Tag: enterprise blockchain

Exclusive: Deloitte Blockchain Lab on the Three Areas of Collaborations with HKMA

The Hong Kong Monetary Authority (HKMA) started exploring blockchain technology with the whitepaper on distributed ledger technology (DLT) in Nov 2016. Since then, the HKMA has been actively leveraging blockchain into trade finance including eTradeConnect, Global Trade Connectivity Network, and we.trade. What is the role of Deloitte Blockchain Lab in these initiatives?

We were delighted to interview Dr. Paul Sin, leader of the Deloitte Asia Pacific Blockchain Lab, who shared with us its development goals and the collaborations with HKMA across the Greater Bay Area and Europe. 

What is Deloitte Blockchain Lab and what values does it aim to bring to enterprises? 

The Deloitte Asia Pacific Blockchain Lab has been implementing blockchain solutions for enterprises across the region. Apart from the Asia Pacific Blockchain Lab, Deloitte has another two centers, one in New York and one in Dublin, covering America and Europe, the Middle East, and Africa (EMEA) respectively.

Our Lab uses mostly permissioned blockchain technology for cross-organizational and cross-border B2B data synchronization. Due to regulatory constraints in the region, we do not have a lot of public blockchain or crypto platform implementations. However, other functions in Deloitte including audit, tax advisory, financial advisory, and risk advisory have been supporting Initial Coin Offerings (ICOs), Security Token Offerings (STOs), and crypto audit in general from an assurance and cybersecurity perspective.

What goals or projects have been established at the Deloitte Asia Pacific Blockchain Lab since the collaboration with the HKMA and the twelve leading banks in Hong Kong? 

In Hong Kong and Asian countries in general, small to medium enterprises (SME) have only a 20% chance of obtaining financing. Banks reject their loan applications because of identity theft, forged documents, and huge potential losses due to duplicated financing. In the past, SMEs would make a purchase order and go to multiple banks for financing, and bolt with the money. There is also no reliable way to validate buyers who can issue purchasing orders. Banks will need to get KYC information on a buyer to prove the buyer who issued the purchase order is authentic and also make sure they have the capability to pay the invoice after the goods are delivered.  

Once all these aspects are validated, then the banks will feel more comfortable financing SMEs. To overcome the challenge of duplicate financing, the only way available before blockchain was to create a credit bureau with a centralized database under which all banks will be asked to submit sensitive information and trade documents to a central party. Blockchain becomes the perfect platform because it can synchronize data to all participants in the ecosystem without risking their privacy. This is the reason why the 12 banks in Hong Kong joined together with the HKMA to develop eTradeConnect, which is a blockchain-based trade finance platform. 

What are the top projects that Deloitte Blockchain Lab has been working on most recently? 

We have done work on a number of projects, including bancassurance in the Greater Bay Area, traceability in Hong Kong, cross-border digital identity and multi-merchant loyalty programs.  

Are most of your clients mainly from the Greater Bay Area or worldwide? 

For the Asia Pacific, a lot of projects are regional. For example, the HKMA signed a Memorandum of Understanding (MoU) with Singapore to jointly develop the Global Trade Connectivity Network. This project is a cross-border infrastructure based on blockchain technology to digitize trade and trade finance. These kinds of platforms all have a regional focus.

The HKMA has also signed an MoU with we.trade, which is based in Europe, to support cross-regional trade finance. Many of the participants in those ecosystems are multinational companies, and a lot of value comes from cross-organization or cross border collaborations. This is also why the Chinese government also believes blockchain is a strategic initiative because it will be an enabler for the Belt and Road Initiative and the Greater Bay Area. This sheds light on why most governments, regulators, and central banks are adopting blockchain at the moment. 

Do you also have some companies working on blockchain in the Belt and Road Initiative? 

Blockchain technology is mostly facilitating supply chain and trade finance, therefore it will be closely related to those initiatives.

Blockchain Interoperability—What are the Key Drivers?

Blockchain Interoperability, the ability for independently developed blockchains to connect to other blockchains and work together within the same ecosystem, is an increasingly desirable function amongst developers . But is it necessary to have interoperable blockchains? What problems do they solve and what are the various challenges involved in interconnecting blockchains?

Blockchain today is often likened to the Internet of the 90’s. As with the Internet, Blockchain has also seen its share of people who predicted its doom within a few years of its launch. But, like the Internet, Blockchain has weathered the storm and has moved into a phase of mainstream adoption. Blockchain is no longer seen as just a toy in the hands of a few crypto-geeks, but has gained the interest of big business.

