In the past two years or so, we’ve heard and read much about Singapore’s status as a growing hub for cryptocurrency trading and related technologies but so far, actions taken by the local regulators appear to be at odds with this goal.
Out of about 170 applicants for the digital payment token license issued by the Monetary Authority of Singapore (MAS), only four companies have passed the process and received their full license.
Meanwhile, 103 applicants have either been denied or dropped out like Binance did last year, moving to Dubai instead, turned off by prolonged waiting time (counted in some cases in months, or even years by now).
No new licenses have been granted in the past few months, though an additional four companies have been granted in-principle approval in the past two weeks and will now be working towards full licensing with MAS.
How does this reluctance to enable willing companies to work in the city-state, devising new products and services using cryptocurrencies, square with the stated goals of making Singapore one of the leading centres for the technology and tokens based on it?
Global decentralisation through selective centralisation
The most dedicated proponents of cryptocurrency adoption often state systemic decentralisation as one of its core benefits. In the world of the future, they say that everybody will be able to control all of their money at all times, not having to rely on middlemen like banks to manage their finances.
However, while it may seem attractive on the surface, the reality is that distributed control means distributed responsibility.
That, in turn, creates many vulnerabilities, particularly for less savvy users, who can be robbed without ever leaving their house, or lose their funds if their cold wallet (typically the most secure storage for cryptocurrencies) gets lost or destroyed.
These are some of the reasons — among others like anonymity or relative untraceability, particularly of some coins — for common criticism of crypto. The argument is that the technology only sounds good in theory not practice, at least not for mass adoption.
As ever, the truth appears to be somewhere in the middle, and Singaporean authorities appear to recognise that in their approach.
Undoubtedly, decentralised nature of cryptocurrencies already appeals to many users and gives companies around the world a wealth of opportunities to innovate freely on this basis.
At the same time, however, it is quite likely that mainstream adoption will happen through highly centralised, regulated and supervised solutions, providing added security without negating other benefits that the technology itself brings.
In other words, fundamentally decentralised nature of crypto can co-exist with selective centralisation under public authorities in countries around the world.
It is quite likely that we are going to see the rise of various hubs of the technology, depending on the extent of domestic regulation, which will be good for some and bad for others (and vice versa).
Singapore’s bet appears to be on the centralised services while, for example, Dubai’s may be quite the opposite, leaving it up to the free global market to separate the wheat from the chaff (though even the emirate has just announced its first regulatory measures and creation of an overseeing body – Dubai Virtual Assets Regulatory Authority).
And both can exist, with a different selection of services on offer depending on local laws.
That’s how crypto can be both locally or regionally centralised — for certain permitted and regulated services — and globally decentralised thanks to largely different rules in different jurisdictions.
While many keen adopters may wince at the idea, government regulation can be beneficial, particularly in establishing trust between companies and users. Carrying a badge of being “registered in Singapore” is likely to be highly valuable as customers will know the company is regulated by trustworthy authorities.
Institutions before individuals
Another differentiating factor may already be observed in giving preference to crypto operators targeting institutional over retail clients.
This may explain the reluctance to approve digital payment token (DPT) licenses in Singapore, keeping existing companies in limbo, functioning under a temporary exemption from MAS, waiting to see where the chips fall in the future.
Meanwhile, Singapore’s central bank has already restricted advertising of crypto-related services to individuals in the country, limiting the ability for businesses to acquire new retail customers.
MAS appears to be treating retail crypto like gambling, keeping the lid on its adoption among the locals but letting domestically-registered businesses to serve the world.
It seems that recent experiences with local vulnerability to scams carried out over the Internet, coupled with greater anonymity offered by crypto, made Singaporean regulators err on the side of caution and keep a lid on startup innovation until more experiences are gathered.
Meanwhile, the opposite sentiment is visible in dealing with companies serving institutional customers (such as banks), who have been able to roll out crypto-based products for major investors and institutions already.
Singapore’s regulators are increasingly distinguishing between retail activity and institutional activity and they are far more friendly to the second than the first.– Andrew M. Bailey, associate professor at Yale-NUS College in Singapore and a fellow at Bitcoin Policy Institute – for Forkast
This permits a degree of innovation in high value transactions, with minimal reputational risk to Singapore — as only serious, accredited businesses are permitted to deal with the new technology, and offer products and services to other institutions where knowledgeable people make investment decisions.
It does not mean that MAS doesn’t want retail services to grow, but rather that it intends for innovation to trickle down from institutions to individual customers, and only from businesses which can prove their accountability.
Any risky, novel ventures that seek to exploit legal loopholes or grey area status of cryptocurrencies should find a different place for their experiments. Singapore does not want to be associated with them, even if they manage to produce widely-adopted services (like it was in the case of Binance, which is the largest, but also rather controversial exchange).
Evolution over revolution
To all those who were hoping for a blockchain revolution that would take out the old financial institutions (and maybe even governments) with it, this isn’t great news, but Singapore has clearly placed its bet on more evolutionary changes.
In essence, existing banks, payment processors and investment companies are expected to adopt the technology that was meant to displace them.
In a way, reminiscent of the global software environment — where open source and strictly commercial solutions co-exist rather than compete — it seems that both highly decentralised and highly centralised services based on blockchain and built around various coins and tokens rooted in it, will simply complement each other, serving different customers in the market.
And Singapore sees its future in actively supporting the latter.
Featured Image Credit: BeInCrypto