The Blockchain and Us: Interview Jesse McWaters, Lead Fintech/Blockchain, World Economic Forum (WEF)

Transcript

there's a growing realization that blockchain has enormous potential implications outside of financial services and that we might even actually see the the full-scale implementation of some of those more real-world applications leapfrog financial services my name is Jesse mcquarters I work with the World Economic Forum where I lead their work on FinTech innovation but also on blockchain and how it's transforming the global economy I found out about blockchain first as most people around that time were through through Bitcoin and personally at first

I thought that Bitcoin was an absolutely terrible idea as an economist I thought that this fixed money supply was a bad idea and as somebody who knew some things about financial services I didn't know why you'd want to take your earnings and convert them to a new currency and then you know walk around and buy cupcakes or whatever it was that you were gonna buy with your with your Bitcoin when you had a credit card or whatever that worked perfectly well but as I talked to people more and more about the technology it became clear that even if you didn't believe that Bitcoin was the best way of running in-person transactions in a in a

developed economy that there were some really interesting technological innovations around a distributed system for maintaining records and transferring value and it wasn't hard to see that that had the potential to transform some of the processes that exist in financial services today and much more broadly we talk to all sorts of senior executives and financial services and often we talk to them and they'd say well you know we we we've we've looked at Bitcoin we've had smart people come in and explained to us how the blockchain works but I still just really don't understand what it means for my business and I think that makes sense in

a way because if you think about an iPhone for example what's really important when a new iPhone comes out is it that there's some new chipset or they have you know some new way of compressing frequencies I'm not an engineer I don't know how any of that works what matters to people is what they can do with the technology and so when we would go out and talk to executives we've often considered ask them to consider how their business processes might change if they had a new set of capabilities I was talking to one c-suite executive for for a global bank who mentioned

trade finance something that most people don't give much thought to but he said look we've got we've got three floors in our headquarter tower dedicated to trade finance people processing paper and if a piece of paper falls off someone's desk you have to go back and start the whole process again and I think that there are lots of corners of financial services were it's recognised that the processes that we're using haven't been fully digitized they require a lot of manual intervention and there's the potential firstly to digitize and modernize those processes that's not something that you need blockchain for but also to transform the

governance of those processes and make that more efficient to remove some of the layers of intermediation that exists today to automate all manner of things and so I think that that's where we're really starting to dig around today but the thing that I think sometimes gets overlooked is the blockchain technology and indeed any type of technology doesn't solve for you the problem of implementation you have the ability to create records that are indelible you have the ability to transfer value by making updates to those records and you have the ability

to automate updates to the records through these things called Smart contracts and that means potentially that you could transform the structure of financial services today there are all sorts of institutions that exist to maintain sets of Records to be a trusted third party as the industry parlance for it and that role is potentially fundamentally reshaped in a world where you me and many other parties can be updating a record and can have faith in the distributed governance of that record we could get some technology people to check the code and see exactly what's happening within it I think there's and I think people are

beginning to think about how that could change all manner of aspects of financial services we're still very much in the experimental phase full deployment in my opinion is gonna require three things it's going to require better tested and tried technology there are advancements being made all the time but there are still limitations to the scalability of this technology to the speed of the technology and because of the fact that you don't have people who have 20 or 30 years of experience working in this technology no one does you still get mistakes being made even by people who are very skilled in the technology and I think instances like

the the Dow hack really underline that for for executives the second thing that you need is you need stakeholder alignment there are all sorts of different types of financial institutions working together within the framework of the existing infrastructure and if you want to change that infrastructure they're gonna need to agree on it and it may be a zero-sum game there may be winners and losers in that transformation and so managing the establishment of what the new standards and business practices will be is a non-trivial undertaking and then finally there is the governance component so regulators need to be comfortable with

the implementation of the new technology and the changes to business processes and you need to have an understanding of what happens when things go wrong when a trade becomes confusing when unexpected circumstances occur that were maybe outside of the definition that was originally written of a smart contract how will those situations be handled because the financial services markets don't like unexpected bouts of uncertainty no I don't think that it is I think that we've we've been instituting new infrastructure and financial services both in a piecemeal sense and in a in a large-scale sense for for hundreds of

years now you know we used to trade stocks under a Buttonwood tree and now we trade stocks in a completely dematerialized electronic format we're able to make these transitions but it's important that they be made judiciously blockchain by its default is a transparent technology you can layer levels of obstacle and privacy on top of them and indeed it's going to be very important to do that for a financial use cases but in a sense the direction of travel is backwards compared to where it used to be you used to need to add transparency on now you add privacy on

that's a fundamentally different direction of travel and I think it'll fundamentally change the level of transparency that exists in financial markets and so that means that if you're an institution that relies on some sort of information asymmetry or the ability to get earlier access to information in some way that may no longer be a sustainable business model or at the very least you're going to need to be able to make a socially defensible argument for why you should have that information asymmetry for why it benefits financial markets and their participants as a whole

no there are lots of places where you can use blockchain but where should you use blockchain where do you achieve better outputs where do you achieve improved efficiency etc and I think that there will certainly be those who need to change their business models in response to this but you see already all manner of institutions across financial services seeking to disrupt themselves seeking to leverage the knowledge and the relationships that they have in this space to be the driver of transformation rather than waiting and being disrupted by a new entrant it feels really exciting to be involved

in blockchain feels like we're at the forefront of something that has at least the potential to transform our interactions between each other between corporations the underlying infrastructure of both the the private sector but also of government I think for me one of the things that I'm most interested in and I think one of the things that'll be a core enabler of the future of blockchain is identity we need to figure out a way of moving from this still very analog siloed physical versions of identity that we have into identity that is more digital there are people exploring ways of doing that on

blockchain there are people exploring other ways of digitizing identity but almost no matter what it is we're going to need a digital form of identity in order to be able to interact with each other effectively in any kind of digital world but specifically within a blockchain digital world certainly be downsides to this technology but I think that that's the case with the institution of any new technology particularly when it's a general-purpose technology that could be broadly transformative and it's the responsibility of us as a society to shape the development of that technology and ensure that it's broadly beneficial

there were similar concerns in the early days of the internet there remained concerns about the internet and our interactions with it and we deal with that in an iterative fashion thinking about what we want the Internet to be and taking steps as a society as governments as private citizens to engage with the technology in a way that makes it something that we want in our lives as opposed to something that creates harm we need to give serious thought to how these new technologies are governed

particularly if we're going to start to see autonomous distributed organizations we need to think about how those organizations and protocols are going to interact with the broader world and that's something that we're starting to think a lot about a lot at the Forum broadly thinking about this fourth Industrial Revolution of which blockchain is just one of many technologies that's transforming the world how do we appropriately interact with those for a public policy a regulatory and an ethics perspective I think it's gonna require new thinking it's gonna require us to use it to use a terrible cliche to step outside of the box and to imagine different ways that

society might operate but I think thinking about those things before these technologies get too big or run ahead of themselves is going to be really important to ensuring that there's their technologies that benefit rather than have a detriment on society I think that the real wish is that we can become better at identifying the emergence of systemic risks and the blockchains might be able to help us with that and even that you might be able to use things like smart contracts as intelligent circuit breakers to stopping market cascades or improved visibility into bank holdings as a mechanism for increasing the the speed of bank crisis

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