We invited Forbes journalist and industry expert, Charles Bovaird, to travel all the way from the US to talk to us at our headquarters here in Vienna. He also joined us as a guest panelist at FinTech Week Vienna as we talked about all things Bitcoin, crypto and blockchain. Read on to interesting insights on where Bitcoin, FinTechs and the industry as a whole is heading.
"FinTech firms can benefit greatly from focusing on solving urgent problems, as doing so can help make them valuable to users."
Hi Charles, please introduce yourself and tell us a little bit about yourself and your job.
I am a financial writer and consultant. Currently, I am a Senior Contributor for Forbes, a distinction that has been given out to a fraction of the company’s contributors. Previously, I also wrote for both CoinDesk and Investopedia, publishing more than 200 articles on each platform. While I currently focus on digital currencies and distributed ledger technologies, I was an advocate of the stock market long before I encouraged anyone to look into cryptocurrencies.
You write about both cryptocurrencies and stocks. What are, in your opinion, the key differences in terms of covering these topics?
The stock market is far more established than the digital currency market. It is also substantially larger, which means it is less susceptible to manipulation by large traders or “whales.” Since the stock market has been around for hundreds of years, it has far more market history we can use. This can prove quite helpful when it comes to making effective investment decisions. While the stock market has these strong points, it doesn’t have nearly as much innovation as the cryptocurrency market.
The digital currency market has attracted some very enthusiastic followers in recent years. While this fervor has helped draw significant attention to the space, it has also helped create irrational exuberance in 2017 and early 2018. Cryptocurrencies are certainly not alone in generating significant enthusiasm, as the term “irrational exuberance” was originally created to describe the stock market boom in the 1990s.
The Bitcoin Whitepaper recently turned 11 years old. How has the financial industry changed since Satoshi Nakamoto’s invention?
For starters, the financial services industry in general has far more regulations than it did before. In the U.S., for example, lawmakers passed the Dodd-Frank Act, which produced comprehensive financial reform. Past that, I feel like people are more skeptical of the financial services industry now than they were before the Global Financial Crisis took place. I feel like this scepticism has created a huge opening where many are willing to consider new approaches to financial services. In the years since Bitcoin was created, financial institutions have begun exploring the use of both digital currencies and also distributed ledger technologies.
What can the financial industry and FinTechs learn from Bitcoin?
One major thing FinTech firms can learn is that by creating something innovative, they can potentially make a big splash, drawing the attention of both investors and consumers. I feel like aspiring entrepreneurs have fewer barriers to entry than in previous times. The proliferation of ICOs and other projects offering digital tokens is a great example. While this situation makes it easier for FinTech companies to get off the ground, it can create a rather crowded field of competitors, making it even more crucial for projects to stand out.
FinTech firms can benefit greatly from focusing on solving urgent problems, as doing so can help make them valuable to users.
You don’t need to be a bank to offer banking products anymore. How will this affect the banking industry?
I don’t think this situation will be very helpful for the top line of banks. It will certainly create a more competitive landscape. Banks will need to adjust to a new “normal” where they aren’t the only game in town for banking products.
It will be interesting to see how banks, which seem by nature conservative and risk-averse, will adapt to this situation. Hopefully, the circumstances will force banks to be more appealing to their current and potential customers.
Why do some people prefer FinTech firms to banks?
Many people don’t trust the banks. I feel like this distrust has been widespread in the aftermath of the financial crisis. Further, there are other reasons (besides trust) that would make FinTech firms more appealing than banks. Many FinTech firms have been developing innovative solutions to societal problems, and this kind of activity could easily help them stand out from retail banks (which some might find to be a bit dry).
What is the media's role in the "battle" between FinTech firms and banks?
First of all, the media is supposed to take a neutral, objective approach, so it is not supposed to “push” any narrative or advocate for any particular industry. The purpose of journalists is to find and report the truth. By reporting interesting stories - for example the latest developments in the FinTech industry - the media can educate people about this particular space. Both banks and FinTech firms might think of the situation they are in right now as a struggle for relevance and ultimately survival.
However, they can potentially work with the media to help get their story out there and educate the public.
