How Bitcoin Technology Can Eliminate Corruption in Asia

Abstract : This article answers a series of technical questions about Bitcoin for readers through an interview with Oscar Darmawan, CEO of Indonesian Bitcoin Exchange. In addition to technical discussions, the topic also involves political issues such as bank clearing systems, national voting, and corruption. Bitcoin Management Technology - What exactly is blockchain technology? How will it affect our lives? Read the full article and I believe you will understand.

Oscar Darmawan sat alone at the Luciole Bistro in Central Park, West Jakarta. When I entered, he stood up, shook my hand warmly, and told me a little about his past. He looked young and spoke softly. Seeing him reminded me of the shy kid in science class who kept all the answers in his head until you asked the right questions. When we started talking, he politely ordered a plate of pasta, then pulled out his computer and showed me how to buy a block of heroin online. A few clicks of the mouse led us to some illegal websites on the dark web.

He doesn't look like a dangerous person, but he is the smartest person in the room. Darmawan is the CEO of Bitcoin Indonesia, an exchange that allows ordinary people to buy and sell Bitcoin. Bitcoin is a controversial cryptocurrency. This digital currency is safer than any bank in the world. It is almost unregulated, flawless and fully accounted for. It is completely public and its users are almost impossible to track. Darmawan graduated from Monash University with a degree in information technology in 2006. After graduation, he helped some private companies, the military and government departments in Indonesia and Singapore to carry out some network security projects. He could not disclose these details.

Don't worry if you don't know what Bitcoin is, chances are you've never thought of money as a substitute. Bitcoin is neither good nor bad, it's just another form of money. Like other forms of money, Bitcoin fluctuates all the time. At this moment, the value of one Bitcoin is $256. However, the real miracle is not the emergence of a new type of currency, but the fact that a significant portion of the world has decided that Bitcoin has inherent value. It is this consensus that has made it possible today, and it is a self-fulfilling omen.

    Today, Darmawan's company has more than 68,000 registered members, and its daily trading volume is about 200 to 400 bitcoins. "It's really interesting because I didn't really care about Bitcoin," Darmawan said. "To be honest, I don't believe in Bitcoin in terms of price, but I really think that blockchain technology will eventually change the way the system works."

    What exactly is blockchain technology? Here is an example to help you understand it.

There are three people, A, B, and C. All the funds of A and B are kept by C. And every fund transaction must be recorded by C. Now suppose A and B each have 1 million in C's custody. Then:

If A pays 80,000 yuan to B, then C will subtract 80,000 yuan from A's name and add 80,000 yuan to B's name in the account book.

If B transfers 50,000 to A, C will increase A's name by 50,000 and subtract 50,000 from B's name in the account book.

If A pays 50,000 yuan to B, then C will subtract 50,000 yuan from A's name and add 50,000 yuan to B's name in the account book.

    In the above example, C plays the role of a data block. The data block records the transaction record data on the entire Bitcoin network, and this data is shared by all Bitcoin nodes. Through the data block, we can query the history of each Bitcoin transaction. The Bitcoin data block records the user's ownership of Bitcoin and the records of all users' Bitcoin transactions, but this "account record book" is recorded by the mining software of each Bitcoin miner on the network. If a Bitcoin transaction is confirmed by the data block, the relevant information will be recorded in the data block. The Bitcoin "account record book" is called a data block. All the data blocks on the network constitute the Bitcoin distributed network database system.

In fact, there are many similar examples. Generally speaking, the common inter-bank clearing system, securities settlement institutions and various financial settlement systems are based on this principle. However, the difference is that these settlement systems are centralized, that is, there is a central server or central institution to complete the settlement work. If the central institution database is damaged, the entire settlement will be in trouble. The settlement system of Bitcoin is decentralized and built on the network, which we call P2P network. It is a decentralized settlement database. The destruction of individual database nodes does not affect the entire Bitcoin settlement network at all. Therefore, the distributed data settlement network based on P2P network is a new financial innovation. On the BlockChain website, you can find the latest Bitcoin data block transaction information waiting for confirmation. You can enter the Bitcoin address to query the transaction confirmation status of this address.

