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We continue with our survey of crypto and digital currency initiatives from around the globe, all of which are officially sanctioned to enhance national competitive advantage (in the event crypto overtakes the US dollar as the global reserve currency). It is the cumulative adoption rate of state-sanctioned crypto and digital currency legalization and regulation that will propel this innovative system for value exchange as a global currency standard.
In previous posts, we provided an analysis of crypto and digital currency initiatives in Colombia, China, El Salvador, Panama, Ukraine, India, Argentina, and Russia. We also provided an analysis of the major central bank digital currency (CBDC) initiative in the U.S., Project Hamilton, which is a technical collaboration between the Federal Reserve Bank of Boston and The MIT Digital Currency Initiative.
The next country, Vietnam, ranks #1 in the primary research report on which we have based our list of countries to survey: the 2nd iteration in October 2021 of Chainalysis’ Global Crypto Adoption Index. Vietnam is also the home to the blockchain-gaming site Axie Infinity, which hit recently as part of the $600 Ronin Network Crypto Heist attributed to North Korea-affiliated Lazarus Group.
While the Vietnamese government announced a National Enterprise Blockchain Platform in 2020, the real story of the recent growth of crypto and blockchain adoption in the country is more “bottom-up” from individual users and a dynamic startup ecosystem.
Following is the methodology used for the 2021 Global Crypto Adoption Index, in which Vietnam ranked as the #1 country with “the greatest cryptocurrency adoption by ordinary people [with a] focus on use cases related to transactions and individual savings, rather than trading and speculation:”
“The Chainalysis’ 2021 Global Crypto Adoption Index” aims to provide an objective measure of which countries have the highest levels of cryptocurrency adoption. One way to do that would be to simply rank countries by transaction volume. However, that would only favor countries with high levels of professional and institutional cryptocurrency adoption, as those market segments move the largest sums of cryptocurrency. While the professional and institutional markets are crucial, we want to highlight the countries with the greatest cryptocurrency adoption by ordinary people, and focus on use cases related to transactions and individual savings, rather than trading and speculation.”
The Global Crypto Adoption Index is made up of three metrics, which we’ll explain in detail below. We rank all 154 countries according to each of those three metrics, take the geometric mean of each country’s ranking in all three, and then normalize that final number on a scale of 0 to 1 to give every country a score that determines the overall rankings. The closer the country’s final score is to 1, the higher the rank.
On-chain cryptocurrency value received, weighted by purchasing power parity (PPP) per capita: The goal of this metric is to rank each country by total cryptocurrency activity, but weight the rankings to favor countries where that amount is more significant based on the wealth of the average person and value of money generally within the country. We calculate the metric by estimating the total cryptocurrency received by that country and weighting the on-chain value based on PPP per capita, which is a measure of the country’s wealth per resident. The higher the ratio of on-chain value received to PPP per capita, the higher the ranking, meaning that if two countries had equal cryptocurrency value received, the country with the lower PPP per capita would rank ahead.
On-chain retail value received, weighted by PPP per capita: The goal of this metric is to measure the activity of non-professional, individual cryptocurrency users, based on how much cryptocurrency they’re transacting relative to the wealth of the average person. We approximate individuals’ cryptocurrency activity by measuring the amount of cryptocurrency moved in retail transactions, which we designate as any transaction for under $10,000 USD worth of cryptocurrency. We then rank each country according to this metric but weight it to favor countries with a lower PPP per capita.
