Rationale of thesis
International trade finance is crucial for facilitating global trade, yet traditional financing methods reliant on outdated paper documentation hinder its growth These methods lead to slow payment processing, high costs, and increased transaction risks, prompting businesses to seek alternatives As a result, more companies are opting for diverse money transfer methods over traditional letter of credit (LC) payments.
Integrating technology into trade finance is projected to increase the global trade finance market by $10.65 billion from 2019 to 2023, with a compound annual growth rate exceeding 4%, as reported in the Global Trade Finance Market Report 2019-2023 Analysts highlight that this technological integration will significantly enhance the market and drive future growth Key modern technologies such as Blockchain, Artificial Intelligence (AI), Machine Learning (ML), and the Internet of Things (IoT) are being utilized to address challenges in banking and develop innovative applications in trade finance.
AI and machine learning leverage neurolinguistic programming, chatbots, and predictive analytics to identify patterns, anticipate needs, and deliver business insights Concurrently, the integration of blockchain technology in trade finance enhances efficiency and simplifies financial transactions The fusion of these technologies is poised to be a key market trend, driving significant growth in the trade finance sector in the coming years.
Although there are still some conflicting views about privacy and the applicability of blockchain, we cannot deny the specific successes of this
Experts predict that blockchain technology will significantly transform trade finance by minimizing reliance on paper documents, thereby streamlining processes and enhancing efficiency in various aspects of life and commerce.
By 2050, blockchain technology is anticipated to revolutionize transaction records by minimizing paper use and enhancing transparency among parties It will enable the storage of comprehensive transaction histories, aiding in risk assessment Additionally, the digitization of documents through blockchain will expedite their issuance and transfer, ultimately reducing transaction times and costs.
Technavio's report on the global trade finance market from 2019 to 2023 highlights the significant role of technology in driving growth, identifying the APAC region as the leading contributor in 2018 The study forecasts that the APAC region will account for approximately 57% of global trade finance growth over the next year, indicating substantial development potential for the international trade finance market in Vietnam Furthermore, the Vietnamese government actively promotes the adoption of technology, including blockchain, among businesses and banks to enhance operations in the sector.
Many banks and financial institutions globally are increasingly adopting blockchain technology to enhance efficiency, transparency, and customer experience while reducing intermediary costs and transaction processing times A notable example is HSBC Vietnam's successful execution of the first blockchain-based letter of credit payment transaction in July 2019, involving Duy Tan Plastics Production JSC and INEOS Styrolution Korea However, the application of blockchain in international trade finance remains limited among Vietnamese banks Therefore, it is crucial for Vietnamese banks, the government, and businesses to actively research and explore blockchain technology to leverage its potential benefits.
5 technology to make good use of blockchain technology and not be left behind in the market competition.
Literature review
Outline of the overall study
Many countries are developing research and development strategies for blockchain technology, particularly in the realm of art, as startups increasingly explore its potential Numerous studies have been initiated to systematize theoretical frameworks and establish national programs and policies for blockchain advancement The concept of blockchain technology emerged in 2008, introduced by Satoshi Nakamoto alongside the launch of Bitcoin, the first cryptocurrency This innovation sparked significant interest in both academic and policy-making circles, highlighting the transformative power of blockchain technology.
Various companies and banks worldwide have published research papers on the role of blockchain in trade finance Notably, BBVA Bank (2015) and J.P Morgan (2019) highlighted that blockchain technology enhances the financial system by providing improved security, speed, and reliability compared to traditional methods.
Blockchain technology has the potential to enhance the Letter of Credit (LC) payment method for international transactions, as highlighted by Ermakov et al (2017) By leveraging this innovative technology, customers can save both time and money, fundamentally transforming trade financing for businesses globally Notable banks, including Barclays, HSBC, and Alfa-Bank, have successfully implemented LC blockchain applications, yielding positive outcomes.
Bogucharskov et al (2018) highlight the numerous benefits of blockchain technology in trade finance, emphasizing its potential to transform the industry The article explores various applications and methods for implementing blockchain in this sector, showcasing its promising prospects for enhancing efficiency and transparency in trade transactions.
