Crypto going global: what next for digital money?

Gian M. Volpicelli

Can we start? Okay, and I think a couple of people are still picking a place. Okay, good evening, everyone. Welcome to this debate at Chatham House, Crypto Going Global: What Next for Global – for Digital Money? I am Gian Volpicelli. I’m a Senior Writer at WIRED and I will be your MC tonight. I will – in order to start, just a couple of housekeeping rules. The conversation will be on the record and, that’s it, so, it’s not Chatham House Rules.

Today, we are going to discuss about, as you said, crypto going global and what it means for crypto itself and for the globe, with a panel of fantastic guests. So, we have Ying – Dr Ying-Ying Hsieh, Assistant Professor, Entrepreneur and Innovation – Entrepreneurship and Innovation at Imperial College, right? Nick Hill, Managing Director of Financial Institutions at Moody’s Investor Service, and in ethereal form, astral form, Dr Garrick Hileman, Visiting Fellow at the LSE.

So, another, kind of, point about questions. People who are following this conversation via Zoom are welcome to submit their questions via the chat function during the Q&A segment. I will be checking them. We might have to ask you to unmute yourself, in order to ask them directly, or I will be reading them, depending on what you prefer. You, in the room, just wait for the Q&A segment and you will just have to raise your hands.

So, let’s start. So, the theme of today’s debate is interesting, because it’s very transnationalistic. It sounds like crypto is about to go global and that’s something that I suppose was based on what we were seeing when we were thinking about this event, right, some months ago, when crypto had been through a spell of uninterrupted growth. It has been – it had been growing to, I think, $3 trillion in global value. All the crypto-assets were, essentially, booming at once. Bitcoin, of course, was leading the march. DeFi, decentralised finance, which is a specific online only new version of finance, had growed to a value of $200 billion. El Salvador had adopted Bitcoin as its legal tender. So, everyone thought that we might be very close to, essentially, crypto eating the world, and that’s a narrative that is done by VCs and influencers or the world’s richest man, and other people.

But now, of course, I mean, there’s been a massive correction to that prediction. There has been the infamous Terra LUNA crash in June. The whole sector has lost, I think, two trillion out of the three trillion, and a lot of people has – have lost their money and they’ve been crying about it, as The Guardian today reminded us.

And so, my question is, first of all, whether we got this all wrong. For instance, one way we used to think about crypto is that it was a hedge against inflation. It was supposed to be untethered from the wider financial system and resist these kind of shocks, but actually, when inflation went up, Bitcoin crashed. So, whoever was using it as a safe haven, I mean, got another thing coming, right? And so, my question is, first of all, how we should think about crypto post-crash, and the second question is, of course, what are we going to do to prevent something like that to happen again? What are regulators going to do? And we know what they are going to do, because they’ve been started doing it, in the EU, for instance, even in the US. There’s a lot of discussions about it.

So, that’s, essentially, the terms of the discussion I’d like to have tonight, this evening. Maybe let’s start with your remarks. So, let’s have five minutes for each of you to maybe give us your take. Ying-Ying, do you want to start?

Dr Ying-Ying Hsieh

Yeah, I can start. So, my name is Ying-Ying Hsieh. I am an Assistant Professor of Innovation and Entrepreneurship at Imperial. I’m also the Associate Director of the Imperial College Centre for Cryptocurrency Research and Engineering. I’ve – I started working on research on crypto since 2014, and it’s very nice to meet you, first of all. And slightly different from how we, you know, see it and how you describe crypto from the financial perspective.

I study crypto from an organisation design and the organisational innovation perspective, because I find the design and what underlies the decentralised infrastructure, really fascinating. And as an Engineer in my previous life, I’ve always looked at the design first and the structure and see how that facilitate and reorganise the economy in novel ways. And, essentially, blockchain, crypto, emerges to resolve these collective action problems, to resolve the problem of managing common resources, you know, of capital, of knowledge. So, that’s the part that fascinate me the fir – the most.

Now, in terms of research, more specifically, I look at the co-ordination and the governance of blockchain based tough form ecosystems. I also study the – you know, how blockchain based platforms self-evolve, because they are, essentially, not funded by – funded or sponsored by any companies. So, in order to change, to adapt, they have to rely on forking, right? So, what does forking mean for start-ups or, you know, these decentralised apps building on top of a decentralised infrastructure? This is also very interesting as the research topic.

And so, this – so, I mean, overall, it’s the tensions that prevail in the blockchain based ecosystem that really fascinate me. What are these tensions? So, the tensions between centralisation and decentralisation, the tensions between control and autonomy, how we manage a decentralised ecosystem in a more centralised way, and the tension between, you know, transparency and accountability, or between regulations and the innovation. So, that takes me to my, maybe, you know, future projects or future interest in crypto, which is the external influences, for example, regulations, or what does cryptocurrencies mean to globalisation? So, in line with our topic today, what are the external forces that – and external factors that could have a role in, oh, affecting the evolution of this industry.

But overall, my position about crypto has always been the same. I mean, it’s a fascinating organisational innovation and it provides an interesting alternative to the traditional financial system. And I think, you know, for some part of the world, or for some part of other population, this alternative would be very useful. It will have its utility and we should – you know, if we see this, no, really creating value to certain parts of the people, no, we should encourage that. And of course, you know, with any innovation, you see bubbles, you see speculations and you see shakeouts and that’s also a natural part of the process. So, going back to what you just mentioned in the opening, it’s somehow a necessary process for us to experience the pain.

Gian M. Volpicelli

So, it’s, like, necessary.

Dr Ying-Ying Hsieh

Yeah.

Gian M. Volpicelli

We have to suffer…

Dr Ying-Ying Hsieh

Hmmm hmm, yeah.

Gian M. Volpicelli

…in order to get a salvation. Fantastic. Nick, you – forgive me if I go to Garrick first, just because I don’t want to discriminate our erstwhile Fellow. Garrick, what’s your take? I see that you have a Blockchain.com caption behind, hovering to the right of your head. So, please…

Dr Garrick Hileman

Yes.

Gian M. Volpicelli

…tell us everything.

Dr Garrick Hileman

Thank you. Well, it’s a pleasure to be back at Chatham. I was invited to speak there in 2018 to explain this thing called blockchain technology, and my understanding it’s one of the best performing videos. Not that I delivered some glorious TED talk that was incredibly stimulating, but because I think this question of “What is blockchain technology?” is incredibly confusing to many people. In fact, a lot of survey data shows that people have a better understanding of quantum computing/artificial intelligence, than they do blockchain technology.