Enterprise blockchains today could be compared to the state of business applications in the late nineties, when firms ran tailor-made applications for Finance, Supply Chain, and Customer Management in their data centers. These applications hardly interacted with each other. Then, the phase of ERP systems started, where all the business needs were packed into a single monolithic application. Later we moved back to having distinct applications for specific requirements, but this time, they were built to work together seamlessly with each other as if it were a single application.

As Blockchain interoperability has clear benefits, should companies start working on them right away? In this author’s opinion, the answer is “No”. Businesses should first understand what they are getting into, assess how their needs can be met by this new technology, and specifically what are the risks involved. Blockchains can be integrated in many ways – transferring digital assets from one network to another or transferring assets in one network while paying for it in another. Integrating multiple blockchains can be technologically challenging and the companies exploring the possible integrated blockchains, should not ignore the business and the legal difficulties.

What are the business considerations for an interoperable blockchain?

Clarity on the Use Case

Most often, companies indulge in new technology because of the fear of missing out. Instead, they need to determine the use cases where the integrating blockchain networks can add value. For instance, businesses using Enterprise Blockchains for managing their supply chain processes may choose to explore Corda for trade finance. 

Incentives

What are the companies getting in return for sharing their valuable data with parties outside their network? Why should they be honest with the data they share? Monetary incentives will drive the companies, to be honest. Incentives also increase the cross-chain adoption. For instance, in a gig economy, if company A uses the background checks done by company B to fast track their employee onboarding, paying Company B for its service would encourage company B to share their data.

Governance

Preparing a governance model for different blockchain networks to work together is not an easy task. These networks might not have the same blockchain platform. For instance, digital assets transferred on a Hyperledger network, might be paid on the Bitcoin network. Public blockchains commonly have less stringent governance than the private ones. And private networks tend to have a closed governance ecosystem. Bridging the gap in the governance models of these networks is vital to building trust.

Legal and Regulatory compliance

Managing compliance across networks is a hard task. The laws and regulations that these blockchains have to adhere to increases with their geographies. Careful consideration of the applicable laws – Anti-money laundering, KYC, Antitrust, IP rights, and data privacy – across jurisdictions is essential. A bank on one blockchain platform might rely on the KYC checks done by another bank on another interconnected blockchain platform for a firm before granting them loans. Hence, adhering to compliance is crucial for interoperable blockchains as one network might rely on the compliance checks done by the other.

What are the Technology challenges to be addressed for interoperable enterprise blockchains?

Data Standards

Does “apples” in application A means “apples” in application B as well? This is always a concern when integrating different applications. Blockchain is no different. “Users” in blockchain A might mean “accounts” in blockchain B and “nodes” in blockchain C. Hence, it is necessary to have a common data dictionary for the interconnected ecosystem. Standardized data shared between the blockchain platforms leaves little room for error and increases its credibility. Besides, this reduces the technical challenges involved in integrating disparate blockchain systems.

Data Privacy and Security

Every blockchain network will have different data privacy and security standards. If a private blockchain has to interact with a public blockchain, is it possible to have agreeable data privacy standards? If a blockchain with three nodes has to interact with a blockchain with 100 nodes, is it possible to have the same security standards? How will one network trust another to maintain the same privacy and security standards? It is always beneficial to have a higher degree of security implemented in the system. Meeting the required data privacy needs is vital for the success of this newfound synergy between blockchains.

Interoperability

The next concern to be addressed is how to share data between these disparate networks. The whitepaper from World Economic Forum provides options for blockchain interoperability varying from using cross-authentication mechanisms to APIs depending on the type of blockchains being integrated. 

Smart Contracts and Shared Consensus

Every blockchain platform uses different languages to write smart contracts. Some blockchain applications such as bitcoin do not have smart contracts. How do we ensure all the blockchain networks are agreeing to the same terms and conditions? How do we ensure the order of transactions in each blockchain network is the same? It is vital for all blockchains to have the same terms and conditions coded into their smart contracts. At the same time, using an independent ordering service will ensure all the blockchains have the same order of transactions.

What is the work currently going on?

Many big players, in the Blockchain ecosystem, are realizing the necessity as well as the complexity of blockchain interoperability. The World Economic Forum has included an interoperability module into its recently released toolkit, which guides the development of new Blockchain solutions.

In conclusion, interoperable business blockchains will unlock new potential use cases. But, the difference in business requirements, technology preferences, ideas of incentivization, and compliance requirements makes it difficult for using a single type of blockchain for every use case. There is no one-size-fits-all with Blockchain. A balance between trust, security, governance, and standards will enable the seamless flow of information between diverse blockchain networks.

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