There are many reasons why Asia is an important region for blockchain technology. Let’s consider how regulation is shaping the landscape, and discuss the practical ways in which blockchain technology is impacting people’s lives. We’ll also share resources where local investors can learn more about goings-on within several Asian countries.
- China – tough crypto regulations do not mean an anti-blockchain stance.
- Hong Kong – competing blockchains may have an adverse effect on efficiency.
- South Korea – widespread fraud was a factor in the implementation of rigid regulation, but rules on exchanges are still lacking.
- Thailand – a relatively undeveloped market with plans to launch a central bank digital currency.
It’s no secret that Asia is a dominant force within the cryptocurrency world. In part, this is attributable to the region’s drive to adopt, support and expand on the cryptocurrency revolution, which has attracted innovative businesses and venture capital to the area.
The objective of this report is to detail what is happening in China, Hong Kong, South Korea, and Thailand, with a view to demonstrating how Asia is readying itself for the blockchain future. In addition, there will be links to further sources of information to find out more on news and info in respect of each country.
Asia Leading the Way with Practical Use
The World Economic Forum had previously predicted that 10% of global GDP would be stored on blockchain by 2027. Given that few companies had managed proof of concept at the time, this statement took many by surprise.
Since then, blockchain development has progressed to the point where there is little doubt over its potential to automate entire industries and to bring benefits for users from a practical standpoint. What we are witnessing is a transition from hype to practical application, the implications of which go far beyond speculative investment.
Blockchain innovation is currently concentrated in the U.S. and Europe but focussed primarily on financial services. Whereas application of blockchain technology is taking off in Asia – which some see as the way to mass adoption.
With that in mind, let’s take a look at what’s happening in the region.
In September 2017, China’s Notice of Prevention of Risks of Token Offering and Financing (NPRTOF) banned ICOs and stopped fiat to crypto transactions, but things got ramped up recently when the Chinese government announced a new wave of crypto laws.
The Cyberspace Administration of China stated that all Chinese citizens must now report their real names and national identification details in order to use blockchain services. The rules go so far as to state that blockchain companies are required to censor information considered a “threat” to national security, and allow the inspection of user’s data.
China – Adapting to Tough Regulations
In the months following the NPRTOF, most crypto exchanges closed their operations in China but continued trading via platforms registered in crypto-friendly overseas jurisdictions. They also adjusted their business model, so as to avoid direct confrontation with the Chinese government. Some exchanges stopped trading between fiat and cryptocurrencies altogether, and some decided to incorporate stable coins within their platform as a workaround.
But, as ever, the more something is discouraged, the more people want to do it. And using fiat to buy cryptocurrency is no different. A significant trend emerging from the crypto crackdown is the rise in peer-to-peer trading platforms. Investors bypass the regulations by trading directly with other investors, using Alipay, WeChat Pay or direct bank transfer to settle up. Thereby driving the practice under-the-counter and overseas.
China – A Paradoxical Stance?
It’s believed the NPRTOF represents a governmental attitude to reducing risk exposure within the financial markets, there’s also the possibility that the Chinese government also wanted to clamp down on money leaving the country. These reasons in and of themselves do not imply hostility towards the idea of blockchain technology itself.
The Chinese government has openly stated that blockchain is the way to modernize China’s infrastructure. The authorities even encourage its use in improving the convenience, cost, and speed of retail payments. And the steady propagation of blockchain related announcements support this view, including the People’s Bank of China (PBC) recently announcing its expansion of blockchain and digital currency research. Taking this into account, it’s clear that Blockchain is far from dead in China.
China – Practical Use
As far as practical use goes, the region has seen a trend in blockchain as an asset management and data tool. According to the People’s Daily, the city of Loudi, Hunan province, has launched a blockchain-based platform for real estate data recording. The platform aims to reduce bureaucratic processing time for citizens by integrating the departments of land, tax and real estate.
Taking things a step further, Ping An Insurance Group, China’s largest insurer, has signed a strategic cooperation agreement with Sanya city local government to build a “Smart City” on Hainan Island, located to the south of China. The whitepaper details use of blockchain, artificial intelligence, big data, and cloud computing to serve future residents. The platform will integrate Ping An’s leading innovative technologies across core smart city sectors including smart administration, insurance, security, transportation, ports, financial trade, finance, education, healthcare, real estate, environmental protection, and elderly care.
