Derin Cag is the founder of Richtopia, a complete media brand covering effective leadership, emerging technologies, global economics, inspirational people, smart investing & strategic marketing. Additionally, Derin is the co-founder of Blockchain Age, the global leader in Blockchain research & consultancy with Dinis Guarda, and the co-founder of InsurTech startup Blockrox with Lyndon Wood and Tim Campbell MBE. Moreover, Derin is also the co-founder of Marketing Runners, which happens to be the top digital-growth consultancy in Great Britain, again with Tim Campbell MBE
I had the privilege to interview Derin Cag as part of the research I am conducting on Blockchain technology for Grenoble School of Management. Derin is an inspirational thought-leader and I hope you find this interview as insightful as I have:
Eliézer: How do you perceive the trend of digital legal tender?
Derin: Digital legal tender will take some years to become commercially available. When it does, it will help boost sustainable and economic development worldwide. According to the Federal Reserve Bank of New York “there is about $1.2 trillion dollars of U.S. currency in circulation”. This means there are approximately 500 billion US Dollar paper notes and coins in circulation. Additional sums of other fiat currencies such as the Euro, GBP, Yuan, Renminbi and Indian rupees etc. are in circulation too.
Using a radically conservative estimate, let’s say there are one-trillion paper notes and coins in circulation worldwide. Let’s also include the vast sums of paper and plastic money getting printed, and coins getting minted each year. Now imagine how disastrous this is for the environment and how valuable digital legal tender could be for this matter alone?
Eliézer: What are the benefits of fiat currencies on the Blockchain compared to current financial systems?
Derin: Current financial systems commonly reap benefits for a favoured few whilst being harmful to the masses. This could be observed when looking at long-term statistics over the past century. Furthermore, newspaper reports from the past two centuries have reported scandal after scandal such as banking crises in the financial sector. The Financial Crisis of 2008 is one example among hundreds of scandals.
Blockchain technology provides a distributed ledger solution which not only diminishes scandals through enforcing transparency but also favors the masses.
Then there are benefits in the form of cutbacks in costs and intermediaries. And further benefits in boosting international security, accountability, and a vast array of other solutions. You can read my SlideShare called ‘The Four Pillars of Blockchain Technology‘ for an introduction on the unique selling propositions of Blockchain technology.
Eliézer: Which Blockchain should a legal tender system use and why?
Derin: If a nation were to establish large segments of its legal tender using Blockchain technology, it ought to develop it independently behind closed doors using quantum computing.
Having said that, the risks of using Blockchain technology at the time of writing are lower than traditional banking systems for digital payments. This is true as long as the host ledger is scaled across millions of computers such as in the case of Bitcoin.
One example of a worst-case scenario would be if legal tender did become globally digitised and then a warmongering nations’ submarines caused worldwide Internet outages by cutting undersea cables. Such an event would cause severe global chaos and conflict.
With this in mind, it is important to debate the notion of digital legal tender openly and regularly with governments & intelligence agencies to intergovernmental organisations & multinational corporations. And then to take slow yet secure steps.
Eliézer: How would you define a scalable and successful platform, which enables emission of digital legal tender?
Derin: The year would be past 2022. Digital legal tenders would be based on Blockchain platforms using quantum computers. Internet connectivity would be less dependent on cables and more decentralised. This means using a wider mix of signals distributed by satellites, balloons, drones, white space, Wi-Fi, Li-Fi and so forth.
Eliézer: In which environment, could digital fiat currencies be the most successful and why?
Derin: Digital fiat currencies could be the most successful for international micropayments and macropayments. Cryptocurrencies take away a great degree of middlemen fees and corruption. Furthermore, digital legal tender eliminates the misused power of Central Banks to print money as and when they deem fit. This is done by setting a limit on the circulation supply from inception. As further studying on this subject I recommend reading Daniel Lacalle‘s latest book called ‘Escape From the Central Bank Trap’.
Eliézer: How does the banking system change if central banks or commercial banks start to emit digital currencies?
