Tell us about yourself and your involvement with FinTech…
I have been in the cryptocurrency space for about 5 years now, while spending most of my time educating myself on the principles upon which cryptocurrencies are built. For some time, I was auditing IT systems of banks and insurance companies at one of the Big4 consulting companies, then started consulting start-ups and FinTechs dealing with cryptocurrencies and Blockchain as well as educating the public via Blockchain Slovakia. Other than that, I have been also involved with an investment fund dedicated to investing in cryptoassets.
What is the aim of Blockchain Slovakia and how is it trying to achieve this goal?
Blockchain Slovakia is an educational non-profit organization that aims to create a platform that brings together all the stakeholders in the crypto space such as regulators, developers, businesses as well as the public. We focus on raising awareness about cryptocurrencies and Blockchain technology via various educational activities. We organize meetups, seminars, workshops, and we speak on various conferences, events and at universities.
Apart from these activities, we translated the Bitcoin White Paper into Slovak and created a project called ”Daruj Klik“ (donate a click) where anyone can easily share their computational resources to mine cryptocurrency for selected charity organizations via a browser-based miner.
Most recently we have also participated in the process of crafting new crypto-related legislation in Slovakia.
Blockchain’s recognition as a viable underlying technology grew significantly this year. On the other hand, most trials are yet to move beyond the experimental phase. What do you see as the main barriers to the wider adoption of Blockchain technology in financial services?
The Blockchain world has evolved into two sub-worlds of private and public Blockchains. In both these worlds, most of the projects are still in the development phase with many challenges ahead, despite interesting developments in the recent months.
When we talk about public Blockchains, scalability has been for long the most difficult barrier to overcome. Long-awaited layer two solutions for the most used public Blockchains, Bitcoin and Ethereum are still under construction and it is unclear if they will be able to deliver what is expected of them. Meanwhile, other open Blockchain platforms have emerged with brave promises related to scalability and transaction throughput, though most of these are still on paper rather than in actual networks. Additionally, user experience is often still a painpoint for many platforms. To conclude, many of them are still not ready for true mass adoption.
Blockchain has been overhyped in general, but even more so in the world of private Blockchains where we can see an increasing number of companies, as well as people working on such solutions. Most of these companies and individuals are abandoning the idea of creating their own private networks and turning to either public Blockchains or traditional database solutions. This trend demonstrates the uncertainty about actual use cases for Blockchain technology.
What areas of financial services do you feel are ripe for disruption by Blockchain technology, and why?
I believe that Blockchain is yet to bring disruption into financial services on multiple levels. Despite this, it does have the ability to change the way payment settlement works, making the system more efficient and reducing the costs associated with its operation.
More importantly, Blockchain has created a completely new world of finance too. It allowed the creation of a completely new asset class, and it will likely provide foundational infrastructure for legacy assets in the future.
We may even see many aspects of financial services being rebuilt in a peer-to-peer manner; lending is a good example of this. Another area will be the insurance industry where stakeholders have realised the value in combining smart contracts and Distributed Ledger Technology.
While Blockchain is likely to assist in the evolution of financial services in many ways, we are also working with a range of exponential technologies which make it difficult to anticipate future disruptions and truly what role Blockchain will play.
I think the main trend will be that financial systems – both the traditional ones as well as the new parallel ones created by cryptocurrencies – will increasingly become more integrated. However, I suspect that, although currently very small, the grey segment of the new parallel financial systems will increasingly grow in significance over the next few years.
What would be the one piece of wisdom relating to Blockchain that you would give to banks/FinTechs?
My advice would be to not be afraid of integrating cryptocurrencies into legacy financial services. They are a new kind of asset class that is here to stay. I think it is a much better direction for banks and FinTechs to explore what added value they can bring for their customers in relation to these assets, rather than just building new systems with Blockchain as the underlying technology.
Despite its overall market value sky rocketing in 2017, the applicability of cryptocurrencies in the real economy and their place in the financial services ecosystem remains a grey area. Do you expect a wider adoption of cryptocurrencies as means of payment in the near future? If so, in which areas?
Wider adoption of crypotocurrencies relies predominantly on two things. Firstly, I believe that the aforementioned technological challenges related to scalability will be addressed soon. However, addressing these issues is one thing, making it easy to work with for mainstream users is another. For example, we have seen tremendous progress in the development of the Lightning Network that aims to bring micropayments on top of the Bitcoin network. It is up and running on the main network but is rather difficult to use for the wider public. Once it reaches a more mature stage, I believe Bitcoin will become much more useful for many people.
Similarly, with Sharding and Plasma on Ethereum – once these technological aspects are solved, Ethereum will provide far more utility as a platform for decentralised applications (dApps).
Another important point is legislation. Regulators across many countries are competing in the race for (the most) crypto-friendly jurisdictions, and while cryptocurrencies in many countries might still be a grey area of legal vacuum, it is only a matter of time before this changes, and I believe the change will be for the better. Therefore, in the long term, I expect a wider adoption of cryptocurrencies as a means of payment. It’s been happening in the remittance sector already, and other areas like retail will soon follow suit.
Are there any common misconceptions held by FinTechs, financial institutions and other industry stakeholders around Blockchain technology and/or cryptocurrencies? Why do you think this is the case?
Absolutely, there are many myths in this space that often occur during conversations about cryptocurrencies. Most notably, the debate about cryptocurrencies being used for money laundering. This is often biased despite credible resources stating that criminals rarely use cryptocurrency as means for this kind of activity.
Another less common, but still far too frequent is that Bitcoin is a Ponzi scheme. For me personally, this is quite hard to comprehend as virtually everything about Bitcoin is transparent.
Furthermore, sometimes I find the whole hype about Blockchain technology a misconception as it is frequently framed as a solution to everything and recommended to be used in many use cases and applications even where decentralization does not make sense and is not desired. Also, propositions such as immutability and trustlessness – that we know from the very few public Blockchain networks – are often used to sell commercial Blockchain products that do not provide such features.
The European FinTech movement has so far been largely focused into a few large hubs such as the U.K. and Germany. How would you characterise the Slovak/Czech and wider Eastern European FinTech scene? What are the main trends and most innovative solutions we should be aware of?
The answer here depends a lot on how much one considers cryptocurrencies to be overlapping with FinTech. I think, in general, an interesting, but also natural trend is that while FinTech companies are concentrated in the aforementioned centers, cryptocurrency businesses and applications are disproportionally more advanced and developed in areas where the traditional financial system is less mature, or even absent. This is also true for countries such as Slovakia and the Czech Republic as well as the wider region of Eastern Europe. We have here a set of very interesting and globally recognized companies when it comes to the cryptocurrency area. This is largely because of the disruptive potential of cryptocurrencies; not only to bank the unbanked, but also to unbank the banked.
About the Author:
David studied Economics at Masaryk University in the Czech Republic, and gained his Master in Digital Currencies at University of Nicosia in Cyprus. He is VP at Blockchain Slovakia – an NGO focused on education, research and policy advocacy in the area of cryptocurrencies and Blockchain technology. David regularly discusses cryptocurrencies at conferences, seminars, forums, universities, etc. He also consults multiple crypto-related start-ups (e.g. Eterbase, Bethereum, Koud, Novis and Xixoio) and initiatives in Slovakia and Czech Republic, as well as the working group focused on virtual currencies under the Slovak Ministry of Finance. David also writes regularly about developments in the crypto-world in his newsletter – New Bits on the Block.