Interview on Brett King’s Breaking Banks

I was honoured to be invited to Brett King’s Breaking Banks podcast to talk about Bitcoins and blockchains with an Asia angle in the “BITCOIN & BLOCKCHAIN IN ASEAN” episode.

Rob Findlay, CEO and founder of Next Money (formerly Next Bank) hosted the conversation, and Marcus Swanepoel, CEO of BitX also shared his insights.

The full audio episode is here and I recommend subscribing to the podcast if you are in to FinTech.  A transcript of the relevant section is below, edited for clarity:

Breaking Banks, Voice of America Business Channel, 21 April 2016
Bitcoin and Blockchain in ASEAN
http://www.voiceamerica.com/episode/91833/bitcoin-and-blockchain-in-asean

Host: Rob Findlay (RF)
Guests: Marcus Swanepoel, BitX (MS), Antony Lewis, blogger at bitsonblocks.net (AL)

07:38 RF
Hi everyone and welcome to Breaking Banks. This is Rob Findlay here with another edition of our Breaking Banks series live from Singapore. We always love to have a global view here at Breaking Banks and we are having another look this week from the FinTech world at the Asian markets. We have a great line up today with Marcus Swanepoel and Antony Lewis, two experts on blockchain and Bitcoin who are going to join us …

We are here today to talk a bit today about blockchain and Bitcoin. Now we heard from Brett [King] and his guests around early March, who were talking about blockchain and Bitcoins, and that was certainly from, a US and European perspective. What we want to do today was to talk to our two guests about the application of blockchain and Bitcoin here in Asia and Southeast Asia in particular.

We are lucky to have two guys who are really pioneering the way here in blockchain and Bitcoin and have been in the space for a while. I’ll let them introduce themselves. First I want to welcome Antony Lewis from bitsonblocks.net. Antony, can you introduce yourself to the Breaking Banks audience?

08:15 AL
Hi Rob. My name is Antony Lewis. I’ve been in the Bitcoin blockchain space for about two and a half years now. I left IT in a bank to join itBit, where I was the Director of Business Development in Asia. itBit is a Bitcoin exchange, and my role was to build the business here and get more people trading Bitcoins. That was about two and a half years ago.

Just under a year ago I got really interested in blockchain, the technology, so I left to really study the white papers and I thought the best way of understanding the technology was to write about it. So I wrote a blog called bitsonblocks.net where I was explaining blockchain, which is kind of a geeky concept, and I was explaining it in business English to business people. And off the back of that I started consulting to banks and financial institutions, and so I am now an independent blockchain consultant.

09:09 RF
Fantastic, so a really big welcome to you, Antony, and it’s great to have you here and bitsonblocks.net is an excellent resource of Antony’s thoughts and a simple way to approach it, so I encourage you to check it out and have a look.

Marcus Swanepoel, are you there, and can you introduce yourself to the Breaking Banks audience, please?

09:27 MS
Yes, thanks Rob, really good to be on this show. My name is Marcus Swanepoel. I the CEO and one of the co-founders of a company called BitX. I think for the sake of the conversation we are having today it might be worth just giving a bit of history about our company.

We actually started off in 2013 as a company called Switchless, building Bitcoin and blockchain systems for banks. And we were the first company in the world to build a fully integrated Bitcoin system for a major bank, which happened to be Africa’s largest bank at the time. That was in 2013.

Early 2014 we spent a lot of time with all the major banks in Europe, Australia, southeast Asia, even in the US, looking at their Bitcoin, blockchain and so on strategies, and it was during this process that we quickly realised that, you know, the banks are probably going to be followers and not leaders in this space. So we changed our business and formed BitX, which essentially is an independent platform that makes it easy for people to buy and sell Bitcoin, to store their Bitcoin, we integrate with e-commerce companies and other payment platforms, and we predominantly focus on emerging markets, in particular southeast Asia and Africa, although we are expanding into other markets and some developed markets now as well.

Maybe also just a last point, given the audience might not be familiar with some of the emerging market companies, we are backed by the Naspers group. For those of you who don’t know Naspers, it’s about a $60bn US billion dollar market care public company, probably the most prolific emerging market tech investor in the world. Some of the stakes, major stakes they have, is, you mentioned Alibaba earlier, so they have a large stake in Tencent, which I think is the second biggest internet company in China, also large stakes in the biggest internet companies in India, Russia and many other really, really large emerging market e-commerce, video and payment companies.