So, one of the first points I want to make is that there’s a huge education gap around what is blockchain technology, what is Bitcoin, what are they today, how can they evolve, and what can they be in the future? Massive, massive need for more education and better understanding, not just across the general public, but also in many policymaking circles, where we continue to see a lot of confusion and misunderstanding of this technology, its strengths, its weaknesses and its potential.

But just a bit about myself. I wear two hats. In addition to being a Visiting Fellow right now at the London School of Economics, I am the Head of Research at Blockchain.com, one of the oldest crypto-asset companies. It’s been around for coming up on 11 years and I’ve been both in the academic, as well as the industry, for close to ten years now. I started working full-time at CoinDesk back in 2013, secretly. My PhD Supervisors at the London School of Economics frown on any PhD students doing side gigs or side hustles. But my, I think, you know, kind of, academic and industry perspective, give me, kind of, a unique view on this whole space.

And I wrote a blog recently, kind of, reflecting on this 2022 crypto price crash and trying to address many of the questions we’re going to be talking about tonight. I think one of the key points has already been raised, which is that crypto has a tendency to rise and fall. The 74% price correction that Bitcoin suffered from its November of 2021 high of almost $69,000 per Bitcoin, to today around 20,000, that’s only the fifth largest price correction in history, but the loss of almost a $1 trillion in market value. Bitcoin was worth almost 1.4 trillion back in November 2021, is, you know, in the $400-500 billion range today, that is unprecedented. So, the scale of loss is absolutely massive.

The World Bank estimates over 200 million people today around the world own crypto. So, I think, in some ways, this question of crypto going global, I think it’s already happened. You know, we’ve got a couple of hundred million people around the world who own crypto-assets, you know, non-fungible tokens, Bitcoin, Ethereum. Crypto-assets is more than just Bitcoin today. You know, it’s not gotten to a billion people, like something like WhatsApp or Instagram has, but a couple of hundred million people is very significant and it’s certainly a huge change from the last bull cycle, which was 2017, when I was at the University of Cambridge, and at the start of that cycle, we estimated perhaps as few as – less than ten million people owned crypto just five years ago.

So, that kind of growth is truly remarkable. In fact, if you compare the growth of Bitcoin ownership to the growth and the use of the personal computer, or the internet, even, crypto-asset use is growing faster than even the use of the internet or the personal computer, from their inception. Now, just let that sink in for a second. What does that mean? Well, it means there is a huge, huge interest in what this is offering, even if people don’t quite understand what it is, how to use it, what it can become. And I think that’s one of the things that often gets missed in conversations about crypto-assets, is the why. Not what is Bitcoin, why is there so much interest in crypto, alright?

And there’s two key things. There’s both push factors, things that are pushing people, inflation, you know, decline of institutions, you know, costs of using traditional fiat payment rails, and then there’s the pull factors, you know, the things that are more positive, I would argue. Things like increased transparency, trust minimisation, automation, just ongoing digitisation. So, these push and pull factors are driving the why crypto and I think it’s important that we understand this why question, actually more so than the “What is crypto today?” because it actually is still evolving and changing quite rapidly. Thank you.

Gian M. Volpicelli

Right. Yeah, I like to prod you regarding – later, not now, about the – how the deficiting knowledge goes hand-in-hand with people wanting to have it, because there is some kind of discrepancy there, right? If they don’t know what it’s about, why do they want it?

Dr Garrick Hileman

Hmmm.

Gian M. Volpicelli

But anyway, okay, we heard two fairly optimistic perspective. Nick, bring us back to the cynical perspective, here, I feel, if you can.

Nick Hill

Never, never, never cynical. So, I’m Nick Hill and I co-head the Global Banking Group at Moody’s Investor Service, and all of my remarks, therefore, are through this lens of credit analysis. We’re a credit rating agency and we’re part of Moody’s Corporation, which you may know, which is a global risk assessment company. So, my job is, essentially, to consider the impact of crypto developments on rated financial institutions, on the incumbents, if you like, the financial system. So, I’m not an Engineer.

Gian M. Volpicelli

No.

Nick Hill

I’m not an academic.

Gian M. Volpicelli

Nobody is here.

Nick Hill

My remarks are from a credit perspective, basically. So, a few points. To go back to one of the original premises when this discussion was set up, “Is this the biggest revolution in a generation, or is it shrouded in hype?” First point is that the two aren’t mutually exclusive, and I’m pretty sure that there is, and certainly was, a lot of hype, bit less now than a few months ago, as you pointed out, with the reduction in the market cap of the crypto-asset base. So, it’s smaller now, but still, we’re not talking small potatoes.

So, is this the – so, there’s a lot of hype, yes. Is this the biggest revolution in a generation? Well, picking up on something that Ying-Ying said, yes, in a sense, crypto does offer, or promise, some kind of revolution, because almost in a literal sense, actually, because what it’s offering, in some form, is to turn the financial system on its head.

What do I mean by that? At the moment, the plastic financial system is, basically, a centralised system, so the rules are set by central governments and central banks. When people or companies deposit their money, they go to banks, commercial banks typically. Commercial banks deposit some of those assets at central banks. Central banks go on and place some of those assets at the Bank for International Settlements, which is the central bank of central banks, and so on and so forth. So, we live in a system, which is highly centralised. Ultimately, central governments and central banks make the rules and decide what is legal tender and what is not. So, that’s how it works, it’s a centralised system.

Now, crypto and the decentralised finance theory, therefore, promises a revolution, because, you know, literally, it’s turning that on its head. It’s turning it over and we’re – has – promises things like currencies created outside this existing ecosystem, transactions taking place away from commercial banks, away from central banks. Savings and lending done on a peer-to-peer basis, so cutting out the intermediaries, which are typically banks. Verification done, not by a central counterparty, but by other individuals in the system solving algorithms and things. So, it is a radical proposition and so, it does, clearly, sound like a revolution.

Now, to be clear, we think that there are aspects of this technological change that are certainly disruptive and which will certainly gain traction. The blockchain part of that we think will hit its stride, probably in the next few years. Companies are shifting from pilots to bigger scale production, and we think there is real potential for these technology to make transactions faster, cheaper and more inclusive.

We actually, at Moody’s, have set up a dedicated team to look at this and make sure that we’re ready for these kind of technological developments. But recent weeks, as you point out, have seen that some of the most hyped parts of the crypto universe were subject to some of the same classic financial risks that we’ve been looking at, as Bank Analysts, forever.

Gian M. Volpicelli

Yeah.

Nick Hill

Illiquidity, runs, inadequate capital, mis-selling, overleverage and the rest of it. So, is it a revolution? For us, certainly not yet. We’ve heard, in recent days, a number of regulators come out, once again, repeating familiar mantras, “Same risk, same regulation.” So, the regulatory perimeter will expand, that’s been – that’s a stated aim of regulators. They want to bring this stuff within their remit and there are legal proposals to do so.

