A Sovereign Future – Part II
In continuation of my first blog on blockchain and cryptocurrencies, we pick up by looking at the net benefits of the sector's latest technologies and processes, as well as which nations stand to benefit the most.
One of the more significant advantages is removing power from those financial institutions that have proven themselves morally bankrupt. For example, consumers will no longer have to tolerate bail-ins, such as the one in 2013, where Bank of Cyprus and Laiki Bank, now defunct, simply took depositors money to the tune of billions of dollars and never returned a penny. Even to this day, the bank is yet to issue an apology, let alone compensation. Nor will significant economies have the liberty to use taxpayer's money to bail out 'too-big-to-fail' banks, such as those that wiped out over $30 trillion of the world's wealth in 2008. A move that cost millions of people their homes, jobs, and savings, while bankers got away, largely scot-free.
It may be no surprise that senior economic officials deeply embedded in the current system, such as ECB President and former IMF head, Christine Lagarde have blasted bitcoin's role in facilitating money laundering. Earlier this year, Lagarde commented on cryptocurrency by saying, "For those who had assumed that it might turn into a currency – terribly sorry, but this is an asset, and it's a highly speculative asset which has conducted some funny business and some interesting and reprehensible money-laundering activity." A statement not without irony considering her 2014 conviction for a controversial EUR400 million payment she authorised while serving as French finance minister. Again, as clearly stated in Part I of this blog, criminality, financial fraud, and money laundering all predate cryptocurrencies and have been mobilised through cash, bank accounts, precious metals and stones, real estate and jewellery.
Sadly, statements like Madame Lagarde's are not isolated amongst senior economists where ambiguity of the current system is accepted in pursuit of the status quo, while disruptive systems of finance are attacked under the guise of criminality or instability. If it isn't blatantly clear at this stage, the current system only works favourably for a small sample of society, leading to severe imbalances which will eventually become unsustainable for everyone. According to the Institute for Policy Studies analysis of Forbes data, the combined wealth of all U.S. billionaires increased by $1.763 trillion or 59.8% between 18th March and 09th July 2021, while simultaneously, $3.7 trillion was lost in labour income.
Ultimately, despite some high-level resistance, the current momentum is heading towards a decentralised economy that is designed to include public participation by rewarding those who help to validate and maintain the ledger; a system that is already significantly less corruptible than leaving it to a handful of bankers who have consistently demonstrated their willingness to prioritize their own interests before those whose money they are given custody.
At a multinational level, one of the most apparent indicators has been that governments with foresight will lead the way and, in many cases, gain the opportunity to protect their economies, in particular exports against currency fluctuations, or indeed the pernicious practice of foreign influence devaluing more minor currencies for profit. More on this another time.
In the past month, El Salvador announced its adoption of bitcoin as legal tender, with President Nayib Bukele highlighting that if just 1% of the Bitcoin market were invested in El Salvador, it would increase its GDP by 25%, a statistic hard to ignore for some of its neighbouring countries, notably Ecuador, which after abandoning its Sucre for U.S. dollars in 2000, found that a strengthened dollar was not only bad news for its competitive advantage, but a resounding reminder that it had lost control of its money supply. The country was eventually compelled to take a $4.2bn loan from the IMF, which came with demands of "modernisation" such as privatising public assets, stripping worker protections and cutting public spending by 6% over three years. To quote David Morris' recent article in CoinDesk, "The total capital on DeFi systems today is $59.4 billion. It is not a great leap to imagine a future in which the IMF is no longer the lender of last resort for countries in crisis. They can borrow directly from the rest of us, without submitting to destructive, anti-human "reforms"." No surprise that since El Salvador's decision to proceed with Bitcoin, The World Bank took the slightly predictable step of declining to help, stating, "While the government did approach us for assistance on Bitcoin, this is not something the World Bank can support given the environmental and transparency shortcomings."
Despite the apparent opposition presented by the administrators of the current economic system, more and more countries such as Kenya, Panama, and Uruguay have started to investigate the viability of bitcoin and or other cryptocurrencies as potential legal tender, while Tanzania's recently incumbent President Samia Suluhu Hassan publicly told the country's central bank to learn more about the subject. Indeed, while innovators may still lead change in the U.S., emerging economies will likely benefit the most. According to the Bank for International Settlements (BIS), 60% of the world's largest central banks are conducting experiments or proofs of concept to make a digital currency. When asked whether this development may threaten the state of independent cryptocurrencies, Yanislav Malahov, "Godfather of Ethereum" and founder of æternity commented that governments developing digital fiat are good for a national economy but that independents would continue to remain an important part of the system. "In the same way no one country owns the internet, the same will apply to blockchain and crypto. It's great that central banks are going down this road. However, independents will be around for a long time to come."
