Category Archives: FinTech

Three things crypto isn’t….

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Often, when the topic of cryptocurrency and blockchain comes up in conversation during social gatherings, I frequently hear that “crypto is a criminal venture, it’s a scam, and in any case, it has nothing to do with my life, so I can ignore it.”

Of course, there is an element of truth in each of these allegations. But the same level of scepticism or denial could be levelled at traditional finance systems (remember Enron, Bernie Madoff, Nick Leeson, LIBOR, the GFC….), on-line gambling (the house always wins….), and the early days of the Internet (I still recall one colleague saying “www” stood for “World-wide wait”…).

So allow me to address the charges frequently thrown at crypto:

1. “Crypto is only used by criminals.”

The irony is, of course, that blockchain is one of the most transparent financial systems ever built. Every transaction is recorded, permanent, and visible. It’s not the best tool for someone trying to hide something. Physical cash is opaque and frequently utilised in criminal enterprise.

2. “It’s a scam.”

Some of it probably is. But fraud, money laundering, hacking and illicit activity exist in traditional finance too. The difference is nobody calls the entire banking system a scam because of it. Crypto is just newer, and newer things attract more suspicion.

3. “It has nothing to do with my life.”

This one is the biggest misconception of all. If you’ve ever sent money overseas, there’s a good chance the payment provider used a blockchain or distributed ledger technology to process it, you just didn’t realise. Think of the Ripple Ledger, stablecoin networks like Circle, and the numerous projects that Chainlink is facilitating within inter-bank systems.

If you’ve ever tapped your phone to pay for something, you’ve used a digital wallet. A digital wallet in crypto works the same way, it holds your assets and proves they’re yours, and allows you to transact with those assets.

The only difference is there’s no bank sitting in between you and those transactions. The technology isn’t something new, you’re already using a version of it, you were just unaware.

Crypto is real and it’s already in your pocket.

The only things often missing are awareness, education and understanding.

Next week: Time for age limits on religion?

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My thanks to Simian Giria for helping to initiate this topic.

What “wallet” it say about you?

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Just as your e-mail domain name can say a lot about how/when you first got online, I have a theory that our choice of digital wallet will also reflect our blockchain, crypto and web3 profile. (Remember those early ISPs and e-mail services such as AOL, Lycos, Compuserve and Pacific Internet?)

Part of the challenge with early digital wallets was the UX/UI – before the advent of software, browser-based and hardware wallets, users relied on “paper wallets” to manage their private keys. The first software wallets needed to be set up very carefully, so that your seed phrase or private key was not stranded on an abandoned hard drive, and thus lost forever. I think the first BTC wallet I used was CoPay, which was an early multi-sig wallet, but which has largely been discontinued. The arrival of browser extensions such as MetaMask have made a difference when it comes to bridging between chains, and managing a wider range of assets.

Even though there is more interoperability between digital wallets (cross-chain, multi-asset), dedicated applications are still needed for BTC and other chains. Also, some use cases (iGaming, web3/DeFi) may demand more specific wallets to support particular functionality. But like many crypto users, I still maintain about 6 different applications, including exchange-based wallets.

I suppose the eventual user experience will be a seamless transition between crypto, web3, DeFi, TradFi, NFTs and RWAs. But until then, stay safe and make sure you know where your private keys are at all times!

Next week: Signing off for 2024….

 

 

Notes from Hong Kong

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My personal relationship with Hong Kong stretches back 30 years – to the time I moved there from London in 1994. I arrived on a 1-2 year contract, and ended up living in the city for 6 years. Since then, I have continued to visit at least once a year, and my latest trip earlier this month was the fifth since hotel quarantine was lifted in October 2022, following the global pandemic.

Despite the significant political, demographic, social and economic upheavals of recent years, in many ways Hong Kong remains the same. It still acts as a fulcrum between East and West, and an important trading entrepôt for mainland China and the rest of the world. There are still the evident paradoxes represented by Hong Kong’s ancient traditions and modern values, combining spiritual beliefs with materialistic tastes, and vertiginous high-rises set against mountainous backdrops and waterfront vistas.

From an economic standpoint, Hong Kong remains in something of a lull. People I spoke to commented that the SAR government needs to find new sources of income, especially as the property market (a cornerstone of the local stock exchange) remains patchy, and visitor numbers are only about 50% of pre-pandemic levels.

As I have mentioned in a previous blog, Hong Kong is usually resilient and adept at reinventing its financial fortunes.

For these reasons, the Hong Kong administration is pursuing a fairly aggressive policy of promoting itself as an attractive global venue for the digital asset industry in part to reinvigorate the local capital markets, in part to outpace its regional neighbour and rival, Singapore. (Plus, the SAR acts as something of a test bed for the rest of the PRC.) According to people I spoke with, there is some difference of opinion as to how many digital asset exchanges are actively pursuing a Virtual Asset Service Provider (VASP) license, given that only two licenses have been granted so far, while a number of applications have been withdrawn, refused or rejected for being incomplete.

