Australian fintech startups are throwing their support behind a proposal to create a government-endorsed Australian cryptocurrency called DAD, or the Digital Australian Dollar.
Led by FinTech Australia, a group of startups have submitted cases to the Reserve Bank of Australia and the federal Treasury that highlight the potential benefits of a government-back digital currency.
The DAD cryptocurrency would be tied to the Australian dollar and sit alongside the likes of Bitcoin, Litecoin and Ethereum, as a safe, reliable and government-supported alternative to other digital currencies.
The three Australian fintechs to present these use cases were cross-border cryptocurrency exchange FlashFX, blockchain-based agricultural supply-chain solution AgriDigital, and Othera, a startup using the blockchain to digitally facilitate loan contracts.
This comes at a time when initial coin offerings (ICOs) and cryptocurrency trading has been the subject of intense scrutiny from the political and corporate sphere, with China recently outlawing ICOs amid fears of fraud and money laundering, in the same month that JP Morgan’s chief called bitcoin a “fraud.”
The Australian Securities and Investments Commission has taken a more collaborative approach to the space, issuing guidelines for those looking to raise funds or invest through an ICO. While ASIC commissioner John Price warned consumers of the “highly speculative investments”, the guidelines introduce what some ecosystem players see as much-needed regulation of the “wild west” of cryptocurrency fundraising.
“Given recent moves by some nations to ban ICOs and shut down cryptocurrency exchanges, people are starting to look toward Australia because it’s clear our regulators are willing to work with the community to develop balanced regulatory solutions,” FinTech Australia’s Danielle Szetho tells StartupSmart.
“We see these use cases as the start of a dialogue with the RBA, and we hope to test these concepts under the watchful eye of our regulators,” she says.
“That way we’ll be able to actually identify and quantify what the benefits of a DAD might actually be, rather than just hypothesising.”
The federal government has already expressed a willingness to include digital currencies in the future of Australia’s financial landscape, recently introducing legislation that would remove double taxation on digital currencies. Treasurer Scott Morrison said the proposed changes, which would see digital currency treated as regular physical currency, would “further cement Australia’s reputation as a global fintech centre”.
“Bitcoin is just its first iteration”
Nicolas Steiger is chief enabling officer at FlashFX, and helped developed the use-cases presented to the RBA. He says that having a government-backed cryptocurrency would help develop legitimacy and regulation in a space that has been subject to intense international scrutiny.
FlashFX facilitates cross-border international payments by issuing a digital representation of the Australian dollar. As the first company in Australia to be granted a financial services licence to transfer money internationally via the blockchain, Steiger says the image of blockchain in Australia still remains shrouded in distrust and misunderstanding.
“It has to do with trust — everyone thinks blockchain is [the same as] Bitcoin, but Bitcoin is just its first iteration,” he says.
“As part of the working group we found there were so many different use cases [for Bitcoin-based currency] and it’s [about]putting a framework around it to build trust with the public.”
Despite recent moves by the government to regulate and support the cryptocurrency space — with parliamentarians even putting political differences aside to support blockchain initiatives — Steiger says the Australian market is still a behind its Asia-Pacific counterparts.
“If you look at the digital economy that’s developed in China, five to ten years ago everything was paper money, and now everything is Alipay and digital,” he says.
“I was in Shanghai on a blockchain mission when they were closing down these Bitcoin exchanges, but after talking to some of these Chinese companies [I learned] it’s all about blockchain, not bitcoin.”
While the Chinese government is placing restrictions on cryptocurrency and ICOs, Steiger says “people get confused” and think this is synonymous with China outlawing all applications built on the blockchain.
Instead, Steiger says the Chinese government is “cracking down and wants to have better rules” around blockchain and crpytocurrencies, rather than aiming to eradicate them altogether.
“I have no doubt that China, among other countries, will be one of the early adopters who will issue a digital Yuan where they have more control and visibility on how money is used,” he observes.
“I see that as a good example of why Australia should use one.”
Steiger also believes there are cases where the DAD could be used for social good, introducing the concept of “programmable money” where digital currency could be used towards necessities, such as food, and restricted from being used for goods such as alcohol.
These use cases were presented to the RBA and the federal Treasury in June this year, and FinTech Australia says talks about the potential digital currency are ongoing.