The article explores the application of blockchain in trade finance, highlighting key improvements in transaction processes It demonstrates how blockchain enhances the interoperability of parties involved with letters of credit and factoring, significantly impacting these widely used trade finance instruments Additionally, the authors identify various challenges and propose effective implementation solutions for leveraging technology in international trade finance.
Blockchain technology is emerging as a significant topic in Vietnam, garnering interest from various sectors Its application across multiple social fields highlights the platform's strong potential for future development in the country According to Nguyen from the Central Institute for Economic Management, this innovation could play a crucial role in Vietnam's economic landscape.
(2018) has outlined the general issues of blockchain technology so that readers can have an overview of the concept, history, benefits, and limitations of blockchain platforms and the government
According to Do (2020), blockchain technology has the potential to revolutionize time-consuming and labor-intensive processes, particularly in finance, transaction clearing, and securing underwriting contracts The analysis also provides insights into the application and storage of securities transactions on blockchain platforms.
Le (2018) highlights the impact of blockchain technology on logistics and offers recommendations to improve its integration within Vietnam's logistics system The article emphasizes that logistics and trade finance are essential components of the global supply chain Additionally, it discusses the advantages of utilizing smart coins in logistics, particularly in enhancing payment conditions for sellers.
Giang's 2018 research explores the application of blockchain technology in the banking sector, detailing its fundamental concepts, operational mechanisms, and various use cases within the industry Additionally, the article addresses the challenges associated with implementing blockchain in banking However, it primarily presents a general overview of the topic.
7 does not refer to the application in the field of trade finance, and does not provide practical application cases
The exploration of blockchain technology's public application in international trade finance remains limited in domestic studies While many researchers have examined blockchain's role in various sectors, particularly banking and finance, there is a notable lack of analysis on specific case studies Although some related articles exist, their research content often lacks clarity and depth.
Research objectives and research questions
This thesis aims to assess the practical implementation of blockchain technology in international trade finance across various countries, including Vietnam, while analyzing the influencing factors on these applications Additionally, it proposes relevant perspectives and solutions to enhance the adoption of blockchain technology in Vietnam's international trade finance sector in the near future The research will also address two key questions related to this topic.
Research question one: How to apply the blockchain successfully to international trade finance activities worldwide?
Research question two: How Vietnamese banking system can use blockchain technology in international trade finance?
Research scope
The thesis explains blockchain application cases in international trade finance of international banks: Barclays, Mizuho, HSBC, BBVA, KBank, and the successful test case of HSBC Vietnam in 2019
Time scope: The thesis also analyzes and assesses the status of blockchain technology applications in Vietnam from 2009 to May 2020
Research methods
This thesis primarily investigates the application of blockchain technology in international trade finance by collecting, analyzing, and comparing data from various banks globally It further evaluates the current state of blockchain implementation in Vietnam, aiming to enhance its adoption in international trade finance in the near future.
Structure of the thesis
In addition to the introduction, conclusion, and list of references, the thesis consists of three parts chapters are as follows:
Chapter 1: Overview of blockchain technology and international trade finance
Chapter 2: Experiences in applying blockchain technology in international trade finance worldwide and applicability in Vietnam
Chapter 3: Solutions to promote the application of blockchain technology in the financing of international trade in Vietnam
Overview of blockchain technology and international trade
Blockchain technology
“Blockchain is a digital database containing information (such as records of financial transactions) that can be simultaneously used and shared within a large decentralized, publicly accessible network” (Karim
R Lakhani, 2011) However, in economic terms, a blockchain is a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems This type of managing database is called DLT – Distributed Ledger Technology, which holds immutable information about transactions that have been cryptographed into a string of numbers by algorithms called a hash Each ledger will be linked together by the previous hash and some additional information to form a
“block”, and that hash cannot be changed The hash will be used for creating the next blocks
(Source: Li Peng et al, 2021) Following Figure 1, we examine a structure of a block Any block of the chain is divided into two parts, the header, and the body The header
10 will consist of hash, nonce, and time stamp while the body will contain most of the data
Time-stamp is a small amount of data implied about the exact moment the block is created and validated within the network
A nonce is a pseudo-random number used as a counter in mining processes In the Ethereum Network, it represents the transaction count of an account and is generated only once to prevent double spending and protect against replay attacks by hackers.
