Episode 6: Crypto

Full transcript

Peter Englisch: Welcome back to our next episode of Up Next For Your Private Business. With me here today, Henri Arslanian, the former PwC Crypto Leader and Partner, PwC Hong Kong, and the former chairman of the FinTech association of Hong Kong and adjunct professor at the university of Hong Kong, where he teaches the first FinTech university courses globally.

Amongst many other achievements, Henri is today a very prominent Ted talker and one of the, I think, brightest experts for crypto in the world. Welcome Henri.

Henri Arslanian: Thank you very much, Peter. Thanks for having me. And thanks for putting crypto on the agenda. That's very nice. And hopefully it could be very useful.

I'll just mention one thing, you know, I always say that whoever tells you they're a crypto expert, you have got to run away. You know, I spend 24/7 of my time in this space and have absolutely no idea what's going to happen in one month from now, because the crypto industry moves so quickly. But thanks again for a nice welcome.

Peter: This is fantastic Henri, having you here with us today. And I think this is why you are here. Today, we want to demystify a little bit what crypto really is, and there are so many rumours outside. There are so many ideas. Some might be right. Some might be wrong. So let's start with a simple question then. When thinking about crypto, there's a lot of confusion about blockchain, distributed ledgers, cryptocurrency like Bitcoin and others and NFTs (non-fungible token). How would you demystify the underlying technology? Can you explain a little bit what the difference between these technologies is, and what they are good for?

Henri: Absolutely, Peter. I know it sounds very, very confusing. You know, when we talk about digital assets, cryptocurrencies. But I think there's a couple of ways of looking at it.

First of all, it's important to understand that when we talk about crypto assets, as you mentioned, Peter, there's a lot of different subcategories that come in. And yes, blockchain is the underlying technology, but it's kind of interlinked. So let me simplify it. The first vertical that we have in the broader crypto space is what we call crypto currencies.

Many of them, like Bitcoin, for example, where people use cryptocurrencies as a store of value, as a medium of exchange, as a unit of account. And right now there's about 19,000 different types of crypto assets in the market¹. The majority of them are actually cryptocurrencies, like Bitcoin.

The second category we have are, what we call, stable coins, which are digital currencies that are pegged one-to-one to fiat money. Today, Peter, if I send you a Bitcoin, you'll be very happy, but you don't know what the price of that Bitcoin will be a week, a month, a year from now. Whereas if I send you a stablecoin, it’s $1 today, it’s going to be $1 next week and next month. And this has a lot of applications. For example, when a lot of the private businesses you mentioned want to send money across borders. I think many of the people listening to this who send money around the world know how complicated, annoying it is to do cross border payments.

I'm not even talking about the fees, the embedded fees and the hidden fees. Whereas with stable coins, these things happen very easily. And there's various different other kinds of verticals. So we talk about cryptocurrencies. We talk about stablecoins. There are what we call utility tokens, which are different types of crypto assets that are often used to access a platform.

For example, if you want to use Ethereum, which is the second biggest crypto asset out there, which is a utility token, every time you want to use the Ethereum blockchain, I'll talk about that in a second, you need to use the Ethereum token. So it's really used as a kind of a mechanism to be able to use some of these tokens.

And there's various different types of other crypto assets we see in the market from central bank digital currencies, issued by central banks, to NFTs, to security tokens. It’s quite a lot. What's important, Peter, is that, when you’re talking about blockchain at the core of it, all these different technologies you're seeing, all the different crypto assets in the market, the vast majority of them use what we call blockchain technology. Which was really the innovation that was brought forward in 2008, when Satoshi Nakamoto, whoever he, she or they are, actually came up with this innovation of Bitcoin and gave rise to the idea of blockchains².

There are some digital assets that are not blockchains, but there are different kinds of what we call distributed ledger technology. There's other tokens that use it, but just to be academically correct. But 95% of them use blockchain technology and hopefully that's a quick introduction to the exciting world of digital assets.

Peter: Thanks, Henri. It still sounds a little bit confusing to many of our listeners, most likely. So what was the fundamental idea of blockchain? What was the purpose that it was built for?

Henri: Absolutely. And it's a very important question, because if you think about it, the big innovation that Bitcoin brought forward in 2008 was that for the first time you could send value from one person to another without using an intermediary. Because if you think about it today, money is digital, right? But if I send you, Peter, for example, a bank transfer, I'm using the banks as an intermediary. If I'm sending you a PayPal transaction, I'm using these intermediaries. If I send you money remittance, I'm using one of the big remittance providers in the market. And what is exciting about Bitcoin is, for the first time, it allows two people to send value to each other without using any kind of intermediary, and the way they achieve this is by using blockchain technology.

