A Film by Manuel Stagars

THE BLOCKCHAIN AND US

In 1903, the Wright brothers invented the airplane.

It was hard to imagine then that today, there would be

over 500,000 people travelling in the air at any point in time.

In 2008, Satoshi Nakamoto invented bitcoin and the blockchain.

For the first time in history his invention made it possible

to send money around the globe without banks,

governments, or any other intermediaries.

Satoshi is a mystery character and just like the Wright brothers

he solved an unsolvable problem.

Whenever this happens, it inspires incredible innovation.

The concept of the blockchain isn't very intuitive

but still, many people believe it is a gamechanger.

Despite its mysterious beginnings,

the blockchain may be the airplane of our time.

Chapter 1: First Contact With The Blockchain

I found out about blockchain first

as most people around that time were through bitcoin.

Personally, at first I thought bitcoin was a terrible idea.

I was teaching at Stanford back in 2010

and a teaching assistant for the class sent me an article.

She said "There's this really cool thing, it's open source money."

I remember thinking "Open source money, isn't that cool

but it will probably never work."

I did what most people do the first moment

they are exposed to bitcoin. I discounted it.

I thought this was silly Internet money

you could mine it, it's like a golden goose.

It took me about a year to really re-explore the technology.

By 2012 I did what I tell most people to do today:

Turn off your phone, lock your door, and study this technology for a day.

It's the best advice I could give.

I was on a sabbatical from work.

I decided I take a year off, live off some savings

and figure out what I want to do.

It was there that I discovered this little orange icon with a B in the middle

and said "What is this strange thing."

I started looking... Bitcoin... interesting.

That was about 2012/2013

and I haven't left this space since.

I continued further down the blockchain rabbit hole if you will

and I've been pleasantly surprised

and had no reason to crawl my way back out

and find another technology.

There's a point at which you almost can't stop.

It just gets so interesting and you're so fascinated by it

and you just want to learn more and more.

Even to this day, there are new developments

and new ways of solving problems, new approaches

and it's very exciting to be in this world.

It feels really exciting to be involved in blockchain.

It feels like we're at the forefront of something

that has at least the potential to transform

our interactions between each other

between corporations, the underlying infrastructure

of both the private sector but also of government.

For me part of the fascination is that

we don't yet know exactly what this thing is

and yet, there are still lots of people gathering around it.

I thought of it as a space rock that crashed on earth.

You'd have a bunch of people that gather around

and they're all pointing and asking "What is this thing?"

You don't really know but it's still very interesting.

Chapter 2: Blockchain Technology

For me, the blockchain has two main technical ingredients.

One ingredient is cryptography.

When I say cryptography, I really mean asymmetric cryptography.

The other ingredient is so-called distributed systems.

These are the two main things.

If you understand them you understand all the

technical details of blockchain or bitcoin.

You have the ability to create records that are indelible.

You have the ability to transfer value

by making updates to those records.

And you have the ability to automate updates to the records

through these things called smart contracts.

That means potentially that you could transform

the structure of financial services.

Today there are all sorts of institutions

that exist to maintain sets of records.

To be "trusted third party" in industry parlance.

That role is potentially fundamentally reshaped.

Blockchains are networks.

Networks that we see today

Alibaba, AirBnB, Uber...

those are interesting networks but they are centralized.

Here, you're going to have networks that are decentralized

that are working more as a cooperative.

I think some of the challenges will be

what are the economics of those networks,

what are the economics of certain blockchains

versus today's discussion which is all about the technology.

I think tomorrow's discussion will be about

how do you build network effects off of these new railroads.

What's especially interesting for me is that

it was a grassroots movement from the technology sector.

Not a movement of established businesses

trying to find a new selling point.

It's really a bottom-up movement from us geeks.

It's one of the most amazing things in science

that happened in the last 100 years

that this thing is actually possible.

You can digitally sign transactions or other kinds of information

so that you can prove that you actually signed this.

It's much more secure than these

curvy, wriggly signatures that we use every day.

It will probably replace those things soon enough.

Chapter 3: Influence Of The Blockchain

We spent two years trying to understand this space

and what it really meant.