China – Resources
Whilst centralized crypto exchanges have declined in number, China is still making great strides with blockchain technology, especially in regard to research. Find out more here:
Wanxiang Research Labs – are the venture arm of Wanxiang Automotive Group. They are a non-profit research institution focusing on blockchain technology with the goal of researching blockchain applications.
Damo Academy – are Alibaba’s blockchain research lab. They set out to explore the unknown through scientific and technological research and innovation.
ChinaBrand Blog – is the blog for ChinaBrand Consulting. The site is full of technology and business-related news about the goings-on in China.
Hong Kong is a hotbed for financial tech innovation and a global leader within the blockchain economy. As a special administrative region, it benefits from different legislative rules than Mainland China – which is reflected in their liberal approach to cryptocurrency.
Hong Kong – Finance
The region is already an international financial center, occupying the third spot in the Global Financial Centres Index (GFCI), with New York and London taking first and second places respectively. But integrating blockchain technology with traditional financial setups is proving troublesome.
According to a report by the stock and futures exchange operator, Hong Kong Exchanges and Clearance (HKEX), the inadequacies of the Bitcoin network make it unsuitable for financial market transactions. Among the issues cited are the slow trade confirmations and low throughput, whereby one block generated every 10 minutes, has the capacity for 24,000 transactions per hour – a transaction rate insufficient for satisfying centralized and high-volume trading.
Additionally, HKEX raises concerns over the open nature of the Bitcoin network, which they believe makes regulatory mandates on privacy protection and data leakage problematic. They go on to say these technical and business challenges may require regulators to adopt alternative provisions.
Hong Kong – Supply Chain
On the other hand, Hong Kong’s shipping industry has no such qualms with adopting blockchain technology. At present, the industry relies on paper documentation, which is inefficient and susceptible to fraud. However, in a bid to revolutionize the status quo, Modern Terminals Limited (MTL) has become the sole Hong Kong participant of TradeLens – a blockchain platform developed by Danish shipping giant AP Moeller-Maersk Group in conjunction with IBM.
TradeLens allows users to see the entire supply chain from a single interface, integrating the work processes of shippers, freight forwarders, importers and terminal operators. Through end-to-end system verification, processes such as customs clearance can be speeded up. And with an estimated 240 million customs releases, invoices and bills of lading flowing through the Maersk system each day, the benefits of this system are clear.
Having said that, TradeLens is a product of Maersk and is therefore of little relevance to other shippers. And whilst it could be a good platform, it would need central governance to make it an industry standard. That being said, industry competitors are not waiting around. Instead, companies such as Crimson Logic, a Singapore-based firm, in conjunction with PSA International are working on creating their own rival blockchain shipping system – the Global eTrade Services (GeTS) system.
This situation raises the question as to whether competing blockchains will nullify any gains through incompatibility. Whilst an industry standard is the best solution from an end user perspective, it’s unlikely rival companies would willingly share their technology.
Hong Kong – Resources
The ease of doing business and a community that embraces change make Hong Kong a major player in the crypto world. Here are some examples of Hong Kong companies that are leading the revolution:
Genesis Block – is the largest over-the-counter crypto trading floor in Hong Kong, supporting over 1,000 cryptocurrencies. It offers crypto ATMs, miner reselling services, and direct crypto selling services. As well as that, it functions as a co-working space and event venue for Hong Kong’s blockchain community.
IOHK – is a blockchain research and development organization that aims to blend academic research with blockchain development.
MATRIX – operates an open-source blockchain platform that leverages AI technology to execute smart contracts. The MATRIX platform differs to most in that it allows users to design their own smart contracts without any coding.
As a result of close ties to conglomerate groups, the South Korean crypto market benefits from strong infrastructure. Having said that, South Korea operates under some of the strictest regulations in Asia, but that doesn’t stop it from being the third largest digital exchange market in the world.
South Korea – Appetite for Crypto
By the end of 2017, South Korea accounted for a third of worldwide Bitcoin trades and is currently responsible for more trading per capita than any other country. In fact, during the last bull-run, demand for Bitcoin was so high, South Korean investors were willing to pay above market value, a phenomenon dubbed “the kimchi premium”.
