Time for Nepal to enter Web3

Nepal got a radically new and young government this week, and among the many choices it has to make will be to decide on embracing bleeding edge technology like cryptocurrency and the blockchain.

All crypto activities are currently banned by Nepal Rastra Bank (NRB), and violations can be punished by confiscation of bought goods, fines of three times more, and prison time. 

“This ban comes from ignorance, not strategy,” says blockchain expert Bijay Bogati, Head of Engineering at Mandarix IT services. “Nobody at the policy-making level in Nepal really understands the technology.”

Bogati is also building the Himalayan Art Council’s art certification blockchain, which tracks and archives the transaction history of traditional Paubha paintings as non-fungible assets, ensuring the original artists are credited and paid if the artwork changes hands.  

This group of technology, often called Web3, is not a fringe movement anymore. Some governments recognise that digital assets have to be integrated into their economies, although there are also those who say it is a corrupt bubble. 

Donald Trump announced a strategic bitcoin reserve for the US government a year ago. El Salvador has adopted bitcoin as legal tender, and even has ATMs for conversion. France recognises it. 

Bhutan uses its surplus hydroelectricity to mine bitcoin at its Gedu data center and has used earnings to invest in its Gelephu Mindfulness City project, boost civilservant salaries, and curb the brain drain. 

In this month’s GenZ-inspired election, Nepal’s voters replaced the older generation of leaders with mostly millennials who are more fluent with new technologies. 

The tech sector has grown with the country exporting nearly $1 billion worth of software products last year. This is seen by some as the perfect timing to harness the technology in the national interest. 

NEPAL’S BAN

Central banks and financial regulators are averse to switching to technology, and NRB fears crypto transactions could foster money laundering, terrorism financing, capital flight and tax evasion. 

Critics say this is hypocritical, like a pot calling the kettle black, because it ignores the fact that Nepal’s centralised financial regulator has itself not been able to control rampant corruption, money laundering and tax malpractice.

The NRB justifies its ban by saying that people were getting scammed or were at risk of losing money when influenced to bet on digital assets. Others reject this reasoning, saying it dictates how people spend their money. 

A real concern for Nepal in recognising crypto would be in maintaining ties with bodies like the International Monetary Fund (IMF) and other international creditors, just as the backlash some countries have faced. 

In Nepal, it is the cybercrime department of the Central Investigation Bureau that invigilates, and it has made a handful of arrests since 2017. 

But ambiguous laws and a lack of knowhow about the technology means enforcement has not been easy. Says Bogati: “Crypto persists in Nepal. The ban just pushes activity underground.” 

BHUTAN’S PLAN

Bhutan started mining Bitcoin in 2019, when the price for one BTC was $5,000 -- it is now over $70,000. The logic was simple: the country had excess hydroelectricity which was used to power supercomputers to mine bitcoin. 

The energy was renewable and fit in with Bhutan’s sustainability commitments. The country’s cold climate meant less heat was required to cool the machines. 

It was state-owned entities doing the mining. Crypto was not something the average Bhutani used every day, and the country has accumulated over 13,000 BTC valued at up to $1.4 billion — 40% of its GDP. It has sold some BTC and used it to raise civil servant salaries and try to reverse youth outmigration. 

Nepal also has surplus clean energy, especially in the monsoon, and also has natural cooling in the mountains. It also needs money. Every terawatt-hour (TWh) of electricity is worth roughly $84.8 million in gross mining revenue at current bitcoin prices. Nepal’s current surplus of about 3TWh would translate into $254 million a year. Selling the same amount of electricity to India earns Nepal only $56 million a year. In the near term Nepal’s surplus hydropower is expected to reach 14TWh, generating about $1.2 billion a year — almost 3% of its GDP. 

Currently, Nepal does not have surplus power in winter, the hardware costs to set up the mining operation would be huge, and the value of bitcoin is volatile. 

Bhutan also made over 100 cryptocurrencies usable for tourists for flights, hotels, and restaurants. After adopting bitcoin as legal tender, tourism to El Salvador surged 22%. Nepal is already a major tourism destination, and adding crypto infrastructure would attract global high-income remote workers who deal in crypto. 

Experts say there is always the risk of putting all the eggs in the bitcoin basket. It is a speculative asset, and could crash, governments may suddenly outlaw it citing its heavy energy use. Breakthroughs in quantum computing might break its cryptographic basis. 

But in the 15 plus years it has been active, bitcoin has survived crashes and regulatory and technological attacks. 

Perhaps as important as the money is the message that Nepal would send out about being open to innovation and investment, providing its engineers jobs within Nepal, and signaling its tech ambitions.

For a country so dependent on remittance, using crypto would also save about 4% on transaction fees, as is happening in the Philippines now. The estimated 5 million Nepalis overseas send home $11 billion a year, although the unofficial amount is said to be much higher.

All this could be points to ponder for the youth-led RSP when it forms a government this week. It is especially relevant in addressing the party’s main mandate of reducing graft, and could be sold to international creditors like the World Bank and the IMF as a good investment when most capital expenditure projects in Nepal face delays and quality issues because of corruption.

One way would be to create a blockchain system for government projects. Funds would be withheld until work is completed, reducing cheating and delays. 

Any Nepali could poke around to see which firm is granted which project at what cost, and how much progress has been made would improve government efficiency and help reduce fraud.

“Lots of Nepalis are actively in Web3/Blockchain development despite the ban. The talent exists,” says Bijay Bogati. “But developers are scared. People with real skills do not want to take the risk.” 

Raunak Raj Rauniyar leads Superteam Nepal, a global talent network of creators and developers in Web3. He organises regular hackathons and bounty hunts where the best projects can win cash prizes. 

In a recent college tour across Nepal, it introduced and connected communities to blockchain developers. 

“We found that there is talent across Nepal. In fact participants outside the Valley were much more engaged and hungrier than those in it, perhaps because they have fewer tech events overall,” says Rauniyar. 

“More women are involved, the ratio is about 70-30, up from perhaps 90-10 a few years ago.”

The Janamat app built on the blockchain is a recent Superteam product that lets any Nepali with a citizenship to anonymously share opinions and vote. This could let the government quickly understand public sentiment of Nepalis home or abroad instantly and on a wide range of topics. 

During the 5 March election, a Janamat poll for Jhapa-5 showed that 87% thought Balendra Shah would win, which accurately predicted the actual result. Users on the app are now discussing and voting on who should be in the RSP Cabinet (see page 1). 

WHAT NEXT

Nepal continues to be wary and circumspect of these emerging technologies, responding with outright bans that it can hardly even enforce, and maintain an illusion of control. 

The alternative would be to identify talent which exists, and adopt these technologies, regulate it effectively and reap the benefit. It could make it easier for people to spend and invest their money in Nepal, create jobs, and even slow the brain drain. 

The timing seems to be just right, as a new forward-looking government of technocrats assumes control. Nepal is set to have a 35-year-old prime minister, and a supermajority government that will hopefully be stable for the next five years.