Financial Services Revolution : When the United States Treasury said on Feb. 13 that it would seek to enact new regulations governing cryptocurrencies, the price of Bitcoin (BTC) fell by almost 2% within an hour. But Alex Tapscott, for one, thinks it unlikely that the U.S. government will squash Bitcoin, as some fear. As he told Cointelegraph during a recent interview:
“Crushing BTC in the U.S. is not feasible, in good part because key U.S. regulators have already supplied guidance on how it should be regulated,” referring to organizations such as the Commodity Futures Trading Commission.
Tapscott, co-founder of the Blockchain Research Institute, remains enthusiastic about blockchain technology’s future, and this optimism suffuses the book he co-wrote and edited, Financial Services Revolution. Tapscott discussed the book and its main points in an interview with Cointelegraph.
Banking the unbanked
Financial Services Revolution makes some bold predictions. Blockchain-based applications such as digital identities and smart wallets running on mobile devices could potentially enable more than one billion additional people to participate in the global economy, Tapscott wrote.
In unbanked areas in Africa and South Asia, legacy banks may be bypassed in favor of blockchain-based financial services, just as it has happened with telecom services. India, for instance, has just 30 million landlines, but mobile users exceed 800 million mobile phone users.
Real obstacles remain when it comes to banking the unbanked, however. “People without banking often don’t have access to the internet,” Tapscott told Cointelegraph. While that makes blockchain usage impossible, these unbanked people are much more likely to have access to the technology over the next five to ten years.
Subtitled, “How Blockchain is Transforming Money, Markets, and Banking,” the book touches upon a far broader base than just financial services. It examines how governments can use the technology to collect taxes, register voters, issue passports and visas, and maintain the integrity of records. It also reviews Estonia’s blockchain-based identity card and Sweden’s land-registry blockchain application.
Libra rattles banks
Still, financial services is the book’s primary focus, and its 342 pages begin with Facebook’s project to create a new blockchain-based currency, Libra. “The [June 2019] announcement rattled the doors of many powerful institutions, from banks and big tech to governments and money transfer services around the world,” wrote Tapscott in the introduction of Financial Services Revolution.
Many in the crypto community have since written off Facebook’s bold initiative. The project lost a quarter of its original 28 members, including giants Visa, Mastercard and PayPal before the end of 2019, and it is facing regulatory headwinds in the United States. Cointelegraph asked Tapscott if he had revised his views about the Libra project:
“Some members dropped out, but one shouldn’t overstate the problem. There are many others that still want to be participants.”
The project still enjoys some powerful support outside the U.S., including Bank of England Governor Mark Carney, who recently stated that Libra is “shining a light on deficiencies” in cross-border payments.
Moreover, U.S. regulators should ask themselves, If not Facebook, who? Wouldn’t they prefer a U.S. company spearheading digital currency rather than a Chinese tech conglomerate with not just the blessing of the Chinese government but its active support? Tapscott believes that:
“Libra, on balance, is a good thing, and I hope it launches.”
Banks are using pre-internet technology
In the book, Tapscott notes that the digital revolution has changed all aspects of modern life, except banking: “Financial intermediaries depend more or less on pre-internet technologies.”
But this is changing, as he told Cointelegraph. There is a groundswell of innovation in Asia, in particular, both among startups and on the part of governments. In the U.S., firms like Fidelity Investments and JPMorgan with its Quorum project are driving innovation.
The future holds peril as well as promise, however. Tapscott wrote:
“Authoritarian regimes that suppressed the first era of the internet have already begun to capture this second-era technology for their own ends, a trend that will no doubt spread to societies that are more democratic in the absence of governance and public vigilance.”
A regime could eliminate cash, allowing only programmable currency, for example, and then monitor its citizens’ purchases. Were people spending money on “subversive writings”? If so, the government could retaliate financially against such individuals, preventing them from purchasing a house or sending a child to college.
“A lost decade”
The year 2008 looms large in Financial Services Revolution. Not only was it the publication year of Satoshi Nakamoto’s seminal Bitcoin white paper, but as Tapscrott wrote:
“For many of my generation, 2008 began a lost decade of structural unemployment, sluggish growth, political instability, and a corrosion of trust and confidence in many of our institutions. The financial crisis exposed the avarice, malfeasance, and plain incompetence that had driven the economy to the brink of collapse and had some asking, ‘How deep did the rot go?’”
