The Growing Government-Token Symbiosis
What once seemed impossible has now become true: governments are accelerating token economy uses as much as private companies are. Innovation has emerged not just in tech startups but also in the public sector. Policymakers have realized new times call for new governance styles. A whole new playbook for government intervention is being written in forward-looking nations. “The government” can be just as much of a catalyst for innovation as it is a necessary regulator.
Tokens and government are symbiotic.
What are Tokens?
Tokens are digital representations of assets — both tangible and intangible. A blockchain is the platform that manages tokenized assets. In other words, a token is a programmable digital asset. It can be an object of value itself or a representation of any other asset on a digital ledger. The Ethereum blockchain acts as a ledger. It enables us to create and exchange value.
Tokenization is capturing the under-explored business models, and creating brand new value where you never had value before. It is value contribution from the crowd because tokens are fertile ground for network effects. The token economy can unlock value just as much as stock issuance did in 1879 when JPMorgan began to divide railroad company ownership into stock, thus mobilizing capital to an unprecedented level. Stock multiplied our economic abundance, and tokens could have that same ability if enough legitimate, value-producing companies adopt the networked business model powered by tokens.
The Dawn of Token-Government Symbiosis
Token economy enthusiasts have begun to see governments as not a nemesis but rather as potential clients. The government of Dubai has pledged to put all public records on a blockchain by 2020. In the future, not just the government but also a blockchain will serve as an arbiter of truth. Militaries saw how much more efficient it was to track their munitions on a blockchain instead of rickety databases. Central Banks began to realize they could boost GDP up to 3% if they switched to Central Bank Digital Currencies (CBDC). Politicians and businesses saw they could unlock billions in frozen capital with crypto mechanisms.
Central Bankers like at the Monetary Authority of Singapore and Bank of England are quickly seeing how their respective financial centers will stay relevant if their jurisdictions become blockchain-friendly. Singapore wisely organized the world’s largest fintech festival in 2017 that marked this pivot. It followed up with a grant competition for innovative blockchain projects. Alas, Singapore and London found themselves atop the world’s top blockchain cities.
In Singapore, the Info-communications Media Development Authority (IMDA) is providing grants to tech companies to develop “transformative” use cases of blockchains. The Monetary Authority of Singapore is experimenting with an Ethereum-based platform to settle and clear inter-bank transactions — and potentially create a digital Singapore dollar. Token project startups are flocking to Singapore, leaving less token-friendly jurisdictions behind.
People trust the government in more corners of the world than a libertarian techie would care to admit. Thus, governments should be viewed as a token startup’s friend, provided they are enlightened enough to recognize how tokens work for society’s betterment. Once a government acts in that spirit — such as recommending supply chains move onto a blockchain — the private sector follows suit. The government can be a catalyst.
At the same time, governments are learning to be mindful of the libertarian ethos built into token economics. Tokens and their blockchain platforms can be self-regulating. Trust matters, and it will matter even more when self-administered identities lead to one’s neighbors attesting to one’s good or bad reputation. Everyone who buys a tokenized asset is bound into accountability. The token incentivizes blockchain nodes to behave well, lest they lose power to validate transactions.
Symbiosis for Trade, Economic Growth
Token economics, or asset exchange on a blockchain, can break down economic barriers and increase economic interactions across borders. Fueled by blockchains, frictionless, borderless token exchanges could increase support for international trade. The benefits to that are immense.
Businesses have begun to see how they can unlock capital from token efficiencies, and governments have begun to notice this. An Irish company sent butter to the Seychelles using token-based trade financing. Using tokens took a process that usually takes up to 10 days and shortened it to less than four hours. This gave the exporter capital for nine more days than usual, giving it a chance to redeploy that capital and catalyze compound value creation.
Tokens let companies break up long value chains into shorter ones. Smart contracts can act as bridges between supply chain components such as Letters of Credit. This can lead to greater liquidity and enhanced price and market discovery. The result is compound value creation, driving economic growth.
Tokens can also stimulate exports because they boost trade between individuals, not just between companies. The Peer-to-Peer economy blockchain enables new forms of international trade, especially digital trade, in a way that legacy trading deals have not. For example, the Ujo blockchain service allows an Indonesian music group to sell its music directly to listeners in Mexico — previously nonfeasible under legacy trading arrangements. Blockchain-based software protects the Indonesian artists’ intellectual property rights (IPR) even though Indonesia has no free trade agreement with Mexico and no IPR enforcement officials in Mexico.
