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out-of-the-box blockchain solution for business-to-business payments, securities trading, or anything else they offer. But I think we will start to see those, perhaps, two years from now. There’s an exception: an executive at a small bank who sees the blockchain as a really important technology. That executive will say, “I’m going to bet a small part of my company on that.” That bank will need to think and act like a start-up, get aggressive, and be willing to take risks. This takes unconventional thinking. Q4. That brings us to regulation. Much of the rest of the world seems to have a friendly regulatory attitude toward innovation and blockchain development. I’m not quite getting that feeling from U.S. regulators. The United States is more complex. You can’t totally compare the United States to Singapore, for example. Singapore is a very centralized government without a lot of moving parts. So if the government wants to do something, it can make that happen fairly efficiently. And there’s a lot at stake in U.S. financial markets and many regulatory agencies. It takes a bit more to wrap your head around it. A wait-and-see attitude is not bad. Not taking regulatory action is good. It means regulators are letting blockchain technology evolve and mature, seeing what shape it will take. The worst thing you can do is regulate something too early. My message to the regulators is that technology is all about innovation and that they have to innovate, too. I suspect that many of them will do so. Q5. In late October, Comptroller of the Currency Thomas Curry made it pretty clear that he did not favor the concept of “sandboxes”—permitting innovation to proceed in a contained, protected environment. What are your thoughts on this? I think sandboxes would be a way to test the implications of new technology without doing any damage to the rest of the system. If somebody says they don’t want to do sandboxes, that’s not a very progressive statement, in my book. That means they don’t want to push the envelope outside of the boundaries they know. When the blockchain and cr y pto currencies are fully deployed, they will change the existing central authorities

that we have. I think regulators must come to grips with this. Bitcoin has a market cap of $11 billion, which is not a big number, comparatively speaking. But significantly, it stands on its own 6,000 nodes of computers. Choke one or 100, and thousands keep on humming. No one body governs it. The central authorities used to controlling every thing will have to learn to coexist with such new forces. However, there’s a n innovation that the blockchain enables that could benefit regulators. They can be a node on a blockchain network. That can give them the same seat as any other player, the same insights into transactions—all in real time. That would be a big change from the traditional pattern of demanding reports long after the fact. Q6. “Smart contracts,” or self-executing business arrangements built on the blockchain, seem to be gathering momentum. How soon do you think true blockchain-based smart contracts will debut worldwide? I’m disappointed that we haven’t seen some very simple use cases around smart contracts that touch consumers. A lot of the work done has been a bit too ambitious—centered on solving big problems with big companies, with smart contracts that are very complicated and part of bigger applications. I’d love to see someone launch a very simple smar t contract. How about a wager application? If you and I want to bet on the World Series or tomorrow’s weather, we could bet via smart contract. The smart contract would check the scores or check the weather, and automatically pay you a Bitcoin or pay me one. At the end of the day, sma r t contracts are just log ic—business log ic encoded in software—allowing money to be exchanged if certain conditions are met or not met. Q7. You are both a student of this technology and an investor. What is a yardstick for projects with potential versus those that don’t look like they will get legs? There’s a wide range of composition and “f lavors” among start-ups. One factor that’s different today is that start-ups don’t necessarily need to go to venture capital to raise money. A credible start-up

could raise its own money by spinning off its own currency. That is a very unique and innovative method for the cryptocurrency environment. Et hereu m , a Bit c oi n c omp e t it or, started that way with an $18 million ICO (Initial Cryptocurrency Offering) as opposed to an IPO. Before you knew it, an ecosystem had been created. There are over 300 start-ups built on Ethereum and more than 100 big companies developing projects and proofs of concept on it. Its valuation is over $1 billion, and there are thousands of developers. It’s not just Ethereum. There are dozens of others at this point, tying their business model to a token of some sort that has value. Yes, there will be speculation. And that’s okay, if it is short-lived, because speculation funds innovation. Money that’s generated by prices that rise end up benef itting the entrepreneur and benefitting the investors. Some start-ups are using these windfalls from cr y ptocurrency appreciation to fund their operations. One thing required is human capital. I’d like to see more developers who are knowledgeable about blockchain technologies. When I wrote The Business Blockchain, I found there were about 5,000 blockchain developers worldwide. Now, it is up to, maybe, 7,000 or so. Compare that to nine million Java developers. I cite Java because it proved instrumental for the web. Java allowed developers to write an application once, and it could run anywhere on the web. The web took off. So we need more blockchain developers, and for that, we need courses teaching blockchain, cryptocurrencies, consensus models [which help blockchain communities work], game theory—all computer science stuff and software engineering. If we don’t do it here in North America, I know China is very serious about blockchain. China will take all of the research we’ve done, and it could, maybe, apply it better. Consider this: The top three languages that my book has been translated into are Chinese, Japanese, and Korean.

Disclosure: William Mougayar is an advisor to Steem, and holds Steem, Bitcoin, and Ethereum cryptocurrencies.He is based in Toronto, Canada.

December 2016/January 2017 BANKING EXCHANGE

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December 2016 January 2017 Banking Exchange