The financial industry of today and tomorrow branches out in many directions. As providers of software foundations for e-wallets and payment processing systems, we plant the roots on which your trailblazing financial products can stand firmly. Yet, with catchwords like “PSD2”, “fintech”, “blockchain”,” neobanking” and “robo-advisory” entering the scene every day, it’s easy to miss the forest for the trees.
To keep oneself up-to-date on the newest industry developments, what better way than to ask the experts. In our new blog series “Finquiry”, we interview professionals about the today and the tomorrow of the financial industry.
Our Guest: Blockchain expert Andrei Martchouk
Our interview partner Andrei Martchouk is Managing Director and Co-Founder of KI decentralized GmbH. We have asked him about blockchain and the cryptocurrency sphere.
trimplement: “It’s done, the German Government has just recently published its official Blockchain strategy paper. What are your thoughts on it?”
Andrei Martchouk: “I’m not overly excited. It’s about putting a ban on crypto coins for the most part, a point that overshadows the other items in the blockchain strategy paper. First-off, banning crypto coins is simply not practicable. Secondly, if you enforce heavy regulations, the progress in the crypto sector will simply evade to other areas and to other countries.”
trimplement: “When seeking reasons why the blockchain strategy paper opposes crypto coins the public scandals surrounding some ICOs come to mind. Do you think that reservations about cryptocurrencies might have influenced the Ministry of Economy and Energy to compose the blockchain strategy paper the way it did?”
Andrei Martchouk: “It’s a way to see it. I think too few ‘Bitcoiners’ got involved in the composition of the strategy paper. Instead, you had people engaged in other projects of the blockchain sphere. And blockchain is still a somewhat nebulous term when it comes to real applications. People have very different ideas about what blockchain will enable in the future, what it will be good for. And that uncertainty has influenced the official strategy of the German Government.”
trimplement: “In any case, other countries seem to be more open-minded about cryptocurrencies as you have implied. It seems that Singapore or Malta or Switzerland are stepping up their game in this area.”
Andrei Martchouk: “Yes, but you can’t say that with all certainty. There’s word and the press writes that there is happening a lot in Switzerland and that the “crypto craze” is catching on. Of course, there are a lot of exciting companies there, but besides that also a lot of smoke and mirrors. Many companies are registered in Switzerland, for example, to save money on taxes, but true crypto development happens elsewhere.
But when it comes to genuine developments in the Bitcoin sphere… If you’re asking about Germany, I must say, Germany is actually quite well-positioned here. Berlin is seen as an important tech hotspot for crypto companies and innovations, even beyond our borders.”
I think too few ‘Bitcoiners’ got involved in the composition of the strategy paper. Instead, you had people engaged in other projects of the blockchain sphere. And blockchain is still a somewhat nebulous term when it comes to real applications.
– Andrei Martchouk, Managing Director of KI decentralized
trimplement: “One aspect of crypto coins like Bitcoin critics often express is their high volatility. Do you think this is a problem?”
Andrei Martchouk: “Bitcoin is volatile in the short run, mostly. Sometimes, we have daily price jumps or drops of about 10%. In the long run, however, we don’t observe much volatility, but a continuous increase in value. With currencies issued by national governments, it’s the other way round, than with crypto coins: You don’t see much volatility in the short run, but more in the long run, as we see that such currencies tend to drop in worth, no matter which currency you are looking at.
Just take the many charts on what the US Dollar is worth now and what it was worth one hundred years ago. It’s the same with Euro. It’s a young currency still. But it already suffered a considerable loss in value. There are stable and less stable periods and we are approaching one of increased currency debasement. Fiat money also is an artificial money system. If the reserve banks decide to debase a currency, they just throw on a few levers and money is less valuable.
You can’t do something like this with the more natural money systems like gold. You can compare Bitcoin to gold, in this regard.”
trimplement: “Yes, but Bitcoin doesn’t have quite the same reputation gold has with investors. What would you say are the requirements for cryptocurrencies to reach the same status as fiat currencies in terms of distribution, usability, and acceptance?”
Andrei Martchouk: “Just let people do their thing. That’s it. For instance, it’s very difficult for crypto companies to attain basic, legal, infrastructural work environments, like opening a bank account. At a bank, if you say that your company is dealing with cryptocurrencies or has cryptocurrencies as part of its business model, you will not get an account there, in my experience.
