Current status of global blockchain: Competition is most intense in Asia, but Africa is the largest target market?

By Joseph Birch

Translated by: Sambodhi

Source: Blockchain Outpost

Globally, blockchain technology adoption is exploding. But while the technology has many fans, its spread has never been even. Blockchain adoption is limited by many factors, including infrastructure development, local resources, and regulation.

As with any emerging technology, there will always be some regions that are ahead of others. Rado Dragov, head of blockchain at the International Data Corporation (IDC), explained that there are many factors that can create favorable conditions for adoption, ranging from investment to talent:

In addition to these factors, blockchain investments are also largely influenced by current and upcoming regulations, as well as the government's overall attitude towards the technology. In some cases, the lack of regulation can scare off many investors. By adopting business-friendly regulations, some European countries, such as Switzerland, Estonia, and Malta, have become fertile ground for many blockchain startups.

Dragov added that while blockchain investment is growing steadily, it still lags behind other technology investments in the information and communications technology sector:

IDC has predicted that blockchain spending will reach $2.7 billion in 2019, an 80% increase from 2018. While the current growth rate is considerable, it still only accounts for a small portion of total ICT spending. In contrast, IDC expects ICT investment in new technologies (IoT, AI, AR/VR) to reach $961 billion in 2019.

The Middle East is an emerging tech hub. Many countries in the region, especially smaller oil-producing nations, have their own free economic zones dedicated to promoting technology development and innovation. The United Arab Emirates alone has 45 such free economic zones, and Saudi Arabia and Oman are both rapidly developing their own free economic zones. Saba Kifle of Devcon Miami told Cointelegraph that governments in the Middle East and Africa are making full use of these free economic zones by incubating blockchain projects:

Ultimately, government agencies in these regions have made significant investments in understanding how blockchain and digital currencies can improve their region’s economic prospects. More importantly, they have taken smart and cautious steps to establish regulatory sandboxes to test how these technologies will impact their countries.

Development is set to increase in the Middle East and Africa: A report released in February by the International Data Corporation predicted that governments in the region will see a 400% surge in blockchain investment over the next four years.

The report found that spending by countries in the Middle East will increase from $21 million in 2019 to $105 million in 2023, a compound annual growth rate of approximately 50%. The report said that authorities in the Middle East are keen to explore blockchain solutions to address fraud, security and public administration.

While the sudden surge in blockchain investments is impressive, Jyoti Lalchandani, vice president and regional general manager of IDC’s Middle East, Turkey and Africa division, claims that governments in the region are currently not prepared for a major digital transformation:

Governments across the region are under increasing pressure to become more efficient and effective. Whether it’s finding ways to integrate 5G, AI and blockchain, or preventing digital trust breaches, government agencies have a whole new set of IT skills to learn.

According to Deloitte’s blockchain adoption report, development is not limited to the Gulf Coast countries. Data shows that there is a large amount of blockchain activity in Israel, mainly focusing on digital assets. Other use cases in Israel have expanded to DNA storage, diamond registration, cybersecurity and international shipping.

One notable trend in the Israeli blockchain environment is the shift in government behavior from a regulatory role to a user role. The report found that the Israel Securities Authority has begun to apply blockchain technology in its information systems. Hagai Zachor, Deloitte Israel Strategy Manager and Blockchain Lead, said it is not surprising that Israel is becoming a regional leader in blockchain-based projects:

Given Israel’s strengths in intelligence gathering and analysis, security, and cryptography, it’s no surprise that it was one of the leading nations in the crypto revolution and remains a leader in blockchain-based data security and traceability today.

Despite the challenges facing governments in the Middle East, Kifle believes that blockchain projects are on the rise in the MENA region with support from governments in these regions:

Governments in the MENA region are developing policies and legislation for blockchain-based projects and most notably digital currencies and other financial products. This level of support has enabled banks to develop blockchain-powered transaction systems.

With its single market, Europe is one of the most important financial hotspots in the world. The regulatory environment in Europe is very developed, and emerging technologies have strong support both academically and politically. In addition, the EU is also interested in blockchain. As the executive body of the EU, the European Commission is actively exploring ways to implement this technology.

For example, the European Union launched the European Blockchain Partnership in April 2018, which operates at the political level across all member states of the European Economic Area. Countries that have signed the declaration are working to implement blockchain solutions to benefit their citizens, society, and economy.