Now, many of our institutions, most our institutions, like governments, regulators, law enforcement agencies and so on, are, basically, centralised bodies. So, when something becomes financially important, as is happening in the crypto, notwithstanding the recent falls, it is likely to become regulated. And for us, it seems, therefore, inevitable that once these entities – once these activities, I should probably say, are regulated by central bodies, there will be some convergence to the existing system, because regulators will expect – will demand, likely, governance, control, things that they can get their hands on and things that ensure some centre – some sort of accountability to the regulator and, thereby, political systems and the general public, ultimately. On the flipside, failure to observe those new rules will mean that some activities will become de facto illegal, and we’ve seen some decentralised exchanges, subject to US sanctions.

So, yes, there’s lots of hype. Yes, global banking is undergoing a fairly deep transformation and very likely a revolution, and part of that is a response to some of the trends we’ve seen in crypto. And probably, it’s the biggest evolution, the profound evolution since the first – since the internet arrived in – on – in scale in the late 1990s, which is 25 years ago, which is about a generation. So, I think you can probably say, yes, this is the biggest transformation in a generation or so, but it’s not the first, by any means. Banks and the plastic financial system have adapted over time to ATMs, telephones, mainframes, personal computers, and so on and so forth, and I don’t think it’ll be the last.

Gian M. Volpicelli

Okay, right. What I’m still struggling to understand is, I mean, now that crypto has – I mean, crypto was created, Bitcoin, which is the first old cryptocurrencies, was created in the wake of the 2007/8 crisis. It was supposed to be, essentially, this asset that was decentralised, would be resistant to crashes and inflation and would not be controlled by corrupted banks or central banks, therefore inflation. And so, the idea was to create something that would resist the next big financial crash, or hit, or recession, or whatever, and actually, now, it is the first thing that is falling.

So, I am just trying to understand how can the idea of cryptos as safe haven asset, as a uncorrelated asset, going to be safe? Can it be safe? Does crypt – if it’s not safe, does crypto still have – crypto as currency, does it still have a usage? Does this even make sense? Do you think about crypto as something that will save our savings from the vagaries of the financial system? And so, I would like to hear from, possibly, Garrick and Ying-Ying, what do you make about it? So, how can we still talk about crypto being a hedge against inflation, essentially a safe haven asset, with a straight face right now, because I can’t, really?

Dr Garrick Hileman

Yeah, so, I think people may not understand how Bitcoin works, but I think a lot of people understand it’s incredibly volatile and that is absolutely true. I mean, it’s prone to these massive increases in price and crashes and it does this on a semi-regular basis. Why? Well, unlike a traditional early-stage tech investment made by a venture capitalist in private shares, a crypto-asset starts trading almost immediately on open markets, even when the technology sometimes has not even been deployed. We’ll see these tokens trading before they’ve even launched the network.

So, imagine an early-stage company who, from day one, Mark Zuckerberg walks in, you know, to Peter Thiel’s office and says, “Hey, you know, we’re going to start trading this thing called Facebook, even though it’s not really fully developed. It’s running at Harvard and a few universities.” The price would be incredibly volatile, as its, kind of, you know, strengths and weaknesses are revealed in those very early days, early years, and that’s – that doesn’t happen, of course. Facebook shares are private. You never see the price fluctuating 24/7, 364 days a year, like you do see crypto-asset prices.

And so, volatility is, kind of, baked into this, kind of, immediately going live on public markets, trading 24 hours a day, seven days a week and, you know, when people are convinced that Bitcoin is going to become a new global reserve asset, a new form of money, you’ll see the price spike. People get overexuberant, less charitably we say, people get greedy, and then they get too greedy. They borrow money to speculate on this outcome and the price crashes, and that cycle just, kind of, keeps repeating over and over again. But…

Gian M. Volpicelli

And you think it is?

Dr Garrick Hileman

…is – yeah, is Bitcoin dead as an inflation hedge? To answer your question specifically.

Gian M. Volpicelli

Oh.

Dr Garrick Hileman

Well, read my blog post. I would argue no, and the reason…

Gian M. Volpicelli

Give us a…

Dr Garrick Hileman

And the reason…

Gian M. Volpicelli

…digestive version.

Dr Garrick Hileman

Yeah, the reason is that, you know, arguably, the best time to buy an inflation hedge, if we just take the pandemic cycle, was right back in March or spring of 2020, when hedge fund investors, like Paul Tudor Jones, went out and did exactly that. They said, “I’m buying Bitcoin. I can see the stimulus coming from the federal government, from the central banks.” And then, the time to sell that inflation hedge is when, you know, Jerome Powell stands up in front of Congress in November 2021 and says, “It’s time to retire that term transient from our vocabulary in describing inflation.” So, you buy it at the outset, when the seeds of inflation are being planted, and you sell when the Central Bank is finally getting serious about tackling inflation. If you’d done that, you would’ve seen a 15X increase in your price of Bitcoin, in other words, it performed spectacularly well as an inflation hedge.

Gian M. Volpicelli

So, didn’t…

Dr Garrick Hileman

Now, that’s a bit of…

Gian M. Volpicelli

That didn’t sell when they should’ve sold?

Dr Garrick Hileman

Well, that’s a bit of – I mean, what I’m doing here is what a lot of Analysts will do, which is to try to, like, move the goalposts to make the argument that you want to make. But, you know, if you look back over the last decade, you know, what is inflation, what’s been going up in prices? A lot of things have been going up in prices for ten years: housing, healthcare, education, childcare. You know, we have this myth that we’ve been in a low inflation environment for ten years. That’s not totally true, and a lot of people argue about the methodology for calculating inflation.

Larry Summers put out a paper recently looking at alternative ways to calculate inflation and arguably, over a longer time horizon, something like Bitcoin has done very well at preserving value against, you know, increases in some sectors. But, you know, the volatility of some – of crypto is not something that’s going away. It’s partly based on the fact that, again, unlike an early tech stock that’s shielded from public markets, crypto, from one day one, is outtrading and is prone to these speculative booms and busts. How it’s going to perform longer-term, as a macro hedge, as an inflation hedge, you know, it’s still being debated. But in some ways, you could argue it’s done okay. Done really well, in fact.

Gian M. Volpicelli

Okay. Ying-Ying, I’m curious about one thing. So, from your description and your interests and what you like about crypto, you seem to like more the, kind of, infrastructure of crypto, how crypto is decided. So, what about crypto as a form of – oh, as a payment system or as an asset, as a financial instrument, what do you make of that? Do you think it’s something that is central to how we should think about crypto? Is it going to replace banks or is it something that is secondary, you just look at other things there?

