“What’s the problem?” And 4 other questions about cryptocurrency

Our panel dissecting the pros and cons of cryptocurrencies at RBCDisruptors on April 26, 2018.

Cryptocurrency may be finance’s hottest topic.

But with Bitcoin meeting gravity — falling from a high of $20,000 in December to $7,000 this month — is it also at risk of becoming the latest bubble to pop?

We put that question to three cryptocurrency experts at our most recent RBCDisruptors event:

Hilary Carter, Research Director at the Toronto-based Blockchain Research Institute;

Christian Lassonde, Founder and Managing Partner of Impression Ventures, who specializes in fintech investing;

and Matthew Spoke, the CEO of Nuco, a blockchain company that’s building a network to connect blockchains around the world.

Lassonde thinks crypto is more of a speculative asset than a medium of exchange, and fueled largely by greed and hype. Spoke disagreed, believing cryptocurrencies address a discontent with the centralized financial system. Either way, Carter thinks big companies and governments need to explore underlying blockchain technologies that can eliminate the frictions and costs of centralized book-keeping, whether for financial transactions or other methods of exchange.

To hear our full discussion, listen to the RBCDisruptors podcast on Soundcloud or iTunes.

Here’s some of what was said:

1. What’s the problem?

For centuries, money has been centrally controlled and managed, for reasons of personal security and economic stability. But with universal access to electronic exchanges and cloud computing, those central ledgers may no longer be needed. Or so the cryptocurrency advocates would have you believe. They think every financial transaction can now be instantly recorded — and encrypted — on every computer in the world. Think of it as one of those card games that doesn’t require a dealer. But what if we like having a dealer, to keep track of the cards and score, and to keep an eye on the other players for us? Centralization is something most consumers seem happy with, whether it’s centralized social media platforms (Facebook), entertainment platforms (Netflix) or money (U.S. dollars). And we’ve already got a range of systems, including digital payments, that work fairly well. Even where there are areas of friction — cross-border payments, for instance — improvements are emerging through technology and competition. Carter still believes cryptocurrencies may be most useful in parts of the world where technology and competition are not widespread, or where trust in the banking system may be weak. She estimates there are 2.5 billion “unbanked” people in the world without access to traditional financial institutions. For them, cryptocurrencies offer an alternative — and may even be necessary for those wanting to protect their money from corrupt governments.

2. Isn’t that a side door to money laundering?

Crypto is sounding alarm bells with regulators because of its obvious appeal for those who want to go unnoticed. Even big investors may not want to be connected to it because of its links to the underground economy and illicit activities like smuggling, tax evasion and terror financing. As Lassonde put it, “the money that’s coming in doesn’t want to be known, doesn’t want to be traced.” He thinks cryptocurrencies are so useful to money launderers and sanction-busting governments that they won’t escape the long arm of global regulators for much longer. Can those concerns be addressed in time? Spoke, a crypto proponent, admits that’s unlikely, as the technology is out of the bag and “regulatory arbitrage” is already underway. But he feels the underlying technology can still be useful to identify patterns of abuse, and root out the wrong-doers, who will always be looking for alternative channels to move money. Throw out crypto, he said, and the evaders will find something else. “With every new technology, comes the good and bad and you just hope that over time, the good outweighs the bad, and this is a perfect example of that.”

3. What if regulators move to shut it down?

The Chinese government has cracked down on crypto activity, last year banning Initial Coin Offerings (ICOs) and this year announcing it will scrutinize crypto exchanges. Do crypto investors in Canada face similar risks of a regulatory crackdown? Lassonde thinks so, likening it to the peer-to-peer music sharing platforms that disappeared after regulations were imposed. “We may see a change in the laws here in the next five plus years, where the ownership of crypto has become illegal — there’s very effective tools from centralized states to crush this stuff,” he argued. Carter and Spoke see it differently, with an opportunity for Canada to lead. Recognizing cryptocurrencies as currencies would allow the federal government to license digital wallets, a move that would help Canadians keep their assets safe, they said. But Spoke worries public officials aren’t spending enough time on the issue. “If anybody understands this the least,” he said, “it’s governments and regulators around the world.”

4. With so many concerns, will crypto ever become mainstream?

Crypto remains on the fringes, used largely by early tech adopters, speculators and thrill-seekers. Lassonde believes that taking that into the mainstream will require massive behavior change. And that usually requires a large organization investing heavily in the infrastructure needed to create platforms for entrepreneurs and developers. He likened it to what Apple did for smart phones — except with crypto, no major developer is stepping forward. Without that investment, he argued, massive growth will be hard. Spoke agreed, saying,“if we can’t get these systems to a point where they’re significantly more accessible and more efficient, I don’t think they will hit the mainstream.”

5. Could crypto find a second life in other areas?

If regulators crack down on crypto-currencies, the underlying technology may find a home in less regulated fields like voting and business registration. Carter says governments are interested in “non-payment applications” as a way to reduce inefficiencies, and they may be willing to launch test cases in fields that currently require a centralized ledger. Drivers licenses and vehicle registration, for instance. “If you’re the Blockbuster of today,” she asked, “what’s the Netflix of tomorrow?”




Senior Vice-President, Office of the CEO, Royal Bank of Canada john.stackhouse@rbc.com

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john stackhouse

john stackhouse

Senior Vice-President, Office of the CEO, Royal Bank of Canada john.stackhouse@rbc.com

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