Peer-to-peer (P2P) exchange trade volume, weighted by PPP per capita and number of internet users: P2P trade volume makes up a significant percentage of all cryptocurrency activity, especially in emerging markets. For this index, we rank countries by their P2P trade volume and weight it to favor countries with lower PPP per capita and fewer internet users, the goal being to highlight countries where more residents are putting a larger share of their overall wealth into P2P cryptocurrency transactions. (1)
Source: The Chainalysis 2021 Geography of Cryptocurrency Report
Some insights on Vietnam garnered from the Chainalysis Index:
“Several countries in emerging markets, including Kenya, Nigeria, Vietnam, and Venezuela rank high on our index in large part because they have huge transaction volumes on peer-to-peer (P2P) platforms when adjusted for PPP per capita and internet-using population. Our interviews with experts in these countries revealed that many residents use P2P cryptocurrency exchanges as their primary on-ramp into cryptocurrency, often because they don’t have access to centralized exchanges. Knowing that it’s no surprise that regions with many emergent markets account for a huge portion of web traffic to P2P services’ websites.
Central & Southern Asia and Oceania (CSAO) is the fourth largest cryptocurrency market we study with $572.5 billion in value received between July 2020 and June 2021, which represents 14% of global transaction value during the time period. CSAO’s transaction activity grew by 706% compared to last year in terms of raw value, and its share of global cryptocurrency activity grew by 2%, making CSAO the third-fastest growing region behind the Middle East and Central, Northern, Western Europe.
But even more impressive is the region’s grassroots adoption. CSAO contains the top three countries in our Global Crypto Adoption Index, with Vietnam at number one, India at two, and Pakistan at three. Thailand also placed 12th and the Philippines 15th. Below, we’ll analyze key trends in the region and examine the factors that have powered cryptocurrency adoption in the region.
Binh Nguyen, the Coordinator of the Fintech-Crypto Hub and Senior Program Manager of Finance at the Royal Melbourne Institute of Technology Vietnam (RMIT), who has studied the local cryptocurrency market extensively, characterizes a lot of the cryptocurrency activity he sees as akin to gambling. ‘Most forms of gambling are illegal but quite popular in Vietnam, and I think that’s one reason people here are willing to invest in high volatility assets like cryptocurrency,’ said Binh.
According to Binh, while there’s a technologically savvy contingent of the Vietnamese cryptocurrency community interested in changing the future of money and building innovative projects, including in DeFi, many of those investing in cryptocurrency don’t have high financial literacy or experience managing risk. ‘Low financial literacy is a driver of excessive risk-taking and may create lucky financial rewards for crypto-investors during a bull market. Lots of sophisticated investors may be waiting five to ten years and missing out.’
While he characterized Vietnam’s cryptocurrency market as retail-driven, Binh didn’t think that, at the moment, many in the country were using cryptocurrency to preserve their savings for the long term or protect against inflation, noting that there’s relatively low cryptocurrency adoption in poor and remote areas. ‘Young people here don’t have many options for investing. We don’t have a well-developed financial market for ETFs, options, or futures, and the stock brokerage penetration rate is lower than 5% in Vietnam.’ said Binh. ‘If you have $5,000 to invest, there aren’t many other places to put it.’ Binh expressed hope that with clearer regulatory direction for the government, Vietnam’s cryptocurrency market could mature. To that end, he hopes that regulators will soon provide clearer guidance on whether cryptocurrencies are property or not, and advocates for a regulatory sandbox for cryptocurrency projects.
The differences between Central and Southern Asia’s biggest markets may reflect the fact that these countries are at different stages of cryptocurrency market development. Many first look to cryptocurrency in search of quick returns on speculative trading of a variety of investments, which can be done on centralized services and conventional P2P platforms, as appears to be the predominant use case in Vietnam…” (1)
Axie Infinity is based in Vietnam and, according to a May 2022 Fortune article, was a driving force in the size and scale of crypto and blockchain adoption in the country:
“In 2018, Norwegian game developer Aleksander Larsen had to look up where Vietnam was when coder Trung Nguyen asked Larsen to join his Ho Chi Minh City-based startup. Nguyen wanted Larsen to come work on his new project, a blockchain game called Axie Infinity.
Larsen’s bet has paid off in two ways: Axie Infinity has exploded in popularity, becoming the world’s hottest blockchain game. And Vietnam, which generates the majority of its GDP from agriculture and exports like textiles, has blossomed into a surprise hotspot for crypto startups, birthing firms eager to ride on Axie Infinity’s lucrative coattails. “[Axie Infinity] became the first crypto-native really successful game,” says Larsen. “We basically shaped the entire industry in our image.