Dr Ying-Ying Hsieh

It’s one way we can think about crypto, among many others, right? So, there are so many other ways – like, so many ways we can think about crypto and crypto being a medium of exchange, as a payment system, is one of the many applications that they can be good for. And that, you know, that’s also probably one of the earlier, like, the very first reason why crypto was created. And I would tend to agree with Garrick about how I would not see crypto as a, you know, a tool to avoid inflation or to hedge an inflation, because…

Gian M. Volpicelli

So, it’s novel?

Dr Ying-Ying Hsieh

No.

Gian M. Volpicelli

Okay. Oh, yeah, it’s not my…

Dr Ying-Ying Hsieh

It’s too volatile and it’s – it hasn’t really reached that mainstream adoption yet. So…

Gian M. Volpicelli

Right.

Dr Ying-Ying Hsieh

Yeah.

Gian M. Volpicelli

So, is it – when – we forget that at some point.

Dr Ying-Ying Hsieh

Hmmm.

Gian M. Volpicelli

And we are not there yet?

Dr Ying-Ying Hsieh

And we’ll see, yeah.

Gian M. Volpicelli

We will see.

Dr Ying-Ying Hsieh

Like, once – yeah, but it’s – I think it’s more…

Gian M. Volpicelli

But it is…

Dr Ying-Ying Hsieh

…like it…

Gian M. Volpicelli

…marketed usually as that, right?

Dr Ying-Ying Hsieh

Hmmm hmm.

Gian M. Volpicelli

So, if you talk to a crypto influencer, they will tell you it’s…

Dr Ying-Ying Hsieh

Yeah.

Gian M. Volpicelli

…essentially, resistant and whatnot.

Dr Ying-Ying Hsieh

Yeah, yeah, and I mean, maybe the situation – the whole situation would look very different when it’s reached that mainstream adoption, when people start using crypto to buy, you know, things, to shop. And now, we are seeing some of that, you know, some retail, you know, companies search, you know, something crypto, like, that’s still, like, a very, very – like, just a fraction of the market. So, yeah, it remains to be seen when that is going to happen and the how, but again, no, coming back to your point, yes, I’m seeing crypto as more of an infrastructure and I focus more on the later ones, because they’ve been through maybe, arguably, a few more rungs of…

Gian M. Volpicelli

Can you…?

Dr Ying-Ying Hsieh

…this shakeout.

Gian M. Volpicelli

Do you have a quick explanation of what Layer 1 is?

Dr Ying-Ying Hsieh

Okay, so, Layer 1 is the infrastructure layer, take Bitcoin, EC – sorry, Ethereum, so, some of these earlier cryptocurrencies, for example, they have their own native cryptocurrencies. They issue cryptocurrency through this mining process, which is a competitive bookkeeping process among these, you know, network of miners. They compete to get the chance to upload this block of transactions. So, throughout this process, the network can be secured, the cryptocurrency can be secured and, also, through this process, this Layer 1 protocol provides a decentralised infrastructure for, for example, second layer codes, like what Ethereum can do, right?

And so, how I see cryptocurrencies is that, actually, they service a financial instrument for this type of decentralised infrastructure to be able to create and capture value. So, if you think about open or closed communities, for example, RineX, similarly…

Gian M. Volpicelli

RineX.

Dr Ying-Ying Hsieh

…or Wikipedia…

Gian M. Volpicelli

Wikipedia, yeah.

Dr Ying-Ying Hsieh

…or – yeah, so – or closed communities, such as standard-setting organisations, or industry alliances, where firms or individuals come together to collaborate on certain tasks to achieve a certain common goal, usually these type of ecosystems are not very good at exchanging money or exchanging value.

Gian M. Volpicelli

So, in a way, crypto might be the…

Dr Ying-Ying Hsieh

Crypto…

Gian M. Volpicelli

…pipeline to reward…

Dr Ying-Ying Hsieh

Yeah, yeah.

Gian M. Volpicelli

…to business components…

Dr Ying-Ying Hsieh

And so, cryptos…

Gian M. Volpicelli

…of a Wikipedia-like community, create incentives, if – the more edits, right edits, you’ve achieved…

Dr Ying-Ying Hsieh

Exactly, yeah.

Gian M. Volpicelli

…the more tokens you earn and you can buy, also, that Wikipedia branded T-shirt or something like that.

Dr Ying-Ying Hsieh

Exactly, yeah.

Gian M. Volpicelli

Or something else.

Dr Ying-Ying Hsieh

Yeah, so they create this possibility for, you know, this kind of community to incentivise contributors more fairly and yeah, in a little more decentralised way, yeah.

Gian M. Volpicelli

Right, it just – Nick, I’m curious about how you would explain the growth of crypto over the past couple of years, before the crash. What do you think triggered it? Why did it go “global” as the caption to our event said?

Nick Hill

I suspect there are a whole host of factors, but I think a key one is likely to be the very low interest rates that persisted for a very long period of time, because low interest rates tend to spur asset price inflation and we see that in a whole range of areas. We saw I think the stock market, we’ve seen in real estate prices, and we see it in crypto-assets. So, I don’t know what all the different factors will be, but I’m sure there are some social factors as well, you know, acceptance of new technology, etc. But I think probably interest rates is one of the underlying factors, as well.

Gian M. Volpicelli

But did you agree with – do you agree with Ying-Ying’s idea that, possibly, crypto’s most interesting and more applicable applications would be, possibly, open source communities, as opposed to a merely financial domain? So, is crypto going to be more about powering the next Wikipedia, as opposed to powering the next banking system?

Nick Hill

Frankly, I have no idea. My focus is banking system, so, I don’t know much about those things outside the financial system. What I would say is that I think there is – so far, we’ve seen relatively limited interaction between the financial system that we look at, the incumbent financial system, the plastic financial system, and the crypto system, they’ve been kept fairly well at arm’s length. There is some interactions between them, but fairly limited, which is probably why the bust of the last few months not really – that don’t really seem to have had much effect on the plastic financial system so far.

Gian M. Volpicelli

Yeah, there was a very interesting…

Dr Garrick Hileman

Yeah.

Gian M. Volpicelli

…Times article…

Dr Garrick Hileman

If I could, yeah, come in…

Gian M. Volpicelli

Hmmm.

Dr Garrick Hileman

…on that point.

Gian M. Volpicelli

Go ahead.

Dr Garrick Hileman

I think this, kind of, question is really important. Are we going to have convergence of, kind of, the crypto-asset system with the traditional financial system, or TradFi, or are we going to see them, kind of, as, you know, this is an alternative to TradFi? Hugely important question. I think…

Gian M. Volpicelli

What do you think?