We could talk about that if you want as well, that is the big innovation. For sure, Blockchain technology deserves a Nobel prize in economics. The only problem with receiving a Nobel prize is that a Nobel committee only gives you a Nobel prize if you're alive. And because we don't know who Satoshi Nakamoto is, he could not have received that Nobel prize, unfortunately from that perspective. But that is the big innovation that Satoshi Nakamoto provided. And this really opened up a full universe now of developments that we have seen since 2008, in the last 13 years.

Peter: So sending value from one person via the internet to another person or organisation seems to be a very good idea. Today, do you see companies using this more often and with greater confidence in the intra-company, cross border transactions? What is the current trend that you see with regard to the use of blockchain in their commercial context?

Henri: Yes. And you know, when people think about crypto assets, a lot of people think about speculations; funds that are trading Bitcoin and other assets. And of course there's a whole world of that, but what's really interesting is how businesses can actually start using crypto assets or digital assets as part of their day-to-day activities.

Let me give you a very simple example. If today you're a group in Germany and you're doing business with a group in Malaysia and a group in Latin America, for example, if we tried to send payments, I'm sure as many of the listeners know, first of all, it takes a couple of days. There's, like I mentioned earlier, the hidden fees, explicit fees, and let's not even talk about the user experience of the bank using the SWIFT (Society for Worldwide Interbank Financial Telecommunications) network, which frankly hasn't evolved for the last 20, 30 years.

And that, by the way, is if the payment makes it through. I think, as many of us know, the levels of false positives, and the issues that have come up in the system now, have made it actually even sending wire from one German bank to a bank in Malaysia or one in Panama is an absolute headache from that perspective.

That's one. And this is one where we're actually seeing a lot of organisations right now, where they are dealing with intra-group companies within the same group, for example, or companies that trust each other. Let's say a family business in Germany, who has been doing business with the same family business in Singapore, for example, for two generations. They trust each other. And if maybe they can start using stablecoins, US dollar stablecoins, where they can bypass a lot of these fees and the money could arrive immediately on the spot. That's one example where there's a lot of benefits.

The second area where I've been seeing a lot of the private businesses use this, is when it comes to treasury management. Today, looking at a country like Germany or Switzerland, or many other European countries, if you leave your money in the bank, you get pretty much zero interest. And I'm not even talking about the cases where you're getting negative interest rates. The beauty right now in digital assets, it's very easy using regulated players, using proper risk management to get anywhere from four to six, seven percent on US dollar stablecoins.

That means what you're holding is actually US dollars and you're able to get a yield of four, five, six percent on it, and you can convert it to fiat, anytime you want. You know, you can use stablecoins that are regulated, like USDC (US Dollar Coin), for example, and others that provide them. So there's very practical implications of this that people and businesses can use.

Peter: That's super interesting that there are different types of digital assets, as you said. There is Bitcoin. There are stablecoins. There are these new things called NFTs. We're coming to that in a second. But this means that the usage, in a business context, will most likely, over time, rather increase than decrease, by listening to what you are saying, because the value of those country to country, company to company transactions, and the ease of use, might be a big driver for future usage of stablecoins or other cryptocurrency or digital asset. Is this correct? Is this your outlook, your perspective going forward? Because there's this contrast to old economists or old investors like Berkshire Hathaway saying this has no value in it, and so on.

There are so many opinionated voices out there in the market that our listeners might be really confused, what is the real future? And from my perspective, technology has always evolved and an invention has never been turned backwards. So I personally also see that technology will finally succeed.

The question is how. And with or without more regulation. Because in the past there were also some, at least concerns for misuse and so on. But before we get into this. What is your outlook, from a technology perspective, on digital assets? And what is your perspective on regulation? Is it good or is it bad?

Henri: The reality is the usage of digital assets is increasing by the day. To put things in perspective, Peter, only five years ago, we had less than 5 million people with an account on a crypto exchange. Now it was about 300 million people with an account on a crypto exchange³. And I'm convinced, over the next five years we're going to reach a billion users with digital assets.

If you're any family business today, you're any business today, you need to have a strategy on digital assets. Whether you're going to accept them as payment, whether you are going to use them as part of a treasury, whether it's going to affect your existing businesses. These are all things that people need to look at from that perspective.