What can banks learn from FinTechs? (and vice versa)
Banks can, by nature, be very conservative. However, to stay relevant in a constantly changing market, they might want to explore new territory, particularly the benefits they might derive from leveraging digital currencies and/or distributed ledger technologies.
On the other hand, retail banks have been around for some time, so one could argue that their business model is thoroughly proven. FinTech firms, which may be focussed on developing technologies that are new and therefore unproven, might learn a thing or two from retail banks since they have survived for the long haul.
Can you tell us about the differences in crypto regulations between the U.S. and Europe?
The U.S. has offered some regulatory clarity for the digital currency industry, as both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have weighed in on these innovative assets. The SEC regulates securities, and it has stated that some digital currencies are securities. The regulator has also stated that it will evaluate digital assets on a case-by-case basis to determine whether they are securities.
The U.S. CFTC, which regulates commodities, has also gotten involved, stating that it has the authority to regulate digital currencies as commodities under the Commodity Exchange Act. The government agency confirmed its authority in 2015 by issuing its first action against an unregistered digital currency business. In September 2018, a federal judge confirmed that the U.S. CFTC has the authority to prosecute fraud that involves digital currencies. The European Union has not released any specific regulations surrounding digital currencies, although the organisation’s finance minister recently indicated plans to introduce legislation on the matter. Individual countries have provided varying regulations surrounding cryptocurrencies.
What is Bitcoin in your opinion? Is Bitcoin a currency? A technology? Is it digital gold?
Bitcoin was originally created to be a peer-to-peer payment system. However, it has become much more than that for many people. For some, Bitcoin is a speculative investment that could potentially generate extremely compelling returns. Further, there is research showing that Bitcoin - as well as other digital currencies - do not correlate with traditional asset classes, so they can help provide diversification.
For others, Bitcoin is a step towards creating a whole new economy that can take place outside of the banks and the government at a time when many people are distrustful of these institutions. In some cases, people think of Bitcoin as being digital gold. The digital currency certainly has functioned as a safe haven asset at some points, appreciated in times of geopolitical turmoil.
Could Bitcoin replace fiat currencies like the Euro? Or could we see something like a “Bitcoin Standard” similar to the gold standard?
I don’t think it’s likely that Bitcoin will replace fiat currencies like the Euro. Central bank digital currencies (CBDCs) might succeed in replacing fiat currencies, but I would expect CBDCs to be fundamentally different from more traditional cryptocurrencies like Bitcoin. Bitcoin is decentralised, whereas a CBDC would be issued by a government-controlled financial institution and therefore centralised.
I also don’t think there is much chance that the nations of the world will make use of a “bitcoin standard” similar to the gold standard. The U.S. made use of the gold standard up until the 1970s, but gold has been used as a currency for thousands of years. Bitcoin, in comparison, has been around for roughly a decade.
Will we have something like ‘digital cash’ that protects our privacy, will we end up being surveilled 24/7, or will it be something in-between?
I think that we will have something in between. I think that multiple digital currencies will exist going forward. We might have a short list of cryptocurrencies that have significant adoption, and we might have a far larger number of digital assets that trade on places like CoinMarketCap but aren’t necessarily super active in terms of development and actual usage. If anyone is looking to protect their privacy, there are several digital currencies that can offer this benefit.
Let’s talk about central bank digital currencies (CBDC). We can speculate two approaches: The China approach, which means total control and uses blockchain as a surveillance tool. Or there’s private stablecoins like Facebook’s Libra. How will this play out in your opinion?
I think that we will end up with multiple digital currencies but we may have a short list of these currencies that actually have significant adoption. China’s central bank may very well issue a central bank digital currency (CBDC) that grants them the ability to monitor all transactions.
At the same time, there are digital currencies that offer their users significant privacy. Zcash and Monero, in particular, have been designed to offer their users a high level of privacy. I see no reason why these two extremes - “total control” digital currencies and privacy focussed digital currencies - cannot coexist. Some individual nations (for example China) might move to block all cryptocurrencies not issued by their central bank, in order to maintain control. However, simply banning digital currencies in one nation will not prevent them from continuing to exist.
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