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Banking & Finance

ICAEW: Blockchain could replace banks and lawyers

Released at: 17:17, 11/12/2017

ICAEW: Blockchain could replace banks and lawyers

Illustrative image from chienluocdautu.vn

Institute of Chartered Accountants in England and Wales releases "Blockchain and the Future of Accountancy" report.

by Quang Huy

As a country where cash is still king, the current state of implementation of blockchain technology solutions in Vietnam is still very new. Blockchains that transact with one another could replace central authorities such as banks, clearing-houses, and lawyers, according to the Institute of Chartered Accountants in England and Wales (ICAEW)’s report “Blockchain and the Future of Accountancy”.

Smart contracts that use blockchains could lead to widespread disruption of financial systems, according to the accountancy and finance body. With the ability to directly interact, the technology could save firms the cost and effort of doing business with a ledger owner and increase transparency and security against financial crime.

“Blockchains mean organizations can work together without an intermediary but no longer need to have institutional trust in one another. This is potentially a seismic shift in how we do business,” Mr. David Lyford-Smith, ICAEW’s IT Faculty Technical Manager, said. “It will have knock-on effects on everything from record keeping to supply chain management and accounting and audit, while could potentially remove middleman institutions, gain transactional certainty, reduce costs and bias, and open up access to more participants.”

Instead of having one-single owner, blockchain records propagate identical copies to all their users. Any participant in the ledger can trace all previous transactions, allowing increased transparency and making the blockchain “self-auditing” and transactions permanent.

“At the moment, the trustworthiness of a ledger comes from the central controller. By distributing records among users, the trust is instead in the record-keeping system itself, which means a greater degree of reliability,” Mr. Lyford-Smith went on. Blockchain has the potential to be used in a number of areas, such as smart contracts, inter-bank reconciliation and the transfer of assets, such as land registry. However, it is not just of use to businesses.

“There are potential applications beyond commerce. This is especially appealing in cases where transparency and accountability are key. For example, if aid spending were provided in a blockchain-based asset, the end receiver of the funding is easily identified. This would help deliver much greater confidence in the process.”

Still, there are some constraints and challenges that need to be overcome before blockchains can be used to their full potential. These are both logistic - related to aspects like computing power and when encryption might be necessary - and legal, as new legal frameworks would need to be created, for example to enforce contracts.

“Ultimately, blockchain is likely to be a foundational technology,” Mr. Lyford-Smith said. “It will take years - perhaps even decades - for it to be developed, standardized, and bedded into the architecture of the internet and the financial system. It will need to be sped up, made more efficient, and have its operating costs reduced. However, it is highly likely that it will eventually come to represent a step change in how commerce works.”

In Vietnam, the central bank has ruled that cryptocurrency, including bitcoin, is not a legal method of payment, potentially due to a clash between traditional financial banking structures and modern, alternative offerings based on the blockchain and cryptocurrency.

A few Vietnam FinTech startups have been working on providing basic infrastructure layers in order to enhance the local ecosystem around these technologies, yet there has not been attempts to implement any advanced use cases of blockchain technology in order to improve the efficiency and unforgeability of data and documents in the local economy.

However, the State Bank of Vietnam (SBV)’s ruling does leave mining and the use of blockchain technologies alone, and so traders in the area can still operate as long as they do not use their proceeds to buy or sell products.

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