Fast-forward to the present, and this trend shows no signs of changing. Notwithstanding the enduring bear market, Bitthumb, the largest crypto exchange in the country, regularly sees spikes in the daily trading volume of BTC-KRW, which has become the world’s second most liquid pairing after BTC-USD.
But why is demand for cryptocurrency in South Korea so high?
South Korea – Economic Conditions
Even though South Korea is a fairly large and prosperous country, the South Korean economy suffers from youth unemployment, which stood at 9.8% last year. In an attempt to address this issue, the government launched an incentivized program for small and medium-sized businesses to hire young workers.
But under a highly competitive jobs market and a hierarchical societal structure, this, as yet, has proven unsuccessful. For young Koreans, who are disenfranchised with the system, cryptocurrency represents a rare chance at prosperity. Which is a sentiment echoed across all sections of society, even the employed, who suffer low wages, despite the relative affluence of the country.
The country’s minimum wage stands at 7,530KRW, which is equivalent to US$6.71, with inflation holding steady at around 2%. Many South Koreans, especially those old enough to remember when inflation ran at 33%, view cryptocurrency as a way to hedge against the current system.
South Korea – Gaming Culture
Playing video games is a popular social activity in South Korea. Professional competitions with large prize money are often televised, and sales of games have averaged a 15% growth year on year since 2008. It’s clear that South Koreans see gaming as more than a leisure activity.
The concept of using micropayments and digital tokens in gaming is one that’s familiar to many. It follows that the idea of buying and selling digital assets is a logical extension of gaming culture, and one that lives up to the nation’s reputation as early adopters of new technologies.
South Korea – Legislation
Legislation remains a major point of contention in South Korea. Since the start of 2018, The Financial Services Commission (FSC) introduced their first concrete administrative measures. They announced bans on anonymous trading on domestic exchanges, and on foreigners and minors trading through digital currency accounts. And similar to the Chinese, they also set out requirements for bank account names to match exchange account names, and for exchanges to share users’ transaction data with banks.
In the recent past, their response to high-profile scandals was half-baked, whereby proposals failed to make it to legislature, and recommendations were not enforced by the National Assembly. But in a bid to address this, South Korea has upped their game and are now imposing a firm line to avoid a repeat of the past.
South Korea – Scams
Previously, the authorities were ill-prepared to handle the scale of rampant misconduct. The country experienced a number of high-profile scams, including the Mining Max Ponzi scheme, which saw 18,000 investors swindled out of US$250million. There were also multiple issues with exchanges, such as Coinnest embezzling millions of US Dollars from customers’ accounts. And market manipulation was common practice, with spoofing, where demand is faked by placing large buy orders not intended to be filled. And wash trading, where someone fills their own buy and sell orders.
To add to the problem, a number of exchange hacks were perpetrated, including Youbit, which was hacked twice during 2017, resulting in the loss of 4,000 Bitcoins during the first attack, and bankruptcy after the second attack. In June 2018, both Coinrail and Bithumb were also stricken. An industry-wide investigation showed the majority of exchanges in South Korea were operating without adequate security measures and IT infrastructure.
South Korea – Exchanges
Fast forward to the present and general confidence in exchanges remains low. Right now, there are around 100 exchanges in operation in South Korea. And despite the toughened stance on crypto legislation in general, critics are calling for the government to speed up their legislative reforms on exchanges. Which include registration, reporting, and licensing.
The main problem is that there are no specific requirements to establish an exchange. In South Korea, an outfit merely needs an online sales registration to set up a new exchange service. Under this system, it’s possible for an entity to create a new cryptocurrency, and then list the coin on a crypto exchange created by the same entity. Therein lies considerable risk, where the possibility for market rigging or embezzlement is massive. And when the measures around establishing a crypto exchange are so lax, is it any wonder Korean exchanges have become a byword for fraud?
South Korea – Resources
With a passionate following and strong belief in blockchain technology, South Korea hosts a number of organizations that intend to spread the word on all things crypto. Here is a selection:
Bitcoin Center Korea – provide educational classes, collaborative workshops, networking and events on cryptocurrency and open source projects. They operate an informative blog and feature resources on technical understanding and trading.
