What is holding back mainstream adoption? What role do governments need or want to play? The Next Big Thing plenary panel at OECD’s second Global Blockchain Policy Forum was designed to hear from the real influencers in blockchain and distributed ledger technology (DLT) today: from industry leaders to regulatory heads. Forkast.News Editor-in-Chief Angie Lau led the discussion, noting three themes that have emerged in the past year that are already shaping blockchain innovation:
1. Private vs Public Blockchains… or a Third Way?
2. Increasing Regulations
3. Cross-border Collaborations
OECD invited panelists representing industry and agencies from the U.S. to Europe:
- Joseph Lubin is Co-Founder of Ethereum and Founder of ConsenSys — a blockchain venture studio that applies Ethereum smart contract blockchain platform to businesses, processes, and enterprise. Mr. Lubin works across industries and focuses on solving governance issues in the blockchain industry.
- Pēteris Zilgalvis is the Head of Unit for Digital Innovation and Blockchain in the Digital Single Market Directorate in DG CONNECT and is the Co-Chair of the European Commission FinTech Task Force.
- David Treat is Managing Director, Global Blockchain Lead at Accenture and global head of Accenture’s financial services blockchain practice — engaging clients across all industries, from R&D to full-scale integration. He is also Vice Chair of the Enterprise Ethereum Alliance.
- Valerie Szczepanik is Senior Advisor for Digital Assets and Innovation, SEC — Securities and Exchange Commission. Ms. Szczepanik coordinate efforts across all SEC divisions and offices regarding the application of US securities laws to emerging digital asset technologies — including ICOs and cryptocurrencies
- Muhammed Emin Torunoglu is the head of behavioral public policy and disruptive technologies department at the Ministry of Trade of Turkey. The department is responsible for the integration of disruptive tech into policymaking ecosystem.
Watch here as the group at “The Next Big Thing” plenary panel at OECD Global Blockchain Policy Summit 2019 discuss everything from how governments regard decentralization, to how blockchain may be helping support foreign trade. What is the Next Big Thing that will shape where things will go?
Angie Lau: All right. Good morning, everybody. Bonjour, Ça va, and I’ll use all the languages in Europe, but I wasn’t that good at languages in school, so I’ll stop right there. Hope you had a wonderful first day yesterday. A lot of engaging and interesting conversations, certainly at the plenary sessions and also the workshops. It is my honor and privilege to guide this next plenary panel on the second day at the OECD Global Blockchain Policy Forum. As I’ve met and engaged with many of you and observed the conversations that have happened across the past 24, 36 hours, it is so incredibly encouraging, inspiring to really see the engagement of technology and blockchain in cryptocurrency at such high levels. The next big thing, I’m sure that’s something that everyone’s thinking about: Major developments in DLT from industry and governments in the year ahead. This is the conversation that we will be engaging in right now.
Angie Lau: And let me introduce our esteemed panelists. If you can all make your way to the stage as I introduce you. Joe Lubin is co-founder of Ethereum and founder of ConsenSys. This is a blockchain venture studio that applies Ethereum smart contract blockchain platform to businesses. And Mr. Lubin, of course, works across industries and focuses on solving governance issues in the blockchain industry; one of the thought leaders in this space. Pēteris Zilgalvis is Head of Unit for Digital Innovation and Blockchain in the Digital Single Market Directorate in DG Connect and is the co-chair of the European Commission FinTech Task Force.
Angie Lau: I’d also like to introduce to you now David Treat, Managing Director, Global Blockchain Lead at Accenture and Global Head of Accenture’s Financial Services Blocking Practice. He engages clients across all industries from R&D to full scale integration. He’s also Vice Chair of the Enterprise Ethereum Alliance. Valerie Szczepanik is Senior Advisor for digital assets and innovations at the Securities and Exchange Commission of the United States. Ms. Szczepanik coordinates efforts across all SEC divisions and offices regarding the application of U.S. securities laws to emerging digital asset technologies including ICOs and cryptocurrencies. And certainly last but not least, is Emin Torunoglu. He is the head of Behavioral Public Policy and Disruptive Technologies Department at the Ministry of Trade of Turkey. The department is responsible for the integration of disruptive tech into policy making ecosystems. So there you have it: we have regulators, we have policymakers, we have consultant, we have blockchain founders. So let’s kick things off right now as we discuss The Next Big Thing. From each of your own unique point of view, what is the biggest issue right now that will drive blockchain growth in the year to come?
David Treat: At this point it’s not the technology. I think the technology is advancing incredibly well and driving, you know, real change that we’ve needed in the digital world for some time. We’ll talk more about that, I’m sure, throughout the panel. But at the end of the day, now that we’re actually applying this in production across ecosystems and impacting entire ecosystems, it is the policy, the governance, the formation of the ecosystems, the healthy decision-making, the mechanisms and everything from top-level policy and control down to the very day-to-day on-boarding off-boarding key management aspects, the healthy formation of ecosystems and how to govern them that is really the hard, hard work. And I’m very encouraged as it’s happening, but it’s hard.
Joseph Lubin: So you wanted controversy, so I’ll start out by disagreeing with David, who I normally agree with. It is the technology. It is. We’re going to work out the social issues, and I think that’s going really well. There will be contentious issues and we will figure out how this profound and powerful new technology fits in old rule systems and modifies old rule systems, and that’s a social discussion that we’re going to have to have in many jurisdictions for probably a decade or two, maybe longer. But the real issue is getting the technology much more usable. It’s about scalability. That’s number of transactions per second throughput in both public chains as well as other chains that are built for narrower contexts. It’s about usability of the technologies so that we don’t stare at these long strings of alphanumeric digits and make it as usable as the internet is. It’s about privacy and confidentiality. And so these are all domains that we’re making incredibly rapid progress in. Blockchain is about five years old, or at least the smart contract version of blockchain is about five years old. Bitcoin dates back 10 years, but there was really narrow activity in those first few years, and so it’s a profound technology that’s still a baby technology; and profound technological revolutions in the past, like automobiles, and mobile phones and electricity, they all ramified over many more years than five.
