Ask what problems they solve, how they solve it better


In the first part, we had explained and distinguished distributed ledger technology (DLT), blockchain, digital currency, cryptocurrency and bitcoins. Now, in this final part, let’s turn to the key concerns and approaches of public sector and regulators.


Bank Negara Malaysia (BNM) does not recognise any form of digital or cryptocurrency as a legal tender. What it means is this — don’t expect BNM to quote the exchange rate of ringgit against bitcoin or any coin tokens. They have issued several statements and policy documents on these, the most recent was in March this year where they issued a statement on Coinzer as an unauthorised cryptocurrency platform.

So, for those of us tempted to “invest” in initial coin offerings, or ICOs, beware. You are not protected. BNM is not the only central bank taking this stance. In fact, the Bank for International Settlements issued a statement in March warning cryptocurrencies can pose risks to financial stability.

At the other end of the spectrum, central banks of Sweden and Switzerland are thinking of their own cryptocurrencies.

Blockchain and DLT

During the last International Monetary Fund/ World Bank spring meeting in April, no consensus could be reached among central banks around how to regulate cryptocurrencies. The People’s Bank of China (the Chinese central bank or known as PBoC) banned trading of cryptocurrencies, but the US Commodity

Futures Trading Commission took a more lais-sez-faire approach by classifying cryptocurrencies as commodities.

Some central banks collaborate — like the Bank of Japan (BoJ) and the European Central Bank (ECB), as well as Bank of Canada (BAC) and the Monetary Authority of Singapore (MAS).

On the other hand, DLT and blockchain have better receptivity among central banks, given its multiple uses. A World Economic Forum (WEF) report estimates over 90 central banks are now in some form of discussions on blockchain and DLT, given their immense potential. Among the notable ones are:

• BoJ and ECB which completed Project Stella — a study released in March on the potential of blockchain for securities settlements.

• The South African Reserve Bank just provided an update earlier this month on Project Khoka, a proof of concept simulation of DLT for wholesale payments and settlements.

• MAS, PBoC, BAC, Banque de France, the Dutch Central Bank and Bank of England are also said to have some form of initiative or research on the subject. Areas include interbank payments, trade finance and securities settlements.

Unexpected Uses of Blockchain

The United Nations is looking at blockchain technology for financial inclusion — it was proven to be especially successful in enabling refugees to receive financial aid by giving them digital economic identities. A platform called BanQu enables this. The WEF had similar things to say, out-lining at least four other amazing uses of blockchain — to prevent human trafficking (a project with Microsoft Corp), to track blood diamond (diamonds mined in conflict countries are detected through a system called Everledger), registering land (being pioneered in Sweden) and to stem music piracy (Imogen Heap has produced music on the blockchain that enables the proceeds to be shared directly with music creators).

The use of smart contracts to enhance transparency on the blockchain is also the basis of how financial technology is pioneering the management of waqaf and the Islamic Development Bank is pioneering these social finance initiatives alongside sedeqah.

Perhaps a more profound impact is in championing financial inclusion. With an estimated two billion people worldwide unbanked, mobile could very well be a potential solution, given that mobile penetration is around five billion. To increase financial inclusion, mobile may be one way. At least, that was the story in Sub-Saharan Africa. Theirs is a story of financial inclusion through mobile money that is not necessarily through banks. M-Pesa is an often- quoted example which is immensely successful there, but not easily replicated elsewhere.

Mobile money and mobile payments are not easily “exportable” — the story of Apple Pay and Alipay is a good comparison.


Technology is not only disrupting the financial industry — it is across all sectors of the entire economy. Hence, Industry 4.0. We are going through profound changes, fast. To transition in line with these changes, several fundamental shifts are needed:

1. Collaborate for resources: Peer-to-peer across networks are reshaping the way businesses are run. A network-based approach enables efficient allocation of resources within a transparent environment. Peers on the same platform are each responsible for the trust and integrity that the platform represents. There is a greater call for self-discipline. Collaborate for resources to create a “win-win” situation. Airbnb Inc today has by far the most number of listings than the largest hotel chain in the world.

2. Platform economy: The economy will converge into platforms where the differentiator of each platform would be more of the experience and value extracted by the user. The reputation of the platform is built on these. Blockchain is a form of technology that can be used to power a platform.

The experience is dictated by those in the platform. Know who your peers are or risk your own reputation.

3. Digital strategy is not really a strategy: Digital is a means to an end. It is just a tool. Different economies, geographies and demographics will require different strategies. What, why and how are we using digital are the real questions that we need to ask ourselves. What is our focus, why is digital the best means to achieve our focus and how are we achieving it?

In reacting to DLT, blockchain and cryptocurrencies, ask what problems these can solve for us and how can they solve it better than the solutions we already have. Can they open us to a wider customer base that we desire than who we are already serving?

We risk adopting a herd mentality if we simply join the wave without having these questions answered.

  • Azleena Idris, the general counsel/head of legal at Kuwait Finance House (M) Bhd, was a senior Islamic finance regulator for more than a decade prior to rejoining the private sector last year. The views in this article are of her own and do not necessarily reflect the stand of Kuwait Finance House, the newspaper’s owners and editorial board.