Too many obstacles stand in the way, too many fears and misconceptions. You have to do away with those first. I don’t think that additional regulations or government-imposed requirements will pave the way for wider usage of cryptocurrencies. Customer protection should be the point about regulation. And it should be more straight-forward. If someone wants to administer the stored value of a third party, they must fulfill the requirements and present securities and guarantees. We already have that in fiat money systems. You can just translate those mechanisms to crypto.”
trimplement: “You have mentioned stablecoins earlier. They are seen as an attractive alternative to bitcoins and alt-coins by many, as they are linked to the value of financial assets, promising less volatility. Would you agree?”
Andrei Martchouk: “Yes, that’s pretty much the purpose of stablecoins, to represent the worth of classic assets, with a 1-to-1 ratio. But if the asset fluctuates in value, the stable coin does so as well. For the most part I don’t understand the stablecoin hype. They don’t come with new functionalities or present an innovation in how money systems work. They will, of course, push forward the digitalization of our payment systems – but the banks will be the main profiteers here, I think.”
trimplement: “Yes, banks are one of the future players of the crypto game. Another one would be big tech companies. Just take Facebook’s Libra coin. Telegram’s blockchain project comes to mind, too. Why do you think are social media platforms pushing for the crypto industry?”
Andrei Martchouk: “It fits the current trend, to offer payment services, which are separated from traditional banks. The banks are too slow in transforming their services, so it all happens elsewhere. It’s the same situation as decades ago, when investor unions formed outside the banking sector.
Many social media providers believe they can accomplish the same feat. They do have a large user base to build upon, which can be converted to their services. It worked in China with WeChat, but if this success story can be repeated so easily, that remains to be seen. It has slipped from the public mind, that Facebook had already offered a Facebook coin back in 2010. But it wasn’t a success for the company.”
“…if you want to apply blockchain to other use cases, you may not confine yourself to the technological side. You have to take in the whole picture and create a fitting ecosystem for your product.”
– Andrei Martchouk, Managing Director of KI decentralized
trimplement: “Regulators and financial authorities would be another obstacle, Facebook would have to bypass.”
Andrei Martchouk: “Of course, Facebook’s primary goal is to print money. That’s why they face strong resistance, on part of the regulators. Regulators view the Libra project as a regular bank. If Facebook wants to manage customer accounts with genuine monetary assets, it’s a bank. So Facebook needs a banking license. Simple as that.”
trimplement: “And big tech is just one area, where blockchain is becoming popular. Now, Blockchain is a part of other use cases as well. Planet Digital Partners has announced it will integrate Blockchain into its newest Cooking Mama game for Nintendo Switch. The Swiss supermarket Migros wants to use blockchain to control its delivery chains.”
Andrei Martchouk: “Sure! After the success of Bitcoin became apparent, they tried to apply it to other fields. Basically, they have cherry-picked the functions for other use cases – most obviously the function, that blockchain entries cannot be manipulated after they entered the chain. They have taken blockchain as a building block for other applications, like supply chain management systems.
But then again, once you abstract blockchain from Bitcoin, the claim that it’s not manipulable becomes false. The transactions in applied blockchains like Bitcoin or Ethereum cannot be manipulated. And the reason that they can’t lies within the existing ecosystems, not the code or technical make-up. The pattern that enables a blockchain to be resistant to manipulation is more complex.
Therefore, if you want to apply blockchain to other use cases, you may not confine yourself to the technological side. You have to take in the whole picture and create a fitting ecosystem for your product.
Blockchain is not a technology. And the users are a crucial part of its ecosystem.”
trimplement: “But aren’t there any interesting developments in blockchain, where you would say ‘Yes, that works’?”
Andrei Martchouk: “Of course they are. The supply chain projects mentioned before. If you do it the right way, with the right blockchain implementations. Supply chain is a huge topic right now. Worldwide tracking of pallets or containers, food quality, proof of origin, all that. It’s a gigantic area of application for blockchain, throughout all industries. But how to implement it, that’s the question. The most straightforward use cases are found in the financial space, because they are the most closely related to the original Bitcoin concept.”
trimplement: “So, what do you think is missing, before blockchain and crypto would gain a more mainstream appeal?”
Andrei Martchouk: “I think you need more education in these areas. Even for the people who work in banking and the financial industry. They must understand what blockchain is or what bitcoin is, how and why cryptocurrencies work. And why people enjoy using cryptocurrencies like Bitcoin, why they use it as a means of payment or a store of purchasing power. Then crypto and banking could come together and then, more fruitful blockchain projects could appear.
We are going through a phase right now, where the blockchain sphere cools down and we assess new opportunities. I’m more bullish than ever before.”
