Blockchain and crypto currencies: „It feels like back in the early nineties when the Internet had its beginnings.“
Blockchain is a hot topic at the moment. This became evident at the „Zurich meets Basel“ event on June 15th in the City of Basel, where over 150 guests gathered on the invitation of the Department for Economic Affairs of the Canton of Basel-Stadt and of the Canton of Zurich.
Panel discussions and presentations discussed and highlighted the different views from academic, regulatory and business perspectives on topics such as technological change in the finance industry and block chain. More information about the event you’ll find here.
In the following interview Prof. Dr. Aleksander Berentsen explains what’s behind the block chain and crypto currencies hype and where the opportunities are for this new technology. Prof. Dr. Aleksander Berentsen is the co-author of the book „ Bitcoin, Blockchain und Kryptoassets (A. Berentsen, F. Schär 2017, in German language).
The book compiles all the relevant information to understand this fascinating new technology. More information you’ll find here: https://www.blockchainbuch.de/.
Professor Berentsen, block chain is currently a hot topic in the finance industry. Crypto currencies are booming. Why do we see such great interest?
Prof. A. Berentsen: Largely because of Bitcoin’s spectacular price development. Players from the traditional finance industry have become curious and are trying to understand the phenomenon of crypto currencies. It becomes evident that something new is emerging, which can change the finance industry fundamentally. I often hear the statement: „It feels like back in the early nineties when the Internet had its beginnings.“
Which new applications will blockchain create in the finance sector as well as in other business sectors?
Prof. A. Berentsen: The basic innovation with blockchain is its ability for decentralized book keeping. It can be applied to all areas that have some sort of book keeping. The finance industry is particularly affected because banks are keeping track of our money, which we entrust with them. With every payment order we contact a central entity (the bank), which releases the payment and vouches that the funds are sufficient and that the money is being transferred to the right person. This central entity is no longer needed, if crypto currencies are becoming the norm. There are many other applications, which are often referred to as „smart contract“. Smart contracts are programs that „live“ on blockchain and make transactions independently, if certain terms and conditions are met.
The public perception of this new technology is rather sceptical. Why do you think this is?
Prof. A. Berentsen: Each radical innovation comes along with a financial bubble. Fortunately, people are sceptical when prices centuple over a short period of time. In addition, there are many people who try to make a profit and exploit this situation. There are currently more than 700 crypto currencies and it is clear that most of them will disappear quietly over time. This wasn’t any different in the early nineties at the beginning of the Internet.
Where does this innovation come from and what needs to happen for more blockchain-based applications?
Prof. A. Berentsen: There are already many applications, but the entry barriers for most people are high because it is difficult to decide on which platform to place a bet. Also, many applications are intuitive. The same goes with the Internet - its breakthrough came when user-friendly applications (i.e. Netscape) came onto the market.
At the Faculty of Business and Economics of the University of Basel, the „Center for Financing Innovation and Innovative Finance“ is being created. Can you tell us a bit more about the research and teaching content at the centre?
Prof. A. Berentsen: Our goal is to become a global leader in the economic research fields of FinTech and crypto currencies. But to achieve this, we need resources to hire qualified people. Unfortunately, the University of Basel is currently tightening its belt. This means for us that we might risk losing out on being in the lead and in the long-term that the Basel region’s advantages will erode. So we are trying to find private sponsors instead to support professorships and post-graduates. I am hopeful to be announcing positive developments in this regard very soon. Fabian Schär and I already give one lecture and one seminar about crypto currencies.
The financial technology sector has been growing a lot recently. How can promoting young innovative companies in terms of financing improve in Switzerland?
Prof. A. Berentsen: Switzerland is already home to many start-ups in this field. The Federal Council decided to regulate small innovative financial services providers less rigid. This and other reasons (such as research, legal certainty, taxes) have led to surprisingly many companies and foundations (i.e. Ethereum Foundation) to settle in Switzerland. At the moment, fundraising is not a problem since many companies raise capital via so-called ICOs (Initial Coin Offerings). This form of financing has already overtaken traditional financing such as through Venture Capital and IPOs.
Do you think the Venture Capital market is substantial enough in Switzerland or do lots of innovative business ideas go lost because of lack of financing?
Prof. A. Berentsen: I think financing is not a problem at the moment. The hype is so huge that even very early-stage ideas are being financed through an ICO. This can change, if the sentiment turns and nobody wants to hear about these business ideas.
Short biography Aleksander Berentsen
Aleksander Berentsen has been a professor for Economic Theory at the Faculty of Business and Economics at the University of Basel since 2005, where he currently is also Dean. His research interest includes monetary theory, monetary policies, macroeconomics and finance. Currently, his research focuses around the problem on how central banks should use monetary control instruments such as negative interest rates or balance sheet extensions to react to macroeconomic shocks. Aleksander Berentsen studied at the University of Basel and Bern as well as at the London School of Economics. He was a visiting scholar at the University of California in Berkeley, the University of Pennsylvania, and the Université Paris Dauphine, as well as a „Bundesbank“ professor at the Freie Universität Berlin. From 2014 until 2016 Aleksander Berentsen was an external consultant with the Swiss National Bank. Since 2009 he is a Research Fellow at the Federal Reserve Bank in St.Louis. His scientific articles have been published i.e. in the American Economic Review, Review of Economic Studies and the Journal of Monetary Economics. In his free time he enjoys playing tennis, he renovates Riads in Marrakesh and is a contributing author for various news outlets.