UnionBank, one of the biggest banks in the Philippines, is working with US-based blockchain software technology company ConsenSys founded by Ethereum co-founder Joseph Lubin to assist local financial institutions in integrating Ethereum and blockchain-based platforms.
Remittance-Focused Industry
The Philippines has a unique financial infrastructure, and the banks are aware that only the upper class and high net-worth individuals can afford banking services. The vast majority of individuals and even businesses rely on local remittance networks and outlets such as M Lhuillier, Cebuana Lhuillier, Palawan, and LBO to send and receive payments both domestically and internationally.
Remittance outlets are often more readily accessible in rural areas and provinces, especially in areas that are not profitable for banks to establish offices and run all-inclusive operations. In major cities like Cebu, remittance outlets are seen in every corner of every street, sometimes 10 meters apart from each other.
The main reason behind the difficulty of acquiring bank accounts and services in the Philippines is the base balance required by financial institutions. UnionBank, for instance, requires users to store more than $2,000 as default balance, and the failure to maintain a balance of over $2,000 could result in penalties.
In a heavily Remittance-focused country like the Philippines, any technology that could provide transparency, security, robustness, and efficiency in processing transactions is crucial. ConsenSys and UnionBank believe that the blockchain could be the technology that might be able to drastically improve the current financial infrastructure and ecosystem of the Philippines.
Justo Ortiz, the chairman of UnionBank, stated that the blockchain could “crack the hole of financial inclusivity,” if implemented and commercialized appropriately.
In the upcoming months, ConsenSys and UnionBank will closely collaborate to utilize Kaleido, an enterprise blockchain solution launched on top of the Ethereum blockchain protocol, to process information and transactions more securely and transparently.
Alai Garcia, ConsenSys Solutions Lead in Asia Pacific, said that UnionBank is their first bank client in the Philippines and that the country could be one of the few regions in the world that could maximize the benefits of using the blockchain as both public and private sectors are keen on applying blockchain technology to existing systems.
“Our appetite for experimentation is warming the country up for significant transformational change for the next generations to come,” said Garcia.
Vitalik Buterin’s Blockchain Vs. Centralized System Cost Comparison
At the Deconomy 2018 blockchain conference held in Seoul, Ethereum founder Vitalik Buterin, who has continued to work on innovative scaling solutions like Sharding and Plasma throughout the past year to improve the scalability of the Ethereum network, stated that the cost of processing information on the blockchain is substantially higher than centralized systems like Amazon Web Servers.
“Blockchains by themselves are a far less efficient computer and database than technology that has existed for 40 years. If you want to talk about what blockchains are for, the answer is not simple raw efficiency. If you look at Amazon EC2 pricing, the cost of this is about $0.04 per hour.
How much does it cost to make the Ethereum world computer to do stuff for you? Every Ethereum block, which comes every 14 seconds, on average takes about 200 milliseconds for my laptop seconds to process. A block has a million gas and let’s assume the average gas price of 4 GWEI. The cost of filling up an Ethereum block is $13.4 per 200 milliseconds,” said Buterin, emphasizing that using the Ethereum supercomputer leads the overhead to increase by a factor of 1 million.
Buterin also noted that the overhead of using Ethereum over Amazon is larger by a factor of 1 million.
Hence, UnionBank and other five rural banks in the Philippines that are utilizing the blockchain to process transactions have to take into consideration that blockchain technology isn’t necessarily the most efficient technology to process information. A proper use case and application would have to be selected to justify the overhead and opportunity cost of using the blockchain over centralized systems.
