The Age of Cryptofinance
Although the hype around bitcoin and blockchain – the public ledger that records bitcoin transactions – is now receding, the next generation of cryptofinance technologies is already moving ahead and applying the lessons learned.
Christine Schmid: Tell me a bit about Monetas.
Johann Gevers: The idea of Monetas comes out of my desire to do something that helps the world work better, not through politics but through technology. I thought long and hard about what kind of technology would make things better. I came to the conclusion that the financial system is at the center of everything, and that it is too centralized, which creates dangerous risks and instability, and holds back social progress. The 2008 financial crisis is a good example in this regard. Moreover, the problems associated with the crisis have not been solved. In fact, things have gotten worse. We have some measure of temporary stability, but the problems have become bigger.
In what way?
One key aspect is that today's financial system is too centralized: there's too much power concentrated in too few hands. And that can lead to the abuse of power or massive suffering if the centralized system fails. So at Monetas we are building technologies to help transition the financial system toward greater decentralization the democratization of finance. Our solution belongs to the category of "cryptofinance" – the industry term for financial technologies that use encryption algorithms to ensure that financial transactions are private and secure.
What exactly is your solution?
We've developed a technology that gives the user more control. It's a contracting platform that gets around some of the disadvantages of existing cryptofinance technologies and allows you to complete transactions in a fraction of the time and extremely cheaply. This is especially important for retail transactions.
The idea of Monetas comes out of my desire to do something that helps the world work better, not through politics but through technology.
Let's backtrack a bit to the existing cryptofinance technologies. Most people still don't know what they are.
The core invention in cryptofinance is true digital cash which – unlike physical cash or digital music – cannot be copied or counterfeited. This transition from traditional physical cash to modern digital cash brings tremendous efficiency gains. The Bank of England, for example, has calculated that switching from physical cash to digital cash would generate a sustained 3 percent boost to GDP. That is massive, and the efficiency and productivity gains are even greater for developing countries.
Where does blockchain fit into this scenario?
A blockchain is a distributed database – a public ledger for digital transactions. It's a so-called consensus system. In other words, it's a way for a lot of different people or, more specifically, a lot of different computers all over the world to confirm transactions by coming to a consensus about them. If you want to execute a transaction in a consensus system, all these computers have to vote and agree on it. That makes a consensus system resistant to political influence and corruption, as well as robust against technological errors and failure, which is a big advantage.
Consensus systems such as blockchains are good for safely storing high-value assets and information. Commercial registers, which record business entities and real estate ownership, are one example. Secure electronic voting systems are another.
And the disadvantages of blockchains?
The downside is that consensus systems are very expensive to maintain and to run. In the bitcoin blockchain, for example, the full cost of a transaction is about five dollars. That's a lot of money. Moreover, let's say you go to Starbucks or to your grocery store and want to buy something. When you're at the checkout counter, you don't want to wait ten minutes to several hours for a global network of computers to reach a consensus before the transaction is approved. For retail transactions you need a system that's efficient, fast and cheap – and that scales to millions of transactions per second. The bitcoin network can only handle a maximum of 7 transactions per second.
Which brings us back to contracting systems.
Right. Contracting platforms such as Monetas can execute transactions in milliseconds, at a cost of less than 1/10,000th of a cent, and can effortlessly handle the entire world's transactions in real-time. This makes them ideally suited for retail transactions. And by integrating contracting platforms with consensus systems, you can have the best of both worlds. You can securely store your assets in a consensus system, and efficiently trade those assets in a contracting system.
How does the Monetas platform work?
In the Monetas system, only the transaction parties need to agree, then the transaction is completed. You don't need the slow, expensive agreement of millions of unrelated parties, the way you do in consensus systems. The first application of the Monetas technology is a mobile payment system. Anybody in the world can download our software onto their mobile phone for free and do transactions with anybody else who's got our software. Users load digital cash onto their mobile phone at an exchanger, such as a kiosk or ATM or bank, and can then pay conveniently using their mobile phone. The great thing about our platform is that it is open, not locked into any provider or device. So you can do transactions with anyone, regardless of the mobile phone provider they use, or which country they're in. You don't even need a bank account. So our system is a great solution for the 80 percent of people in Africa who have no bank account. And our transactions are far cheaper than any other system on the market. In fact, they're even cheaper (and more secure) than physical cash. Physical cash costs the economy about 1 percent – 2 percent of GDP in developed countries, and a stunning 5 percent – 7 percent of GDP in developing countries. Switching to digital cash will provide a tremendous boost to our economies.
If you are restricted to physical cash, you can only do face-to-face transactions.
Has Monetas gone beyond the prototype stage?
We launched a successful pilot of our platform in South Africa two months ago. Our partners are very happy with the results and are now planning to roll out our platform countrywide to over 1,000 locations, as well as to further countries in Africa. So this is a very exciting time for us.
Looking down the road, who stands to benefit most from cryptofinance technologies?
Well, very clearly, consumers are going to benefit immensely. These technologies will enable user-friendly services that go far beyond what we have today. You'll be able to make transactions and safely store your money without having to remember passwords and without having to carry around keys or electronic cards. And you'll be able to do it all on your mobile phone, with better security than traditional banking (including cloud backups). By connecting billions of unbanked individuals to the global economy, these technologies will enable everybody in the world to generate wealth and improve their quality of life far beyond what is possible today.
Today people are excluded from the global economy.
Yes. Billions of people more than half of the world's adults – have little or no access to formal financial services, and do almost all their transactions with physical cash. If you are restricted to physical cash, you can only do face-to-face transactions. That means you are part of a very small economic network, which severely limits your ability to create wealth. So poor people stay poor. One of the fundamental requirements for generating wealth and improving one's quality of life is being part of a large economic network. Today, even in poor countries, virtually everyone has a mobile phone. Our mobile platform gives everyone with a mobile phone access to the world's most advanced financial services, and thus dramatically boosts their ability to generate wealth. People will use their rising wealth to improve their healthcare, education and quality of life in general.