Finextra interview with IBM architect Richard G Brown about Bitcoin and Litecoin

hello I'm miss Lumley of finestra and today i'm speaking to richard brown of IBM and we're going to be talking a bit about crypto currencies where the the most famous or some might say infamous of all it is Bitcoin so you know really kurtal talking about alternative currencies or non sovereign currencies I mean what role do you see these types of currencies having in global money in the future some so my view is quite clear I believe crypto currencies bitcoin is the first example I believe they're going to change the world but probably not in the way we expect so I think as we look look ahead to the next year the next two years I think we'll probably see some modest adoption of Bitcoin as the first example in major markets for some niche areas where it's difficult for merchants to get on to card schemes for example in emerging economies we may even see quite widespread adoption of Bitcoin on a country-by-country basis if it begins to take off and blossom and I think it's already pretty obvious the cryptocurrencies again Bitcoin in particular have a really quite powerful role to play in the near term in in international remittances I think they solve a real problem that other approaches don't but I don't think any of that's particularly surprising there their predictions or examples of near futures you can make simply by looking at how these currencies work and looking at what some of the startups and what some of the providers in this space are already doing where I think the debate hasn't got to yet from where I think people haven't really thought this through is is what happens then what happens if we imagine that let's say Bitcoin has been rolled out even to a small extent in a few countries so there's an infrastructure laid down some of the core technology has been has been invented and it's been implemented what does that then enable what could be done after that if we perhaps look at the the parallel at least if we try to draw parallels with what happened in the web and we can pass a 94 with 96 not much it changed if you look at the Yahoo web site in 96 and compare it to how it looked in 94 it was still quite primitive look at Yahoo now the world is different but it took longer to get there than perhaps people imagined and if you try and draw a similar parallel with cryptocurrencies I think there are some features some core core elements of the technology of these crypto currencies that are going to have a really important effect and people haven't thought that through so if we take just two examples maybe to kick it off something that I think people are missed with them with with Bitcoin in particular is although people think of it as a digital cache or as as money the secret is Bitcoin is not perfectly fungible you can tell every single piece of currency in the Bitcoin system from any other if I pay you money with cash it's very hard for me to trace that if I pay you with a Bitcoin I can see exactly what you do with that I can see who you send it to and I can see what happens to that coin for the rest of all time so if I've now got a system it was supposed to happen though is it well no I know so people think this is a perfectly anonymous system and and I guess there's some some things we can say on that as well but if you think through these think through the consequences of that what that means is Bitcoin today is perhaps best thought of as a currency and payment system but in reality it's very sophisticated globally distributed asset register those things are moving around that we call bitcoins are individually identifiable and associated with an owner who is the only person who can then spend them on so today they have value one Bitcoin may be worth 150 dollars but there's no reason why I as an individual or as a trusted company can't say I assert that that bitcoin is actually 100 shares of Twitter say and wherever they get to moved to whoever owns it on the daily dividend the day the dividend is paid they receive the dividend rather than somebody else it's not difficult to see that system being used to build the next generations central securities depository or custodian bank that technology is very very generalized and it's not just a currency and payment system so there's a whole area of innovation that hasn't even begun yet building on this idea of a publicly visible globally distributed asset register that just happens today to be used as a digital currency so you're in like the long term very very bullish on currencies such as Bitcoin and I am I think there is so much technical innovation here the the core technology had you asked me five years ago I would have said was impossible but coin cryptocurrencies solve this problem of coming to a consensus globally where you don't trust anybody else I'm a computer scientist I thought that was impossible these guys have proved it can be done so that has implications both the currencies and payments for asset registers but also for how we engineer systems for ourselves and for our clients so regardless of whether this currency takes off or another one does there's a huge amount of innovation that previously did not exist so I mean we've been seeing recently a lot of investment interest in a lot of Bitcoin entrepreneurs it seems to be the call Silicon Valley business now to get to get involved with you know but also recently you know one of the biggest criticisms of Bitcoin was its role in supposed to alleged role in in the illegal drug trade and you know the FBI in the US have supposedly shut down the Silk Road black market for illegal drugs which supposedly was holding up a lot of the Bitcoin economy now that that sort of business has been shut down well we'll all of these Bitcoin well will this give the Bitcoin entrepreneurs more legitimacy that that criminal aspect of using Bitcoin now seems to be being destroyed and people can now go and build their cool Silicon Valley startups and get VC funding do you think that's where we're moving towards a short answer yes I do I think it's an ambiguously a good thing that Silk Road has been taken down it as you say legitimizes Bitcoin in the eyes of everybody else it shows that Bitcoin isn't just used for um illegal activities and the proof for me there was when the Silk Road takedown was was announced to the world the Bitcoin price did drop as one might expect but it were covered very quickly which tells me based on that evidence alone that there is clearly an economy underneath this that is not