Transactions List is a list containing information about asset values ranging in order, from one individual to another
Blockchain is distributed across networks of computers called
In the process of updating a file, all nodes within the network must validate the load to produce a new block Consequently, computers in the network compete to generate a hash for this block, with the complexity of hash creation increasing as more participants join This competitive process is known as "mining."
Participants using blockchain technology can be either anonymous or pseudonymous, depending on the organization and the intended use of the technology For a transaction to be successfully executed, all network participants must reach a consensus to validate it; otherwise, the transaction may encounter errors or fail to process.
Figure 1.2: Type of blockchains (Source: Eugenia Wang, 2020)
There are two types of blockchain: permissionless and permission
The productivity of a blockchain network hinges on whether it is permissioned or permissionless Permissionless blockchains promote greater coding and development freedom, allowing anyone to join the network and access information freely In contrast, permissioned blockchains necessitate third-party verification and identity checks, restricting access to a limited number of members who must meet specific criteria and rules to participate.
Both permissioned and permissionless methods offer trade-offs that can help address challenges while saving time for individuals developing their businesses and projects.
1.1.2.1 Permissionless and permission as a public and private blockchain
A permissionless blockchain, commonly referred to as a public blockchain, is characterized by its open-source code, enabling anyone to participate and ensuring complete decentralization This structure allows all nodes within the network to contribute and validate transactions, fostering transparency and inclusivity.
All individuals possess equal rights to access the blockchain, create new data blocks, and validate them Public blockchains provide a valuable solution by enabling a truly decentralized, democratized, and authority-free operation.
Public blockchains have notable disadvantages, primarily their significant power consumption required to sustain the distributed ledger Additionally, they lack complete privacy and anonymity, which can compromise network security and participant identity Furthermore, the presence of fraudulent members can pose risks, as they may engage in malicious activities such as hacking, token theft, and network congestion.
With concern to facing and reducing fraud activities, some developers have come up with a permission blockchain, which is also called a private blockchain
A private blockchain is governed by a consortium of authorities, which may include governments, companies, or trade groups, that control access and permissions for nodes within the network Participation in this closed network requires a verified invitation, and validation is conducted by the network operators or through a defined protocol Unlike public blockchains, private blockchains are not decentralized; they function as secure, distributed ledgers that rely on cryptographic principles Consequently, not all users can operate full nodes, conduct transactions, or validate changes within the blockchain.
Private and public blockchains differ significantly in ownership and decentralization Private blockchains are only partially decentralized due to restricted public access, which is governed by a central authority.
13 might not generally grant access or perform a function Some examples of private blockchains are the business-to-business virtual currency exchange network Ripple and Hyperledger
In conclusion, public blockchains offer greater security than private ones, as the involvement of numerous participants running nodes enhances transaction validation and strengthens the network against potential attacks Additionally, consortium and hybrid blockchains provide alternative frameworks that combine elements of both public and private systems, offering tailored solutions for specific use cases.
Realizing the drawbacks of a public and private blockchain, some developers invented consortiums and hybrids to improve the transactions in the chain and safety
Consortium blockchains are permissioned networks managed by a collective of organizations, offering greater decentralization and enhanced security compared to private blockchains However, establishing these consortiums can be challenging due to the need for collaboration among multiple entities, leading to logistical hurdles and potential antitrust concerns.
Cargo Smart, a supply chain company, is embracing innovative technology by establishing the Global Shipping Business Network Consortium This not-for-profit blockchain initiative aims to digitalize the shipping industry, fostering enhanced collaboration among maritime industry operators.
Many organizations lack the necessary infrastructure to adopt blockchain technology, and even those equipped to do so often find the initial costs prohibitively high for digitizing their data and integrating with supply chain partners.
