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.

The Malta Independent on Sunday - - BUSINESS & FINANCE - Ge­orge M. Man­gion

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.

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