10 years ago when Satoshi Nakamoto first introduced “blockchain” and “bitcoin” to the public, the technical complexity behind these concepts was an enigma to investors, few of whom can claim to understand its mechanism completely. Fast forward to now, countless other cryptocurrencies have been invented, many startups and applications have been built on blockchain and investors put trillions of USD into this technology. In our view, blockchain technology (different from cryptocurrency) is extraordinary for its ability to decentralize information – its benefits outweigh the costs.
In this blog post we will (1) address the basics of blockchain, (2) summarize the current blockchain scene in Southeast Asia then move on to (3) focus in blockchain in Vietnam, analysing the market and (4) naming some of the most prominent blockchain startups in Vietnam. So first, what is Blockchain and why does it claim to be so disruptive?
- What is Blockchain?
Blockchain is a secure, decentralized and public system of recording information in which all transactions in the network are recorded into a public ledger. Each transaction, considered a block, will be recorded with timestamp into the ledger and the whole network must agree on the information in the blockchain, thereby making these transactions practically unalterable after it’s published.
The term blockchain was initially coined along with the publicization of Bitcoin, a revolutionary method of payment promising a completely decentralized economy. Thus, blockchain is often used synonymously with Bitcoin, although these are two separate concepts. In fact, blockchain’s potential goes well beyond Bitcoin as the technology could be adapted into a multitude of areas beyond finance and banking, such as data management, identity verification, energy and so on.
Blockchain’s disruptive capacity lies in the fact that it has the power to advance the shift from an institution-based economy (i.e. banking system) to a decentralized one. The technology enabled low-cost, immediate and completely secure transaction/information processing across a large network of computers. So far there has been a robust ecosystem built on blockchain that has advanced beyond the initial financial or banking use, with Ethereum being a prime example. Ethereum and the realization of smart contract on blockchain platform have further advanced blockchain’s potential for real world application. Smart contracts are automated digital contract that self-executes when its conditions are met. With smart contract, commercial uses of blockchain technology could be implemented with much more ease in areas well beyond financial services.
2. Blockchain in Southeast Asia
Southeast Asia is experiencing high economic growth as a region and is eager to adopt the newest technology, including blockchain and cryptocurrencies. In most countries blockchain startups are flourishing along with the general growth of fintech in the region. Blockchain’s so-claimed secure, free and fast transaction is the anticipated solutions for the underserved and underbanked customer population in a large part of Southeast Asia. For financial services, remittance and loan service are considered the two areas where blockchain has an unique advantage in the region, promising both a technological and social impact. While traditional banks demand unfavorable exchange rate on top of high transferring fee, blockchain boasts free and fast transactions across border, making sending money outside or back to the country no longer a troublesome process. In addition, many of the cryptocurrencies have a low interest rate, making them a perfect vehicle to get a loan in. DApact, a blockchain loan service in Cambodia, cut down on audit cost with cryptocurrencies and is therefore able to offer lower income people lower interest rate.
DApact interface. Source: scmp.com
Beyond that, there are hopes in the tech community for uses of blockchain in many different areas as well as initiatives from the government looking into the application of the blockchain technology into other sectors. Take Thailand and Singapore, the two leading countries regarding blockchain technology in SEA. Thailand has launched a tracking service using blockchain for its railway postal system, showing enthusiasm for the technology in both the private and public sector. Singapore, the fintech capital of Southeast Asia, is also catching on quickly. Official support from the Singaporean government with project Ubin also promises growth opportunities for the blockchain community in Southeast Asia as a whole. The country has been serving as the regulatory haven for many fintech companies in the region, especially when many countries are still cautious or ambiguous on blockchain regulation.
Thailand Post will incorporate blockchain into its operation. Source: ethnews.com
The concentration of blockchain startups in Singapore is partly a result from the region’s financial center conservative attitude toward blockchain. China and South Korea have long been the blockchain hub of East Asia, but the recent ICO ban from Chinese authorities and similar directive from South Korea has sent startups looking elsewhere to plant their business. Singapore arose as one of the best alternatives with few regulations for blockchain companies, relatively friendly tax system and multilingual environment. The shift of business from China and South Korea to Singapore has also spurred growth in other Southeast Asian countries. Recent ICO rounds have recorded funding from well-known investors such as 500 Startup or Naspers Ventures for startups from Malaysia and the Philippines.