Hybrid blockchains are blockchains that are controlled by a single organization, but with a level of oversight performed by the public blockchain, which is required to perform certain transaction
International trade financing
Like any business when participating in international trade activities, import-export businesses also need proper and reputable support from various sources such as government agencies and primarily commercial banks
“Import and export banks financing activities linked to the following elements:
Import-export trade finance is fundamentally rooted in a contractual agreement between two parties, where a seller in one country provides goods or services to a buyer in another country.
Second, financing activities are services with a target that is profitable for banks
Third, the bank’s financing is based on its primary resources and reputation, thereby arising a credit system between the suspended bank and the import-export traders
Fourth, the capital for granting a suspended form of credit includes loans, discounts, payment guarantees, financial leasing, and proper credit tools
Thus, financing activities in IT provide capital or credit by banks to the import-export traders to perform a business contract.” (Nguyen Van Tien et al., 2016)
1.2.2 Methods of international trade finance
In the book named Bank 4.0 written by Brett King (2020) the author has described the methods of international trade finance into categories:
Direct lending for businesses facilitates financing through loans specifically aimed at supporting import-export activities Banks offer credit in both local and foreign currencies, providing essential financial assistance to enterprises engaged in international trade.
The documentary credit method is a secure financial agreement where the issuing bank commits to pay a beneficiary upon the customer's request, provided that the beneficiary presents the required payment documents in accordance with the letter of credit (LC) This method is highly regarded for its guarantee of payment to exporters, ensuring that as long as the terms of the LC are met, the bank will fulfill its commitment to pay, especially if the bank provides confirmation of participation.
- Method of asking for collection with documents – This method in which the exporter after he is fulfilling the obligation to deliver goods or
A bank provides essential entrusting services by collecting payments from importers based on a bill of exchange and accompanying documents This process can occur through two methods: payment in exchange for documents (D/P) or acceptance of payment for documents (D/A).
A bank guarantee is a commitment made by a commercial bank to fulfill an obligation on behalf of a guaranteed party if the obligee defaults This assurance typically takes two forms: a Letter of Guarantee issued by the bank and a Standby Letter of Credit (Standby LC).
Bill of exchange discounting is a short-term credit transaction where a customer transfers ownership of an outstanding draft to a bank, receiving an amount equivalent to the bill's value, minus interest and discounting fees For successful discounting, it is essential that all documents are accurate and submitted promptly Additionally, the bank issuing the letter of credit (LC) should have a strong reputation in the international market and maintain solid relationships with discount banks for seamless transactions.
Factoring involves financial institutions providing exporters with 70-80% of the total value of their sales invoices, allowing them to collect debts from buyers Typically, this is a short-term credit solution that is not without recourse; if the factoring company possesses a bill of exchange but fails to collect from the importer, it can seek repayment from the exporter.
The trust bill allows banks to deliver goods to customers while retaining the right to collect sales proceeds, which are used to repay bank debt The delivery process is facilitated through a trust invoice.
Blockchain application in international trade finance
1.3.1 Blockchain application in international trade finance
The following section will analyze and list the applications of each section and the most reasonable when using blockchain in the commercial
22 banking system and supporting banks, including Smart Contract, Payment by Gateway, and Know your customers
Smart contracts efficiently manage transaction information, facilitate agreements between parties, and automate document creation Gateway Payment enhances electronic payment systems and supports cross-border transactions Effective customer verification and employee management are essential for knowing your customers To improve the efficiency and speed of document transfer while minimizing external influences, essential documents like bills of lading can be stored on a shared system accessible to both buyers and sellers Additionally, blockchain technology effectively addresses issues such as document forgery, anti-money laundering, and tracking the origin of goods.
Smart contracts are one application of D-Apps (Decentralized apps) on the Ethereum blockchain Despite their name, these contracts are not as
Smart contracts, often misunderstood as equivalent to process automation, actually function on a principle similar to that of vending machines, where a transaction occurs only if specific conditions are met, following an if-then logic (Szabo, 1997) Just like a vending machine dispenses a drink after the required payment, smart contracts execute transactions only when predetermined conditions are satisfied and secured by the blockchain's consensus protocol (Berentsen et al., 2017).
