To become Asia’s blockchain hub, Taiwan will need to overcome bureaucratic inertia and stiff competition from Singapore and Hong Kong.
Cryptocurrency is dead. Long live blockchain.
That’s the growing consensus among all but the most ardent crypto bulls as governments move to crimp virtual currency but explore uses for its underlying distributed ledger technology. Bitcoin, the preeminent digital currency, lost more than 70% of its value last year, falling from an astronomical US$19,870 per bitcoin in December 2017 to less than US$3,500 over 12 months.
There are several reasons for crypto’s decline: its prevalence in financial skulduggery, decentralized nature (central banks want the final say on currency development), and the fact that no underlying assets back its value.
For its part, Taiwan has taken the middle road on virtual currency, similar to what South Korea has done. There have been no crypto crackdowns here as in China, nor has Taiwan embraced digital currency like Japan has. Instead, the island has created a fintech regulatory sandbox – a testing environment for formulating regulations and security checks. It has also allowed some limited trading on local exchanges, but stopped short of bringing digital currency into the mainstream financial system.
At the same time, the government has expressed the ambition to turn Taiwan into a regional blockchain hub. Blockchain is basically digital pieces of information (the “blocks”) stored in a public database (the “chain”). The blocks contain information about transactions and who’s involved in them, along with unique code (a “hash”) that helps distinguish one block from another. The data is considered ultra-secure because it is encrypted and any later modification would show up in the ledger.
Blockchain has potential applications across a wide swath of industries, including finance, logistics, agriculture, medicine, and hospitality.
The technology is valuable because it allows businesses to share data securely, helping them work more efficiently and reduce database costs, says Carl Wegner, head of Asia business development for R3, a New York-based enterprise blockchain software firm.
“Blockchain is a core technology. It will be as fundamental to business in the future as the internet is today,” Wegner says.
Taiwan is wise to focus on blockchain technology first rather than digital currency, he says. “It will be hard for crypto to be accepted by regulators until their concerns about money laundering and other illegal activities are resolved.”
Darren Wang, founder and CEO of the Taipei-based blockchain startup OwlTing, agrees with Wegner. “Crypto shouldn’t be anything you sell for a profit,” saysWang, whose company works with the hospitality and agriculture industries. “It could be a token used to carry out a transaction but without any resale value.”
OwlTing has two primary blockchain-based businesses. One of them uses blockchain technology to maintain the integrity of pork supply chains. By scanning a QR code on a pork product, it is possible to trace its journey from farm to table, the company says.
OwlTing’s other blockchain business streamlines bookings for hotels from third-party online platforms. By recording inventory in real time, OwlTing’s blockchain technology prevents double booking, Wang says. He adds that the service also automates special rates and advance booking discounts for regular guests.
Last year at the Asian Blockchain Summit in Taipei, Minister Chen Mei-ling of the National Development Council said that blockchain would play a key role in the development of Taiwan’s digital economy. Chen pledged government support for local blockchain firms, including an increase in funding.
Industry insiders say that Taiwan’s blockchain fundamentals are strong because of its large pool of talented engineers and complete tech hardware supply chain.
Amid the crypto winter and nascent blockchain spring, Taiwan is well positioned to benefit, analysts say.
“We will see a lot of international and domestic blockchain startups across the value chain begin to take a newfound interest in Taiwan,” says Jun Wakabayashi, an analyst at the Taipei-based accelerator AppWorks.
Taiwan’s advanced technology and competitive operating costs will help optimize companies’ bottom lines, especially those working at the infrastructure level like protocol development and mining – the digital creation of blocks on the blockchain.
Seventeen of the 33 companies that joined AppWorks’ latest batch of startups are blockchain related. More than half of the blockchain group is international, with founders coming from the United States, Sweden, Austria, Poland, Vietnam, South Africa, Malaysia, and Hong Kong.
In October, the government launched the Asia Blockchain Accelerator, the first entity in Taiwan dedicated to distributed ledger technology. The organization intends to create more than NT$1 billion in blockchain business value in just two years, with the aim of helping Taiwan become Asia’s blockchain center.
“ABA will provide a wide range of assistance to Taiwanese and foreign companies deploying blockchain,” David Pan, ABA’s chief executive officer, said in a news release. “Our goal is to build a comprehensive ecosystem that maximizes the real business potential of blockchain technology,” he said.
“The launch of the Asia Blockchain Accelerator has indeed supported Taiwan’s blockchain ambitions,” says Lee Cheng-hwa, an industry analyst with the semi-governmental Market Intelligence & Consulting Institute.
Lee notes that ABA has promised to develop at least 10 Taiwanese blockchain accelerators as well as provide support to local blockchain firms seeking to expand overseas and global ones that want to enter the Taiwan market.
Despite the recent policy moves by the Taiwanese government, some observers still have concerns about the level of government support for blockchain. Jason Hsu, a legislator with the opposition Nationalist Party, notes that the government has earmarked NT$1 billion (US$32.5 million) for artificial intelligence research centers, but nothing comparable for blockchain.
“Blockchain is a great opportunity for Taiwan, especially as there are no clear leaders in the space yet,” he says. “We need to be dedicating more resources to blockchain, rather than focusing on AI – where the U.S. and China have established themselves as the dominant players.”
Hsu urges the NDC to set up a national blockchain research center that can identify areas where Taiwan can implement blockchain technology, such as healthcare, supply chain management, logistics, and smart cities.
“Awareness building is essential,” he says. “Companies aren’t sure how to adopt blockchain.”
Taiwan faces stiff competition from Singapore and Hong Kong to become a regional blockchain hub. Singapore in particular has the advantage of being able to centralize government decision-making.
Blockchain also needs long-term planning, which is often challenging in Taiwan’s tumultuous political environment.
Still, OwlTing’s Wang believes Taiwan can become a blockchain leader in Asia. He points out that JPMorgan Chase, one of the world’s largest asset management firms, is using distributed ledger technology developed by local blockchain firm AMIS. JPMorgan will deploy the technology in a private blockchain to process interbank and cross-border transactions.
Meanwhile, AppWorks’ Wakabayashi has some advice for Taiwan’s policymakers: “This idea of blockchain has yet to find its true form in the real world, specifically in terms of widespread commercial use cases. It’s important at this fledgling stage that over-regulation and red tape not stifle the pace of innovation.”