For a country of 25 million people, Australia punches well above its weight both economically and in the world of blockchain. Australians have long been enthusiastic adopters of new technology, from cellphones to smart homes, so it’s little surprise they’ve embraced crypto too.
Chainalysis ranks Australia 20th out of 154 countries surveyed this year for its "The 2020 Geography of Cryptocurrency Report," citing favorable regulation that legitimizes the technology as driving "steady growth in adoption."
Australian crypto educator Alex Saunders, founder of Nuggets News, said the Australian crypto community encompasses everyone from hardcore Bitcoin (BTC) maximalists to well-known Ethereans and large contingents of Bitcoin Cash (BCH) and Bitcoin SV (BSV) followers.
"There's just a huge percentage of people per-capita compared to most countries that are interested in crypto and blockchain," he explained.
The past year has seen the crypto ecosystem flourish despite the pandemic. The federal government released a five-year plan called the "National Blockchain Roadmap," banks and the finance sector have warmed up to the technology, and local projects were instrumental in driving the mid-year decentralized finance boom.
Australia's DeFi sector
A raft of Australian DeFi projects came to global prominence in 2020, including Synthetix, which began life as stablecoin project Havven in the country's largest initial coin offering in 2018, before morphing into a decentralized version of BitMEX using synthetic assets.
Synthetix founder Kain Warwick is also known as the “father of modern agriculture” for popularizing the concept of yield farming, which sparked the 2020 DeFi boom.
"We've had some really big projects come out of Australia,” explained David Rugendyke, founder of Eth2 staking service Rocket Pool.
“I think Synthetix is probably the most notable one just because they're doing some pretty amazing work. All this stuff is very cutting edge tech."
Based in Brisbane, Queensland, Rocket Pool is a decentralized Eth2 staking service that will enable users without the minimum 32 Ether (ETH), or the desire to run their own validator, the ability to stake. Ren is a decentralized way to create tokenized Bitcoin and other coins that can be used in DeFi, while mStable allows users to swap U.S. dollar stablecoins with zero slippage and earn high yields. THORChain, meanwhile, is a forthcoming cross-chain version of Uniswap. Henrik Andersson, chief investment officer of Melbourne-based fund Apollo Capital, said:
“Many of these projects are among the top in the world."
Favorable regulations
Rugendyke said that mostly favorable regulations are one reason local projects are able to thrive, as it enables them to “build in a way which is going to satisfy regulatory requirements but also not stifle what they're trying to do."
"I think we're kind of heading in the right direction by fostering that innovation rather than taking the heavy handed approach like the (U.S.) SEC is."
To give a couple of examples, in October, crypto-friendly capital raising platform Stax Capital launched the first initial public offering in Australia with permission to accept crypto in the form of Tether (USDT) for its client West Coast Aquaculture Group. Upon completion in November, around 89% of the $5 million raised had been contributed in Tether.
And at the start of the year, a judge in New South Wales allowed a plaintiff to put up cryptocurrency as collateral against potential legal costs, with the judge calling crypto a "recognised form of investment" — albeit a highly volatile one.
Not a soft touch
But it’s not all good news: Australian exchanges, including CoinSpot and CoinJar, were forced by regulators in August to delist privacy coins including Monero (XMR), Bytecoin (BCN) and Zcash (ZEC). Regulators also don't seem keen on ICOs, with many falling foul of current laws that consider them "managed investment schemes" requiring licensing.
In February, Jemma Green, executive chairman of West Australia-based Power Ledger, told the Senate Select Committee on Financial Technology and Regulatory Technology that the tax treatment of ICOs was not "fit for purpose" and was part of the reason that only 0.79% of the $26 billion raised through ICOs to date was in Australia.
"In Australia, the proceeds are presently being taxed as income. As a result of this regulation, Australia is not an attractive proposition to undertake one of these initial coin offerings.”
Crypto payments
One area in which Australia lags behind is in the use of crypto for day-to-day payments. A Reserve Bank of Australia study in March finds that while 80% of Australians are aware of cryptocurrencies, less than 1% have used crypto to make a consumer payment.
Chainalysis noted in its report that people in developing economies in the Asian region make crypto payments far more often:
"India and Vietnam already have higher grassroots-level adoption than Australia, as they rank higher on our index at 11th and 10th respectively."
