Social interest around blockchain is increasing exponentially. Today, practically anyone can invest in cryptocurrency through an app. We are witnessing the development, expansion, and veneration of a technology with infinite applications, many of which have yet to be discovered. In this interview, Abel Sanchez, executive director of the Geospatial Data Center at the Massachusetts Institute of Technology (MIT), PhD, and professor of the online program Blockchain: Disruptive Technology —also offered in Spanish—shares his point of view on cryptocurrency regulation, the value of the ecosystem, and the benefits of actively taking part in this journey.
Q: Do you think the complexity of blockchain technology prevents cryptocurrencies from being introduced faster?
Let’s start off by talking about the concept of complexity. We don’t always understand the real workings of everything that we use. Do we understand what happens when we type in a URL and go to a specific site? Do we understand the short-range wireless technology that’s used in contactless payments? There are many things we can use without understanding the inner workings or protocols.
We tend not to think about these internal mechanisms. However, we’re looking at the first generations of blockchain technology, and so, we’re looking for a deeper understanding. In the future, if there is a positive customer experience similar to what’s been achieved with different payment methods, we won’t be as interested in the complexity of blockchain.
Q: From a business standpoint, should directors or decision-makers understand the workings of blockchain to gain an advantage?
Let’s think about the capacity for leadership that’s provided by the cloud or technologies like big data, AI, or machine learning. These technologies make a difference. However, it’s not necessary for business leaders to be IT engineers or data scientists; what is necessary is for them to understand the fundamentals and how new tools can be used to add value to a business. In other words, how it helps us grow and how it can be used to improve a product or service.
Q: There are more and more countries regulating the cryptocurrency market. Do you think this is progress or an obstacle in its development?
There is a misconception about government intervention in the cryptocurrency industry. Businesses are really looking for clarity. It’s the opposite, inaction, that generates uncertainty—the greatest fear of an entrepreneur since they tend to run from gray areas.
In terms of technology regulation, we see that many of the products created by the crypto industry directly appeal to public institutions, both for their approval and for their use. For example, let’s think about KYC (Know Your Customer, an anti-fraud measure that many companies use to verify user or client identity). If these approvals were automatic via smart contracts or software that allows you to grant authorization, we could advance much more quickly.
This progress would benefit both technology development and individual countries since it contains digital infrastructure that would allow them to create products in a shorter amount of time.
As blockchain technology advances along with the banking sector, even if we don’t yet know how to use it to its full potential, we will uncover great fiscal, customs, and healthcare possibilities. Everything would be more streamlined, and industries would grow more rapidly.
Q: Will the fact that banks have created digital currencies slow down the incorporation of cryptocurrencies?
It’s a great question because it goes straight to what administrations should do, or to what they are good at doing. Let’s imagine that a country goes up against Facebook or other tech giants that are launching their own cryptocurrencies by legislating and preventing these companies from introducing their products. That would be a strange position for a government to take.
We can also think about another option: a government that gives companies a technology base that they can build upon to begin developing those products. This would require public administrations to have the extensive capacity to offer digital services. I don’t believe many cases like this exist, so that seems like a distant possibility.
Either way, I believe that directly offering financial services to citizens is an enormous opportunity. In the context of the pandemic, in the US we saw how they offered millions of people the possibility to complete some formalities with just a click, avoiding traditional systems. Obviously, the advantage of these systems is significant.
Maybe at some point there will be a hybrid model, but it’s still a little early to tell what both public institutions and private companies will do. The possibilities are abounding.
Q: After what has happened with Libra, do you think that cryptocurrencies are ready to be launched by the major digital platforms?
We’re still pretty early in the journey. Bitcoin and Ethereum are a type of product that requires high levels of experience and expertise. But the market is offering a wide variety of products. We’re seeing traditional financial institutions, the banks, move towards cryptocurrencies, at the same time that crypto companies are moving towards the services that banks have traditionally offered. This has created a much richer ecosystem in terms of financial instruments. For example, a currency like Libra has great potential. However, it remains to be seen how they will be regulated, what governments will do, and what the leaders of this industry will do.
It’s quite clear that if we gave cryptocurrencies the same banking capabilities, we would see that they still wouldn’t be at the level of traditional systems. But cases like PayPal or Coinbase show that there have been advances in that sense, and that is thanks to clients who have started to demand it.
Now, will there be a dominant commercial company, a technology company—like Facebook—that, with a single product, is capable of bringing about total integration? I think only time will tell.
Q: Is there a cryptocurrency bubble?
I love this question. We’ve been saying there’s a cryptocurrency bubble for a decade. I remember telling my students when Bitcoin was at $300 that the price was inflated and that they were crazy to buy any cryptocurrency. Now we’ve seen the astronomical rise in its value.
There are good analysts on both sides of this debate. Some say that Bitcoin will collapse, it will disappear. Others say that it still has yet to reach its potential, and it will continue climbing. I believe that there are arguments for both sides. Some people defend that it’s not like a national currency that you can unilaterally devalue or is subject to certain countries’ actions. I think it’s quite clear: the value resides in the ecosystem, in the incentives that exist for mining and participating actively.
Either way, if governments, banks, or tech giants offer stable alternatives with properties that satisfy the needs of those involved, why would there be a collapse? There’s a phrase made famous by the great baseball player, Yogi Berra that I really like: “It’s tough to make predictions, especially about the future.”
Q: What are the main obstacles when applying smart contracts?
I think that, in this sense, first you have to lay out some logic that we all agree to. There has to be a standard. Blockchain is useful, but there’s not just one type of blockchain. What’s difficult is figuring out which one to use, how to standardize it, and what type of contracts to finally design.
Q: We’ve discussed cryptocurrencies and smart contracts, but what other surprises can we expect from the future of blockchain?
One thing we must consider is the possibility of a government offering up a very attractive cryptocurrency. Because of the pandemic, many people though that the dollar was a good currency to back. As such, many currencies around the world moved towards the dollar and towards the United States. Now, let’s imagine that we can do that as quickly as possible, and that we can buy that currency in a single click. That would be very appealing.
Now, could we begin to use a cryptocurrency worldwide that was issued by a government? Maybe, why not? That could be the first global product offered by a country. That cryptocurrency could become very powerful and could even become a world standard. These are some of the questions that need to be asked as we move forward.