When cryptocurrencies meet green cars
The collaboration will unleash new potential for both virtual and real economies
WHEN considering which industry sector is currently experiencing the biggest growth in the real economy, green cars would undoubtedly be a leading contender. The success of Tesla has made Elon Musk one of the world’s richest individuals, while the launch of Xiaomi’s SU7 has made Lei Jun a national icon.
The automotive sector is not only one of the most important manufacturing industries globally but also the fourth largest trading product, contributing significantly to technological innovation in other industries and a country’s foreign exchange reserves. In 2022, the automotive sector accounted for about 10 per cent of China’s gross domestic product, with an industrial contribution rate higher than the real estate sector’s 6.8 per cent. This is an important focus for driving economic development in the context of China’s challenging real estate market.
In early April, one out of every two passenger cars sold in China was a green car – which can include battery electric vehicles (EVs), plug-in hybrids, hybrids, hydrogen fuel-cell cars, bio-diesel cars, solar-powered cars, and some highly efficient/low emissions petrol cars rated partial zero emissions vehicles. In the light of the global push for sustainable development, the transition of fuel vehicles to green cars is inevitable and presents a significant growth opportunity. McKinsey forecasts global demand for EVs will increase sixfold from 2021 to 2030.
Conversely, the most active area in the virtual economy is undoubtedly cryptocurrencies, particularly following the launch of Bitcoin exchange traded funds in the United States and Hong Kong, making Bitcoin an alternative investment option for mainstream investment institutions. Bitcoin’s total market capitalisation surpassed that of silver, making it the world’s eighth-largest asset by market cap.
Real and virtual economies are crucial elements in developing the global economy. If they can work well together, they will further unleash the new economy’s potential. The green car industry today is comparable to that of Bitcoin in 2013. While it has reached an impressive scale, there is still considerable growth potential. The industry faces price competition and market consolidation. This is mainly because the leaders in green cars still lack talents familiar with cryptocurrencies and have not yet ventured into the blue ocean of the Decentralised Physical Infrastructure Network (DePIN).
The objective of DePIN is to utilise cryptocurrency incentives to encourage users to participate in project initiation, usage, and construction. This will involve coordinating stakeholders and utilising idle resources within the ecosystem to promote sustainable project development. DePIN aims to leverage cryptocurrencies to drive the development of the real economy.
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In the initial launch phase, DePIN encourages more users to utilise its products or contribute to the ecosystem by providing expected token rewards, which represent a lower cost option than the substantial subsidies offered during the initial promotion of ride-hailing services such as Didi. As the user base expands, more developers engage in ecosystem construction, delivering more cost-effective products that attract a more extensive user base. As more users utilise the products or services, the project’s income increases, allowing for cryptocurrency market cap management and further marketing. This benefits both the demand and supply sides. This virtuous circle can create a flywheel effect, uniting all parties to build a prosperous ecosystem. DePIN initially attracts users seeking token rewards but retains them by providing more practical products.
Can DePIN’s business model be applied to the green car? The answer is a resounding yes.
After resolving range issues, intelligentisation is the next key development for green cars. To apply artificial intelligence technology in green cars, gathering and processing a large amount of data is first necessary. Blockchain technology is a decentralised ledger, guaranteeing data traceability and immutability to safeguard data security.
In the conventional model, users provide their data to service providers free of charge in exchange for services. DePIN’s business culture respects users’ data usage rights. It does not obtain user data without authorisation and rewards users with tokens if their data is used. This model will encourage more users to provide data, breaking data monopolies proactively. The project team can leverage these data sets for third parties to develop more robust services. This could include using drive data to develop autonomous driving technology, tracking battery usage to create more effective solutions to extend battery life cycles, or tracing vehicle history to design more cost-effective insurance plans or faster lending.
The uptake of green cars is influenced by three key factors: cost, range, and charging experience. As green car technologies mature, manufacturing costs have fallen significantly, and the range can now meet daily needs. However, insufficient charging infrastructure is the biggest barrier to adopting green cars today. Despite the substantial market demand for charging stations, the upfront costs of investing in and constructing the infrastructure are considerable, making them inaccessible to retail investors.
However, cryptocurrencies provide an investment channel. Blockchain technology can record data for each charging pile, with NFTs (non-fungible tokens) used to confirm ownership and actual usage. Investors can invest in specific charging stations via cryptocurrency, with profit potential. The project initially offers incentives to new users through tokens to increase the usage of charging stations and providers’ income. To participate, users must purchase adapters to transmit usage data. The project generates revenue by selling adapters and then uses the revenue to maintain currency price stability. Cryptocurrency facilitates inclusive finance by reducing investment barriers, establishing an open ecosystem, and accelerating the construction of charging stations.
Cryptocurrencies can also facilitate the development of vehicle-sharing and ride-sharing services. One advantage of this approach is that the usage history of each car can be recorded on the blockchain as an NFT. This allows people to rent green cars with smart contracts defining usage rights that execute automatically. This reduces the likelihood of rental disputes. On the other hand, tokens incentivise people to participate in new shared mobility solutions, potentially earning rewards while reducing carbon emissions and breaking the monopoly of ride-sharing companies.
The above three areas represent only a fraction of the potential for collaboration between cryptocurrencies and green cars. The combination of these two promising new economic sectors has the potential to yield further opportunities for entrepreneurs. Chinese green car manufacturers seeking to capture overseas markets rapidly would be well-advised to seize this opportunity to gain access to the cryptocurrency accelerator. Promoting cross-border trade in green cars via cryptocurrency has the potential to accelerate the market shares’ expansion and promote the renminbi’s internationalisation. Tesla’s decision to allow the use of Dogecoin to purchase vehicle parts represents a pilot of this vision in the US.
The green car industry faces intense competition, but with expected industry consolidation, the price war is nearing its end. Musk’s adoption of Dogecoin indicates that Web3 may provide an additional revenue stream and a new business opportunity for electric vehicles. It would be reasonable to expect that Chinese EV manufacturers would emulate this outside of China if they were to do so.
The combination of GenAI with DePIN, in conjunction with the new regulations and government initiatives on cryptocurrencies, stablecoins and other digital currencies and assets, such as central bank digital currencies, tokenised deposits and tokenised transition bonds, will propel green EV projects to heights not previously seen. This could be the catalyst for the mass adoption of new technology in the fourth industrial revolution.
David Lee Kuo Chuen is a professor at the Singapore University of Social Sciences (SUSS) and chair of Global FinTech Institute. Zheng Jincheng is a research fellow and PhD candidate at SUSS.
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