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"Bitcoin Mimics the Property of Gold"

In 2017, the largest cryptocurrency Bitcoins price rose over 1,300 per cent, and it has been swinging wildly this year, worrying regulatory agencies globally. Nicolas Cary, Co-founder and President of Blockchain, the largest blockchain firm globally, prov
twitter-logo Manu Kaushik   New Delhi     Print Edition: March 11, 2018
Bitcoin Mimics the Property of Gold

In 2017, the largest cryptocurrency Bitcoins price rose over 1,300 per cent, and it has been swinging wildly this year, worrying regulatory agencies globally. Nicolas Cary, Co-founder and President of Blockchain, the largest blockchain firm globally, provides the technology that supports storing and transactions of Bitcoins. He spoke to BT's Manu Kaushik over the phone, in the middle of a busy day at his London office.

Question: How has your journey been so far?

Nicolas Cary: We have raised $70 million from Google Ventures, Richard Branson, Lightspeed Venture Partners and a variety of other investors. We have entered the Indian market in partnership with a startup, Unocoin, based out of Bengaluru. We have partnered them to make it easier for Indians to get digital currencies like Bitcoin more quickly. We have been growing faster than ever.

Our company's name is frequently confused with the core innovation that everyone is so excited about because of its disruptive potential. The technology that actually makes the transactions possible in digital currencies is known as blockchain technology. For the first time in human history we have a software that makes it possible for all people, regardless of where they are in the world, to faithfully execute secure economic transactions with each other using nothing but software. This means that individuals using a peer-to-peer network can send any type of secured value over the internet and its just as easy as making a conference call.

A blockchain is giant spreadsheet in the cloud. Except instead of there being one copy of this ledger or spreadsheet, there are actually many copies, and those copies are distributed all over the world. When one of the ledgers gets updated with a transaction, meaning somebody moves value from one person to another, all the ledgers get instantly updated simultaneously.

The first blockchain that has been running without any interruption for over eight years now is the Bitcoin network. This is significant because Bitcoin pioneered the first application of a blockchain. Its purpose was to create peer-to-peer cash. Bitcoin is money for the internet that uses blockchain to exchange value. The reason a blockchain is necessary is because there's something known as digital scarcity. Blockchain makes it possible to create a perfectly unique digital asset. So essentially, counterfeit-proof digital assets. Once you have counterfeit-proof digital assets, you can use them for lots of things like mimicking the properties money. That's one of the reasons why digital currencies like Bitcoin have taken off. But it's really just the first application.

Besides Bitcoin, what are the other potential uses of blockchain technology?

A:Blockchain is now being explored for use cases far beyond just making peer-to-peer payments. Once you have a recordkeeping system that can keep track of very vital information whether it is money or something else, use cases start to expand rapidly. For example, blockchain technology is currently being used to pioneer use cases for everything including trade finance which is the movement of goods from different markets. The World Economic Forum (WEF) is working to build a blockchain-based programme to track tuna fish as they get harvested from the sea, moved on to processing, shipped to the market, and ultimately put on the shelves of supermarkets for consumers. Using blockchain, they are certifying that the total catch and yield are in compliance with fishing regulations. The applications apply far beyond fish to rare earth minerals like diamonds to timber to precious metals. In fact, there are companies doing all of those things. It's exciting that Andhra Pradesh in India has pushed forward an initiative to build a proof of concept for land titling system on blockchain.

Beyond those two things, I think the one area that's gaining traction right now is using blockchain technology to issue tokens that represent value in private companies. You may have heard of ICO (initial coin offering). It's basically a way to form capital - do a fundraising - and exchange a future promise for utility on some type of software platform. So you can imagine a world where instead of there being driving companies, Ola or Uber, there's actually just software that's running in the cloud. The users of the platform, drivers and riders, are exchanging tokens on the platform that grow in value as more and more people use it.

These are extremely innovative business models that didn't exist even 12 months ago. We are really excited. It's almost like having credits on a system.

Which countries are fast in adopting blockchain technology?

A:We have seen the regulatory environment across Europe and the US maturing significantly over the past few years. Japan has legalised Bitcoin as a form of tender.

