Of all the emerging technologies set to transform business
processes, blockchain stands on its own for a variety of reasons. Whereas many
– 5G, cloud, augmented reality – are the next iteration of what has come
before, blockchain stands alone.
As a result, it’s difficult to rely on past laurels. Those at the sharp end need to have interests and expertise in a variety of specialisms, from computer science, to economics, to geo-politics.
Michel Rauchs (left) is a researcher whose focus is predominantly around digital assets and distributed systems. He previously led the cryptocurrency and blockchain research programme at the Cambridge Centre for Alternative Finance (CCAF), where he still resides as a research affiliate.
Rauchs took a year out from his studies to ‘make sense’ of
all the disciplines required to understand blockchain technologies, though
primarily Bitcoin at first. “During my studies, it really was something that
fed into all of these intersections – all the disciplines I had been interested
in,” says Rauchs. “That’s when I realised I had absolutely no idea how it
Learning more about the disciplines meant learning about the
vociferous tribes which govern Bitcoin. As the industry matures, the tribes
appear to have not. Yet this is no bad thing. “Paradoxically, the more divided
a community is, the more difficult it is to find consensus on anything, then
the properties of that particular system are as real as they can get,” says
“Let’s take a step back and look at what a cryptocurrency
actually is and how it gets value. It’s just code, right? And the code is open
source so anyone can just take it, change it, and then essentially launch their
cryptocurrency,” he adds.
“The only thing that makes a cryptocurrency worth something
is the difficulty to actually change its key parameters,” says Rauchs. “In the
case of Bitcoin, that would, for instance, be its 21 million coin limit. If
it’s easy to change that characteristic then it isn’t worth anything. The only
thing that really prevents changing these properties is that it’s really
difficult for the community to agree to do something – to define consensus
around the rules that govern the system.”
When we sit down to speak, Libra, Facebook’s digital
currency, was in the news, with Mastercard’s CEO, Ajay Banga, going on record
that national payment systems were ‘really stupid’. According to reports,
Facebook has recently proposed making significant changes, reverting to digital
versions of established currencies.
“I think it’s often inaccurately portrayed as a
cryptocurrency,” Rauchs says of Libra. “Nevertheless, Libra essentially came to
fruition as an idea because Bitcoin and cryptocurrencies really opened that
Pandora’s box; forcing governments and payment providers to reassess existing
infrastructures and processes.”
Here’s where another history lesson can be learned. Rauchs
notes the similarities between Libra and non-sovereign currencies – private
money issued and distributed by private corporations.
“If you have a company like Facebook, or a consortium like
Libra, which covers at least 2-3 billion people globally, introducing its own
currency, that could have a massive impact on the ability of central banks to
initiate monetary policy,” says Rauchs. “Even beyond that – essentially the
authority of governments themselves.”
Libra’s model – if it comes to fruition – could also have
serious effects for the world’s largest payment providers. In
October, with binding commitments looming, Visa, Mastercard, and others,
pulled out. Rauchs argues the move was more than just coincidence.
“They wanted to have a seat at the table just to get
first-hand information on what this project was all about,” argues Rauchs.
“[The fee] was literally peanuts to give them an idea of what’s going on and
the model that could potentially disrupt their businesses.
“I don’t really think they were supporting Libra right from
the start – it was just a way to get first-hand information, and when the
regulatory pressure got too high, they just conveniently pulled out.”
Scholars will know that technology history tends to repeat
itself – and as we have seen, the history of monetary systems can easily follow
particular parameters. Rauchs’ maxim for such a development is that transitions
‘play out over decades.’
“There’s no big crash and you start with a different system
– especially if you’re talking about international monetary standards,” says
Rauchs. “It’s different if you talk about countries like Zimbabwe and
Argentina, for example, where you have hyperinflation, and then from literally
one day to another you start with a new currency.
“When you’re talking about the international monetary system
that has been based on gold and then after that the US dollar, to continue
different international monetary orders, that’s going to take at least 10-20
years, with a lot of experimentation in the meantime. It’s quite exciting to be
Rauchs is speaking at Blockchain Expo Global later
this month around Bitcoin’s purported environmental impact. The statistics have
been alarming; the standout figure was that Bitcoin consumed more energy than
Switzerland. Yet it is a more complicated picture than that.
“The way that Bitcoin is being valued for different people
right now is completely subjective,” says Rauchs. “For some people, it’s an
essential part of their life, in the sense that they don’t have access to other
payment systems; for other people it’s some sort of gimmick, and definitely not
worth the electricity it consumes.
“The only thing we can say today is that Bitcoin right now is at least not directly contributing to climate change, though the level of energy consumption is really high,” adds Rauchs. “You need to look at the energy mix, and what sources of energy are going into producing that electricity. With Bitcoin, it turns out it’s mostly abundant hydropower, that would otherwise be wasted anyway.”
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