Blockchain and the future of the banking system

At a seminar on “Opportunities and challenges to apply blockchain to operations in the banking and finance industry”, Mr. Phan Duc Trung, Standing Vice Chairman of the Vietnam Blockchain Association, noted seven relevant trends.

The first trend is Smart contracts. Smart contracts maintain accountability through automatic document monitoring, including if-then statements encoded on the blockchain ledger. When conditions in the contract are met, the algorithm will execute the specified result independently. The benefits of Smart contracts are transparency, high efficiency, and reduced costs and intermediaries.

The second trend is Initial Coin Offering (ICO). The ICO process is similar to the initial public offering (IPO) process but is not yet regulated by law. The third trend is Tokens collateralized by assets. The tokenization of financial instruments and physical assets is an emerging trend in the distributed ledger technology (DLT) world.

The fourth trend is NFT (non-fungible tokens). An NFT is a token that represents a unique, non-fungible entity, such as a work of art or a digital identity, etc., with the value of an NFT reflecting the value of the assets associated with it, but the asset does not necessarily include the artwork itself. Over the years, NFT has created opportunities for many artists and collectors, expanding its potential customer base globally.

The fifth trend is CBDC (Central bank digital currency). Currently, over 80 per cent of banks in the world are researching CBDC. The sixth trend is Defi (Decentralized finance). And the seventh is Robo-advisor (automated financial advice), in which automated apps use algorithms or AI to track crypto activity.

According to the Vietnam Blockchain Association, blockchain technology will change the future of the banking system, from having faster international money transfers, helping increase security and reducing fraud, significantly reducing banking service costs, and improving product quality, to reducing human error and accelerating peer-to-peer (P2P) lending.