Angie Lau: So we have technology. We have the fabric of the relationship of the ecosystem. And from your point of view, Peter? From an EU point of view?
Pēteris Zilgalvis: I would say that technology, the policy and the legal frameworks are progressing hand-in-hand. We have a European blockchain partnership of 30 countries working in, you could say a regulatory sandbox, but implementing regtech and audit document identification solutions already starting this year at the end of the year, cross-border working with the policy at the same time. Are there barriers? Are there things we need to do in the future on legal frameworks? And I also put this question to you. We obviously have our analysis to do more for the smart contracts, mutual recognition, revoke ability, other issues across borders; things to enable tokenization. Do we need clearer legal frameworks? So I think it is a progress that has to happen. Joe mentioned the scalability. We’re investing in research as well. We want the technology to develop, but the policy and the legal frameworks have to develop along with that, and ideally together with the technologists, together with the society.
Angie Lau: Valerie?
Valerie Szczepanik: Thank you. I just have to say, the views that I express here today are my own and not necessarily those of the U.S. Securities and Exchange Commission. But that said, I do think it’s a combination of things. The convergence of many technologies seems to be a key driver here. We’ve got cloud computing, artificial intelligence, Internet of Things, distributed ledger technology, all these things come together, and it’s going to be interesting to see how technology puts them together. I think there are efficiencies to be gained. We’re excited about how these technologies can add to interesting ways that investors can interface with the markets, efficiencies, and improvements in clearance and trading and settlement, innovations across the markets generally. But I think those innovations are also driven by investor demand. I think we have a generation of folks who really want to be able to interface well with markets, easily and efficiently. And so you’ve got that driver. You’ve got folks who are excited about the new technologies, who want to invest, who want a piece of it even if it’s a very small piece. But they want to invest in this technology and benefit from it as well. So I think we have a driver in the investment space., we have drivers in the technology, but I also think across the world we have innovations in regulation. So we have regulators who have innovation hubs like my own – the Fin Hub – we’re all collaborating together. We want to collaborate with technologists, entrepreneurs, their advisors, so that we can figure these things out collaboratively in.
Emin Torunoglu: The same disclaimer. The views are on my own and doesn’t reflect the views of the Ministry. So I think it’s the lag between the technology and the regulation. Usually regulations follow the technology, and this is normal. But blockchain has a unique case because its value-added comes from decentralization. And that’s why most of the use cases are about centralized topics such as payment systems, land registries, or foreign trade. And in these areas, governments are monopolies and it’s a challenge to regulate something that could basically replace your position in the market. So I think that’s the biggest challenge that we are facing right now. And if we solve this challenge, then it’s the way to go.
Angie Lau: Well, thank you for your candid remarks. I mean, I think that you’ve touched upon the one thing that I think really is a foundation of many of these discussions: how do you intellectually and honestly regulate a technology that could potentially threaten, in Bruno Le Maire’s words, “monetary sovereignty of states,” but also displace the control mechanism, the governmental mechanism, of nations and sovereigns? That is something that I think – let me ask Joe: how would you respond to the climate in which the industry feels it’s being regulated, it’s engaging with these policy conversations?
Joseph Lubin: So our industry essentially ratifies along two major tracks. One is permissionless: permissionless innovation, open source projects, people working projects and exploring the solution space, and that’s not a purely technological endeavor. It is embedded in a social context. The other track is where we’re using this technology immediately in a regulated context where essentially corporations, other kinds of organizations are adopting it and making better what they already do – bringing trustful collaboration and digital native digitization to what they’re doing. And we certainly, on the more pure technology side, we need to bring forth the best technology that we possibly can, but ultimately it will be embedded in the social context. And so we need to have discussions in different jurisdictions about what people want to do with the technology. And just like the Internet, there are a wide variety of uses of the Internet. Some of them dark and gray, and some of them much more open and regulated. And essentially blockchain is a raw technology. I can set up Internet so I can use Internet protocol, I can use IP addresses and port numbers and I can do things that are simply unregulatable with pure Internet technology. But we’ve built layers and layers of social constructs on top of that so that humans can use it more easily and so that we can build the rules into it that we want to build. And the Ethereum technology always anticipated that 99.9 percent of the use of the technology will be between identified entities, and that we will build rule systems, and so I see layers of usefulness and rule-fulness built on top of the technology.
Angie Lau: David, do you see that when you advise enterprise clients as they take a look at the technology? How do they incorporate it within their own systems and then at the same time be conscious of customers?
David Treat: One of my favorite clients a few years ago said something that stuck with me. So coming out of capital markets, this was a senior member of a top three investment bank said, you know as we’re sitting down, he said “Dave look, we run a reconciliation business that does a bit of banking,” right? And part of the reason that this is grasped on so quickly in capital markets in particular is, you know, to get from ultimate buyer to ultimate seller and move the asset and the cash, we’re already in a digital world. It’s electronic information sitting on servers and yet it’s 12 different handoffs and it’s a ridiculous amount of messaging and reconciliation and data quality that arises from the fact that the movement of the asset and the movement of the value are on totally separate paths and introducing all sorts of challenges. As we look industry to industry at those same dynamics, as Joe said, right, in this construct, there’s an efficiency entry point into this in terms of taking a look at the existing systems, and how can this technology that for the first time ever in the digital world marry a digital version and uniqueness and dimension of the asset? Right? For the first time ever, we can have something that’s unique in the digital world. It exists once and only once. And we can marry that and do a direct exchange with tokenized value – cash – in whatever form, and to be able to directly exchange those things is profoundly different. If we stopped at this efficiency play of “I can undo all of the messaging between, you know, but in whatever business contexts that’s happening in the business flow,” that would be really sad, because I think we have a much bigger opportunity to totally rethink and transform the overall business ecosystem and business processes and so that’s a lot of the focus, is taking our clients through that cycle of not just digitizing the analog process, which we’ve done many times in our corporate history, right? There’s a great ad that I found from the late 1960s that shows the New York Stock Exchange floor, and it says “on Wednesdays we do paperwork,” for everyone familiar with this. In the late 1960s, actually, the paper crisis, right, the solution was we’re gonna shut down the exchange on Wednesday so we can catch up on the paperwork, and the mafia stole — I think there’s an estimate of some 300 million dollars in that period because of the, you know, the inadequacy of the paper system. And that led to the formation of the DTCC. But in fact, I joke with Mike and Rob, it’s, you know, in effect, all that was done was instead of wheelbarrowing the paper tickets down to the vaults in the DTCC, we’re just moving the wheelbarrows of ones and zeros through pipes and it’s still sitting in vaults. And now suddenly we’ve got the opportunity to transform and totally rethink it, because for the first time ever, we can marry uniqueness of an asset in the digital world with uniqueness of value in the form of cash and do a direct exchange.
