The crypto carnage shouldn’t blot out blockchain

Anuraag Saxena and Ankur Gupta

THIS month saw bloodshed in the world of crypto trading, feeding the many voices screaming for disabling the decentralised finance experiment. The US Congress as an example has introduced 50 Bills impacting digital assets, crypto, and the blockchain industry. Numerous courts across the world have been weighing in on the issue. Buzzwords like NFT, DeFi, DAO, etc adorn the headlines of newspapers globally. The World Economic Forum at Davos this week had multiple panellists discussing the industry.

Inbuilt into the human condition is a need for predictability, continuity, and control. We continue to ride the green line even when we rationally know that the blue line is more efficient (or vice-versa). Conservatism is the safest, default response, especially in times of systemic shocks. Governments globally often resort to imposing hurdles because of an inbuilt paradoxical advantage – of displaying action while maintaining status quo. However, like most knee-jerk responses, dismissing the whole new world of Web 3.0 might be fraught with its own risks.

The frontier of emerging technology is literally and metaphorically layered. At the foundational Protocol Layer we have blockchains that enable new technologies. On top of this sits a Platform Layer that that provides peripheral services to enterprises. Finally, we have multiple Application Layers of specific use-cases (ie enterprises and product-offerings for customers). Let us remember that the recent financial carnage happened mostly at this final layer. And only in a small part of it.

This is not the first time we are questioning the morality and tactics of emerging technologies and their uses. History has seen resistance to cars, processed food, movies, space exploration, computers, medicines, and numerous other advances. More recently, fintech, artificial intelligence, and machine learning have stoked much fear, uncertainty, and doubt in naysayers. 

However, blockchain tech has not suffered from a serious image problem despite its most well-known use case, cryptocurrencies, which have come under scrutiny for promoting speculative behaviours at a mass scale. 

A good starting point is to remind and re-educate ourselves that the underlying technology is not the target deserving extermination. What requires oversight are applications which promote harmful conduct. As trite as this sounds, it can be easily forgotten by even the most clear headed, in times of massive flux. Imagine banning farming if a few players cultivated poppy; or banning real estate if a few developers ran illegal casinos. Setting aside examples of intentional misadventures, imagine banning cars because accidents might happen, or banning burgers because they could lead to obesity.

We don’t mean to be facetious about the issue but broad brushing and throwing the baby out with the bathwater is perhaps a suboptimal response with significant social and economic ramifications (to put it really mildly).

News cycles are incentivised to carry shockers and clickbaits. So of course, we’ve heard of Bitcoin, Terra, Solana, etc and the doomsday stories there. How often though, have you heard of Polygon Technologies, the miracle platform homegrown in Asia, which is now enabling the likes of Adidas, Prada, Stripe, and Instagram? How often have you heard of Circle that is pushing the case for stablecoins and enhanced regulation of the industry? How often have you heard of Chainalysis that helps protect government agencies, exchanges, financial institutions against cybercrimes? How often have you heard of the hundreds of other enterprises that should be on this list?

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Rhetorical questions are sometimes important to ask.

Policymakers have a political responsibility towards public opinion. They also have a fiduciary responsibility towards public interest. It is indeed challenging times, when political responsibility and fiduciary responsibility may be in conflict. 

It is therefore inevitable that enterprises and policymakers engage in educating each other, and help reframe context and perspective. There is no better time than now to focus on evidence-based regulatory approaches, which lead to equipping regulators with a nuanced toolkit rather than a blunt hammer. Nuanced enlightenment is the only antidote to the high-pitched propaganda of bulls and bears. 

In this regard, it is worth mentioning the moves towards legitimisation of digital assets on the blockchain. Courts in several jurisdictions are leading the charge. Not by bans or forced approaches, but by regularising cryptocurrencies and non-fungible tokens. Judicial attempts to classify crypto as a class of property is a big step in that direction. It opens the door for legalised creation, exchange, and store of a wide variety of crypto assets. It also raises numerous questions associated with the legal status of activities involving crypto assets. Unarguably, this is an area where more regulation is needed to bring about clarity. 

On one hand, nations need to focus on consumer protection, especially gambling and uninformed speculation. Nations also need to build economic resilience at a macro and micro level. On the other hand, this technology is the emerging block of the new economy; perhaps even a new society. It indeed is Sophie’s choice!

On the bright side, no nation seems to have solved this conundrum from a policy perspective. Yet!

Singapore has been proactively engaged in facilitating value creation. Institutions like Singapore Economic Development Board (EDB), and efforts around promoting fintech were world class examples of facilitating wealth creation. With a vibrant banking sector and robust arbitration, Singapore is already a location-of-choice for traditional classes of assets. This creates a unique opportunity (to leapfrog into the future) that many nations in the world do not have.

Perhaps it is time to consider Lee Kuan Yew’s light-hearted quote with full seriousness : “To the young and to the not so old, I say, look at that horizon, follow that rainbow, go ride it”.

Anuraag Saxena is a board advisor, public affairs expert, and OpEd columnist.

Ankur Gupta works on law reform projects in intellectual property law, technology regulation, governance and policy with a Singapore-based think tank.