A smart contract is a self-executing script stored on the blockchain, featuring a unique address, executable functions, and state variables Users initiate the smart contract by directing transactions to its address, which triggers automatic execution across all nodes in the blockchain, based on the data in the transaction.
Efficiency — These self-executing contracts are quickly produced and self-executing, saving a lot of time normally wasted on manually processing paperwork, communication, and delivery of the data
Sovereignty — As the need for an intermediate is eradicated, they give full control of an agreement or digital personal data management
Trust is established through algorithms that eliminate the need for third-party intermediaries, ensuring unbiased reliability Documents are securely encrypted and stored on a shared ledger, making them tamper-proof and impervious to theft.
Savings — A lot of money is saved on notaries, estate agents, advisors, assistance, and many other intermediaries due to limiting third parties
Blockchain technology offers robust security through cryptography, making it highly resistant to hacking Since no single entity controls the blockchain, there is no central point of failure, ensuring that data remains secure This decentralized shared database is maintained by multiple participants, enhancing its overall protection.
24 computers also called nodes that validate transactions with no censorship or limitations
While smart contracts enhance trust among unfamiliar parties due to their irreversible and immutable nature, they also present significant limitations If a smart contract executes incorrectly, there is no opportunity to amend the deployed contract, highlighting the challenges associated with erroneous executions (Luu et al., 2016).
Figure 1.5: Structure of the smart contract
A blockchain developer creates the source code for smart contracts, typically making it open source for public verification This code encapsulates the business logic of the contract, detailing the operations permitted and the outcomes of those actions.
Once the contract is deployed to the blockchain, it acquires a unique address that enables it to receive transfers, similar to any other account on the network Additionally, it features an interface that outlines the available functions.
Interested parties can initiate contract execution by making transfers that include specific function call details within the transaction data When the call is accurate, the contract code executes, updating its internal state and reflecting these changes on the blockchain.
By that method, smart contracts can be used in a variety of fields, from healthcare to financial services, and there is a specific application of smart contracts in international trade financing
The application of smart contracts in Letter of Credit
A Letter of Credit (LC) is assessed based on trade documents rather than the actual delivery or quality of goods, which can lead to disputes due to errors in terminology and compliance interpretation Consequently, goods may remain unclaimed at delivery locations while parties negotiate solutions To comprehend these discrepancies, it's essential to examine the structure of an LC contract, which serves as a payment commitment from the issuing bank (the buyer's bank) to the seller and is supported by two prior trade contracts.
- The sales contract between the buyer and the seller, outlining the terms of trade
- The promise by the buyer to reimburse the issuing bank for duly honoring a “compliant” LC submitted by the seller
However, some problems can occur in the LC system:
Payment disputes due to contractual ambiguities
Ambiguities in letters of credit require banks to make discretionary decisions, allowing them to refuse payment for even minor discrepancies due to stringent compliance standards Additionally, the principle of independence in letters of credit can result in payment denial to the seller, even when the sales contract has been fully satisfied.
Payment delays from contract errors
Data mismatches and semantic or syntactic errors in documents can delay payments to exporters To ensure timely payment, it is essential to obtain a waiver or acceptance from the buyer or to resubmit the documents before the letter of credit (LC) expiry date.
Cost and overhead from amendments
Amendments to letters of credit (LCs) can lead to increased costs, such as discrepancy fees and telex charges for follow-ups These additional process overheads often render LCs unprofitable for small transactions or those involving time-sensitive and perishable goods.
Using blockchain, a Letter of Credit can be modeled as a smart contract between the financier and the supplier to guarantee payment to the latter
A blockchain smart contract ensures that trade merchandise is delivered to the buyer under all specified conditions by codifying the terms and conditions of the trade This process involves abstracting and clearly expressing the conditional clauses involved.
The shipment and delivery process involves specific considerations regarding the timing, location, and method of shipment, alongside detailed descriptions and quantities of the goods being shipped Additionally, it requires documentary evidence for verification These elements can function independently or interdependently, producing pass or fail outcomes based on the provided input information.
