Quotes

“Banning certain things and technology doesn’t work because this ecosystem came from the shadows.”

“Regulation makes things mainstream, it makes social adoption easier.”

Summary

• Our guest, Loretta Joseph, wrote the first big real self-regulation for Bitcoin in Australia. And this has been adopted by about 39 countries.
• One of the biggest problems we have sitting in 2021 is the lack of digital identification.
• Alternative payment systems, whether that be mobile, or cryptocurrencies, they reduce the transfer cost in systems.
• Governments need to start to embrace the technology of blockchain outside this application. Bitcoin and cryptocurrencies are a very small part of the blockchain revolution.
• The government and the regulators need to bring in sensible regulation.

Our topic today is a fast-growing class of financial instruments that many say will enable unprecedented financial inclusion and equality in digital assets. The most widely known digital asset is Bitcoin, a blockchain-based cryptocurrency that was introduced in the wake of the financial and economic crisis in 2008. Regulators around the world are taking different approaches to this new asset class, some embracing it, and some prohibiting and the majority adopting a wait and see attitude. But even at this early stage, most experts agree that this digital asset with a market capitalization of over US $1 trillion, and growing, is here to stay. I spoke to Loretta Joseph, a public policy expert and globally recognized authority in digital asset regulation and blockchain technology and asked her to explain this new asset class.

Loretta confessed that she became interested in digital assets when she read a book called The Blockchain Revolution by Don Tapscott. “It talked about decentralized databases and blockchain. In layman’s terms, blockchain is a very fancy word for a database. Now we use databases every day, we use Excel spreadsheets, you all use databases. But the difference between the databases that we’ve used up until the time that Bitcoin came along, and blockchain was that they’re centralized. I wrote the first big real self regulation for Bitcoin in Australia. And then, lo and behold, I think that’s been adopted by about 39 countries.”

Elaborating about how cryptocurrencies emerged, Loretta says, “In 2008-2009, a person or group of persons, called Satoshi Nakamoto, put a very detailed paper called the Bitcoin white paper on the internet about a cashless payment system. It’s open-source, it’s available to everybody. Satoshi talked about a world after a Global Financial Crisis (GFC), which is very timely, because it came out just as the real GFC hit. I was a trader in the GFC. I understand how the financial system gets broken. To be honest, I don’t believe the financial system has been fixed.”

The first challenge is that when regulators hear words like bit-coin or crypto-currency, they fear that you are going to replace their currency. And that’s the biggest obstacle in really allowing other regulators to adopt the Bitcoin technology or blockchain technology.

Where did Loretta see the greatest potential for financial inclusion and empowering financially precarious populations via cryptocurrency or bitcoins? “In most of the first world countries, 95-98% of all their citizens have bank accounts. But when you go into Africa and India, you flip that on your head. So here financial inclusion means ‘exclusion’ of up to about 90-95% of the population. One of the biggest problems we have sitting in 2021 is the lack of digital identification. People in the emerging world quite often don’t have identification, so you can’t have a bank account. You can’t be included in the financial system. You can’t vote, you can’t get a passport, you can’t do many things. So the first thing we need to do is solve the problem of digital ID. If you look in places like India and the Adhaar, and you look in Africa, telecom providers have stepped in to be banks where there are no bank facilities. These alternative payment systems, whether that be mobile, whether they be cryptocurrencies, reduce the friction or transfer cost in systems.”

The pandemic has really helped fast-forward the digitization process, I point out. “Absolutely. I mean who would have thought two years ago that we’d all be working from home? The future of work arrived without anybody realizing it. Or anybody expecting it. Ditto for central bank digital currencies. Throughout the pandemic, governments were struggling to get money into people’s pockets. If we had central bank digital currencies, things would be different.”

What was her experience with global regulators, and what are the challenges that she saw particularly in a country like India? “Regulators have struggled to understand the situation. Central banks were very confused. But some countries have been very receptive. The smaller jurisdictions are more nimble. Social adoption is high in the emerging world. I see the emerging world taking a leading role in writing regulations for cryptocurrencies. We need them and we need them fast.”

What are the challenges she sees in the emerging world, I asked. “The challenge I see is that you have a lot of people using systems where you have no regulation. Banning certain things and technology doesn’t work because this ecosystem came from the shadows. Regulation makes things mainstream, it makes social adoption easier. We can’t shut down the internet. We can’t shut down the Bitcoin network.”

What would be her three recommendations for the emerging markets to adopt digital assets? “We need to make sensible regulations. Give legal clarity and legal certainty to the ecosystem. Governments need to start to embrace the technology of blockchain outside this application. Bitcoin and cryptocurrencies are a very small part of the blockchain revolution. We need to embrace technology in all parts of our lives. Everybody needs to understand how this digital economy works.”

How did she think India should begin in the digital asset space? “The government and the regulators need to bring in sensible regulation. You’ve got entrepreneurs that are leaving India because there’s no clarity. You need to seize the opportunity and harness the risks of technology. The entrepreneurs of India have the ability now to shine. This is the biggest opportunity for any country in the world to take technology, to take these new industries and take these new ecosystems and turn them into their own. India has some very, very smart Indian kids and technologists that just want to build businesses. I think India needs to foster her female entrepreneurs too.”

Loretta concluded, “Harness the opportunities and mitigate the risks. Don’t be scared of technology, because it’s here, it’s not going away. Digital assets, this asset class is here to stay. I mean, you’ve got an industry now of what $1.8 trillion when I looked this morning, it’s not going anywhere. So we embrace it, or we let it overtake us.”