The European Blockchain Partnership will deploy a distributed network of blockchain nodes across Europe. The commission has also worked to ensure public-private collaboration in the blockchain space, launching the International Association for Trusted Blockchain Applications (INATBA) in April 2019. While many other regions are looking to implement blockchain, Marc Tavener, executive director of the International Association for Trusted Blockchain Applications, outlined to Cointelegraph his view that Europe has a head start:

We are seeing continued investment (public and private) that will give Europe a competitive advantage in how governments, businesses and institutions implement this technology.

Tavener told Cointelegraph that the EU’s competitive advantage stems from its early attention and positive attitude toward the benefits that the technology can bring:

The European Union has been one of the earliest and most aggressive adopters of blockchain technology as a way to spur digital innovation and benefit both the public and private sectors. For example, Estonia has been testing blockchain technology since 2008. Since 2012, blockchain has been operational in many of Estonia’s registries.

IDC’s Dragov told Cointelegraph that certain industries in Europe are actively promoting investments in blockchain, ranging from manufacturing to banking:

Looking at Europe, we expect the top five industries with the highest CAGR by 2023 to be: process manufacturing, professional services, retail, discrete manufacturing, and banking. Despite the proliferation of blockchain solutions across industries, we expect the financial sector to continue to attract the highest amount of blockchain investment.

With the most developed regulatory environment, strong academic support, and a long history of supporting technological development, the United States is a fertile ground for a variety of emerging technologies. Therefore, it is no surprise that the United States is the country with the most blockchain investment. Dragov explained to Cointelegraph that in 2019, the United States invested nearly $1.1 billion in blockchain, far higher than Western Europe's $661 million, and China's $304 million pales in comparison.

Jeff Barroga, CEO and founder of Paxful exchange, outlined his views to Cointelegraph, saying that not only is North America leading blockchain adoption, but the trend is likely to grow as more government officials begin to accept the technology:

Governments across North America are racing to use the technology behind decentralized ledgers to modernize military warehouses, help law enforcement, verify government contract bids, and increase transparency in government grants. As more elected officials finally view blockchain technology in a positive light, we can expect more pilot projects to be launched in the coming months.

Barroga told Cointelegraph that blockchain will eventually move away from the reputational risks associated with cryptocurrencies as real use cases grow, as “the financial sector will eventually use blockchain technology to make processes more efficient and reduce costs through the use of self-executing smart contracts.”

Asia is one of the most competitive markets in the world for tech projects, as they play a central role in driving economic growth in the region's largest economies, such as China and Singapore. As a result, governments are more open to the benefits that emerging technologies can bring.

According to the Deloitte report, the Singapore government is highly supportive of blockchain platforms because of their potential for future financial development. The report also noted that the Monetary Authority of Singapore also described blockchain technology as “fundamental” to its economic development.

China cannot be ignored when it comes to blockchain development. Since Chinese President Xi Jinping made a landmark statement praising the importance of blockchain technology to China’s future economic prospects, China is likely to try to replace the United States as the world leader in blockchain investment.

Due to the unpredictable legal environment for crypto and blockchain projects in China, coupled with limited public information, it is difficult to assess the actual level of adoption of the technology in China.

Nonetheless, the Deloitte report noted that the information technology-related section of the Chinese government’s 13th Five-Year Plan lists blockchain as a “key driver of economic development.” The report also found that the real economy and fintech are two sectors that may find long-term public function applications in China.

In the Deloitte survey, 73% of respondents said blockchain was one of the top five key priorities in China, while another 34% said they believed in blockchain’s disruptive potential.

China has a huge advantage in the number of blockchain patents. The report's authors speculate that China will continue to be the leader in blockchain development, with the United States in second place. Paul Sin, consulting partner at Deloitte Consulting Ltd. and head of Deloitte's Asia Pacific Blockchain Lab, said that China is likely to become a global leader in strategic blockchain applications:

China, more than anywhere else in the world, will apply blockchain strategically rather than tactically. More projects are driven by top executives who are using blockchain as a strategic weapon rather than a productivity tool.

According to IDC, blockchain spending across the Asia Pacific region (excluding Japan) is expected to reach $2.4 billion by 2022. The report predicts a significant increase in blockchain spending, which is expected to reach around $523.8 million in 2019, an increase of 83.9% from $284.8 million in 2018. IDC expects a five-year compound annual growth rate of 77.5% between 2018 and 2022.

