Nascent crypto in need of protection

January 14, 2022 | 10:00
The expansion of digital and virtual assets, such as cryptocurrency and in-game assets, has been exacerbated by the participation of renowned funds, with significant deals already in place. The sector, however, is still a long way from being fully operational due to a massive legal gap.
Nascent crypto in need of protection
Non-fungible token tags have reached record levels in value and also liquidity, Photo: Shutterstock

Rather than being limited to Bitcoin and other virtual currencies, digital assets offer a considerably wider spectrum of instruments. Numerous types of digital assets exist, such as digital currencies aka cryptocurrencies; intangible assets like game property, intellectual property, and videos; and digitalised physical assets.

Billions of US dollars have been put into the development of digital assets. Several concepts that were previously utterly foreign and obscure to the public are now widely acknowledged, like the Metaverse, non-fungible tokens (NFTs), and Web3, to name a few. Substantial funds have been invested in these technologies.

Numerous world-class corporations have also reversed their decisions, shifting their focus on and incorporating company structures that are associated with digital assets. Last year saw several prominent events, such as Facebook’s rebranding to Meta to concentrate on Metaverse-based goods and services.

Inspiring practical applications

The application of digital assets encompasses a diverse spectrum, but is now centred on games, film, video, images, and the like.

Many artists are discovering a new market for their creations via NFTs, and others are achieving life-changing financial independence thanks to advanced technology.

The Metaverse ecosystem with its NFT products has facilitated the transition of conventional businesses to digital initiatives and leveraged banking transactions, thus aiding the modern economy.

There have been numerous deals involving virtual land, game characters, and other aspects of the digital world that have been valued in the millions, if not billions, of US dollars. In the digitally-enabled financial markets, artworks with NFT tags have reached all-time highs in terms of value and liquidity.

Quite a few renowned business executives acknowledge that their grasp of digital assets and trading in the Metaverse environment has opened new doors for more lucrative opportunities. According to many investors, selling virtual land generates higher returns than selling actual land, thanks to a faster delivery process and greater liquidity.

They also stated that the new approach is exceedingly straightforward since nothing can be falsified when the property is tied to NFT. All information, from location to transfers to value over time, is completely transparent and not frightened of being manipulated or fabricated.

On top of that, personal information, such as medical data, degrees, and documents, may be preserved in digital assets like NFT without the danger of being tampered with by others, which is a concern in the real world where physical assets are stored.

NFT-linked assets can be utilised for products requiring copyrights, such as certifications, degrees, electronic licenses, contracts, important documents, and records that cannot be replicated.

An uptick in digital asset crimes

Despite the huge potential in this sector, scams are also on the upswing, and there is a lack of legal protection for investors.

Between January and July 2021 alone, $681 million were abused in catastrophic cryptocurrency thefts, hacks, and fraud, according to intelligence company CipherTrace.

According to a November study from blockchain analytics startup Elliptic, many of the most significant attacks in 2021 targeted decentralised finance (DeFi) projects, with more than $10 billion stolen through DeFi theft and fraud.

Even in developed nations, cryptocurrency has driven a digital armoured truck through the gaps of the US financial regulation regime.

The digital asset market is riddled with extortion, fraud, and abuse. Theft of digital assets has been a serious problem that the US government is keen to address, said Gary Gensler, chairman of the US Securities and Exchange Commission.

The judicial framework has not kept pace with the advancement of technology, even though the number of fraud cases is rising. According to a Bolster analysis, the number of digital asset fraud cases has climbed by 40 per cent since 2020, reaching 400,000 incidents in 2020, with a surge of about 75 per cent in 2021 and possibly much higher in the next few years.

A new study from blockchain research firm Chainalysis also found that crypto-based crime could account for a record-breaking $14 billion in blockchain transactions by 2021, breaking the previous high of $10 billion. The value of illegitimate transactions in 2021 was almost twice as high as the amount of criminal blockchain activity in 2020, which was $7.8 billion.

Several key opinion leaders (KOL) around the world have previously expressed reservations about technologies such as NFT, Web3, and Metaverse, but have since joined initiatives. There are also many KOLs that constantly promote illegal projects, causing significant harm to investors and widespread frustration in the community. However, most governments lack punishment for these kinds of conduct, including in Vietnam.

Since there is an absence of a proper legislative corridor, most digital asset transactions throughout the globe are still unable to levy tax.

The creation of digital assets, on the other hand, is a phenomenon, and new legal rules are required for companies and projects operating in the digital asset market to be able to create and provide value while also putting digital asset technology into effect.

According to a CMC Markets, the worldwide digital asset market has recorded many Vietnamese-based projects – some of which are at the top of the rankings, such as Sky Mavis’ Axie Infinity (AXS), which once placed first in the Metaverse group and also in the NFT sectionAXS transactions may occasionally amount to several billion dollars in a single day, which is several times more than the total local stock market transactions. The project’s overall capitalisation has surpassed $30 billion.

Coin98 is also a pioneering initiative in the fields of e-wallets, digital communities, and digital asset knowledge. In previous years, the global community praised the Kyber Network for its blockchain applications.

All these initiatives have attracted significant financing from international investors and organisations. However, since the legal framework on digital assets in Vietnam has not been completed, most of the projects have foreign legal companies or are tied to other countries. The scope of apps and users is also mostly international, and there are just a few applications in Vietnam.

By Phan Dung Khanh - Head of Investment Advisory Maybank Kim Eng

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