The era of cash is drawing to an end to be superseded by digital cash in one form or another. This much is certain and we see massive digital development. However we also see continuing tension between regulators and more libertarian crypto supporters.
The Abrahamic Business Circle held their Investment Summit 2022 “LET MONEY TALK” March Edition on the 29th of March. The very well attended and most informative event took place in the splendid conference hall at the V Hotel in Dubai.
It was very topical to have fireside chat on the topic of “Cryptocurrency: A connected World in a Digital Ecosystem” with two prominent practitioners: Tarek Titi, Head of Solar Energy Projects at Emirates Insolaire which is part of the Dubai Investment Group and Shonaak Reshamwala, CEO at Defcon ISC limited. The moderator was David Gibson-Moore.
We had the opportunity to discuss the recent very important developments in the three main components of the crypto eco-system i.e. bitcoin and the alt coins, stablecoins and central bank digital currency CBDC. We then looked at some of the opportunities and challenges in the larger DeFi space.
In terms of the developing story of crypto as a currency we looked at the case of El Salvador which adopted bitcoin as legal tender in in September 2021. It appears that the results have been patchy with few members of picking up on the option of using bitcoin for their day-to-day business. The country was offering a $1 billion 10-year bitcoin bond to some considerable market scepticism. Whether this whole exercise will be a failed experiment or herald a new crypto era is still very much in the balance.
Another relevant current example is the way that, in war torn Ukraine, fiat currency transfer options were running out and crypto has played a significant part in keeping the country going. Even before the war Ukraine ranked fourth in terms crypto currency adoption. The conflict has in some ways acted as a catalyst for the government’s ambitions to build an innovative, block chain friendly economy.
Another aspect readers we discussed which which is of great interest relates to the relates to the the Solana and Polygon versus Etherium debate in terms of the explosion in NFT and DeFi development. ETH uses a proof of work consensus mechanism whilst SOL and MATIC use proof of stake which is of course both quicker and less power intensive. SOL is also faster and more scalable. However there are hidden costs. At the moment ETH dominates the immensely important smart contact space but … watch this space!!
We also reviewed development in stablecoin space. Tether, the largest stablecoin, has a market value of $76 billion. It is hosted on Etherium and controlled by the owners of Bitfinex. However Tether is not regulated in any way, it is not audited and has been fined by financial regulators for financial misconduct since it was discovered not to have been effectively backed at all by the US dollar.
This is only one example of the tension between cryptocurrencies and the regulatory authorities. Many see stablecoins as mainly suited for digital transactions and converting digital assets to and from fiat money. Furthermore a currency crisis could see massive redemption of stablecoins which in turn could be highly destabilising for the whole world financial system.
We of course discussed regulation. Fed Reserve Chairman Jerome Powell had recently said that digital innovation in the financial sector is here to stay. That was very positive! However immediately afterwards he indicated that as a result, new regulations will need to be created.
In an attempt to overcome some of the regulatory challenges the Bank of International Settlement, the Central Banks’ bank, has explicitly backed the creation of central bank digital currencies to “offer in digital form the unique advantages of central bank money: settlement finality, liquidity and integrity”.
We discussed all of these issues and additionally reviewed some recent trends in the larger DeFi space including the roles of digital exchanges, lending platforms and decentralized autonomous organizations (DAOs). We even had time to touch on likely Web 3.0 developments.
All-in-all a first class discussion concerning matters of great interest and importance to the future of the financial sector.