Singapore University of Social Sciences

SUSS NiFT: Crypto’s Economic and Political Relevance – Spotlight on Singapore

October 16, 2023


David Lee Kuo Chuen: Professor of Singapore University of Social Sciences, Chairman of Global Fintech Institute, Co-Founder of SUSS NiFT Blockchain Security Alliance

Zheng Jincheng: Research Fellow of Singapore University of Social Sciences, Chartered Fintech Professional

The emergence of Bitcoin in 2009 was timely. It was introduced in the aftermath of the 2008 financial crisis, a period marked by widespread skepticism about the traditional banking system. The crisis exposed the vulnerability of the fractional reserve system, in which banks hold only a fraction of their depositors’ money in reserve and lend out the rest. This system can lead to liquidity crises if many depositors demand their money back at the same time.

Bitcoin’s transparent, peer-to-peer nature, recorded on a public blockchain, offered an alternative to a distrusted banking paradigm. With its fixed supply and independence from central banks, Bitcoin offered a timely solution and gained traction as a safer and more autonomous financial option.

There is no doubt that even today, governments and regulators are aware of Bitcoin’s capabilities and respect the technology and community behind the currency.

However, the crypto space has seen a shift in its demographics. The political and economic implications of decentralized currencies drove early enthusiasts. Today, many newcomers are primarily attracted by the technological and financial aspects. Key Opinion Leaders (KOLs) in the industry, once champions of decentralization and autonomy, are now often aligned with the financial system, even advocating for regulation if it means broader acceptance and mass adoption.

The path to mass adoption of cryptocurrencies is fraught with challenges. As the industry grows, so does the cost of complying with regulatory standards. This raises a pertinent question: Is widespread adoption feasible given these escalating costs? Moreover, there’s been a noticeable shift in attitudes, with many now dismissing innovative ideas that focus on privacy.

Zero-Knowledge Proofs (ZK) have gained prominence thanks to pioneers who have funded projects such as Zcash. These projects have played a crucial role in educating regulators about the technology. One notable example was in July 2016, when Zooko Wilcox conducted a Zero-Knowledge Proof course at the Singapore University of Social Sciences. This led to Project Ubin 2, highlighting the privacy protection aspects of central bank digital currencies (CBDCs). CBDCs are digital versions of a country’s national currency issued and regulated by its central bank. Their value would be much more stable than stablecoins because the country would be backing the credit.

The value of the crypto industry is intrinsically linked to its technology, especially aspects that are difficult for regulators to control. If a cryptocurrency is easily regulated, its inherent value may be diminished. This is because its appeal lies in its decentralized and autonomous nature. 

The inability to regulate crypto technology 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 a malicious element. This will be disastrous for a benevolent government, especially if it promotes CBDC and Stablecoin.

The crypto community must remain vigilant against illegal activities such as money laundering, human trafficking, drug trafficking, terrorist financing, gambling, and pornography. But it’s important to strike a balance. Technologies such as Tornado Cash, which enhances privacy, should be assessed for their potential benefits, not just the potential harm they might cause. Rejecting such technologies outright could hinder the growth and value proposition of Web3.

As we move towards a digital economy, the importance of data security and privacy cannot be overstated. These are not just technological requirements, they are fundamental to preserving human dignity. The tools and technologies that underpin the digital economy should prioritize these values.

Data security and privacy should never be compromised as we advance the digital economy. The underlying technology is key to tools that uphold human dignity. Let us hope we don’t promote the digital economy at the expense of human dignity.

The geopolitics of cryptocurrencies is multifaceted, with countries taking different approaches based on their economic, political, and strategic interests. As the crypto landscape evolves, it will undoubtedly play a significant role in shaping global power dynamics, trade relations, and financial systems. As a builder, it’s essential to consider not only the technology but also the politics and economics. For example, while the technology may be virtual, developers who do not disappear or shrink like Satoshi Nakamoto will be subject to physical constraints. They must avoid expanding into crypto-hostile regions, cut costs during bear markets, and ensure their base is politically stable. Otherwise, the project could be suspended due to unexpected problems.