Since Axie Infinity became one of the world’s most valuable crypto projects last year, at least seven blockchain games have launched in Vietnam, attracting millions of dollars to the country from foreign investors. Some of the new games, such as My Defi Pet and MeebMaster, appear to be almost direct knockoffs of Axie Infinity. Daniel Nguyen, the CEO of Vietnam-based matching game HeroVerse, told crypto outlet BSC that he wanted to mimic Axie Infinity’s approach “exactly” when building his game.” (4)
Since Vietnam’s #1 ranking in the 2021 Chainalyis Index, that same developer activity and grassroots activity spawned by Axie Infinity may be in jeopardy, due to a series of impactful events in the crypto/blockchain ecosystem in the country since October 2021:
The Ronin DeFi Network Hack and Blockchain Analysis Techniques for Attribution: A specific attribution has emerged around the giant $618 million hack in March [2022] of the Ronin Network, in which “hackers [stole] more than $600 million worth of Ethereum (173,600 ETH) and $25.5 million of US dollar-pegged stablecoin USDC, making it one of the largest decentralized finance (DeFi) hacks to date. The company, which is tied to the popular blockchain game Axie Infinity, said in a Substack post that they suffered a security breach on March 23. Sky Mavis, a blockchain gaming company, built and controls the Axie Infinity game.” (1) Axie Infinity was built on a bridge to the Ronin Network.
In April, the U.S. Treasury attributed The Lazarus Group (also known as Unit 180 or APT35) to the Ronin Network heist. According to ZDnet, “Lazarus is among the most prolific and sophisticated of the hacking groups with links to North Korea. The group was responsible for the destructive wiper attack on Sony Pictures Entertainment in 2014.” (2) ZDnet has also reported that the crypto mixer Blender was sanctioned by US Treasury for involvement in the Ronin theft: The United States Treasury has hit cryptocurrency mixing service Blender.io with sanctions, preventing transactions with US persons, off the back of it providing services for the attackers that…from the Ronin sidechain in March. After the attack, Blender was used to process $20.5 million.
Treasury added that Blender was also involved in laundering for Russian-linked ransomware groups including Trickbot, Conti, Ryuk, Sodinokibi, and Gandcrab. ‘Blender.io is a virtual currency mixer that operates on the Bitcoin blockchain and indiscriminately facilitates illicit transactions by obfuscating their origin, destination, and counterparties. Blender receives a variety of transactions and mixes them together before transmitting them to their ultimate destinations,’ Treasury said. ‘While the purported purpose is to increase privacy, mixers like Blender are commonly used by illicit actors.’ (3)
In June Axie Infinity’s announced they plan to re-open the Ronin Bridge: “Sky Mavis, the developer behind the play-to-earn video game Axie Infinity re-opened the Ronin bridge that fell victim to a $600 million hack in March.
The Ronin bridge, which was used by players to transfer assets between the Ronin chain and the Ethereum network, was re-open on June 28th, ‘with all user funds returned,’ according to the latest community update. The team also said that a hard fork will be required for the re-launch of the bridge, which means that all node operators will be required to update their software. Node operators that act as validators on the network have already been informed what steps they need to take, whereas the non-validator nodes will need to follow specific instructions shared by the developers.
The Ronin bridge exploit at the end of March [2021] was one of the largest in the world of crypto…the attacker reportedly used stolen private keys to sign transactions from five of the nine validator nodes on the network, including four of Sky Mavis’ own validators.”
Axie Infinity CEO Denies Accusation of Insider Trading: “Trung Nguyen – Co-Founder and CEO of Axie Infinity – said the accusations against him of being engaged in insider trading are “baseless and false.” However, he admitted transferring $3 million worth of AXS to “ensure that short-sellers would not be able to front-run the news.”
