It is common for people to think of cryptocurrencies such as Bitcoin or Ethereum when it comes to talk about Blockchain technology.
It may surprise many that the same degree of security, transparency and transactional affordability (for some cryptos) could equally apply to our everyday activities, including perhaps, our traditional currencies.
As the world becomes more globalised, banks and governments around the world have been undergoing intensive research so as to explore the endless potentials of blockchain technology in transforming the traditional cumbersome, error-ridden and expensive money transfer landscape into one which is seamless, accessible and secure.
For example, the China Merchants Bank (CMB) and the Bank of China (BOC) are both in the process of piloting a blockchain cross-border settlement platform to automate the clearance of daily international payments to and from China.
How is a blockchain network able to offer such benefits? Is there any difference between a blockchain network and the personal computer (PC) that we use daily? After all, aren’t they calculators that help us to execute transactions?
To put it in short, a blockchain network is more secure than a human operating a PC because it is secured by cryptography, which requires that every transaction occur only if the correct private key is matched with the correct public key.
A human may make a mistake by keying in a wrong number or a wrong Identity Card (I/C) number in a PC, but a blockchain network has no such risk as a wrong match means no transaction.
Further, a transaction in a laptop can be deleted by the human operator at his discretion, but a blockchain transaction is recorded in a public ledger. All transactions are therefore transparent and could not be tampered with or manipulated with.
BRI & Blockchain
The Belt and Road Initiative (BRI) was initiated by China to foster international trade and consequently the strength of the Chinese economy. The strategic location of Malaysia and
Southeast Asia as a whole has attracted a stream of Chinese investments. Similarly, a more open attitude towards trade as part of the BRI strategies means that the economies in
Southeast Asia are able to explore the huge potential of the Chinese market. All of this would result in an exponentially higher cross-border liquidity of fiat money.
It is estimated that such liquidity would grow between 20% and 30% bi-annually as a direct and indirect result of the BRI implementation.
The rapid growth of cross-border payments could potentially mean the demise of the traditional financial clearance system and the meteoric rise of blockchain technology as a replacement.
According to American Express, cross-border payments have been highly inefficient using the SWIFT network between countries.
With a remittance charge coupled with a fee in the foreign exchange transaction, an individual may very possibly be required to suffer a net loss of around 10% of the transaction concerned.
In contrast, a cross-border transaction which took place on a blockchain network may incur a fee as low as just 3%, take Alipay International for example. Even so, many still consider 3% an unacceptable figure.
For savvy users (or traders) of cryptocurrencies, an internal transfer of a cryptocurrency within an exchange is free of charge, even if the two users are located in different countries.
This is the case for both major and pioneering cryptocurrency exchanges, including Binance, Huobi, Coinbase, MoonXBT and Coinbit. Even if a user would like to transfer a cryptocurrency across a blockchain network, the fee is likely to be insignificant and acceptable.
For example, transferring any amount of USDT (a stable cryptocurrency pegged 1:1 to the U.S Dollar) over the TRC 20 (Tron) network would incur a flat charge of $2 (about RM 8.4).
The global banking payment revenues stood at $1.9 trillion (about RM 8 trillion) in 2020, 4.9 times the nominal GDP of Malaysia.
Such is paid in view of all the errors and disputes that are unnecessary. As the BRI concept expands, it is projected that this figure would grow in correspondence unless a new mechanism is discovered.
Blockchain Network and its Setbacks
The technology of blockchain could be the solution to these wastages.
As nations rush to roll out their regulatory framework and undergo R&D to discover the best way to harness such a technology, it is still important to note that the nascence of blockchain technologies could mean a few unresolved issues.
Firstly, a blockchain network consumes electricity and energy, sometimes to a ridiculous extent.
The Bitcoin blockchain network in 2020 consumed as much energy as the whole of Denmark in a year.
This is because computational power is needed to resolve cryptographic equations, which are the primary enablers of transactions.
Secondly, the scalability of a blockchain network is the nemesis of its promise to be seamless and accessible.
Scalability means the capacity of the network to process transactions. Ironically, this problem is also a by-product of the blockchain’s promise to be transparent.
In a blockchain network, everyone must have a copy of the global ledger, but this means that more computing power and time are needed to feed information to all the users.
If there are too many users, this process inevitably slows down.
Thirdly, the irreversible nature of blockchain network also means any mistaken instruction is unable to be rectified.
Since the network is fully autonomous, no central actor exists to adjudge or adjudicate any dispute which may arise.
Until these issues are resolved, traditional banking networks would continue to profit greatly from any cross-border payment transaction, especially with the advent of BRI.
It is, however, a relief to observe the continuous effort in the betterment of current blockchain technologies.
Mr Lee Zhao Yan is a Lecturer at Tunku Abdul Rahman University College. The views expressed here are entirely the writer’s own.
The SEARCH Scholar Series is a social responsibility programme jointly organised by the Southeast Asia Research Centre for Humanities (SEARCH) and the Centre of Business and Policy Research, Tunku Abdul Rahman University College (TAR UC), and co-organised by the Association of Belt and Road Malaysia.