We found that it meant a lot more than just

another digital currency.

As the blockchain became more influential in our thinking

we began to realize that it was a profound shift

in how the Internet could be used

to create new forms of value

and how it could be used to enfranchise

and include people in global finance.

We've had the Internet for years now

and on the Internet, still nobody knows

whether you're a dog or not.

Identity fraud is completely out of control.

So the area where we need some new thinking

is in the identity space.

Maybe the technology brings something new into that space.

And we need it fairly quickly because

we haven't fixed the identity problem for people

but we're about to put ten billion, trillion, gazillion

things on the Internet.

We can have a trust relationship

without really having ever met each other

or having done business at all with each other.

I think that's fundamental.

Security is another.

Blockchains are military grade cryptology

and they've never been cracked.

When you hear about hackers stealing bitcoin

they're not stealing from the blockchain itself.

They are stealing at the point of entry

at the wallet or browser level

where they intercept messages.

But the blockchain itself is very secure.

The Internet of Things will probably be

the best test case for a lot of blockchain technology.

Because if we're going to have millions or billions or trillions

of Internet-enabled devices doing everything

from driving us around to managing our affairs

to monitoring our health, they need a way to

move and store and manage value and

data that has value in a way that is secure and private.

Right now we don't have that.

I'm concerned about the ubiquity of data and how

it flows in and through Internet-connected devices.

I think with a value platform like blockchain

we can at least address some of these problems and

maybe even create new opportunities.

Chapter 4: New Business Opportunities

We cannot sit in our office and study

of course we do that as well

but we need to go out and participate

in this whole blockchain community.

Honestly, what's very new to me

especially regarding younger persons in my team

is how enthusiastic they are about that.

If there is a hackathon, for example

they never come to me and ask if

they can go there and get some money for that

they just go. They're so interested.

They just go and participate and share

what they learned, and we have further discussions.

This is really a new way, also for us

to deal with new technology.

We're in the middle of it, nobody tells us what to do.

It's really we together shaping what we stand for

in the end for blockchain.

We need to be much more technological.

We need to have an awareness of

how something is programmed

so we can check if the programming is correct.

This might be a capability that we have

but not in the way it's needed in the future.

In the future, you always need to have

a technological link to things so you can understand them.

Otherwise you always need your IT guy sitting next to you

helping you in the understanding of the problem.

This is not something that's going to impact one of two industries

it's going to affect every industry

in the same way the internal combustion engine

affected almost every industry

or the Internet affected almost every industry

or the steam engine created new industries.

This is one of those big generational technology shifts

that requires a concerted and focused response.

Otherwise, you will miss the boat.

We are all, also in the financial services industry

trying to recognize that we don't have to be defensive

but we rather have to embrace not just this technology

but this enabler it brings us to access

a vastly underutilized or undiscovered market

that we have to do business with on an eye-to-eye level.

We talk to all sorts of senior executives in financial services

and often the say "We looked at bitcoin,

we had smart people come in and explain

how the blockchain works

but I still just really don't understand

what it means for my business."

I think that makes sense in a way because

if you think about an iPhone, for example:

What's really important, when a new iPhone comes out?

Is it the new chipset or some new way of

compressing frequencies?

I'm not an engineer and don't know how any of that works.

What matters to people is what they can do with the technology.

Of course, success is in now way guaranteed.

One day we may look back on this and say

"Oh, wasn't that great..." But:

If you ask me, there is undoubtedly

a huge amount of progress that has been made.

There's something here.

I find it hard to believe that I'm going to look back

in ten or twenty years and say

"None of this ended up happending."

Because we're really seeing a new way

of transacting value on the Internet.

Chapter 5: The Blockchain And Banks

I know how big financial institutions work.

They're not going to do something reckless with technology.

This is people's money and livelihood they're working with.

These are slow upgrade processes.

These systems, once they get implemented,

will run in parallel with the old systems for a while

before you have a switch over to the new one.

That's standard in technology upgrade.

I knew this was going to take time.

But there are antagonists, players who are threatened.

It's the AT&T/Verizon/Kodak analogy again.

Their business model is threatend by this

and they're going to do things to slow down

and water down the transformational networks.

