THE STATE OF BLOCKCHAIN 2020 & OPPORTUNITIES FOR SMALL REGIONAL MARKETS

Blockchain 2020 has finally arrived. It’s time to take a closer look at the current global landscape and for the rest of 2020.

WRITER: KIRK PHILLIPS, CPA, CMA, CFE, CBP, MANAGING DIRECTOR GLOBAL CRYPTO ADVISORS, INC.

THE BIG STORY

Libra, the Swiss based foundation led by Facebook, announced their white paper and plans to release a stablecoin in June 2019. This was one of the biggest news stories of 2019 in the cryptocurrency and blockchain space, and even global financial markets in general. A stablecoin is simply a digital currency pegged to a respective fiat currency like USD or the Guilder, a commodity or some combination (e.g. 1 stablecoin = 1 USD). The big announcement turned into an “incendiary event” waking up central banks and especially the US Congress focusing on some disruptive tech about to shift the balance of power in world reserve currencies. Facebook Founder, Mark Zuckerberg, was grilled by Congress in October 2019 when Congresswomen Maxine Waters called on Libra to bring their stablecoin project to a grinding halt.

INCENDIARY

The event is incendiary because Bitcoin has been plugging away and sufficiently decentralizing itself over the last 10 years gaining superpowers along the way that Libra will never have. It’s not like Bitcoin has gone completely unnoticed, however many incumbents have largely dismissed its capabilities allowing the grassroots tech to secure itself as the backbone of the entire cryptocurrency ecosystem. Bitcoin is an alternative universal store of value with a fixed supply governed by math recorded in an unstoppable ledger. It deserves far more attention than Libra from a potential disruption perspective. For example, Maxine Waters would have failed if she “called on Bitcoin” to testify to Congress because it’s not a company, has no CEO and no corporate offices. There are no stakeholders in the traditional sense.

BLOWING OFF THE DUST

Meanwhile, after the Libra announcement, the People’s Bank of China dusted off their central bank digital currency (CBDC) project from prior years going full steam ahead in a secret bunker full of developers. A Forbes article, “Central Banks Are Not Issuing Digital Currency Soon”, released in January 2019 reported on a Bank of International Settlements (BIS) survey. The BIS stated, “although a majority of central banks are researching CBDCs …. over 85% of central banks see themselves as either somewhat unlikely or very unlikely to issue any type of CBDC”. One year later a Coindesk article, “10% of Central Banks Surveyed Close to Issuing Digital Currencies”, released in January 2020 reported on a revised BIS survey stating, “Central banks representing a fifth of the world’s population say they are likely to issue the first CBDCs in the next few years”. And further, “... 30 percent of respondents said they had active plans to issue some form of digital currency”.

THE SWING

The sentiment among central banks made a wild swing in 12 short months. The Libra announcement which “started the fire” happened smack in the middle of one year between the two articles. Governments aren’t known to be nimble and quick, so you know something major happened when central banks move that fast. Also, in January 2020, the World Economic Forum (WEF) released the “Central Bank Digital Currency Policy‐Maker Toolkit” whitepaper as a guide for central banks. The WEF states, “This document serves as a possible framework to ensure that any CBDC deployment fully considers the costs as well as the potential benefits…”.

Think there might be something to this blockchain and cryptocurrency thing?

THE QUIET COMPETITOR

Whether Libra launches or not, there’ll be many other stablecoin projects potentially outpacing Libra. Celo, an open source platform, has been plugging quietly away since 2017 with over $30 million of venture capital. It launched a 50-member foundation, Alliance for Prosperity, with some of the same Libra members.

CO-EXISTENCE AND CHOICE

Even though Libra isn’t a corporation, central banks don’t want “tech companies” issuing their own token because it’s viewed as a direct threat to monetary control. Eventually “corporate coins” will emerge and live alongside CBDCs, Bitcoin and other public blockchains. For example, we could have a digital wallet in the future with Google coin, Alibaba coin, Curacao Coin, USD coin and Bitcoin. Those tokens couldn’t be more different from one another and there likely won’t be a winner take all. Instead, we get the benefit of choice which is something we never had before.

INCLUSIVITY AND BENEFITS

The result of all these innovations is far greater than more inclusive and better financial services. Blockchains create a shared ledger of information rather than each party keeping their own version. Billions of dollars are wasted annually reconciling everyone’s version of accounting to everyone else’s version of accounting among every industry in the entire world. The benefits are endless considering Walmart claims they can track and identify a food borne illness in 2 minutes rather than 7 days. Medical records can be shared faster while security and privacy of the information is far superior than the old model. Let’s hope the savings and quality of life filters down to everyone.

REGIONAL MARKETS

Just like a super tanker needs miles to change course on the ocean, large countries and mega corporations can’t change as quick as smaller organizations. Mauritius, Malta, Bermuda, Isle of Man and other small countries have created regulatory sandboxes as a destination for blockchain startups having to navigate huge regulatory uncertainty in countries such as the US. These countries realize blockchain is a once in lifetime opportunity to create and export tech as a natural resource. Technology is intangible so it can scale creating tremendous value regardless of the geographical size or population of a country. Therefore, smaller regional markets can benefit from being blockchain friendly.

PERFECT TIMING

Tourism can also attract crypto enthusiasts and “crypto whales”. Banks and gaming casinos can benefit from a blockchain based KYC AML solution which reduces the cost of compliance and comes with built in audibility. Merchants and consumers may benefit from user-friendly blockchain apps with killer interfaces rather than the otherwise chunkiness of using cryptocurrency addresses. For example, Celo’s app allows users to send its USD pegged stablecoin by texting a message. Users will pay for things with mobiles just like speed pay services Apple Pay and Google Pay using blockchain without even knowing it. Paper cash will essentially get turned into digital cash fully in the users control which is more hygiene friendly in the age of coronavirus. Bills and coins are also very expensive for central banks to maintain. It’s a perfect time for Curacao to take advantage of the opportunity and realize the dream of the money sovereignty initiative. Embrace the tech and welcome the benefits.