Joseph Lubin: Can I just add quickly that I think it’s important to mention that the technologists don’t operate in opposition to the regulators. The technologists were drawn into the space because certain systems were not serving people as well as they could. And it’s about building better systems for people, and regulations or laws might evolve when you don’t have to build protections for the people, when they’re essentially trusting their assets to custodians. And so if you have systems that intrinsically protect people better, give people more economic and political agency, then I think it’ll be easier to come up with regulation that everybody is happy with.
Angie Lau: I mean, at the end of the day, many regulators and policymakers do reflect the interest of citizens. And so it is, however, that part of the citizenry also includes entrepreneurs and startups. How do you balance that? You know, as you think about the overall good, how would you, first of all, define ultimately what that good is, and what you’re trying to achieve?
Pēteris Zilgalvis: I wouldn’t even call it a balancing. I wouldn’t say that the values are in opposition to each other. I would say the regulatory frameworks have to represent, in our case, European values or values of other areas of the world. And I would say among European values are innovation, creativity, entrepreneurship, but then if we’re talking say, let’s say specifically about this technology, and I would underline that we generally do not have technology-specific regulations, so there will not be regulation on blockchain, but we want to keep societal values as well, like investor protection, consumer protection, protection of fundamental rights including privacy. So I wouldn’t say it’s in the balance. It’s not in opposition to each other. Good innovation, good entrepreneurship, creativity also defends the intellectual property rights of the inventors. It also respects its clients; the citizens; the customers. So, I mean, I think there can be solutions found. It’s something that has to happen together with the technology community.
Pēteris Zilgalvis: I gave the example of what we’re doing in the public sector, but also with stakeholders, with associations like the International Association of Trusted Blockchain Applications, other methods of engaging and finding out really both what the citizens think, what the technology can do now, and what the technology can be programmed to do in the future. And going through some some difficult areas, and I mentioned when we were preparing that one of the issues that we’re brainstorming on internally now is that in addition to the permission and/or semi-decentralized blockchains, we’d also like to enable the innovation in very decentralized blockchains, very distributed blockchains. But then again, this is not at the cost of investor protection, consumer protection, privacy. How do you find a regulatory access point? How do you find someone to answer when there is something that goes wrong? And that’s not a balance. That’s not stepping away from the technology or stepping away from innovation; it’s the design of the technology. It’s the design of the market.
Angie Lau: And we’re talking about decentralization, which I think, David, I can remark on some of the language that we’re using. But ultimately, decentralization really does go back to the people. And it is, we’re talking about, pure market forces. We’re talking about adoption from a pure bottoms-up level. And yet, when we talk about governments and when we talk about policy, it is often top-down. And so when you say that you are trying to encourage decentralization and the innovation that’s happening there, how are you fundamentally able to do that from a very kind of top-down role?
Pēteris Zilgalvis: Well, this is top-down in the sense, I mean we’re democratic institutions; the European Commission answering directly, indirectly, we have a new president and a new set of commissioners who are appointed by the democratic government. So, I mean, that should be coming bottom-up. So both the expectations of the citizens and worries of the citizens are coming up to us through them, I think as to every government. But in the design of what happens in the economy, I mean, it’s not up to us. It’s the creativity, the energy, and the better ideas of the private sector and the citizens. But making sure that regulatory frameworks of today or even better, the future approved regulatory frameworks of tomorrow do not stop innovation that could be beneficial. And this is where you have a change. It’s not from this type of digital technology to blockchain, or this type of next progression, but it is where you had a silo of data or an enterprise or a financial institution which was regulated. It was the thing that was the center of the regulators’ attention. And then suddenly, if you have a very distributed model, perhaps it’s really actually going back to the past. It’s like a partnership, pre-corporation. But it is a different way of actually reaching when you do need to enforce the investor protection, the consumer protection of the privacy, those who would be the ones making that move. So that’s a little bit, I’d say, the intellectual jump, or the challenge that we have.
Angie Lau: Over in Turkey, Emin, you apply behavioral thinking to shaping economy and economic policy. How are you thinking, how is Turkey thinking about this concept of using the technology to innovate in an economy, but also to regulate and participate with it as well?
Emin Torunoglu: Yeah, it’s really a challenge because at the Ministry of Trade, we are dealing mainly with foreign trader duties, and there are many, many stakeholders in foreign trade: custom agencies, other countries, different organizations, and understanding the needs of each party and trying to create some solutions for them is a challenge. And for this blockchain technology, we are engaging as much as possible with the community, and all around the world, there are different concepts about foreign trade. so there are three pillars of foreign trade. The first one is the movement of goods, the logistics. The second one is movement of documents, customs processes. And the third one is movement of money, trade finance. So there are blockchain consortiums which are addressing each of these categories in the world. And we are talking with them and we are trying to integrate our country to the best of our ability. But you need to really be careful about that, because there are international regulations and our financial regulations that you have to consider, and there are sovereignty issues you have to consider. Right now what we are trying to do is to understand the value-added of the technology, and to do that we are engaging as much as possible with the international community, with World Trade Organization, World Customs Organization, and OECD.
Angie Lau: And some would argue, it is still a very fragmented space when it comes to policy. Valerie, I’m sure that you keep hearing that as people look for guidance from the FCC. How are you coordinating all of the feedback that you’re getting? What is the relationship that you do have with industry as you enact intergovernmental agency policy?