Foresting – are a social media start-up utilizing blockchain. It aims to revolutionize social platforms by providing a fair value distribution for users.
Blockchain News – get the latest news, debates, and interviews concerning what’s happening in Korea.
When thinking about blockchain in Asia, Thailand is not a country that immediately springs to mind. But since the start of the year, the Thai government has become increasingly open in welcoming cryptocurrency projects and exchanges.
Whilst U.S regulators are continuing to drag their feet, thinking about how best to deal with cryptocurrency, in just a few months, the Thai authorities have made significant headway in setting up cryptocurrency company licenses for exchanges and even ICOs. This affirmative stance has seen a glut of foreign companies flocking to the region, including Bithumb, South Korea’s largest exchange, who are planning to open in Thailand after receiving regulatory approval, as well as a further commitment from IBM, who plan to deepen their existing partnership with Thai bank Krungsri.
Thailand – Regulatory Cooperation
In the case of Thailand, the burgeoning crypto market is benefiting from a strategy of close cooperation with the authorities. This attitude stems from an approach by government officials to want to engage with the crypto-space. So much so, during blockchain meetups and events in Thailand, it’s common to see senior Thai officials taking part in the proceedings.
Although Thailand has a way to go before it can be considered a crypto powerhouse, the signs for major development are there. During the summer of this year, the government legalized seven cryptocurrencies, those being: Bitcoin, Ethereum, Bitcoin Cash, Ethereum Classic, Litecoin, Ripple, and Stellar, whilst inviting additional projects to file for legal status. At the same time, it opened tender for cryptocurrency exchanges and brokers to apply for operating licenses.
Thailand – Stepping Up
Not only have the Thai authorities become open to private cryptocurrency companies, but the Bank of Thailand have announced their own plans for a central bank digital currency (CBDC).
The plans detail cooperation between eight participating banks to build out the infrastructure. The first phase will involve the development and testing of key payment features, including a liquidity-saving mechanism, as well as risk management protocols. This phase is scheduled for completion by early 2019.
The move for Thailand to implement a CBDC was unexpected. Although the concept itself isn’t new, few could have predicted that a relatively undeveloped market, such as Thailand, would make such a progressive move.
In fact, in recognition of the inherently crisis-prone banking system, the world’s central banks have already begun debating whether CBDCs should be implemented worldwide. But what might this mean for cryptocurrencies in general?
Thailand – The Beginning of the End?
The use of cash has steadily declined in favor of digital payment systems such as PayPal, Venmo, WeChat Pay and Alipay. Most of these organizations are still connected with traditional banking, and none depend on blockchain technologies. With that in mind, CBDCs are also unlikely to be connected with existing, and some say over-hyped, blockchain projects.
As things stand, the central banking system relies on commercial banks being an intermediary. A CBDC would allow individuals and companies access to the central bank directly, foregoing the need for bank accounts, digital payment services, and doing away with the need for cash. And under a centralized permissioned private non-distributed ledger system that allows for payments and transactions to be conducted effortlessly and safely, the possibility of cryptocurrencies being irrelevant is a real concern.
Thailand – Resources
Although relatively early on in their blockchain journey, Thailand is proving that co-dependency with local government is beneficial to the process. This is paving the way for an emerging blockchain community. Thai readers can learn more about what’s happening here:
Thai Crypto Club – dedicated to local news and proliferation of blockchain knowledge.
Crypto Thailand – forum on general discussion, mining, trading, and technical development.
As a whole, the Asia crypto scene represents a diverse market at different stages of development. As the blockchain space develops, regulators across the board are implementing increasingly rigorous requirements in an attempt to legitimize the industry.
In terms of development, it’s clear that blockchain technology embodies the new wave of industrial development, to which all forward-thinking nations are keen to be a part of. Whilst this article covered only a small selection of possibilities, the truth is, blockchain technology is relevant to all aspects of modern society.
How things will pan out is not known, but the crypto space is certainly stimulating debate as to what is best from a commercial and humanitarian standpoint. The power to change the world has never been as forthcoming, whether this plays out as real change is yet to be determined.