Apart from Peer-to-Peer uses, Trade Ministries are becoming excited for the efficiency gains from moving away from slow, paper-based supply chains toward token-powered supply chains. TradeTech comes to mind as a perfect example of these four elements already teaming up for success.
Token economics can help us transcend failed efforts to expand our current trade system, which have stalled. The World Trade Organization’s (WTO) mission of improving trade has not progressed much over the past decade. The TransPacific Partnership has not yet delivered after a decade of trying. Bilateral trade deals take years, hundreds of pages of documents, and in the end, make as many rules as they eliminate. The spaghetti configuration of current bilateral and multilateral trade deals is good for trade lawyers but not so good for small businesses that struggle to know which rule applies to which trading relationship. Efficient token exchange can help us move away from such frictions.
As Hong Kong-based internet pioneer Pindar Wong wrote in Coindesk, “Given the glacial rate of WTO negotiation rounds, measured in multiple years, it is hard to see how the existing regulatory regime will adapt to a world where manufacturing, trade and retail are “all digital,” even less so to a world where smart containers and packages automatically route themselves to their most profitable market…divergences in manufacturing processes and costs — and the nation-state-led trade wars they trigger — will have decreasing economic relevance, relative to the impact of digital innovation.”
Symbiosis for TradeTech
How does this token-government symbiosis come together, in tangible form?
First, a policymaker realizes the demand for trade documentation is growing as supply chains become more complex, regulatory requirements increase, and end-users want more information about what they’re buying. That policymaker might see the virtues of agreeing on an open-source blockchain TradeTech platform such as Ethereum.
Second, a supply-chain-on-blockchain startup realizes this promising use case and develops the underlying blockchain technology, which stores information about goods’ origin and route through the entire supply chain in circumstances where firms (and regulators) through the supply chain do not necessarily trust each other.
Third, the startup networks with private companies that recognize how blockchains can reduce their costs, transit time, and headaches. They are relieved, since the costs of bringing goods across borders can be higher than the rest of transport costs.
Fourth, the private sector consortium approaches government after realizing domestic regulators need to accept information managed on blockchains as compliant. Trade will move much quicker and cheaper in countries whose policymakers accept blockchain-managed trade information as valid. Policymakers coordinate so goods do not remain subject to existing paper-based processes, necessitating double-handling of compliance and reducing the benefits of blockchain-enhanced trade. Multilateral forums then can multiply benefits by harmonizing open-standards of blockchains. Government cooperation, not regulation, saves the day.
Symbiosis for Lightning-Fast Payments to Exporters
Another plus for international trade is exporters’ ability to accept payment tokens. Currently, small and medium businesses (SMEs) struggle to receive payment from international clients. If international bank payments do work, either payment is slow, or trade finance gets delayed up to 10 days, thus locking up capital. Even new fintech solutions can take up to two days. Sometimes clients fail to pay using international credit cards, or PayPal or Visa’s system is down (as happened in June 2018). The author remembers vividly being unable to use a U.S. credit card to book a flight on a Malaysian airline to fly from Singapore to Jakarta. The only option left was to take a ferry to the Indonesian island of Batam, pay in cash, and then fly onto Jakarta.
Blockchain technology thus holds great potential to increase efficiencies if exporters are paid in tokens. In this way, a cumbersome process is converted to one that takes seconds, with both payment and settlement in a single “atomic” transaction.
Symbiosis for Regional Economic Integration
Tokens also have the potential to accelerate regional integration projects. Countless such projects have stalled because they have done little to lower trade friction between countries. One way of reducing that friction is to create a common regional digital currency (RDC), much like the Euro did in the European Union. Yet while the Euro was a decades-long project backed by ultra-strong political will, other regions have struggled to overcome their fiat-backed currencies and lacked the necessary political will — even if the economic case was always there.
Thus, the ASEAN Economic Community (AEC) in Southeast Asia, the Pacific Alliance (Chile, Colombia, Mexico and Peru), or the South Asian Association for Regional Cooperation (SAARC) in South Asia could think of creating their own RDCs. Because of their digital nature, RDCs would complement and not displace national fiat currencies — a much easier sell. The blockchain system could be built much faster than a traditional currency system.