Figure 1.6 Letter of credit process flow
The traditional payment system has been under a lot of pressure to solve safety and security-related issues since the financial crisis of 2008 and
Experiences in applying blockchain technology in international
Experiences in applying blockchain technology in trade finance
2.1.1 Platform of blockchain used in trade finance
Founded in 2017 by R3, the Marco Polo network features a robust roster of prominent banks, including Alfa Bank, BNP Paribas, and Standard Chartered As the network expands, it aims to incorporate additional banks, transportation, and insurance companies, striving to represent the entire value chain of foreign trade transactions through digital data.
This network distinguishes itself from others by concentrating on open finance while integrating Enterprise Resource Planning (ERP) systems, specifically targeting large enterprises It has the potential to utilize the R3 Corda blockchain solution for enhanced functionality.
Corda, a permissioned blockchain developed by R3 since 2015, is tailored specifically for the financial industry and boasts over 200 members Unlike traditional blockchain platforms such as Hyperledger Fabric and Ethereum, Corda minimizes information leakage by processing only essential transaction data and ensuring compatibility with legacy infrastructure for improved interoperability Designed for user groups, Corda simplifies the management of legal contracts and data sharing among parties, enabling organizations to control access rights and prevent unnecessary data dissemination across their networks With Corda's robust security features, trade finance transactions can effectively safeguard sensitive information using blockchain technology.
The Marco Polo trade finance blockchain network enhances the banking experience and offers innovative commerce solutions for potential customers Key benefits of this network include improved efficiency, increased transparency, and reduced costs in trade finance transactions.
- Cost Interoperability: Marco Polo Trade Finance Blockchain allows for the Mutualization of costs between members of the network
- Ultra-Low Risk: It is very beneficial to use trade finance blockchain platforms, they bring almost zero risk as every participant is verified and controlled by regulations
- Collaboration: The blockchain network fosters sharing of expertise and technology across the industry that drives innovation
Several banks and leading global trading firms have collaborated to create the inaugural blockchain platform for commodity trading, encompassing a range of products from crude oil to wheat This innovative platform aims to enhance the efficiency and transparency of transactions for banks and import-export companies, while also streamlining auditing processes.
Thirty-five companies, including prominent names like Societe Generale, Shell, Natixis, and Koch Supply & Trading, are collaborating on the blockchain platform Komgo This initiative also involves major players such as Gunvor, Citi, ABN AMRO, BNP Paribas, Credit Agricole Group, ING, MUFG Bank, Rabobank, and SGS, focusing on enhancing transparency and efficiency in commodity and energy inspections.
Komgo aims to enhance efficiency and security by simplifying, automating, and advancing various industries Initially focused on the energy sector, its first operations involved crude oil tankers in the North Sea.
Komgo aims to revolutionize the trade finance industry by offering a decentralized blockchain platform that addresses data exchange challenges related to letters of credit, factoring, KYC, and AML Their innovative platform enables seamless connections between buyers and sellers through secure channels Currently, Komgo operates its blockchain network on Ethereum, leveraging the technology developed by J.P Morgan's Quorum.
Voltron, a cloud-hosted platform developed by Hong Kong-based CryptoBLK, utilizes R3's Corda technology to facilitate seamless updates and enhancements based on user feedback Its current members include prominent financial institutions such as U.S Bank, Natwest, Bangkok Bank, Mizuho, BNP Paribas, BBVA, Intesa Sanpaolo, ING, HSBC, Scotiabank, SEB, and CTBC Bank.
Voltron offers a streamlined solution for businesses to connect with their banks and trading partners through a distributed ledger, facilitating the issuance of letters of credit and efficient document exchange By utilizing blockchain technology, the payment process via letters of credit ensures a transparent and swift trade finance transaction, enabling seamless interactions among buyers, sellers, and their banking partners.
Banks can issue letters of credit with related documents without worrying about any errors using this platform Since both parties can
Businesses can preview everything in real-time, allowing them to identify and correct any errors before finalizing agreements Additionally, companies can securely upload documents exclusively to their designated partners, ensuring that sensitive information remains confidential and protected from unauthorized access.
2.1.2 Application of blockchain of banks in executing international trade finance transactions
On September 6, 2016, Barclays collaborated with the startup Wave, known for its decentralized blockchain platform, to execute the first international transaction using the blockchain-based letter of credit (L/C) payment method This initiative highlights the potential of blockchain technology to enhance trust in international commercial transactions.