For these countries, while some are still wary of the risks accompanying the young technology, joining the blockchain wave is inevitable. The Indonesian central bank, for instance, banned cryptocurrencies as payment instrument in late 2017, yet recognized cryptocurrency as a commodity legal to trade earlier this June. In a similar manner, the Vietnamese Central Bank recently banned cryptocurrencies as legal payment instrument in October 2017. Would the Vietnamese authorities also turn around as the Indonesian Central Bank did, and if yes, would they be able to meaningfully encourage blockchain innovation in the near future?
3. Navigating the Vietnamese blockchain scene
With its large underbanked population and a period of steady and high economic growth (6.8% in 2017 according to World Bank), Vietnam is a highly promising market for fintech companies in general. As it only opened the economy around 30 years ago, the government is especially encouraging innovation and entrepreneurship to catch up to the rest of the world. While the authorities are still cautious, blockchain technology has been enthusiastically received by the tech/fintech community in Vietnam. Most of the blockchain activities in Vietnam are still finance/banking related, often in the forms of exchange platforms (Bitcoin.vn, VBTC, Remitano, etc). As the country’s fintech prospect is rising and expected to reach $8B by 2020, the Vietnamese blockchain scene will undoubtedly benefit from this growth.
However, at the moment, blockchain in Vietnam is shrouded with skepticism due to two recent major ICO frauds that have led to public mistrust of cryptocurrencies and thereby, the technology itself. Earlier this year in April, Modern Tech scammed around 32,000 investors with two separate projects: iFan and Pincoin. The company disguised the two projects as coming from Singapore and Dubai and tricked investors into ICOs that are purely pyramid schemes, resulting in an estimated total loss of $660B. And just last week, another bitcoin scheme was exposed when its CEO fled with approximately $35M of investor money. SkyMining is advertised as a collective of bitcoin mining factories, but in fact operates like a multi-level marketing fraud.
These schemes point to the loose governmental regulations and limited public understanding of blockchain that created loopholes for scams. Even worse, with the recent restriction from the government, investors from these schemes are left to fend for themselves as their fiat-cryptocurrencies transaction are no longer legal and could not be used as evidence for legal actions. Rather than banning, timely research and careful regulations from the government could have resolved or prevented these issues in a much more efficient manner.
Thus, the currently discussed Cybersecurity Law is seen both as a threat and an opportunity for the Vietnamese fintech community. Despite the cryptocurrency ban, Vietnamese authorities plan on introducing a fintech regulatory sandbox in August 2018 and recognized the need for a detailed blockchain regulatory framework. While the Central Bank has started taking initiatives towards developing the blockchain movement in Vietnam, their approach still leans on the cautious side, guarding against the risks associated to the new technology.
Scams and frauds aside, the nature of the Vietnamese market itself poses both a major challenge and a golden opportunities for cryptocurrencies. The Vietnam market is cash-dominated, informal and lacking in infrastructures for digital finance. Only 59% of the country adult’s population owns a bank account according to the State Bank in Dec 2017, lower than the East Asia region’s average of approx. 73%. High fee, banking mistrust stemming from lack of understanding and lack of infrastructure are among the main reasons for the hesitance of Vietnamese to adopt personal banking. While existing mobile finance solutions have been only partially successful and fragmented in market domination, blockchain technology might just provide the ultimate answer for the problem. As blockchain and cryptocurrencies in particular could address the cost and infrastructure issue, the main difficulty left is gaining customer trust. Nonetheless, this is a crucial steps that all startups must pay attention to in order to expand their scope beyond the tech community. With more than half of the population on the internet and a high rate of mobile user (72% in 2016, according to Appota), Vietnam presents a ripe market for mobile banking and payment as soon as the public understand the mechanism enough to trust it.
Thus, there are still many positive signals for the blockchain scene in Vietnam. The recent Vietnam Blockchain Week gathered promising blockchain startups from Vietnam and around the regions for insights from the blockchain industry global leaders and a stronger blockchain community with more synergy. The Vietnamese banking sectors has also caught up with the technology, with three major Vietnamese banks successfully tested money transferring through the blockchain system recently, signalling positive development for the blockchain movement in Vietnam.
