Everyone is talking about blockchain technology. The incredible rise of bitcoin, the cryptocurrency which introduced blockchain technology to the world, and its rapid year-end market rout in a matter of weeks are attracting feverish international attention, both among investors and regulators.
The hacks that robbed tens of millions of dollars, the Web site activity overloads of exchanges and the ever-present specter of money laundering are all part of the hype.
Blockchain technology is essentially a universally transparent ledger where distributed trade and services can be conducted without the need for the usual trusted intermediaries of the past. The old world order of centralized services controlling all the data and mechanisms of business, such as HSBC, Ebay and Facebook, are gone.
In its place will be disintermediated marketplaces and services where buyers and sellers can conduct business directly to great efficiency and transparency.
The original Internet massively disrupted society by connecting the offline to the digital. Internet 2.0 furthered connectivity and multimodal interaction via social networks and mobile technology.
Blockchain technology represents Internet 3.0, where the tidal wave of market potential of new distributed business models will make the earlier disruptions looks like small ripples in a pond.
In the US, the mania is reaching fever pitch. Block.one, another cryptocurrency, raised close to US$700 million — more than all but 10 of the 195 initial public offerings in US this year.
It is no surprise everyone wants to be part of the blockchain. In the US, a beverage company changed its name from Long Island Ice Tea Corp to Long Blockchain Corp and saw its value on NASDAQ increase by US$35 million. The company has nothing to do with digital currencies or any other use of blockchain technology.
The mania will without a doubt continue in the US next year and new legislation to regulate the cryptocurrency market is sure to follow.
The fastest-growing market for digital currencies is Asia. However, governments in the region are approaching the regulation of blockchain technologies differently.
Hong Kong’s government still sees bitcoin as a commodity rather than a currency, leaving it unregulated by financial legislation. However, Japan is taking the bull by the horns. In May this year, Japan’s Payment Services Act was amended by the national Financial Securities Agency (FSA) to allow for cryptocurrencies as a legal form of payment.
Cryptocurrency exchanges in Japan must register with the government; exchanges must separately manage their funds and customer funds; exchanges must be subject to regular audits; dispute resolution is contracted out to third parties; and the FSA provides strict top-down guidance to these exchanges.
Derivatives based on blockchain technology are in the offing for next year.
However, some countries in Asia are not allowing cryptocurrencies at all.
In the People’s Republic of China, one of the largest cryptocurrency markets in the world, all online coin exchanges have been shut down by the government.
On Dec. 7, Indonesia’s government issued a new regulation that prohibited the use of all forms of cryptocurrency. Citing a “weak foundation” and “high volatility,” the government said Monday would be the deadline for all organizations using bitcoin to cease and desist.
Other countries are still trying to figure out their policy.
For example, South Korea has a booming cryptocurrency market with an average daily trade volume of US$1.4 billion. Nonetheless, South Korean Financial Supervisory Service (FSS) Governor Choe Heung-sik announced that the FSS does not consider cryptocurrency a legitimate currency and thus has no plans to regulate or supervise it.
A month later, bitcoin futures and derivatives were banned as were initial coin offerings.
However, as global bitcoin speculation continues unabated, it is likely that South Korea’s regulators will impose a total ban on cryptocurrency exchanges, emulating the PRC’s policy.
This leaves Taiwan with some space in which to operate and take a leadership position on cryptocurrencies and other uses of blockchain for fintech and beyond. This exciting new arena works well with the nation’s future economic plans.
President Tsai Ing-wen (蔡英文) promulgated her “five plus two” strategy, understanding that there are only so many touchscreens and semiconductor chips for iPhones that Taiwan can manufacture. With innovative legislation that provides for blockchain regulations, the nation is ready to be the prime mover for digital technologies and new governance mechanisms.
There is no doubt that cryptocurrencies and blockchain technologies will continue to disrupt the world order. Wise governments will understand that the answer is to latch onto this innovation, shepherding it with enlightened legislation.
The alternative is to stand on the sidelines and allow countries like Singapore and Japan to take world leadership of technologies that will drive the future growth and innovation of society.
Taiwan has a very unique chance to be the most progressive government in Asia.
The hearing that Jason Hsu (許毓仁), the innovation-friendly Chinese Nationalist Party (KMT) legislator, will be leading in the Legislative Yuan today is important as Taiwan looks to new avenues for its economic future.
Hsu sees blockchain as more than a platform to create digital currencies: It is an opportunity to harness data to increase efficiency, while ensuring privacy and security are protected. It is also a mechanism by which to provide transparency in governance.
A financial technology experimentation act would provide both entrepreneurs and traditional financial institutions the ability to participate in this exciting new world through innovative reregulation.
This enlightened form of governance is the future and one that will require bold thinking, new forms of enforcement and alternative public-private partnerships.
You can watch the live Legislative Yuan proceedings on Facebook, another example of how technology can promote better governance and civic engagement.
James Cooper is professor of law at California Western School of Law in San Diego. He has advised governments around the Americas on technology transfer and the rule of law. Michael Sung is an internationally recognized technology pioneer, adviser to governments around Asia on innovation policy and the principal of CarbonBlue Innovations, a cross-border tech transfer platform and fund headquartered in Hong Kong.
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