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23 Jul 2021
3 Blockchain Technologies that Caught Our Attention
by Candice Wan, Analyst, Caelus Hong Kong Office

On 8 July 2021, Hong Kong Customs mounted a money laundering syndicate involving cryptocurrencies for the first time in history. Suspicious transactions of approximately $1.2 billion including bank remittances and virtual currencies were found processed through multiple bank accounts opened in Hong Kong and a virtual currency trading platform. As the investigation is ongoing, further details about how the Customs was able to crack the case have yet to be released. However, it could be reasonably assumed that blockchain is one of the tools that helped identify and stop money launderers and financial criminals in general.

Blockchain is garnering attention across sectors all over the world. In short, a blockchain is an electronic ledger of transactions that is replicated and distributed across the entire network of computers on the internet. A block of the chain contains multiple transactions, and any new transactions are recorded and added on the ledger of every participant. This decentralized nature makes a blockchain difficult or impossible to change, hack, or cheat the system. As blockchain promotes transparency and automation in information recording, the technology helps achieve cyber security, transparency, lower overhead time and cost, and even hedge against unethical behaviors as proven in the aforementioned money-laundering case in Hong Kong.

Needless to say, blockchain has myriad applications including logging for real estate titles, driving licenses, finance banking remittances, education, medical health records, vital records like birth, death and marriage certificates, to name but a few. Here are 3 emerging blockchain applications that caught our eyes:

1. Decentralized Finance
Financial technology (fintech) has been a fast-growing industry globally, but digging deeper into fintech companies, the underlying technologies are, to be honest, rudimentary. This is due to the fact that compared to other industries, banking and financial services are harder to disrupt, where trust is paramount and takes a long time to build, as evident in the slow development of digital banks. Blockchain-integrated fintech super apps are on the rise as a new business model to make up for the lack of revolutionary technology.

Fintech is commonly considered to cover the application of blockchain, artificial intelligence, cloud computing, and big data in areas such as payments, clearing and settlement, deposits, lending and capital raising, trade finance, insurance, and investment management. The use of blockchain shifts the traditional centralized financial systems such as brokerages, exchanges, or banks to decentralized finance (DeFi), which utilizes smart contracts to self-execute a set of coded rules that have been agreed by each party for online transactions. This allows instant or near-instant transactions at reduced human error, time, costs and fees.

2. Self-Sovereign Identity
Self-Sovereign Identity (SSI) is an identity system that issues and manages digital identities in which an individual or business has sole ownership over the ability to control their accounts and verified personal data. With the help of blockchain and ledger technology, personal credentials and digital assets are verifiable, globally resolvable, and privacy-preserving. This information could be stored in the form of a digital wallet, and we can manage it securely from our own devices and show it to anyone, anytime, and anywhere we want.

SSI can be used for personal identification purposes and streamlining any process that involves trust, such as benefit claims, bank account, loan, insurance, healthcare services, etc. For instance, as banks undergo Know-Your-Customer (KYC) and due diligence processes when onboarding new customers, customers could provide the bank their verifiable credentials, saving the time and costs of document verification and the risks of losing the original documents.

3. Renewable Energy Sources
As ESG is becoming one of the most prevailing investment trends of the 2020s, companies are laying more emphasis on energy consumption and conservation (especially in the case of crypto mining), and carbon trading. Renewable energy companies are leading the advances of sustainable technologies, and blockchain has been extensively used to identify, trace, and certify the origins and specific points of renewable energy production and consumption. This is to guarantee in real-time that the energy supplied and consumed is 100% renewable.

Immutable ledgers stored on blockchains provide secure and real-time updates of energy usage data, marginal costs, fuel prices, and energy regulation compliance. This also streamlines transactions between operators, increases transparency, and ultimately encourages the use of renewable energy.

There are already numerous applications of blockchain, but further research still needs to be done in order to leverage the technology to its fullest potential. Along these lines, blockchain is not ready for public application such as the domain of voting systems yet – electronic voting systems have not been adequately protected against cyberattacks and hacking, and there is still no good way to ensure what voters voted is what gets counted. As with a lot of technologies, it is highly anticipated that more companies will be capitalizing on blockchain to make an impact on a wider audience in the foreseeable future.

The author is a Securities and Futures Commission licensee, and no part of the author’s compensation was, is, or will be, directly or indirectly, related to the specific material contained herein. The author does not personally hold the mentioned relevant shares.

The commentary, news, research, analysis, prices and other information published in this column can only be viewed as general market information, which is for reference only and does not constitute investment advice. Caelus Asset Management Limited is not responsible for errors, inaccuracies or omissions in the information, and does not guarantee the accuracy or completeness of the information, text, diagrams, connections or other items contained therein. The company shall not be liable for any special, indirect, joint or consequential damages caused by the materials, including but not limited to loss, loss of income or loss of profit.