Valerie Szczepanik: Part of the finhub, which is our financial innovation hub; it’s really a platform and also a portal. It’s platform both within the commission to spread knowledge around on various areas like DLT and artificial intelligence, and also it’s a platform for the people to see everything across the commission that we’re doing in these various areas: statements we’ve made, cases we’ve brought, guidance we’ve put out, requests for public input that we solicit, it all gets posted on that one page. It’s also a portal, so we invite members of the community to come in and talk to us. We literally have dozens of meetings with investors, entrepreneurs, developers, their advisors, we meet with them, we talk about their projects. We can’t give them legal advice, but we can certainly tell them how we interpret our rules and regulations, and where the guidepost exists. And, you know, if we spot an issue, we bring it up to them, we might give them a hand-off to another regulator, those kinds of things. We’re trying to encourage folks to come talk to us and to get our feedback. It’s also invaluable for us to hear what’s going on in the industry and what the pain points are and what we need to be doing better as regulators. We travel around the country doing peer-to-peer meetup so we can meet with folks from around the various areas if they can’t travel to DC. We’ve hosted fintech forums where we bring together industry and academics, and other regulators in one place to talk about complicated issues with the technology and how we’re working things through together. We’re soliciting an academic to come work with us for a limited period of time so we can get onboarding of more detailed knowledge about technology. Aside from that, we liaison with folks in the U.S. federal government. On a constant basis, we’re talking to FinCEN and CFTC, Department of Justice Treasury, or a member of the FSOC, which is Financial Stability Oversight Committee, looking at various issues where we have potential regulatory overlap, where there might be risks. We want to make sure we’re covering the ground in an appropriate and a consistent way. And we partner quite a bit with the international community. So we’re involved with IOSCO, the securities regulators; We have an ICO network where we talk about what we’re seeing in the market. We provide, I think, assistance to other jurisdictions and how we look at things, how they might be looking at things. We want to keep informed about what international developments are going on. We’re involved in the IOSCO FinTech Network, the FSB Financial Innovation Network, we’ve helped with the FATF work on the AML/KYC standards for VASPs. So we’re heavily engaged in this community. We do think there are areas where international collaboration is essential. There are areas where I think there’ll be more harmonization around, for example, AML/KYC, there are other areas where there are just always going to be differences in, you know, securities laws, for example, or the way various jurisdictions look at things. But we can collaborate and help the community understand what those various jurisdictional boundaries and rules are. I think it’s important that space to recognize that… as things develop, it’s important to take a step back and get a picture of what the future state might look like, so we can identify, maybe we’ve solved problems, but we don’t want to create new problems. So if we’ve dis-intermediated, done away with some of the intermediaries that exist now in the present market structure (and they exist for a reason, because they provide choke points, for example, of terrorist financing or they provide important investor protections or market protections), we have to make sure that the new ecosystem that we create also provides those same protections. And maybe it doesn’t look the same. Maybe it’s not the same structure. Maybe there’s different intermediaries. Maybe the function of those intermediaries is covered by technology, and that’s exciting, too. But I think it’s important to engage with the regulators. And I think we do have good engagement with it, with the folks here on this panel and otherwise who are thinking thoughtfully about these types of things.
Angie Lau: Does technology provide that solution? You have private, which a lot of governments and high-level agencies are engaging in, and then you have public blockchain. Is there an interoperability solution that technology can provide that allows this transference of data, of rights, of individual interests, that meet with the social fabric and the rules and the intermediaries, as you’ve said, that provide those checkpoints? What do you think?
Joseph Lubin: Yeah, absolutely. Interoperability has been under discussion for three or four years amongst different protocols, amongst different usage, even using the same protocol technology, Ethereum technology, for instance. David was talking before we sat down here, about how essentially things need to get much more fluid and much more subtle. There is no strictly private or strictly public; there are lots of different roles and permissions, and we built even into the protocol level, we built different types of access to these systems. In our opinion, the trust characteristic derives from maximal decentralization, and that’s incredibly important. The trust characteristic is the profound invention here. The trust characteristic will enable us as a society to move from subjective, centralized trust systems where we’re depending on organizations or individuals, to much more objective trust systems, guaranteed execution of agreements, and so you need maximal decentralization for that characteristic. But you don’t need it everywhere. So it’s perfectly reasonable, though some people will argue with this, it’s perfectly reasonable to have a somewhat decentralized architecture. So if it’s a consortium of banks that want to interoperate amongst themselves, or a commodity trade finance platform, you don’t need maximal decentralization. It’s just wonderful to them to have this new trust characteristic applied to their collaboration, and there are ways of linking networks that are essentially side links. So an example of that is the commodities trade finance network called Komgo is linking to a commodities trading network called Vakt. We’re part of the Congo project, and that will make those inter-operations much more fluid. Importantly, you can take those kinds of networks for different purposes, and you can anchor those networks, those side chain networks, into the base trust layer of a maximally decentralized protocol like a theorem, or you can use other, what’s called Layer 2 technologies, where you get high throughput, and you can do your business in those layer two technologies, but you can be certain that if they’re anchored properly into the base trust layer, that the people with assets or other value on those layer two systems can pull their value back to safety, back to the maximally decentralized network, if something goes wrong at that higher level.
Angie Lau: So where do policymakers and agencies and governments come in? You think you want to come in at the base layer? You want to go layer one, layer two at the app level? You said, how do you want to do that?
Joseph Lubin: Usage. How the technology’s used, not regulating the technology.
Pēteris Zilgalvis: Well, just agreeing with everything that Joe just said, but there is, I’d say, some complementary social layers and official layers; you have the standardization processes, the International Standardization Organization Technical Committee 307, the European Commission, and I think most of the countries in this room participate. And also on, let’s say, the trust social layer, I can say for a moment there is an interesting report which is available to all of you on interoperability on the EU Blockchain Observatory and Forum, which is very well-run along with a lot of great universities by ConsenSys Paris, and thank you to Joe Lubin and his team for contributing to that. I think you need to get information out there; technical information, but also societal information. Interoperability is more than technical interoperability. There’s also legal interoperability, also interoperability between organizations, also societal groups, if you take it further as a philosophy. So, I mean, we’re working very much at the technical level that an international set of policymakers should be working on. And then also with the societal and technical stakeholders’ organizations with the goal of providing a seamless experience for the consumer, for the citizen, because that’s when blockchain is really going to work, when people no longer know, “oh, I’m on the blockchain,” but they push on an app and it does what they wanted it to do.
