Blockchain application in finance sector faces challenges

October 28, 2022 - 08:22
Hùng said with decentralised characteristics, blockchain has solved many dilemmas of trust and security.
Việt Nam Banking Association and Việt Nam Blockchain Association signed the agreement. — Photo courtesy of the organisers

HÀ NỘI — Blockchain is gradually becoming a technology pillar in Việt Nam with many attractive applications. However, most blockchain applications in the market have not yet achieved outstanding success, requiring synchronous solutions that maximise potential.

Nguyễn Quốc Hùng, General Secretary of Việt Nam Banking Association (VNBA), made the statement at the seminar 'Opportunities and challenges for blockchain applications into operation of the financial industry' jointly held by VNBA and Việt Nam Blockchain Association (VBA) in Hà Nội on Wednesday.

Hùng said with decentralised characteristics, blockchain has solved many dilemmas of trust and security. Many countries worldwide, including Việt Nam, have realised the technology's potential and applied it in finance, banking, transportation, logistics, healthcare, and education.

"If 2021 was considered a disaster year for the world economy when facing the COVID-19 pandemic, this was a boom year for the blockchain sector. Last year, blockchain indexes in the world surged. According to CB Insights, the amount of funding for this sector quadrupled in just one year, from US$3.1 billion in the whole of 2020 to $15 billion in the first nine months of 2021," he added.

In Việt Nam, blockchain has been prioritised for research, development and application to actively participate in Industry 4.0 according to Decision No 2117/QD-TTg dated December 16, 2020, of the Prime Minister. The Ministry of Science and Technology has also approved the National Key Science and Technology Programme for 2025. Blockchain technology is ranked second after artificial intelligence (AI) in a series of technologies.

Blockchain has been gradually becoming a pillar for technology in Việt Nam with many attractive applications, such as a platform for storing diplomas in training, letters of credit (L/C), contract guarantees, and payments in the banking sector.

Blockchain is now gradually being understood as a separate technology from bitcoin or cryptocurrency.

Data from the State Bank of Việt Nam's Payment Department also shows that the number of Fintech providing services in the Vietnamese market has increased nearly four times, from 40 in 2016 to more than 150 businesses in 2021, across many different fields.

BIDV pioneered blockchain applications in trade finance, while MB, VPBank and Vietcombank also announced blockchain applications in financial transactions. In addition, some other businesses have also successfully applied blockchain to their business, such as Masan Group, Bảo Việt, and AIA.

However, Hùng said that currently, blockchain is mainly applied in the financial sector, especially digital assets and currencies. In addition to a few prominent Vietnamese cryptocurrency and blockchain projects, such as Axie Infinity, Coin98, Kyber Network, TomoChain, and KardiaChain, which attract foreign investment, the majority of blockchain applications in Việt Nam has not yet achieved outstanding success.

Other potentials of blockchain technology, such as traceability in agriculture, logistics, healthcare and education, have yet to be widely applied.

On the other hand, the development of blockchain technology in Việt Nam is facing many challenges because the country does not have many blockchain experts. The people's understanding of this technology is minimal, and the infrastructure is not yet secure. In addition, Việt Nam still does not have any specific legal corridor for this technology.

"The potential for blockchain technology development in Việt Nam is huge despite facing many challenges such as limited blockchain experts in Việt Nam, not many practical applications and lack of a legal framework. But the positive change that blockchain brings is undeniable," he added.

Sharing the ideas, Phan Đức Trung, Standing Vice Chairman of Việt Nam Blockchain Association, said there is currently no clear regulatory framework for blockchain and cryptocurrencies. The central bank does not recognise blockchain assets and blockchain-related cryptocurrencies as financial instruments.

Trung also affirmed that blockchain applications would help banks cut the costs of internal intermediaries through the consensus mechanism and approve transactions. Applying the advantages of blockchain to the problems of promoting the fintech ecosystem to create an ecosystem around the bank's core.

He added that a legal basis shortage has been raised at some forums as a major obstacle to blockchain application. However, few opinions specify legal obstacles to blockchain applications and how to modify them. The majority of blockchain application ideas focus on the fields of digital assets, cryptocurrencies, and capital raising. These are very high-risk areas, so building a sandbox mechanism for testing is necessary. In this respect, the Government has assigned the Ministry of Finance, the Ministry of Justice, and the State Bank of Việt Nam to cooperate in research, proposal and implementation.

Also at the event, the two associations signed a strategic cooperation agreement to increase opportunities and solutions to improve the efficiency of blockchain applications in the banking and finance industry. — VNS