dependent on that trade so so I think it's it it's good because it takes away some of the fear for major organizations and potentially in particularly financial institutions who would not want to be associated with something that otherwise would be associated with with illegal activity so the fact that the law enforcement agencies have taken it down but more importantly shown that they can take it down shows that bitcoin can be regulated and it is possible to prosecute crime on it so I think it's an ambiguously a good thing that's been taken down and it does enable opportunities for others for they just summer businesspeople it's sort of outside of the criminal alleged criminal impact the activity with Bitcoin a lot of the mythology around the start of Bitcoin was around this sort of a narco liberal libertarian Anonymous non-sovereign currency and that you know you mentioned that the the bitcoins can be tracked because they're there on a computer but the myth around it is that this is anonymous you know which is why maybe it was very popular in illegal industries but is it I mean does the future of Bitcoin and other cryptocurrencies even depend on anonymity anymore I mean is that it will that myth of enemy and enmity will that need to be kept with it with the Bitcoin economy or is that going to be sort of pushed aside so I think you put your finger on it when you said the the myth of anonymity the reality is Bitcoin to a first approximation cryptocurrencies to a first approximation do opera do offer a degree of anonymity the the blockchain is they call it the public register of every transaction is visible to anybody in the world who wants to look at it but none of the transactions are associated with an identity so to a first approximation it's anonymous but the reality is for somebody motivated to attach a transaction to link a transaction to an identity it is not difficult the blockchain is completely public and every payment can be tracked as you say so provided you find the identity of one transaction you can trace forward or back to any others it's no surprise to me that the more switched on financial regulators have alighted on that fact and have chosen to address most of their regulatory activity at the exchanges and at the edge points of the network what bitcoins are exchanged for other currencies because there you have a legal entity there you have a corporation you can serve a subpoena against them you can get their records and then you can just follow the blockchain serving subpoenas on each person you find until you get to your target so sure it's probably more complicated for law enforcement but back to the takedown of Silk Road it shows it can be done but it does it does raise a really interesting question if we separate identity from asset asset ownership is this another source of potential innovation so in today's world every asset is owned by a legal entity either a human or a corporation and there is there are money anti-money laundering laws and your customer laws that they sit around that but if you take away that constraint that every asset on the Bitcoin system is owned by an individual does that enable some things that otherwise wouldn't have been possible so to take perhaps an extreme example but to take but to force the point if we look at say the Internet of Things and some of the more some of the more advanced ideas people that put their about smart meters everywhere and the internet fridge might be knowing how much bread I have exactly toaster in these usual clichés what those things seem to miss is the is the economic analysis underneath them so you could imagine a world where actually my fridge has an identity on the blockchain my fridge is able to look at the energy price perhaps it's able to trade with my washing machine to decide who needs the power most and then to buy the power they need on on the spot market it's it's not a big stretch to imagine that if you separate legal identity from from asset ownership on the blockchain new possibilities around autonomous agents and the like become possible and it's almost you could almost say you know on the blockchain nobody knows you're a fridge that's the kind of place you could get to so we've talked a lot about Bitcoin but I mean there is there is sort of a greater question about crypto currencies in general I mean does it five ten years from now will the question about Bitcoin even matter is it is it gonna be more about well we have a choice of several different crypto currencies to choose from where do you see this going I think I think we probably will see a choice I mean the beauty of this system is that a thousand flowers can bloom at the moment we have Bitcoin is the most well known cryptocurrency but already there are other systems competing for attention so there are some such as litecoin for example that are really testing the idea that psychology matters if we have a large and nominal number of currency unit does that change people's behavior and that's my view is that really a question is like oh gee there's um there's another system fry coin which is based on the question of how do you get people to spend if we think these things are going to accumulate in value why would you spend them so they're experimenting with ways to encourage spending they're experimenting with ways to encourage spending and you can imagine a lot more experiments happening so I can imagine there will probably be quite a few economics PhDs over the following over the coming years who've assessed this space and realized they can do some natural or real experiments using spin-offs from the from the cryptocurrencies but then there's also the the other angle from this which is I mentioned earlier that the technological cat is out of the bag even if the currencies themselves shut down overnight the core technology of distributed consensus the core idea that actually the Bitcoin and cryptocurrency model is credit transfer rather than direct debit there are some key insights or key technologies that can be applied to how we build other systems or how we solve other clients problems so my view is as well as looking ahead 5-10 years and thinking where we need to position ourselves as financial institutions as engineers and computer scientists we should also be looking at this to say does this have does this have implications for how we build systems today that's interesting okay well Bob we'll look forward the next five 10 years in the currency markets thank you very much

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