*By Sheila Warren and Sumedha Deshmukh
This year has been off to a notable start for crypto and blockchain. On Jan. 7 the total cryptocurrency market hit an all-time high exceeding $1 trillion for the first time. Renewed interest in, and conversations around, blockchain technology and digital currencies from industry and government leaders have accompanied the rise.
At the same time, the challenges of 2020 continue, including the global pandemic. COVID-19 dominated the recent Davos agenda, with the need for digital solutions and real-time multi-party access to consistent information highlighted across multiple sectors.
At the World Economic Forum, we will continue to work with hundreds of experts from governments, business, civil society and academia to bring together the seemingly disparate worlds of crypto and long-standing institutions.
All eyes are on digital identity for COVID-related needs – but long-term strategies and implications remain to be seen.
The COVID-19 crisis has increased consumer demand for identity solutions that don’t compromise individual privacy and freedoms. Of course, ideas of what constitutes the ideal level of privacy preservation vary widely around the world, with China and the U.S. taking deeply divergent perspectives. As the travel industry and various governments continue to explore ideas like “immunity passports,” which would maintain vaccination and/or testing records, the creation of a global standard around digital credentialing seems both necessary and elusive.
In addition, what does it mean to anchor on digital identity as a reaction to a very specific set of circumstances (namely an unprecedented global pandemic)? Digital identity systems are relevant for everything from financial services to re-skilling workforces, which each have distinct requirements. Focusing on one sector without taking a longer-term view can mean that we lose out on opportunities, duplicate efforts and create more complicated user experiences.
As it stands, there are very few regulations or industry standards to prevent fragmentation of technical solutions, protect privacy or promote inclusivity, interoperability and portability – all essential principles – for digital credentialing beyond time-sensitive use cases. As global society struggles to return to “normal,” there is a need to ensure potential solutions that embrace the use of digital credentials, leverage the experience of the digital identity community, consider a longer-term and holistic view, and create strong partnerships with public authorities.
Last year was the year of “institutional investment” in bitcoin – a buzzy phrase that was seen across pundit analyses of the crypto rallies, referring to large-scale investments of players such as MassMutual and Square (SQ). It is likely that financial institutions and service providers will intensify their own experiments with, and use of, cryptocurrency this year, whether via investment or actual deployment.
In some instances, they are also being used for improving internal processes. For example, in a Davos agenda panel Hikmet Ersek, CEO of Western Union, cited the company’s use of a stable “WU Coin” to exchange different currencies, done “21 times every second.”
COVID-19 also raised the profile of the conversation around central bank digital currencies’ exploration of blockchain technology. We saw the launch of some of the first national-level blockchain-based systems, including in the Bahamas and Cambodia. At the same time, progress around China’s DCEP (Digital Currency/Electronic Payment) continued in the background, with the People’s Bank of China having completed pilots in Shenzhen, Xiong’an and Suzhou, processing RMB 1.1 billion across 3.1 million transactions.
Still, many governments and central banks, including the U.S. Federal Reserve and European Central Bank, continue to research whether central bank digital currencies (CBDC) hold potential but have maintained they do not see value in issuing one at this time. Many are also watching the growth in the stablecoin space – with total value now surpassing $25 billion – fueled by decentralized finance (DeFi) and institutional interest. This has corresponded with increased attention from regulators, for instance the controversial STABLE Act in the U.S. and the recent letter from the Office of the Comptroller of the Currency. We can expect continued regulatory interest and activity in this area from around the world.
NFTs boost inclusive wealth
We have come a long way since CryptoKitties, yet relatively little progress has been made in realizing the potential of non-fungible tokens (a cryptocurrency token that is indivisible and unique) outside of the gaming context.
But we are already seeing shifts around the dialogue of inclusion. Previously, there was talk of democratizing access to high-value assets, such as art. While there still might be potential here, it’s important to consider the implications for creators as well. For instance, some have spotlighted black artists and the role that crypto art can play in allowing for greater ownership and wealth creation within the space, as well as art exchanges. We’ve also seen early signs of how this may translate to music or writing.
*About the authors: Sheila Warren is Head of Blockchain and Data Policy and Member of the Executive Committee, World Economic Forum; Sumedha Deshmukh is Platform Curator, Blockchain and Digital Currency, World Economic Forum
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