During my visit, I was granted a 1:1 interview for Brave New Coin with Yat Siu, co-founder and Chairman of Animoca Brands, a leading player in web3.0, NFTs, the metaverse and, potentially, stablecoin issuance. A major advocate of digital property rights, Siu is a very influential figure within the fintech scene, and I expect to see many more announcements from his company leading up to, and during, major events such as Token2049 and Hong Kong Fintech Week. I also met with clients and contacts across crypto exchanges, hedge funds, VCs, brokers and tech providers. All remain suitably bullish on the digital asset sector, although some considered that there needs to be some industry consolidation, to soak up excess infrastructure and to stabilise the entry of institutional fund managers.

Finaly, I found time for some contemporary art exhibitions, confirming that Hong Kong continues to establish its profile in the arena of global culture. There was Bruce Nauman at the JC Contemporary in Tai Kwun, I.M.Pei and Henry Steiner at M+, and even Banksy and Damien Hirst at Sotheby’s Maison at Chater House. Of course, this being Hong Kong, the displays in Sotheby’s showrooms are not too dissimilar to the luxury goods on sale in the surrounding malls.

Next week: Postcript on Tarantino vs Ritchie

 

RWAs and the next phase of tokenisation

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In the blockchain and digital asset communities, there are currently three key topics that dominate the industry headlines. In the short term, the spot Ethereum ETFs are finally due to launch in the USA this week. Then there is the perennial long-term price prediction for Bitcoin. In between, much of the debate is about the future of asset tokenisation, specifically for real-world assets (RWAs). Add to the mix the cat and mouse game of regulatory oversight/overreach and the rapid growth of fiat-backed stablecoins, and there you have all the elements of the crypto narrative for the foreseeable future.

The general view is that tokenising traditional assets such as real estate, equities, bonds, commodities, stud fees, art and intellectual property, and issuing them as digital tokens on a blockchain has several benefits. Tokenisation should reduce origination and transaction costs (fewer intermediaries, cheaper technology); reduce settlement times (instant, compared to T+1, T+2, T+3 days in legacy markets); democratize access to assets (using fractionalisation) that were previously available only to wholesale investors; and give rise to further innovation. For example, imagine hybrid tokens that comprise equity ownership; a right to a share of revenue streams; and membership discounts. Think of a tokenised toll road, or a sports stadium, or an art work that gets hired out to galleries and is licensed for merchandising purposes.

There are still quite a few issues to iron out, such as: the technology standards and smart contract designs that will originate, issue, distribute, track, cryptographically secure and transfer the digital tokens, both on native blockchains and across multiple networks; the role of traditional players (brokers, underwriters, custodians, trustees, transfer agents, payment agents, and share registries), and whether they are needed at all once assets are secured on-chain; and verification, certification and chain of ownership (given that an asset expressed as a digital token is very similar to a bearer bond – my private keys, my asset).

Last week, Upside in Melbourne hosted a panel discussion entitled: “Tokenise This! Unlocking the Value of Real World Asset Tokenisation”. The speakers were:

Richard Schroder, Head of Digital Asset Services, ANZ Bank

Lisa Wade, CEO, DigitalX

Andrew Sallabanks, Head of Strategy and Operations, CloudTech Group

Alan Burt, Executive Chairman, Redbelly Network

Shane Verner, A/NZ Sales Director, Fireblocks

Each of these firms has been working on a number of tokenisation projects such as stablecoins, real estate, government bonds, credit portfolios, fund of funds, and even stud fees. The key message was “faster, cheaper” is not good enough – RWA tokenisation solutions must offer something that is much better than traditional processes, and does not add friction (if anything, it should reduce current friction).

There were frequent references to fiat-backed stablecoins. In some ways, the tokenisation of real estate, bonds and equities is an extension of the tokenisation of money (as illustrated by stablecoins). However, there was no specific mention for the role of stablecoins in RWA tokensiation, for example, as on/off ramps, and as settlement instruments for the pricing, transfer and valuation of RWAs.

From an Australian perspective, the prospect of regulation (particularly for custody, crypto exchanges and brokers, and payment platforms that use stable coins) looms large. Generally, this was welcomed, to provide clarity and certainty. But without some specific provisions for crypto platforms and digital assets, if everything is brought under the existing ASIC/AFSL regime it will exclude many startups and smaller providers due to exorbitant capital adequacy and insurances etc.

Finally, despite the nature of the organisations they work for, all of the panelists agreed that “cryptographic trust is better than institutional trust”.

The potential for tokenising traditional assets has been around for several years. And while it is still relatively early in its evolution, the few listing and trading platforms for tokenised assets that have already launched have struggled to gain traction. They have few listings, limited liquidity, and minimal secondary trading – so, lack market depth. It feels that while the market opportunity may be huge (and the enabling technology is already here), there needs to be a more compelling reason to adopt tokenisation. Hopefully, that will emerge soon.

Next week: Album Celebrations