A series of high-profile global scandals rained on the local crypto sector’s parade this year, but the traditional economy is still quietly embracing the blockchain behind closed doors.This Christmas, about 150 clients of Piper Alderman will receive “non-fungible tidings” from their lawyer.Spawned by the same blockchain technology that underpins cryptocurrencies, the unique Christmas cards will bestow on recipients a permanent and verifiable digital asset that is similar to a non-fungible token (NFT) and slightly more personal than the generic Santa Claus JPEG in your email inbox.But it also allows the 170-year-old law firm – which is owed about $US50,000 ($74,670) by bankrupt cryptocurrency exchange FTX for legal services provided to its local arm, now in administration – to subtly remind clients of its expertise in the growing niche of digital advisory, ahead of the slated introduction of federal crypto regulations early next year.The Australian Open has embraced blockchain technology for its Art Ball membership. AP“I’m not planning it to become a valuable collectible,” quips Piper Alderman partner Michael Bacina of the firm’s digital Christmas presents.“[But] we were the first major [Australian] law firm to accept cryptocurrencies for payment, and it’s another way we show that we not only understand the technology, but we use it.”It is hardly the most radical or meaningful use case for the blockchain – which has been variously heralded as a cure for corruption, climate change and even cancer.But after a year from hell, clients in the local crypto sector will be grateful for any show of support, however minor.The collapse of cryptocurrency exchange FTX in November, and arrest of its once-lauded chief executive Sam Bankman-Fried this month, has left an estimated 1 million unsecured creditors in its wake. About 30,000 Australians are believed to be owed money by the bankrupt FTX (including the company’s unpaid local lawyers).The former crypto giant’s fall from grace – which was precipitated by alleged misuse of customer funds, alongside wire fraud and money laundering by its senior executives – follows a string of similar incidents that have rocked confidence this year.The near-collapse of the terra-luna stablecoin network in June, and insolvency of major crypto lender Celcius just weeks later, rattled the nascent market. The price of bitcoin, the world’s largest cryptocurrency, is down more than 60 per cent over the past year, while Ethereum is down almost 70 per cent.Bacina, who was elected chairman of industry body Blockchain Australia earlier this month, declined to comment on FTX’s unpaid legal bill. But he acknowledges that the sector he now represents faces some serious headwinds.“Given what’s happened in the last few months, many businesses will likely defer or hold back on [blockchain-related] projects as they did during the last crypto winter,” he says.TradFi trajectoryBut he also says many providers of traditional finance (known as “TradFi” in crypto circles) and professional services are quietly pushing ahead with their adoption of Web3 technologies – even if they might be less eager to talk about them publicly than a year ago, when crypto markets were trading at historic highs.“Smart businesses are now understanding the power of this technology and have been engaging more and more,” Bacina says. “They see how blockchain will disrupt their business models soon, and how it provides opportunities to deliver more efficient services.”Piper Alderman is far from the only traditional business backing crypto. Blockchain Australia includes some big brands among its membership, including KPMG, Deloitte, PwC and the Australian Securities Exchange.Goldman Sachs was not only undeterred by the FTX saga, but the investment bank has been hunting for crypto firms trading at a discount amid the scandal, in order to double down on its exposure to the market, according to Reuters.Goldman executive Rosie Hampson extolled the virtues of the blockchain at the recent COP27 summit in Egypt, sharing her excitement about the “Genesis” project, which uses digital tokenisation to track the carbon emissions impact of green bonds for investors.Rather than trigger a mass retreat from the sector, FTX has instead allowed some significant mainstream blockchain projects to fly under the radar, says Bacina.He points to the announcement by Tennis Australia that more than 6000 holders of the Australian Open Art Ball NFTs will get access to free grounds passes for the physical event in January, alongside a range of virtual events and “experiences”.“We’re offering fans truly unique experiences and creating memories that last a lifetime,” said Ridley Plummer – who holds the telling job title of “senior manager of metaverse, NFTs, Web3 and cryptocurrency” at Tennis Australia – in a press release dated November 28.Bacina also points to the Lygon project, in which he is a “very small” shareholder, alongside three of the four major retail banks (Commonwealth Bank, ANZ and Westpac). Lygon moves the centuries-old process of bank guarantees (commercial contracts where banks vouch that a customer can pay their debt) from a paper-based system to the blockchain.“Lygon is exactly the kind of use case that opens up important innovations,” he says.“Bank guarantees aren’t an exciting instrument. People like to talk about crypto and blockchain changing the world, increasing financial inclusion or replacing banks – but at the end of the day, there are going to be incremental improvements in a variety of ways to make business run more smoothly, which is in itself very valuable.”Bank backingWhile they have invested in Lygon to modernise back-end processes, the big banks’ relationship with the sector is seemingly more vexed. In a submission to Treasury dated June and released this month, the Australian Banking Association revealed its members harboured ambitions to “participate in the crypto sector in a range of roles, including to provide products and services to meet customer demand”.CBA went further in its own submission to Treasury on crypto regulation, supporting the view that there is “great potential flowing from crypto assets and distributed ledger [blockchain] technology”. It indicated it still planned to go ahead with its controversial plan to allow customers to trade crypto assets through its banking app.But rivals ANZ and National Australia Bank have ruled out any foray into crypto-trading. ANZ’s Maile Carnegie told The Australian Financial Review Banking Summit in May that would negate efforts to improve the “financial wellbeing” of customers.In an unlikely alliance, the big banks and the Australian Securities and Investments Commission, the corporate regulator, are aligned in calling on the Albanese government to classify crypto assets as financial products. This would bring the crypto sector into the existing financial services regime, rather than establish a separate crypto-specific licensing regime.One senior technology executive tells the Financial Review this is an effort by the banks and regulator to “kill off” crypto start-ups and “control the blockchain”, given the sector would become subject to the infamously complex financial services laws and the compliance costs that come with them.ANZ retail group executive Maile Carnegie ruled out facilitating crypto-trading. Louie DouvisBacina says the industry is calling out for regulation and that its introduction next year will provide certainty and help the sector rebuild its standing with the public. But he says those regulations need to be “fit for purpose”. Blockchain Australia strongly opposed calls to classify crypto assets as financial products in its submission.“It is concerning to see regulation-by-enforcement increasing in recent months, as that may chill and discourage regulatory engagement, pushing jobs and economic growth offshore, and leave customers exposed,” he says.The comment is likely a reference towards ASIC’s recent crackdown on alleged breaches of licensing or disclosure laws by crypto product issuers, including fund manager Holon and comparison site Finder.
This article was originally published by AFR.