Cryptocurrency Frontier

By Amy McLellan

Last summer, unnoticed by many, a mass migration started. But it wasn’t people or animals on the move, rather thousands of high-powered computers. Deployed to “mine” for cryptocurrencies, the machines had to be evacuated from mainland China after the Beijing government announced a crackdown on bitcoin trading and mining.

The Chinese pronouncement triggered a cryptocurrency exodus, with many machines moved to Kazakhstan (a destination that has since fallen out of favor with some crypto-miners due to unstable power supplies), while others headed to North America. Canada’s FedNav was among the shippers who complemented their normal commodity and breakbulk cargoes with powerful computer servers, in this case on behalf of New York-listed BIT Mining. The Hong Kong technology company is building out a large facility in Ohio, where it conducts self-mining operations and hosts third-party miners.

As with other industries that are reliant on computer hardware, crypto-miners have been hit by a computing hardware and component supply-crunch, which is why it was important for these companies to extract their machines from China. BIT Mining CEO Xianfeng Yang said the company is making progress in its buildout and in securing mining machines, “despite ongoing industrywide supply-side constraints.” FedNav declined to comment on the shipments of the servers, with a spokesperson stressing all the firm’s attention is currently focused on the safety of its people and complying with all sanctions requirements.

China’s crypto-ban pulled the rug out from what had been a booming industry. There was much speculation about China’s motivations. Was it down to concerns about financial stability? The unsustainable energy consumption? To curtail financial crime? To prevent capital flight from its markets? Or to protect its own ambitions for the digital yuan? Whatever the real reason, last year’s ban certainly highlighted that crypto is still very much an emerging industry that still carries a certain amount of political risk for investors and users – what analysts at Deloitte call a “frontier.”


Trust Issues on the Frontier

These new digital currencies only emerged in 2009, and the early years were marked with a certain amount of scandal, with bitcoin – and the many other cryptocurrencies that now exist – too often associated with fraud, money laundering and other criminal activities. Last year, the U.S. Department of Justice seized US$2.3 million worth of cryptocurrency from the DarkSide ransomware operators responsible for the attack on Colonial Pipeline.

It certainly doesn’t help that there’s some suspicion that cryptocurrencies are being used by Russians to evade the sanctions imposed following the invasion of Ukraine. “We have taken steps to clearly signal to all those who are exchanging, transacting, offering services in relation to crypto assets that they are being accomplices to circumvent sanctions,” said Christine Lagarde, president of the European Central Bank, after a sharp increase in roubles being used to buy bitcoin and other virtual currencies.

Russia has said it is considering accepting Bitcoin as payment for its oil and gas exports in a bid to keep income flowing to its stricken economy and, at the time of writing, large crypto exchanges, such as Binance, were still handling transactions in Russia. Yet it’s also worth pointing out that people around the world have donated tens of millions of dollars’ worth of cryptocurrency to help the Ukrainian government and people in their fight for their country, demonstrating how this relatively new financial infrastructure enables speedy cross-border transactions.


Corporates Still Wary

Given its decentralized and unregulated nature, it’s hard to estimate how much of the world’s wealth is held in crypto, but there’s no doubt it is big and getting bigger. Even so, this is still very much a fringe payment option that few corporates have yet to plan for, despite there being some clear efficiency gains. In late 2020, it was estimated that more than 2,300 companies in the U.S. were able to accept bitcoin as a form of payment, but the list of florists, coffeehouses, massage parlors and small law firms suggests the currency has some way to go before it breaks into the large corporates space.

“Companies venturing to use crypto in their businesses should have two things: a clear understanding of why they are undertaking that action and a list of the many questions they should consider,” said analysts at Deloitte. The corporate benefits include enabling access to new capital and liquidity pools through traditional investments that have been tokenized, facilitating real-time and accurate revenue-sharing and enhancing transparency to aid back-office reconciliation. Crypto payments can also enhance a host of more traditional Treasury activities, such as simple, real-time and secure money transfers, strengthen control over the capital of the enterprise and managing the risks and opportunities of engaging in digital investments.