Southeast Asia has already seen traction toward the idea of a Regional Digital Currency. Talks are progressing in the ASEAN Financial Integration Network (AFIN), and central banks are already building what could become the backbone of a RDC. Even so, this project remains unofficial and still in experimental stages.
Such an AFIN project could merge together two digital currency projects already underway. The first, Project Ubin, driven by the Singaporean central bank, is creating a blockchain-based international clearing and settlement system that could blossom into an ASEAN currency. Ubin’s aims to “develop simpler to use and more efficient alternatives to today’s systems based on digital central bank issued tokens.” The second is Project i2i, which is creating a decentralized, cost efficient, and near real-time payment network that does not rely on outdated payment infrastructure such as SWIFT. The platform distributes across network participants (i.e. commercial and rural banks) the ability to issue tokenized cash and process transactions.
If Project Ubin and Project i2i were to merge, the fusion could represent a breakthrough in regional economic integration — an impossible goal until today. Blockchains would fuel better international relations in a region formerly beset by conflict. A shared currency would serve as a strong economic glue to bind ASEAN nations together.
Symbiosis for Government-to-Government (G2G) Cooperation
Other intergovernmental use cases are very promising, too. The Korean customs authority could share data on the blockchain with Dutch customs authorities, ensuring that no overvaluing of imports nor undervaluing of exports took place — thus not defrauding countries on either side of customs revenue.
Putting existing trade agreements on the blockchain — via smart contracts — also has tremendous potential. Using a smart contract platform, a trade ministry could record receipt of imported express mail services and thus confirm that it has released the goods with six hours — a common provision of trade agreements. Trade authorities could scour such agreements for “Turing” components (Yes or no, If/then clauses) which allow Smart Contracts to be programmed for aspects of trade agreements. ConsenSys looks forward to initiating discussions with countries interested in efficiency and transparency gains from Smart Contract-based trade agreements.
Symbiosis to Limit Downside
Every new technology has a downside: someone will try to use it for corrupt purposes. To minimize this transformative technology’s negative aspects, policymakers will have increased incentive to cooperate with token companies, as well as other governments, to track down ill-gotten cryptoassets or avoided taxes. Regulators will need to work with international counterparts to track where illegal cryptoassets were spent or converted to fiat currency.
Symbiosis for Meritocracy, Pro-Trade Sentiment
Disintermediated economies are empowering people to believe they have a stake in the global economy — and thus can increase support for freer trade. Access to well-paying jobs, capital, opportunities will no longer depend on gatekeepers. In this new future, what will matter most are ideas, project leadership, marketing, and execution. In short, we will move toward a meritocracy based on effort instead of privilege.
Because token sales allow companies to sell products globally, without friction imposed by political boundaries, youth in Cairo can rejoice in seeing their business opportunities no longer dependent on the Egyptian elite, for example. Borders will drop and entrepreneurs will see their professional opportunities elevate to the global level. They will be competing with their world peers for customers, capital, and connections. The frustration of being trapped by geography will be replaced by empowerment.
Symbiosis for Cross-Cultural Contact, Peace
When two groups are involved in a productive enterprise that increases the well-being of both, they are far less likely to wish each other harm or plunder each other’s resources. Token exchange removes friction between them, no matter what their geographic distance, thus boosting international trade while lowering conflict risk.
Worldwide token sales have increased our concern for others outside our borders. If a Pakistan-based project sells tokens for an innovative, decentralized ride-sharing service, for example, those buying the tokens in Brazil will begin to care more about the token project team in Pakistan. This scenario will replicate itself around the world. So trade lets us build interdependencies — if we trade we’re less likely to get into conflicts with each other.
Symbiosis for Predictability
Lastly, it is worth remembering blockchain programming code distills value exchange into automated rules. Well-functioning blockchains do not take arbitrary actions. They do not change with the political cycle. Thus, international exchanges become predictable, reliable, and trusted. This fair, smoothly-operating, code-based international system presents certain benefits over the current system where abrasive personalities, emotion, historical grievances, racism, and other friction can lead to conflict. Integrating the Rule of Code with the Rule of Law is worth exploring further.
Blockchain technology and governments need each other. The goals of both are mutually self-reinforcing and symbiotic. And that’s not because they help bring about better control, but because they help governments evolve and rise up to becoming better versions of themselves.
How else can governments — and their citizens — begin to take advantage of this symbiosis?
Would welcome your thoughts in comment section below.