Large countries may not be friendly to cryptocurrencies or stablecoins, but that’s exactly what small countries need. Crypto stablecoins can grow big by meeting the needs of small countries with de-dollarized or de-yuanized countries. Knowing the geopolitics of crypto can help us succeed in the right direction.

While large nations may resist cryptocurrencies, smaller, de-dollarized, or de-yuanized countries benefit immensely. Understanding these geopolitical nuances can effectively guide crypto ventures.

Regulatory arbitrage, which exploits regulatory differences between jurisdictions, is a short-lived strategy in the crypto space. As crypto gains traction, global bodies push for standardized regulations, narrowing the scope for such arbitrage. International bodies such as the G20 and the International Monetary Fund (IMF) are working to create standardized regulatory frameworks. Cryptocurrency regulations are constantly changing; a crypto-friendly country today may have stricter regulations tomorrow. Operating in a lax regulatory environment can damage a company’s reputation. In addition, constantly relocating to take advantage of regulatory differences is logistically challenging and can disrupt business operations. For sustainable growth, it is advisable to operate in a clear regulatory environment and to cooperate with regulators. Adherence to robust regulations can also foster consumer trust, which is essential for the long-term success of the crypto industry.

Singapore is an open economy and has been friendly to Web3 with relatively stable and sustainable policies. The Monetary Authority of Singapore (MAS) serves as Singapore’s central bank to promote sustainable economic growth and foster a stable financial center. The MAS’s KPIs include promoting sustainable economic growth and employment, maintaining a strong, durable, and trustworthy financial center, and fostering an inventive and diverse financial center. 

Compared to Hong Kong’s interest in developing retail investors, Singapore focuses more on institutional-type business activities. MAS welcomes the industry’s initiative for responsible digital asset innovation and encourages interested parties to submit proposals to the FinTech Regulatory Sandbox for practical testing.  This will allow Web3 start-ups and projects to test their solutions in real-world scenarios without immediately facing full regulatory requirements. The MAS is responsible for regulation and has a development function. It has done an excellent job of balancing regulation and development, applying the right level of regulation for different product development cycles. 

With schemes such as the Financial Sector Technology and Innovation Scheme (FSTI 3.0), where MAS will commit up to S$150 million over three years for technology and innovation, Singapore is providing financial support for projects that can shape the future of Web3.

Singapore’s focus on education produces a skilled workforce, making it a hotspot for Web3 talent. SUSS, NUS, NTU, SMU, the Global Fintech Institute, and other universities and institutes in Singapore offer courses specifically for Web3.

Finally, Singapore’s global connectivity and status as a financial hub add to its appeal. Singapore’s strategic location makes it ideal for Web3 companies to connect with global partners, investors, and markets. It is for these reasons that Token 2049 has chosen Singapore.

However, Singapore’s welcoming attitude towards crypto assets should not be mistaken for leniency. Cryptocurrency service providers in Singapore are not allowed to advertise their services to the public but can only promote their activities on social media. Despite this, Singapore remains competitive in the market.

The intersection of ethics and legality is a complex issue, especially in areas such as cryptocurrency and technology. It is true that ethical design may not always align with legal requirements, and conversely, strict adherence to the law may not always be ethically sound. This conundrum isn’t unique to crypto; it’s a broader challenge in technology and AI, too.

Working with regulators and governments is critical for the crypto community. Rather than focusing solely on bending to regulatory demands, working together on an equal footing can help create a balanced and fair regulatory framework. This approach can prevent over-regulation that stifles 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 essential. It’s important to refer to established ethical guidelines and codes of conduct and engage in ongoing dialogue with regulators and experts to navigate these complexities.

In summary, the crypto community should prioritize ethical considerations alongside legal compliance. Collaboration with regulators, combined with a commitment to innovation with ethics in mind, will be key to achieving mass adoption and ensuring the long-term sustainability of the industry.

Singapore’s robust regulatory framework makes it a prime destination for crypto innovators. We invite you to Singapore to collaborate, innovate, and contribute to the global blockchain landscape. Let’s leverage Singapore’s strengths to foster innovation and make a lasting impact.

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