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The blockchain is already "the present" and for sure not future

16 July 2017 21:00, UTC
Ivan BASOV, Chief Analyst of FinTech Association Russia

1) Blockchain is the platform for cryptocurrency exchange. Is the scenario possible that cryptocurrencies replace common currencies in the future? What will happen to financial markets in this case? How will regulation change? Or there will be no regulation at all?

I don't think that cryptocurrency will be able to fully replace traditional currency. At least, not in the near future. The economy of the whole world is built on circulation of national fiat currencies and such a system is easy-to-understand for everybody. We strive for "cashless" society, but in any case such a model is built on the basis of fiat money. I don't think that in the near future it would possible to transfer completely to a cashless form of settlements for all market participants, even within the existing currencies. One shouldn't compare us to Sweden where the population and the area of the country are less than those of our country, India or the USA; it (Sweden) is rather an exception to the rules and an excellent model for which it is worth to strive, but even in Sweden they have not fully abandoned cash money.

Concerning your question about cryptocurrencies, I believe they will develop according to the scenario of financial instruments and will be an alternative means of investments and calculations. The cryptocurrency is already becoming a common practice, and actually we already have the market, which means the business; in some places it is more obvious (for example, in Japan calculations in cryptocurrency have been legalized), in other places it is less clear but this is already "the present" and definitely, not future.

In global sense nothing will happen to financial markets because it is not about instant daily use yet. The market will gradually transform and build in the new "rules of the game". Such things happen to introduction of any technology, so, it is not worth to make noise.

For sure, it is necessary to regulate cryptocurrency but it should not be like in the banking sector which is already regulated rather strictly. Yes, there have to be frameworks within which "healthy" functioning of cryptocurrencies is possible, first of all, within AML/CFT. I will repeat that it is important to maintain the balance, because over regulated market can be worse than unregulated one.

The philosophy of blockchain technology is just that "supervision" is exercised directly by participants of an ecosystem and if there are any fraud actions, they will become visible to all. Most likely, just because many components of financial institutions are regulated, participants of the market look for alternative opportunities, which the blockchain technology gives.

At the moment governments of many countries work out possible options of cryptocurrency regulation. But this market is changing so quickly that usual regulation approaches don't work here and one shouldn't hurry with introduction of restrictions nor wait too long. Asia takes the lead in this issue now. For example, Japan adopted cryptocurrency as means of payment in April, South Korea also actively works on this matter, and perhaps in the near future there will be a similar decision.

But the USA and Europe sit on the fence concerning this matter and study it so far. In Russia the regulation issue is actively discussed; within FinTech Association we develop the solution – Masterchain on the basis of Ethereum platform. Masterchain will be considered as one of the alternatives for infrastructure where a possibility of introducing national digital currency will be tested.

Almost all leading financial regulators investigate possible approaches to creation of national digital currencies. However, rather long and diligent work has to be done in this direction because this step can bring serious benefits as well as new risks, which should be estimated. As we know, the Bank of Russia is going to focus on creation of technological infrastructure in the next several years, which would allow testing of digital currency in a confined experimental environment.

At the same time it is also necessary to study possible consequences of introducing a digital national currency for macroeconomy, the monetary policy and financial stability. Only after that one can raise a question whether creation of a national cryptocurrency is reasonable, but anyway it is a matter of the medium or long term future.

2) Is the blockchain technology just "much ado about nothing" or a technology, which will change economy?

Here it makes sense to give an example of a maturity cycle of Gartner technologies - almost all technological innovations pass through the same stages of wave-like development while achieving the maturity; each of them is characterized by various degree of interest from the society and experts. Any innovative technology always causes "much ado", because it looks like something revolutionary that is going to drastically change our lives. The question is only if this technology remains after this noise calms down and the agiotage is gone, if it is able to survive and really change the current course of life.

According to Gartner calculations, 90% of blockchain-based projects launched in 2015 are closed within 18-24 months and first of all due to the fact that the technology begins to be applied even in those spheres where it is not needed in principle and doesn't fit for the purpose in view. At the moment, we observe decrease in investments in general for new blockchain projects all around the world, now the projects which have already been launched earlier are co-financed and investors "lay low" waiting for particular results, both practical and financial ones.

I think that in the near future everything will be aligned in respect of information noise and quite logical and systematic introduction of a blockchain technology will begin where it is necessary. And yes, certainly, the technology is capable to change a vector of national economy development in general.

3) Everybody is talking only about application of blockchain in the financial sphere, business and can this technology be useful in other areas (for example, medicine)?

I do not quite agree with the wording of this question – everybody is talking about a blockchain, and not only in the financial sphere. Actually there are very many fields for technology application. For example, just a very short while ago telecommunication giant Comcast partnering with media corporations Disney, NBC reported that it develops a blockchain platform for advertising campaigns, the UN uses a blockchain for creation of identification system for people deprived of documents, and the Singapore Diamond Investment Exchange — the world’s first commodity exchange trading in diamonds on the terms of physical calculations - is going to use the blockchain technology for authentication of diamonds, trade and archiving of data.

Also the Dubai airport plans to replace passport control with blockchain passports. Hyperledger blockchain platform have established a working group on health protection in order to discuss offers on using a blockchain technology in medicine, a telecommunication provider "DU" and Estonian startup company "Guardtime" have presented the blockchain project for storage of all medical records. It is planned to implement this project in the United Arab Emirates.

The technology is new and almost all branches of economy look for possible options of using blockchain in order to improve own products and services.  

4) Will blockchain be able to become a mass technology in the future? If yes, how long it may take?

Maybe it will – many countries in the world introduce or consider a possibility of introducing solutions based on blockchain technology into their internal mechanisms. At present I would forecast very accurately but I think we are going to see broad application of a blockchain within next 3-5 years. It is important to understand that the blockchain is not a panacea or a solution to all problems; it is a simple and clear tool, which helps to expand opportunities, functionality, safety and simplify many aspects of everyday life and business processes and also to improve a cycle of interaction between the population, the business and the state.