Government vs. Technology – Bitcoin.com CEO on Why Governments Fear Blockchain, the Threat That Regulators Pose, and the Likely Outcomes
- “There is, from an enterprise standpoint, a desire to engage in this new technology and in this ability to move money globally without any barriers at a very efficient cost basis. Speed is what the market is looking for, particularly as we move towards a global organization. Governments are still trying to regulate their own little boundaries and limit the transfer of money, of intellectual property, of trade. And I think that's the barrier that all of us are trying to break down.”
- “I think innovation is happening on two folds. One is the consumerization of innovation and the other is the depths of innovation in terms of technology, in terms of the ability to provide the technology in a “non-custodial fashion.” I can either build innovation around custody or around non-custodial services. And blockchain has enabled non-custodial - what does that mean? That basically means the control is in me, the user, and the responsibility lies with me as the individual. Innovation on a non-custodial basis is very hard to attack and diffuse.”
- “The value is not in intellectual property, it's in the ecosystem that I have developed that is contributing to the overall blockchain, or Bitcoin.cash, or whatever the underlying algorithm is.”
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In April 2012, Stefan Rust bought Bitcoin for the first time, at $5. Now, 7 years later, he is CEO of Bitcoin.com, a company that aims to make Bitcoin Cash and Bitcoin Core alike more accessible to the general public, and that is home to all manner of cryptocurrency services via its eponymous web portal.
In this episode, our Editor-in-Chief Angie Lau sits down with Rust to talk about the future of cryptocurrencies and blockchain technology. Recent events including the U.S. Senate Banking Committee’s hearing on Facebook Libra, President Trump and US Treasury Secretary Mnuchin’s pessimistic comments, and the Financial Action Task Force’s tightening regulations have been indicative of a global pushback against Facebook Libra and cryptocurrencies at large. Rust argues that this skepticism and distrust of cryptocurrency is a product of the underlying reluctance of government to depart from their traditional regulation of borders and limitations on transfer “of money, of intellectual property, of trade.”
Rust also speculates that national governments do not trust big tech companies with large amounts of data - a speculation that is supported by copious amounts of evidence in recent years. However, what Rust asserts is that unlike what governments believe, the value of cryptocurrency is not in intellectual property or in the data it comprises, but in the ecosystem of contributors to a code base that is open source - a code base made possible by blockchain technology.
Despite government regulations and consumer skepticism, Rust expects the changing demographics of the global population to popularize cryptocurrency. Government backlash to Facebook Libra stands in stark contrast to the increasing adoption of cryptocurrencies all over the world; much like the Internet boom of the 90s, bureaucratic mistrust may be indicative of a revolutionary new technology.
I'm Editor-in-Chief, Angie Lau, and today we're going to be focusing on this increasing global pushback, this almost backlash, if you will, against blockchain and cryptocurrency. And sitting right next to me to explore a little deeper on that is a man who bought Bitcoin at $5, so I would say he’s pretty prolific in the space. Welcome to Stefan Rust, the newly-minted CEO of Bitcoin.com.
So, welcome Stefan, you've been traveling a lot. I've been traveling a lot as well. We talk to a lot of people. You talk to the people who are really in the weeds, the entrepreneurs, the blockchain projects, and they're feeling the heat.
Thanks for having me. First of all, definitely, you're seeing some changes. We talked about it a bit earlier but governments are beginning to feel the heat as well, I think more so than the actual entrepreneurs; entrepreneurs are loving the change. They love fluidity, so that way they can find and navigate opportunities. And in change are always opportunities and so entrepreneurs are really liking this. It's just a sign that regulators are beginning to get really nervous, as state and money begin to separate, and I think we're trying to drive that separation more and I think crypto is enabling a lot of that, very similar to church and state, how those two separated - how do we separate money and state?