11:26 RF
Great, thanks Marcus, Appreciate that. It’s exciting to hear the involvement of those businesses. We are going to start on the blockchain side, given that this is a relatively hot topic for the banks out there, and specifically and obviously the startup industry and the VC guys who are seeing the development of blockchain.

Antony, we’ll start with you. We obviously heard about a month or so ago, some of the views of what’s happening in the US and Europe and potentially this topic is becoming quite overheated in terms of hype and attention, but in the Asian market if you would summarise what you have seen and heard now, say in the last few months. Where are we at with blockchain in this region? Is it mature, are we having the right conversations and how has the interest from banks changed over the past, say, six to twelve months?

12:10 AL
Around a year ago we had just come off the Bitcoin cycle, so people at banks had heard about Bitcoin and they had dismissed it as a fad or as something that they weren’t interested in, and they are still not interested in that. And blockchain was still a very new word. Fast forward a year, it has been one of the most, accelerated educations I have seen in finance.

Now not only do bankers have the word ‘blockchain’ on their lips but they actually have opinions on it, not just wanting to know what it is.

12:46 RF
God forbid they have an opinion! It has been pretty amazing to see the level of interest, the level of appetite for understanding. What are they doing about that, are they reaching out, are they trying things, are they actually building something, or is it really a conversation and a dialogue?

13:05 AL
I think it’s a bit of both. It varies from institution to institution and also from department to department and, even within: it’s easy to say ‘banks are doing this, banks are doing that’ but I think we are still at a department level and then an individual level. So certain people are completely up to speed in banks, and that’s not just the IT crowd, it’s senior management as well, whereas others are still behind the curve.

For example, I’ve educated everyone from senior management level all the way through to IT project audit departments, and they are at various different ends of the education scale.

From the conversations I’ve had I think banks are either coming off, or have just finished, the proof of concept stage, so they are spending money educations themselves on blockchain technology and I think they’ve got a rough, a good idea of what it is now. So the education is done and the state of the technology is understood and now I feel that they are waiting for the business case, and with blockchain technology it’s really about how to bring entities together, so something needs to happen to force a number of industry-wide business cases.

14:11 RF
I think then the work that I’m very curious about and the reason I thought this would be a good conversation this week is because I’m really curious about the Asian perspective and the Asian application of this. It’s not that it’s a vastly different region to many parts of the world, obviously, it’s complex, but I’m really curious to know if you have seen the attitude or the outlook or the application of blockchain being different here in Asia and even within the region itself. Have you seen some complexity and some variety on the way blockchain is used?

14:41 AL
People think of Asia as, as one blob and we think of Europe, we think of America as, as separate blobs. The context in Asia is very different. We have different languages, different cultures, different regulators, different regulations … it’s much, much more complex than US and Europe.

But I feel that there’s much more opportunity here because the promise of blockchain technology is to bring together and bridge companies and entities to do better business and the purpose of ASEAN, which is southeast Asian nations, is to bring companies together to promote international trade within Asia.

So I feel that blockchain should have more impact in this region that it may do in the US and Europe, which is already pretty joined up.

15:25 RF
Marcus, are there particular markets in Asia that excite you, that the audience should really know about, that you think are the ones that blockchain specifically are going to really embrace?

15:34 MS
I think Antony summarised it really well in saying that it is all very, very different. If we just look at a macro level in terms of opportunities in southeast Asia we are very excited about Indonesia. There’s just a really fragmented payment system, the banking system isn’t the most modern, so in terms of the opportunities to bring all of the different moving parts together and just given the pure size of the country and the rate at which are seeing e-commerce and really on-line activity in general grow I would say Indonesia is probably the most exciting market, but of course, it also presents probably most of the challenges in southeast Asia, so it’s a bit of a double-edged sword.

16:17 RF
Absolutely, and I think what we are going to do and touch on a bit after the break is a bit more about the regulators specifically because that’s a big conversation about how we deal with this. But also we think about these consortiums, Antony, the R3 Consortium is one that we know well in America and is there an equivalent here, is there involvement from the Asian banks in the R3 Consortium or have they had shared discussions and joint programmes that are launching here?

