Why Asia is leading the way in blockchain adoption sooner than expected

Dilip Rao, managing director of Ripple Asia Pacific, said that financial centers in Asia such as Hong Kong and Singapore will be the first to adopt distributed ledger technology or blockchain technology.

This view is supported by a recent report that found that a third of the world’s 22 financial technology unicorns valued at more than $1 billion are from Asia, particularly China, with a combined global value of more than $74 billion.

According to the Global Fintech Report: Looking Back at 2016 by New York research firm CBInsight, seven of these companies are located in Asia, six of which are in China. Last year, the market capitalizations of Alibaba and JD.com's financial subsidiaries reached $60 billion and $7.1 billion, respectively, while 11 companies from the United States and four from Europe made the list.

Funding for blockchain and bitcoin startups fell to $69 million in the fourth quarter of 2016, according to a report released on Wednesday, February 15, although the number of deals reached rose slightly to $150 million following investments by Blockstream and Digital Asset Holdings. Venture-backed Asian financial technology companies hit new highs in both deals and amounts in 2016, accounting for 20% and 43% of global deals, respectively.

The report also added that China's venture-backed financial technology companies hit a five-year high in the number and amount of financing projects, with 46 agreements and US$4.6 billion respectively.

In a recent interview with CNBC, Rao noted that advances in technology, especially blockchain technology, could provide a solution to the slow, expensive and unreliable way money is currently transferred around the world. He believes that Asia’s economic and social landscape makes it an ideal region for blockchain technology adoption, as the region has become a massive mobile internet adopter, driving the growth of e-commerce.

Citing an AT Kearney report, he said e-commerce is expected to grow by 25% per year in Southeast Asia over the next few years. This will lead to a surge in cross-border payments, which already reach more than $30 trillion per year and are growing three times faster than global GDP, according to McKinsey’s 2016 Global Payments Report.

However, according to data from the WTO’s International Trade Statistics (ITS), the Institute of International Finance’s Total Capital Flows (ACF) and the Federal Reserve’s Cross-Border Payments, cross-border transaction costs are as high as $1.6 trillion per year.

Rao believes that this is why blockchain is needed as a solution to the current global payment system, which is not unified, so that every country, asset class, payment type (whether high or low) has different rules and systems, operating regulations and access requirements, resulting in a transaction taking days to complete.

However, according to a research report by the Global Confidence Services Group, which specializes in financial data, if a unified 7*24 hours online network is used, banks can directly and instantly settle transactions in seconds around the world with zero error rate.

According to a survey of public sector leaders conducted by IBM Technology and the Economist Intelligence Unit, 90% of government organizations around the world plan to invest in blockchain technology in 2018, and governments of countries with frequent financial activities will adopt blockchain technology on a large scale. These pioneers - mainly from the financial market, 70% of which are smaller financial companies with less than 20,000 employees - account for 14% of the respondents, and they expect to obtain large-scale blockchain products in 2017, with the fastest development in Asia and Western Europe.

China, for example, where about 17% of global financial activity is based, is looking to eliminate institutional corruption by investing in blockchain technology to increase transparency and combat fraud.