Dr Garrick Hileman

…there are early signs that we’re starting to see more convergence and it’s coming through regulation. So, for example, the Bank of International Settlements put out an advisory that banks, you know, they would advise against holding more than 1% in Bitcoin, traditional banks. That implies that banks one day will start holding some Bitcoin, up to 1% of, maybe, their assets. You know, and if that’s…

Gian M. Volpicelli

But where does that…

Dr Garrick Hileman

…the world we’re heading towards…

Gian M. Volpicelli

…link come?

Dr Garrick Hileman

Sorry?

Gian M. Volpicelli

Does it change the way – does it change the very nature of Bitcoin, it becomes hyperregulated?

Dr Garrick Hileman

I think the more regulated – and I – my thesis has always been there’s going to be more regulation and more convergence, rather than there’s going to be these two parallel systems, because already, 200 million people, trillions in value, this is too big for regulators to ignore. You know, today crypto-assets are under a trillion, but still, very significant, and this convergence is going to change the nature of crypto, to some degree. It’s going to be more of a hybrid than what it’s been in the past, and I think it’s also going to help solve, to some degree, this problem holding back, you know, something like Bitcoin becoming money, volatility.

I think as you see more regulation and more traditional financial institutions involved with crypto, you should see a decline, over the longer-term, in the volatility of something like Bitcoin. And that is essential for it to ever to achieve its promise of becoming a new monetary instrument. It will not become a new type of money until it becomes less volatile, and that change could take decades, that change could happen, actually, quicker than you might realise.

And this, I think, Gian, getting to your question about systemic risk, which I think is also very interesting and important. You know, we’ve seen, you know, in this past year, the Russian Central Bank’s dollar assets de-platformed; seized, in essence. You know, this crypto expression of “Not your keys, not your crypto,” you know, can be applied, also, to US dollar assets now held by foreign central banks. You know, if you don’t have control, root level control, administrator access, so to speak, of your dollar reserves, they’re not really your reserves. And we may start to see governments thinking about blockchain based currencies that are more decentralised, as they think about ways to trade and transact and store value in years to come, and that change could happen quickly. I’m not predicting that, but no-one really knows when that change will occur. But I can guarantee you, many countries saw what happened to Russia and are thinking twice about holding US dollar reserves, going forward.

Nick Hill

So, could I…

Gian M. Volpicelli

Please.

Nick Hill

…just go in? Because I disagree, Garrick…

Gian M. Volpicelli

Fantastic.

Nick Hill

…I think, with your premise that a 1% cap implies that banks will go to a 1% Bitcoin holding. I don’t think it does. I think the regulators want to really avoid pretty much any holdings, apart from de minimis holdings, on a bank’s balance sheet, and that’s why most regulators impose one-for-one capital climate. So, for a pound’s worth of Bitcoin, if you like, you have to hold a pound’s worth of capital, which makes it, basically, prohibitive to actually hold this stuff on your balance sheet in any meaningful size. So, maybe it will, but I don’t think it’s because of the cap.

I do agree with your other point, which is that there will be, inevitably, convergence between some of the stuff we see in the crypto land, or in DeFi and TradFi, because as – the point I was trying to make in my opening remarks, and I think regulation will eventually require that. As regulators have been saying over and over again, you know, “Same activity – same risk, same regulation.” So, stablecoins, which have not been stable for – or at least…

Gian M. Volpicelli

Now you’re talking about…

Nick Hill

…a number have not been stable.

Gian M. Volpicelli

…Terra LUNA specifically, yeah?

Nick Hill

But some of them have not been remotely stable, but stablecoins, as we’ve seen in the new European…

Gian M. Volpicelli

MiCA.

Nick Hill

…MiCA regulation, and in some similar legislation proposed in the US, they will be subject to asset quality and liquidity requirements. Guess what? That looks a bit like banks.

Gian M. Volpicelli

They have to…

Nick Hill

So…

Gian M. Volpicelli

…register as e-money providers, I think. Sorry, we were – yeah, it’s marketing asset – in crypto-assets regulation, right?

Nick Hill

Right, exactly.

Gian M. Volpicelli

Which was classed as incumbents.

Nick Hill

The – some of the companies that provide the on-ramp from fiat money world into a crypto world, they have to respect anti-money laundering regulations, as society would probably expect, right?

Gian M. Volpicelli

Does that change the way…

Nick Hill

So…

Gian M. Volpicelli

…peop – you think about crypto, does that change crypto as a kind of, risky asset people will speculate on, if that becomes so regulated that it becomes so, essentially, straightjacketed? Does it change your – will it change the way people – investors, like, rank and file investors, relate to it?

Nick Hill

Well, I think if you give investors the choice between an illegal activity, where you might lose all your money, and one which is subject to a regulated perimeter and where you have some sort of investor safeguards, you know, I think many investors are going to prefer the second one, right?

Gian M. Volpicelli

Right, of course.

Nick Hill

And I think that means that those activities will just start to look more and more like the TradFi that we’re used to.

Gian M. Volpicelli

So, like, I don’t know, oil futures or something?

Nick Hill

Like what, sorry?

Gian M. Volpicelli

Like oil futures or whatever other derivative.

Nick Hill

I don’t know about oil futures, but I mean, they will – they would just start to look like what we call, today, banks, or money market funds.

Gian M. Volpicelli

Okay, right.

Nick Hill

The ultimate, sort of, counterrevolution, if you buy the revolution idea, which I don’t really, but it is that central banks themselves, of course, have their own plans, and we were drifting a little bit off the crypto…

Gian M. Volpicelli

Yeah, we are going to talk…

Nick Hill

…space.

Gian M. Volpicelli

…about digital trends.

Nick Hill

But central bank digital currencies and…

Gian M. Volpicelli

Which is another question. But actually, maybe let’s look at some of the questions, because this question has been asked. Bah, bah, bah, okay, is – okay, I will ask, “Is crypto the trial and error experiment that central banks observed, will regulate and eventually replace with central bank digital currencies?” In other words, is what we are witnessing now just a dress rehearsal for CBDCs? Are institutions – are central bank digital currencies going to be the only lasting legacy in the crypto revolution? Who wants to start?

Dr Garrick Hileman

I would love to.

Gian M. Volpicelli

Garrick, as you are…

Dr Garrick Hileman

…jump in on this, ‘cause I…

Gian M. Volpicelli

…raising your eyebrows.

Dr Garrick Hileman

I’ve…

Gian M. Volpicelli

Please go on.