The Barclays report highlights a substantial reduction in financial transaction processing time, with transactions now completed in just 4 hours Utilizing blockchain technology for payment methods such as Letters of Credit (LC) minimizes the reliance on inefficient paper documentation, delivering significant advantages for all parties involved.
The efficiency of cross-border commercial transactions will significantly improve with the adoption of a more effective and cost-efficient payment method, fostering global trade growth Wave leverages blockchain technology as a public ledger to securely store transaction documents like invoices and bills of lading, allowing banks and trading partners to access on-chain data for tracking information and goods Furthermore, Wave employs smart contracts on the blockchain to manage ownership transfers, enabling automated payment processes based on predefined conditions, such as the presentation of a bill of lading triggering ownership transfer execution.
37 and presentation of documents are integrated into the blockchain chain and smart contracts
The blockchain platform enhances reliability and accountability among participating parties by ensuring they adhere to the terms outlined in automatically integrated commercial documents Each party is responsible for their actions, as they maintain control over all changes A dedicated network verifies and checks transaction data, effectively preventing fraud Additionally, blockchain technology streamlines the transfer and identification of digital assets, thereby facilitating efficient trade finance transaction processing involving multiple goods transfers.
In 2018, HSBC announced its first blockchain-based transactions to the Agricultural and Food Group based in the United States, through the LC payment method on the blockchain platform
Solutions to promote the application of blockchain technology in
Blockchain development orientation
Global interest in blockchain technologies is growing, particularly regarding their potential impact beyond financial applications While many are excited about how blockchain could transform societies and institutions, it is important to recognize that these technologies are still in their infancy As a result, there is a need for more focused discussions on the potential and possibilities that blockchain can offer in the near future.
In the international development value chain, funds often flow from global donors to local organizations, but this process is often opaque and inefficient, resulting in significant value loss before reaching beneficiaries Blockchain technology offers a promising solution by enhancing transparency and precision in tracking funds, thereby improving the complex aid distribution system By leveraging blockchain, the donor community can reduce cross-border costs and intermediary fees, ensuring more resources are directed to those in need.
The World Food Programme (WFP) has successfully implemented an Ethereum-based system in the Azraq refugee camp in Jordan, utilizing biometric registration data from the UN High Commissioner for Refugees This innovative approach allows over 100,000 refugees to purchase groceries using a retina scan to verify their entitlement vouchers By recording transactions on the blockchain, the WFP significantly reduces cross-border and intermediary fees to just 2% of previous costs, enabling more funds to be directed to beneficiaries This efficient system has the potential to eventually support all 500,000 Syrian refugees residing in Jordan.
The innovative use of immutable ledgers and smart contract mechanisms in Jordanian camps can address local corruption issues, such as those seen in the Niger River Delta, where funds for oil spill cleanup are misappropriated by militants and officials By fostering networks of multiparty transparency in nonfinancial peer-to-peer value exchanges, blockchain architectures can create a micro-economy of services that aligns incentives and disincentives This approach offers a more effective and sustainable solution for empowering impoverished communities.
However, to emigrate this technology to Vietnam or any other developing country, we need some solutions to design a basic infrastructure to use it.
Solutions for establishing blockchain platforms in international trade
To operate blockchain most efficiently, we need to have some standards, as shown in the image below:
To effectively support small businesses in innovation, it is essential to establish a framework that includes a sandbox testing environment This allows companies to engage in small-scale testing, ensuring that the testing party adheres to standardized processing protocols.
The 50 framework serves as a comprehensive tool for evaluating projects with growth potential by assessing key aspects such as improvements, objectives, and performance This method enables the identification of viable companies, ultimately enhancing project development outcomes.
But the problems are infrastructure design and workforce training
Infrastructure is essential for technology, encompassing hardware, software, and network capabilities On a national scale, a robust server system is vital for the seamless operation and continuous monitoring of data sources This necessitates a skilled team of software engineers to ensure optimal performance Once the infrastructure is established, collaboration with businesses and organizations becomes possible, facilitating guidance and support for their operations.
