Asia emerging as a leading Blockchain giant
Most people are aware that the government has enthusiastically promoted Blockchain in Malta and new laws have been enacted to regulate it.
This innovative tool can be best described as distributed decentralized ledger technology which was first introduced in 1991 by Stuart Haber and W. Scott. They wanted to implement a system where document timestamps could not be tampered or changed. Following the lead taken by Haber and Scott, the technology was the object of more research carried out in Japan by Satoshi Nakamoto. In 2008, he implemented blockchain in a fully distributed decentralized digital currency system using the ledger technology where transactions were distributed among the public network, instead of into database. The transactions were stored in such a way that it allowed high accuracy, and an apparently unbreakable security compared with the traditional system.
In that year, Nakamoto issued a white paper called “Bitcoin: A Peer to Peer Electronic Cash System”, which was the precursor for the second innovation of blockchain called “smart contract”. The latter is embodied in a second-generation blockchain system called Ethereum (Vitalik Buterin, 2015). Ethereum systems allow financial instruments, like loans or bonds, to be represented, rather than only the cash-like tokens of the bitcoin. As more people discover the advantages of the blockchain concept beyond just Bitcoin, they have a clearer understanding of its advantages and are intrigued about the many exciting applications that can be developed. The emergence of Asia as the birthplace for this revolutionary mechanism has obviously spurred other Asian countries to start experimenting with it.
This topic was one of the many items on the agenda discussed last week at the Crypto annual summit in Zurich which I attended place. It is obvious that Asia has the potential to grow into the largest blockchain innovation centre. It could become a dynamic testing ground for the new business models promised by blockchain, as the region has high demand for financial inclusion and the need for more efficient, convenient and affordable products and services. Asian regulators have taken a bold albeit cautious approach to the technology, being impressed by the significance of blockchain and cryptocurrencies. A number of Asian banks have also become aware that the adoption of the underlying technology of Blockchains is inevitable. One such milestone occurred last year, when Bitcoin was recognized as legal tender in Japan. It was also the year in which Japan’s Financial Service Agency (FSA) approved 11 exchange operators. The Japanese government has set up a legal framework through the PSA (Payment Services Act) that legalizes the use of cryptocurrencies as an official payment method.
China followed suit and has explicitly made blockchain a pillar of its economic development strategy. As a result, speakers at the Crypto Summit in Zurich (see picture above) believe Asia will become a crucial engine for venture capital investment and a hotbed for blockchain innovation – perhaps sooner rather than later. Consider that fintech financing in Asia-Pacific doubled from $5.2 billion in 2015 to $11.2 billion in 2016, compared with $9.2 billion in the US and $2.4 billion in Europe. It was no surprise that the region advanced the adoption of mobile banking and surpassed other geographic areas in Europe for mobile finance application usage.
It is interesting to note that by 2020, more than half of the world’s middle class could be in Asia-Pacific, accounting for over 40 per cent of global middleclass consumption, leading to a larger market for financial services in the region. Asia-Pacific is also home to a forward-looking regulatory environment. Japan and South Korea have regulated cryptocurrency environments, and their central banks are in the process of licensing exchanges. In an interesting development, banks in China are collaborating with local eCommerce giants database to track the quality and compliance of products along the entire supply chain to improve procurement processes and to help distribute revenue fairly and transparently.
Equally active is South Korea which has start-ups keen to launch ICOs, funds and turn their focus on investing in cryptos and local exchanges. This is a phenomenon that exploded in trading volume. Even when Korean regulators signalled caution with regard to token sales, projects continued to push ahead by migrating to offshore havens for the purposes of fundraising.
One may ask how Europe is coping with the blockchain buzz. In fact, there are a number of EU countries which are trying (like Malta) to climb on the bandwagon. A typical country is Switzerland. In the canton of Zug, over three hundred startups are active in the sector. The sector embraces asset ICOs which are treated as alternatives to securities and therefore conform to legal requirements applicable to securities. It involves the issue of cryptocurrencies which are stored on distributed networks termed – E-Coins. ECoins usually have an 80 per cent backing of tangible assets although there were scams which turned out to be complete fiascos to investors. In conclusion, the message given by experts at the Crypto Summit in Zurich reinforces the ambition by the Asian community to become leaders in the blockchain world. In my opinion, Malta should not stand idle in Asia’s shadow but hasten to consolidate its fiscal, legal and banking set-up to be able to compete if it wishes to become the unique Blockchain Island in the Mediterranean. The best way to achieve this is by striking a healthy balance between effective regulations and attracting financial institutions that are friendly to crypto business. Reaching a perfect equilibrium in blockchain regulation is the key to help us become the leading blockchain island. We can stand tall in the presence of Asian giants.