There is a game theory approach to how the technology

is being rolled out in the markets, for sure.

We made different roundtables here in Zug

after the start of our bitcoin experiment.

For example, we invited banks and bankers from Zug

and tried to connect them with people

of the "Zug cryptovalley".

They were talking, but the bankers were not so happy.

They said there were different things with the law

and "It's not so easy for us."

But it's also a question of attitude.

It's the same as for our city, for our administration:

banks have to get ready.

I know that in a way they are defensive

but on the other hand have research and teams

that face these questions.

Maybe they are waiting a little bit now

but they can't deny it, I'm sure.

I think there's going to be a lot of disruption

a lot of revolution with respect to blockchain-based technologies.

That's going to drive not necessarily

banks worrying about other banks being competitors.

What banks worry about is the "bank of one"

the next generation of a banking network that's

resident on a phone, that's decentralized, distributed

and that's based on a digital token, a digital asset

that's not issued by a bank or government.

It creates all these different permutations and opportunities

not only for enterprises and governments

but also for society.

We see a lot of example of banks and consulting companies

and other Big Four audit firms talking about

how they can strip cost out of the business

of ”I don't know”trading in public markets

or whatever it might be.

But if you take the example of public markets:

How can you cut cost out of a market that doesn't exist in the future?

What if the trading of securities happens peer-to-peer

in the marketplace that doesn't have traditional intermediaries

of exchanges, brokers, agents, escrow agents, clearing houses

and all the other parties we rely on?

That's the cost you're cutting out but

what if the market can function without them?

The important thing for leaders of big companies

is not just to think about cost

but also to think strategically.

What can this technology enable me to do

that I wasn't able to do in the past?

I think it's going to take a long time

for it to weave its way into the system.

It may take a normal tech upgrade cycle for it

to fully weave its way into the system.

I have said publicly I think within twenty years

financial services will be just software

and the smart contracts technology in particular

is going to automate a lot of the things

that institutions and people handle today.

Chapter 6: The Blockchain And Financial Inclusion

Seventy-four percent of the world's population

according to the World Bank

does not have access to basic financial services.

In my home country, in the United States of America,

which is one of the wealthiest countries in the world,

about fifty percent of the population

does not have access to basic financial services

including bank accounts.

There's a huge amount of people around the world

that don't get to experience and be a part of the global economy

because they don't have access to the financial system

for a variety of reasons.

I do think this technology will lift

a lot of people out of poverty

but will also be an inclusive technology

that allows more people to engage in global commerce.

I don't like to think that we're creating

so much prosperity for the less than one percent.

I like to think of purpose-led businesses.

By the way, that's the trick I think

for large corporations: to understand

that the cost efficiencies of embracing this new technology

will potentially widen their accessible markets

at a cost that's reasonable.

That in itself will create prosperity in different areas.

Something that we should think about.

Pretty soon, when smartphones can be had for

less than five dollars each, which is right around the corner

nearly every person living in poverty on earth

will have access to a smartphone

and be connected to a network.

That is game changing in and of itself.

When you have digital wallets on these phones

and the ability to trade assets

we're going to answer the question

"What happens when everybody has money?"

Capitalism itself has thrived in some areas

by the natural exclusion of others from markets.

It actually uses that scarcity principle

as its driving basis.

So what happens when money is not scarce?

We will look at people and say:

"What are the things that I cannot do

and where we can join forces?"

Much more than today, where we say

"How big is your car and how much money

do you have on your bank account?"

So, I believe the future will be even more

human, or humane ”no... human

than the last hundred years we have seen.

Chapter 7: The Real Revolution

I don't think blockchain is a revolution.

It has been done forever, for forty years,

which is really forever in computer science.

Both ingredients of the blockchain ”security and distributed systems

have been around since the early seventies.

This is not the revolution.

The revolution, or the evolution is that

jobs will change.

That's something I believe in.

Jobs will be digitized in some sense.

Computers will do a lot of the manual labor

that we still see in service domains today.

It's called the "fourth technological revolution"

and I think we are at the beginning

of such a revolution just now.

That's why we don't close our eyes.