Dr Garrick Hileman

…written about sta – I published a couple of major empirical studies of stablecoins starting in 2018, back when they were just two billion in size. One of the predictions I got right this year was that stablecoins, collectively, would actually surpass the market value of Ethereum. So, even with the collapse of the $40 billion Terra LUNA stablecoin, stablecoins collectively are worth more than Ethereum, and some people will get confused, is this bad for Ethereum, is this bad for Bitcoin and these, you know, these – the rise of the stablecoins? And actually, and this is relevant to the central bank digital currency question, which I’ll – stay with me, and I’ll get there to it in a second.

Gian M. Volpicelli

Yeah, I was about – you can get lost.

Dr Garrick Hileman

Yeah, it’s all interconnected here. The stablecoins, actually, live on top of Layer 1 protocols, like Ethereum and Bitcoin and others, and the more these stablecoins get used, the more demand there is for the scarce database space, so to speak, of Layer 1 blockchains, like Ethereum and Bitcoin. So, sta – the rise of stablecoins is actually very symbiotic with creating more demand, more value, for the underlying Layer 1 protocols, like Ethereum and Bitcoin. So, that’s point number one.

On central bank digital currencies, you know, different countries are taking different approaches here. You have a spectrum of approaches, something like what Chi – is happening in China, I would scarcely call a blockchain, you know, central bank digital currency. It’s more of a centralised database approach to digital currency, really more aimed at trying to loosen the power of Ant Financial and WeChat Pay than it is about competing with Bitcoin or Ethereum.

In the US, the latest thinking is there’s no rush to launch a digital dollar. That, in essence, stablecoins are, kind of, doing the job of helping to maintain dollar dominance, because stablecoin US dollars are 99% of the stablecoin universe out there, more than, even, the 60% that the US dollar makes up of global reserves held by banks in other central banks. So, the US dollar is even more dominant in the crypto world than it is in the traditional reserve world and many federal, you know, institutions in the US are thinking, “Why would we want to have retail customers at the Federal Reserve? Why would we want to try to design wallet software, and what’s the right balance of privacy versus control?”

These are complex questions that legislators are going to be wrestling with, that are way above the technocratic paygrade, to be perfectly frank. Questions around privacy and getting rid of cash, or competing against cash, with central bank digital currency. That’s a policy question, not a technocratic question and it’s going to slow down, I think, the introduction of central bank digital currencies in Western democracies, frankly. And we may never even see a Federal Reserve digital dollar. We may just see private, but heavily regulated, to Nick’s point, and bank-like stablecoins that are managed and regulated by central banks, rather than something that’s more directly run, like the Chinese are doing.

Gian M. Volpicelli

Right, Garrick. So, okay, you expect crypto native stablecoins to be more dominant than central banks’ digital currencies in the long run, possibly, because of several advantages you listed. Ying-Ying, what’s your take on this?

Dr Ying-Ying Hsieh

I’m a non-believer of CDBCs…

Gian M Volpicelli

Why?

Dr Ying-Ying Hsieh

…regardless where it is now in this spectrum, described by Garrick, and I think this also relates to how I see the convergence of, you know, the crypto system and the traditional system. I think there is only so much for so little, actually, degree to which the two system will converge. Yes, we are seeing, now, crypto exchanges being established. We’re seeing now more and more of these external activities related to crypto. But I mean, fundamentally, they are just different ways, like, almost opposite ways of organising and I would find it very interesting, or no, very difficult, very challenging, for any centralised entity to try to manage a decentralised system. And like Nick just described, you know, eventually, like, if you’re trying to do this, now, maybe you’re going to create something that’s very similar to what we already have, anyways, yeah. So, I’m not – I’m – I remain sceptical about CBDCs, regardless of the design, yeah.

Gian M. Volpicelli

They’re convenience, right, you know, don’t they, Nick?

Nick Hill

Well, there aren’t many of them yet. I mean, I agree with Garrick and you, Ying-Ying, that central bank digital currencies present many major and almost philosophical design…

Gian M. Volpicelli

They’re usually centralised, right?

Nick Hill

…questions. They are, by definition, centralised, originally by the Central Bank. But they require answers to some meaty political questions, right, the ones you raised about privacy and so on and so forth. These are difficult, they’re political. I agree they will take a long time.

But to come back to stablecoins for a second, if stable – stablecoins can only be truly stable if they have truly safe assets behind them that people trust, which, basically, you know, things like the US Treasury bills, for example, and that’s what regulators are going to – are talking about applying, right? They’re – they want high quality assets, liquid assets, etc., so that the things work. Fine. If, at the same time, technology is also evolving in the TradFi system, such that I can make real-time fast payments through my bank, well, what’s the advantage…

Gian M. Volpicelli

I don’t know.

Nick Hill

…of the stablecoins? If, eventually, and I agree it will take time, that the stated aim of many central banks is to introduce central bank digital currency, if eventually, you have a central bank digital currency, possibly interoperable with other central bank digital currencies, what – and those are, by definition, again, safe assets, what is the benefit to me of the stablecoin? Why would people choose a stablecoin if central banks…

Gian M. Volpicelli

What’s the answer?

Nick Hill

‘Cause may – I don’t see why…

Gian M. Volpicelli

Okay, it’s a tough question.

Nick Hill

…they would do that. I’m sure Garrick will provide an answer, but it…

Gian M. Volpicelli

No, I do…

Nick Hill

…seems challenging to us to sustain these things, and this is why we think there’s likely to be some convergence, in reality.

Gian M. Volpicelli

Right, let’s see whether – exactly. Oh, wow, we have two questions all at once, and let’s start with the gentleman in the first row. One second, one second, there is a microphone coming your way.

Chatham House Staff

Yeah, would somebody like to take to that man over…

Gian M. Volpicelli

One and two.

Chatham House Staff

Oh.

Gian M. Volpicelli

Very easy.

Hugo Barker

Thank you. Hugo Barker from Imperial, a colleague of Ying-Ying’s. I’m particularly interested in two questions. What do you think the contagion threat is between cryptocurrencies and traditional finance, and how does that operate? And what do you think the role of cryptocurrencies in developing economies, particularly economies that have issues with their own currencies, thinking about El Salvador, and does that have – does that offer stability to these countries in the future that it may not offer right now?

Gian M. Volpicelli

Let’s hear the other question and then, we’ll answer them all. Please.

Arthur

Arthur.

Gian M. Volpicelli

Yeah.

Arthur

I’m a Chatham House member. I know the technology since 2009, Bitcoin. So, what did you think about the 51 percentage takeover of a blockchain? If you will take – if the 51 percentage of the blockchain, it’s not cent – it’s not decentralised. Also, the energy consumption, the mining, no-one is talking about. They are, in one centre, they are consuming insane amount of energy and you are saying, “Oh, your dishwasher will do the mining,” but they are not designed for that.