     As a "currency", the interests and bad intentions behind it are inevitable. The fact that Bitcoin is used to carry out semi-anonymous transnational crimes is not an indictment of the technology itself, but more of a reflection of how our world is changing. It is arguable that most banks, governments and regulators do not seem to want to make good use of it, and they are even worried that it will cause some confusion. However, the real confusion is not Bitcoin itself, but our ignorance of the blockchain technology behind it.

The building blocks of democracy

    In fact, blockchain is nothing more than a record of online activities. The accounts are public and shared by all parties on the Internet, that is, the nodes of the blockchain. It can only be upgraded if the majority of users in the system agree. In addition, once entered, the records will be permanent and can never be deleted.

    That's why the Bitcoin blockchain contains a definitive record of all transactions. The key thing to remember is that blockchain technology decentralizes everything. There's no main data center, no stack of overheated servers where you can find the central hub of the blockchain. It's designed to reflect and replicate the transaction records of thousands of participants. This has huge implications for emerging markets in the Asia-Pacific region, especially countries like Indonesia, which have a long history of corruption and ongoing government transparency issues.

     Since there is no central leader in any blockchain, there is no one person or entity that is responsible for the material it uses. Even if you shut down a node, the blockchain will still function normally. As one of our friends recently put it:

"Blockchain is a highly decentralized, leaderless, lawless, unidentified, almost anonymous, decentralized system of governance ownership." What many people, even some tech founders, don't fully understand is that blockchain is not just a cryptocurrency and financial technology, it has far-reaching implications in many fields. Legendary VC and founder of Netscape Marc Andreessen called blockchain "the most important invention besides the Internet itself." It has the ability to restructure or strengthen almost all industries, including major industries such as the stock market and traditional banking. However, it can also be applied to a wider range of problems, such as government transparency, smart contracts, legal proceedings, and genome mapping.

    There are already some mad scientists around the world who are using blockchain for things other than currency. One of them is Bitproof, a company based in San Mateo, California, that is developing a way for anyone to get instant, verifiable proof of ownership, instead of traditional notary services.

    At the same time, blockchain can also be used in the Internet of Things. It can help identify devices and prevent cyber attacks. Devices can be transformed into nodes and inserted into the blockchain. From the consumer's point of view, this means that every device in their home can be protected and perform corresponding functions. IBM recently cooperated with Samsung to study how to apply blockchain to smart devices such as washing machines and TVs.

    Blockchain can also help improve transparency and efficiency in the land registration process, especially in some third world countries and emerging markets. Factom, a new decentralized record storage company, recently partnered with the Honduran government to launch a new land title registration initiative. The project will bring a long-term and secure land title record system to a country with long-standing land rights disputes. This can also be applied to markets like Indonesia, where land expropriation for infrastructure projects has affected development in these countries.

Skola Fund, a Singaporean and Malaysian venture, has a blockchain-based crowdfunding platform that matches funders worldwide with needy university students to provide them with scholarships and student loans. The company is still in its early stages but claims to have received nearly $4,000 in donations.

     This technology is such a game changer that if enough people use it, it could replace the architecture of the Internet's domain name system, rendering industry giants like SoftLayer and Amazon Web Services obsolete.

Instability in Southeast Asia

Darmawan's pasta is served, but he pushes it aside because he is now excitedly drawing his chart. Darmawan explains that it is the decentralized nature of blockchain that is the underlying reason why we can buy illegal goods like heroin and guns through Tor browsers, and it is also the solution to government corruption in Southeast Asian countries such as Indonesia, Vietnam and the Philippines. Darmawan said that blockchain is the purest form of democracy, and people don't need to know or trust each other to use it.

