The Asia-Pacific program of the EastWest Institute (EWI) hosted a panel of experts for a discussion on blockchain and cryptocurrency in emerging markets on July 10, 2018 at its headquarters in New York. The panel comprised Mr. Sameer Somal, Chief Financial Officer, Blue Ocean Global Technology and Blue Ocean Global Wealth; Mr. Bobby Henebry, Founder and CEO, Henebry Blockchain & Cryptocurrency Consulting, LLC; Mr. Nurzhas Makishev, Founder and Partner, NKM Capital, and Dr. Lora Saalman, Vice President, Asia-Pacific program at EWI. The panel was moderated by Dr. Saalman. These experts discussed the technologies underpinning blockchain and cryptocurrency as well as their commercial and security applications in emerging markets such as Kazakhstan, linking these developments to China’s Digital Silk Road. The following are a few of the key non-attribution takeaways from the discussion:
- One expert highlighted blockchain, cryptocurrencies, and digital payment systems as major disruptive forces that may fundamentally change the financial service sector in its current form, remarking that public trust towards tech firms vis-à-vis banks is rising. Another expert explained that the idea behind cryptocurrency lies with a decentralized, borderless democratization of currency, which can be achieved through blockchain technology. Participants noted the resulting tension in that these technologies could challenge political power structures within states and yet are also being harnessed by more authoritarian command economies to power growth.
- While blockchain and cryptocurrency have generated immense interest, one participant maintained their growing representation in the global market remains to be seen, citing the total worth of the cryptocurrency market at about 270 billion USD or only five percent of total global currency flows. The same expert predicted that cryptocurrencies will not replace banks in developed economies but will likely play a greater role in regions where there is less trust in centralized institutions.
- When asked if cryptocurrencies could be regulated to avoid use by actors who are engaged in funding illicit activities or evading international sanctions, an expert responded that the United States has done a fair job by letting cryptocurrencies operate, but at the same time, taking actions to prevent their use for dark web activities by issuing subpoenas. In the face of these challenges, another expert pointed out that initial coin offerings (ICOs) can serve as a secure way to raise funds for a new venture. Organizations in the cryptocurrencies market are motivated to avoid bad actors to minimize reputational risks and prevent being blacklisted by the international community.
- A participant asked about the environmental consequences of blockchain and cryptocurrency technology. An expert responded that developers have begun to recognize the environmental consequences, particularly energy requirements, of cryptocurrency mining and some developers are moving toward a “proof of stake” model that is still decentralized but does not require energy-intensive mining operations.
- When asked if blockchain technology could be employed to reduce corruption in the distribution of international aid, an expert answered that smart contracts built on blockchain could increase transparency. Responding to a question about the downsides of blockchain, experts noted that blockchain technology is in an early development stage and specific applications are not yet proven and remain untested in court cases over data rights. A participant emphasized that although blockchain is a useful technology, it is also susceptible to and offers an attractive wealth of data for hackers. As a result, the expert argued for greater strengthening of the cybersecurity around these platforms.
- An expert predicted that emerging markets will continue to lead tech sector growth, pointing out that users from emerging markets already make up a greater share of the digital universe than users from mature markets. Another expert shared that Uzbekistan, Kazakhstan, Mongolia, Tajikistan and Georgia are all investing in blockchain technologies. One participant noted that these countries have some of the lowest rates on electricity globally, with parts of Kazakhstan costing as little as one U.S. cent per kilowatt hour, making them attractive for cryptocurrency mining.
- One expert introduced the “Digital Kazakhstan” state program that aims to diversify Kazakhstan's economy by introducing technology and digitization. This expert noted that this initiative seeks to increase national internet access from 50 percent of the population to 95 percent. As part of this effort, the state has introduced digital government initiatives to increase efficiency and to improve the delivery of services, while also encouraging companies to adopt technology in their operations and to develop cybersecurity expertise.
- Participants detailed how Kazakhstan has begun to apply blockchain technology in various ways including introducing a system to sell short-term central bank bonds and automating customs and cargo tracking processes allowing for faster transfer of goods into and out of Kazakhstan. An expert shared that the healthcare sector in Kazakhstan has been engaged in leveraging the technology to create electronic health passports, but also noted the importance of further work on cybersecurity measures in Kazakhstan and other established and emerging markets to protect patients’ data.
- One expert noted that with the launch of the Astana International Financial Center, Kazakhstan is aiming to become a financial hub for the region. This expert expects that Astana IFC will serve as a catalyst and predicts the development of the legal regime, stock exchange and managerial talent creating a favorable environment for greater development and expansion of emerging technologies.
- A participant highlighted that although blockchain is an inherently decentralized technology, national governments are beginning to regulate its application, especially for cryptocurrency. This expert raised China as an example of a country that has simultaneously banned exchanges trading cryptocurrencies and ICOs, while also exploring the creation of its own regulated cryptocurrency.
- When asked whether top-down regulation or bottom-up development was more productive for cryptocurrencies, experts responded that success will depend on both. One expert noted that in Kazakhstan the government is creating a favorable environment through top-down regulation to facilitate bottom-up development and investment by entrepreneurs. Experts emphasized that China has leveraged its centralized control to invest in and develop emerging technologies, including blockchain, resulting in “centralized decentralization.”
- In driving these trends, one expert highlighted China’s stance at the forefront of emerging technologies and markets with its “Made in China 2025” and “Digital Silk Road” to develop emerging technologies across Eurasia, while also popularizing technical standards and regulations in several fields. As a result, the participant noted that China will continue to be a leading investor in emerging technologies such as 5G, artificial intelligence, nanotechnology and blockchain, giving it an edge as it further connects with cross-border optical cables, ecommerce and even the BeiDou navigation system with neighbors like Kazakhstan.