Regulations are in crypto by the way, actually, pretty much every jurisdiction now has some kinds of regulations on crypto. From a regulatory perspective there's quite a lot of clarity, not on the cutting edge areas like NFTs or DeFi (Decentralised Finance). Yes, there's areas where there's still not proper clarity, generally speaking now, there's pretty good crypto clarity on that perspective, which would give comfort to a lot of the users.

One last thing on this one point, Peter as well, there's a generational issue. When I tell it to a lot of families, a lot of family businesses, when I ask the patriarch, he tells me no, Henri, I want an asset that I could touch. I want to see cash flows. I need to touch my real estate. I need to touch my assets. I mean, it's great, but you know, it's a generational issue here as well. I always tell people, if you don't believe in digital assets, next dinner you have, next Easter, Christmas dinner, summer party, ask the youngest member in your family, what he or she thinks about digital assets. And you may be surprised by their answer.

Peter: But what I hear is, so it's good that regulation will come because then it gets out of the grey zone and will increase trust in the technology, most likely trust also in investing in the technology or in cryptocurrency, and also more trust in the reliability of digital assets. Then let's also move into the new world of what's just around the horizon here.

It's the metaverse. With the internet, many of the traditional businesses couldn't imagine that business models and the digital virtual space could become so big. And this is most likely why Amazon has been ignored in the beginning. Microsoft, Alphabet, all of those companies are global leaders in technology, with the highest global market valuation. And they're saying it's clear that these types of companies on technology and on the internet can create real value. I think this is broadly accepted.

But now comes the next layer, now comes the next move into this thing called metaverse. So, which means that we can move with our own avatars into a virtual reality, like in science fiction, go virtually on Times square, buy some stuff virtually.

And in this context, we need digital assets. We need blockchain. We need NFTs. Can you bring this a little bit into perspective? So, how does the metaverse, the idea of living and making business in a more digital world, in the future need more crypto, need more blockchain? Is this true? Is this your prediction going forward? Will it become the next booster for this technology?

Henri: The short answer is: a hundred percent. What I mean by that is, in the same way we are right now when it comes to a metaverse, and I'll talk about web three, Web 3.0, is exactly where e-commerce was in the 1990s, late 1990s. I'm sure many of your listeners, as well, remember there was an era where we used to have, like, e-commerce that was coming up, which now obviously is just pure business, right?

It's important to understand we need to take a step back. What's really driving the metaverse is actually initially when the internet was created, we had something called Web 1.0, which was, you know, I used to go to America online. It was Netscape. It was a very basic internet, which was what I would get in a physical world, I would get basically online.

Then we moved to Web 2.0, which is basically the large platforms you just mentioned, the Amazons, the Googles of this world. Where they really allowed us to interact with the internet, but it's dominated by large centralised players. This is Web 2.0 which is what we're in right now.

Where are we going? And this is going to happen again during our lifetime. We're moving to Web 3.0, which is an internet that is completely decentralised, that people own their data and that you're able to interact in these various metaverses. Not only on the website, but really to have more immersive experiences.

And why is this happening for a couple of reasons? One is this move towards Web 3.0. Which is as a user, you're able to own your data and control it. A very good example, myself. I have, as many of your listeners may know, over a half a million followers on LinkedIn. For the last five years, I've been creating content.

My content now is in French, Arabic, Chinese, Spanish, all these different languages, but the day YouTube doesn't want me, LinkedIn doesn't want me, Twitter doesn't want me, they can block me. So I don't own my content. I produce this content , but I don't own it. What's going to happen in the web three ecosystem is you will be able to use it and not only own it, but also make money out of it.

For example, Peter, if you go browse a certain website, let's say Wikipedia, why are you not being compensated for that time? And this is something you're going to be able to do over the next couple of years. But this brings us to the metaverse. Metaverse is obviously these virtual communities where people can interact.

We've had metaverses for a long time. There's been games like Second Life, where people can go and interact. And by the way video games are a very good example. Many of your listeners, their kids, maybe playing Call of Duty, League of Legends, World of Warcraft, which are metaverses on their own.

People make entire livings playing some and building businesses within these video game ecosystems. So now what's happening as we're moving to metaverse ecosystems, there’s many of them right now, Sandbox, Decentraland and the likes where you actually buy a digital virtual piece of land, where you can set up your virtual business and people can actually go interact, have these virtual experiences, immersive experiences. Again, on platforms that are blockchain based, where actually it's in a web ecosystem, users control their activity and what's making this possible is innovations like NFTs, non fungible tokens, where for the first time I'm able to mathematically prove that a certain asset is actually unique.

