Blockchain and the cryptocurrencies built on the digital security it guarantees are the new, new thing on the block in Davos where the hype has met the steely gaze of regulators.
It is hard to overstate how much the phenomenon of the bitcoin currency frenzy and its probably more durable foundation of the blockchain has pushed its way into the streetscape and the official agenda of the World Economic Forum in the Swiss ski resort of Davos.
Pop-up pavilions with baristas flown in from London and a club-like atmosphere to entice those wanting to know about blockchain and its derivatives have been sandwiched between the more familiar showcases for big accountancy firms, the technology giants, financial data suppliers and banking groups.
Crypto24 is where the cool kids appear to hang out. Looking like a club you’d want to be a member of it’s a nightspot as much as a place to promote the virtues of virtual currencies and push that idea out of your head that the whole thing is a bubble on the scale of the tulip mania. (Who remembers that- The Economist)
Along the icy road lined with snow drifts at head height is the altogether more mature-sounding Global Blockchain Business Council (GBBC) — words like global and four-letter acronyms go over well with the Davos crowd. The GBBC seems to be where the grown ups of the “crypto” movement/industry/cult hang out. It’s where government ministers and officials are literally queuing to talk about ideas like using blockchain to give peasant farmers title to their land, or counterfeit-proof of livestock ownership.
Jamie Smith, the chief executive officer of the council, said a big part of its role was to promote education about blockchain among government officials and regulators to help allay fears associated with the cryptocurrencies boom that risk contaminating adoption of the underlying blockchain technology.
“It’s dangerous to suggest you can regulate THIS when you don’t know what THIS is,” she told WikiTribune.
DLT and other TLAs
The blockchain concept is also known as Distributed Ledger Technology (DLT) and allows any partner to a transaction to keep and share absolutely secure versions of a contract in a ledger held across a network.
That’s where the hype of some of the cryptocurrency world suddenly gets real.
While the excitement of spiralling and then plummeting Bitcoin valuations makes the news, the real business of using cryptographic blockchain to create potentially vast networks of verification is the focus in Davos not just of enthusiasts but of almost every businessperson, media executive and government leader.
One media executive told me he’s looking at it to verify ownership of his content. Kodak took a step (Bloomberg) in that direction with a groundbreaking plan to offer so-called “smart contracts” on blockchain to verify photographic copyright and create a network for frictionless payments to content owners.
There can hardly be a company represented in Davos — whether banks that stand to be bypassed by payments linked to blockchain, or insurance companies which could create smart contracts for any risk, or even food companies which could secure their supply chains — that isn’t looking at blockchain technology.
On the cryptocurrency front the adults in Davos — prime ministers, central bankers and regulators — have left no doubt that they’re not going to let the bubble go on without regulation. They have used the most important gathering of financial and government leaders in the world to send a big message — coordinated across virtually the entire world from Chicago to Shanghai. The Wild West era of cryptocurrencies is over.
“We do not want them to get too big and too widely traded in China…,” Fang Xinghai, vice-chairman of the China Securities Regulatory Commission told a session titled “The Next Financial Crisis”. He said he supported “wholeheartedly” the prospect of the Chinese central bank shutting down bitcoin exchanges.
Risks for the unwary
Central bankers and regulators have a visceral fear that unofficial, unregulated cryptocurrencies and the related concept of Initial Coin Offerings (ICO) pose major risks for unwary investors. They could be used for laundering money and can be like a Ponzi scheme to create a cycle in which investors pile in seeing gains made by others who get out in time by selling to the next person in line.
There’s also the issue with the ICO market of whether the “coins” issued by those raising money actually represent some sort of equity in those businesses, hence becoming a “security” with all that may mean for the attentions of people like Fang and in the United States, the Securities and Exchange Commission (SEC). Fans have so far argued that they are just stores of value or tokens, without inherent value or equity rights.
Not so fast, the SEC said on Wednesday, causing a metaphorical tremor through the Crypto24 clubhouse in Davos. In an opinion article (may be behind a paywall) in the Wall Street Journal the leaders of the SEC and the Commodity Futures Trading Commission, signalled that the party was over, saying they would not allow the new technology to “disrupt our commitment to fair and sound markets.”
The article warned lawyers, bankers and anyone else involved in cryptocurrencies not to imagine they were exempt from regulation or legal action to protect consumers and the financial system.
Alongside that warning, French President Emmanuel Macron called for the International Monetary Fund to gain the power to regulate cryptocurrencies. Earlier, IMF Chief Economist Maurice Obstfeld told reporters the IMF was well aware of the opportunities blockchain might offer but was also clear: “We also see cryptocurrencies could also offer risks and it’s important for regulators to be watching carefully.”
There were literally dozens of workshops, conference sessions and talks on the whole field from how to govern the creation of cryptocurrencies to how to use blockchain. One, “Blockchain: A New Operating System for Society” suggests the scale of change to come, or another: “Towards a Universal Digital Identity”. That’s the sort of scale ideas in Davos tend to take on.