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Business News/ Industry / Banking/  Blockchain could play a key role in financial inclusion in India: David Lee Kuo Chuen

Blockchain could play a key role in financial inclusion in India: David Lee Kuo Chuen

Singapore University economics professor David Lee Kuo Chuen on cryptocurrencies, such as bitcoin, and blockchain and what they can mean for fintech in India

David Lee Kuo Chuen, economics professor of financial technology (fintech), Singapore University of Social Sciences. Photo: Abhijit Bhatlekar/MintPremium
David Lee Kuo Chuen, economics professor of financial technology (fintech), Singapore University of Social Sciences. Photo: Abhijit Bhatlekar/Mint

Mumbai: The journey of cryptocurrencies and blockchain technology dates back to 2008—the year of the global financial crisis—when Satoshi Nakamoto published his white paper on the bitcoin. Nine years on, the world is still trying to make sense of this technology. Governments in Japan and China have taken the lead while India is close to deciding the way forward for bitcoins. Mint spoke to David Lee Kuo Chuen, economics professor of fintech, Singapore University of Social Sciences, about China and Japan’s regulatory stance on bitcoins and where blockchain is headed. Lee was in Mumbai for the Fintech Summit 2017: Blockchain for Business, organized by the Indian School of Business (ISB). Edited excerpts.

Why are China and Japan ahead of the curve when it comes to bitcoins and blockchain? Where does India stand at this point?

I think China and Japan are way ahead of the curve because China has been working on the identity system for quite some time. They have already announced that they will be launching blockchain officially. The local governments in China are working on their own programmes coinciding with the central government’s 5-year plan. China is moving at a fast speed. They have got a lot of funding. At the same time, the private businesses are doing really well because they have a lot of cryptographers in China. The business models coming from China are very innovative as well. Japan, on the other hand, is leading in regulation—in terms of legalizing payment systems. That will stimulate the interest of a lot of start-ups in Japan. When the changes are fully legalized and regulated, may be you will see other financial institutions and exchanges listing bitcoins. I think India is also seeing positive progress in the blockchain space. I see a lot of Indian companies using Singapore as their base. One of the reasons is that South-East Asia is a very good market. Relatively speaking, in South-East Asia, mobile penetration is going up very quickly. Its last regulation was very friendly for cryptocurrency. If you get the business model right you can move faster in Singapore. I think in India, financial inclusion will be a big push for the government. India can see financial inclusion as something where the blockchain industry can contribute and play an important role. Since there is a huge unbanked and underbanked population, India can also become a leader in blockchain in the world. I think in this space, nobody is as fast as China. In the regulated environment, only Japan and China are moving ahead quickly in terms of business models and regulation. I am surprised that Japan wants to experiment with this technology. But they seem to be very gung-ho about cryptocurrency. For that I respect them. I think Japan wants to gain leadership in bitcoins. Over the years their financial sector has not done really well. And suddenly there is a lot more interest in terms of the crypto world. I can’t see any other reason.

India’s central bank has been wary of bitcoins. Globally too other central banks have been considering launching their own virtual currencies. Why are central banks against existing cryptocurrencies? Why do they want to launch new ones?

Initially when the central banks warned against bitcoins, it was the right thing to do because bitcoins are a complex system. People should be aware of their complexity when they experiment with them. Over time, people have realized that bitcoins are quite resilient. However, at the same time, there are a lot of scam coins now. These scam coins pretend to be cryptocurrencies. Public should be aware that they should not buy something they don’t understand. Don’t put a lot of money into cryptocurrency. In the initial stage, treat it as an experiment and learn how the new economy works. I won’t advise you to put a lot of money into it unless you know this is what you want to get involved in.

As years pass, the central banks are realizing that printing money is a cost for them. Cash is not transparent either. Virtual currency is much more transparent. Central banks are realizing that they can save money, get transparency and more control. I think the world is moving towards e-wallets and e-currency and hence the interest from central banks for virtual currencies.

Bitcoin has been ruling the cryptocurrency world for a while now. However, in the last few months, other cryptocurrencies such as etherum and ripple have also seen growth. Is there any correlation between the pricing of bitcoins and other cryptocurrencies?

People came into the crptocurrency world when they were concerned about fiat currency. There are a lot of things that you need to worry about in a fiat currency system. There used to be not much correlation among cryptocurrencies. I think people are beginning to own more and more cryptocurrencies now. A lot of these tokens are interrelated so the correlation has gone up. Now it is bitcoin versus the rest of the cryptocurrencies. Currently bitcoins have 40-50% market share of cryptocurrencies in the world, in terms of value.

Blockchain works for sectors where you don’t want centralized control. Which are the sectors where you don’t need blockchain?

Blockchain is mainly decentralized technology. Hence, it depends on what level of decentralization you want to have—whether it is decentralizing services, technology or governance. Sometimes if you don’t need decentralization, there is no need to have blockchain. In this case, blockchain becomes inefficient in the sense that you need to have more storage space. For using blockchain, you really need to look at points where people don’t trust themselves and want to find some ways to work together. If everyone is trusted and may be you are just saving on cost, then it is a database. Say in a company everyone knows about a settlement in the books and everyone has a copy, then it is just decentralized database. You don’t need blockchain there.

Indian banks have worked on some pilot blockchain projects in cross-border remittances. How efficiently can you use blockchain for this purpose? However, no real blockchain-based transaction has happened yet. When do you think it will happen? Or is it a bubble?

The main problem in bitcoin currency is that it can’t be used in a shop. Once you can use bitcoins for shopping, it will be much easier for you to do cross-border. For instance, you can make money in Singapore and pay in Bangladesh. You don’t have to change dollars and open an account which will cost $10 when your pay is only $20. Every month if I send money to the Bangladesh bank account, over time I will have to incur a markup cost and remittance cost. So 16-17% of my money goes in charges. In case of bitcoin for cross-border remittances, I remit and I just pay the price difference.

The efficient process of blockchain will take some time. Once Japan actually accepts bitcoins as legal tender and Australia makes its stance clear, everyone is going to start jumping onto the bandwagon. The technology is good. Blockchain can solve some of the problems which we can’t right now. It all depends on the cryptocurrency economy and people—if they want to play that role and contribute to the betterment of the world. They need to come into the limelight by helping the government solve the problem that they are unable to solve. I think next year a lot of governments will be jumping on to the bandwagon. That is my prediction.

You mentioned that a company in Singapore, TenX, allows Visa card to use bitcoins and convert them to fiat currency. How does it actually work and will we see more products like these?

TenX links bitcoins with Visa and MasterCard. So if I come to a hotel in India, I can use my bitcoins here to pay my bill through the Visa card that they offer. The hotel will never know that I have paid with bitcoins since they collect in fiat currency. The hotel doesn’t have to have a tie up with TenX. Since the card is issued by Visa, the communication happens between TenX and Visa. We will see more such inclusive blockchains coming in. Suddenly before you know, an equivalent of MasterCard or Visa will come in and people will get used to it.

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Published: 25 Jul 2017, 12:17 AM IST
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