< Previous40 AB/ Money October – November 2021 FEATURE/ NON-FUNGIBLE TOKENS BY LARA ABOUELKHEIR u Application NFTs transform digital works of art into unique verifi able assets that can be traded through blockchain technology Industry experts at the 2021 AIM Summit share their insights on why non-fungible tokens (NFTs) are here to stay and how they’re reshaping traditional business models HOW NFTS ARE DISRUPTING TRADITIONAL BUSINESS MODELS arabianbusiness.com 41 / NON-FUNGIBLE TOKENS Q NFT IS LIKE A SERIAL NUMBER THAT ALLOWS YOU TO PROVE THAT YOU ARE THE OWNER OF THE ART PIECE” $69.3m The most expensive NFT ever sold at Christie’s – named the Everydays: The First 5000 Days While NFTs, or non-fungible tokens, have been around for a few years already, the market size for these crypto assets has surged to new highs in the past year, with $2bn having been spent on NFTs during the first three months of 2021– a 2,100 percent increase from the fourth quarter of 2020. “There’s always a turning point in history which marks a complete change in the paradigm and the way we see and do things… the first one to go and initiate change is where the money will follow – that’s part of what we’re buying into when we invest in an NFT,” says Amrita Sethi, NFT artist. NFTs transform digital works of art into unique verifiable assets that can be traded through block- chain technology. Famous NFTs that have been sold include a digital artwork for $69m from Beeple, while Twitter founder Jack Dorsey sold his first ever Tweet for over $3m. “NFT is not art. It’s a technology of trust, decentralisation, disintermediation, and the relationship between the artist and the ones that consume art,” shares Jorge Sebastiao, co-founder and CEO of GBO. NFTs are bringing the possibility of art owner- ship to the masses, as well as appealing to the younger generation, who typically have a greater appreciation for digital platforms. A great part of the NFT’s value can be derived when the buyer understands how to monetise and utilise it during this new paradigm shift, empha- sises Sebastiao. Commenting on how consumers can avoid losses when it comes to NFTs, Mark Hill, partner and head of commercial, IP & TMT Middle East, Charles Russell Speechlys’ Commercial, says: “They need to be very clear about their objectives. “You have to be very clear about your reasons for wanting to buy an NFT, whether it is to buy it as a tradable collectible, or a technolo- gy-backed art for investment purposes, or because you simply like it. NFTs, if nothing else, are currently a world of opportunity, but also uncertainty – so being very clear about the ‘why’ is crucial,” he adds. Redefi ning traditional business models NFTs are creating opportunities for big brands, local artists, and everyday digital consumers alike. While ownership transactions traditionally depended on layers of middlemen, NFTs have completely changed the rules of ownership, acting as an authenticator and viable proof of ownership existing on a digital ledger or blockchain. “It is like a serial number that allows you to prove that you are the owner of the art piece,” says Sebastiao. In addition, artists can attach stip- ulations to an NFT that ensures they get some of the proceeds every time it is resold, meaning they benefit if their work increases in value. “Using the example of a DJ, the content owner would get paid directly for every play that happens. So, you’re essentially disintermediating players, such as Google and Facebook, and bringing more value directly to the artist,” adds Sebastiao. “This is a completely new business model that is not ad driven – it is a ‘direct to consumer’ business model.” Hill further cements the reliability of NFTs as ‘tokens of trust’, in which he reiterates that transactions recorded on blockchains cannot be changed and these smart contracts can be used to ensure that money and assets change hands and both parties honour their agreements. NFTs are also changing the ways companies are marketing and branding themselves to consumers, Sethis says, helping provide users with new experi- ences and reigniting brand awareness. “Brands need to start thinking seriously about their NFT strategy – consumers will then look beyond NFTs as ‘complicated’ technology and start enjoying and consuming them more,” she adds. u Mark Hill, partner, Charles Russell Speechlys’ Commercial u Amrita Sethi, an NFT artist based in Dubai u Jorge Sebastiao, CEO and co-founder of GBO42 AB/ Money October – November 2021 BY LARA ABOUELKHEIR u Asset class The crypto space is growing globally with regulatory policies being developed along the way as demand grows Experts at the 2021 AIM Summit discusses the future of digital assets and whether the UAE has what it takes to become the next global cryptocurrency hub DIGITAL ASSETS: FOOL’S GOLD OR THE FUTURE OF FINANCE? FEATURE/ ALTERNATIVE ASSETSarabianbusiness.com 43 / ALTERNATIVE ASSETS Q THE FACT THAT VIRTUAL ASSETS ARE IN THE HEADLINES DOESN’T MEAN IT’S NEW – IT MEANS THAT IT’S RISEN TO PROMINENCE BECAUSE OF INVESTOR INTEREST” 4,000 The number of cryptocurrencies in existence With cryptocurrency adoption in the Middle East reaching an all-time high, industry experts shares their insights on whether digital assets are simply a fool’s gold or potentially the future of finance. The