David Treat: Interoperability is one of those – we were talking beforehand -if I can actually finish putting pen to paper, we’re working on a whole construct around the inadequacy of our language in this whole space. And interoperability is one of the ways. Another one of those examples where I guarantee you that there are portions of this audience that heard that word differently. I agree with everything you said, but there’s some people who heard “interoperable,” and they’re talking about really the integration of a new system with legacy. Or we, actually some of the team that’s sitting here, we’re just contributing to the Linux Hyperledger project and interoperability capability, and what we mean by that in that contribution is to be able to get one DLT-based ecosystem to be able to work with another DLT-based ecosystem that may be on a different platform. So, you know, Quorum, and Fabric, or Corda, and the like. And to be able to have not just the ability to technically move assets between the two, but have the governance and the policy, the mechanisms and the agreements, the business, the social contract, you know, to use Joe’s language, between those two ecosystems and how that should work. And so “interoperability,” I think we need different words because people are hearing it differently and mean different things. I think we talked about public and private earlier. I think just as Joe said, it’s more nuanced than that. I think we should be reserving the term public and private for the user population, would be my vote. I think we should separate that from the notion of the operators of the systems that are being applied. And you know, again, echoing Joe, that, you know, there’s a spectrum of creativity and innovation and a dialogue around that social contract, around what are those requirements of those operators of the system, where we want, you know, where we are going to have different levels of comfort in different contexts, and that’s all great. And we have to work through that, ecosystem by ecosystem, business flow by business flow, and make those choices. And, you know, just as you said, if we take core capital markets as one of those, you know, narrow focus areas, we’re never gonna get away from the need to have someone be the circuit breaker in the system that choke points or, you know, or the like. In a different social contract construct, we’ll be very open to different kinds of operators of the systems, you know, in different settings. And so public-private, centralized-decentralized, interoperability, you know, the language is too binary. It’s misheard. We’re talking past each other, and one of our kind of open calls to this community and others, and we’re working across several forums, is to propose better language so that we can actually talk more valuably with what.
Angie Lau: What do you think people are misunderstanding?
David Treat: Well, so let’s take public-private, right? Just the term “public blockchain.” I think too often people denote that as if it’s some sort of benevolent NGO providing a service to the wider population, you know, when we really should be talking about a user population of, “I want the public to access it,” or “I want it to be a private group that accesses or uses an application.”
Angie Lau: Or does it reflect the purity of public, which is it’s truly public, that everybody gets to engage with it equally, fairly, because of technology; technology is simply a tool.
David Treat: But you use the word “engage,” and that’s where I agree. It’s about the engagement. It’s about who’s engaging with it. But what actually some of us mean when we say public blockchain is defining who’s operating the system. So a public restroom operated by the national park system, everyone can use the public restroom. That’s great. That’s the definition of- it’s a public restroom. Everyone can use it. The national park system is responsible for cleaning it up when it’s a mess; replenishing the paper products and, you know, we’ve chosen an operator for that system, but we’re not talking about- So when we use the term public blockchain, I think most people most often mean, who are we allowing to engage with the system and be a user? That’s a tremendously important construct. But what we’re masking is, what are those social contract choices we’re making around the operators of the system? And to the point of the previous speaker, the Taurus speaker talked a little bit about the actual node operators in the Bitcoin blockchain. The collection of consensus companies provide critical infrastructure for the Ethereum ecosystem. We don’t talk about the actual operators. And in a capital markets context, you know, Joe, we talked about throughput and scalability, you know, the work we did with the DTC 18 months ago, we proved that, you know, a permissioned construct can handle the entirety of U.S. equities clearing, right? Scalability is not a problem in that context. And for that user group, we can use a specific set of constructs. In a different context where it’s a wider social construct, we’re going to use different operating characteristics. And we’re masking that part of the dialogue and talking past each other by using a blanket term of “public” or “private” blockchain.
Joseph Lubin: So the difficulty is that it’s a very young, immature technology ecosystem and it’s moving so fast, and we’re just building subtlety everywhere without… the inner circle can name that subtlety. We often use too many words to name that subtlety. If you take something like “permissionless,” so Ethereum is a permissionless network. It’s permissionless at the open-source layer, where anybody can go in and read the code, inspect it, fork the code, create your own system, permissionlessly, it’s permissionless innovation. It’s permissionless to attach to the system and become a miner, or a validator of transactions on the system. It’s permissionless to upload your smart contracts; build applications on the system. It’s permissionless in some cases to use those applications, it’s permissionless to send transactions of value from a source to a destination. It’s not necessarily permissionless to use an application that I put up on the permissionless blockchain if I don’t allow your address to interact with the functions that are exposed by that smart contract. It’s not permissionless to take this exact same technology and run it on private nodes with private contracts, private access, and there are layers of rules and permissions that we can build in. So it’s going to take quite a while before society is able to point to a thing and name it with one of the Fifty Shades of Permissionless. I look forward to reading your document, actually.
Angie Lau: Another concept of, I’ll have to use the word, decentralization, is what teams around the world are building. And so Ethereum is one protocol, and there’s dozens and dozens of others. And this is growing against the backdrop of what is a very tense geopolitical environment in which we all live, in which nations are in conflict, either via trade or otherwise. So I’m based in Hong Kong. I tell this global story of blockchain technology from my purview in Asia. I can tell you that what is developing in Asia seems very different – similar, yet different – but certainly from a different perspective. And so in that spirit of introducing what sometimes can be different points of view and how markets engage with each other in perhaps an analog or traditional or legacy system, and then go up one level and talk about decentralization, talk about protocols, talk about public blockchains, that are actually happening with international teams. How do governments, how do policymakers take a look at those communities there, and participate in that from a very specific point of view when that is not necessarily shared at the protocol technology level?
