Why did we choose Singapore? Singapore has been at the crossroads of trade and a melting pot of cultures for millennia, with traders having plied the ancient spice, silk and ceramics routes. Fast forward to today, and an independent country just 50 years old has used innovation to become the largest transshipment port, and according to Bloomberg, the third largest financial center in the world.
And throughout all that history, paper bills-of-lading have served as title to the goods, and promises-to-pay have been transmitted manually by paper or by electronic messages. That is all about to get a lot simpler, safer and more efficient with blockchain.
To sum up blockchain, it’s a simple idea: every participant’s computer keeps a copy of the ledger. Clever algorithms keep them in sync using the time-tested idea of consensus. The beauty of this approach is that some of the participants can be experiencing an outage or even be untrusted, but the shared ledger remains safe. Because each participant has a copy handy for reference, it’s fast and convenient. The consensus is periodically recorded as a set of agreed-to blocks, which are then chained together (the blockchain) with each block containing a digital fingerprint of the previous block. It thus becomes immutable – everyone has a copy and therefore we’re not dependent on the integrity of any one record-keeper. No one can change the ledger or deny past transactions. In addition, transactions on the ledger can be woven together into powerful automated multi-party executable workflows (so called smart contracts).
The goal: a simpler, faster, cheaper and more trusted way for businesses to engage with each other.
A great trading hub
Let’s look at an example. Imagine a store in Singapore that wants to import some goods from China. Because this is an international transaction, it’s going to be a problem if the store sends money but doesn’t get the goods. So the time-honored method is to use trusted intermediary banks. The retailer secures a letter of credit from a bank, and shows it to the manufacturer as a guarantee of payment. The goods are then shipped and cleared inbound through customs. The retailer checks the goods, the bank is informed and only then is the manufacturer paid. This oversimplifies the story a bit; there are customs, inspections, shippers to be paid as well as the manufacturer to be protected. But this is a process that hasn’t fundamentally changed since Singapore hosted only sailing ships.
Instead, why not put all of the parties in the transaction on a blockchain, where everything is visible and terms can be executed automatically? A smart contract could state that as goods cross a specific point and are compliant with the contract, money automatically flows back from the receiver’s bank to the sender’s bank. No waiting involved. By having a single version of the truth on the ledger, we get speed and efficiency. Many disputes simply disappear, and everyone is happy.
The new center is Research-led and will attract top talent to Singapore to explore, design, develop and test blockchain solutions that will help transform many different industries. As we stretch the limits of blockchain we’ll work with colleagues throughout Research and our business unit partners to extend the technologies. Locally, in Singapore and the region we will work closely with the dynamic startup scene, universities and many business users to test out these ideas. For example, some of the interesting opportunities we are already seeing will use cognitive technologies to supplement the transactional and intelligent capabilities of blockchain. This convergence of ideas and techniques promises an exciting future for digital economies.
If you haven’t dipped in already, take a look at the 100 fascinating Fintech problems (published by our colleagues at MAS) and think about what blockchain can enable. Post a comment, and let us know.