The impact of cryptographic technologies goes beyond cryptographic technology

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After the slump-punctuated drama (or is it the other way around?) of 2022, many of us half-full types have welcomed the opportunity to focus less on market moves and more on the market. impact that the continued development of crypto technology can have on the world. And that’s potentially quite a big impact, nothing less than spreading economic opportunity and individual empowerment while rewiring finance and culture, so it certainly deserves more attention.

Noelle Acheson is the former Head of Research at CoinDesk and Genesis Trading. This article is excerpted from his Crypto Is Macro Now newsletter, which focuses on the overlap between the changing landscapes of crypto and macro. These opinions are her own and nothing she writes should be considered investment advice.

When we talk about focusing on technology, we generally mean ways to store and distribute information over networks with varying degrees of decentralization, which in turn will fuel new forms of engagement and economic activity. What is still largely overlooked is the potential of crypto technology to support innovation in other areas of development. This impact will be felt far beyond blockchains, finance and culture.

The root of this influence lies in the crypto markets. This may seem surprising given the devastating losses, bad actors, painful exploits and market-defining regulatory crackdowns of recent months. It may also seem incongruous given the institutionalization of market experimentation, with banks and official bodies testing familiar forms of issuance with new types of settlement barely the technological boost I refer to.

To pull this thread a bit more, I need to take a step back in time.

Newcomers to the manic world of crypto markets may not be aware of their origin. The first peer-to-peer crypto exchanges were conducted on what were essentially low-cost, easy-to-start online message boards with a high degree of trust required. These evolved as demand grew, but early iterations were still rudimentary, uncoordinated and invented as they went. Then they began to become more sophisticated, especially as professional investors became interested, and today they are a complex amalgamation of services, structures and best practices designed to support a considerable flow of funds in the whole system.

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However, they are not as complicated as traditional exchanges. This is partly due to the simplification of settlement and storage. Partly because while the spins now extend to traditional finance, crypto platforms still largely operate in a niche area that regulators have yet to close with rulebook volumes. Moreover, they are easier to launch in various configurations, such as a centralized order book, a decentralized liquidity pool, or a new, yet untested structure. This relative flexibility, which traditional exchanges do not enjoy, is one of the superpowers of crypto ecosystems.

This presents risks: the often lamentable lack of transparency of platform operators, the lack of regulatory protection, hacks as well as code errors are just a few that come to mind. But as familiarity grows, technology solutions improve, interfaces evolve, and regulators begin to pay more attention, many of these can be mitigated. Innovation is about focusing on potential while implementing safeguards and this is where the flexible structure of crypto markets comes in.

The relative ease with which blockchain-based protocols and applications can raise funds by creating tokens and distributing them to users and/or investors is now well known. Initial coin offerings (ICOs) drove the hype bubble of 2017, with hard lessons learned in the ensuing crisis. Since then, however, tokens have often worked in tandem with stakes to jump-start or stimulate economic activity on new layer-1 blockchains, decentralized applications, and creative initiatives.

Blockchain-based fundraising for blockchain-based projects: We get that. What we don’t know, however, is the potential for crypto to support fundraising and engagement for other unrelated technologies, and what’s more, it can do so almost anywhere given the flexibility of crypto market structure.

Imagine this:

A regional bank in Luanda is setting up a platform that tokenizes tranches of loans to startups aimed at bringing digital efficiency to Angolan ports, mitigating lender risk by adding liquidity and thereby reducing funding costs.

An incubator in Addis Ababa is working with Ethiopia’s Ministry of Innovation and Technology to develop an exchange for trading equity-like tokens issued by exiting startups with ideas ranging from vertical farms to satellite launch sites.

A venture capital fund in Accra is collaborating with the Ghanaian stock exchange to launch a crypto platform that facilitates token-based fundraising, ICO-style but with official oversight and sufficient disclosure, helping telehealth projects to eLearning to get started and find a market.

Politicians in the developing world can be heard touting the importance of technology to economic growth, but few are implementing policies that move the funding needle. Increases outside of the usual hubs tend to be small as pools of capital are less abundant than in the developed world and the target population is often more limited in size given geographic and network restrictions. But that doesn’t always have to be the case. More liquid, transparent and innovative markets could kick-start regional development, especially if cross-border investment is allowed, which could lead to global technology initiatives.

Obviously, digital ledger platforms are not essential for this type of fundraising. Startups closed their cycles, banks lent, and grants flowed without them so far. But the transparency and immutability of public blockchains could give additional assurances to lenders, investors and startups, possibly encouraging more interest from more participants. And they’re easier to launch than traditional exchanges, reducing time to market and cost.

Now, I’m not a commercial systems engineer or blockchain developer, so there are parts of this framework that I’m probably going to get wrong, but the rails that assets move on already exist, and the ramps access are not as difficult to design now as they were a few years ago. Platforms have emerged that essentially offer a plug-and-play back-end for exchanges, and the ecosystem has evolved to allow for a degree of modularity in building the necessary stack of service wallets, custody, know your customer, staking, tax accounting and more. The complicated part, I imagine, would be connections to banks or payment services, but the growing use of stablecoins may provide a stopgap while the market adjusts.

And the regulators? Obviously, they will want to have a say in user protection, flow of funds, foreign influence, etc. And anything new comes with risk, which regulators don’t like. But improving funding channels for local technologies that could boost jobs, tax revenue and regional status while providing transparency around asset allocation shouldn’t be too hard of a sell, especially that governments change and/or are increasingly influenced by young voters who want the opportunity to work. on progress. There could also be pressure from local institutions wanting a wider variety of assets with which to build portfolios, as well as enthusiasm from retail investors who don’t live in more developed financial systems with more stable currencies and more readily available savings vehicles.

It may be naive, because change is difficult. But change is still happening, not just in local demographics, economic priorities and political sentiment. We are witnessing the recomposition of spheres of dependency, at a time when new tools of independence are gaining in resilience and reach. Examples of fundraising and engagement farming in areas with sophisticated financial systems are likely to be seen in areas seeking new status.

They will also be encouraged by bright minds outside the typical centers who are pushing to advance projects that may end up contributing to human development. The flexibility of the crypto market goes far beyond the ease with which tokens can be created, purchased and transferred, it is about facilitating economic activity in all areas. In short, it is a superpower whose potential impact goes well beyond its initial mission.

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