That's a really interesting concept that I'd love to explore because right now in India, for example, they're looking at a proposal that anybody who's trading crypto could face a 10-year jail sentence. And then you have the US Treasury Secretary this morning, Steven Mnuchin, saying that Bitcoin is not going to exist in a couple of years, that it is an asset that has no value, echoing the words of US President Donald Trump, who also said something very, very similar. So why is this almost happening now? Is it the Facebook Libra effect?
I think that the aggregation of companies involved in Libra, the magnitude of the size of companies involved in Libra is just showing that there is, from an enterprise standpoint, a desire to engage in this new technology and in this ability to move money globally without any barriers at a very efficient cost basis. Speed is what the market is looking for, particularly as we move towards a global organization. Governments are still trying to regulate their own little boundaries and limit the transfer of money, of intellectual property, of trade. And I think that's the barrier that all of us are trying to break down. And government’s not playing along in that game.
Well, why would they? I mean, you have central banks around the world who are charged to make sure that their domestic economy sustains within a global economy and that means the ability to control inflation to possibly create hard or soft landings for any business cycle. Cryptocurrency removes that power away from central banks. Is this a good thing for us?
We believe so. And if you look at 2008, who benefited from all of that printing of new money? Has it been distributed to the whole population? Have people in Wyoming or in Chicago, in the outskirts of Chicago, had their water pipes upgraded so that they don't get rusty water out of the taps? Has that ever happened through all that new money that's been printed? Has that infrastructure been improved for the general population in the middle of the US? And I think a lot of the population just haven't seen that. They've seen this money be printed, these financial institutions be rewarded for a disaster that has been created by these new financial instruments that were created, and the benefit has not been transferred to the general population.
Well then, why is cryptocurrency better?
Because cryptocurrency has a defined set of inflation. So inflation is defined based on a contract, it's not controlled by one single power, it's distributed across and it's decentralized across multiple different entities that are engaged in that specific cryptocurrency. Every cryptocurrency has its own inflation and its own policy in terms of who is rewarded in that model of inflation, but Bitcoin for example has its set inflation. The amount of currencies will never be more than 21 million coins minted, and Bitcoin Cash by the same token, in that same model as well.
That may be true, but in the real life adoption it's really hard to buy coffee with a Bitcoin that's worth $11,000 or maybe 95-82 within a matter of an hour. So how is the industry, - and the industry has evolved, there's no doubt about it - where does the industry need to go, how is it evolving still to ensure that there are products that are worth it for the average consumer to still be able to sustain real-life transactions?
So that's a totally valid point. The industry has been developing; it's a really young industry. We're 10 years old, right, the crypto industry. Bitcoin cash is two years old. We’re really young. But we talked about traveling, I was just in Ljubljana, a city in Slovenia, we had more than 450 merchants in Ljubljana that accept Bitcoin Cash.
I arrived, I took a taxi from the airport to my hotel, I paid my hotel, I went go-karting, I had a haircut - and by the way, go-karting was the most fun experience out of the lot - I went to the Apple Store, an Apple dealer, I went to a supermarket, in all of those - I went to a bar, I went to a restaurant - I paid with Bitcoin Cash at every single outlet. The only place I couldn't pay with Bitcoin Cash was a government-controlled, subsidized, public swimming pool when I wanted to do my training. I had to pay 1.50 Euro for a beautiful swim in a nice 50 metre pool. But other than that... And it was a great experience, to be able to do that at the swipe of a phone off my mobile wallet onto a QR code, and immediately settled. The ability and the adoption rate was made possible thanks to stablecoins. So the ability to have an environment where as a merchant, I do not need to deal with that variability, that the crypto industry is really suffering with... But stablecoins is really one way to help and as volume grows, the crypto itself will become more and more stable. And I think the other thing that's changed since the last sort of waves that we've gone through is the maturity in the industry. So we are much more savvy about cryptocurrencies. We are also a lot more mature in terms of being able to create liquidity, and the financial instruments that have entered into cryptocurrencies have enabled us to not only look at trading right now, but also be able to build our future forecasts and be able to predict into the future a bit better and manage that exposure that we might have to the crypto industry.
