Author: Li Guoquan, Professor at Singapore University of Social Sciences, Chairman of the Global Fintech Academy, and Co-founder of the SUSS NiFT Blockchain Security Alliance
Zheng Jincheng, Research Fellow at Singapore University of Social Sciences, Chartered Financial Technologist
The emergence of Bitcoin in 2009 was well-timed. After the 2008 financial crisis, people were generally skeptical of the traditional banking system. The crisis exposed the fragility of the fractional reserve system, in which banks hold only a small portion of depositors' funds as reserves and loan out the rest. If many depositors demanded their withdrawals at the same time, it could lead to a liquidity crisis.
Bitcoin provides an alternative to the trustless banking paradigm by transparently recording peer-to-peer transactions on a public blockchain. With its fixed supply of 21 million and independence from central banks, Bitcoin provides a timely solution and is gaining attention as a safer and more autonomous financial option.
There is no doubt that today governments and regulators also realize the functionality of Bitcoin and respect the technology and community behind it.
However, the demographics of the cryptocurrency space have changed. The political and economic implications of decentralized currencies attracted early enthusiasts. Today, many new crypto players are primarily attracted to the technical and financial efficiency of cryptocurrencies. Key opinion leaders (KOLs) in the industry, who were once advocates of decentralization and autonomy, are now often enthusiastic about pursuing financial efficiency and even advocating regulation (if it means moving toward mass adoption).
The path to mass cryptocurrency adoption is fraught with challenges. As the industry grows, so do the costs of complying with regulatory standards. This raises a pertinent question: Is widespread adoption feasible given the rising costs? Additionally, there has been a clear shift in attitudes, with many now dismissing innovative privacy-focused ideas.
Zero-knowledge proofs (ZK) have gained widespread attention thanks to the efforts of pioneers such as Zcash. These projects have played a vital role in educating regulators on the technology. A typical example is the zero-knowledge proof course taught by Zooko Wilcox at the Singapore University of Social Sciences (SUSS) in July 2016. This gave rise to Project Ubin 2, which emphasizes the privacy protection of central bank digital currencies (CBDCs). CBDCs are electronic versions of a country's currency, issued and managed by its central bank. Their value will be much more stable than stablecoins because the country's reputation endorses their value.
The value of the crypto industry is intrinsically tied to its technology, especially aspects that are difficult for regulators to control. If cryptocurrencies are easily regulated, their intrinsic value may be reduced. This is because its appeal lies in its decentralization and autonomy.
Unregulated crypto is a key determinant of the industry’s value and contribution to the virtual economy. Accepting regulation is a double-edged sword. The easier it is to regulate, the easier it is for the virtual economy to be controlled by malicious actors. This would be disastrous for a permissive government, especially if it promotes CBDCs and stablecoins.
The crypto community must remain vigilant against illegal activities such as money laundering, human trafficking, drug trafficking, terrorist financing, gambling, and pornography. But it is important to maintain a balance. Privacy-enhancing technologies such as Tornado Cash should be evaluated for their potential benefits, not just the potential harm they may cause. Outright rejection of such technologies could hinder the growth and long-term value proposition of Web3.
As we move toward a digital economy, the importance of data security and privacy cannot be overstated. These are not just technical requirements, but fundamental to maintaining human dignity. The tools and technologies that support the digital economy should prioritize these values.
As we advance the digital economy, data security and privacy should never be compromised. The underlying technology is key to maintaining human dignity. I hope we will not advance the digital economy at the expense of human dignity.
The geopolitics of cryptocurrency is multifaceted, with countries taking different approaches based on their economic, political, and strategic interests. As the cryptocurrency landscape develops, it will undoubtedly play a major role in shaping global power dynamics, trade relations, and financial systems. As builders, it is important to consider not only technology, but also politics and economics. For example, while the technology may be virtual, developers who don’t disappear like Satoshi Nakamoto will be subject to physical limitations. They must avoid expanding into areas that are not crypto-friendly, reduce costs during bear markets, and ensure that the location is located in a politically stable region. Otherwise, the project may be suspended due to various unexpected problems.
Big countries may not be friendly to cryptocurrencies or stablecoins, but this is exactly what small countries need. Crypto stablecoins can grow and develop by meeting the needs of small countries that are de-dollarizing. Understanding the geopolitics of cryptocurrencies can help us succeed in the right direction.
