover, initial coin offerings need to be regulated as well, since this is a promising alternative funding method for small- to medium-sized enterprises in Vietnam.
Another challenge for blockchain development in this country is the lack of educational service about the sector. Blockchain technology has only become popular in the last 10 years and new applications and products are continuously introduced, making on-going information updates necessary.
What is blockchain?
Blockchain is a distributed ledger technology with a basis in peer-to-peer consensus, which first splashed onto the scene in 2009 as Bitcoin, a decentralised payment system. In simple terms, it is a shared record of transaction that is stored on a network of computers, with each computer being a node.
The underlying technology challenges the traditional trust model in online businesses by replacing intermediaries with computer code. The technology impacts payments, asset transfers, and arbitration but has the potential for a wider role in digital markets by unseating trusted third parties altogether.
At its core, the system relies on a network of computers tasked with independently performing and witnessing transactions. Importantly, a consensus mechanism allows participants to agree on one single view of history. These networks have no central authority and are thus considered to be impartial and fair, with transactions decided strictly by instructions from computer code.
For example, share registries, escrow services, and payment processors can be made redundant by taking away the reliance on trusted middlemen who traditionally provide a crucial function for facilitating trade. Blockchain could reshape digital economies into more efficient and reliable platforms with far-reaching consequences on the role of intermediaries in e-commerce.
Blockchain has attracted a lot of attention from digital entrepreneurs, investors, global enterprises, and governments around the world in recent years. For example, in 2018 Andreessen Horowitz, a well-known US venture capital firm, launched its a16z crypto venture fund that invested $350 million in crypto companies and protocols. In addition, the Yale University endowment (with $29.4 billion capital) and the University of Michigan’s endowment (with $12 billion) plan to expand their portfolio with crypto investment as well. After a sharp price decline last year, the cryptocurrency market has been bullish again since March and currently has a market capitalisation of over $150 billion.
However, blockchain goes far beyond Bitcoin and the highly-volatile cryptocurrency market, and provides new infrastructure for businesses to operate in with enhanced transparency, traceability, security, efficiency, and at potentially lower costs.
Walmart for example requires its more than 100 suppliers of green vegetables to input detailed information about their food into a blockchain database developed by US-backed IBM, in order to increase the traceability and transparency of food information. JP Morgan, the largest US bank by assets, has meanwhile created its own version of cryptocurrency on the Quorum Blockchain, with each coin being equivalent to $1. The bank claims that when one client sends money to another, the JPM coins are transferred and instantaneously redeemed for the equivalent amount of US dollars, reducing the typical settlement time.
Governmental bodies are also starting to include blockchain technology into their operations. For instance, in partnership with the Commonwealth Bank of Australia, the World Bank issued $79 million on the Ethereum blockchain in 2018. Issuing bonds on the blockchain reduces issuance cost and decreases transaction time from days to seconds, and therefore holds potential in replacing the old practices of issuing government bonds as well. Moreover, Venezuela last year even experimented with the issuance of the cryptocurrency Petro, which is supposedly backed by the country’s oil and mineral reserves, to help stabilise its national currency that had been experiencing sky-high inflation rates.