The pushback is real though. Politically, we have the Senate Banking Committee, we had the Facebook Libra really defending the project, and defending the technology at some point. What are the popular misconceptions right now, globally, that you're feeling from governments and regulators as to the threat of crypto, or of blockchain?
So I think governments are torn between two angles. On the one hand they want to be able to limit the amount of data these big tech companies have.
So we have rules like GDPR where you have to clearly define what data you're collecting, make sure that data is available, and be able to delete that data at any point in time…
The right to be forgotten.
The right to be forgotten. And then on the flip side, I want to collect data. When it comes to money, I want to collect as much data as I possibly can. From a user, I will have this KYC, I want to have these passport controls, and all these new rules about collecting data. So on the one hand, I want to limit the data and I want the ability to delete all the data and on the other side, I want to collect as much data as I possibly can. That collection of data is against centralized - it goes to the government, but the centralization of data when it comes to all these other websites, it’s not allowed to go to the government, it’s not allowed to go to any other company. I think there's a big conflict there. And how do you manage that, particularly in businesses when you collect data as it relates to money? So banks as a business, they will allow to collect money and they will share that data with any government institution or regulator that's requesting data associated with a specific bank account.
But it feels like the threat of the innovation that blockchain in cryptocurrency has already given us is really real. If regulators and countries clamp down, if China says ICOS are illegal, that cryptocurrency is illegal, India says, “you face a 10 year jail sentence,” the US says “we will investigate, shut your business down because you are trading a security or a commodity with American citizens without registering with us…” This is happening around the world right now. So is there a potential threat that all of this innovation that's happened is gonna be shut down?
So I think innovation’s happening in two-folds. One is the consumerization of the innovation and the other one is the depths of innovation in terms of technology, in terms of how the ability to provide the technology in a very complicated word “non-custodial fashion.” So there's this word. I can either build innovation around custody and around non-custodial services. And blockchain has enabled this thing called non-custodial - what does that mean? That basically means the control is in me, the user, and the responsibility lies with me as the individual where innovation on a non-custodial basis is very hard to attack and diffuse.
However, it is a centralized point. I can attack that centralized point, shut it down and say, you're innovating in a negative way, or in a way that we as a government or as a nation feel is inappropriate. But when it's in a decentralized manner where the end user has control over their own data, over their own money, all of a sudden that becomes a very different way of managing, of doing business, which in the past has not been the way it has been encountered. The downside with the non-custodial fashion has been the user experience. It's been a bit more difficult. I have to have my private key, I have to have these 12 words that I have to remember. If I lose those 12 words, I lose my private key, I lose all my money, I lose all my data. And that is something that the user all of a sudden has to take responsibility for, and I think the population is at an inflection point where a certain part of the population is ready to take on that responsibility, and that population on a global basis is growing. Whereas on the flip side, there is still a large portion of the population, and let's be fair, it's the majority of the world's population, that is not ready to do that. But you're seeing the young emerging generation - the gaming community, the eight, nine million people a day watching Friday Fortnite on Twitch. Those people, they are more willing and more ready to play around with digital money, and take control on their own mobile phone, in their own hardware wallet, on whatever asset or digital secure device they have.
That evolution is happening right now, it's either a revolution or an evolution, but I think you're right, it is an evolution as the younger generation really gets more comfortable with this technology. But right now, we have a generation that is in control, where Internet didn't exist for a lot of them until much later in their lives, and then we have a system that has given us FATF which is the Financial Action Task Force that takes a look at money laundering and then really is very, very specific about Know Your Customer, KYC and AML, anti-money laundering, because crime, terrorism - this is a real threat even in traditional fiat money. Now cryptocurrency -
There's definitely a threat and I think if I look at the backlash, as you call it, that we've been experiencing over the last two, three weeks, particularly with the FATF, the G7, the G20, the hearings that we've had, Mnuchin, Trump tweets etcetera - you look at all of that, the backlash is a result more of the need to educate the regulators about what cryptocurrency really is. And the fact that there is no... I had a meeting with the CEO of one of the world's largest banks. It was always a feel for who's losing in all of this. There always has to be a loser. If I'm winning, somebody's losing. There's always this tag team and it's really hard to pinpoint in the crypto world. There's no loser, there's nobody there I can grab hold of.