Geopolitically, there is still much room for influence, as suggested by Brock Pierce, creator of Tether and Chairman of the Bitcoin Foundation on the Future of Blockchain, who suggested there may be a potential risk for China's digital yuan to threaten U.S. reserves by encouraging strategic trading partners to peg with their domestic cryptocurrencies. How these trading nations choose to proceed, given the unprecedented opportunity provided through blockchain and crypto, remains to be seen; however, they are certainly more empowered to protect and enhance their domestic economies than ever before.
When it comes to Dubai, in particular DMCC, the advent and development of blockchain and crypto have been of great interest as practical methods for enhancing trade efficiency while reducing cost and the potential exposure to corruption. While Miami has made a coordinated effort to become a centre for the industry, Dubai has also made inroads to become a global hub. While it was good to hear Kristina Lucrezia Corner, editor-in-chief, Cointelegraph affirm, "Everyone's going to Dubai," I think Brock Pierce added to the sentiment by clarifying, "Dubai is a place that understands economic incentives are a powerful tool for moving people."
DMCC launched its Crypto Centre on 24th May to consolidate an ecosystem of industry experts to develop cryptographic and blockchain technologies while continuing to attract more members from the international community to pioneer, launch and implement the type of platforms and systems that will further enhance the value available to its 19,000+ member community and beyond. By working closely with government initiatives such as the Dubai Blockchain Strategy, Dubai's government is leading the adoption and application of blockchain technologies, creating a regulated, business-friendly environment for crypto firms and cementing the emirate's reputation as a global technology leader. In terms of its day-to-day activities, the Crypto Centre will become a licensing authority by working in close collaboration with the Securities and Commodities Authority, an honour earned through its proven track record of successfully delivering various exchanges and platforms, most notably DGCX, while providing co-working space, education and training, incubation, and financing. The DMCC Crypto Centre is co-created with the Swiss-grown Crypto Valley Labs, rooted in today's biggest crypto and blockchain ecosystem with over 900 businesses and 5,000+ dedicated people. Today, DMCC is already engaged with over 700 crypto businesses around the world, with an interest list that grows daily. Ralf Glabischnig, the co-founder of CV Labs and joint venture partner of the DMCC Crypto Centre, commented that he is confident that the UAE will outperform targets, to reach 2,000 companies at some stage in 2022.
Another attribute that has made Dubai a natural destination for the new era of trade is its status as a centre for Islamic Finance. Highlighted by Dr Scott Stornetta, co-inventor of "early blockchain" at the opening of the DMCC Crypto Centre, he emphasised how a marriage between the two could yield a more ethical and responsible system. "I'm particularly fond of some aspects of the tradition of Islamic Finance, and how it softens capitalism and makes it socially responsible and the reason I bring this up is that with the creation of new cryptocurrencies, you can tailor money to start to have those moral characteristics."
For myself, I am not supporting cryptocurrencies and blockchain just because of their investment potential, but because I believe blockchain can play an essential role as a transversal technology in the commodities industry, where registered transactions on a ledger will avoid the sort of losses caused by corruption and fraud. I am reminded of Mohamed Alabbar's speech at the Global Africa Business Forum in 2013 when asked about corruption. "Where human beings are, you will have a bit of it." In utilising a decentralised system such as blockchain, we are slowly reducing the ability of unscrupulous individuals to lie about their transactional history. Had Bernie Madoff's fund been on the blockchain, investors would have been able to see within a short period where he had invested, making it impossible for him to steal anyone's money. Period.
Lior Lamesh, CEO of GK8, a blockchain cybersecurity company that offers financial institutions an end-to-end platform for managing blockchain-based assets on their own, explained that cyberattacks of any kind force us to reckon with a simple truth. Although the blockchain is a secure decentralised data structure, its Achilles heel is the safe management of a holder's private keys, the single centralised point of failure. A chain is only as strong as the weakest link, and the same goes for blockchain. To hold and manage cryptocurrencies, you need to protect the private key. The equivalent to this key would be the signature on a traditional paper check.
One potential solution is to pair the true cold wallet, which can make blockchain transactions without receiving input from the internet, with a keyless MPC solution for automatic high-frequency transactions. When doing this, you essentially remove the opportunity for hackers to get anywhere close to your money. This is what an actual 100% air-gapped vault does; it allows transactions to take place without receiving any input from the internet, always remaining offline.
For anyone who remains doubtful, it is good to remember two things. Firstly, as summarised by John McAfee at the Barcelona Blockchain Week 2019, blockchain is one of the few world-changing technologies in the past 100 years that did not come from the bowels of secret government development. It came from ordinary programmers and ordinary people, meaning its power remains to benefit society without any ulterior agenda. Secondly, history is littered with examples of doubted technologies such as electricity, the telephone, personal computers, the internet, television, and commercial flight that not only became commonplace but have become the giants on whose shoulders we stand and while both blockchain and cryptocurrencies may still be in their infancy, they have the potential to bring meaningful change in a way that our current systems are unable to provide. In the words of Miami Mayor Francis Suarez, "The internet will be the biggest economy in the world by 2030, and crypto is the financial system built to support it."