Dim Sum in a Crypto Hub: Block Kong

Eating your way around a city is the greatest way to get a feel for it. If you can't do it - maybe due to coronavirus restrictions — read about another person eating.

BlockKong: 21 Entrepreneurs and Financiers Leading Blockchain in Hong Kong,” a newish book by Charles d'Haussy and Jame DiBiasio, is based on this premise. Prominent crypto leaders explain the narrative of a city and an industry in real time during many breakfast, lunch, or dinner dates.

To clear the air, the writers have “kung fu tea” and dim sum with BitMEX's Ben Delo, brunch with Algorand's Fangfang Chen in Hong Kong's Happy Valley area, and croissants and Soylent over FTX's Sam Bankman-desk. Fried's (All profits from sales go to help local engineers further their studies.)

Hong Kong has emerged as a key hub for the blockchain sector as a global financial center. It's home to high-profile exchanges like FTX (and, for a while, Binance), prominent blockchain organizations like the Bitcoin Association, and some of the industry's biggest investment firms, like Kenetic Capital.

“Because Hong Kong is an international financial hub, it's de facto becoming an international digital assets center,” d'Haussy remarked via Zoom before starting his workday. “Even if there isn't a lot of interest in bitcoin right now, Hong Kong's economy and laissez-faire laws offer a highly rich environment for bitcoin to thrive in.”

However, according to d'Haussy, the city-state is often ignored and underestimated in Western media. According to current data, Hong Kong has an average of one initial public offering (IPO) per day, 170 regulated banks, 600 stockbrokers, and a population of 7 million people.

Since 1997, the city-state has operated under its own financial and cultural laws, while being technically part of China. While President Xi Jinping has said that blockchain, not bitcoin, will be the future of China, crypto is thriving in Hong Kong, with companies like Block.one and Galaxy Digital.

“This place has a lot of radical diversity,” d'Haussy remarked. “Of course, Bitcoin began it all, but there have always been factions inside the crypto ecosystem.” He said that Ethereum co-founder Vitalik Buterin initially mentioned smart contracts during a Bitcoin meeting in the city.

Over the course of 183 pages, it becomes clear that Hong Kong is not just involved in crypto, but also at the forefront of some of the most innovative technical advances in the field.

CBDCs, or central bank digital currencies, are a good example. The globe is engaged in a power war over which currency, if any, will become the next global reserve. When many experts and commentators think of hegemony, they increasingly imagine digital.

China has taken the lead in digitizing its yuan, Europe is indicating that a CBDC is on the way, and the United States is still waiting to see. Other smaller national or regional digital currency initiatives, as well as Bitcoin, are in the mix.

When he's not eating or writing, D'Haussy is in charge of ConsenSys' attempts to create m-CBDC, a global CBDC bridge connecting Hong Kong, Thailand, China, and the United Arab Emirates. (Of course, ConsenSys is the Ethereum powerhouse with offices in a fashionable Brooklyn neighborhood.)

“You usually see CBDCs operating in silos for specific domestic markets,” he said. The m-CBDC experiment demonstrates the east's degree of progress and creativity. Each central bank has its own set of monetary policies and laws, reserve requirements, and degree of financial privacy comfort.

Those are difficult issues to tackle, but he believes it is not unexpected to see innovation taking place in Asia, especially in Hong Kong.

“Asia in general absorbs new technologies more quicker because of its hunger for new things and willingness to accept risks,” he added. Digital and mobile payments, for example, have totally taken over the industry.

He also has a front-row seat to the digital yuan's growth. One of the book's main topics is how the Facebook-led libra (now diem) experiment sparked action in China. Financial authorities across the globe were instantly worried about the possibility of corporate influence over monetary policy, particularly if it came from a mega-corporation with a history of privacy and other abuses.

Similar worries have been expressed about China's fledgling CBDC, which may have built-in user limitations as well as increased financial monitoring.

“Just because you're utilizing a CBDC, you can't get a pass on data privacy and privacy regulations in your individual countries,” d'Haussy said, adding that privacy is at least partly encoded by culture. The Chinese will create whatever “they believe is in accordance with local market regulations.”

Elsewhere, the market will determine whether or not an international renminbi is acceptable. “However, I believe the Chinese are extremely pragmatic and will arrange things in such a way that [international law] is supported,” he added.

The emergence of stablecoins, or cryptocurrencies intended to maintain their value in relation to fiat money, has added to this geopolitical currency war. Given the rapid growth of cryptocurrency, it's probable that these currencies will spread throughout the globe, particularly in Asia.

Many Hong Kong residents choose the stablecoin version over a US dollar from the Federal Reserve, Circle, an exchange, or a bank. However, this is a tendency that may not continue for long.

“Because private-sector innovation outpaces that of central banks, CBDCs are falling behind. However, I think CBDC volume will surpass stablecoins in 2022,” he added. CBDCs have the “built-in value proposition” of being completely tax and regulatory compliant, as well as being fully connected into the global banking community. Stablecoins can come with counterparty risk.

But, despite the fact that “the ‘crypto-currency' use case is not something that is acceptable in China,” he believes blockchain will have a role. Specifically, the “Belt and Road” project, which aims to assist poor countries skip growth stages and go right into digital infrastructure while also forging connections with the Communist state.

“The Chinese realize that blockchain is a cooperation technology, and they are investing heavily in it,” he added.

With China's increasing global influence, some have questioned how long Hong Kong would be able to retain its (semi) independence. Under the “one country, two systems” approach, Hong Kong has retained its autonomy and links to international capitalism with minimal intervention from mainland China since before the turn of the century.

China enacted a broad security legislation in June that restricts citizens' freedom to protest. Tensions have risen, and Hong Kong's independence is now in doubt.

“Things change in Hong Kong, much as they do in the United States after an election. The people, on the other hand, are still here. Everyone is here because here is where the money is made,” d'Haussy said. “The changes that are taking place are not breaking the spirit or the energy. We're going to continue.”

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