Why governments should do more to support the blockchain sector

The world needs a new generation of high-growth businesses to supercharge the anaemic global economy and tackle growing debt

ChatGPT's success shows how advances in new sectors could generate the growth needed by the global economy. AFP
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Over the past three years, global debt has ballooned to record levels as governments were forced to bail out their economies from the worst pandemic in a century, not long after they had bailed them out of the worst financial crisis since 1929.

Global debt has soared to a record of $300 trillion, according to S&P Global. Of this, about $100 trillion is sovereign or government debt, the International Monetary Fund estimates, of which $31.5 trillion belongs to the US government.

Servicing this record level of debt is also becoming more expensive.

The 3 per cent rise in interest rates in the US and EU over 2022 added an estimated $3 trillion in interest expenses (assuming only 35 per cent of the total global debt is floating rate). And interest rates are still rising.

As such, the cost of paying off this mountain of debt is only going to increase in the foreseeable future.

Meanwhile, total global debt leverage is projected to increase by 5 per cent by 2030, while the debt-to-gross domestic product ratio could reach 366 per cent, according to S&P Global.

Digging a deeper hole

To dig ourselves out of this hole, we need strong GDP growth. However, global productivity has declined sharply since the global financial crisis and the Covid-19 pandemic has only exacerbated this, the World Bank says.

In 2022, global economic growth nearly halved from 6 per cent the previous year and is expected to slowdown further to 2.7 per cent in 2023, according to the International Monetary Fund.

This means that while the world is sinking further and further into debt, we are not generating enough output to pay it off.

It is like taking on a mortgage that keeps increasing every month but earning less and less to cover the costs.

The issue is compounded by the fact that since the start of the pandemic, a whopping 86.7 per cent of new jobs were created in the government sector, while private sector jobs increased by a net of merely 0.4 per cent between February 2020 and July 2022, according to research by the Fraser Institute.

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This is a huge problem as government jobs do not generate the revenue growth needed to cover these mounting costs, and government institutions are growing at an average rate of 2 per cent a year.

Closing the gap

What we desperately need to close this gap is a new generation of high-growth businesses to supercharge the anaemic global economy.

As such, governments must adopt measures to stimulate the private sector, which has the power to generate the tax revenue needed.

Instead of filling government positions, we must look towards sectors that will form the economy of the future. These include areas such as artificial intelligence, robotics, DNA sequencing, energy storage and blockchain technology.

Together, these sectors have the power to transform every aspect of our daily lives, from working hours to health care to climate, economy and beyond.

Already, we are seeing huge advances in these areas that could generate the revenue growth so badly needed by the global economy.

We need only to take a look at the stratospheric success of ChatGPT — the AI chatbot created by technology company OpenAI — that has taken the world by storm in recent months.

Launched on November 30, ChatGPT garnered a million users in the first five days since launch. Following its viral success, its parent company expects revenue from the chatbot to hit $200 million this year and rocket to $1 billion by 2024, according to AI Business.

Multiyear growth

This is only one example. The AI market is projected to grow at a compound annual rate of 38.1 per cent between now and 2030, according to Precedence Research.

Similarly, the compound annual growth rates of the global robotics and DNA sequencing markets are expected to remain in the double-digit range until 2027, while the global energy storage market is set to hit $435 billion by 2030, Precedence Research estimates.

What about blockchain technology? This area has already experienced some of the most impressive growth globally in the last few years.

The blockchain market is set to expand to $67.4 billion by 2026, from about $4.9 billion in 2021, marking an annual growth rate of 68.4 per cent.

Yet regulators and governments have, so far, failed to support the growth of this innovative sector. Instead, it has been stifled by legacy legislation that is not fit for purpose.

Explainer: What is ChatGPT and why are academics concerned?

Explainer: What is ChatGPT and why are academics concerned?

To stimulate global growth and tackle the debt problem head on, governments and legislators must start supporting high-growth industries such as blockchain.

This involves supportive legislation, as well as measures to create an environment where entrepreneurs can build and innovate freely.

Only then will we be able to generate the global economic growth needed to pull the world out of a debt-driven recession that could last for many years.

Stefan Rust is the founder of Laguna Labs, a blockchain development house, and former chief executive of bitcoin.com

Updated: February 01, 2023, 4:00 AM