China has banned Bitcoins and and similarly so have other countries...

A:China has restricted some usages of digital currencies. It's interesting that China has also been strong in preventing or expanding the use of other popular technologies including Facebook, Twitter and YouTube. So their position should not be of too much concern . There are still users of Bitcoin in China. The full breadth of use cases has been restricted through some regulations. I would point out that since China has issues strict regulations, the value of Bitcoin has continued to increase just like the value of Facebook, YouTube and Twitter.

It's interesting that they can be really against something and actually cause it to be more successful.

Major cryptocurrencies are falling sharply. Regulators across the world taking a harsh stance on cryptocurrencies like Bitcoin, Ripple, Ethereum and Litecoin. What do you think is their future?

A:We strongly believe in the future of digital assets and our mission is to make it easy for people to participate in this new ecosystem. In many countries, like South Korea and the EU, regulators are taking notice and looking for ways to embrace blockchain technology and digital assets. This is a step in the right direction and will provide important safeguards for consumers. Ultimately, the financial system has not meaningfully changed and many have been left out, or left behind. Digital assets are reducing those barriers and providing more people with access to financial tools whether its transacting, saving or investing.

There are hundreds or thousands of new digital assets. Bitcoin is just one of them. These technologies have the ability to bring billion of users into the financial economy because of the incredible scale they provide. Not only is this really good for innovation and creating jobs, but we also think it's going to improve the speed at which commerce happens. We think that regulators should take a progressive and thoughtful approach when it comes to looking at these technologies because the development work and effort that they provide will most likely make it possible for a significant amount of people to join the economy.

Like a lot of new things, it can seem confusing and little intimidating. We have found that regulators that are open-minded in their approach towards technologies can get over some of the technical complexities and see some of the benefits. In India, there's a strong interest in making sure that everyone can affordably transact with each other.

What are the challenges for blockchain technology?

A: One of the challenges is that when you use distributed network, you do have latency issues. Even though it's running reliably for over eight years, there are so many people using it today that sometimes the transactions can take more time than users would expect. That's the current drawback in an area that requires more research across our industry. How can you deal with capacity increases? Five to 10 years from now, we are going to need networks that can handle millions of transactions per second. In the peak retail season, Mastercard and Visa are doing 35,000-40,000 transactions a second.

As the world gets more inter-connected, as more devices are online, and IoT (Internet of things) comes to reality, we are going to need transactional network that can operate at huge scale. We are doing some cutting-edge research in cooperation with leading institutions like Imperial College and Cornell University to sort out those things.

You don't need to use blockchain for everything. Blockchain makes sense when you don't want to have to trust some type of entity. The whole point of it is that you can perform actions without having to worry about counter-party risks. There are a lot of people going around and saying that you should put blockchain on everything, the reality is that there are plenty of use cases for regular centralised databases too. Blockchains are perfect for financial transactional use cases.

What's the market size of blockchain technology and what's the growth potential?

A:The worldwide market cap for digital assets today is around $200 billion that includes Bitcoin, Bitcoin cash, Ethereum and a few others. If you look at the opportunity five years from now, I think you have to study the trend lines to evaluate past performance. There are lots of places in the world where this technology can have valuable and positive impact. In the past year we have had faster growth in Argentina, Venezuela, Greece, Ukraine, Russia, China to some extent and the UK.

In our survey, 50 per cent of our users have performed at least one cross-border payment in India. We think the remittance use case is a strong one as a form of money or payment. The digital currency Bitcoin is called digital gold because of its properties. Bitcoin is counterfeit-proof - you cannot invent more of it. It's fungible, it's easily divisible means that it can break it down to tiny pieces and you can send it anywhere in the world instantly with absolutely zero counterparty risk. It mimics the property of gold. In India, the store of value use case is probably winning out over the basic use case of payments.

For some people, it's more valuable to store it and hedge against other types of value fluctuations. For other people, it's a convenient way to send money to their families back home if they are working abroad. Because it's an internet-based currency, and the people that are using it spend a lot of time online, it makes sense that the first experiences the consumers will have at the retail level would be for e-commerce websites. I think that 10-15 years from now, you will be able to pay for everything.

@manukaushik

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