Digital currencies such as bitcoin promise to revolutionise global commerce. Roslan Rahman / AFP
Digital currencies such as bitcoin promise to revolutionise global commerce. Roslan Rahman / AFP

Blockchain and cryptocurrencies herald the demise of traditional banking



The banking world – including central banks and regulators — is being massively disrupted by new technologies: artificial intelligence and machine learning, blockchain, fintech and cryptocurrencies.

Blockchain can enable financial and other transactions to happen in seconds, not days, and drastically reduce infrastructure costs. It is an encrypted, secure protocol for creating trust between contracting or transacting parties without going through a central authority such as a central bank, government or another agency. Blockchain underpins cryptocurrencies such as bitcoin, ethereum, ripple and many initial coin offerings.

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The dollar value of the top 10 biggest cryptocurrencies is around US$150 billion, while UBS estimates that blockchain could add as much as $300bn to $400bn of annual economic value globally by 2027. Despite the Mt Gox hacking scare in 2014, that saw around $400 million worth of bitcoins go missing from a bitcoin exchange in Shibuya, Japan, the country's parliament passed a law in April this year making bitcoin a legal method of payment, and the nation's largest banks have invested in bitcoin exchanges.

An increasingly digital world and sharing economy require digital currencies. Paper currency is starting to look like an anachronism, a legacy of a bygone age.

What is a cryptocurrency?

Cryptocurrencies use blockchain decentralised ledger technology (DLT) to let users make secure payments and store value without the need to use their name or go through a bank or a payments company like MasterCard or Visa. The cryptographic function used in blockchain ensures the integrity of the record. Blockchain's distributed public ledger maintains an updated record of all transactions and assets held by currency holders. Unlike mobile payment solutions like M-Pesa, cryptocurrencies provide their own unit of account and payment systems.

Cryptocurrencies such as bitcoin or ethereum allow for peer-to-peer transactions without central clearinghouses, without central banks and without reference to a national money. They are not the liability of anyone and effectively compete with national currencies.

Faced with such a challenge, central banks across the globe are busily preparing to issue cryptocurrencies. Singapore's Project Ubin is an ongoing collaborative project where the banking industry will explore the use of DLT for clearing and settlement of payments and securities.

Some 20 per cent of surveyed central banks in a recent study by the Cambridge Centre for Alternative Finance indicated that they will be using blockchain technology by 2019, and 40 per cent will have active blockchain applications within a decade.

Cryptocurrencies issued by central banks could either be a type of decentralised digital cash for consumers, or a wholesale tool to streamline settlements of transactions between financial institutions.

The choice is not trivial. Issuing retail digital cash would effectively mean the demise of fractional reserve banking. As Max Raskin and David Yermack noted in a paper for the National Bureau of Economic Research: “A sovereign digital currency could have profound implications for the banking system, narrowing the relationship between citizens and central banks and removing
the need for the public to keep
deposits in fractional reserve commercial banks.”

Commercial banks and stock exchanges could become an extinct species within the next twenty years and monetary policy would have to be radically changed. The laws and regulations of banking, securities markets, credit markets and so forth will need to be radically overhauled to accommodate the disruptive, paradigm shift in technologies.

The UAE is a blockchain leader

Dubai launched its "Blockchain Strategy" last year with the ambition to become the first blockchain government by 2020. By shifting all transactions to blockchain, it plans to save 25 million work hours annually through paperless transactions. The Dubai Land Department this month became the world's first government entity to adopt blockchain. It records all real estate contracts, including lease registrations, and links them with the Dubai Electricity and Water Authority, the telecommunications system and various property-related bills.

Dubai is also preparing to issue emCash, an official state cryptocurrency to make Dubai the world's first blockchain city. Similarly, the regulators of the UAE's financial centres – ADGM and DIFC – are embracing fintech and its underlying technologies. ADGM's Regulatory Laboratory (RegLab), is providing a light-regulation sandbox environment for regional start-ups, one of the first programmes of its kind in the region. Both centres have held global competitions to identify and support innovators in fintech.

A ‘Brave New World’ is emerging

Blockchain and associated innovating technologies will massively disrupt the economic, banking, and financial landscape, with applications to identity management, smart contracts, securing supply chains, authenticating and assuring both "real" (real estate, art and diamonds) and digital assets (securities and media) and associated intellectual property rights. Stock exchanges could operate at much lower costs or disappear, fraud would become near impossible, accounting, auditing and assurance services could become redundant.

Given blockchain’s data integrity, there will be a reduction in systemic risk and operational improvements. This is a wake-up call to our governments, central banks and regulators to embrace the new paradigm or have our economies waste away behind.

Nasser Saidi, the former chief economist of the Dubai International Financial Center, is a former vice governor of the Bank of Lebanon and has served as Lebanon’s minister of the economy and industry.
He is the author of the OECD report on Corporate Governance in the Mena Countries.

UAE currency: the story behind the money in your pockets
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Engine: 3.5-litre V6

Transmission: eight-speed automatic

Power: 290hp

Torque: 340Nm

Price: Dh155,800

On sale: now

Results

Men's finals

45kg:Duc Le Hoang (VIE) beat Zolfi Amirhossein (IRI) points 29-28. 48kg: Naruephon Chittra (THA) beat Joseph Vanlalhruaia (IND) TKO round 2.

51kg: Sakchai Chamchit (THA) beat Salam Al Suwaid (IRQ) TKO round 1. ​​​​​​​54kg: Veerasak Senanue (THA) beat Huynh Hoang Phi (VIE) 30-25.

57kg: Almaz Sarsembekov (KAZ) beat Tak Chuen Suen (MAC) RSC round 3. 60kg: Yerkanat Ospan (KAZ) beat Ibrahim Bilal (UAE) 30-27.

63.5kg: Abil Galiyev (KAZ) beat Nouredine Samir (UAE) 29-28. 67kg: Narin Wonglakhon (THA) beat Mohammed Mardi (UAE) 29-28.

71kg: Amine El Moatassime (UAE) w/o Shaker Al Tekreeti (IRQ). 75kg:​​​​​​​ Youssef Abboud (LBN) w/o Ayoob Saki (IRI).

81kg: Ilyass Habibali (UAE) beat Khaled Tarraf (LBN) 29-28. 86kg: Ali Takaloo (IRI) beat Emil Umayev (KAZ) 30-27.

91kg: Hamid Reza Kordabadi (IRI) beat Mohamad Osaily (LBN) RSC round 1. 91-plus kg: Mohammadrezapoor Shirmohammad (IRI) beat Abdulla Hasan (IRQ) 30-27.

Women's finals

45kg: Somruethai Siripathum (THA) beat Ha Huu Huynh (VIE) 30-27. 48kg: Thanawan Thongduang (THA) beat Colleen Saddi (PHI) 30-27.

51kg: Wansawang Srila Or (THA) beat Thuy Phuong Trieu (VIE) 29-28. 54kg: Ruchira Wongsriwo (THA) beat Zeinab Khatoun (LBN) 30-26.

57kg: Sara Idriss (LBN) beat Zahra Nasiri Bargh (IRI) 30-27. 60kg: Kaewrudee Kamtakrapoom (THA) beat Sedigheh Hajivand (IRI) TKO round 2.

63.5kg: Nadiya Moghaddam (IRI) w/o Reem Al Issa (JOR).

Company%20profile
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The specs

Engine: 1.5-litre turbo

Power: 181hp

Torque: 230Nm

Transmission: 6-speed automatic

Starting price: Dh79,000

On sale: Now


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