Pēteris Zilgalvis: Well, I’ll follow in from the previous topic that I think it’s not useful for us to have very rigid and very narrow definitions. So leading into this topic, if we talk about this European blockchain services infrastructure, it’s not centralized in Brussels. It’s multi-level governance reflecting the way our structure looks; so 28, 30 countries and the European Commission, further going to the cities and regions. So not completely decentralized, so perhaps not fitting a rigid definition, but much, much more decentralized than a lot of infrastructures. Obviously, the next step, and I’ll say again, not getting caught in rigid definitions, this is a global technology and it needs global governance. But global governance and the situation that we have does not automatically mean every country in the world; every blockchain. I had the experience of being, last week, in the second supervisory roundtable of crypto assets organized by the Japanese Financial Services Agency with a lot of the world. And you see the common points we have: the Bank of Japan, for instance, is on the Eurochain, with the Euro area central banks that run node on the blockchain. There is interest from that side to work with Europe, to work with other partners in North America, and in some of these situations, it’s perhaps not going to go so fast. The dialogue is there on the private sector level; some networks are integrating, some other networks and other parts of Asia, perhaps fairly separate, but have ambitions perhaps to come into the other markets.
Pēteris Zilgalvis: So as much as possible, we have to use the very international fora, like the International Standardization Organization Technical Committee 307, various roundtables of supervisors, IOSCO, others on the more security side, which is not me, to try to find common ground and to make sure as much as possible that a smart contract – a token solution that we see as legal – that benefits the consumer, that benefits the economy, can seamlessly move across the globe. But of course, we will have differences. I mean, we have our own general data protection regulation on the European Commission, which may differ or be similar to some other regimes. And we have to find ways to ideally program the technology program, also, for instance, smart contracts in the future, to recognize when it’s going from one jurisdiction, from one regime to the other, and to fulfill the instructions that we as regulators – but we serve the citizen, so that the citizens want the technology to implement it.
Valerie Szczepanik: Just kind of blending last two topics, I think there’s a number of cross-border initiatives multilaterally and bilaterally between and among regulators to try to encourage innovation. And there’s many international teams, so I get to talk to folks who have also talked to our counterparts in the U.K., or Japan, or other places. But one thing, just playing on the idea of terminology, it is really important that we are all kind of understanding what we’re talking about. And I think in the blockchain space, perhaps more than other spaces, you have in precise terms, you have folks on different sides of the pond using different terminology for the same exact thing. And if we want to regulate the right way, we really have to understand exactly what we’re talking about. And so when people come and talk to us, I ask that they bring the technologists with them, so we can actually go through exactly what’s happening and what terminology they’re referring to. We don’t want to over-regulate or under-regulate, so we want to make sure we know exactly what’s going on. And that’s been critical. But on the cross-border issues, there’s many international teams and we’ve had the great privilege to talk to them about what they’re doing on various projects, and I hope to continue of these international, bilateral and multilateral collaborations on fintech.
Angie Lau: And cross-border collaboration at the Ministry of Trade in Turkey, you know, this is an example of where potentially you could use the technology as much as, I think, about, you know, the policy, but really use the technology as you function in foreign trade. Do you think that technology is a potential hindrance, or a help?
David Treat: Well, I think in this case, it’s a help because the promise of blockchain like this, intermediation elimination of middlemen, the trust, the efficiency, those are the problems of foreign trade. So there are many stakeholders, and there are trust issues, there are documents that have to be approved by different government agencies. And I think I’m very lucky to be working at the Ministry of Trade regarding the blockchain technology, because I think there is a lot to do in this respect, and we are pursuing a bilateral approach with other countries. So we have working groups with Singapore and other Asian countries which are very advanced on this issue. But the problem is we couldn’t yet find that killer application, so we couldn’t just show the benefits of the blockchain to our ministers. We are experimenting with it, within our countries and across borders. And it is also, I have to say, like doing a blocking project with two countries is not enough. Because if it’s just two countries, you can use a shared database. You don’t need blockchain for that. It’s like the networking effect. So the more users you have, the more the value that your network will have. So that’s where the international standards and international organizations will come in. But before that, we have to engage with other countries and find that killer application, and that’s what we are trying to do, but it’s a very hard thing to do because there are many things we want.
Angie Lau: So it’s almost like you need an international OS for foreign trade. Who is working on that?
Joseph Lubin: So I like to think of geopolitics from a bottom-up perspective with respect to this technology. We are seeing populist thrusts over the last few years and jingoistic rhetoric, and we’re seeing some scary competition between essentially the Chinese economic, political sphere and the Western world where supply chains are potentially under threat of bifurcation, which is a very scary concept for the global economy. This technology again brings automated objective trust. And so we can build systems that enable actors that don’t fully trust one another, to trust the data in the systems, to trust the agreements in the systems. And so you definitely need to get good data into the systems. So the sensors, the devices will need to have their own trusted enclaves and their own identities and their own signatures. But if you can get trustworthy data into these blockchain systems and tamper-proof containers etc., you can essentially have systems that are going to be unbelievably difficult to improperly manipulate. And so you can imagine very strong competitors with lots of animosities still trusting systems, still trusting the hardware, the chips, etc. that are coming out of one side or the other, and building the composite systems that we need to build out of the components that we all need.
Joseph Lubin: And so with respect to supply chains supplying networks, I think we can keep the planet unified using this technology. With respect to higher-level agreements, treaties are in many cases unenforceable. But if we used blockchain-based agreements, and if we stake value in sizes that nation-states actually care about, we can have – and again, it’s not going to be protocol-based consensus, it’s going to have a social assessment to it – we can have counter-parties to agreements stake value and lose that value if they break agreements.
