The ASEAN Investment Opportunities 2021 report forecasts investment opportunities in the fields of fintech and digital innovation. These are spaces where blockchain technology is expected to thrive. Incidentally, the ASEAN bloc is viewed as a potential blockchain frontrunner given the growing number of blockchain startups in the region.
Investor interest is an important factor, but it is not going to be enough without counterpart actions from governments or regulatory bodies. In the absence of legislation or regulations that clarify the treatment of digital assets and blockchain-based transactions, tech startups that pursue blockchain applications in their business models cannot attract investors.
Investors will likely find it too risky to extend financial backing to companies that operate in markets where their businesses can face legal challenges.
ASEAN as a whole does not have specific policies related to blockchain and digital asset adoption. However, some member countries have introduced legislation or changes in their policies over the years in support of blockchain-based business models and innovations.
Singapore’s active support
The Monetary Authority of Singapore (MAS) has programmes or policies that are deemed supportive of digital currency use and blockchain applications. With these, the city-state has been dubbed as Asia’s cryptocurrency and blockchain hub. Singapore has a notably welcoming attitude towards these technologies.
As early as 2014, MAS has indicated its inclination to avoid actions that would lead to illegalising digital currency use. Also, since 2016, MAS has been exploring the use of distributed ledger technology or blockchain for payment and securities clearing and settlement. Singapore is also known for helping blockchain startups that are planning to launch initial coin offerings (ICO).
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A joint project by MAS and Temasek, a government investment firm, was initiated in 2016 to establish a blockchain-based payment system prototype that supports multiple currencies. Also, Singapore’s Infocomm Media Development Authority (IMDA) launched a Blockchain Challenges series designed to promote and improve blockchain adoption in Singapore. This initiative aims to nurture the blockchain ecosystem in the country.
It’s not surprising why Singapore has a good number of blockchain startups. Companies such as Electrify and Bluzelle are gaining recognition for their innovative applications of blockchain technology. Of note, Electrify, a startup that decentralises the energy marketplace, attracted a US$30 million investment in 2018 to support its international expansion.
Bluzelle, a “serverless” data delivery network provider, closed a US$19.5 million ICO in 2018 after securing US$22.3 million in seven funding rounds. The company is set to launch its mainnet on February 3 this year. Bluzelle also launched its Developer Grant Program for censorship-resistant applications, with focus on increasing transparency, enhancing security and preventing censorship. The company will support innovative use-cases with its US$500,000 fund.
IMDA’s Future of Services report predicts that Singapore’s blockchain market spending can reach up to US$272 million in 2022 and up to US$2.6 billion by 2030, with a compounded annual growth rate of 32.5 per cent.
Indonesia’s change of heart
Indonesia was initially against digital currency and blockchain. It issued an outright ban against cryptocurrency in 2018. However, the government eventually changed its stance as the government decided to create legal frameworks to govern the operation of digital currencies and blockchain-based assets.
Indonesia still prohibits the use of cryptocurrency as a medium of exchange, but the country’s Commodity Futures Trading Regulatory Agency classifies cryptocurrencies as trading commodities. This gives legitimacy to crypto exchanges and other businesses involved in digital asset transactions except for the use of crypto to pay for purchases.
The government also acknowledges other applications of blockchain technology, particularly the idea of smart contracts. There is growing attention to this concept in the context of fintech regulation. Indonesia allows local companies to employ and implement blockchain-based solutions as they are viewed as essential in driving innovations in financial technology.
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The Indonesian government further demonstrated its openness to blockchain as it used the technology to verify nearly 13 per cent of the country’s votes during the last presidential election. Additionally, the government forged a partnership with PLMP FinTech, a Singaporean blockchain company, to develop new solutions and strategies for Indonesia’s logistics industry.
Indonesia has a formal blockchain organisation called the Indonesia Blockchain Association, which was created to educate and engage local regulators about blockchain. It has had considerable success as it helped government entities such as the Indonesian Customs adopt blockchain-based solutions to enhance supply chain data management. Indonesia’s biggest bank, Bank Central Asia, is also contributing to blockchain promotion with its local hack-a-thons that promote and support the development of blockchain tech for FinTech businesses.
Malaysia’s tolerance
Just like Indonesia, Malaysia was not as welcoming to blockchain adoption. However, it did not impose regulations that clearly made blockchain and cryptocurrency use in the country illegal. As such, Malaysia’s local blockchain industry gradually made progress.
Instead of shutting down businesses involved in virtual currency exchanges, what Malaysia’s authorities did was to mandate compliance to KYC requirements.
It was in 2019 when Malaysia made a significant stride towards blockchain adoption with the country’s finance minister issuing an order to recognise crypto assets and digital currencies as securities. Similar to what happened in Indonesia, this resulted in the legitimisation of crypto exchanges, initial coin offerings, and related business transactions.
In a statement, Malaysia’s Ministry of Finance recognised blockchain’s potential in ushering innovations not only in new sectors but also in traditional industries.
The Malaysian government has already approved several crypto exchanges and is moving closer towards institutionalising the buying and selling of crypto assets. In early 2020, the country’s Securities Commission introduced regulations for initial exchange offerings (IEO), which enable registered platform operators to carry out digital token offerings.
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There are also reports that Malaysia’s national stock exchange is already considering the possible digitalisation of the bond market with the development of a proof-of-concept blockchain project.
Just like Indonesia, the move to consider cryptocurrencies as legal tender still has a long way to go. There have been no plans for a government-backed cryptocurrency similar to China’s. However, blockchain technology and digital assets are steadily gaining user adoption. Industry observers also see growing demand for crypto assets in the country partly driven by the lingering pandemic.
The takeaway
Blockchain is not just about digital currency or FinTech. It also has use cases in a variety of other settings as demonstrated by the successful startups mentioned above. However, government actions that are largely about cryptocurrency adoption and regulation are the ones that have the biggest impact in advancing the blockchain market across Southeast Asia.
Singapore, Indonesia, and Malaysia are not the only countries that have policies that help foster blockchain use. Thailand, Vietnam, and the Philippines have also made some progress towards crypto and blockchain adoption. However, the actions of the three largest economies in the ASEAN bloc somewhat summarise the developments that allowed blockchain technology to advance in the region.
One has a proactive policy that welcomes the new technology while others initially reject, then tolerate, and later on regulate.
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