Some people say "There will be much trouble

people will lose their work," and so on.

I'm sure it will happen

but it's better we face it than deny it.

Offshore working, automation, robots

are they threatening our work?

It's a real-life question when your own son

who is prepared to go get an advanced education

asks you that question.

I concluded I do have a genuine answer:

It's not threatening.

It is forcing us to think a little bit different

but if we do it smart, we actually give

the next generation a great new opportunity

to reinvent why they get up every morning

and why they go to work

and make sure they really make best use of

the degree they studied for

and the things they really want to do in life.

I want to make the world better.

Just better.

Whatever my measure of better is, or yours

is what might be valued by society.

The other thing is this wonderful opportunity

to create a little bit of prosperity.

Because what prosperity offers you is independence.

We don't have to have people who are living in squalor

simply fighting for a handful of rice every day.

There is too much in the world

to live like that anymore.

I think certain countries and even corporations

are beginning to understand that.

Certainly this movement, this blockchain movement

is the technology underpinning

the technology part of that mindset

which exists offline as well.

The idea is out.

If it's not being realized here it may be realized there

or even in the Internet, uncontrollably.

Bitcoin is here, it is here to stay

and will become bigger and bigger.

As the blockchain, as cryptocurrencies

as the possibilities connected to the blockchain and cryptocurrencies.

That's out of the box.

And the whole system does not need any government.

It exists. It works.

It's like a computer network surrounding the world.

You can say "We don't want to be part of it."

So be it.

It's here. And it won't go away.

Chapter 8: The Blockchain And Us

I feel like this is a generational opportunity

for entrepreneurs and investors.

Quite frankly, I have not seen something

as exciting in my entire investment career.

Let's try to build a new system

that has better trade-offs and features

and less downsides.

And let's make it work.

Now the pendulum is going to swing back.

What that's going to do is frankly

make confidence in capital markets higher.

Blockchain has enormous potential implications

outside of financial services.

We might even see the full-scale implementation

of some of those more real-world applications

leapfrog financial services.

This invention, when it came up in the seventies

is really one of the groundbreaking ideas.

It will change society for sure in many domains.

It already has changed society in a sense that

the Internet is a secure place

that you can make transactions on the Internet.

The potential for creating trust

or even permissionless trust

within the Internet

that's something that we haven't had before.

Its impact on society, on business, on government

could be profound.

Blockchain is to be fair nearly ten years old.

I think it has another ten years to run before

we really see what its long-term impact is.

I think it's going to be a long, much more steady journey

we go down and you're going to see

multiple technologies inspired by this thing.

Blockchain technology is not the solution to

all the problems under the sun.

As it matures we will begin to see its potential benefits

but also its limitations.

You can deny it or you can face it.

We always said we have to face it

because these things are coming

if we want or not.

I have seen long-standing partners

when they saw the opportunity, to change

and say "I don't understand everything

but I understand there is something behind this

so we need to go forward." That's really great.

People often say necessity is the mother of invention

but I like to say necessity is also the mother of adoption.

If there is a real use case

that people need a technology for

they start using it.

I started with Commodore, we had Atari, Apple

but at some point in time, Windows came.

Everybody just started to use Windows

without asking "What is the code behind it?

What is the code behind moving the mouse?"

We have a whole lot of possibilities.

Everything will change.

In my opinion, the possibilities are endless.

It reminds me of the situation where all of a sudden

we have two or three huge inventions

happening in one moment.

We are living in a very interesting window of opportunity.

I'm surely very excited to fully embrace that.

Even one little step can be a great step for mankind.

I think we are exiting the industrial age

and are entering an age we still have to name.

Where that will take us is very hard tell.

My suspicion is it means a sort of

resurgence of the notion of community.

It absolutely feels like a whole new paradigm

for changing the world.

We're at a crossroads here.

We have the wherewithal now to create technology

that would help the entire human race.

The question is: Will we do it?

But we can do it now.

There is so much innovation

that blockchain technology has spurred

all throughout the world.

I have absolutely no doubt in my mind

that this technology is going to affect everybody.

I would say in ten to twenty years

there won't be a human being

whose life is not impacted by this technology.

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