And I think as the crypto world matures, and as the regulators understand more about how this is actually really working, and what I need to regulate better, is do I need to do code audits? And everything is transparent by the way, on the blockchain, right? Every single transaction you can follow. So if there's a really big transaction, like $100 million transaction, I can see that on a blockchain. I can then follow those transactions and I can audit those. There are companies that specialize in that audit. So if I really want to get deep into understanding it, I just need to re-educate my workforce to understand how to do the audit on a blockchain.
What are the three things that you would educate regulators, naysayers and skeptics about?
So I would highlight the transparency that blockchain provides, the algorithms. Auditing the algorithm, so it's not cheating people, certifying algorithm, so all of the code base, all of our smart contracts are audited by independent firms that audit our code base so that we know that anybody who's using our software development tools can audit the code, knows it's audited, it's certified and it's authentic; there's no cheating going on. The code base is open-sourced. Because it's open-sourced, anybody can see any threat. The third point is ecosystem. The value is not in intellectual property, it's in the ecosystem that I have developed that is contributing to the overall blockchain, or Bitcoin.cash or whatever the other algorithm underlying is.
Truly the first democratic technology.
Yeah, definitely, and if you look, it's been an evolution. We've had all of a sudden tools that have come to market, you've got GitHub, where all program and code can be open to us, which is, funny enough, owned by Microsoft, which is a centralized organization, but it was acquired for a large amount. That built the community and enabled the community to share the code. And then I’d get others to adopt and use it and contribute to it, and because they had been using it and noticed flaws, they wanted to share that flaw with others because they had invested so much into that core base that there was a mutual feeling of investment. And if we all invest in that with time and effort and code, it will rise all tides and we will all win out of that, it will lift all tides and we will all benefit.
Lift all the boats in the ocean as it were.
Which is a very socialistic sort of concept, but I think that's...
But it's something we're already really familiar with. The Internet - at the cusp of it, a very clear decision was made on the direction of the World-Wide Web, and it really was a recognition that for it to change society and allow this technology to thrive with us, it must be open source. And from which was born new industries, new talent…
Jobs were created, wealth was created thanks to all of these new innovations that came out of that.
Now, here's the next wave, this is Blockchain, this is cryptocurrency. It's very scary. But what you're saying is, if we are going to refute it? It really boils down to one thing, which is, this is open source, it's transparent and it is trust, it's a system built on trust because there's no need for me to trust you anymore. I just know that this transaction is going to happen, it's real. I can't cheat you, you can’t cheat me. The system ensures that trust so that you and I don't have to...
We've never seen each other, we never have to do due diligence with each other. We've got an engagement somehow, you’re Hong Kong, I could be in Vanuatu, off some Micronesian Island, and doing a transaction with you. We've never met each other but we can do a big deal against each other because the contract is in the system, and it's defined and it's validated by independent parties.
And then the skeptic will say, but anonymity, isn't that dangerous? Because the only people who are anonymous are the ones who want to hide what they're doing. So, how do you...
But that's not true. It's not only anonymity.
Well, that’s true. I care about my anonymity when I have certain transactions, why do I want everybody to know about that?
Yeah, but it's also convenient. Sometimes you don't want to use your credit card all the time, when you go and buy a coffee; you just may want to put a $10 note on the table. It's just quick; that transaction is frictionless. So there are different areas of concern. If it's a bigger amount of money certain people may want to do a trade for a bigger amount of money and I want to buy that piece of art but I don't want to know how much it’s actually traded for because it may lift the whole price of art, or whatever it might be.
