OPINION: Blockchain revolution won’t wait for Labor to catch up
22 September 2024
Published in the Financial Review
When policymakers discuss regulating an emerging sector, the response from industry is generally one of muted horror.
As Ronald Reagan once offered: “The most terrifying words in the English language are, ‘I’m from the government’ and I’m here to help’.”
More certainty in the regulatory environment will help Investment in cryptocurrencies.
So, why is the blockchain sector demanding that the government regulate their industry?
Blockchain is a technology that stores data in a secure, efficient and transparent environment across many computers. Information is contained in “blocks”, which are stored in a public “chain”, essentially a public database. These blocks can store many types of information such as money, dates, transactions, and are assigned a unique code that matches to another specific block using cryptographic principles to form a chain.
Blockchain has a range of uses, for example, enabling instantaneous financial transactions, storing of wealth, and automatic “smart” contracting. It can allow you to settle the purchase of a home or car instantaneously without the risk that a cheque may bounce or a delay between transaction and ownership.
By 2030, Blockchain Australia forecasts a $US3 trillion market capitalisation for tokenised assets, and Investment NSW estimates the blockchain sector will add $60 billion to Australia’s GDP.
Australian companies have been at the forefront of private sector blockchain innovation. Australia ranks 6th globally for blockchain-related patent filings. We have the 8th highest adoption rate of cryptocurrency in the world for retail investors, with 23 per cent of our population having owned cryptocurrency.
The Albanese government and Financial Services Minister Stephen Jones is putting all of this at risk. Industry is screaming out for regulation, and the certainty it would bring. This lack of regulation is putting consumers at risk.
Today, if a digital asset platform collapses, existing regulatory processes could leave Australian consumers without a resolution for five to 10 years. With Australians holding $15 billion on cryptocurrency platforms (about $20,000 per individual investor), this gives some sense of the level of risk of no regulation.
Since the FTX collapse in 2022, where consumer funds were mismanaged, affecting 50,000 Australians, the government has failed to act, and have delayed introducing legislation. In October last year, Jones promised he would be “returning to industry next year with legislation to enact these much-needed reforms”.
The year is almost over, and the frustration of business and investors is understandable.
The government’s inaction is also hurting local industry, putting billions of dollars of investment and thousands of future jobs at risk.
The CEO of the Tech Council of Australia, Damian Kassabgi, recently stressed the jobs potential of the industry, noting “the opportunity presented by technologies such as blockchain and AI calls for a renewed focus to grow our skilled workforce”.
He said there would also be a massive investment in tech infrastructure, which created jobs for “tradies to build cabling, electrical and data centres across the country”.
The government’s failure to provide investors and industry with a regulatory framework has left the Australian Securities and Investments Commission to try and regulate a sector that it acknowledges doesn’t “neatly fit” into existing frameworks. The outcome is regulation through enforcement and litigation.
This regulatory uncertainty is seeing risk-averse institutional investors sitting on the sidelines as they don’t know what Labor’s delayed legislation will look like, or if it will even progress. Meanwhile, Australian blockchain businesses are eyeing other jurisdictions such as Singapore, which has had blockchain legislation since 2020.
On Monday, the Australian blockchain industry will gather in Sydney for The Australian Financial Review’s Crypto and Digital Asset Summit. Many company executives will have just returned from Singapore’s TOKEN2049 conference, which hosted more than 7000 companies from around the world.
The contrast between these two jurisdictions could not be more striking. Jones would do well to attend and listen to industry, but unfortunately, he seems to be missing from the attendance list.
Jackson Zeng, from Caleb & Brown, is one of the returning Australian industry leaders, and notes businesses are moving to Singapore. “We have been waiting on the government to pass legislation … and it doesn’t seem to be getting any closer. Global innovation doesn’t wait for administrative backlogs.”
The Coalition and financial services spokesman Luke Howarth are listening to an industry which is deeply concerned by Jones’ inaction. The Liberal Party will not idly stand by and watch Labor force an entire sector to operate at a competitive disadvantage or put millions of Australians’ investments at risk.
Regulation should be Labor’s strong suit given how much of it the government has introduced in the last two years. Unfortunately for the Australian blockchain sector, it is nowhere to be seen.