16:41 AL
There are certainly Asian banks feeding into R3 and participating in R3’s consortium. I think there is a role for an independent third party to join up the banks and shepherd the banks and financial institutions to work together. Whether it’s R3 or not, who knows, but there is certainly a lot of interest in R3 in Asia.

17:01 RF
Are there enough banks in this region to create their own consortium? Is it unique enough a market to create their own version of a banking system or is it just too important to be part of that global network?

17:14 AL
Well, although banks here and the context here is culturally different from the US, where R3 is from, the business problems – the fundamental underlying business problems of inter-operability of trading are the same, so at one level, yes, the context is different but at another level, at a problem statement and solutioning level, I think it’s the same here, as there.

17:39 RF
OK, great, we’re going to take a break here on Breaking Banks. We want to thank Tim and of course our partners and we’re going to come back and talk about regulators, we’re going to talk about the global blockchain forum, we’ll talk a bit about Ethereum hopefully and a bit more on China specifically, so stay with us …

21:07 RF
Welcome back to Breaking Banks. You’re with Rob Findlay here in Singapore and we are talking blockchain and Bitcoin in particular in the Asian markets, and we’ve got Marcus and Antony with us to discuss some specific questions about the application of blockchain and Bitcoin in the ASEAN and southeast Asian region.

But, Antony, I want to just jump onto the way that we think about blockchain in particular around policy, around regulation. Recently there was a global blockchain forum formed with a group of associations to help inform governments globally but also in the orient regions about what the developments in blockchain may mean.

How important is it to have all different stakeholders in Asia, in Asian market or in Asia in particular economies to inform governments and banks about policy around blockchain? What’s been your observations so far?

21:53 AL
I think it’s critical to level-set and I feel that at the moment the level hasn’t been set. Different regulators are different people, and different departments within those regulatory bodies are at different levels with blockchain, so as the non-profit organisations come together and form alliances and educate the regulators as one, I think that will increase the chances of success and adoption dramatically because they’ll be reading from the same page.

22:24 RF
Marcus, is it the same with you, because you obviously spent some time with organisations and governments in the region. Are you finding that there’s a good dialogue across all the different participants in each of those fintech ecosystems or it it still all a bit top-down?

22:36 MS
I think generally there’s a good dialogue. I’ve been quite impressed over the past twelve months in terms of how proactive and open minded many regulators are. I must say though that the level of understanding of Bitcoin and blockchain varies quite significantly across some of the countries in the markets. Some people will know their technology back to front and they’ve already started thinking about how to regulate it; others are really still at the Bitcoin 101 stage.

I think, like Antony mentions, it’s really important for us to get everyone on the same level because you don’t want a knee-jerk reaction or someone that doesn’t understand it properly to do something against the grain, and then confusing everyone else.

So I think that levelling up is important. Of course there’s a lot of economies of scale that comes from the industry for doing that. And I think one thing that we are still seeing a little bit in the emerging markets versus the developed markets is that there are still many misconceptions, so just a general lack of understanding – so part of our role is to educate.

But also misconceptions around, some of the more notorious things around things like Bitcoin and blockchain, and when we spend time with regulators and really de-bunk some of these myths and show them some data then a lot of them have an ‘Aha’ moment in terms of their understanding about it.

So it’s very important and its going to be a long process, and I think it’s going to take many years to get everyone on the same page, but there’s a lot of people working, doing some really good work on it. So … very optimistic.
24:00 RF
Yes, it’s a very interesting time. There’s a deep education period here we’re going through. The problem is, Antony, that the technology, is established and we understand the core of it, but the application and the developments around it and on top of it are changing so quickly.

Is it still seen as a foreign thing, is it a competitor to the status quo, or it is really an opportunity or a great partner? What can this technology do for Asian banks? How are they seeing it, and are they taking the opportunity?

24:29 AL
Haha, I think it’s a bit of both. I think initially Bitcoins were seen as a tiny, tiny potential threat to banks and to currency; I think that was massively overblown by the media. Bitcoins are available of course for payments but at the moment it’s still training, right? In terms of blockchains as a technology, different people have different opinions.

Firstly, blockchains are useful to organisations as an efficiency measure, so you adopt the technology and you realise cost savings because at the moment banks are spending a lot of money because they’re not interoperable with other banks. So think of the amount of headcount and the amount of money you spend in your ops department because things aren’t flowing straight through using technology. Now the blockchain technology promises to make data flow more easily between organisations. So in that respect it’s definitely a positive thing, it reduces your costs.