But your point is great because at the end of the day, don't fault the technology for being transparent and giving you the ability to be anonymous. Fight the crime, right? The technology is not the criminal. The stuff that you want to regulate? Nobody's saying, "Don't do it.” But to attack the technology itself, that would be a disservice.
You mentioned earlier the amount of jobs it has created, the amount of hope the internet has created... and look, today, everybody has the fingers of their hands on a mobile phone. They can search for anything. They have access to all libraries, any book that they want to have a look in, any piece of information. It's all at your fingertips thanks to technologies that came out of the Internet innovation. What are the technologies that are going to come out and the amount of economic value that's going to be created as a result of frictionless transactions around the world where everybody all of a sudden can participate in this global economy.
Do you think the regulators will wake up and realize and learn?
I think they will. Everybody hates change. Change is always... I mean you remember the days when, “the internet will never happen. Oh, Facebook. It's not going to exist.” I was in meetings with big monolithic companies with the CEOs and COOs, like I was yesterday, and always negativity. “It's never going to happen; it's never going to exist. They're not going to disrupt my big communication business; they're not going to disrupt my banking business; they're not going to disrupt my search, and people coming to my libraries.” And that has changed.
Well, in truth, it's even changing amongst regulators and global leaders. We just did a piece on what Japan is doing and really, Mark Zuckerberg has found a friend in Japan. Tarō Asō, finance minister, really defending the potential of blockchain technology and cryptocurrency. We've seen Japan really be on the forefront of that conversation as a developed nation. And in fact, when you take a look at Asia, you see nations and regulators within those nations wake up and say, “This is a possibility for us to engage at a level where we have not been able to before.”
I couldn't agree more. The best example is even just right across the border from where we are here in Hong Kong: China. You look at WeChat. WeChat has taken what I call from a VoIP business and gone into a MoIP business. They started off with gaming, so entertainment. Then they realized very quickly that people want to chat when they're entertaining each other, so they have this chat application, and that has disrupted the way people communicate. We don't communicate on the phone and talk to each other anymore. We all chat. The number one button on your phone today is the chat app. The voice call app? Nobody talks about calling each other anymore. And businesses haven't even adapted to that yet. Now they've evolved to WeChat Pay with 20 or 30 different ways that you can do a transaction on your WeChat app, so that money has become the social object that we all need more, and interact around, and crypto currency is enabling any interest group to create a currency where all of a sudden we can share and trade in that interest that we have around a currency and put a value to that, and very fluidly transact around that.
Hence Facebook and hence Libra. 2.7 billion people in their ecosystem. Suddenly, are they a bank? Are they creating the new economy? And some would argue they potentially could be
But I wouldn't say only Facebook. I think you've got the likes of Amazon and Alibaba who have a whole suite of merchants in there, have a whole number of users.
Potentially, they could have their own version of Libra. Really anyone in the ecosystem.
Anybody that has an ecosystem. Again, the value is in the ecosystem itself: the number of users, the merchants, the ability to aggregate people...
Are you saying one day I could have a family crypto and then my kid could do his chores and I could do the crypto in the family.
You could pay them crypto instead. Pocket money would be in some sort of form of Angie-cryptos or Angie-coins, and they will get their Angie-coins, they will earn it. They can then swap it on a sideshift tight application, and immediately convert that into Bitcoin Core, Bitcoin Cash, Ethereum…
And that is definitely another conversation, but thank you for joining us today. I think it was very illuminating, and there's lots of conversations to be had about just how we can educate ourselves more about cryptocurrency and not just let specific politically driven conversations dictate how we feel about it. So thank you very much for that.
Thank you very much for having me. Thank you, Angie.
Awesome, Stefan, thank you. And thank you for joining us.