Hong Kong this year has seen several deployments of distributed ledger technology (DLT) projects, moving from proof-of-concept phase to actual live transactions.
DLT, commonly known as blockchain, is the technology behind cryptocurrencies such as bitcoin. Companies in various industries are drawn to it for its ability to promote transparency and its promise of immutability that ensures data stored in “blocks” could not be tampered with.
In September, Chow Tai Fook Jewellery Group launched a blockchain pilot for diamonds in four retail stores in Hong Kong. Collaborating with the Gemological Institute of America (GIA), the jeweler group is the first in the city to use blockchain to deliver digital diamond grading reports, which reduces the need for keeping traditional paper reports while providing security, traceability, and accessibility to customers.
Upon purchase of a diamond, a customer can receive the diamond grading report and other details on his mobile phone via Chow Tai Fook’s app. More than 3,000 diamond grading reports have already been on blockchain during the launch.
Chow Tai Fook plans to extend the pilot to over 10 stores and 10,000 diamond reports by the end of its 2019 fiscal year, as well as to its stores in China.
The GIA hopes this blockchain collaboration with Chow Tai Fook will be the first of many.
“It’s our plan to make [this] available to other jewelers and the industry,” said Thomas Moses, executive vice president and chief laboratory and research officer at the GIA, during the launch of the blockchain pilot.
Hong Kong’s first industry-wide blockchain effort
At the end of October, the city’s blockchain-based trade finance platform called eTradeConnect was finally launched about 19 months after the plan for the government-led, multibank projects was unveiled in March 2017.
Spearheaded by the Hong Kong Monetary Authority (HKMA) and 12 participating banks, the blockchain platform aims to digitize trade documents, which for decades had relied on manual and paper-based processing.
eTradeConnect is the first industry-wide blockchain initiative in the city and the first full-fledged platform for commercial use.
The platform enables banks and their corporate clients to submit and record purchase orders, invoices and applications for trade financing.
The blockchain technology boosts efficiency and lowers financial costs for companies by cutting down on paper, making transactions easier to process. It also reduces the risk of fraud and identity in letters of credit and other transactions used in trade finance theft.
Already, eTradeConnect is reducing the time for approval of trade loan applications to four hours, compared with the usual one-and-a-half days, according to a statement issued by HSBC during the platform’s launch.
As a next milestone, HKMA wants to link eTradeConnect to other trade platforms abroad to further facilitate crossborder transactions. In particular, the government regulator said in a statement that the platform will collaborate with European-based digital trading platform We.Trade, which counts Deutsche Bank, UBS, and HSBC as its participants, and uses similar technology.
In the shipping sector, nine leading ocean carriers and terminal operators (including Hong Kong-based OOCL and Hutchison Ports) started in November a blockchain consortium to develop the Global Shipping Business Network (GSBN).
Initiated by shipping technology provider CargoSmart, the GSBN is envisioned to establish a digital baseline for global shipping, connecting all industry stakeholders, including carriers, terminal operators, customs agencies, shippers and logistics service providers.
First in the agenda is to establish standards to ease seamless sharing of documents and data across all stages of the shipping lifecycle. The GSBN will provide the foundation for new applications that can transform documentation flow for shipment management, including dangerous goods documents, invoices and cargo release.
“We recognize the potential of blockchain technology to be the key game changer with far-reaching impact on global supply chains,” said Ivor Chow, director, corporate finance business development at Hutchison Ports.
“It will bring immense benefits to all aspects of operations and end-to-end visibility throughout the entire supply chain,” Chow said. “The open digital platform will deliver efficiency gains and reduce cost of transactions.”
The first planned application will allow shippers to digitize and organize their dangerous goods documents and automatically connect with relevant parties to streamline the approval process. The application is set for rollout in December 2018.
Permissioned blockchain networks are the future
Looking ahead, the future lies with permissioned blockchain networks, according to Joshua Kroeker, senior growth and innovation manager, Global Commercial Banking, HSBC.
“We are looking at more private, permissioned ledgers where everyone has an identity in the platform. We are using limited replications so you are still in sync with your peers and you do have the immutability of transactions. And you have that reliability of what I see is what you see, but that doesn’t go for everyone in the network–just those involved in the transaction,” Kroeker said at his presentation at the 2018 Hong Kong International Computer Conference held in November.
Permissioned blockchains mitigate the data privacy and security challenges of public blockchains by restricting participation in the blockchain to approved parties. To join the network of computers that can validate transactions on a permissioned blockchain, you have to have the approval of other members of the network.
Such blockchains are also popular among industry-level enterprises and businesses, for which security, identity and role definition are important.
“The future will look like this where networks are not based on one large party and then connecting everyone to them,” Kroeker said. “This is the gift that blockchain is going to give us: more so that immutability and smart contracts, the real value of blockchain is in allowing me to collaborate so I can solve common pain points with my peers, with my clients and with my closest competitors.”
Kroeker pointed out that while the technology around blockchain is still nascent, he hopes to see the emergence of a few major blockchain networks in years ahead–ones that have industry-wide participation.
“Blockchain is a team sport,” he said. “If you want to do blockchain by yourself, you are probably doing it wrong. One company doing it is less exciting than if it is an industry coming together to solve a common problem.”