Now, there’s the other larger question that’s lurking in people’s minds. Can blockchain technology disintermediate third parties? And if you think about financial institutions and the whole industry, banking is an industry of third parties – can they be disintermediated by this technology? That’s still a question that’s being discussed and thought about.

My personal opinion at the moment is that third parties will continue to have a role. Whether that role is control, which it is now, control over money, control over assets, control over ownership, or whether third parties will move to more of a standards-type of organisation where they herd companies and they shepherd how companies can operate together, that remains to be seen.

26:13 RF
Yes – Marcus, we’re finding that governments attempted to see this as a way to solve some problems that maybe the industry won’t solve for themselves. When we think about what China is doing with their own crypto-currency, including the digital currencies potentially, and the whole remittance base here in southeast Asia is obviously incredibly huge, the volumes of money moving back and forth are pretty substantial, are you finding that maybe that governments are trying to use this as an opportunity to really open up the liquidity of money across borders? Does this mean that you think that this is a motivation for them?

26:40 MS
It depends on the country. As you are probably well aware, most emerging market countries have capital controls, and this something that a lot of people in the developed markets don’t realise. Many of those counties don’t want to open up capital flows. They might want to do something to make remittances little bit cheaper but they still want people to declare funds moving in and out of the country, there are limits placed on it.

So if you’re looking at something that’s completely decentralised and out of their control, like Bitcoin, that is potentially problematic. When they look at employing blockchain technology for the same purpose, then of course, yes, I can see them being interested in that.

But, as Antony alluded to, when it comes to blockchain you’re really looking at industry-wide benefits, not firm-level benefits, so if, a couple of banks or governments want to do stuff, they have to coordinate, and this coordination is potentially one of the biggest problems.

I had a chat to someone the other day, a senior leader in a financial institution, and he said, at the end of the day blockchain is basically just a standards discussion. And he had a point. Because in many ways it’s everyone agreeing to use the same technology, and we’ve seen standards discussions many, many times in the financial industry over the past few decades, and most of the time it has not turned out well.

So, yes, I think at a theoretical level if they can still be in control of it they would beinterested, but in practice whether they can actually coordinate to reap the benefits of the technology is a different story altogether.

28:10 RF
What sort of research or academic work has been done? Are we going here with a recommendation of experts and banks so that regulators and even the banks themselves, (where are they getting their education from) and what real developments being done in universities or in research houses around this? Antony, are you finding that there’s some decent analysis being done here by a sort of more critical community or is it really still too early to do?

28:33 AL
Yes,  I guess that from two years ago to one year ago the education was really being done by industry pioneers to the universities. So I remember lecturing at Singapore Management University, at NUS (National University of Singapore) and NTU (Nanyang Technical University) and that was an eye-opener – this was the first time they had heard of Bitcoins and blockchains.

Now it’s the other way round. Now we’re seeing research come out of the universities. Universities have set up departments to look into Bitcoins, to look into fintech, to look into blockchains. So, for example I was catching up with someone from Singapore Management University a couple of days ago, they are going to be rolling out trainings this year, so, for example, a two-day course on introduction to blockchains and getting your hands dirty at programming.

So this is universities working with industry to re-train people from the financial services industries to understand this technology. So that’s really positive.

The research I’m seeing is shifting from pure crypto to the role of blockchains in financial inclusion. We’ve seen some white papers coming out of National University of Singapore from the Computer Science Department talking about Bitcoin mining attacks, and these esoteric ideas, and more recently they have been putting out different types of blockchain technology. So, for example, more scaleable consensus protocols, so better ways of implementing this technology so that more participants can take advantage of it. That’s at the National University of Singapore.

Singapore Management University (SMU) will be putting together a conference in August, I believe with the IMF (the International Monetary Fund), where the agenda is very much on fintech, blockchain and financial inclusion.

30:20 RF
Marcus, what about the people who need to use this technology? Has there been some research and some studies or some development made on the application for people, for humans, to interact with this technology? It seems fairly foreign still to a lot of people, certainly even within our industry. Has there been any advancement on the interaction with this technology?

30:38 MS
I think there is, but people are blindsiding themselves to it. So I would argue that there’s actually too much effort going into the technical issues: university research papers, and a lot of technical arguments about what could these things do and what could this mean for the world.