Derin: Commercial banks will not survive if they do not emit digital currencies. They already emit digital currencies because this is what the numbers on our online banking statements are all about. The first case of a cryptocurrency being emitted by a commercial bank was that of Bitcoin by Barclays. In addition to cryptocurriencies, commercial banks are using Blockchain technology for multiple uses including data immutability, business automation, system resilience, transparency and consensus.
Central Banks have also initiated R&D processes for emitting Blockchain technology. The Bank of England (BoE) is a leading example of being timely and relevant. Beyond all of its doom and gloom, Brexit is certain to boost the rise of modern FinTech globally and the demise of traditional banking oligopolies.
We have shifted away from the time of organizational competitiveness to the time of product competitiveness. Even though organizations should be remarkable, their products should be astonishing. This is what makes Apple so attractive to its loyal customer base. A branch of Foxconn, the manufacturer of the iPhone, also set foot into the Blockchain matrix in 2017. The future seems bright.
Eliézer: Could digital legal tender enable financial inclusion? Why?
Derin: Certainly! More people in undeveloped and developing nations have smartphones than they have electricity. This means every person has a potential bank in their pocket. Blockchain platforms enable people from all Socio-economic groups to have access to the world economy. This allows them to make micropayments for the exchange of global goods and services. Blockchain payments cost a fraction of the fee vs. conventional money transfer companies such as Western Union or MoneyGram.
Eliézer: What are your recommendations for countries willing to use digital fiat currencies?
Derin: During the period when the German Weimar Republic was collapsing, hyperinflation was caused because they printed fiat money to borrow on a mass scale and fund a war. There is an old German tale from 1923:
“A man was walking in a Berlin street with a wheelbarrow stacked full of money, he was approached by an armed robber who stole his wheelbarrow but left the money because the wheelbarrow was worth more.”
This is a scenario of hyperinflation based on true events. The collapse of the Weimar Republic created a power-vacuum for a monster like Adolf Hitler to rise to power. Hitler used radical nationalism and blamed innocent minorities for national problems to dominate. An estimated 60 million people died in the Second World War, most of whom were civilians.
During WWII a few Nazis reaped the benefits by stealing the wealth of their region. They did this by laundering fiat currencies, precious metals, and arts into offshore holdings such as Swiss Banks. Millions of people paid the price without exception to German civilians.
On another note, a modern case of hyperinflation is that of Zimbabwe in 2008. Once again it was the result of overprinting money and funding a war. Once again a favoured few reaped the benefits and the mass public paid the price.
Daniel Lacalle‘s book “Escape From the Central Bank Trap” is a must-read for a deeper understanding on why Central Banks must not be given extra powers to manipulate money-supplies and inflation.
If Adam Smith were alive, I speculate that he would be optimistic about Blockchain technology due to its positive impacts on economic development. Digital fiat currencies secured by Blockchain tech with a set limit on circulating supplies could annihilate the capacity of money-grubbing vampires unscrupulously sucking the wealth of our nations.
My first recommendation for countries willing to use digital fiat currencies is to set a fixed circulating supply from the start. My second recommendation is to keep pushing forward with original prototypes. In the same way Africa skipped the landline revolution and went straight to mobile; undeveloped and developing nations could leapfrog the industrial revolution and go straight to Industry 4.0.
Eliézer: And what would be the best ethical practices for implementing and deploying such a system?
Derin: As a guide for best practices I endorse Berkshire Hathaway’s ‘Code of Business Conduct & Ethics‘ by Warren Buffett.
Eliézer:Are there any new technologies that could be used? Are there any new technologies on the horizon that could radically affect the industry?
Derin: The combination of quantum computing and Blockchain technology are my favourite ones to watch out for in FinTech. Artificial Intelligence is also an area set to radically affect the industry, however the subject of AI would be the theme of a separate interview.
There are more than seven disruptive technologies set to radically affect the FinTech industry, please see chart below for more information:
Eliézer Ndinga | Tech Startups Analyst & Advisor at Sagax