experts speak “Necessity is the mother of invention,” says Terry Culver, director and senior executive officer of Matrix. “I’m struck by a common and fundamen- tal misconception about virtual assets….we often think about visual assets as fundamentally a tech- nological innovation. In truth, it’s really driven primarily by social and economic needs.” According to the Global Findex, the region experienced a 400 percent growth in alternative finance investments between 2013 and 2016. Culver reiterates that while work still needs to be done in terms of the technology and regula- tion, understanding the reasons behind this asset class’s substantial growth is fundamental. “Some of these reasons may reflect the fail- ures of the current financial system, the grow- ing income disparity across the world, and the absolute hunger by people in both mature and emerging economies that want to participate in the financial system,” he says. Offering a different perspective, Tone Vays, crypto trader and analyst, says: “If we put Bitcoin aside and we talk about everything else in the crypto space, such as Ethereum, I have always been a little sceptical about the rest. “While the space is continuing to grow and people continue to invest a lot, I think that it’s not as decentralised as they claim. Eventually, the world would look very similar to the current world, just with different people.” Sharing how the financial world has advanced beyond their initial doubts, Haydn Hammond, sales director at Invictus Capital, says: “Now we see JP Morgan beginning to offer some clients exposure to certain crypto funds and we’ve seen Morgan Stanley enter the realm. We’ve also seen some of the world’s largest asset managers, including Blackrock, come to the market and banks are transitioning over to the crypto space. The amount of advancements these players are bring- ing into the crypto space is going to be a substantial driver of price.” “The fact that virtual assets are in the headlines doesn’t mean it’s new – it means that it’s risen to prominence because of investor interest,” adds Culver. “In terms of if they are robust enough to be resilient, I think if you look at the way they’re developing and the amount of capital flowing into the space, these are promising signs.” The crypto space is growing glob- ally with regulatory policies being developed along the way as demand for crypto-related financial services grows. “If we look at whether it is becom- ing regulated in a way where consum- ers can be protected, the answer is yes. There’s a thoughtful and forward-look- ing framework that is setting the stan- dard for these policies,” Culver says. “I think regulation is going to continue, but I don’t think we should necessarily be afraid… in fact regula- tions will encourage more institutions to come in because they feel much safer in that environment,” adds Joel Dietz, founder of ArtWallet. With the UAE being a pioneer in terms of instituting regulations that are favourable to innovation and invest- ment, the panellists discuss the likeli- hood of the UAE being a contender as a global hub for cryptocurrency. “This is exactly the right place to be for our exchange and business… the policy framework is forward looking and global in nature…there’s also a community of well-educated finan- cial experts who are interested in this asset class and can help it grow over,” comments Culver. “I do think the opportunities are very good in this region, and a lot of people I know in the crypto space have moved out here,” Vays adds. u Tone Vays, Miami- based crypto trader, analyst and derivatives trader u Joel Dietz, founder of ArtWallet, a platform for storing and owning NFTs u Terry Culver, director of digital asset services platform Matrix Exchange 44 AB/ Money October – November 2021 FEATURE/ DIGITAL CURRENCIES BY LARA ABOUELKHEIR u Crypto world Governments have reacted differently to cryptocurrency trading Cryptocurrencies lack many of the basic traits that currencies must possess, says economist Nouriel Roubini THE WAR ON DIGITAL CURRENCIES arabianbusiness.com 45 / DIGITAL CURRENCIES Q IF SOMETHING IS VOLATILE AT 5 TO 10 PERCENT, IT CANNOT BE A CURRENCY… IT HAS TO HAVE A STABLE VALUE RELATIVE TO THE PRICE INDEX OF GOODS AND SERVICES” $62,030 The value of 1 bitcoin as of 19 October 2021 As digital currencies continue to face regula- tory pressures from major global economies, chief economist at Atlas Capital Team LP Nouriel Roubini argues against classifying bitcoin and other digital tokens as currencies during a panel discussion at the 2021 AIM Summit. “Cryptocurrencies are not currencies…they may have an asset value, but based on my defini- tion they are not currencies,” says Roubini, who is renowned for foreseeing the mortgage collapse that helped produce the 2008 financial crisis. Arguing that cryptocurrencies lack many of the basic traits currencies must possess, Roubini comments: “They are not a unit of account, scal- able means of payment, or a stable store of value.” “If something is volatile at 5 to 10 percent, it cannot be a currency… it has to have a stable value relative to the price index of goods and services,” he adds. As the values of bitcoin, ethereum and their lesser-known counterparts continue to fluctuate, investor interest continues to rise – as do security concerns