Creating a new financial order with blockchain

Garrick Hileman is Head of Research at Blockchain.com, which one of the oldest cryptocurrency and blockchain companies in in the world, founded in 2011. Here he tells us about how the whole system operates.

Dealing with various cryptocurrencies…

Bitcoin and Ethereum are our top two blockchain networks in terms of market value. We support Bitcoin Cash, Stellar and stablecoin USD Coin. We also gave away US$125 million worth of Stellar over the last year, so millions of users were able to gain free cryptocurrency. We will be offering Tether, the world's leading stablecoin in terms of market value, and a number of others. We have customers from all over the world. We have successful products like Wallet, which enables people to be their own bank, to store and transact crypto assets. Blockchain Explorer is like a search engine or web browser for navigating the ledger of transactions.

We recently launched a new exchange called the Pit, which allows people to transact crypto assets very quickly and cost effectively. Crypto assets offer many advantages to those looking for an easy way to store currency on their phones or laptops. Crowdfunding uses platforms like Ethereum which is supported by our Wallet. One of the most interesting uses of crypto assets is centralised finance, where people are starting to lend and borrow in a peer to peer fashion and earning very attractive interest rates.

A bit about cryptocurrency exchanges …

Bitcoin’s white paper was released almost 11 years ago, but this is still an industry that is maturing and in the process of growing up. Estimates of cryptocurrency users range from 20-60 million. Questions like how much exchange volume is there is somewhat difficult because we don't have standard policies and practices in place to ensure accurate reporting of real exchange volume. This is actually a controversial topic. Even in traditional markets it's difficult to know the exact volume. In the cryptocurrency space too, exchanges try to inflate their importance, to look more liquid than they really are. There are 10-15 exchanges that are reliable. It's also part of the reason why Blockchain launched its own exchange.

We work with other exchanges, our competitors, on things like coordination of various trading operations. Some of the leading exchanges include Binance, which is legally domiciled in Malta, but largely run out of Singapore, so it has a very large Asian user base. They're opening up a new exchange in the US. Coinbase is a very old exchange that has achieved a number of important regulatory approvals. It is one of the main on-ramps—it allows people to convert their fiat currency into crypto currency and vice versa. Then we have California-based Kraken, New York-based Gemini, Europe-based Bitstamp and BitMAX, known for futures trading.

Operating across countries—some allow crypto, some don’t…

It’s a challenging regulatory environment for many companies. The lack of clarity is certainly impacting the ability for this innovative technology to help people address real problems like the high cost of remittances and the lack of transparency in the current financial infrastructure. There are incredibly compelling like smart insurance: This would be flight insurance that automatically pays out if your flight is delayed or cancelled without you having to submit a claim process. It's very difficult to roll out these types of products in many markets due to regulatory uncertainty and the huge variation in regulation from one country to the next. Each market when it comes to payments regulations is very much its own special snowflake, it's so unique and you have to come up with a tailored solution. So it's difficult to expand across the world.

We enable people to be their own bank. That's a very powerful new capability that people have lacked traditionally and it's in some ways very scary: The power to be your own bank carries with it extra responsibility. It's potentially somewhat destabilising to the status quo and it does disrupt the way we had traditionally operated financial services around the world.

Empowering those without bank accounts and IDs…

There are huge problems with the financial system today. The high cost of sending money across borders is unacceptable. We can send a text message or email instantaneously, and for free. We should be able to do the same with money. There are over a billion people who do not have bank accounts, who do not have any kind of national identification. They are stuck in the cash economy. They are unable to start saving or earning interest. The beautiful thing about cryptocurrency and blockchain solutions is that you do not need an ID to use them. All you need is a computing device like a smartphone and a connection to the Internet and you can start using decentralised finance right away without anyone's permission.

It's very easy to come on board with a smartphone. You simply go to the app store and you download the Blockchain Wallet app. All you need is an email address and you're up and running. You can start sending and receiving cryptocurrency. It's a much faster process than opening up a bank account. There's no cost and no need for any identification.

That’s why traditional finance and the banks are pushing back. They don't like this competition. Banks put pressure on governments to crack down on cryptocurrencies. That’s the fight going on. But at the same time you also see a number of legacy financial institutions embracing this new technology. Many legacy financial institutions actually joined Facebook’s Libra network, like Visa and MasterCard. JP Morgan and Wells Fargo are creating their own stablecoin. They understand that cryptocurrency and blockchain is the future and they need to start developing their own solutions, rather than trying to block the launch and progress of cryptocurrency. They can’t beat us, so they need to join us. Also, we don't want to see the collapse of the traditional system. We need to see a migration to a new and better system. The blockchain industry regulators and traditional finance all need to be a part of that migration working together, and I think that is already happening.

On Facebook Libra’s power of disruption…

Facebook is large enough to push a change in regulation. But if they're not careful, they may create a setback for innovation by being insensitive to the concerns of regulators and charging ahead. Everyone knows that Facebook's motto is to move fast and break things. If you do that to the financial system, it’s not good for any of us. The other kind of cute expression you sometimes here is that Facebook practices the Jesuit management principle, which is, you ask for forgiveness, not permission. You don't ask for permission upfront you just go ahead charge ahead and do things. With an organisation as large as Facebook with billions of users, with WhatsApp and Instagram too, asking for forgiveness is a problem. We can't risk having global financial system destabilised. But blocking Libra is also not the answer.

However Libra will not be the last corporate cryptocurrency to launch. When I was with Cambridge, I was working with another Top 100 company exploring this even before Libra was even contemplated. Big companies have been thinking about this for years. Many are waiting to see how Libra evolves before they take the next step. When Libra comes, it will be complimentary to things like Bitcoin.
On continued Bitcoin mining…

There's a limited supply of Bitcoin: 21 million. Almost 18 million Bitcoins have been mined. There are still 3 more million more to be mined over the next 120 years approximately. So, the rate and the speed at which new Bitcoins are released and created has been slowing down since 2012, when the first reduction in new supply issuance was enforced by the protocol rules. Even after that point, there will be incentives for people to run computers processing transactions and maintaining the security of the Bitcoin network. That’s why it’s been resilient to attack. Without that security, its value would be zero, and none of us would be talking about blockchain right now.

On blockchain in the government…

Voting is potentially a really powerful use case of blockchain. When we vote in an election, in most countries there is no way for the citizens to check if their vote was accurately counted. It's a complete act of faith. But using a distributed ledger, which could feature pseudonymous IDs, alphanumeric identifiers that only you know, you can go online and check while maintaining privacy and anonymity.

Taiwan has a group of hackers working in the Taiwanese governments developing open source tools and technology, including distributed ledger technology to improve and change government services. People can run infrastructure. It's more of a direct democracy model where, individuals can run a node and operate government services like digital ID for example, rather than, giving that power to centralised institutions that’ll probably get hacked. I don't think health records should be stored centrally. Hospitals and large institutions are a honeypot and a big target for hackers. I think anything that is important around identity, health and financial services should distribute that so that there's no one central honeypot that can be hacked.

On the difficulty of understanding blockchain…

This is one of the most difficult technologies to understand. We surveyed people and asked them about quantum computing and Artificial Intelligence. Most people understand that AI is basically a self-thinking robot. People get AI. We've watched enough Hollywood movies. We know that a quantum computer is a faster and more powerful computer. But when you ask people what blockchain is, 80-90% struggle to explain it. They don't really understand what it is, when it is useful and when it is not appropriate.