Panel — The economic impact of blockchain

The panelists were Jason Brink, of Data Blossom; Dan Bates, CEO of ImpactPPA; Matthew Schute, Communications Director of Holochain; Quan Le, CEO of Binkabi; and Richard Poulden of Black Swan PLC. The moderator of the panel was Michael Mainelli, Chairman of commercial think tank Z/Yen, Emeritus Gresham Professor at Gresham College in London, Alderman of the City of London, and founder of the Long Finance Initiative.


Jason: My name is Jason Brink, I work on various blockchain projects. One of the projects I’m working on right now is called Data Blossom, it’s Internet of Things oriented, and that was fantastic.

Dan: My name is Dan Bates, I work with ImpactPPA, and we provide renewable energy to developing nations, served end-to-end, from generation all the way through payment.

Matthew: My name is Matthew Schutte, I work on a project called Holochain, which an alternative to blockchain. We’re a way of building peer-to-peer applications using just the devices of the users themselves; no mining, no cryptocurrency, etc.

Quan: My name is Quan Le, I’m from Binkabi. We are developing a cross-border commodity trading platform, facilitating trade between Asia and Africa. One of the first things that we’re looking to do is to barter using smart bartering mechanisms between Vietnam and Ghana, with respect to rice going from Vietnam and cashew nuts going from Ghana, without the use of US dollars.

Richard: Richard Poulden, I chair various companies, but the main card that I normally hand out is Black Swan PLC, which is my own investment company. Our company motto is a quote from Bernard Shaw: people who say it cannot be done should get out of the way of those who are actually doing it. [laughter]

Michael: What I’d like to do is just to open up a little bit. I’ve said that the economic impact in the sense of trade might be modest, but trade is only one component. Some of the things you’re talking about doing are making new things possible, but the actual impact on trade or the use of new technology may be minor. Could everybody just quickly knock off what do you think the biggest economic impact area is of these smart ledgers?

Jason: I think that the biggest area for growth, and actually one of the biggest areas that’s going to be impacted going forward, is the ability to aggregate and analyse large amounts of data. Right now we are working on putting together systems that will collect, analyse – using big data, using various analytical mechanisms – data on every area of our life. Every device that we have is connected, everything is networked, and there’s a tremendous amount of data there to be analysed and used, and I think that that’s going to allow us to increase our efficiencies in other areas as well.

Vinay: Economies of omniscience.

Jason: Yeah, exactly.

Dan: I’m going to go with the developing world. We supply renewable energy systems to places where they don’t have energy, it’s either non-existent or inconsistent, and lack of identity is a big issue around there, for people in rural India and rural Africa. So we’re able to supply renewable energy to these folks, delivered through smart apps, that give them identity for the first time, where they are unbanked, unconnected. That’s a market that we’re really focused on right now.

Matthew: I think the real big thing that’s going to shift is economics more generally. I think right now we do a lot of accounting in a very simple system, dollars or euros or pounds, and these cryptographic communication systems enable us to pay attention to other signals, and they’ll enable new forms of accounting that actually allow the communities to self-steer far better than they do now, but it’s a shift in the accounting, it’s a shift in what we pay attention to.

Quan: For me, I can only speak in terms of developing countries. When people talk about blockchain and supply chain, a lot of attention has been put into improving efficiencies, digitising paper-based processes. This tends to be beneficial for big companies, but for companies in developing countries, the ability to be able to trade directly with counterparties in another country without going through intermediaries will be hugely beneficial, and I will give some examples. But also, the use of US dollars in international trade, without having anything to do with trading with the US is actually creating a lot of friction and cost for these developing countries.

Coming back to the example of exporting cashew nuts from West Africa to Vietnam, Vietnam exports billion dollars’ worth of rice to West Africa every year and import billions of dollars’ worth of cashew nuts and cotton and timber and so on, but the trading is actually just going through probably less than 10 large traders. So the ability for SMEs to be able to trade directly will basically level the playing field and distribute the profit more evenly, and ultimately we’ll be able to offer higher price for farmers. Those are the real benefits that we see, as well as improving the access and the cost of financing, because these are really high in those developing countries.

Richard: Well, I’m afraid everybody has almost made all my points, because I definitely want to go with the developing world as well. I’m so old that I remember looking at plans to cable up Africa, and it’s laughable now. If you go back, the telecoms were like “How are we going to put it over the mountain? We’ll have to put it along the road,” or something like that. Nobody was thinking that maybe a new technology is going to come along, like cheap mobile phones, and even when those arrived, nobody actually saw that it was a banking instrument, until M-Pesa was launched.