David Treat: Part of what we’re finding successful in working with clients around how to apply this technology is just talking at a very specific level. Your comment about Leo finding the use case, you know, it couldn’t have been more frustrating, right, two or three years ago, there was the mantra of like, “is this a hammer looking for a nail?” It was the lack of specificity as to what’s really happening. And so to be able to break it down into what has actually changed in this new space of innovation, and data infrastructure, and business logic, versus the world we’ve been living in… and to be able to talk more specifically, and I’ll give an example: having the conversation with a client around the data that they currently hold in their data infrastructure. Today – you know, I did talk about this at launch yesterday, so apologies, I’m gonna repeat some of myself of – you know, the winning digital business today is the one that accumulates the most data that they can then feed their machine learning algorithms and create customer insights and personalize, you know, personalized service and the like. And they gather that data by any means possible. It’s this massive data accumulation construct. And they can’t therefore then prove that they are meant to have it. And what this technology has unlocked is that for the first time ever, I can decide, in a user-controlled dynamic, I can choose to share a piece of data with you. And I’m going to encode in this interaction through this technology, the intent, rights, and obligations associated with that in this contract. I’m intending to give it to you, and I’m cryptographically signing it. I want you to have it. And in doing so, I’m giving you rights to use it. And actually, you then owe me obligations back around it. And actually through this innovative technology, we actually have the ability where I could revoke that access. Couldn’t do that today; we have no idea where our data goes, it gets sold, it gets moved, it’s, you know, it’s totally out of our control, and I think we’re all done with the data theft, data breach, you know, I think it’s a lack of privacy. So just taking a client back from our higher level language that we use when talking about the space and saying, what does that mean for you in a business ecosystem, if suddenly you can have a relationship with your clients, where you have a defined, clearly auditable, transparent ability to characterize the intent, rights, and obligations of the data that you are using between each other. And then you have a very powerful conversation of then how does that transform things. Or that you have the same conversation around tokenization and the fact that for the first time ever we can create uniqueness in the digital world. We’ve been living in the copy and paste world for the past 50, 60 years. You’ve no idea if I send you a piece of data what then happens to it. But now suddenly we can have uniqueness in the digital world. And what does that mean? And so bringing the conversation down to those fundamental components of what has actually changed, we’re finding, is then driving much more healthy, much more transformative conversations around how business models can change; how social contracts can change. And then the intent, and I think the opportunity, is to take that much more specific set of concepts to then have a policy conversation and a governance conversation.
Angie Lau: And does it change? Does it change the thinking? I mean, you’re absolutely right. Technology has allowed us for the first time ever to participate in in the true value of our own economy from an individual point of view. That is extraordinarily powerful; that transforms the relationship that it has to businesses, capital markets, free markets. But how does it then also change the relationship between governments, policy makers, even regulators? My question to all of you.
Pēteris Zilgalvis: I mean, it can be a more direct relationship. Fully agreeing with the comments that were just made. I mean, the first step is a little bit the efficiency play where you have multiple actors who can’t share a database. Then it’s this possibility to share value, transact value, manage data, utilizing tokenization, smart contracts that can really have a much more interactive, a much more participative economy and society. And that needs perhaps some regulatory certainty from the policymakers’ side, which ideally would provide, but no more than it needs to be provided. But I mean, it’s really a moment where we can grasp these opportunities for innovation and most of all from the public sector, public policy side, unleash the innovation – sustainable innovation, also, in terms of energy use, which, you know, thankfully is becoming less and less of a question for blockchain, but also sustainability in terms of fitting the societal needs of protecting the investor, protecting the consumer and so on.
Angie Lau: I mean, that’s something that drove the the FCC action in the early days with ICOs. The market wanted it. It drove incredible investment, to huge criticisms of blockchain industry as well. So how do you know? How do you think about that relationship to not only the individual, but also to help foster the very innovation that could potentially help everyone?
Valerie Szczepanik: Yeah, I think, you know, we’re at an inflection point with this technology; we’re also at a reflection point. I think this is a great opportunity for technologists to get involved in the policy debates and in the regulatory conversation with the regulators. I think this is the perfect opportunity to come in because things are moving so fast, because regulators are a little bit, a step behind the innovators because they’re trying to figure out what’s happening and how the technology works. They’re not the innovators. They’re the ones following, hopefully, in close step behind, but we need those innovators to explain to us what the technology does, what it’s capable of, you talked about unleashing the technology; I would use the word “harness,” because I think we need to take a technology that’s potentially transformative, disruptive too, and figure out how best to use it looking at the board here; better policies for better lives. We want it to make better lives. We want it to create efficiencies, create opportunities, but not create new problems. So I think this is the perfect opportunity for technologists to get involved in the debate. Talk amongst themselves, but also really engage with policymakers and regulators to figure out where we should all go with this together.
Angie Lau: Bruno Le Maire opened up OECD Forum here in Paris yesterday with some very stern remarks about Facebook’s Libra project. Is this an example of inflexibility, of regulatory guardrails or rules that inhibit innovation? This is a question for really everyone on the stage.
Joseph Lubin: So first, let’s talk about the Libra project itself. I was excited to hear about the Libra project. I was excited because it was validation of what we’ve been doing. It used the same words, it used the same phrases, lots of the same constructs. And I think the greatest asset of the Libra project is its greatest liability, essentially. And so I think the issue is about Facebook and not the Libra project itself. We should see lots of Libra projects, Although I would not want to see the Facebook nation consisting of 2.3 billion people. It’s really the Caibra project that is dangerous, where Facebook, whose deep learning systems understand us better than we understand ourselves… we probably shouldn’t enable them to have a view of all of our monetary transactions as well. So I don’t mind the project at all, except the Calibra aspect of it, where Facebook builds a wallet. I do believe that there will be many price stable currency projects, so Signature Bank and JP Morgan and a whole bunch of others are building price stable tokens and they’re doing it in not a fully open context right now, but there are some price stable tokens that are in a much more open context, and we need systems like that. We need choice and optionality in our monetary systems, in our payment systems. And frankly, something like Libra would be great for certain nations that face volatility in their currency, and the loss of monetary sovereignty is pretty scary. But lots of countries would choose that, in order to have a more stable currency with which they can operate their internal affairs, with which they can buy things across borders much more easily. And if they do have optionality, if they can choose a better system, then they’re not really necessarily locked in, so it doesn’t mark controlling monetary policy for a whole bunch of smaller nations. So I think that these systems are inevitable. I think the monetary regime that we’re living under is end of life-ing. And we are going to need systems like this that are essentially built at a layer above nation state bonds and nation state currencies that will provide choice, and hopefully, better systems.