In the section below we will have seven solutions to fix those matters
3.2.1 Finalization and application of the legal testing framework
New business models and technologies, like blockchain, can be effectively tested within a controlled environment known as a sandbox This pilot framework enables select businesses to explore innovative technologies and models while operating under defined parameters and time constraints, all supervised by management By maintaining reasonable risk reserves, the sandbox approach mitigates the potential negative impacts of failures on the national financial system It provides a valuable testing ground for creative startups, allowing managers to closely monitor progress and expedite the development of new regulations.
Singapore, Thailand, and Hong Kong are developing tailored "sandboxes" that align with their unique national characteristics and economic conditions, fostering timely implementation of blockchain projects Similarly, Vietnam has the potential to establish sandboxes that promote and support all businesses and projects in the blockchain sector.
51 in that box, monitor and observe the development and changes of technology applications From there, issue criteria and regulations for blockchain application activities and transactions
A comprehensive legal framework for testing must define its operational scope, including products, services, consumers, testing processes, and monitoring Various international organizations, such as the Aspen Institute, Bill and Melinda Gates Foundation, Cambridge Center for Alternative Finance, CGAP, FSD Africa, Omidyar Network, UNCDF, and the World Bank, provide essential technical support and financial resources to develop and implement these legal testing frameworks.
Management agencies can enhance financial innovation by utilizing mechanisms like technology innovation centers, blockchain development centers, and blockchain promotion centers These initiatives create a more flexible legal environment for startup projects, offering dedicated incentives and facilitating access to capital from financial institutions.
3.2.2 Developing human resources to meet requirements
The Vietnamese market currently has limited applications for blockchain technology, with a low number of companies operating in the FinTech sector According to a 2018 report by Ernst & Young, only 14% of FinTech companies in Vietnam are involved in blockchain, lending, and money transfer services.
Figure 3.2: Percentage of Fintech Companies in Vietnam
To effectively meet the demands of blockchain technology platforms within high-tech companies, it is essential to swiftly develop and implement a comprehensive human resource development strategy.
Training institutions are enhancing the curriculum for finance and banking students by incorporating advanced technological knowledge, including blockchain, big data, artificial intelligence, peer-to-peer networks, and information security systems Additionally, information technology students aiming to engage in blockchain development for international trade financing must also acquire essential knowledge in banking and finance.
Schools should establish partnerships with banks to enhance educational opportunities Fintech companies must facilitate internships and provide students with access to practical experiences and innovative research in technology, business, products, and services.
Thirdly, improve the quality of human resources throughout the industry in terms of professional skills, informatics, and foreign language
53 skills to adapt to banking activities by applying high technology such as blockchain, artificial intelligence, etc
Banks should implement training policies for their on-site workforce to enhance specialized knowledge and ensure proficiency in technology applications, particularly in financial services and blockchain technology.
Domestic training institutions should establish policies to collaborate with foreign countries, leveraging technical support and guidance from international organizations like the World Bank and the Development Bank.
3.2.3 Establishing a management agency for blockchain application activities
During the evolution of blockchain technology, regulatory bodies play a crucial role in ensuring that all blockchain networks adhere to both Vietnamese and international regulations These authorities are also tasked with guiding and encouraging users in their participation within blockchain ecosystems.
The development of blockchain technology shares similarities with the evolution of the internet, suggesting that a management model for blockchain applications could be based on the Vietnam Internet Center (VNNIC) Since its inception, VNNIC has played a crucial role in advancing internet governance and oversight in Vietnam.
Vietnam's Internet into the world, being the focal point of Vietnam's Internet, and providing information, guiding Internet users in Vietnam
Accordingly, the agency managing the application of blockchain technology will have the following basic functions and tasks:
- System control, certification, and authorization for blockchain platforms
- Develop plans for development and investment in technical infrastructure following practical requirements
- Research, propose and coordinate with functional units to develop legal documents on resources on blockchains on the use of blockchains nationwide
- Ensuring safety and security for the national blockchain system
3.2.4 Building a blockchain network with many participants