While large nations may resist cryptocurrencies, smaller, de-dollarized nations stand to benefit. Understanding these geopolitical nuances can effectively guide cryptocurrency businesses.
Regulatory arbitrage, which exploits regulatory differences between jurisdictions, is a short-term strategy in the cryptocurrency space. As cryptocurrencies grow in popularity, global institutions push for standardized regulation, narrowing the scope for such arbitrage. International institutions such as the G20 and the International Monetary Fund (IMF) are working to create standardized regulatory frameworks. Crypto regulations are constantly changing, and a crypto-friendly country today may have stricter regulations tomorrow. Operating in a lax regulatory environment can damage a company's reputation. Additionally, constantly relocating to exploit regulatory differences is logistically challenging and can disrupt business operations. For sustainable growth, it is recommended to operate in a clear regulatory environment and work with regulators. Complying with strict regulations also fosters trust among users, which is essential for the long-term success of the crypto industry.
Singapore is an open economy that has always been Web3-friendly, with relatively stable and sustainable policies. As Singapore's central bank, the Monetary Authority of Singapore (MAS) is committed to promoting sustainable economic growth and fostering a stable financial center. The MAS's key performance indicators include promoting sustainable economic growth and employment, maintaining a strong, enduring and trustworthy financial center, and fostering an innovative and diversified financial center.
Compared to Hong Kong's interest in developing retail investors, Singapore focuses more on institutional-type business activities. The HKMA welcomes responsible digital asset innovation initiatives in the industry and encourages interested parties to submit proposals to the Fintech Regulatory Sandbox for real-world testing. This will enable Web3 startups and projects to test their solutions in real-world scenarios without immediately facing full regulatory requirements. The HKMA is not only responsible for regulation, but also attaches importance to development functions. It has done an excellent job in balancing regulation and development, applying appropriate levels of regulation for different product development cycles.
Through initiatives such as the Financial Sector Technology and Innovation (FSTI 3.0), where MAS will commit up to S$150 million over three years to technology and innovation, Singapore is providing financial support to projects that can shape the future of Web3.
Singapore’s emphasis on education has created a highly skilled workforce, making it a hotspot for Web3 talent. Singapore University of Social Sciences, National University of Singapore, Nanyang Technological University, Singapore Management University, Global Fintech Academy, and other universities and institutions in Singapore offer Web3 courses exclusively.
Finally, Singapore’s global connectivity and status as a financial center also add to its appeal. Singapore’s strategic location makes it an ideal place for Web3 companies to connect with global partners, investors, and markets. It is for these reasons that Token 2049 has chosen Singapore for the past two years.
However, Singapore’s welcoming attitude towards crypto assets should not be mistaken for being lenient. Cryptocurrency service providers in Singapore are not allowed to advertise their services to the public and can only conduct activities on their social media. Despite this, Singapore remains competitive in the international market.
The intersection of ethics and legality is a complex issue, especially in areas such as cryptocurrency and technology. Granted, ethical design may not always be in line with legal requirements, and conversely, strict adherence to the law may not always be ethically justified. This conundrum is not unique to cryptocurrency. It is also a broader challenge in tech fields such as artificial intelligence.
Collaboration with regulators and governments is critical for the crypto community. Collaboration as equals helps create a balanced and fair regulatory framework, rather than focusing solely on complying with regulatory requirements. This approach prevents excessive regulation from stifling innovation while addressing ethical concerns.
The crypto industry should avoid a "profit at all costs" mentality, as this can lead to ethical dilemmas and regulatory backlash. Finding a balance between innovation, compliance, and ethics is critical. It is important to refer to established codes of ethics and conduct and engage in an ongoing dialogue with regulators and experts to navigate these complexities.
In summary, the crypto community should prioritize ethical guidelines and legal compliance. Collaboration with regulators, coupled with a commitment to innovation that takes ethics into account, will be key to achieving mass adoption and ensuring the long-term sustainability of the industry.
Singapore’s sound regulatory framework makes it a prime destination for cryptocurrency innovators. We invite you to come to Singapore to collaborate, innovate, and contribute to global blockchain development. Let’s leverage Singapore’s strengths to foster innovation and create a lasting impact!
About SUSS NiFT
The Singapore University of Social Sciences (SUSS) Node for Inclusive FinTech (NiFT) is the ‘Centre of Excellence’ spearheading all FinTech activities at the University, committed to providing high-quality research, public education and policy advocacy for inclusion in the field of FinTech for the benefit of society.
