PWC Herald Talks: The Future of Money
Bitcoin, Blockchain, and Beyond
Thursday 22nd March 2018, The Piano, Christchurch
This week PwC Herald Talks presented a thought-provoking business networking event concerning the future of money where industry leaders and cryptocurrency experts discussed their views on the value of cryptocurrencies and blockchain technology in future economic platforms. Smart contracts, DApps (decentralised applications), the New Zealand regulatory environment, and banking were all part of the debate. BitPrime was there to provide full coverage of the panel discussion.
Keynote speaker Aaron McDonald, founder and CEO of New Zealand-based blockchain venture studio Centrality (CENNZ), lead the discussion by explaining the basics of money, Bitcoin, and the key components comprising blockchain technology. The benefits of blockchain are far-reaching regarding use cases for various industries - decentralisation, high security, high integrity, and redundancy, for example. McDonald stated that "There is a revolution on the way, many of the existing giants may not survive".
Bill Gates was referenced heavily, wherein in 2014 he told Bloomberg: "Bitcoin is better than currency in that you don't have to be physically in the same place and, of course, for large transactions, currency can get pretty inconvenient." Gates has previously called Bitcoin a "technological tour-de-force" and has said that "Banking is necessary; banks are not."
McDonald was joined by Kiwibank's head of transactions and payments Zoe Wallis, University of Auckland's Associate Professor and blockchain researcher Alex Sims, and former Belly Gully law firm partner and The Blockchain Boutique's founder Rachel Paris.
While the panel was in agreeance over the benefits of blockchain use in the future's economy, there was some debate as to whether cryptocurrencies should be centralised or decentralised. Wallis agreed that blockchain technology would be an integral part of the future saying, "if it's going to be the fastest, easiest way to pay it's [absolutely] going to take over". However, she believes that a "central bank-issued fiat digital cryptocurrency" is the way forward. She raised an interesting point when asked about crypto being a threat to traditional banking stating that "anyone can come up with the money, it's who accepts it that matters".
"There is a revolution on the way, many of the existing giants may not survive"
- Aaron McDonald, Co-founder of Centrality
Banking is necessary, banks are not
According to PwC's Future of Banking and Financial Services Technology reports, changing technology, such as blockchain, has been identified as one of the forces reshaping the financial industry. In adopting blockchain, they realise they can significantly increase the scale and speed with which they process data but recognise that competitors, like crypto, "will be better placed to take advantage of the most lucrative new opportunities." Because traditional banks are seemingly slow to adapt and innovate when it comes to blockchain technology. The report suggests that banks may be relegated to "being wholesale providers of the balance sheet.".
While banks are just starting to wrap their heads around the idea of linear blockchains, such as those used by Bitcoin, several companies are already developing and using technologically superior forms. For example, Nano uses a block-lattice structure. Each user account has a blockchain recording balances, which is updated asynchronously to all other blockchains in the network resulting in even faster transactions and infinite scalability. IOTA has developed a mesh network called the"Tangle". With the Tangle protocol, a new transaction must be validated by two previous transactions first. The Tangle offers infinite scalability, micro-transactions, and Quantum resistance. The banks need to catch up and fast.
Regulation in New Zealand
One regulator in New Zealand that has issued guidance on cryptocurrencies is the Financial Markets Authority (FMA). The FMA has issued guidance on businesses providing cryptocurrency services with more detailed guidance regulating ICO's to come shortly. The Inland Revenue (IR) has also recently released tax guidance for cryptocurrencies.
Concerning the regulation of cryptocurrencies in New Zealand, Sims noted that "The...government could either resist the growth of the blockchain sector or use it to its advantage." She believes the government should look at legitimising cryptocurrencies like Bitcoin and Ethereum first, before attempting to develop a blockchain sector of its own. McDonald agrees with Sims when it comes to cryptocurrency legitimisation saying "we need to be on our toes challenging governments, prompting change."
