Cryptocurrency is shaping and molding the modern world and no one can deny this fact. Also, the process behind this is diverse and often comes with a range of issues. In some quarters, the evolution is welcomed. In others, it is not seen as an evolution, but an attack on the established systems of finance.
Yet, below every cryptocurrency, a network can be found and it relies on the blockchain technology to power its processes. One of the things it allows is the process of distributing the currency transactions through the use of a ledger which is shared across all of the users in the network.
Currently, the same tech is being developed intensely across the globe. With distributed ledger, just like the rest of the cryptocurrency development field, the mission is to try to find a commercial use for blockchain. The same use should be something that is applicable in the real world and hopefully, with as little changes to the rest of the systems as possible.
But, the problem lies in the fact that such seamless transition might not be possible. For the optimist, the merger should be simple and effective, adding a new tool to the current toolbox businesses operate. Others, however, believe that some more painful choices will have to be made and these will see a range of problems afterward, no matter what ends up being decided.
HSBC Point of View
HSBC’s Vinay Mendonca believes that the DLT or distributed ledger technology has the potential to reshape global trade. However, he also thinks that this can occur in two directions. One is good and well for all involved, but the other one might end up being a point of a contest for many business ventures.
In the positive alternative, the blockchains and additional digital platforms should do the same for the planetary value system what shipping containers did to the transport of goods decades ago. Here, the standardized dimensions of shipping containers offer the possibility of moving them easily from any form of transport. These containers fit equally well on ships as well as on trucks and railways.
However, the DLT process could end up a domain where individual digital islands of information act as silos which are inherently valuable, but not able to communicate. In other words, there would be transport containers that work, but cannot be fitted quickly from one type of transport to another. According to Mendonca, this would be the worse of the two alternatives, but also one that is more than possible in the future.
The HSBC Approach to FinTech
The fact that HSBC is pondering about this problem is no coincidence. The company has been able to find its way to every trading platform that has become operational in the previous decades. Like any organization ready to invest in social media, new formats of information sharing, eSports or anything similar that is high-tech, HSBC is clearly a bank open to technological development.
In fact, the company is also ready to invest money this way, which also indicates a high and top-down commitment to this process. Its history shows the same – the company is the first bank to partner up with Tradeshift, which currently has over 1.5 million suppliers in almost 200 countries.
Cases of Cargill and the Corda platform of R3 shows the same, especially as both are the direct competitors of the HSBC. The company is also a key member of several blockchain technology groups like the We.Trade consortium.
How it all fits Together?
Mendonca is adamant that the pressing issue is the located in the interoperability discussion. According to him, the fundamental question is how all of these bits of platforms and services fit in together. How can the Cargill solution using the Corda platform communicate with the trading platform being used on a national level in Singapore?
This is why HSBC believes that international standards are a necessity. The same standards would need to be used by all the relevant parties and naturally, they first need to agree about them. One thing is sure according to Mendonca – the process needs to be a total and complete digitalization of trade.
This would include purchase orders, shipping products, accepting invoices and everything else that goes into the contemporary process of moving goods. The new architecture would need to include each and every detail of the old system so not to risk the actual procedure failing at some point. By all accounts, this process will be more challenging than anyone can suspect now, particularly related to the interoperability.
Working Together or against each other?
The issue that naturally arises from the concept of having a solution for the global merger of trade procedures is whether this will come through collaboration or competition. Making sure all elements fit and work well together would definitely include a lot of information sharing.
However, the reality of financial structures shows that big banks are not exactly big on sharing information or giving their competitors technology that might provide them with an edge. Additionally, new platforms like Tradeshift are able to communicate with multiple banks, essentially allowing the users the chance to leave the original designer-bank.
Mendonca rejected this concept and stated that there are already systems where banks cooperate together without anyone losing out on technology or profits. SWIFT system is an example he showcases, pointing out that banks have been cooperating on it for years. Today, it works well for all included parties and no one seems to be thinking they got a short end of the straw.
Assessment and Action
Blockchain cryptocurrency networks, like bitcoin, have the benefit of being almost automated in its core code. That is why they are so easy for maintenance and there is no entity that needs to plot a course.
Banks, however, must decide which factors of the distributed trading world they like to resolve with others and where they can all compete. According to Mendonca, there are plenty of both on the plate of HSBC as well as other major banks.
In any case, he believes that HSBC and others in the development scene realize that allowing the distributed trading to end up as the isolated island would hurt everyone in the long run. Because of that, the financial world will find a means to both compete and collaborate on this issue.