Tokenising assets, or the process of assigning a blockchain-based digital counterpart to assets like securities, has the potential to leapfrog the region’s nascent venture capital (VC) sector, according to Joseph Lubin, founder and CEO of New York-based Consensys and Swiss-based Ethereum, a cryptocurrency platform.

“It’s another leapfrog situation possibly with the advent of tokens - whether tokenised securities or funding assets or selling a utility token - as some sort of access to projects and scarce resources,” Lubin tells MEED at the opening of Consensys’ office in Dubai’s Design District, when the company also announced being appointed as Dubai’s blockhain city adviser.  “[Tokens] enable those projects to have money to build on top of, and it doesn’t matter where the money comes from, it can come from anywhere in the world.”

It is understood that Middle East and North Africa (Mena) significantly lags behind other regions in terms of venture capital, requiring billions of dollars in yearly investments to catch up with the level of wealth created through it in other regions like Europe.

According to Lubin, there is an opportunity for Dubai to build a hub focusing on blockchain technology by bringing in entrepreneurs and engineers, which could in turn attract and source capital anywhere in the world. “Traditional VC centres like Silicon Valley are now being challenged by blockchain technology,” he says.

Entry barriers, financial exclusion and job creation

In addition to attracting capital, the region can benefit from blockchain technology’s ability to lower entry barriers when building a new technology company.  The executive says companies like Ethereum, which provides a blockchain platform that enables software developers to deploy applications on the web in exchange for a value, has the ability to significantly lower entry barriers to building a new business. They can also help address  financial exclusion, which is extremely high in Mena, particularly outside the GCC states. “It used to cost $5m to build a technology start-up… now you can do it for $50,000 if you are really lean, and you can put something together over a few months,” Lubin explains.

According to the executive, software that helps establish an individual’s identity and reputation that run on a platform like Ethereum can help the world’s unbanked population access finance. “If you’re a young talented individual then you can learn this technology … do a little programme and deploy it on a public blockchain, which will cost you a couple of dollars, and suddenly your application is available globally and people can start paying to use that [application].”

Lubin says this process is much more cost-effective and straightforward especially in countries with high financial exclusion compared to the traditional process of establishing a company, which requires opening a bank account and renting software from web services providers.

Lubin adds that the technology also has the ability to boost job creation and incentivise them by enabling a more fluid movement of money across borders. Examples of such opportunities range from putting together a bounty for a language translation job to identifying and codifying images and picture. “You can set up little gigs and jobs where people anywhere in the world can get paid a little bit to look at pictures and identify numbers or words or identify faces in those pictures… work will be available for people.”

Attracting talent

Consensys will be working with US-based technology giant IBM,  Dubai’s primary blockchain adviser, in implementing the emirate’s Blockhain Strategy, which entails migrating all government transactions on a blockchain platform by 2020.

Lubin says they are keen to help build the expertise required by the strategy. It is understood the firm plans to offer incentives to some of its newly-hired blockchain engineers who recently graduated from its training academy in the US, to stay in their Dubai office.

Consensy also plans to introduce new courses and community engagement activities, which will be expanded to other countries like Egypt, Jordan and India in order to develop blockchain expertise in the region. They will also potentially introduce a master in business administration (MBA) case competition, similar to those adopted by business schools in the US, to “incentivise entrepreneurs to come and stay here because we can run their projects out of this office.”

Dispelling pessimism

The CEO acknowledges the pessimism surrounding cryptocurrencies but defends their strong potential in fostering efficiency and security due to the underlying architecture of its shared database technology.

“A system that cannot be cheated or improperly manipulated is a great infrastructure to build  a shared information system on,” Lubin tells MEED. “Up to this point companies and governments have had to build [information] infrastructure that is siloed in nature where one company’s information system generally doesn’t talk well with another company’s information system.”

The executive predicts blockchain will enable a massive change in the way information systems are designed leading companies to get together to form a common supply chain or other types of value chains. “It will be a little bit rocky to get there but there are some use cases that are very exciting to a lot of people,” Lubin says, citing new applications such as using bitcoin as a store of value, tokenised assets, smart and utility tokens, and tokens that are backed by assets such as gold. “There are very large financial entities interested in putting up capital to serve as the backing for tokens, and those will be price stable tokens that would enable a whole new class of applications.”