David Treat: Taking a slight step back from it and talking about the fundamental thing that’s underway, right, we should all be incredibly excited about that. We are finally seeing a technology space where we can fix what we’ve been living in, and just assumed has been the basis of the world, which is this separation of the cash leg of a business or any kind of transaction with the movement of something in the digital world. I think we’re going backwards. I think the digital world is here to stay. But we’ve been living this notion of the cash, the movement of value is something separate, and it’s disjointed, and it’s unnatural. Right? Coin of the realm is a real term. The digital realm is borderless. And we’ve got to come to that rationalization as to how does that work? And it’s too fundamentally valuable to be able to take the tokenized version of something and directly exchange it with tokenized value. We just completed, nine months ago, the first-ever central bank to central bank exchange of tokenized fiat currency with Canada and Singapore, on two different DLT systems, by the way. So the, you know, the monetary authority of Singapore on Quorum, the Bank of Canada on Corda, and exchange Canadian dollar for Sing dollar directly. There is the JPM coin, there’s now Libra. I think it’s not a matter of if this is the right thing to do. I think we desperately need to be able to link up, and it’s too valuable of an innovation to be able to directly exchange a digital thing with digital value atomically without that separate set of processes. And I think it’s a foot race, a really interesting foot race, in terms of, “is it central bank digital currency,” “is it private issue coin,” “what role does cryptocurrency play in it,” and, you know, there’s one answer that says it’s all of the above, and it’s going to be a different mix of how that’s accomplished. But amongst that debate and discussion of how it’s accomplished and who does it, I think the given is that it’s that capability of being able to exchange a digital asset with digital cash or value atomically [that] is critically valuable and is absolutely happening.
Joseph Lubin: Can I just expand on this notion of natively digital? We’ve been quasi-digital in some aspects of society for a very long time. We’ve had money represented in digital form, but it’s really an analog monetary system. So the foundational constructs of society are just now moving into natively digital form, whether it’s cryptocurrency, or decentralized identity, or agreements, or securities; all of these elements once rendered in natively digital form can be transacted PVP, DVP, etc. And where we had transactions in the legacy economy, where clearing and settlement took hours, days, weeks in some situations, those kinds of frictions slow an economy. If we can move everything into a context where you have atomic trustless swaps that clear and settle in the instance of the transaction, you squeeze all the delays and all the frictions out of your economy, you can build in a few seconds for regulatory oversight or whatever is necessary into these transactions. But essentially, we’re in a global economy that has so much more debt compared to the money in the system than we’ve ever had before. And we need massive growth engine to get us out of this, and squeezing all the frictions out of our global economy is potentially a good one.
Angie Lau: Friction, though, is something that can be self-imposed by governments and regulators. In that spirit –
David Treat: It can also be it can also be desperately needed. If you think about the liquidity and capital markets, right? That was, the initial exuberance was where to exchange all securities, you know, instantaneously. And of course, that would be disastrous for liquidity, and you need market makers to be able to have a settlement window to compress their trading activity, to provide that service: to buy when no one wants to buy and sell and no one wants to sell. So there’s, you know, and I’m not disagreeing with any of the points, I’m just saying this is actually one of my favorite examples, where the initial exuberance of what the technology can do was then universally applied inappropriately, but actually is leading to a space of incredible creativity in that I think what we’re going to move to quickly, and I’m sorry to go so specific on this, but you triggered a talk track. One of the things I’m most excited about is then the creativity in terms of, I think we will see in capital markets the notion of, it’s not T plus 1, T plus 2 or the like, but now we have the capability to risk price settlement windows. I can have as a part of trade entry, tray capture, the notion of, “do I desire to clear instantly, and will I pay differently because there’s a different risk exposure? Or am I willing to wait, you know, hours?” I don’t think it’d be longer than hours, but am I willing to wait for a longer settlement window to allow a market maker to do what they do, and I can risk price the settlement window? This is incredibly creative for the capital markets folks in the room. I think it’s where we’re headed, and it’s these kinds of dialogues, and innovative discussions get missed when we think just about the bilateral nature of some of this.
Angie Lau: The next big thing, I heard it here. The next big thing from Turkey, from S.E.C., from EU.
Emin Torunoglu: Well, I think the next big thing will be in using data to understand human behavior. That’s what we are trying to do. And I think artificial intelligence and blockchain could merge together. Blockchain could execute some of the transactions, and by artificial intelligence, we can decide which transactions to execute by harnessing the data. But it’s a little bit down the road. Right now, we are just trying to harness the benefit of the blockchain technology in foreign trade. But the next big thing I think, the interoperability between the A.I. and the blockchain technology.
Angie Lau: Thank you.
Valerie Szczepanik: I am seeing some exciting things in terms of capital formation, where bespoke features are being programmed into smart contracts on issuance, so you have financial instruments that really don’t look like things that we’ve seen before, but they provide much more optionality for investors and for issuers who want to raise capital. I think there is a huge opportunity in the coming year for folks who want to really turn this technology toward compliance systems. So with the FATF guidance and no doubt there, there’s amazing opportunities for folks who want to work on the technology to build in AML, KYC features that maybe we haven’t seen before, implementing certain of the rules, the travel rules. So that’ll be exciting, to see how people can use that as a business opportunity.
Pēteris Zilgalvis: So making a tiny advertisement for the plenary at 15:30 on emerging tech, A.I. and blockchain changing the world, I likewise see models like the data coming from the Internet of Things being organized by blockchain, smart contracts being rewarded or recognized by tokenization, analyzed by artificial intelligence, and again, in a decentralized system, being sent to the appropriate or needed destination. And I think this convergence of the technologies is exciting. And again, we want to enable it and we want to enable it in Europe, but also in collaboration with our international partners.
Angie Lau: And I think it’s a great reminder that really, this conversation did not exist eleven years ago. And in 2008, against the backdrop of the global financial crisis came a technology that really captured the imagination of first, technologists and then really now, the world.
Angie Lau: So I thank you, all of you, for participating in your specific venue, your role as we talk about innovation and use the words like interoperability, cross-border collaboration, but it is this language of unified discussion that will definitely be driving future collaborative conversations to come. Thank you to all of you. Thank you to this audience for your attention, and to OECD.