Many people have hyped up decentralised financial technology, or fintech, in recent months, and for good reason. What if
Yung Kee could have printed its own tokens which work like a stock, bond, currency, passkey, derivative, commodity, ID card and smart contract – all at the same time?
These tokens squeeze many transactions into one and can live outside any single organisation. They even can have their own democratic voting mechanism built right into them. The whole world would probably be eating roast duck instead of hamburgers.
Academics like me are conservative by nature. We loathe boosters’ talk of paradigm shifts and new ages. Yet, even the British have seen the revolutionary potential of the Web’s third age, known as Web3. Peer-to-peer Web3 apps work more like Kazaa and Napster and less like Facebook.
Like their predecessors, these technologies have raised concerns among regulators. The Bank for International Settlements, International Monetary Fund, Group of 20,
European Union and the Financial Stability Board have all advocated for increased regulation on fintech.
The past three years have seen a boom and bust in cryptocurrency markets. After growing rapidly between 2019 and 2022, bitcoin and Ethereum have crashed to about 40 per cent of their 2022 highs. Highly visible crashes such as
those by FTX,
Terra and Luna and
Celsius have clearly worried regulators. Possible “rug pull” scams such as SafeMoon and the proliferation of
“Ponzi coin” schemes have led to a “crypto winter”.
On one hand, the regulators have a point. If teens and YouTube trolls use a token like a stock, then regulators should treat it like a stock. On the other hand, did I mention these tokens – or “
digital assets” in regulator speak and “coins” in layperson speak – can act like almost anything?
The investors
who lost fortunes clearly knew what they were doing. Buying cryptocurrency requires above-average IT skills. Speculators and punters had to download digital wallets, go through third-party exchanges and in some cases use virtual private networks.
Even
Last Week Tonight host John Oliver came out against cryptocurrency and non-fungible tokens. No one expected a bitcoin spawning interest payments from nowhere to be a safe, conservative investment. The greedy and stupid got burned, just like they did during
the tulip mania of the 1600s, Britain’s railway mania and the dotcom bubble.
Financial centres which buck the trend will reap ample rewards, yet few places have true laissez-faire traditions. China has already
outlawed cryptocurrency, and the United Arab Emirates and
Singapore have rules coming into effect. The UK has already started shutting down illegal bitcoin vendors. For now, the United States has adopted a “regulate-it-as-used” approach.
The spoils from this borderless, digital market could be breathtaking. Figures looking only at the value of Web3 decentralised finance place the value of cryptocurrency trading at around US$1 billion.
Regulators have already sealed the fate of a Neuromancer-style cyber-utopia for retail investors. Alipay is likely to be the most cutting-edge tech we will use to pay our bills in the years ahead.
The war for Web3 tokens and coins in business has only started, though. Citizens might resist
blockchain-based digital IDs, but goods and corporations will not raise a fuss. A “container coin” could keep track of cargo, serve as a store of value and pose collateral for trade factoring. No one can hear a corporation scream.
If Hong Kong wants to compete in the Web3 battle ahead, the Hong Kong Monetary Authority and SFC need to give commercial applications of the technology room to grow. That could mean resisting the urge to clamp down on scary, unknown tech.
Don’t shut the door on young technology. It is only scary to old-timers.
Dr Bryane Michael is currently a senior fellow at the University of Hong Kong and advises the UN and EU
