Beyond Bitcoin: unlocking the potential of blockchain technology

By Andy Walsh

A cryptocurrency revolution is underway and while laws and regulations might be struggling to keep up, the true value lies within the blockchain technology underpinning it, according to several MLS alumni.

Wheat and grain farming may not be the first industry you think of when it comes to advances in financial payments using blockchain technology.

Lack of payment security, however, has long been an issue for farmers when delivering their goods and this is just one of the issues that alumna Emma Weston (BA 1995, LLB(Hons) 1996), CEO and co-founder of AgriDigital, is trying to address.

AgriDigital is a blockchain-enabled digital commodity management platform for global agriculture supply chains, providing a single source of truth from farmers through to consumers. It is one of the first companies in the world to use blockchain technology in agriculture.

“Blockchain has captured world-wide attention as an emerging technology that could be as fundamental to commerce as the internet,” Weston says.

Emma Weston (BA 1995, LLB(Hons) 1996), CEO and co-founder of AgriDigital.
Emma Weston (BA 1995, LLB(Hons) 1996), MLS alumna and CEO and co-founder of AgriDigital. Image supplied.

So what is blockchain exactly? An online decentralised database, or ‘digital ledger’, whereby transactions are recorded chronologically and publically, and kept secure using cryptography. Essentially, all those in the database must approve a transaction before it can be verified and recorded.

Applications of the technology include payments (particularly cross- border payments), the supply chain process, records management (such as in government services and healthcare), identity management, peer- to-peer transactions and transactions without an intermediary. Globally, innovations using blockchain are becoming more widespread.

In 2016, AgriDigital conducted the first ever live settlement of a physical commodity using blockchain, when a farmer from Geurie, in central-west New South Wales, delivered 23 tonnes of wheat to an exporter in Dubbo.

Weston says the technology is being deployed in an effort to provide greater financial and payment security for farmers and make it easier for consumers to trace food through the supply chain.

We use blockchain technologies to solve three key problems that plague global agri-supply chains: removal of counter-party risk for sellers by real-time payment; automating and democratising the access to supply chain finance for buyers; and ensuring all consumers can make informed purchasing decisions by accessing the provenance of their goods.

While the enormous range of potential uses for blockchain technology is increasingly being recognised, it’s the soaring prices of cryptocurrencies that use this technology – such as Bitcoin, Ethereum and Ripple – that  are catching the public’s attention.

The price of a single Bitcoin, for example, surged to more than $AU25,000 in December last year before tumbling spectacularly. It has left governments and financial authorities scrambling to regulate their trade and use.

Benjamin Crawford (BA 2005, LLB(Hons) 2005), counsel in Allen & Overy’s Beijing office, believes the potential for blockchain to overhaul and simplify financial infrastructure is immense, but says there is little consensus about how to regulate cryptocurrencies.

Benjamin Crawford (BA 2005, LLB(Hons) 2005), counsel in Allen & Overy’s Beijing office.
Benjamin Crawford (BA 2005, LLB(Hons) 2005), counsel in Allen & Overy’s Beijing office. Image supplied.

He cites as examples of proactive regulation the Australian Securities and Investments Commission’s (ASIC) Innovation Hub, established to help fintech companies participate in a kind of “regulatory sandbox”, and the bridging agreements that have been signed by regulators  such as ASIC with their Singapore, Hong Kong and United Kingdom counterparts (who each took an early lead, particularly in the case of the UK, in establishing and promoting regulatory sandboxes).

Crawford says China, however, operates as a “walled garden” and its approach to fintech regulation is very different.

“The approach taken by regulators and legislators varies greatly between jurisdictions,” he says.

Chinese regulatory authorities, including the China Banking Regulatory Commission, have banned initial coin offerings and also cryptocurrency exchanges. Access to websites offering access to offshore cryptocurrency platforms has also been restricted or blocked since early February of this year.

Laurence White (BA(Hons) 1987, LLB(Hons) 1992) is a Member of Secretariat of the Financial Stability Board in Basel, Switzerland, who previously worked for ASIC. His observation is that a range of regulatory measures have been introduced globally.

“Jurisdictions have taken a wide variety of supervisory and regulatory actions to date related to crypto-assets, which reflect a balancing between preserving the benefits of innovation and containing various risks, especially those related to consumer and investor protection and market integrity,” White says.

He notes that in Australia, ASIC has published guidance about the potential application of the Corporations Act 2001 to businesses that are considering raising funds through an initial coin offering. Also, Parliament last year enacted legislation extending anti-money laundering and counter-terrorism financing regulation to digital currency exchanges, requiring such exchanges to monitor and report suspicious and large transactions to the Australian Transaction Reports and Analysis Centre. It also enacted legislation that recognised cryptocurrencies as equivalent to money for GST purposes.

Laurence White (BA(Hons) 1987, LLB(Hons) 1992) is a Member of Secretariat of the Financial Stability Board in Basel, Switzerland. He previously worked for ASIC.
Laurence White (BA(Hons) 1987, LLB(Hons) 1992), a Member of Secretariat of the Financial Stability Board in Basel, Switzerland. White previously worked for ASIC. Image credit: Jane Brown.

White also notes that ASIC and the Reserve Bank of Australia, like many authorities overseas, have actively disseminated various messages to the public or directly to stakeholders, including that retail investors should exercise caution when considering investing in crypto-assets or derivatives; that these are in some cases fraudulent; that they or the technology they rely on can be valuable as financial innovations; and that they are, or may be, experiencing a bubble.

Weston says the hurdle authorities face in being able to push through regulation is not unusual.

“Disruptive technologies and emerging business models often push ahead of existing regulatory regimes,” she says.

In general, we prefer our laws and regulations to be technology-neutral and so the focus is really around whether there is sufficient consumer and other protections in place in respect of emergent business models.

White says while Bitcoin and other currencies appear to be making  an impact in fundraising and especially in initial coin offerings (ICOs), evidence of financial institutions investing in crypto-currencies and using them for making payments is  sparse.

“This may be because, given the risky nature of current crypto-assets – in terms of volatility, liquidity, susceptibility to market manipulation – they appear, at present, to be unsuitable to rely on as a common means of payment, a stable store of value or a unit of account.”

But White acknowledges that the blockchain technology that underpins these has the potential to provide opportunities down the track.

“The distributed ledger technology (DLT) underlying many crypto-assets may hold the promise of significant economic benefits for uses beyond crypto-assets in the future, but it is still relatively nascent,” he says.

Weston firmly believes blockchain technologies will continue to have a significant impact on business.

“The ability to create trusted digital assets which replicate physical assets but are programmable and can be made data-rich offers enormous scope for new business models, products and services.”

Laurence White wishes to note that the views he expresses are his own and do not necessarily reflect the views of the Financial Stability Board (FSB) or its members.

This article originally appeared in MLS News, Issue 19, May 2018.