He explained:

In 2014, during the most intense presidential election in Indonesian history, 700 hackers created an organization called Kawal Pemilu, which translates to "Protect the Vote". The organization's mission is to conduct public vote counting online, so that the Indonesian people can repeatedly confirm the results at each polling station and ultimately prevent election fraud. The organization does not publish a list of its organizers and members. They do this to prevent its members from being hacked, intimidated, or bribed. The organization successfully resisted several malicious cyber attacks, and Kawal Pemilu's mission was successful, and Joko Widodo was elected fairly.

   Does it sound familiar? It is the basic principles of decentralization, public reporting and anonymous voting that effectively protect the fairness of voting. Thanks to this anonymous hacker group, people like Prabowo Subianto who violate human rights and morality could have become the ruling leader. Now imagine if the organization had used blockchain technology, would it be better? What if the entire voting process was carried out through blockchain?

    Matthew Martin is the founder and CEO of Blossom Finance, headquartered in Jakarta, Indonesia. The company invests in microfinance networks to help low-income entrepreneurs in developing countries. Before founding Blossom, Martin worked at several venture capital firms. He also helped Boku with mobile payments, Xoom with remittances, and Monitise with mobile banking.

“Blockchain and government transparency are a perfect match. Imagine if some politicians want to allocate funds for different projects, blockchain can show them the voting history in the past, and everyone can verify it.” Martin explained: “For example, they pass a law to allocate funds for a certain project, then a blockchain smart contract can be generated and signed by those politicians, and then the funds can be automatically allocated to some pre-planned projects.

   It’s all about accountability. “How do you know if the money is being spent properly? With blockchain, you can verify exactly what was spent on the project,” he continued.

   “Let’s say there’s a project to buy power equipment for a school. Using blockchain, you can see a record of every payment that went through every contractor and supplier, and you can also sign off on the project using the electronic signature of each school to make sure they received the goods. You can have independent auditors sign off on the project and use their electronic signatures as well. All of this will be a public record that everyone can check, and the evidence can’t be forged or destroyed.”

    "The question is, once we implement blockchain, can we keep our governments honest?" said Anson Zeall, co-founder and CEO of CoinPip, a Singapore-based company that uses blockchain to send cash across borders. "If you apply it to the banking system, blockchain will record every transaction in the ledger. But it's a chicken and egg problem. The key is whether our government really wants to be honest with itself?"

      As for the transparency of the election, Martin said that if every citizen has his or her own secret signature, the vote cannot be forged. This will make the vote both anonymous and authentic. "Look, government transparency is a big issue not only in emerging markets, but also in the United States. I think Indonesia and the Philippines can take this opportunity to open a precedent and build their infrastructure on the blockchain."

Banks gamble

    International Business Times reported last month that global multinational corporation and government services company Citigroup has created its own blockchain-based digital currency. They call it “Citicoin.” Ken Moore, head of Citigroup’s innovation lab, told the reporter:

     We have three systems running right now within Citi that are deploying blockchain decentralized ledger technology. They are just now coming online, so there is no cash moving through them yet. They are in the pre-production stages right now… Because we are a global network, a global bank, we can look for opportunities to use this technology to move money from one country to another.

      At the end of July, Citigroup announced that they are actively looking for some blockchain developers in the Asia-Pacific region. Since most people in the region do not have bank accounts or are not fully financially supported, the financial giant is likely eyeing emerging markets in Asia to test Citi. And he is also considering using blockchain to establish a pan-ASEAN form of currency that is universal in all countries and will not survive or die due to things such as government stability, political risks, and trade deficits.

      Of course, not everyone thinks blockchain is the perfect answer. Aaron Chipper is the chief technology officer of Fusion Payments Group. The company enables telecom operators to provide secure mobile payment services and settlement services to their customers. "Blockchain technology will not be a catalyst, but it can support it to a certain extent." Chipper said: "Right now, we don't actually use blockchain technology, but it is a very attractive idea and has great potential."