And when people really just take a step back and look at what the practical obstacles are, I think those a lot bigger to overcome than the technical obstacles. And even from a learning point of view, we recently published something called Beyond the Blockchain where we actually detailed this, as a company, out in quite a lot detail. This was based on our experience of working with big financial institutions where you would see examples of a couple of financial institutions that decide to work together to build, let’s say, in a particular region. This was a while ago before blockchain interbank clearing settlement system, and, you know, not willing to be dependent on the US dollar, and so on, so on.

They had the technology, they had the budgets allocated, they started building the thing, but in the end the reason why the project never happened was because the service provider, and I won’t say who the service provider was,  was taking senior management on golfing holidays and senior management just had no incentive to change the systems they were using. So I think it’s important before people get lost in all the technical stuff and looking at all the papers, just taking a step back and coming back a little bit to what I said earlier about the standards discussion, just looking at, if these solutions are really technical issues or are they human issues, working together, being motivated to change the bank system, coordinating with your competitors, all of those things. I think it’s there for everyone to see but people are just turning a blind eye to it because they are very excited about the technology.

32:19 AL
I think you need both. I think the technology right now isn’t ripe enough. So if you take today’s technology and you try and apply the human side to it, it’s just not going to be good enough for purpose. So you need to educate on the human side. But you also need to drive the technology along and create better technology and I still think we’re early days in the technology now, but let them both happen in parallel.

32:42 MS
Fair enough. I agree with that. I guess what I’m saying is that there’s an overinvestment on the technology side and an underinvestment on the practical side. But I agree with you that both are equally important.

32:53 RF
Let’s move then on to another potential obstacle, Antony, around data privacy and security. To the layman the definition of a blockchain is that it’s an open distributed ledger upon which everyone who’s on that ledger verifies data back and forth.

How does that reconcile with having a single source of data that’s secure and private that no-one else can see? The nature of a blockchain or a Bitcoin transaction is that it’s essentially open code, right? So how do we deal with this openness but yet this need for privacy?

33:24 AL
I think this is one of the things that people in the space have known about for a while but weren’t really comfortable talking about because they didn’t have the solution. This came from Bitcoin, where every single Bitcoin transaction from Bitcoin account to Bitcoin account is detailed on the Bitcoin blockchain, everyone can see the money moving.

Now, clearly for privacy reasons that’s not good enough for the rest of us. But the technology can and is evolving to create bubbles of privacy where needed, and such that only data that should be shared, is shared. A number of companies in Asia and in the US and in London are working on how to solve for a number of entities being able to validate things with the right level of privacy in the data.

34:12 RF
Marcus, do you agree? I mean, with the Bitcoin transaction or a Bitcoin world is it the same, are we going to have this issue around security or data quality and privacy?

34:22 MS
It’s one of those things, it’s a bit like the Bitcoin volatility. If it gets too volatile people say you can’t use it and if it’s not volatile enough people complain that you can’t trade it. And I think the privacy thing is the same. If you says it’s anonymous then regulators get upset, and if you say everyone can see it, then people worry about privacy.

I think Bitcoin does present a golden mid-way, in my view, and that is that even though you can see those transactions, your identity is not necessarily attached to it. So it is anonymised, but if law enforcement needed to track that person the chances are very high, and we’ve seen this with actual cases that they can actually find the people.

So, in Bitcoin of course there will always be camps who think it’s too much and other camps that think it’s too little but I think that if you cut that across the general population I think the characteristics of something like Bitcoin and the blockchain has enough to appeal to the masses.

35:17 RF
Great guys, we’ve going to end this section. I’m going to give you one sentence literally each to describe for the audience out there who may not be in southeast Asia the opportunity for blockchain, Bitcoin and their bank in this region. Antony, can you start?

35:27 AL
I think Singapore is the right place to be to be in blockchains; It’s right in the middle of ASEAN, which is the region of the world which has the most to gain from joined up banking and joined up institutions.

35:42 RF
Thank you. Marcus, one sentence from you.

35:44 MS
Emerging markets really have inefficient banking systems and very fast technology adoption, and for that reason we believe that a lot of these technologies are going to be better applied and used in these markets and other markets, so it’s very exciting.

35:59 RF
Thank you guys very much for the conversation.