By Shamika N. Sirimanne, Director, Division on Technology and Logistics, and Clovis Freire, Economic Affairs Officer, UNCTAD
If you have got been following the monetary information, you’ll have seen that the worth of 1 bitcoin skyrocketed from round $11,000 in October 2020 to over $62,000 in April 2021, earlier than plummeting to beneath $32,000 two months later.
If you’re feeling misplaced making an attempt to grasp these value actions, you aren’t alone. Most folks – together with authorities officers – wrestle to grasp the expertise behind bitcoin (blockchain) and its potential impression on our lives.
How ought to governments cope with this expertise? And how may they harness its potential to advance nationwide development priorities and obtain the Sustainable Development Goals (SDGs)?
Figure 1: Bitcoin costs modifications, May 2016 – March 2021
Source: Authors primarily based on information from Investing.com.
Blockchain was invented to create bitcoin however can now retailer pc code and “smart contracts”. The expertise gives the chance to innovate in just about any space, however the prime makes use of are presently for cryptocurrencies and decentralized finance (DeFi) functions, which use blockchain-based good contracts to implement monetary devices.
According to Coinmarketcap.com, as of June 2021 there have been over 5,000 cryptocurrencies totalling over $1.4 trillion of market capitalization. The prime 10 DeFi tokens had been value $51 billion in market capitalization.
The UN Commission on Science and Technology for Development (CSTD) paid eager consideration to the importance of blockchain in the true economic system at its annual assembly in May 2021, trying on the areas of commerce, logistics and provide chains. Following discussions on the CSTD, UNCTAD lately printed a report on find out how to harness blockchain for sustainable development.
Like any expertise, blockchain can contribute to the SDGs in varied methods – from offering meals vouchers in refugee camps to enhancing property and land registries to bettering entry to nationwide identification. So far, nonetheless, blockchain innovation has principally centered on speculative beneficial properties in crypto-financial property as an alternative of making actual worth by way of new services and products.
This is a recipe for monetary bubbles and bursts.
The blockchain technological wave
Blockchain is probably a key expertise in a brand new technological paradigm of accelerating automation and the combination of bodily and digital worlds. Its impression goes past the economic system, because it can remodel social interplay, public establishments and our relationship with the surroundings, and have an effect on nations’ choices for pursuing sustainable development.
Based on the idea of a brand new technological paradigm, blockchain is within the set up interval of a technological revolution – dominated by radical improvements (led by suppliers), experimentation, new technological options, many requirements and competing technical specs.
During the set up interval, the monetary sector, which gives the required finance for entrepreneurs to innovate, can be studying concerning the new expertise and its alternatives for monetary beneficial properties. The quick tempo of innovation and inadequate information concerning the new expertise’s actual potential create a frenzy of funding.
As a end result, there’s a tendency for hypothesis, and “money creating money” schemes emerge with the gradual decoupling of the true economic system and the monetary sector.
The finish of the set up interval is liable to monetary bubbles. It is simply too early to say if we’re witnessing bubble-bust-like costs actions in bitcoin and different crypto property, however the best way blockchain innovation is self-financed may expedite this course of and create a sequence of intervals of set up, disaster, and deployment explicit to blockchain innovation.
Figure 2: The evolution of blockchain
If these affected are primarily the innovators and enterprise capitalists within the blockchain ecosystem, the boom-and-bust cycle might not create sufficient ache for the required modifications in establishments. But with rising public curiosity in crypto property, we might begin to hear tales of small, on a regular basis buyers dropping all their financial savings within the newest bust.
Unfortunately, solely after many such circumstances will there possible be the required push for an institutional change of legal guidelines and rules to handle the dangers.
A window of alternative
Similar moments in previous technological revolutions supplied home windows of alternative for some growing nations to catch up and others to forge forward. Blockchain can additionally supply a window of alternative for growing nations to strategically diversify their economies into sectors related to the brand new paradigm.
Catching up would enhance actual incomes and authorities funds, serving to to speed up progress in the direction of the SDGs.
Building nationwide capacities
Governments ought to strengthen their innovation techniques to strategically place themselves to profit from this new technological wave. For most growing nations, it will require bettering their digital infrastructure, expertise and regulatory frameworks.
Encouraging pilot tasks may kickstart the diffusion of blockchain. For instance, UNCTAD’s customs modernization programme ASYCUDA is trying to make use of blockchain expertise to enhance its techniques. The information and expertise on blockchain developed by way of this initiative may spill over to different sectors within the greater than 100 nations the place ASYCUDA is operational.
Blockchain rules require concerted efforts to ascertain and implement guidelines. The problem for growing nations is twofold.
First, they need to take into account rising their participation in worldwide initiatives which can be growing blockchain regulatory frameworks, to be taught from the processes. Second, they need to concurrently develop their very own nationwide capabilities to develop and implement blockchain rules.
Close cooperation with the non-public sector is essential for fulfillment. Also wanted is a whole-of-government method, the place ministries of ICT, finance, commerce, and science, expertise and innovation work along with central banks and regulators.