Of all the emerging technologies set to transform businessprocesses, blockchain stands on its own for a variety of reasons. Whereas many– 5G, cloud, augmented reality – are the next iteration of what has comebefore, 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’ ofall the disciplines required to understand blockchain technologies, thoughprimarily Bitcoin at first. “During my studies, it really was something thatfed into all of these intersections – all the disciplines I had been interestedin,” says Rauchs. “That’s when I realised I had absolutely no idea how itworked.”
Learning more about the disciplines meant learning about thevociferous tribes which govern Bitcoin. As the industry matures, the tribesappear to have not. Yet this is no bad thing. “Paradoxically, the more divideda community is, the more difficult it is to find consensus on anything, thenthe properties of that particular system are as real as they can get,” saysRauchs.
“Let’s take a step back and look at what a cryptocurrencyactually is and how it gets value. It’s just code, right? And the code is opensource so anyone can just take it, change it, and then essentially launch theircryptocurrency,” he adds.
“The only thing that makes a cryptocurrency worth somethingis the difficulty to actually change its key parameters,” says Rauchs. “In thecase of Bitcoin, that would, for instance, be its 21 million coin limit. Ifit’s easy to change that characteristic then it isn’t worth anything. The onlything that really prevents changing these properties is that it’s reallydifficult for the community to agree to do something – to define consensusaround the rules that govern the system.”
When we sit down to speak, Libra, Facebook’s digitalcurrency, was in the news, with Mastercard’s CEO, Ajay Banga, going on recordthat national payment systems were ‘really stupid’. According to reports,Facebook has recently proposed making significant changes, reverting to digitalversions of established currencies.
“I think it’s often inaccurately portrayed as acryptocurrency,” Rauchs says of Libra. “Nevertheless, Libra essentially came tofruition as an idea because Bitcoin and cryptocurrencies really opened thatPandora’s box; forcing governments and payment providers to reassess existinginfrastructures and processes.”
Here’s where another history lesson can be learned. Rauchsnotes the similarities between Libra and non-sovereign currencies – privatemoney issued and distributed by private corporations.
“If you have a company like Facebook, or a consortium likeLibra, which covers at least 2-3 billion people globally, introducing its owncurrency, that could have a massive impact on the ability of central banks toinitiate monetary policy,” says Rauchs. “Even beyond that – essentially theauthority of governments themselves.”
Libra’s model – if it comes to fruition – could also haveserious effects for the world’s largest payment providers. InOctober, 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 getfirst-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 andthe model that could potentially disrupt their businesses.
“I don’t really think they were supporting Libra right fromthe start – it was just a way to get first-hand information, and when theregulatory pressure got too high, they just conveniently pulled out.”
Scholars will know that technology history tends to repeatitself – and as we have seen, the history of monetary systems can easily followparticular 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,” saysRauchs. “It’s different if you talk about countries like Zimbabwe andArgentina, for example, where you have hyperinflation, and then from literallyone day to another you start with a new currency.
“When you’re talking about the international monetary systemthat has been based on gold and then after that the US dollar, to continuedifferent international monetary orders, that’s going to take at least 10-20years, with a lot of experimentation in the meantime. It’s quite exciting to behonest.”
Rauchs is speaking at Blockchain Expo Global laterthis month around Bitcoin’s purported environmental impact. The statistics havebeen alarming; the standout figure was that Bitcoin consumed more energy thanSwitzerland. Yet it is a more complicated picture than that.
“The way that Bitcoin is being valued for different peopleright now is completely subjective,” says Rauchs. “For some people, it’s anessential part of their life, in the sense that they don’t have access to otherpayment systems; for other people it’s some sort of gimmick, and definitely notworth 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.”