What’s more, crypto may serve as an effective alternative or balancing asset to cash, which may depreciate over time due to inflation. This is particularly pertinent now, given fears about hyperinflation and asset appropriation as a result of the Ukraine war. Could this tempt more people to hold some of their assets in a digital wallet? Certainly some cryptocurrencies, such as bitcoin, have performed very well, with some individuals making their fortunes through astute investments, but there has also been dramatic volatility, during which digital fortunes have been lost. For corporations engaged in global trade across multiple jurisdictions, there could be some advantage here – if their concerns about security, reputation and stability can be overcome.


Too New, Too Volatile

Shippers and contractors contacted for this article had not yet enabled crypto-payments, nor had any intention of doing so in the near to medium term.

“We don’t see cryptocurrencies as a viable form of payment at our company,” said a spokesperson for Jumbo, the Dutch heavy-lift maritime specialist. “Jumbo Shipping has never done this in the past and has no plans on doing so in the foreseeable future. The unstable value of cryptocurrencies does not provide an advantage for our business.”

This was echoed by others contacted for this article, with the Russia-Ukraine war making an uneasy backdrop to any talk of international cryptocurrency payments. Blockchain – the distributed ledger technology that underpins cryptocurrencies – has been gaining ground, with container shipping taking a lead over other shipping segments because of its utility in tracking cargo or facilitating document sharing, but companies remain wary of crypto, particularly given that, as with any disruptive technology, there are still many operational issues yet to iron out.

“Crypto can be very volatile, so I can’t see many businesses taking a risk at this moment in time, and we haven’t seen any appetite from our client base to pay in crypto,” said Louis Perrin, director of Hemisphere Freight Services. “Another barrier is if you get paid in crypto you still need to have USD, GBP or EUR to pay your own supplier invoices, so unless you are cash rich it may not be feasible. In five years’ time, this may change so it makes sense for companies to keep watching and learning.”

Matthew Le Merle, managing partner of Blockchain Coinvestors, which invests in blockchain-based businesses, said companies and their advisors know that digital monies, commodities and assets are part of their future but have not really got on board yet. “It’s no different from us knowing that digital education and healthcare are the future but not using them now,” Le Merle said. “It is a knowing, doing gap.”

“We are now entering a phase in which all of the world’s money, commodities and assets will become digital and so all of the world’s supply companies will have to upgrade their infrastructure to accept digital transactions,” he said. “But whether those are central bank digital currencies (CBDC) and stablecoins, or conversely decentralized, distributed cryptocurrencies, only time will tell. Today, most enterprises can’t use cryptocurrencies.”


Future Focus

Change is coming, however. One signal of where this might be leading is the role of governments and central banks. On March 9, the Biden administration released an Executive Order calling for studies and plans over the next 180 days to address the risks – and the innovation opportunities – resulting from the growth of digital assets and blockchain technology. This includes a report on the potential impact of a U.S. central bank digital currency, which has been given the “highest urgency.”

Analysts at PwC admitted some surprise at the EO for its “relatively warm stance toward responsible innovation in the digital asset space,” although they noted there would now be a lengthy process towards a more comprehensive digital asset regulatory framework, which could prove protracted as any plans for a CBDC, and regulatory framework would likely require Congressional authorization. The clock, the analysts said, “is now (slowly) ticking.”

China, India and Russia are among the big economies with CBDC ambitions and the international infrastructure to facilitate global crypto payments is gradually being built out, through initiatives such as Project Dunbar, led by the BIS, which has developed two prototypes for a shared platform to enable international settlements using digital currencies issued by multiple central banks.

For now, this remains a horizon technology for most companies. Given the fast pace of change of disruptive technologies, however, it’s likely that those shipping and project cargo players already watching, analyzing and preparing for that change will be best placed to exploit its advantages – and avoid its pitfalls – when it does finally arrive.  


Freelance journalist Amy McLellan has been reporting on the highs and lows of the upstream oil and gas and maritime industries for more than 20 years.

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