So I think the real benefit with this technology is something that nobody in this room has thought of yet, and that’s what will actually be the killer. Because with personal computers, I course bought an Apple II because I had to, but the killer app was VisiCalc, and that was actually something that made it useful, and at that point everyone goes and buys one. I don’t know what happened to VisiCalc actually, but I don’t still have a copy.

So in this case, I think that where the impact will happen in the third world is taking it down to the smaller level, where people don’t understand what a forward market is. We were looking at something in one Asian country that I can’t name, where the government wants farmers to have the ability effectively to sell their crops forward, so markets and restaurants know when the carrot is going to arrive, they know when the meat is going to arrive, and they can help finance the trade. That’s a perfect smart contract financial blockchain transaction.

Michael: That’s actually a pretty good theme for debate. Quan and Dan, what do you think of Richard’s assertion that this is really effectively a leapfrogging proposition, that the first world isn’t the place to go?

Quan: We view that blockchain may have a similar ability to mobile phones for developing countries, especially Africa. Up until probably 10-15 years ago it was basically impossible to communicate with Africa, because they don’t have a very developed telecommunication network, no fixed phones, but now everyone in Africa has a phone. We develop agriculture projects in Africa in another business, and even people in very remote places in Africa have access to a phone, maybe a very simple phone. With that, that also created a lot of financial products, such as M-Pesa in Kenya. So we saw that blockchain has the potential to actually improve the financial infrastructure for these developing countries. Because if you look at payment going out of Africa, regardless of hundreds of banks in Africa, but ultimately it’s going through two banks, one is Standard Chartered and the other one is Citibank, and every time there is payment going through that is in US dollars gets routed to New York. So it’s about creating this financial infrastructure that will enable a larger segment of society to benefit from this innovation.

Dan: I’ve been working in the rural areas of Africa and India for about a decade now, supplying renewable energy products to them, and bringing the blockchain into what I have been doing historically is just a game-changer for the way we address the need of the people out in these rural areas.

Imagine if you will that we’ve got these microgrids now that are set up that are connected to smart meters, whether they’re through existing copper wires, or we have to sometimes string them, but a different issue, EPCs do that work, but you’ve got a blockchain-driven smart meter that people can now address on a cell phone, so it’s no different than what they’re already used to. M-Pesa, I think we’ve heard yesterday that 70% of the transactions in Africa are done through M-Pesa, a cell phone, interconnected device.

So we install these smart meters which then become sort of like the OS, so you can have layered services on top of renewable energy now, Internet connectivity and all sorts of other things that are capable, water pumping, cold food storage or whatever you need. We are just a base layer that apps can now sit on top of, we become the payment channel, which opens up a whole variety of opportunity in the developing world, and that’s something that I think is really exciting. And reducing cost, providing additional services, that’s what makes the blockchain so exciting for what I’m doing right now.

Jason: I think one of the things that makes these technologies so powerful in the long run is that they’re based on voluntary participation, you don’t have necessarily a centralised authority that’s issuing them, farmers can participate in the developing economies by deciding to sign up, so there’s a lot of voluntary participation, and then there’s also an element of extranationality to it. They can spread across borders very easily in ways that more traditional financial systems cannot, which allows movement of pistachios or cashews and things like that. I think that’s pretty cool.

Michael: I made a fairly strong statement that I don’t think payments are really particularly relevant here. What do you guys think about it?

Matthew: I think there is a lot of activity that might get fostered when we’re able to do payments that are actually micropayments; as you had pointed out in your talk, that’s not at all what the blockchain architecture enables. It also doesn’t actually enable distributed systems. I love the work that ImpactPPA are aiming to do, and the first thing that pops into my mind is if I’m in a rural context and there is some power disconnection, does that suddenly mean I’m not able to interact locally because I don’t have access to some global blockchain? There are alternatives, and I think some of the systems that you brought up and some of the systems we’re working on are actually distributed systems, so they don’t need to talk to the global ledger in order to have interaction become possible, and I’ll leave it there.

I totally agree with the point about what we call mutual and what Michael referred to as mutuality, that “Hey, you and I want to play a game? Okay, we can play that game. And if it’s not working for me, I can play a different game.” I think the really exciting architectures are the ones where I can still keep playing this game with you, but I can also start going and playing a different game as well, so we’re able to start extending the sensemaking that’s available. It becomes a user-centred architecture as opposed to an application-centred architecture, and that’s the big shift for me. I think that’s the big difference between the world today, which is a world of applications, where we run into and out of apps, in a world of basically an ecosystem where you actually have users at the middle bridging between these different social contexts.