In March this year, Ronin Bridge – an Ethereum sidechain built for the popular blockchain-based game Axie Infinity – became the victim of one of the largest cryptocurrency hacks ever. Bad actors breached its security and drained over 173,000 ETH. The assets equaled more than $600 million at the time. The attack quickly grabbed society’s attention, while numerous agencies carried out investigations to find out who stood behind it. The Federal Bureau of Investigation (FBI) estimated that the perpetrator is the notorious North Korean hacking group – the Lazarus Group. Despite the multi-million theft, Axie Infinity’s team promised to reimburse affected clients. Last month, Ronin Bridge restarted its operations with all user funds returned.
And when all seemed like a bad memory from the crypto’s past, a recent coverage by Bloomberg accused Trung Nguyen – Chief Executive Officer of Axie Infinity – of moving $3 million worth of AXS from the platform to Binance hours before the incident.”
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We are also in the habit of searching the OODA Loop News Brief database when surveying the crypto and digital currency in each country. This post was of interest and worth reposting here, as it is an interesting hybrid of crypto and malware activity by way of non-state actors:
Vietnamese State Hackers Deploy Coin Miners to Victims: According to a report released by Microsoft, Vietnamese state hackers have been deploying cryptocurrency mining malware to turn a profit off of the networks of organizations they are spying on. One group, in particular, was observed using this tactic, APT32. This group has been associated with several sophisticated cyber espionage campaigns targeting the Chinese government.
Over the past summer, APT32 deployed Monero coin minors in attacks on a diverse group of industries, including those in both the public and private sectors. The distribution of the coin minors is, according to Microsoft, either a way to generate extra revenue or a detection evasion attempt. The coin minors allowed for the threat actor group to mask its nefarious activities behind a larger and more potent threat. Due to the fact that this particular APT group tends to remain on networks for a long period of time, blending in to avoid detection is especially important.
For those who were intrigued by the Chainalysis Index Methodology, this section about how they eliminated a fourth previously used metric and other insights is of note:
The biggest change to our methodology this year was the elimination of a fourth metric that contributed to each country’s overall ranking in 2020: Number of deposits by country weighted by number of internet users. We initially used this as a metric to determine which countries’ residents are carrying out the most cryptocurrency transactions, as this would capture both the number of individuals using cryptocurrency and boost countries whose residents are carrying out more transactions per user. However, while cryptocurrency deposits to centralized services like exchanges show up on-chain, any transactions within those services, such as trades within an exchange, aren’t captured on-chain, and only show up in those services’ order books, which we have limited or even no access to in some cases.
This isn’t the case for DeFi though. Transactions carried out by DeFi protocol users all show up on-chain, as no centralized service ever takes custody of users’ assets. That skewed our rankings toward countries with comparatively more DeFi users. Therefore, after reviewing the rankings both with and without this component, we decided to eliminate it. We also decided to create a new DeFi Adoption Index, which will be available in the coming weeks. We’re confident in our index methodology and the modifications we made to it this year, though as with any standardized measure of regional economic activity, there are limitations. Since we rely on web traffic data, usage of VPNs and other products that mask online activity would compromise our ability to accurately assign activity to a country. However, our index takes into account hundreds of millions of transactions, so VPN usage would need to be quite widespread in order to meaningfully affect the data. Experts we spoke to agreed that the index matched their perception of the cryptocurrency market, giving us more confidence in the methodology. We look forward to continuing to tweak the index methodology to ensure that our rankings accommodate evolutions in the market and get more accurate over time. (1)
It should go without saying that tracking threats are critical to inform your actions. This includes reading our OODA Daily Pulse, which will give you insights into the nature of the threat and risks to business operations.
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About the Author
Daniel Pereira is research director at OODA. He is a foresight strategist, creative technologist, and an information communication technology (ICT) and digital media researcher with 20+ years of experience directing public/private partnerships and strategic innovation initiatives.
Informing your decisions with actionable intelligence
Informing your decisions with actionable intelligence