Where does Bangladesh stand when it comes to adopting Blockchain technology?

In 2016, North Korean hackers stole $81 million from Bangladesh Bank. Known as the “Lazarus Heist”, it is the largest cyber heist in the world to date.

The money was stolen from Bangladesh Bank’s account at the New York Federal Reserve Bank. A shocking aspect of the historic heist was that the hackers were able to gain access to SWIFT, considered the most secure method of transferring large sums of money from bank to bank.

Although most high-value financial transactions in the world are conducted through SWIFT, it has been criticized from time to time for “inefficiency”. In 2018, for example, the Financial Times noted that transfers are “time-consuming, costly and lack transparency.”

As US Congresswoman Carolyn Maloney, a member of the Congressional Committee on Financial Services told the BBC “with SWIFT supporting so many billions of dollars of global trade, a hack like this [Lazarus Heist] can fatally undermine confidence in the system.”

Istiaque Ahmed agrees with this view. He is a blockchain developer and researcher at the Blockchain Economy Research Center at the Gwangju Institute of Science and Technology (GIST), South Korea. According to him, if blockchain technology is used, this type of financial fraud can potentially be prevented.

To date, a few financial institutions in Bangladesh have already started adopting blockchain technology such as Standard Chartered Bank, Prime Bank, HSBC Bank etc. as well as bKash. Also, a few agro-tech startups have adopted the technology as a pilot project, including Krishi Swapno.

Bkash, for example, introduced blockchain in 2020 to facilitate inbound remittances from Malaysia. Bkash partnered with Mobile Money (a Malaysian mobile wallet company) and Ripple (a blockchain-based global payment solution provider) to allow wallet-to-wallet payments to create this remittance corridor between the two countries.

Meanwhile, the Bangladesh-based banks have been conducting a series of letter of credit (LC) transactions through blockchain in the past two years. Krishi Swapno, which calls itself a blockchain-based agricultural technology platform, has reportedly implemented blockchain on a supply chain pilot project.

How blockchain works

First, let’s understand the basic concept of blockchain technology. To do that, IBM’s book “Blockchain for dummies” comes in handy. IBM describes blockchain, briefly, this way: Blockchain is a shared, immutable ledger that simplifies the process of recording transactions and tracking assets in a business network.

The key elements of a blockchain are a) distributed ledger technology; b) immutable records; and c) smart contracts. And this is how blockchain works: As each transaction occurs, it is recorded as a “block” of data; each block is connected to those before and after it; and transactions are blocked together in an irreversible chain: a blockchain.

A valid transaction must have an entry in any system’s database. In earlier times, for example, banks had entries in the ledger (a book in which monetary transactions are recorded). Blockchain is such a ledger where there are many blocks side by side, thus creating a chain. Each block contains all the data for all the transactions that took place during a period.

This data is open but encrypted, i.e. anyone can see this data, but to read it you need a “private key”. This means that only if you have made a transaction you can read all your transaction information from here using its private key; no one else can. But what people want to see is the transaction volume.

Blockchain in Bangladesh

Only a few examples of blockchain use have been recorded in Bangladesh in the last couple of years. Most are on a pilot basis or individual case use. While a few financial institutions have also introduced this technology, it is not widely used in the country.

Since 2020, bKash has used state-of-the-art blockchain technology to facilitate safer, faster and reliable inbound remittances. In a response to our email, bkash’s communications team responded:

“In a nutshell, the use of blockchain has simplified bKash’s remittance service and ensured these: Decentralized structure; Improved security and privacy; Tokenization (security feature); Speed ​​(real-time update); and Visibility and traceability.”

They added, “Notably, Malaysia is one of the top 10 sources of remittances for Bangladesh. This partnership has created the facility to better serve senders with a more cost-effective, fast, transparent and reliable experience of sending remittances to millions of non- records. -resident Bangladeshis worldwide. The objective of this partnership is to provide great convenience to both receivers and senders and further contribute to Bangladesh’s national economy by encouraging overseas remittance through legal channels.”

Prime Bank claimed to be the first Bangladeshi bank to execute an interbank blockchain LC transaction in December 2020 with HSBC Bank. The pilot transaction was completed through Contour – a global blockchain network – where a domestic LC was opened by Prime Bank on behalf of Ananta Group. This transaction was done for the import of raw materials from Tamishna Group, a customer of HSBC Bangladesh.

