In this issue
- Crypto rules: Can the banned play on?
- MATIC: Shifting gears
- Chinese metaverses: Big Bang
From the Editor’s Desk
If you want to make something popular, ban it. So goes an old aphorism often linked to the proliferation of a black market in illegal alcohol in the Prohibition-era United States, during which organized crime took over the liquor trade.
The politicians of the day learned that lesson the hard way — a difficult and unnecessary experience that some of their contemporary counterparts seem doomed to repeat as they call for bans on cryptocurrencies.
At the weekend, it was Pakistan, where a top government investigative agency is seeking to block crypto websites just days after the country’s central bank recommended an outright ban on the crypto trade.
India’s prime minister is also piling on the pressure this week, adding to rumblings about a potential crypto ban that have been emanating from New Delhi for years.
Even Singapore, which has benefitted from its reputation — deserved or not — as a crypto-friendly jurisdiction, this week moved to clamp down on crypto marketing and close down crypto ATMs.
Of course, the biggest crypto sledgehammer remains China, whose crackdowns on digital assets have been unrivaled in their ferocity and reach. Yet even in China, wily crypto investors are finding ways around Beijing’s blanket ban.
For governments and regulators that possess even a fraction of the power that Chinese authorities wield over the world’s second-biggest economy, therein lies the rub: If one of the most authoritarian regimes on earth can’t quite finish the job, what hope do they have?
It took the U.S. government 13 unsuccessful years of trying to banish booze before coming to the realization that it couldn’t, and that it was better to regulate the gangster-dominated black market out of existence.
Experience is a cruel teacher, and countries flirting with crypto bans ought to be reminded that learning from the lessons of others is far less painful than learning those lessons firsthand.
Until the next time,
Founder and Editor-in-Chief
1. To ban, or not to ban?
By the numbers: State Bank of Pakistan — over 5,000% increase in Google search volume.
Some Asian governments have made moves to rein in cryptocurrencies in recent days. Separate authorities in Pakistan proposed rules that collectively have more than a whiff of China’s approach to crypto. In a similar move — although arguably less harsh — Singapore’s central bank has issued guidelines aimed at stopping crypto advertising and ATMs. And in Hong Kong, the city’s de facto central bank has published a document to kick-start discussions on crypto-asset and stablecoin regulation.
- The chief of Pakistan’s Federal Investigation Agency, Sanaullah Abbasi, reportedly said on Saturday that the agency would be approaching the Pakistan Telecommunication Authority to block cryptocurrency websites.
- Less than a week beforehand, the country’s central bank recommended the imposition of an official ban on all cryptocurrency use. Crypto is popular in Pakistan, but like its counterparts elsewhere, the country’s cryptocurrency industry operates in a legal gray area, despite the central bank having asked banks to refrain from trading or investing in them.
- Indian Prime Minister Narendra Modi told the World Economic Forum — which was canceled last year due to the pandemic and supplanted this year by a virtual event known as the Davos Agenda — that governments around the world needed to collaborate globally to address what he described as “the challenges posed by cryptocurrency,” saying: “To fight this, every nation, every global agency needs to take collective and synchronized action.”
- The Monetary Authority of Singapore this week issued guidelines to restrict the ability of cryptocurrency companies to promote their services to the public. According to the guidelines, promotion of crypto in public areas through means such as billboards and advertisements on public transport, on third-party websites and on social media platforms is now off-limits, although it remains still permitted on crypto companies’ own websites and social media accounts. Crypto ATMs are also no longer allowed.
- Last week, the Hong Kong Monetary Authority released a discussion paper as part of a public consultation on crypto-asset and stablecoin regulation, highlighting concerns over crime and financial stability.
Forkast.Insights | What does it mean?
The imposition of bans on everyday products and activities has a long history of backfiring. When the United States slapped a ban on alcohol in 1920, it created a giant black market run by criminals. Many parallels have been drawn with the “war on drugs,” in which U.S. authorities have been engaged for decades. Similarly, when nations enact draconian measures to control migration, they can lead to miserable outcomes such as increased human trafficking.
Banning cryptocurrency is fraught with even more difficulty compared to erecting walls against migrants or stamping out contraband. All that crypto-ban dodgers require is an internet connection.
Crypto bans also prevent legitimate businesses from offering related services, choking off part of the digital evolution of the finance sector and potentially putting nations in which such bans are enacted at a competitive disadvantage when it comes to the development of their financial services industries.
Updating rules on such matters as taxation and commerce are rarely initiatives that can be touted by governments wishing to appear resolute and tough, but regulation, not prohibition, remains the most effective tool for protecting the public interest and safeguarding innovation.
2. MATIC changes up
By the numbers: MATIC London hard fork — 2,300% increase in Google search volume
Layer-2 Ethereum scaler Polygon’s Ethereum Improvement Proposal 1559 went live on Tuesday, introducing a burning mechanism to introduce a deflationary dynamic to the supply of MATIC tokens, which is capped at 10 billion. Polygon and layer-2 solutions for Ethereum have gained popularity as the rise of decentralized finance (DeFi) and non-fungible tokens (NFTs) has led to network congestion and higher fees within Ethereum’s smart contract ecosystem.
