Brian Behlendorf, the executive director of blockchain consortium Hyperledger, says China will be a leading force in developing blockchain for trade finance.
Speaking to GTR in Hong Kong at the end of a whirlwind tour of Asia, Behlendorf points to the fact that there are more Hyperledger developers in Beijing than any other city. Already, Chinese banks and companies are moving projects into the production phase.
He describes a bank in China “which has got hundreds of billions of Renminbi (Rmb) in an asset ledger”, which is doing thousands of transactions on the blockchain every day, but which has yet to go public with it. Other nations risk being left behind if they don’t rise to the challenge of digitisation.
“Banking is no longer just about bankers and MBAs and people with law degrees. Even law firms these days are starting to have developers on staff to help them understand technical concepts but also help them read smart contract code. So the challenge for Hong Kong is, can they develop the software development skills? Otherwise maybe somewhere like Bangalore becomes the next fintech hub,” he says.
Hyperledger has been active in China for a number of years and has signed up Citic Bank, China Merchants Bank and China Minsheng Bank as members. One quarter of its members are based in Mainland China, but there are challenges in operating in a country with such draconian restrictions on both the web and on money leaving its shores.
Who’s in control?
Behlendorf says that when entering China, “it was important to have local resources and to use things like WeChat, not just to have a lightweight community layer, but also do technical development”. The company is keen not to appear as an American entity, rather a global one.
But engaging with Chinese software can come with a price: the Chinese government is accused of monitoring WeChat, which parent company TenCent denies, while US businesses have accused China of billions of dollars worth of intellectual property theft.
The Hyperledger boss claims that the fact that they are developing in the public domain dilutes the risk of this: they are willing to be monitored, and the software is open source.
“All our technical work is conducted openly, meaning on our public mailing lists, in our public issue tracker, on our public chat server, etc. ‘Control’ over that development process is not based on a vendor or even a particular developer – it’s based on a consensus process the individual developers use as maintainers on a project. Those maintainers are employed by different firms, whether by IBM or Huawei or startups, but they share a collective goal of getting enterprise software developed and shipped. When it’s done right, that process and the resulting decisions and actions are based on objective criteria around code quality, demand for features, different priorities, etc.,” he explains.
There are, however, fears that the government is trying to stifle the kind of fintech that seeks to democratise the financial sector, while embracing those that allow it to exert more control over its citizens (in January, plans were announced for a US$2.12bn artificial intelligence [AI] development park in Beijing, with China urging companies including those in the military sector to participate in the technology’s development).
On the other side of the coin, China tends to get things done, and quickly. Behlendorf says “the regulators there, like the political leaders, are former engineers… they understand scale better than regulators in other parts of the world”, citing this as evidence that they will be among the leaders in this space.
He also claims that China and other parts of Asia have been successful in decoupling bitcoin from blockchain. While governments in the likes of South Korea, Indonesia and Singapore try to tighten the regulatory noose on cryptocurrencies, they are more amenable to projects on the blockchain than their counterparts in the West.
“It’s clear that there’s a lot of talent here. There’s a lot of money here for blockchain projects. Recent moves by regulators have steered that money away from ICOs and crypto towards enterprise applications. My stance is: I don’t invest in crypto or ICOs. I think a lot of smart money in the West is starting to recognise that. But there’s a lot of dumb money out there too. It’s hard to compete for talent – any reasonably smart developer who knows what ERC20 stands for can write a whitepaper and if they’re lucky, get away with US$20mn in tokens, without owing anybody anything. That’s a very hard thing to compete against for talent. In Asia, there’s a bit of that as well. I think though that people are more serious about how to apply this [blockchain] to real enterprises,” he says.
Elsewhere in Asia, he has been impressed with the work of the Monetary Authority of Singapore (MAS) on Project Ubin, an initiative with rival consortium R3, which explored the potential of DLT for clearing and settlement of payments and securities. Perhaps tellingly, he was unfamiliar with the work done by the Hong Kong Monetary Authority in the blockchain area.
Among the trade finance banks, progress on creating usable blockchain solutions has been slow. A plethora of successful proofs of concepts have gone no further, but Behlendorf says that moves from the various regional regulators to recognise the value of the technology will give banks more license to explore – and to be more vocal with their findings.
The we.trade project, a blockchain-based trade finance platform for lending to SMEs in Europe and the IBM-Maersk tie-up, which will see the launch of a blockchain-powered digital platform for use by the entire global shipping ecosystem, are cited as the more interesting developments in an industry, which has been left for dust by commercialised projects on the physical supply chain.
Everledger is running a blockchain solution that tracks diamonds through the supply chain and, even in pilot stage, has already uncovered millions of dollars in fraud. Provenance, meanwhile, is using blockchain and the internet of things to track tuna, ensuring that fishermen aren’t overfishing and that what they catch is exactly what they claim it to be.
However, Behlendorf says that the physical and financial supply chain are symbiotic and expects the developments in each to bleed into the other.
“It’s a little easier to explain to somebody, for those outside of trade finance it might seem a little opaque. So when you can explain to people: here’s this tainted meat that was found in a marketplace and to be able to track and trace that back in a trustworthy way, there’s a tangibility, that makes it more compelling to explain. But it wouldn’t make any difference if there wasn’t any money behind it. It’s trade finance that provides the economic rationale to do a lot of these things: it happens to be aligned with the health benefits and the social impact of keeping blood diamonds out of the supply chain, but if the money wasn’t there, I don’t think there’d be an ability to do it,” he says.
*This post was updated to include a comment from Brian Behlendorf about Hyperledger’s use of WeChat in product development