for traditional currencies and the econ- omies built around them. A vocal critic of cryptocurrencies, Roubini states that cryptocurrency is not a basis for payment system, reiterating the impeding secu- rity concerns surrounding them, and stating: “It is only a play on a speculative asset bubble.” With that, central banks globally are warily eyeing the advancements of digital currencies, remaining hesitant to endorse them due to their volatility, speculative nature and lack of regula- tory oversight. Cryptocurrencies are currently not recognised as a legal tender by the Central Bank of the UAE (CBUAE). Roubini also shares his view on how bitcoin cannot be a hedge against inflation, stating: “If you want to add traditional hedges against inflation, you go to TIPS, inflation-linked bonds, gold and precious metals, and forms of real assets, such as real estate... There is a whole spectrum of assets that are low volatility and traditional stores of value against inflation.” Digital cash Gabriel Abed, the ambassador of Barbados to the UAE, founder and chairman of Abed Group, co-founder of fintech company Bitt, and a lead- ing authority on central bank digital currencies (CBDCs) also take part in the discussion. On his instigators behind establishing the Digi- tal Eastern Caribbean Dollar (DCash), a central bank backed digital currency in Barbados, Abed says: “The big impetus to inventing CBDCs came about when the tradability between bitcoin and the Barbados national dollar was prohib- ited by commercial banks and private institution. On one side, you had the regulators in the central bank saying they didn’t have a problem with that activity, on the other side, we had private institutions dictating the ability to have an event occur within that field.” In 2020, 65 central banks in advanced and emerging market and developing economies were surveyed, with 86 percent of central banks responding they were actively engaging in some form of CBDC work, accord- ing to the Bank for International Settle- ments (BIS) report from January 2021. In the next three years, central banks representing one-fifth of the world’s population are likely to issue a general purpose CBDC, with 21 percent of jurisdictions saying this is a possibil- ity, the BIS report found. Sixty percent of central banks said they’re unlikely to issue any type of CBDC in the short or medium term. A few countries have so far launched their own cryptocurrencies, including Venezuela, Estonia, Russia, Sweden and Japan. In July of this year, the CBUAE also announced its plan to issue its own digital currency as part of a broader 2023-2026 strategy, a plan that aims to help the UAE Central Bank grow into one of the largest in the world. “Ultimately, what we will end up seeing is a scenario where the mone- tary authorities around the world complete the process of deploying their central bank digital currency and then involve other regulators for activities that occur around trading payment gateways and accessing other currency types, like decen- tralised cryptocurrencies,” says Abed. “I expect to see a world in the future that is less human-based regulation, and more regulation based on code… we are entering a phase in which autonomous programmable money is becoming the next thing,” he adds. Abed also believes that as long as regulators continue to become more educated, better frameworks will be built to help support and integrate the adoption of cryptocurrencies into the mainstream environment. u Gabriel Abed, ambassador of Barbados to the UAE, founder and chairman of Abed Group u Nouriel Roubini, chief economist at Atlas Capital Team LP46 AB/Money October – November 2021 ANALYSIS / CRYPTOCURRENCYarabianbusiness.com 47 / CRYPTOCURRENCY Why cryptocurrency will change transactions for good The days of third parties taking a slice to handle payments are limited thanks to the blockchain, so believes Anthony Scaramucci, founder and managing partner of SkyBridge Capital BY ARABIAN BUSINESS STAFF Idon’t have to go to the bank anymore, I can do it all from my phone, I don’t have to even deposit the cheques at the teller anymore. Think of the greening of that, your grandparents, my grandparents, my parents, they were driving to the bank, burning gas to get there, they were waiting in line. The teller drove themselves to the bank, they heated the bank in the winter, they cooled the bank in the summer, and they’re all sitting in the bank to do their transactions. We’re now taking all that away and cryptocurrency, and the blockchain will be at the heart of what comes next – permissionless transactions. The hesitation around this is reminiscent to me as I remember the late 90s and I remember the internet boom. I remember people telling me with great skepticism that the internet wasn’t going to amount to very much. Even Bill Gates himself, who had a reverse course, said the internet was going to be a fad. It turned out that all these people were wrong. That didn’t mean that there weren’t booms and busts, things like ‘etoys’ and ‘epets’, all these nonsensical compa- nies went bankrupt. But, you saw the emergence of things like Google, the emergence of things like Amazon, and ultimately saw the transition of Apple Computer and what Apple Computer ultimately became. All of that came $2.2bn The size of the