Michael: Other thoughts on payments?

Richard: The comment about Standard Chartered and the payments go through it and they go through New York… Dinosaur-like that is going to have its head chopped off, and one of the ways that’s going to happen is Bob Diamond’s bank Atlas Mara. Hands up in this room, who has heard about Atlas Mara? Okay. If we do this in two years’ time, first of all, anyone who is in Standard Chartered won’t be there because they have been made redundant, and everyone else will have stuck their hand up. What Bob Diamond is doing is consolidating bad African banks. He says it’s going to take him three to five years, but if he has any reasonable track record, which he does, I think it will probably take two to three years. What he’s trying to do is to transform banking in Africa, which is a component part of the payments. When you’ve got M-Pesa doing the small payments, if you had a Pan-African bank financing African trade, that is going to be the most staggering winner, because it doesn’t need to charge the prices that the existing banks are charging.

Jason: I actually live in Thailand most of the time, and at a very low level these banking fees are crippling to small farmers, and having the ability to have micro transactions with sub-cent fees is absolutely critical to the growth of the economy. Because if you’re talking three percent of a dollar, that’s significant, but if it’s only half a cent, then that makes things a lot better, that’s a lot more money moving around in the ecosystem.

Matthew: I’ll make one last comment there. I’m not a big fan of tokens, we don’t really use tokens in our architecture, but instead of payments I would try to push towards recognition. Because there are various ways in which people can recognise contributions that is not necessarily a payment. There’s ways in which you can recognise activity, that then that recognition fosters a flow of that type of activity, and it’s that sort of mutual “Hey, we’re going to recognise these types of behaviours,” or somebody is going to speak that that’s what they saw you do, you gave them this thing, that moves it away from an industrial sort of architecture of banking-centred architecture towards something that actually can be much more peer-to-peer.

Michael: I would echo that completely. If you take away the word “token” and you say, “I want to know what my net is,” that’s the same thing. Once I know my net, payment is a different thing entirely. I think what people who come to this sector don’t understand is that if you get that going at the micropayment level, that would destroy the credit systems, and that’s a scary thing. I’m not saying that they need to be preserved because they exist, but it’s not as straightforward as that. A lot of these things of “I’m going to put all of the Ether into the smart contract to do the insurance payment,” just simply doesn’t work. So these things don’t even stack up economically, but, you know, I read the coin sites as well.

Look, we’re the last panel, and I thought you’re all bright people, you can help the audience. Could you each just tell them the one big thing that changed your mind today or gave you a new insight?

Richard: I think one of the things, listening to everyone, that people are missing is transaction speed and transaction cost. You raised it, but I think rushed through it slightly. Because none of the cryptocurrencies are currencies, because they can’t really be used to buy your vanilla latte, and I think transaction speed was one of the issues.

The other is a lot of people said, “Well, of course this won’t work on a public blockchain,” which immediately begs the issue of where you’re going to get the blockchain from. From personal experience, I know that there are blockchains and blockchains. Electronium that a friend of mine invested in, ICO, two hours it took to hack the blockchain that they scribbled on the back of a coffee tin. So there are pitfalls that people aren’t seeing, but I think most of the people at this conference today have seen them.

Quan: When I first learned about blockchain about a year ago and started reading material, one thing that came to my attention was what they call the fat protocol within the blockchain world, saying that people building protocols will benefit more in terms of value capture compared to people building applications, and we are now building applications so they’re a bit scared. But the reality is that unless the blockchain space has a real-world application that changes people’s lives, then the whole place is a bit of a Ponzi scheme; people are just hoping that ultimately there will be some kind of killer applications that will affect and change people’s lives.

So for us, implementing something quite simple like a payment mechanism, when we talked to authorities in Vietnam and in Africa, they told us, “Don’t even mention cryptocurrencies, because we don’t want to hear about that. We would like to hear a bit more about blockchain and its effects.” So it’s incredibly difficult to bring the legacy economy into the blockchain world, whereas for the people in the room who are very committed to blockchain, that that transition can happen very quickly. So I agree with your analysis that the benefit might be small, but also the benefit might take a long time to deliver as well.