The report found that the Asia-Pacific region (excluding Japan) accounted for 18.4% of total global blockchain technology spending in 2019, ranking third behind Western Europe (23.7%) and the United States (37.7%). China accounted for about 70% of spending in the region.

Africa is a target market for some of the industry’s biggest and best companies. Facebook’s Libra project has huge potential to impact the social network’s large African base of unbanked users. Twitter and Square CEO Jack Dorsey famously said, “The future of Bitcoin will be defined by Africa.” He also said he would spend six months in Africa in 2020.

Many commentators on Africa have rightly mentioned that Africa was not included in previous industrial revolutions due to generations of colonial occupation. As a result, many African countries have underdeveloped infrastructure. As much as 80% of the population in sub-Saharan Africa uses neither formal nor semi-formal financial services.

According to Akin Sawyerr, head of Africa and strategic developer at the Decred cryptocurrency, this is exactly why there is so much potential for blockchain adoption in Africa. Sawyerr told Cointelegraph that decentralized finance could play a major role in Africa’s fourth industrial revolution as mainstream financial institutions ignore the unbanked:

Sub-Saharan Africa has made significant progress in the development and use of blockchain networks, and I expect the region to be at the forefront of blockchain adoption for many reasons. The World Bank posits that approximately 60%-70% of Sub-Saharan Africa is unbanked. Unbanked users are not a viable target for traditional financial institutions, as most live on less than $3 per day, and are not a profitable segment of the market.

Paxful’s Barroga also noted that blockchain technology has the potential to reach unbanked users. Explaining the existing digital nature of many transactions in Africa, Barroga told Cointelegraph that Africa is a fertile market full of use cases:

Given the economic instability and weak banking systems in Sub-Saharan Africa, the way has been paved for digital and mobile payments as an alternative solution that the people of the continent can accept. Most transactions on the continent are digital, and the vast majority of adults hold some type of e-wallet: a good sign that African families may be more open to new technologies.

Blockchain in Africa represents not only a way for people to better manage and consume, but also a way to make money. Many African countries have growing populations, and by the next century, 13 of the world’s 20 most populous cities will be in Africa. Sawyerr explained that many young Africans see blockchain as a future career path:

Finally, Sub-Saharan Africa has a very young, vibrant population that sees technology, and software development in particular, as a viable way to make a living, beyond just local employment opportunities.

Latin America is witnessing a rapid growth in cryptocurrency and blockchain adoption. From BRICS countries discussing a shared cryptocurrency to move away from their reliance on the U.S. dollar to Venezuela’s Nicolas Maduro regime attempting to impose an oil-backed “cryptocurrency” on its beleaguered populace, the region is constantly exploring new uses.

Elian Huesca, head of Latin American operations at Decred, told Cointelegraph that the region’s diverse financial and technological use cases are driving the proliferation of cryptocurrencies and blockchain projects: “A big reason for this is that the use cases for cryptocurrencies are diverse, ranging from remittances, investments and savings, to currency alternatives to combat hyperinflation.”

The Middle East and China aren’t the only regions using special economic zones to develop blockchain technology. Huesca told Cointelegraph that Uruguay is becoming a hub for crypto and blockchain businesses:

They are exploring the use of existing economic free trade zones to create a crypto-friendly hub to attract crypto businesses, talent, and innovation. They are effectively leveraging their economic advantages and development momentum to become a reference for blockchain development in the region.

Despite the numerous use cases around the world, blockchain technology still faces many issues that hinder its wider adoption. Since blockchain technology is still relatively new and the pace of development varies, interoperability can be an issue. The International Trusted Blockchain Application Association told Cointelegraph:

But it's an issue that is being addressed in both public and private conversations, so while we're seeing some trust challenges, we're also seeing players stepping in to address those challenges and ensure that this technology can continue to grow.

One of the most significant criticisms of blockchain is its huge energy costs. But that may soon change. Tavener said that both the public and private sectors are working to address energy inefficiencies, and they are both “focused on finding sustainable solutions to reduce energy usage in blockchain data centers and improve productivity and efficiency.”

Finally, according to a spokesperson for the ISO/TC 307 leadership group of the International Standards Organization (ISO), the lack of common regulations or standards is hindering the development of blockchain, adding:

Blockchain technology is interdependent on other technologies and on today’s legal, business and social realities. These connections and interdependencies with other technologies require interdependencies and interoperability between standards.

About the Author:

Joseph Birch is a freelance writer interested in how blockchain can fundamentally change the world we live in and the transformative power of crypto.

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