Gian M. Volpicelli

Right, what’s the…

Arthur

They’re not…

Gian M. Volpicelli

…question?

Arthur

My question is what they think about that and lastly, the con artist instrument, how the blockchain will recreate this image to make this – I mean, fix these problems, like energy 51 percentage takeover, how they can fix this?

Gian M. Volpicelli

Okay, so, it’s 51% energy and cons in general?

Arthur

Yes.

Gian M. Volpicelli

Okay. Oh, wow, that’s a wide remit, okay.

Nick Hill

That’s one of the cons question.

Gian M. Volpicelli

Yeah, okay, well, let’s start with the contagion question. I think Nick partly addressed it, probably why it didn’t happen this time. Do you see it happening at all in the future? What should go wrong – doesn’t look to go in that direction, right? Regulation is arriving, but let’s hear.

Nick Hill

Yes, there’s not been much contagion, fortunately, and as things stand, we don’t think there likely will be a lot of contagion, because as I was saying earlier, the regulators have, basically, designed it that way, to make it very difficult for banks to have serious exposure to crypto. So, pretty limited, I think, contagion risk for the moment, unless, you know, the thing comes back and multiplies by ten, or 100 or something, and then it would become much more seriously systemic.

Gian M. Volpicelli

Let’s hear from – yeah, let’s start with Ying-Ying regarding the value of crypto in developing economies, because of course, a lot of our discussions seem to come from a Western perspective.

Dr Ying-Ying Hsieh

Hmmm.

Gian M. Volpicelli

Like, yeah, of course, a lot of people are gambling on this bizarre online slot machine and maybe countries like El Salvador, or maybe other countries, crypto can be useful remittances and whatnot.

Dr Ying-Ying Hsieh

Yeah, I think, you know, like I said, we should encourage this, kind of, bit eximent – experimentation and as long as it has utility, you know, for certain group of the population, you know, why not that try and – and maybe, you know, to your people in the West, you know, would someday, be able to learn from their use cases, right? So, I remain open to know these kind of…

Gian M. Volpicelli

Do you have any example…

Dr Ying-Ying Hsieh

…applications…

Gian M. Volpicelli

…in mind, in particular, regarding remittances or transfer of value or whatever?

Dr Ying-Ying Hsieh

Yeah, I think the, you know, example you just raised now, where, you know, El Salvador made Bitcoin as – or cryptocurrency as a legal tender, would now be a perfect example of how people from that country would be able to more easily transfer – to make international transfers back home, like, to – you know, if they are abroad working and they would be more easily able to, you know, make payments back to their family, yes, I trust. So, yeah, I mean, this, by itself, is a great use cases for, you know, this particular group, yeah.

Gian M. Volpicelli

Another example I heard was someone fleeing Afghanistan with their wallet and all their lifesavings were in that wallet. It was easier to, essentially…

Dr Ying-Ying Hsieh

Yeah, yeah.

Gian M. Volpicelli

…let’s keep together and possibly, Afghan…

Dr Ying-Ying Hsieh

Exactly, yeah.

Gian M. Volpicelli

…until you know what currency it has, to be honest, but that – with Bitcoin, it was easier to, essentially, store it and flee, keeping some of that wealth with them. What do you think, Garrick, is the developing world where it’s going to happen, where Bitcoin or crypto are going to show their mettle?

Dr Garrick Hileman

Yeah, I think in the next few years we’re going to continue to see stablecoins become more important. My expectation is, we’ll have a stablecoin rise above the value of Ethereum, possibly as soon as next year, a single stablecoin, and it wouldn’t surprise me to see one surpass Bitcoin’s market value in the next few years, as well. And again, this is complementary, in my view, to Bitcoin and Ethereum, because they use these underlying Layer 1s. And the reason is, you know, Bitcoin and Ethereum, even though we’re starting to see them used as a unitive account, we see non-fungible tokens sometimes priced in ETH, in units of Ethereum, rather than in your US dollar value. We see some contracts, particularly Bitcoin mining contracts, written with ETC Bitcoin as the Numeraire, as the unit of account, but it’s still very early days for seeing ETH and Bitcoin used as monetary instruments, whereas fiat currencies are the unit of account. And so, to solve this just atrocious problem of high cross-border fees and how slow things move through traditional fiat payment rails, you’re going to see stablecoins start to be more widely used, I think, for remittances, for international payments. That’s the world of the next couple of years. Longer-term, we’ll see, we’ll see, you know, what happens. But I’m very bullish on stablecoins.

And, you know, I think also, to the other person’s questions about 51% attack in energy, these are complicated issues, and I don’t think we’re going to answer them all here, right in this session. You know, there are inherent technical vulnerabilities with blockchains, no-one disputes that. No-one disputes the fact that Bitcoin and Ethereum consume a very large amount of energy.

Gian M. Volpicelli

Oh, good, fantastic. I was about to ask you, please address the new questions, but you are going there yourself, fantas – go on.

Dr Garrick Hileman

Yeah, yeah, I just want to, on the energy question, because it does get a lot of media attention, say that it’s true that Bitcoin and Ethereum consume, with their proof-of-work algorithms, a lot of energy. But we’re also seeing Ethereum in the process of transitioning to proof-of-stake and that’s a much less energy intensive consensus algorithm. Is it as secure as proof-of-work? We shall see. You know, Ethereum has been trying to transition to proof-of-stake for seven years and there’s good arguments for why the only two blockchains that have obtained mass adoption…

Gian M. Volpicelli

If I could stop you there…

Dr Garrick Hileman

…are Ethereum and Bitcoin.

Gian M. Volpicelli

…for one second, Garrick. Just one second, do – have you – does everyone know what proof-of-stake is, the difference between proof-of-stake and proof-of-work? They do, they don’t. Can you explain it?

Dr Garrick Hileman

Sure.

Gian M. Volpicelli

Since you are…

Dr Garrick Hileman

So, yeah, block – the reason we’re here, having this conversation tonight at the Chatham House, is because Bitcoin and Ethereum have remained secure at the Layer 1 level, for over a decade in the case of Bitcoin. That’s a huge accomplishment and not something to be taken for granted, given all the vulnerabilities, all the cyberattacks, all the hacks we see day in, day out. The fact that the largest computing networks in history, Bitcoin and Ethereum, have remained secure at their base layers, from cyberattacks, from hacks, is remarkable, and that consensus algorithm, proof-of-stake or proof-of-work, is what secures these blockchains. And transitioning to a new system, like proof-of-stake, where people use their coins to vote on what are valid transactions, rather than performing energy intensive computations, which is what proof-of-work does, is something that could really reduce the energy consumption footprint of crypto-assets.