       Chinese media have mentioned a young man named Jake Smith several times as the first person to spend Bitcoin in China. Judging from the pictures, he is not very tall. He spends a lot of time trying to convince small businesses to accept his Bitcoin payments. He also runs a Bitcoin news media called The Coinsman.

       "To some extent, saving money cannot rely on shaky local governments or only spending your money on things you like. We have to be able to change people's living habits in some places," Smith said via email. "In fact, if a person wants to conduct illegal transactions, the ideal currency is paper money because it is more difficult to track than Bitcoin. Bitcoin is easier to use around the world."

Multiplier Effect

     During the conversation, Darmawan made a very interesting point. The Bitcoin blockchain is the largest and most secure in existence, which is why we often mention it. But if it wants to control the chaotic user market, its capacity needs a huge improvement. Currently, Bitcoin's transaction volume is about 7 transactions per second. In comparison, Visa's average transaction volume is about 2,000 transactions per second, and the daily peak transaction volume is about 4,000 transactions per second. If the Bitcoin blockchain wants to reach the scale of Visa, many experts believe that it will need to significantly improve its capacity.

     The Bitcoin blockchain makes transactions much smoother, faster than any bank. However, as more and more people join the blockchain and transact at the same time, payment times increase until they eventually become equivalent to a normal bank transfer time. Remember, blockchains are leaderless. So a 75% majority must agree and act together to make it work. A good way to think of them is to think of them as a school of fish. Can you tell which fish started moving first? No, each fish is swimming in a specific direction because the other fish are doing the same.

      In the mainstream financial world, Citigroup is not the only company taking blockchain seriously. In May, Singapore's DBS Bank hosted a blockchain hackathon, which was also sponsored by IBM. Through this event, the bank hopes to find some useful cases for blockchain, both to help the unbanked and to optimize its current system. Martin said frankly: "Large bricks-and-mortar bank chains like Citigroup will be obsolete in 10 years. No wonder they are trying to outsource innovation in the ASEAN region. There is already a cross-border electronic payment method in the world called Bitcoin. In the United States, Citigroup was fined $700 million for illegal credit card operations. Given that track record, consumers should be more careful to prevent these traditional players from colluding with each other."

       Even though some big companies have started to pay attention to blockchain, the current situation still makes us unhappy. Assuming that blockchain will not become popular in the Asia-Pacific region and will not become a key technology, although blockchain can be a catalyst and may become the best way to achieve single cross-border payment, most of us are still very conservative and may not think out of the box.

New nervous system

     Although blockchain technology still has many flaws and may still be considered a movement on the fringe of the financial industry, experts know they are not foolish enough to ignore it. Evangelists show that a blockchain revolution has already begun quietly in cities such as Jakarta, Manila and Ho Chi Minh City.

Martin said:

“The payment systems in developed markets work really well, so why would entrepreneurs try to fix systems that aren’t broken? 80% of Indonesians don’t have bank accounts. This is a huge market, there’s real demand, there’s a lot of opportunity.”

      Darmawan shuts down his computer and rushes to his next meeting. We didn’t buy any drugs online this time, he shrugs and says that for Southeast Asian regulators, there is no feasible way to shut down or disrupt blockchain technology. Rather than trying to control it, they should use it.

     “Blockchain is definitely something that governments and regulators are considering, and banks are starting to explore all possible ways to use it because they are afraid of being left behind. It’s an exciting time for them and it’s making them think in a new way. It’s similar to the initial introduction of computers and the internet,” said the co-founder and COO of the FinTech company.

       Whether you are confident or a little apprehensive, one thing is certain: blockchain technology is already permeating our daily lives, whether we can see it or not. At the same time, it also needs to be used to address financial inclusion and government transparency issues in emerging markets in Southeast Asia.

As we were wrapping up our lunch meeting, Darmawan said it could help the government save a lot of money. If blockchain technology had been used in the 2014 Indonesian general election, it could have saved the government an estimated $570,000,000.