Blockchain Australia: Crypto industry eyes payments system

Australia’s blockchain community is debating how new age currencies will work with the regular payments, superannuation, legal and banking systems.

Custodia Bank's Caitlin Long speaks to the Blockchain Australia conference from the US. Picture: Richelle Cox, Blockchain Australia

While governments grapple with regulation, Australia’s blockchain community is debating how new age currencies will work with the regular payments, superannuation, legal and banking systems.

Day one of the Blockchain Australia five-day conference showed how complex this could be. It addressed issues such as whether cryptocurrencies could expedite legal settlements, whether banks could offer a full range of services to customers with cryptocurrency accounts, and whether we needed special crypto banks.

The federal government has announced that The Board of Taxation will review how cryptocurrency assets can be properly taxed, consider a market licensing regime for digital currency exchanges, and clarify rules around capital gains tax.

At the conference, Liberal senator Andrew Bragg said he wanted outcomes from last year’s Senate inquiry to be consolidated into a Digital Services Act enshrining neutrality, flexible principles, regulation by a minister, and appropriate powers and resourcing within government.

He also wanted decentralised autonomous organisations (DAOs), a form of crypto collective, to be brought under the Corporations Act and subject to corporate governance.

On the Ukraine war front, Senator Bragg said he had contacted AUSTRAC to ascertain that crypto didn’t provide a backdoor for Russia to breach economic sanctions. “Their view is that not much can be done under the DCE (Digital Currency Exchange) system.”

The week-long blockchain event covers digital currency interplay with the financial system, decentralised finance, exchanges and institutions, non-fungible tokens, the metaverse, the regulatory landscape and start-ups and scaleups.

CEO of Blockchain Australia Steve Vallas said the hosting of day one at the Australian Securities Exchange in Sydney aimed to offer understanding to traditional financial service businesses which have been reluctant to consider blockchain currencies.

Senator Andrew Bragg at Parliament House, Canberra. Picture: NCA NewsWire / Gary Ramage

He said Australia’s big four banks “hadn’t really leapt into the space” and their reticence and conservatism meant other financial services had taken a “wait and see attitude”.

“There’s still a pervasive view that this is slow, that it’s expensive, and it’s the dark web and the criminals are operating here – we shouldn’t look at it.”

Founder of crypto exchange FTX Sam Bankman-Fried announced the Australian launch of the Bahamas-based exchange which is among the world’s most active, with a claimed exchange average of $US10bn of daily trading volume. The local FTX operation would be subject to Australian regulation. He offered FTX as a resource for Australia as it developed its regulatory system.

Caitlin Long, founder and CEO of Custodia Bank, formerly Avanti Financial Group, spoke about its “first-of-its-kind” digital asset bank which launches in Q2, and the complexity involved with new digital entities merging with the traditional financial world.

The prime concern was for the crypto ecosystem to be backwards compatible with the legal system “so that the legal system knows how to handle disputes and those who own digital assets know they have fair title to those assets and a judge in a court of law won’t come and attack that.”

“If you make the technology and law consistent with each other, then there’s no risk of a judge trying to overturn the technology. If you don’t have clear title to the asset, then what do you own?

“Once you build that foundation of creating clarity on the legal and property law status, commercial status and of course the tax status, then you get the traditional financial services sector like the banks and security brokers. It’s very early days.”

She said Custodia Bank was about settlement. In the US it was not possible to settle US dollars against a digital asset because banks and crypto firms were different legal entities.

She said the new special purpose banks didn’t lend. In an environment of almost instantaneous digital transactions, if it tried to do maturity transformation and was taking credit risks, and there was a run on that bank, the bank could be in trouble.

On Wednesday the conference tackles the metaverse and the use of non-fungible tokens or NFTs as proof of ownership of an asset through a record on the blockchain.

Their use is growing, with Meta CEO Mark Zuckerberg saying last week that NFTs will soon come to Instagram. He told the SXSW conference in Texas that NFTs could play a role in the metaverse.

Mr Vallas said NFTs were catching on in Australia, particularly in sport with peak bodies the AFL, NRL and Cricket Australia adopting them. Sports bodies see NFTs as a way to boost sales of collectibles and genuinely branded merchandise.

He said while NFTs were proving popular for sales of digital art, the Australian music industry was yet to adopt them widely. That was likely because NFTs would displace “very traditional networks” for music sales and distribution.