Matthew: There was a comment and a conversation that happened during the first panel this morning around trustful versus trustless, and there was a fair bit of interesting conversation there. For me, the idea of trust as if it’s a single thing is silly, as if you did these actions and now you are more trust-y. That’s not at all what actually trust is about. I completely feel that we are shifting where trust is held and how we’re handling predictiveness and our sense of certainty about something, but it’s always contextual. If I’m trying to go eat at a restaurant, the kinds of information that I care about and the sources that I trust are different than when I’m trying to order lumber or look for a babysitter, and the mutual sort of systems will enable parties to pay attention to the signals that are relevant for them. So for me, I get really excited about the building up of trustful systems, as opposed to trustless systems.

Dan: For me, I’m rather new to the whole thing. There’s a lot of you who have been doing it much longer than I, so I’m sort of a newbie in the world, for the last 9-10 months or so, and I see a lot of stuff going through that whole ICO pipe. Some of it is great, some of it is awesome, but some of it is just unbelievable crap, and you look at this and you go, “Oh my god, it’s like the dotcom thing all over again,” we’ve all experienced that.

At the end of the day, I think the whole concept of blockchain and what it can do for social impact, what it can do for community and trust and identity is what’s great about it, but at the end of the day, there’s got to be some fundamentals under it, there’s got to be a business. It’s like the old days of the dotcom, the guy walking down, I’m from California, Sunset Boulevard with a wheelbarrow full of money just throwing it out there, and you’ve got to go, “What is he going to do when he runs out?” Because there’s no financial underpinning to a lot of the companies that I’m seeing. I’m sure there are many that are awesome, that are great and are going to be survivors, but we’re going to run into this nuclear winter of blockchain with all of these really crappy companies, and the ones that are fundamentally sound are going to survive and then it’ll be the dawn again. I want to see companies that just go do it, make money for their token holders, their investors, whatever the SEC allows us to call them, and survive and push it forward.

Jason: One of the things that I take away from all of this, and this echoes what many of you guys have said up here today, is that we need to pay attention to the fundamentally non-monetary applications of blockchain technology, when it comes to data, when it comes identity, verification, when it comes to creating trustful societies, I like that term – English is awful for explaining some of these things. But I think that taking away the fact that we can use this technology for so much more than “I’m going to send someone money.” It’s not about money; it’s about the broader, deeper applications of these technologies in every area of our lives . I think that’s where the big change is going to come, when we stop looking at things as “cryptocurrencies” and begin looking at them as tools for moving information.

Michael: Thank you, panellists. In closing, I’d like to say a few remarks. The first thing I’d point out is that to me it’s really about my ivy theory of technology. For a long time I used to run about 40% of UK R&D within the Ministry of Defence, 40% of government R&D, and one of the things I found there was no new technology ever came in and blasted an existing one out of the way, it’s not how it works; it takes a very long time. The ivy kind of grows around the tree, and then you kind of come back 30 years later and the tree is gone, and that’s really the way that it happens. So a lot of the “We’re going to demolish the financial sector…” You’re not going to demolish it. You might strangle it, that’s going to take a long time, but you’re not going to blow it up. There’s virtually no example of that in any of the technological stuff that you ever look at.

The second thing I’d point out is that that implies, and I think we were getting there as well, that it’s the new areas that are going to be exciting, it’s what this enables us to do that we’re not doing, as opposed to what we are doing, that we’re going to do better something, and that would justify some of the findings here on the relatively mild impact on existing types of trading systems. That is also in line with the leapfrogging comments you made about developing countries: this is a place potentially to look, certainly to favour, if you’re trying to do some type of a selection matrix. And I think it was interesting to see that I didn’t get much pushback on payments being somewhat fringe there, so identity, documentation, agreements.

We might also take out an ad for two things: if you’re interested in our wider research programme, I also brought that along but I wasn’t supposed to advertise… It’s not really advertising, it’s just tells you what we’re doing and what’s coming up. The second thing to point something out to you that you may not be aware of, but in April, on the 16th, 17th and 18th of April 52 leaders of the Commonwealth are coming to London, and one of their major items on the Monday, 16th is in fact what distributed ledgers, smart ledgers may or may not do world trade. So a lot of people are looking at it, but those of you who understand how the Commonwealth is structured, of course these are really coming largely in the developing world, and I think that could be at least as much interest as the Japanese regulating or not regulating cryptocurrencies. I think we really need to give the trading systems a common law, and we’re putting a push behind it for developing countries.

Vinay, thank you very much for the opportunity, and I thank the panellists for coming up and supporting me here, it’s been great – six of us managed to do it. [laughter] Thank you very much, and thank all of you. [applause]