Hang Seng Bank: Will not miss the innovation event of "blockchain" technology in the financial industry

At the recently held first working meeting of the China Association of Listed Companies in 2016 and blockchain technology seminar, Hang Seng Electronics was invited to share relevant information on blockchain technology with speakers from the Shenzhen Stock Exchange, Tsinghua University, the Chinese Academy of Sciences, and the China Internet Electronic Data Research Institute.
Blockchain, the underlying technology of digital cryptocurrency, uses a P2P communication network and relies on mathematical encryption algorithms to collectively maintain an open, unalterable, and growing electronic ledger in a decentralized and autonomous manner. Many people believe that it is a technology with subversive significance. The rules of the world will be defined by code, just like the Three-Body World, where there is no conspiracy, no fraud, and everything is completely open and transparent. [Note: In English, code itself has the meaning of code of conduct and code.

According to Gartner's new technology hype trend forecast released in 2015, cryptocurrencies, the most successful application of blockchain technology, will mature in 5-10 years. However, the industry can't wait any longer. Since the second half of 2015, information about blockchain technology and its impact on the financial industry has attracted a lot of attention from industry insiders:

Last October, the first global blockchain summit "Blockchain - New Economic Blueprint" was held in Shanghai. About 200 professionals from the financial industry including banks, payments, securities, commodities and other industries interested in the application prospects of blockchain technology from the Financial Research Institute of the Central Bank, the Credit Information Center of the Central Bank, the Shanghai Stock Exchange, Lufax, Deloitte, etc. attended the summit. The organizer was Wanxiang Blockchain Laboratory. At the same time, China Wanxiang Holdings Co., Ltd. established a $50 million blockchain technology investment fund. On December 15, China's first Internet Finance Museum took the lead in initiating the establishment of the China Blockchain Application Research Center (Beijing). On December 20, during the World Internet Conference, the China Blockchain Application Research Center (Zhejiang) was also established, and the Vice Governor of Zhejiang Province attended the unveiling ceremony.

In January this year, Wanxiang Blockchain Lab and Deloitte, one of the Big Four, jointly held a blockchain hackathon in Shanghai with a prize of up to $100,000. In the same month, Deloitte also conducted blockchain technology training at the China Association of Fund Management. As early as more than ten months ago, Deloitte had already started research in the blockchain direction. The Deloitte Rubix blockchain technology team conducted research on using blockchain technology to improve audit efficiency and processes, with more than 100 researchers. PricewaterhouseCoopers (PwC), also one of the Big Four, announced its entry into the blockchain technology industry in January this year and has begun to form its blockchain technology team, which is located in Belfast, UK. PwC expects that by the end of this year, the team will expand from the current core of 15 people to more than 40 people. These groups will investigate PwC clients' potential applications of blockchain technology and promote the financial industry's understanding of the technology.

The R3 blockchain consortium is more well-known in the industry. In September 2015, 13 top banks, including Citibank, Bank of America, Morgan Stanley, Commerzbank, Societe Generale, HSBC, Deutsche Bank, SEB, BNY Mellon, Mitsubishi UFJ Financial Group, National Australia Bank, Royal Bank of Canada and Toronto-Dominion Bank, joined a blockchain consortium led by financial technology company R3. Recently, according to the International Business Times, R3 released the first distributed ledger experiment based on the Ethereum blockchain and used Microsoft Azure's Blockchain as a Service (BaaS), involving its 11 member banks. These banks will simulate transactions through token assets on the distributed ledger without the involvement of a centralized third party. Since its launch, the R3 distributed ledger consortium has signed 42 partner banks, and the alliance is now open to non-bank institutions, clearing houses and exchanges.

The application of blockchain is also expanding in the securities industry. Linq is a new equity trading platform based on blockchain technology developed by Nasdaq in its private market. Chain.com is a blockchain startup company that became a partner of Nasdaq's Linq platform in June 2015. After the Linq platform was developed, Chain.com announced at the end of December 2015 that it would issue the company's shares on Nasdaq's blockchain platform Linq. Also in December 2015, the U.S. Securities and Exchange Commission (SEC) approved the online retailer Overstock to issue the company's shares through its self-developed TØ trading platform based on blockchain technology. According to the S-3 application submitted by Overstock to the Securities and Exchange Commission, the company uses blockchain to issue up to $500 million in new securities, including common stock, preferred stock, depositary receipts, warrants, bonds, etc.

Recently, according to Bloomberg, DAH (Digital Asset Holdings), a blockchain startup led by former JPMorgan Chase executive Blythe Masters, has received $52 million in Series A funding and won a contract from the Australian Stock Exchange, aiming to reduce settlement time from 2 days to minutes. After spending money to acquire the blockchain brand Hyperledger, DAH donated its source code to the Linux Foundation. This open ledger project has attracted banks, financial institutions (such as the US Depository Trust and Clearing Corporation DTCC), and well-known technology companies such as IBM.

On January 22, the World Economic Forum held a discussion in Davos on its primary topic, "The Future of Financial Services," and the topic of blockchain was much more popular than the discussion on Basel III. JPMorgan Chase executives expect that the bank will begin using blockchain technology in the coming months to process loan transactions in electronic payments.

Blockchain technology has also attracted the attention of the central bank. Recently, the People's Bank of China held a digital currency seminar. Digital currency research experts from the People's Bank of China, Citibank and Deloitte discussed and exchanged views on topics such as the overall framework for digital currency issuance, national digital currencies in currency evolution, and nationally issued cryptocurrencies.

Blockchain is a ledger based on general cryptography technology, which is particularly suitable for electronic transactions or digital assets. All data on the blockchain are accompanied by digital signatures of relevant people and cannot be forged. Blockchain originated from Bitcoin, a completely open, open source, decentralized peer-to-peer payment digital currency application. Since its launch in 2009, it has experienced various tests of time, application, hacking, and supervision. With the continuous evolution of technology, decentralized exchanges such as BitShares built on the blockchain have also emerged, which digitize real-world assets and rights and interests, and conduct financial services such as registration, issuance, transfer, and clearing and delivery through P2P networks; Ethereum, a highly abstract blockchain platform and programming language, has emerged, enabling developers to build and release the next generation of distributed applications. Ethereum can be used to program, split, guarantee, and trade anything: voting, domain names, financial exchanges, crowdfunding, company management, contracts, agreements, intellectual property, and even devices on the Internet of Things. These blockchain technologies have gained the trust, dissemination, and continuous innovation of users in an open source manner.

As a "full license" financial technology company, Hang Seng Bank will not miss the innovation event of "blockchain" technology in the financial industry. We will talk about it in the next issue.