It's happening because of decentralised finance, which means I'm able to have these financial interactions without any centralised intermediaries. And it's a culmination of all this together. That's making this whole metaverse push and it's really not a one plus one equals two relationship. It's a one plus one equals three relationship, which all these technologies coming together are giving us this metaverse ecosystem.

The metaverse is here to stay. It's very clunky today. It's not fun. The user experience is terrible. There's not much you can do in the same way there was not much you could do with the internet in the early days. In the same way the video games were terrible at the start. All of this will change over the next 20 years.

Then we're going to look back at some of the metaverses we have today in 10, 15 years and say, my God, they were terrible. In the same way that I will look at Atari games and say “how come these pong games were terrible?”. Or the first Nintendo games are terrible. We're going to look back at it, but this is here to stay and it's going to change not only business as we know, but society and how we interact with people as well.

Peter: Well, this is a fantastic outlook going forward because this means there will be a new world based on a new technology where the dominant market players are not determined yet. This means there are opportunities out there to change the game. And if we look at when internet 2.0 started, all the big companies in the world today did not even exist.

And this means there is a lot of potential for entrepreneurs, for startups, but also for established family businesses. If you understand what it is, if you understand which risks, opportunities are related to the technology and pioneering stuff like blockchain, crypto, digital assets, and put this into a new customer experience with a new kind of value creation, then there is a huge opportunity.

But for many of our listeners, they are still based in one country. And what entrepreneurs need is a predictable environment from a regulatory perspective. So what is your current observation when it comes to regulatory? And are there any converging trends, or will every single country do whatever they want, so that entrepreneurs have a difficult time to navigate through the jungle of current and future crypto or blockchain regulation. What is your outlook?

Henri: I think from a regulatory perspective, we're going to see increasing levels of regulatory clarity, for sure. To put things in perspective, today, according to Cambridge University, there's only less than 5% of regulators who do not have a team working on crypto. That means 95% of them have teams working on crypto⁴. And I sit personally on many advisory boards of many regulators from Hong Kong to Dubai, I can tell you the average regulator that I speak with is way more knowledgeable than the average financial services professional. I would even argue, regulators are not getting the credit they deserve for all the great work they've been doing in this space.

So I think from a regulatory perspective, there will be more clarity. Frankly, if you're running a family business today and you're not getting into crypto because you're afraid of regulatory concerns, tax concerns, frankly, that's not good. I mean, you’re being stopped for the wrong reasons. This is like not wanting to get involved with the internet because somebody could hack your Gmail, you know, your email account, whatever, right?

I think family businesses have a comparative advantage over other types of businesses, you know. I find in many cases, the decisions can be taken quicker. Often, there’s just a simpler entrepreneurial mindset in the business, and there's a bit more nimbler attitude. And frankly, it's that entrepreneur DNA that made the business that often allows them to be nimble and agile and embracing new technologies to be able to actually, frankly, innovate and make more money.

And I have many episodes on this, on my show, on my podcast, on my videos where what I see the enterprises are having, especially family businesses that are succeeding are the ones where we not only encourage innovation, we reward people who fail as well. I love people who try something and they fail as leaders. We need to encourage those people and actually give them support.

So, you know what? You tried, you failed it's life, but here we go. You're rewarded for it. Unlike just rewarding the person who has a good track record, never taken any risks and has stayed in his lane, because those are the individuals who may affect your business negatively down the line from that perspective.

So I’m very bullish on family businesses. I think this is a great opportunity. You may like crypto. You may not like it. You may love digital assets. You may not like it, but at least you have the moral and intellectual duty to at least understand it and have a strategy for it for your shareholders. If you're a public company or widely owned company, or for frankly, your family and your kids if it's a private family business you own.

Peter: What a fantastic and very encouraging outlook, Henri, and I fully agree a family business has that competitive advantage. They tend to be more entrepreneurial with faster decision making, very agile, pioneering new things. And I hope that they will be on the forefront of pioneering the technology and opportunities behind blockchain, crypto, metaverse and the like.

And on that happy note, I would like to thank you for helping us to demystify the world of crypto and digital assets. And I hope that our listeners had a fantastic podcast with you today. Thanks so much Henri for joining us today and all good luck.

Henri: Thanks for having me

Peter: And for everyone here, listening to us, have a great rest of the day. Thank you so much.