The adoption of crypto for payments has been a little hamstrung in Australia because the country has one of the most advanced electronic payments systems in the world. The New Payments Platform and its PayID service enables Australians to send or receive money instantly, 24/7, using only an email address or phone number.
Ripple appropriates "PayID," gets taken to court
Funnily enough, Ripple launched a very similar crypto-based service this year, also called "PayID,” and promptly was sued by the New Payments Platform in the Federal Court for copyright violation. In November, Ripple changed the name to "PayString."
PayID has also been cited by the Royal Bank of Australia as a key reason the country doesn’t require a central bank digital currency, or CBDC, despite the bank actively researching one. In October, the RBA’s head of payments policy, Tony Richards, said to not expect a CBDC any time soon:
“Australian households and businesses are well served by a modern, efficient and resilient payments system that has undergone significant innovation in recent years, including the introduction of the New Payments Platform, which is a real-time, 24/7 and data-rich electronic payments system.”
Saunders said it was a short-sighted decision. "It's kind of disappointing to hear the RBA say that they don't see a use case for central bank digital currencies, when every other central bank on the planet is talking about how they're the future and trying to roll them out," he said.
Despite its reluctance, the RBA has since partnered with two of the country’s four major banks — Commonwealth Bank and National Australia Bank — along with Ethereum developer ConsenSys and financial services company Perpetual to explore a wholesale central bank digital currency using an Ethereum-based digital ledger.
In another welcome sign that banks are looking more favorably at the industry, three of the "Big Four" banks formed a company in September called Lygon to digitize bank guarantees using blockchain technology. The aim is to cut the processing time from weeks down to a single day — mainly for commercial lease guarantees — using IBM's Hyperledger technology.
Government on board with blockchain
The government announced $4.95 million in this year's budget to support "two blockchain pilots directed at reducing business compliance costs."
But probably of more significance was the release of the National Blockchain Roadmap at the start of the year, which was developed by the federal government’s Department of Industry, Science, Energy and Resources in consultation with industry group Blockchain Australia. It sets out 12 key recommendations over the next five years and identifies the three most promising use cases for the technology: recording credentials and qualifications for the education sector, supply chain tracking for agriculture and wine exports, and Know Your Customer identity verification for the finance industry.
These three areas are also the focus of Blockchain Australia's proposed $60 million Cooperative Research Centre. The CRC requires a $30 million contribution from the industry that would be matched by the government, but so far, only a handful of organizations are on board.
APAC Provenance Council
While the three use cases are being addressed by various initiatives, supply chain tracking could offer the most immediate benefits, with an estimated $1.7 billion of lower quality food and produce passed off as “Australian” overseas — mostly in China. A new public body called the APAC Provenance Council was set up mid-year by local blockchain businesses in concert with VeChain, Mastercard and Alipay.
The aim is to offer guidance to exporters about supply chain tracking and to offer them trade financing. The organization has an innovative "milestone"-based payments system that can provide partial payments when certain conditions are met along the journey, such as when a shipment leaves customs, as verified using blockchain.
ASX DLT is not OK
One thing that certainly didn't happen in 2020, and won't be happening any time soon, is the much-hyped transformation of the Australian Securities Exchange's CHESS share registration system, which was expected to be overhauled using distributed ledger technology.
"The ASX has just pushed back rolling out blockchain for stock trading until 2023, which is the third time they've pushed it back,” explained Saunders.
The ASX blamed the latest delays on surging volumes amid the March market crash, requiring it to triple the system's capacity — although part of the reason for the delay is likely the concerns expressed by some key stakeholders.
Big guys expand in Australia
Australia was already well served by crypto exchanges, but the major players have been looking to expand their market share here in 2020. Binance, Gemini and Crypto.com all extended fiat services to Australians this year, with Crypto.com recently announcing it had bought an Australian company in order to use its Australian Financial Services License and issue a Visa credit card.
Kraken Australia opened mid-year after taking over local exchange Bit Trade. The United Kingdom-based money app Revolut — which is one of the largest brokerage firms in Europe, with a million customers — also extended crypto trading services to tens of thousands of Aussies.
The final word
After a year of being confined to quarters during the pandemic — all of the state borders slammed shut, and Victorians endured a severe four-month lockdown — the crypto community is looking forward to a return to normality in 2021. Saunders said he’d been confined to Tasmania for most of the year and was eager to return to in-person events to see how the landscape had changed:
"Now we're in a bull market. I can't wait to actually get out there and amongst the community."