- EIP-1559 replaces an auction fee structure with a base fee that allows users to pay additional fees for faster transactions. EIP-1559 is based on the same proposal that went live on the Ethereum mainnet in last year’s London hard fork.
- Since Ethereum’s August 2021 upgrade, more than 1.556 million ETH has been burned, representing a value of over US$4.8 billion at press time.
- ETH was priced at US$2,724 at the time of the upgrade and is currently trading around 13% higher at US$3,112, according to CoinMarketCap. It had reached an all-time high of US$4,878 in November.
- Polygon’s MATIC currently has the 15th largest market cap of any cryptocurrency, just US$166.2 million below Binance USD, which is in 13th place. MATIC was trading at US$2.07 at press time.
Forkast.Insights | What does it mean?
Layer-2 solutions, also known as “rollups,” are a second-level means of offloading data from blockchains to help make them more nimble. Despite its London fork upgrade last summer, Ethereum remains plagued by high transaction costs, and its migration from a proof-of-work consensus to a proof-of-stake model is still years away, providing an opportunity for layer-2 projects such as Polygon to seize.
Although the introduction of a deflationary mechanism for MATIC may lead to a bump in the coin’s price, it may be short-lived, as competition among layer-1 blockchains is catching up and risks even overtaking layer-2 solutions.
Layer-2 projects involve the use of different blockchains, adding a layer of complexity that makes navigating the space more challenging for newcomers. It also creates additional work for developers building on those platforms.
Competition is coming from layer-1 blockchains such as Solana, NEAR and Avalanche, which have been busy building bridges — means of moving assets across chains — to allow developers to run the smart contracts built for Ethereum on other chains, taking advantage of faster transactions and lower costs. And developers are moving away from ETH in favor of its rivals. As ETH’s price has been moving sideways, such projects have seen double-digit growth in the prices of their tokens.
Ethereum had a first-mover advantage, but DeFi projects, and more recently NFTs, have flocked to rival chains rather than layer-2 options such as Polygon. MATIC may well benefit from its upgrade, but its backers can’t ignore the bigger picture.
3. China’s virtual vision
Metaverses continue to enjoy considerable appeal in China, having piqued the interest of the government and academic institutions. The Communication University of China, for instance, has created a virtual counterpart to its physical campus on Baidu’s metaverse app, and several regional governments are planning to use metaverses as a means of economic stimulus.
- The Communication University of China, a top-tier public university in Beijing, announced last Thursday that it had launched a virtual version of its campus on XiRang — a metaverse app launched by Baidu last month amid countrywide hype surrounding metaverses — making it the first academic institution in China to embrace metaverse development.
- Developed by the university’s virtual entertainment lab, the virtual campus can be accessed through VR hardware, smartphones and PCs. Last month, “Aniwow!,” an international anniversary celebration for animators, introduced a metaverse branch venue on the platform.
- Despite widespread excitement surrounding the technology, state-backed media have issued warnings against metaverses.
- The government of Wuhan, the provincial capital of Hubei province and ground zero in the Covid-19 pandemic, announced a 2022 work plan on Jan. 11 that includes the integration of the metaverse, blockchain, big data, cloud computing, geospatial information and quantum technology into its economy.
- Wuhan is not the first Chinese city to explore metaverses. Multiple other local administrations — including authorities in Shanghai’s Xuhui district, the province of Zhejiang, and the cities of Hefei and Wuxi — have also laid out their metaverse ambitions in work plans or other announcements, according to the China Securities Journal. In a file published by the Shanghai municipal government on Tuesday, the government announced it would speed up the development of “interactive platforms between the virtual and physical worlds,” including metaverses.
Forkast.Insights | What does it mean?
Even as Chinese authorities try harder than ever to stomp out cryptocurrencies and related phenomena, China’s metaverse space is thriving — at least for now.
Chinese stock market investors have shown confidence in the sector. The Chinese metaverse stock index, compiled by financial data provider iFinD to track 95 metaverse-related companies listed on the country’s A-share market, had surged 48.4% by the close on Tuesday from its Sept. 10, 2021 launch. Its performance put the benchmark Shanghai Shenzhen CSI 300 Index in the shade as it slipped 4% during the same period.
The bullish mood has also been reflected in the number of metaverse-related trademark registrations. Chinese companies, including tech giants Baidu and NetEase, had registered more than 3,800 metaverse-linked trademarks as of Tuesday, according to data from business tracker Qichacha.
China’s ambition to deploy 5G networks across the country also appears likely to provide significant momentum for metaverse development.
Although some state-owned media outlets have expressed misgivings over the “immature” technology, the metaverse industry is likely to continue thriving in the world’s second-largest economy, especially now with government-level support and the number of Chinese securities firms with positive investment outlooks for the sector.