Last week, Bankera had a pleasure to meet and have a conversation with a blockchain expert from University College London – Dr. Paolo Tasca.
You can check the video of our interview below:
We have also prepared a transcript of the interview for your convenience.
Hello, Bankera friends! Today I have the honour to present you a well-known economist, researcher, public speaker, author and advisor Paolo Tasca. He is the Founding Director of the Centre for Blockchain Technologies at University College London and a well-known advisor in blockchain community. Hello, Paolo. It’s a pleasure to have you here.
Hello. My pleasure.
At the beginning, could you tell us more about your professional background?
First of all, thank you for having me here, I’m very glad. I have a background in Economics, but I’ve been working with computer scientists, engineers, mathematicians for many years. I was specializing in systemic risks at the time of the financial crisis – during my PhD and my post-doc at ETH, Zurich, back in 2011 or at the end of 2010, some friends of mine at ETH, Zurich started telling me about blockchain and Bitcoin, and from there I started to explore this fascinating topic. At the beginning, I was very sceptical because I was considering Bitcoin more like a funny game used only by kids, because in the past I did develop some trading engine myself, and I was a trader. Therefore, I was really considering this unprofessional. I started to learn more about Bitcoin and blockchain and, what was very important for me, was the possibility to look at the blockchain through two lenses. The first one let me look at the blockchain from an information-communication-technology perspective. In this case, it’s a distributed system that allows peers to achieve consensus without an intermediary – even in presence of malicious nodes, in presence of malicious peers. This is, basically, the definition that we all know about blockchain. But what was important for me, was the second aspect of this new technology, which is the governance aspect: the capability of this technology to decentralize the governance, to give more power to the edge of the networks, to bring more transparency in the decision-making process and these, I think, will be the most important aspects of the blockchain that will have the long-term impacts on our socio-economic systems.
What is the most unexpected finding regarding blockchain protocols you found?
Well, I found many of them. Very often, there is a mismatch between what is written in the white paper and what you find on GitHub – and you don’t really know which of the two is correct: if the code is wrong or if the white paper was wrong and if on purpose, by mistake, for which reason. Surprises can also be found in well-known blockchains. Another unexpected result could be, for example, the fact that several transactions processed into the Bitcoin network are not really confirmed after one hour – they can stay there for many days without being confirmed by the peers in the network. This is something very common for a very tiny amount of transactions, because there is not much incentive for the miners or the validators to take care of those transactions. You might think that the transaction has been validated, but very often you find that those transactions are there, navigating the network, waiting to be validated for many days. Another unexpected finding is the concentration of these networks, which is, basically, the sad side of this story about blockchain. In fact, you don’t expect that this technology, which was brought to the market with a hope to decentralize and give more power to the peers, is indeed very much centralized, because only a handful of super miners control the mining process in the Bitcoin network and in the past, very often only a single miner could have controlled 51% of the money capacity – Ghash.io is one of these examples. The same story worked for other blockchains like Ethereum, which is basically the most important application stack that we are using to build smart contracts and applications: only few super miners control the validations and 20% of the whole Ethereum code, the protocol, has been written by a single coder.
How do you see cryptocurrencies future in the long run?
The question relates to the vision that I borrowed from an economist of the Austrian school of economic thought, Friedrich Hayek, who wrote a book titled ‘The Denationalization of Money’ in 1976. He is also a Nobel prize winner. In this book, basically, he wrote about the fact that money, as any other type of commodity that we have in our society, should not be under control of a monopoly, but should be under a competitive regime. He was expecting that a country could have a multi-currency regime allowing the citizen to choose the best currency, the best means of payment they really prefer, instead of imposing one single currency. Borrowing this view from Friedrich Hayek, let’s say that, with the proliferation of these thousands of cryptocurrencies, there is a possibility to move from this theory to practice. I think that giving the possibility to the users to choose the means of payment is for the degree of freedom that will improve our society.
How do you think crypto and traditional currencies will coexist in the future?
As any other type of means of payment that we’ve been using in the past. When in the ‘70s the credit cards were introduced, they didn’t wipe out the banknotes – we still keep using banknotes, we still keep using credit cards, and some of us also use mobile payments, while the bravest of us use cryptocurrencies. All of them could coexist well, as each of the different means of payment can provide different types of benefits and can be used for a different type of purpose.
What is your opinion on how regulations can impact a cryptocurrency?
Certainly, regulation is one of the drivers of innovation. We have seen this in the past, regulation introduced a new type of products in the market, but at the same time regulation needs to guarantee the stability, preserve the stability of the financial system and protect the users. There is the tension between different competitive objectives within the regulators and it’s not very easy for regulators to address new innovations like digital currencies or blockchain, so, I think, there are generally three types of attitudes. During the first phase, you can observe that the regulators are really ignoring the innovation – they don’t really care because the market size is generally very small. Then, when the market starts to expand a bit and adoptions start to increase and even expand to different countries, then, as we have experienced with the digital currency in the past, the regulators start to move from the initial phase of ignoring these new technologies to a new phase of learning and listening. They start learning, they start engaging with the community, they start talking to the community, they start experiencing it directly and serve this new technology. And then we have the third phase: the third phase is when this new technology really grows and, therefore, in this phase, the regulators need to assess the risk. If there are important risks, then they need to put some rules of conduct in place for the market participants to behave in a proper way in order to contain this type of risk. We can expect that, when the adoption of the digital currency will grow, even in the years to come, we will see a major impact of the regulation into the digital currencies space. Already next year, 2019, the new directive for anti-money laundering in Europe will include cryptocurrency exchanges and wallets, which is the first step, meaning that we are reaching the exit from the phase – the second phase of learning and listening – to the third phase of a real regulation.
How technologies like blockchain might help the banking system?
Blockchain can streamline many internal processes of a banking system in different areas: settlement, custodians are areas that have been discussed many times by the community. There are a lot of manual reconciliation efforts between branches within same banking institute, because the data is stored in different databases. Also, in that simple case, blockchain can bring many benefits because they can get rid of the separation of editing silos and have a unique type of a distributed database where you don’t need conciliations. I think that the benefits will be tremendous for the banking system in general. From the operational and business model points of view, I think that there will also be some impact, which will somehow move some banks towards a new type of business model.
Thank you very much for the interview. It was a pleasure to have you here and thank you, Bankera friends, for watching this video. See you next time!