Blockchain calls for regulatory sandboxes and education

Blockchain calls for regulatory sandboxes and education

Blockchain applications have gained massive interest among industry and investors in Vietnam, but better regulations and more education are needed to capitalise in this exciting field.

Riding the global wave

First introduced in 2008, blockchain quickly made a mark on the global economy through the rise of the cryptocurrency Bitcoin. Emerging economies like Vietnam have been fast to ride the trend.

Blockchain applications became prominent through the success of Bitcoin. Blockchain applications became prominent through the success of Bitcoin.

Vietnam ranked 8th worldwide in cryptocurrency activity in 2019 according to DataLight, with 2.5 million monthly active trading activities on global exchanges. 

Early Vietnamese start-ups in the blockchain space have raised more than $US150 million through public token offerings in recent years, avoiding the traditional funding route of venture capital. 

“Even though a lot of funding has been invested in the blockchain space in Vietnam, local blockchain adoption is still at an early stage,” said RMIT Vietnam Lecturer and Acting Program Manager for Finance, Dr Binh Nguyen at a recent conference held by the Ministry of Justice.

The conference focused on the regulatory framework for blockchain-based applications and services. It built upon a high-level dialogue in September 2019, also held by the Ministry of Justice and featuring speakers from RMIT’s Blockchain Innovation Hub and Centre of Digital Excellence. 

Blockchain adoption has been hampered by some cases of fraud due to a lack of a strong regulatory framework, Dr Nguyen stated in his presentation.

A 2019 report by Asia Blockchain Review calculated that Vietnamese investors have lost more than $US700 million due to multi-level marketing scams involving Bitcoin. 

One of the missing pieces in the puzzle is education about blockchain. RMIT Vietnam is addressing this gap by offering courses in cryptofinance & cryptocurrency and the blockchain economy through the School of Business and Management in the coming time.

The new courses will equip students with financial and economic tools to evaluate Blockchain applications in finance and economics, such as Bitcoin and Ethereum.  

RMIT University was previously ranked third in the world for cutting-edge innovation when it comes to combining economic and technological research, according to Kaiko, a leading provider of institutional grade cryptocurrency market data.

Dr Nguyen Thanh Binh stressed the importance of proper education and regulatory framework for blockchain in his presentation to the Ministry of Justice. Dr Nguyen Thanh Binh stressed the importance of proper education and regulatory framework for blockchain in his presentation to the Ministry of Justice.

Tackling the regulatory challenge

RMIT’s Dr Nguyen said that Vietnam is in serious need of a regulatory framework that can encourage the adoption and innovation of blockchain products while protecting consumers and investors from fraudulent practices.

Dr Nguyen advocated for the use of blockchain regulatory ‘sandboxes’, which provide a ‘playground’ for small-scale testing of blockchain products with select service providers under close supervision of the regulators. This model has gained traction in several economies in Asia.

As early as 2016, the Monetary Authority of Singapore established a regulatory sandbox for financial technologies, including blockchain. Capital markets blockchain platform iSTOX has recently graduated from this sandbox and become the first fully-regulated platform in Singapore to offer issuance and trading of digitised securities.

The Japanese government also introduced a sandbox regime in June 2018 to accelerate new business models and technologies. Several innovative start-ups have used this sandbox to harness the power of blockchain.

Meanwhile, the Bank of Thailand introduced a sandbox to test blockchain usage for letters of guarantee and cross-border fund transfers in late 2017.

In general, companies joining a sandbox can operate with special exemptions and might have special rights. Upon successful experimentation and on exiting the sandbox, the companies must fully comply with the relevant legal and regulatory requirements.

The key benefit is that regulators can revise and shape the supervisory framework quickly according to the insights gained from the sandbox. 

According to Dr Nguyen Binh, ongoing updates to the blockchain ecosystem are necessary. According to Dr Nguyen Binh, ongoing updates to the blockchain ecosystem are necessary.

Prospect for sandboxes in Vietnam

The Vietnamese Government has been actively exploring the use of sandboxes recently.

In early January 2020, the Government’s Resolution No.01 on realising this year’s socio-economic development plan made it a goal to issue a regulatory sandbox for fintech activities in the fields of banking and non-cash payment.

Previously, the Prime Minister’s Decision No.999, dated 12 August 2019, proposed using regulatory sandboxes for new technologies that benefit the sharing economy.

“This shows there is high-level commitment from the Government,” said Dr Nguyen. “What’s next is to prepare all the important factors that go into sandboxes.”

These include the setting of objectives, resource allocation, and selection criteria for businesses joining a sandbox. The space, time and scope of each sandbox needs to be clearly defined, too.

Besides regulatory sandboxes, Vietnam also needs to develop a proper ecosystem to speed up blockchain adoption.

“Blockchain technology is just over 10 years old and new applications and products are being introduced continuously. That’s why ongoing updates to the ecosystem are necessary,” Dr Nguyen said.

Story: Ngoc Hoang

19 February 2020

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