This article is my thoughts and predictions on the role Bitcoin and Blockchain could play in the coming year given the rapidly changing face of geopolitics and the weaponization of financial instruments.
Economic sanctions of the Russian economy
The West has cut much of the Russian economy out of the currently dominant financial infrastructure. When I say the West I include most of Asia, Oceania, countries that use and adhere to the regulation agreed upon by most of us. These sanctions are having a devastating effect on Russia and the innocent people of that country who I would think want no part of this conflict. While I hope this will bring Putin to the negotiating table, the real focus of this article is the ability of financial exclusion to be a relevant tool in the future. Before we look at the facts and threats it is important to note that Bitcoin and Crypto was legalized in Russia just before the outbreak of war or more to the point Putin’s invasion of a free sovereign nation. While I see no real pivot by Putin to counter these sanctions with the use of Bitcoin and Blockchain I do think the real threat to economic sanctions being a relevant weapon is under threat by the amazing pace of financial innovation happening in China.
The rise of Chinese financial influence on International commerce.
This is an opinion piece, but lets look at some facts. China has the worlds largest banking system by asset value in the world. Its private payment sector, dominated by Alipay and Tencent has 1.3 Billion users. This is more than all other global fintech’s combined. These companies are the biggest lenders to 51 of the 72 poorest countries in the world. The United States private banking sector has done the opposite and deleveraged from many emerging economies.
China has launched a central bank digital currency called the ECNY. It is one year into this experiment. This technology know as a CBDC is being looked at by many countries and the implications for all of us need to be understood. China is the first mover and the implications of their digital currency proliferating globally could have huge implications on geopolitics and render the dominance of the western global payments system to an antiquated, old and second choice for many countries. In this scenario the financial weaponization as being seen right now on Russia may well be toothless.
Chinas CBDC, the ECNY, is not a crypto currency and does not operate on a public blockchain. China is however embracing blockchain technology and will have the ability to integrate with many of the countries it has helped build infrastructure in, including their financial systems. It has a clear head start over the west in its use of digital and mobile infrastructure and could easily leap frog the west which is still using legacy technology developed in the 1970s, namely the swift system of international settlements. Anyone who has sent money abroad knows how slow and expensive this is to use.
Why the west needs to move fast to adopt Bitcoin and Blockchain.
Hardforking has been educating our community on the use cases of Bitcoin for over 6 years. These are its uncensorable, unconfiscatable nature but also the transparency it offers. There is a need to teach as many people as possible on the merits of many other Blockchains with a strong focus on Ethereum and the D’apps being built on that blockchain. I will cover the retail side of Crypto investing in my next article but back to the macro situation which will greatly influence retail adoption.
The big issue for Bitcoin and Blockchain is that a vast amount of capital via private enterprise is ready and willing to deploy into digital payments but there is no clear regulatory framework in place for much of this to happen at scale. The issue with cross boarder payments is also a difficult situation. If the US were to take a lead in the adoption and integration of Bitcoin and Blockchain how will this work with other nations who do not go down this route. The EU came very close to banning blockchains through use ‘proof of work‘ (PoW) this week. The vote was 32 to 24 in favor of not implementing this ban. If this had happened it would have been a major set back for the blockchain industry. This situation is typical of a lack of understanding of our industry and the constant frustration of feeling like misguided politicians are on the verge of hampering this revolutionary technology. The good news is that well educated voices from academia and consultancy firms have finally taken great interest in this space and dialog with our all too powerful politicians is underway at the most senior levels now.
The power of the western financial system as the dominant force is now a topic of discussion and I predict we will see a better informed debate and policy in the very near future. Failure by the leaders in the integration and growth of this industry by western governments will be an epic mistake and will change the face of geopolitics this decade. Lets hope for the best.