4. Overview of blockchain startups
Amidst scams and regulations, Vietnamese blockchain startups are still advancing and leading the way for fintech development in Vietnam. Below are some of the up-and-coming Vietnam-based startup utilizing cryptocurrency or blockchain technology:
Infinity Blockchain Labs is one of the pioneer in the R&D area for the Vietnamese blockchain ecosystem. The research lab has rolled out promising products and services from InfinitoWallet, a multi-coin, multi-lingual, low-cost and high-speed crypto-wallet, to FruitChain, a produce tracking solution for agriculture industry, as well as held nation-wide blockchain conferences, including the recent Vietnamese Blockchain Week. Yet, their ultimate goal is beyond claiming market dominance: IBL’s vision is to aid Vietnam in becoming one of the world’s next blockchain hubs. The company has partnered with major universities to host blockchain courses and real-world projects with students as part of their larger Asia Blockchain Education initiative. They are also working on compliance issues with their Blockpass andRegTech Lab, looking to improve blockchain regulatory conditions for the emerging market of Vietnam.
Liquidity has long been the issue with cryptocurrencies where exchanging your token for another (crypto)currency is costly but Kyber Network is here to save the day. One of the most talked-about Vietnamese blockchain startups, Kyber claims to have solved liquidity issue by enabling fast and inexpensive transaction cross-chain and cross-ecosystems. Validated by Vitalik Buterin, the founder of Ethereum himself, the project has drawn international and domestic attention alike, despite being founded only in 2017. The project has only gone live since early March 2018 so they still have a long way to earn their reputation, but the expert-studded team and board of advisors can at least ensure the investors that this is a worthy project.
TomoChain is a Ethereum-compatible smart contract system that promises scalable infrastructure with lower cost and faster transaction speed. The project has gathered a lot of attention with its initial ICO ($TOMOCOIN) registering up to 50M USD in interested capital while only offering 8.5M USD in token. It has then raised 7.5M from prestigious foreign investors such as Signum Capital, Hashed, NEO, etc and 1M from domestic investors. One reason for the buzz around TomoCoin, besides its potential to address the scalability issue with Ethereum, is the names included in its board of advisors: Roger Lim, a prominent blockchain investor in the region and Min Kim, previously involved in top positions at BeeToken and Civic.
Proofstack (formerly Copyrobo)
Proofstack is a Vietnam-based company utilizing blockchain technology in copyright protection for creators worldwide. Using blockchain’s trademark unalterable timestamp, Proofstack provide quality evidence for ownership claims and facilitate copyrighted content sharing. The company aims to solve the difficulties of managing intellectual ownership online and the lengthy patent registration process, making it easier for creators to protect and benefit from their own work. While the founders are not Vietnamese (the company is formed by two Turkish developers), it is based in Ho Chi Minh, Vietnam, giving the Vietnamese blockchain community direct access to this amazing technology and the people behind it.
TwoGap is a platform that for cryptocurrency investors to trade bonds based on cryptocurrency – cryptobonds for short. TwoGap aims to solve the problem of growing doubt in the crypto market, which makes new investors unwilling to enter and existing investors unable to exit. TwoGap solves this problem by offering the cryptobond, which creates a binding agreement.
Remitano is a Vietnam-based cryptocurrency exchange platform that has caught attention amongst blockchain enthusiasts and casual customers alike. Targeting the niche market of overseas Vietnamese looking to send money back home besides the normal audience of crypto traders, Remitano allows customers to skip the cumbersome and costly process of cross-border bank transfer through crypto transferring. The founders themselves understand and have taken into consideration the risk of fraud and cyber attack with layers of security and verification. The platform remittance service is one of many local fintech attempts to address the issues of the underbanked population in Vietnam, showing positive progress for the potential social impact of blockchain and cryptocurrencies.
Blockchain technology has received mixed responses in Southeast Asia and Vietnam in particular; there are stakeholders who believe that blockchain is the next Internet and there are those that reject blockchain because of the scams above. We believe that scams are short-term downsides for blockchain (the technology itself, not cryptocurrency), as with any other technology. Once there is a clearer legal system in place to facilitate blockchain, the technology will prove its worth. Initiatives between governments and blockchain companies to bridge the regulatory gap are already underway. There’s no doubt now that many industries will face the sweeping innovation of blockchain technology; the banking sector has already started to grasp this implication. Rather than competition, adaptation of the technology will help unlock its full potential and propel industries to the new era.
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