How sovereign monetary authorities are acquiring battle-tested blockchain rails at distressed valuations — and why Israel should be paying attention

There is an old adage in finance: never let a good crisis go to waste. Central banks, those stately custodians of monetary orthodoxy, appear to have taken this maxim to heart. Across the globe, sovereign monetary authorities are quietly acquiring the plumbing of the cryptocurrency ecosystem — the custody solutions, the settlement protocols, the tokenisation platforms — at valuations that would make a vulture fund blush. They are picking up battle-tested infrastructure that the private sector built, refined, and then, in its characteristically manic-depressive fashion, abandoned.

The scale of the abandonment is staggering. Between November 2021 and the end of 2022, the global crypto market capitalisation collapsed from $3 trillion to $800 billion — $2.2 trillion in value destroyed in barely a year. The BIS calculates that over $1.8 trillion dissolved across the Terra/Luna and FTX episodes alone. Celsius, which managed over $20 billion in client assets, filed for bankruptcy with a $1.2 billion balance-sheet deficit. Venture capital investment in crypto firms plummeted from $32 billion in 2021 to under $10 billion by 2023. But the infrastructure — the distributed ledger technology, the smart contract architectures, the cross-border payment rails — survived intact. It is rather like a property crash that destroys the paper wealth of speculators while leaving perfectly serviceable buildings standing. Central banks are now walking through the wreckage with chequebooks, picking up keys to buildings whose construction costs they never bore.

The evidence is not circumstantial; it is architectural. The BIS’s flagship mBridge project — a cross-border CBDC settlement platform involving China, Hong Kong, Thailand, and the UAE — is built on a blockchain that is fully compatible with the Ethereum Virtual Machine, the execution environment created by Vitalik Buterin’s open-source project and refined by billions in venture capital. Its smart contracts are written in Solidity, Ethereum’s programming language. Its original consensus mechanism, HotStuff , was developed by VMware Research with academic collaborators from Cornell and Duke before being quietly replaced by a Chinese-designed alternative. The entire Ethereum ecosystem’s tooling — the auditing frameworks, the developer libraries, the security protocols — can plug directly into........

© The Times of Israel (Blogs)