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The future of money is being built in Asia
CRYPTO currencies may be a dream of decentralising money, but if there's one place that's critical to this ambition, it's Asia. After all, more than US$1.8 billion in crypto currencies is traded daily on Asian exchanges, representing nearly 60 per cent of adjusted daily-traded volume globally, according to an analysis by data provider CoinGecko.
Among the crypto currency industry's 20 biggest exchanges by traded volume, 15 are based in Asia. Singapore is the leading jurisdiction for that futuristic method of capital raising known as initial coin offerings (ICOs); 40 per cent of new crypto exchanges since January 2018 are based in the region.
Asia is setting the pace culturally as well. The crypto currency world's biggest star isn't a 20-something wunderkind in Silicon Valley, but a globetrotting 42-year-old Chinese Canadian named Changpeng Zhao.
In just two years, he has vaulted from obscurity to launch the world's largest crypto currency exchange, Binance. It makes US$400 million in revenue a year, and it has placed him on the Forbes rich-list - which partly explains why he's mobbed by hundreds of enthusiasts at conferences around the world.
Crypto's critical infrastructure is based in Asia
It's not just about trading coins. The critical infrastructure that underpins many blockchains - a computational process known as mining - is located in Asia.
The enormous server farms that mine bitcoin, owned by companies like Bitmain and Canaan Creative, are located in mainland China's northern and western provinces. These facilities can consume enough electricity to power entire cities - and some countries. They are essential to the security of Bitcoin and other crypto currencies.
According to CoinGecko's analysis, 80 per cent of the mining pools used to pool the computational power to mine bitcoin resides in China.
Even the specialised chips used to mine bitcoin - known as ASICs (Application Specific Integrated Circuits) - were designed by firms in China amid fierce global competition.
The prize is valuable: Beijing-based Bitmain, the world's biggest maker of ASICs to mine bitcoin, raked in US$2.8 billion in revenue last year.
Asia's wealth + crypto fund-raising: A force to be reckoned with
The development of blockchain-based fund-raising methods involving the issuance and distribution of digital tokens is leading to a global phenomenon of rapid capital formation.
The ICO, which drove a craze for digital tokens in 2017, has morphed into security token offerings (STO), which hold out the promise of rapid liquidity in traditional assets, and the initial exchange offering (IEO), which sees crypto exchanges vet and list a particular coin.
By virtually every metric, Asia is the clear leader in adopting this fund-raising innovation. In 2018, CoinGecko's findings show that Singapore played host to 228 companies that raised funds via ICOs.
In the first half of 2019, 47 Asian projects raised a combined US$186 million in capital via initial exchange offerings (IEOs), with 28 of those raises taking place in Singapore. The vast majority of the exchanges offering these services - Binance, Huobi and others - are also based in Asia.
While still in their early stages, these fund-raising techniques offer incredible potential to democratise the capital-formation process in the region.
But with great benefits come a commensurate level of risk. It is worth noting the maturing crypto currency market is currently ridden with wash trading and falsely inflated data reported by exchanges.
This suspect data is dangerous for consumers who risk losing their hard earned money. This is why industry advocates like CoinGecko are combating market analysis with its own metrics, which normalises trading volume figures and cleans up the data in the space.
It is also critical for the conversation to include consumer protection and for regulators to be well-educated on what's possible with these new asset classes.
Asia takes lead in shaping best digital-asset practices
What makes Asia one of the most promising regions for the crypto sector is that government bodies are working to ensure that regulations evolve in tandem with the industry's growth.
In fact, it was the first region where crypto currencies were recognised in national regulations. Japan was first in the region to make bitcoin a legal form of currency. Since then, adoption has increased with talk of blockchain payments being used during the 2020 Olympics in Tokyo.
Singapore is another Asian country that has taken strides to encourage digital-asset adoption. Most recently, the Association of Cryptocurrency Enterprises and Startups, Singapore (ACCESS) announced a newly developed "Code of Practice" under its Standardisation of Practice In Crypto Entities initiative.
In doing so, it is helping to legitimise crypto currencies in the eyes of regulators. This Code of Practice - facilitated by the Monetary Authority of Singapore and developed in consultation with The Association of Banks in Singapore (ABS) - is complementary to the existing national Payment Services Act.
And it will help to standardise the approach to tackling money laundering and counter financing of terrorism.
Further north, South Korea is a good example of an Asian country that is welcoming blockchain companies to innovate in its cities. In July 2019, Busan, the country's second-largest city, was declared a "regulation-free" zone for blockchain development. Its Ministry of SMEs and Startups also revealed plans to move 29.9 billion won (S$35 million) into the region by 2021 to host a wide range of blockchain offerings related to finance, public safety and tourism.
This will be one development to watch in a country with a strong crypto currency market infrastructure that is dominated by its multi-billion-dollar conglomerates; one example is Samsung, whose flagship S10 phones are now shipping with crypto wallets. The Korean social networking giant Kakao has also released its own crypto currency, making Facebook's Libra coin look like a laggard.
Too few people in Asia realise that the future of money is being created right here. We need to start talking about the opportunities - and the risks - of a world where Asia leads the way in crypto currency adoption.
If you follow the money, it's not hard to see that Asia's innovators are leading the global conversation about the future of money.
- The writer is managing director of Europe and Asia for CoinDesk. CoinDesk's Invest: Asia takes place at Marina Bay Sands in Singapore on Sept 11-12.