cryptocurrency market by 2026, according to research fi rm MarketsandMarkets48 AB/ Money October – November 2021 through the internet. Then you had the second wave with the social media companies. Once broadband expanded you had a lot more capabilities on the internet then you had prior. So to me, the cryptocurrency market is a lot like that. Many of these tokens and coins will be extinct, there are probably three to five coins that’ll make it, but there will be permission- less transaction activity across the world where you don’t need third parties. I want you to think about this philosophically. Marc Andreessen, a lot smarter than me, he worked on the Netscape browser, and he said that the crypto- currency market in the blockchain is way more revolutionary than what he was working on 25 years ago. And here’s why (and I’m going to get overly philosophical with you for a second). What I want you to think about is this, everything in our lives comes from a third party as it relates to our trust. I get a passport from a third party, the American government, I get a driver’s license from my state, and so your identity is being issued from the state. If you want to transact, you have a third party verifying the transactions. If I want to wire you money today, if we’re at the same bank we’ll switch it over to an account but there’s a bank doing it. Or, if you’re not at the same bank then we’ve got two banks in the game with us to make sure that the money transfers. But blockchain is going to enable us to trust each other even though we don’t know each other, we’ll be able to have this permissionless exchange. And, I will even take it one step further, you’ll be able to have an iden- tity that people will believe because it’s your fingerprint on the blockchain, that you, yourself will be issuing your own identity. If you stop and you think about it, and you think about it the way I just said it, you’re going to have another delayering of the economy. If you had asked me three years ago, I would have said “Hey, the block- chain is great but I don’t get the whole cryptocurrency thing.” And I got that wrong, I missed the first leg up. The good news is it’s very, very early. There’s only 2 percent saturation in the market. I’m a Bitcoin investor, and I’m a Bitcoin holder. I’m not a Bitcoin evangelist. I look at this with a rational scepticism, with some level of objec- tivity about where it’s scaling to. What I was missed is that we’ve created an $3bn The value of cryptocurrency transaction volumes on the BitOasis platform in the fi rst half of 2021 u The book The Ascent of Money by Niall Ferguson catalogues 5,000 years of the development of money in our lives ANALYSIS / CRYPTOCURRENCYarabianbusiness.com 49 / CRYPTOCURRENCY UAE MAKES THE MOVE The UAE is a likely contender to be a global hub for cryptocurrency as adoption of digital currencies skyrockets in the Middle East. electronic ledger that meets the criteria of money. If you read Niall Ferguson’s book, The Ascent of Money, and he cata- logues 5,000 years of the development of money in our lives, he realised that all money is a technology between us. If you think about cash, it is a piece of fabric, its 75 percent cotton, 25 percent line – but you’ll take this from me in exchange for goods and services. So what do we know about money? It’s always worth less than the goods and services that we’re transacting in, but what we know about it is a trusted network, the US dollar, over the hundreds of years of its develop- ment has become a trusted network of exchange. It is a ledger, I have these in my pocket, I’m going to hand them to you and vice versa, and that and that’s what we did with cryptocurrency, that’s what we did with Bitcoin. Bitcoin as a currency? Well it is scal- ing now and so you wouldn’t sell your Bitcoin today, but it will mature, and when it’s fully scaled then I think you’ll be more comfortable selling it. Let me give you a good example. If you purchased Amazon on its initial public offering on May 15, 1997, you put $1,000 into Amazon, and you’d have $21,140,000 today, however, you would have subjected yourself to eight periods of time where Amazon lost at least 50 percent once it lost 90 percent. Amazon.Bomb was on the cover of the Barron’s news weekly, it said that this internet retailer’s days were limited, it was over. But the guy that founded Amazon just shot himself into space after building his own rocket. This guy figured out that he was going to scale his thing and billions of people around the world were going to use it. Mark Zuckerberg figured that out with Facebook, Sergey Brin, Eric Schmidt and Larry Page, they figured it out at Google, and Bitcoin is figuring it out on its own. Bitcoin is decentralised, and it doesn’t have the corporate politics or the office suite, but it’s gotten to scale faster than anybody or anything. If the cryptocurrency market takes hold, as I predict, we’ve got a $2.5 tril- lion market now … better start paying attention to it. Q BITCOIN IS DECENTRALISED, AND IT DOESN’T HAVE THE CORPORATE POLITICS OR THE OFFICE SUITE, BUT IT’S GOTTEN TO SCALE FASTER THAN ANYBODY OR ANYTHING” u Anthony Scaramucci, founder and managing partner of SkyBridge Capital u Marc Andreessen, co-founder and general partner at the venture capital fi rm Andreessen HorowitzNext >