Is it fair to say, then: No financial crisis, no blockchain? Tapscott answered that it is almost inevitable that financial assets and money would be disrupted by the blockchain, adding:
“But if we look at the decade under question, and recall the historically high unemployment rates in countries like Spain, Greece and Italy, there’s not much question that the ensuing lack of trust in institutions led many do view decentralized systems like blockchain more favorably.”
The aftershock from that financial crisis is still being felt. In the ongoing U.S. Democratic Party primaries, the high concentration of Millennials (currently aged 24 to 39) who believe that capitalism has failed and are therefore supporting socialist candidate Bernie Sanders is another manifestation of a generation’s lack of faith in established institutions, Tapscott suggested.
In this topsy-turvy post-2008 world, the youngest voters have been embracing the oldest candidate, Bernie Sanders, while the oldest voters have been supporting the youngest candidate, Pete Buttigieg.
Financial Services Revolution has a number of contributors in addition to Tapscott: Michael Casey, Alexis Collomb, Primavera De Filippi, Andreas Park, Klara Sok, Bob Tapscott, Fennie Wang and Anthony D. Williams. Multiple authors having written on varied topics over different time periods gives the book heft and breadth, but it also has a dated feel at times.
There are some 394 footnotes, for example, and these references are mostly pre-March 2018 — for two chapters, they are exclusively so. This might not matter for most books, which inevitably struggle with longer lead times, but the blockchain and crypto world is changing so rapidly that information risks losing its relevance. Figure 3-2 on page 138, for instance, represents the “Top 10 ICOs of 2017.” Some readers might have preferred to see the top 10 ICOs of 2018 or 2019.
Greatest impact in financial services
Cointelegraph asked Tapscott where blockchain would make the biggest impression over the decade, to which he responded: “It will have the most impact in financial services, and affect every aspect of the industry, though the impact will be uneven at the start.” Global payments may be the first area to be disrupted; disruption of securities markets, by contrast, may take more time.
Supply chain and logistics might be the second area where the blockchain revolution is felt. A blockchain offers a view of a supply chain’s assets at any point in time. Have all goods been delivered, have all duties been paid? The technology could be a valuable tool in squeezing fraud out of the global economy, he said.
Where are the use cases?
Many are still waiting for a game-changing blockchain application. Are there any notable use cases besides Bitcoin? Bitcoin is the leading use case, Tapscott answered, but it isn’t the only notable one. A lot is happening in decentralized finance — MakerDao’s stablecoin, for instance, and stablecoins in general.
Admittedly, many use cases haven’t worked out. Blockchain hasn’t had much of an impact on the publishing industry, for instance, “But maybe that’s the nature of the game,” Tapscott commented. Many dot.coms failed in the early 2000s because the necessary infrastructure wasn’t yet available. “As the technology becomes more robust, we should see more [use cases].”
The book also recounts some exciting applications, like Estonia’s blockchain-enabled ID card, through which citizens can order prescriptions, vote, access online banking services, review school records, apply for state benefits, access medical and emergency services, file taxes, submit planning applications, upload a will, and apply to serve in the armed forces, as Anthony Williams wrote.
Proving a negative
In Chapter 6, Andreas Park illustrated how the hard information stored on a blockchain can improve the standing of a historically corrupt country.
“In the current world, it is often impossible to credibly and efficiently reveal all of a government’s relevant transactions and business dealings — but when all transactions and contracts are recorded on a blockchain, nothing remains hidden.”
Money and contract terms can be traced, and as a result, the government can credibly document that its actions are not furthering corruption — i.e., proving a negative, as it were.
It’s about more than Bitcoin
With nuggets like these, this forward-looking book will not disappoint the crypto community. As for crypto skeptics, there is probably little here to change minds. They are still waiting for the killer app and blockchain’s version of email, but MakerDao isn’t likely to assume that role. Not yet, anyway.
Still, Financial Services Revolution provides a useful reminder to all parties that blockchain technology encompasses much more than just Bitcoin.