But will proof-of-stake hold up to some edge cases? It’s a complicated debate. What’s exciting about cryptocurrency is you get to see in the real world these different approaches battle tested and the best protocol will win, is the bottom line. There’s also arguments for how proof of work can help, actually, accelerate the rollout of clean energy resources by…

Gian M. Volpicelli

Yeah, I heard that, I heard that.

Dr Garrick Hileman

…paying for…

Gian M. Volpicelli

I believe that.

Dr Garrick Hileman

I mean, you know, when solar and wind are generating peak electricity, we’re often not seeing peak consumption, and so, you need something to eat the electrons that solar and wind are generating during those off-peak consumption periods, and Bitcoin can help subsidise and accelerate a rollout renewable infrastructure, in many people’s views. We shall see, that’s debatable…

Gian M. Volpicelli

Yeah, I’m a…

Dr Garrick Hileman

…but we shall see.

Gian M. Volpicelli

…sceptic about that. But anyway, yeah, so we’re – what do you make of the energy element, Nick? Is, essentially, ESG regulation going go be another pain in the side for Bitcoin in terms of, essentially, if you mind Bitcoin using unclean energy, you, essentially, can’t trade it on mainstream and you can’t – some – you – there is some kind of limit to using unclean, dirty, Bitcoin? I don’t know how you quantify that, but do you see that as a risk to Bitcoin as an asset?

Nick Hill

Well, I think all I would say was that – is that regulators, when they’re thinking about these questions, and I think regulators are still very important in this whole topic, regulators themselves have to think a lot about environmental issues, so ESG, sort of, about the environmental specifically and net zero, in particular. So, is this an issue for regulators? I’m sure it is and I’m sure that will influence their thinking.

Gian M. Volpicelli

Right, within an acceptable – that will mean for Bitcoin and the rest of crypto, yeah, we still don’t know, it’s too early. Let’s take – let’s check this final question. So, “In which regard are exit” – so, “How fit for purpose are current regulations, or currently” – or recently approved, let’s say, “regulations, and what are the other rules that are needed right now?” So, what more regulations do we need and what kind of areas would you regulate, and what, instead, seems to be fairly well regulated as of now when it comes to crypto? Who wants to start?

Dr Ying-Ying Hsieh

I can give a short answer. I think regulations should serve just as the last line of defence and for the most part, they should, you know, encourage innovation. And I think this is the stance, for example, the FCA is taking, as well. So, they try to engage with innovations, they try to learn, you know, what this is all about and they try to build their own – they try to – you know, even if you look at SupTech, right, they try to, you know, implement data analytics, natural language processing, all these technologies, into their system in order to make their regulatory process more efficient and effective. So, I – and I like this attitude, you know, from the regulators, in terms of learning, in terms of, you know, being open and, you know, engaging with the innovation and the – I mean, if you look at how much time it took for the FCC to define that Bitcoin is not a security, oh, there is still a long way to go, right? So, you know, my short answer is that I think they should remain – you know, they should take an open attitude and to – no, they should, like, truly try to engage with the innovation and the expert in the industry, in academia, to, you know, really work together to find the best way to protect investors, to protect, well, people in this space.

Gian M. Volpicelli

So, more customer…

Dr Garrick Hileman

Yeah.

Gian M. Volpicelli

…actions, actually.

Dr Ying-Ying Hsieh

Yeah.

Gian M. Volpicelli

Right.

Dr Garrick Hileman

If I could come in on this question. I think Nick…

Gian M. Volpicelli

You can.

Dr Garrick Hileman

…made a really important point earlier about preferences for regulated, versus unregulated, and I agree. And, also, the research shows that other than in the case of China, which has repeatedly tried to ban or crackdown on Bitcoin for years and has, you know, failed, frankly, to expunge Bitcoin mining from China, we still think China’s, like, at least this third or fourth largest country when it comes to…

Gian M. Volpicelli

Yeah, I think it’s [inaudible – 65:13].

Dr Garrick Hileman

…Bitcoin mining. So, yeah, the Bitcoin network is revealing the limits of the Chinese Communist Party to control what happens inside China, interestingly. That’s a side point, but the vast majority of cases where more regulation has been introduced, starting in 2013 with the Treasury Department’s FinCEN Regulations of Bitcoin, has led to an appreciation in value of crypto-assets. So, regulation, somewhat counterintuitively, has been constructive and positive for this space, for the value, and if your expectation is that you’re going to see a lot more regulation in the coming years, you know, you should think about the impact, historically, regulation has had on the crypto-asset space. This is not a financial advice, let me be clear, and past…

Gian M. Volpicelli

Maybe it is.

Dr Garrick Hileman

…performance is no guarantee of future results, right? But regulation validates, legitimises, creates guardrails around, you know, this sector and certainly has been, overall, very constructive. I think regulators have been some of the unsung heroes, by doing exactly what was said, allowing for innovation to occur.

And by the way, we desperately need innovation. The financial system, you know, hasn’t really changed. Correspondent banking dates back to the Medicis, you know, 600 years ago or so. A lot of our financial infrastructure is totally antiquated. Paul Volcker, famously, before he died, said that “The only thing the financial industry has done that’s innovative in the last several decades is the ATM.” You know, this whole industry needs a shake up and the blockchain space is providing that. So, even if you don’t like it, like the fact that there’s some competition and, hopefully, we’ll get something like sending e – you know, sending money should be like sending a text message or an email, free and instantaneous, you know, it’s that simple.

Gian M. Volpicelli

Nick, do you have any comments regarding what should be regulated next?

Nick Hill

What’s the regulator to do next? Well, we’ve never give advice, but I think what I would say is the – one of the first blocks of the regulatory response to the rise of crypto-assets has been the introduction of anti – or the application of anti-money laundering regulations. That was done mostly in 2020. There’s some further enhancements that – coming through in European Union. The key thing now, which regulators are focused on, is competent business and promotions. They want to make sure that, basically, the same rules apply to these kind of volatile assets, in terms of financial promotions and advertising, as are applied to other things, like equities or insurance products and so on.

Gian M. Volpicelli

Right. I don’t know whether we have time for another question. Do we? No, we don’t. Okay, well, I suppose we only scraped the surface of what “crypto going global” implies, really. We know that there are widely different perspectives. We certainly agree that right now, it doesn’t seem to be either becoming a global monetary asset or a systemic risk. But there are so many opportunities, of course, I suppose, in other applications, such as decentralised communities and possibly, in some parts of the world, developing countries, and regulation is coming and that will make things better for everyone, I suppose, on the whole.

But anyway, thank you very much to all of you. That’s it.

Dr Ying-Ying Hsieh

Thank you.