With cryptocurrency technologies emerging as a major force in the financial industry across the Asia Pacific, and rapidly gaining traction, Bitcoin and associated financial technology (fintech) innovations are increasingly a necessity for companies to maintain their competitive advantage.
To recap, Bitcoin is a “…virtual currency that has been devised for anonymous payments made entirely independently of governments and banks” according to the research of Björn Segendorf of Sveriges Riksbank, the central bank of Sweden.
If countries and corporations want to compete and survive in the financial services sector, cryptocurrencies are a financial technology that you must be aware of.
Singapore, as a financial services hub for the Asia-Pacific (APAC), needs to leverage on the presence of its small but growing fintech community – many of whom hail from a diverse array of professional and personal backgrounds – to grow the fintech space.
Bitcoin has emerged as digital commodity money that has applications across a number of areas, from serving as a virtual currency to being the basis of encrypted distributed ledgers, in the form of its underlying blockchain technology.
A cryptographic distributed digital ledger that facilitates triple-entry bookkeeping, meaning it can track, record, verify and subsequently encrypt an archive of transactions, it can serve as a basis for revolutionising how transactions within and between different parties can be tracked.
In a world where economies have an increasingly important digital dimension and the Internet of Things (Iot) is growing (presenting an opportunity for the semiconductor industry in particular), Bitcoin and other cryptocurrencies have a crucial role to play; as a medium and protocol for the exchange of value and a foundational component of secure electronic networks.
Naval Ravikant, the founder and CEO of US-based Angellist, wrote in his personal blog in 2014 that: “Cryptocurrencies like Bitcoin are already trustless – any machine can accept it from any other, securely. They are (nearly) free. They are global – no central bank required, and any machine can speak the language. And they’re one to two steps from being quick, anonymous, and capable of authentication.”
Ravikant noted that cryptocurrencies are virtual currencies, which are already serving to disrupt the payments space in the form of electronic cash, being increasingly used by electronic agents to exchange value, verify contracts, as well as track identity and reputation.
In the Internet age, the computing resources invested in it mean that it serves as a method for congestion control and routing of other network resources.
Ravikant added: “Cryptocurrencies are an emergent property of the Internet – almost a fifth protocol in the Internet suite. If Satoshi Nakomoto did not exist, it would still be necessary to invent them. Someday, they will be used by the machines in our network, on our desk, in our garage, and in our pocket to exchange value and achieve consensus at blinding speeds, anonymously, and at minimal cost.”
He predicts an era where no functioning Internet or IoT can function at the protocol layer without deep cryptocurrency integration into its infrastructure; while remaining as mediums of exchange and stores of value.
In an age where cybersecurity is also a domain of increasing importance, Bitcoin and cryptocurrency derivatives serve a crucial rule in preserving investor and purchaser privacy.
For instance, blockchain-based networks are cited as a key enabler in preserving the integrity and security of networks that will connect various nodes and devices in the Internet of Things (IoT).
An instance where blockchain technologies could serve as the basis for cybersecurity is in the operation of commercial drones. The industry has been hindered by the emergence of liability concerns (i.e. insurance & underwriting), as well concerns over hijacking and repurposing of drones for malicious purposes.
Cryptocurrencies also opens a possibility for telecoms firms to enter the digital banking space as non-banking financial corporations (NBFCs), something that Singaporean telcos like Singtel and Starhub are ideally positioned to do.
However, newer and more nimble firms like MyRepublic may be better positioned to explore this space.
In frontier and emerging markets, a simple mechanism linking Bitcoin to SMS transactions could open the space for telcos to explore opportunities in remittances, payments and other transactions.
The Kenyan firm MPESA has validated the viability of this and enjoyed tremendous growth by capitalising upon the opportunities available in Kenya.
Tomas Forgac, the founder of Singapore-based Bitcoin point of sale (POS) system Coin of Sale, commented that the adoption of BItcoin is critical, observing that: “Adoption is necessary if nothing else than not to be left out of a potential monetary revolution.”
Regulation & Integration of Bitcoin
By not adopting and integrating the Bitcoin protocol, which facilitates an encrypted and virtually private transaction process wherein digital products and data can be traded, nation-states and institutions are failing to prepare for the integration of cryptocurrencies into their computer networks and financial systems.
A failure to account for, and integrate cryptocurrencies into digital and financial infrastructure will result in an inability by businesses and states to compete in the digital economy.
What is perceived as a fault of Bitcoin by its critics is a lack of centralised control. But this decentralisation, as well its finite supply, renders it commodity money that can store value and serve as a hedge against inflation.
Another is the lack of consumer protection, something that B2C and bitcoin payments transactors are working on developing further. As the industry matures, this matter will need to be addressed, in order to address mass market concerns.
Bitcoin as a protocol needs to be extended and developed for other use cases, with its complexity consolidated into one of two forms – a prepaid card that can be recharged with satoshis and a smartphone mobile wallet. Both forms are easy enough to be used by the mass-market consumer and merchant.
In Singapore, beyond bitcoin being tested by Temasek Holdings in an in-house deployment, there has been no large-scale deployments or other initiatives to consolidate and grow the sector, despite much of the basic infrastructure and components being in place.
Singapore, much like Hong Kong, presents a near-ideal test bed for validating use cases surrounding cryptocurrencies, given the concentration of financial services and venture capitalists. It is a small city-state with high levels of economic connectivity to the rest of the Asia Pacific and proximity to the emerging markets that will drive the growth of Bitcoin.
To date, the city-state has taken a relatively laissez-faire approach in regulating the digital commodity, instead expressing a preference for regulating the corporate entities that deal in Bitcoin and other cryptocurrencies – a more targeted and specific approach that deters misbehaviour.
Additionally, players in the sector like exchanges and ATMs will need to consolidate their infrastructure, much like how three large Chinese telcos recently consolidated their industry network assets into a single joint venture, in order to enjoy greater efficiency and economies of scale, as well as avoid competing over a common good.
Regulators and banks are not necessarily the enemies of entrepreneurs and other businesses operating in the sector. In fact, Singapore’s regulators are likely to be the most pro-Bitcoin regulators in the Asia-Pacific, compared to countries like Thailand and China.
Dealing with regulators should be conducted as an educational exercise, with a regard to their sensitivities as regulators, which cryptocurrency evangelists like Singapore-based David Moskowitz have achieved.
Moskowitz, whose Bitcoin brokerage, Coin Republic, was acquired earlier this year, noted: ”Technology is disrupting the financial landscape. Cryptocurrency and blockchain technologies are the cutting edge of this disruptive force. Singapore is once again showing its vision for the future, and taking the necessary steps to be a leader in the region.”