Taiwan must be brave and embrace cryptocurrencies, and more importantly, the distributed ledger and blockchain technologies that underpin them.
Today, at a joint session of parliament and cabinet Kuomintang (KMT) congressman Jason Hsu will petition Taiwan’s Premier William Lai and the chair of Taiwan’s Financial Supervisory Commission (FSC) to take a firm stance on crypto regulation.
That stance should be an underlying statement in favor of forwarding the development of distributed ledger and blockchain technology. This represents the future of value exchange in all its forms, but the fear is that recent bans of crypto-related activity in China and South Korea will precipitate a knee-jerk reaction that will block the space’s development in Taiwan. While China has clamped down on cryptocurrency, the People's Bank of China remains broadly in favor of developing blockchain technology, and has issued numerous statements suggesting it is developing its own blockchain-based digital currency. The two are distinguishable, albeit with a degree of difficulty.
“Just because China and South Korea are banning, doesn’t mean that Taiwan should follow suit – there is a huge opportunity for growth in the future,” congressman Hsu said. “We should emulate Japan, where they treat cryptocurrency as a highly regulated, highly monitored industry like securities.”
China recently banned crypto exchanges and initial coin offerings (ICOs), in which companies seek investment in the form of cryptocurrency to pursue crypto-related development, ahead of its critical National People’s Congress in mid-October. Korea prohibited ICOs and is reviewing the status of trading on its exchanges.
Regulators here may well be feeling pressure to follow suit, especially as Korea’s ban was in part based on the regulator’s obligation to protect the retail investor, the little guy who may be tempted to invest his savings in a fraudulent ICO due to an inability to assess the merits of the offering.
But both China and South Korea have allowed initial space for the crypto ecosystem to grow unfettered. Now both countries are assessing their experiences, and regulators are working with engaged and active ecosystems to iron out wrinkles. In Singapore, a fintech "sandbox", or area of experimentation, effectively sponsors banks to get involved. As a result, the Infocomm Development Authority of Singapore in tandem with OCBC Bank, HSBC and Mitsubishi UFJ Financial Group just concluded trials of the first consortium in Southeast Asia to develop a know your customer blockchain prototype. This allows customers to provide their details just once before they are allowed to transact with all the banks on the chain. The benefits to consumers of such an approach are obvious.
Meanwhile, Taiwan has talked the talk on so-called fintech innovation, but failed to walk the walk. The future for fintech looked bright when the FSC in 2016 released a white paper detailing targets for the years to come. Promoting blockchain was on that list, as was the aspiration to create a world-class fintech incubation center, not to mention encouraging the use of tokenization technology.
And yet the authorities have taken an obscure path to realizing these goals. In May, the Executive Yuan proposed the “Financial Technology Innovation Experimentation Act”. This effectively takes the drive to establish a fintech sandbox out of the hands of regulators. Instead, Taiwan’s parliament must now pass a bill, putting a complex and daunting proposition in front of legislators, who likely have other things to do than read up on the differences between cryptocurrency and distributed ledgers.
Taiwan has a nascent yet highly active crypto scene that is getting on with things regardless. MaiCoin, the country's only digital assets exchange platform, boasts about 25,000 active users, or 0.1% of the population. AMIS, a Taipei-based blockchain consultancy and sister company of MaiCoin. is attempting to engage financial institutions in a private blockchain consortium proposition. So far, and to their credit, only Taipei Fubon Bank and Taishin International Bank have signed on, while Taiwan’s Industrial Technology Research Institute is an investor. The underlying platform has a myriad potential uses beyond financial services. For example, AMIS partner OwlTing is pioneering blockchain-based supply chain verification in the organic food segment, removing the middleman as the guarantor of “organicness” and replacing it with a mutually reinforcing network of validation. Gcoin, a permission based distributed blockchain infrastructure for enterprises out of National Taiwan University's blockchain lab, and Bitmark, which leverages blockchain to provide a means for individuals to take ownership of their digital assets, are other Taiwan companies active in blockchain development. These companies and the people they serve would benefit from the security of knowing they are investing in a space that the government supports.
But following Japan, as congressman Hsu suggests, will not be easy. The first crypto exchange sprang up in Japan in 2010. They have been in the space since day one and have gathered what in crypto-time amounts to eons of experience. Second, the yen is a free-floating currency. The Taiwan dollar by contrast is pegged to its U.S. counterpart and managed to keep exports competitive. Stoking cryptocurrency trade and ownership is probably not something the central bank is going to get behind.
But all is not lost. What is needed is a statement of intent that drives the dialogue between stakeholders that could result in regulation that accounts for these realities.
"Crypto is here to stay in some form, whether its fiat money and crypto in a hybrid or crypto only," said Philipp Pieper, co-founder of Swarm Fund, a U.S.-based platform focused on attracting alternative funding for high-risk assets such as distressed real estate through tokenization. "If you don't realize that as a reality then you are shutting yourself down for future compatibility as a country or a company. There is a real systems competition that is happening where smaller more agile countries can outpace other countries in terms of their stance."
The race is on. It's time Taiwan made a start.