They said: “The end-to-end process of pre-negotiation and drafting of LCs by importer and consignee, approval, issuance of LCs and presentation of documents was all completed digitally through Contour’s network. The transaction required no paperwork or need for physically visiting banks. Instead, all parties involved in the process—buyers, banks, and beneficiaries—logged into Contour’s network to perform any activity.”

In August 2020, Standard Chartered Bank executed a blockchain transaction by issuing an LC for Viyellatex Ltd, an RMG company in Bangladesh, acting as issuing bank for the applicant. This transaction was also done through Contour.

In the same year, HSBC became the first Bangladeshi bank to conduct a cross-border blockchain transaction. The bank opened a cross-border loan for the import of 20,000 tonnes of fuel from Singapore in favor of United Mymensingh Power Limited through blockchain technology. After opening the LC, United Mymensingh Power Limited told the media that while it used to take five to 10 days to open an LC earlier, it took less than 24 hours with the new technology.

Krishi Shwanpo, an agro-tech start-up, has started using blockchain in its supply chain management. According to Zubaer Hassan, CEO of Krishi Shwapno, the stated aim of the project was to create a traceable environment by collecting data from all stakeholders in the supply chain – from farmers to businesses to customers. He hopes that blockchain technology will gain consumers’ trust in the value chain. Blockchain’s traceability means that customers can easily find information about products, such as the food’s origin and standard.

Benefits of blockchain

Md Al Amin, founder and CEO of Deepchain Labs, is also a lecturer in CS at AIUB. Deepchain Labs is a blockchain ecosystem company based in Bangladesh that provides services to overseas clientele.

“Blockchain technology is a new innovation in recent times. It is the most secure and open method of data storage ever invented. This technology is revolutionizing the speed and efficiency of transactions,” he said.

So far, the use of this technology is still in its infancy. But technologists largely agree that it can play a positive role in various industries and sectors, including banking, commerce, supply chain, asset management, digital identification and licensing, regulatory compliance, trade processing, insurance, anti-counterfeiting, etc.

“It means any industry that requires the exchange of information,” explained Md Al Amin.

In fact, businesses and financial institutions around the world are increasingly adopting blockchain technology. Although blockchain is usually associated with crypto, that is not always the case. Also, blockchain is not always about financial matters. It can be used for things like licensing, digitization of documents, certification verification, etc.

Many central banks are already exploring CBDC (central bank digital currency), which is based on blockchain. As of 2022, nine countries, including Nigeria, the Bahamas and Grenada, have rolled out their own CBDCs.

Last March, US President Biden instructed the country’s agencies to explore a government-controlled digital currency. Our neighbor India’s central bank, the Reserve Bank of India (RBI), said last year that it was exploring “a digital rupee” that would potentially be launched in the coming year. And according to the Atlantis Council’s CBDC tracker, around 80 nations have some form of CBDC project.

“Blockchain allows companies to have almost instant access to their funds from anywhere in the world at any time. Cash transactions can be run at a constant pace to meet the company’s working capital and global cash needs. And in this case, the security risk is less than any technology invented to date. That is, the security system is the strongest in blockchain technology,” Al Amin said.

He outlined an industry and how it can benefit from using blockchain: “The RMG industry is the main export sector in Bangladesh. Most of the raw materials in this industry are sourced locally, through inland letters of credit. These inland LCs involve a lot of tedious paper work. If these transactions can be moved into a paperless blockchain, great efficiencies can be achieved in local trade across this industry. There is great potential to scale up transactions over blockchain if all parties in the RMG supply chain can be added to this network ,” Al Amin said

However, Al Amin pointed out that even on a global scale, the application of the technology is still in its infancy. All the fanfare and optimism aside, the world’s largest banks and countries are cautiously watching the development of the technology. In most developed countries, central banks and other financial institutions are either experimenting with it or have introduced it on a pilot basis.

Essentially, it’s not all roses. Some of the questions are monetary policy influence and cyber security. And most importantly, why banks and governments are not rushing is that this technology requires a break from the traditional financial structure, which could prove risky to rush.