We are kickstarting 2022 with short conversations with some of our regular contributors about their outlook for the new year.
Here, we speak with Amit Ghosh, Chief Information & Services Officer for R3, about what 2022 may bring for central bank digital currencies (CBDCs), blockchain interoperability, and the continued adoption of blockchain-based solutions and applications across Asia.
Unravel: What will the launch of CBDCs mean for common citizens of countries?
Amit Ghosh: The launch of CBDCs will definitely have a large impact on societies financially as we push onward into the increasingly digital and decentralised world. For many citizens, the rise of CBDCs will be most associated with higher efficiency and interoperability across payment systems due to the highly collaborative nature that blockchain technology fosters. By reducing the need for intermediaries, CBDCs will reduce the time and cost associated with transactions, particularly those that are cross-border by nature. Additionally, they will allow citizens from countries with historically unstable currencies to participate in the world of finance through the use of blockchain-based currencies, as opposed to riskier alternatives.
As the world continues to explore the use of CBDCs, citizens can look forward to a more efficient and seamless way to transact across geographies in the near future.
Unravel: How much of a hindrance is blockchain interoperability when it comes to use cases? What developments can we expect to see in 2022 to address the issue?
Mr Ghosh: Interoperability is certainly an issue when it comes to blockchain development and adoption – there is a need for a bridge between different platforms so information and data can move freely across different blockchain networks. To this end, we believe that blockchain interoperability will continue to mature and develop as the DeFi ecosystem continues to grow.
In the coming year, we can expect to see the convergence of the traditional financial services stack, with that of the DeFi distributed stack. As such, there will be a need for wrapped tokenised assets – which is a tokenised form of an asset that natively lies on another blockchain to promote interoperability.
An example of this could potentially be an ether wrapped as a Corda token that bridges different blockchain platforms together. In fact, R3’s ecosystem of partners is currently pioneering solutions for cryptocurrency interoperability across blockchains and partnered with LAB577 to build the Digital Asset Shared Ledger crypto bridge on Corda – enabling value to move freely between the Corda network and other leading public blockchain networks.
Unravel: What are some key areas in which you expect to see transformation in how blockchain applications are being put to use in 2022?
Mr Ghosh: In line with IDC’s estimation that business spending on blockchain solutions will reach $11.7 billion in 2022, we expect a surge in blockchain uses next year, through both business use cases as well as tokenisation and digitalisation of mainstream assets.
In the financial sector, we anticipate permissioned blockchain technology to be a key facilitator for the eventual convergence of the traditional finance services stack with the DeFi distributed stack, especially now that central banks are stepping up their involvement with CBDCs. As the Asia-Pacific region looks poised to drive greater CBDC innovation through various pilot projects, the use of multi-CBDCs to enable secure, reliable cross-border transactions is one to watch next year.
All eyes are on the Monetary Authority of Singapore’s collaboration with the Bank of International Settlements on Project Dunbar, an experimental project aimed at developing prototype shared platforms for cross-border transactions using multiple CBDCs. Not only will this advance the case for cross-border interoperability for CBDCs, it will then just be a matter of time until CBDCs gain the traction it needs to take off worldwide.
Unravel: What are the key factors that will determine the adoption of blockchain-based solutions and applications across Asia?
Mr Ghosh: How economies in Asia recalibrate their growth in a post-pandemic environment will determine the trajectory of blockchain adoption in the region. We believe that as economies continue to press on with their digital transformation, the underlying technology will also move towards a more decentralised model, one that minimises risk, enhances security and efficiency, while fostering greater cross border collaborations. To that end, we can expect to see continued growth of blockchain technology across industries in Asia. However, this will also depend on how adoption is being piloted across Asia.
A key factor for blockchain’s growth trajectory is institutional experimentation and adoption. Many large organisations in this region have spearheaded blockchain experimentation, and this has resulted in the attendant growth of the ecosystem as well. Great recent examples of this would be the Monetary Authority of Singapore’s Ubin project as well as Bank of Thailand and Hong Kong Monetary Authority’s Project Inthanon-LionRock.
To further drive innovation in this region, R3 established a CBDC working group which has brought together over 140 regulators, central banks, commercial banks, exchanges, technology and payments companies. The CBDC working group provides an open forum for parties to discuss the technology, policy and impact of digital currencies issued by a central bank. As more become educated and familiarised to blockchain platforms, I believe that we are on the path to mass adoption across Asia.
Unravel: Do you expect the uptake of cryptocurrencies to continue in 2022, or do you expect some moderation in activity given government intervention in many markets?
Mr Ghosh: As talks around the metaverse continue to gain traction, I fully expect cryptocurrencies, and their role as the digital asset of the metaverse, to grow in 2022. That being said, this growth will be watched by regulators as they evaluate the impact of digital assets on the financial markets and how best to ensure that the consumer rights of retail investors are protected.
In parallel, I also expect that governments in the region will continue to push ahead with their experimentation with blockchain-based CBDCs in the coming year. As the Asia-Pacific region looks poised to drive greater CBDC innovation through various pilot projects, the use of multi-CBDCs to enable secure, reliable cross-border transactions is one to watch next year.