Regarding Anti Money-Laundering and Countering Funding of Terrorism, Sims discussed how cryptos are programmable monies. As such, laws could be incorporated into the code to protect against these crimes. Furthermore, she mentioned that by using a smart contract, taxes could be paid automatically. Smart contracts are deployed in a way that multiple other actions take place simultaneously upon incoming and outgoing transactions. This is an idea that blockchain expert and manager of Digital Disruption, Oliver Rikken, firmly believes will result in fraud reduction, and ultimately, save time, money, and make the tax system easier for everyone.
New Zealand used to pave the way for financial innovation, piloting one of the world's first EFTPOS systems in 1985. As Wallis put it yesterday "we've always been at the forefront, but now we're starting to slip".
"Cryptocurrency is just programmable money"
- Alex Sims Assoc. Prof. Law, Auckland Univeristy
Smart Contracts and DApps
Beyond currency, blockchain can be used to build decentralised applications that require no third party to be in control. McDonald addressed the difficulty in scaling trust from the physical world to the digital world. He explained how smart contracts are built to be immutable and run autonomously.
The Centrality platform is a marketplace of applications aimed at "connecting the dots for developers and consumers", creating a decentralised community supporting digital startups by providing building blocks for companies to create decentralised applications (Dapps). Gull, an independent service station network in New Zealand and Australia, developed a smartphone pay-at-pump app for activating fuel pumps, paying for fuel, and providing loyalty. Skoot, a New Zealand travel guide company, also used Centrality to develop their app which provides users with navigation, audio tour guides, and access to deals, among other features.
Furthermore, the benefits of innovation and development were surmised when McDonald announced that "already this year blockchain has allowed New Zealand startups to raise more money than the whole Angel network provided last year."
Paris, a specialist financial services lawyer, illustrated how the technology is beneficial when it comes to the supply chain process. Every single step is tracked and the records being "incorruptible". She understands that consumers want to be in control and have "fast, frictionless payments" when it comes to goods and services.
Hurdles to Mass Cryptocurrency Adoption
A range of difficulties face the world of cryptocurrency and blockchain; awareness of the technology and its usability by everyday people being one example. Understanding the technical jargon, deciphering the coding languages used, let alone being able to understand how a blockchain works involves a massive commitment of time to studying the subject. Again, this is where platforms like Centrality work to bridge the gap between blockchain and everyday uses for businesses. Education is key to a successful future, and many resources have been developed, and websites created to help explain blockchain and cryptocurrency.
The volatility of cryptocurrencies can make it difficult to use as a medium exchange. To address this, stable coins were introduced. A stable coin has its value linked to an asset such as a fiat currency or a precious metal. An example is Digix Global’s proposed gold-backed coin, Digix Gold Token (DGX). Currently available is the platform’s utility token, DigixDAO (DGD). A fiat-backed crypto example is Tether (USDT) which is backed 1:1 by the USD.
To keep your cryptocurrencies secure you are required to protect your private key; if someone else has your private key, they have access to your funds. But what happens if you lose your private key yourself? There is no way to get this back. A solution to this issue was mentioned by McDonald yesterday – key sharding. In essence, your private key is split into several sections or shards. Each shard is then securely stored by someone you trust. This could be achieved simply by writing each shard on paper, or by using technology such as KeySplit. There are also custodial wallet services available. These store your private keys in an exchange (err on the side of caution if using these).
The Future is Bright
The talk came to an end with the panel opening up to questions from the audience. One of the most notable was concerning who to hold responsible when things go wrong in the crypto world. McDonald replied that "in the case of ICOs [it would be] the founder." However, all panel members agreed that when it comes to anonymous founders, it could become impossible to hold one person or group responsible, with McDonald referring to Satoshi Nakamoto as the “Banksy of Bitcoin.” They all concluded that this is an area where vast improvements are necessary for the future. We will cover how these challenges are being overcome in a future article.
BitPrime is committed to making cryptocurrencies and other digital assets accessible to everyday New Zealander's. Hence, support and education are central to everything that we do.
Last updated: 10/04/2018