#33 David Stancel – full transcript of the podcast

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Helene Panzarino: [00:00:00] Welcome to another episode of banking on air with Vacuumlabs I’m Helene Panzarino. And today I’m joined yet again by David Stencel You might remember, or regular subscribers that we’ve started a cryptocurrency series, and we’re now in episode two. So the first one was really all about Bitcoin. You can go back and listen to that when you can subscribe and listen, the second one, we’re going to be looking at Ethereum. But also at smart contracts. So welcome David. David, for the people that haven’t listened to the first one, do you want to give a little introduction of yourself?

David Stancel: [00:00:34] Oh yeah, sure. Hello everyone. Glad to be here again. I’ve been researching cryptocurrencies for over eight years now. Along the way I did some projects, so different kinds of projects like NGOs, as a medication activities, lot of advisory activities, some NFT startups and so on and so on. And currently I also teach at the university, this beautiful topic of cryptocurrencies and also as CTO at Fumbi which is a cryptocurrency trading platform.

Helene Panzarino: [00:01:07] Well, I think we definitely came to the right guest then to explore this topic. And so I’ll also ask you to bear with us because there’s laypeople, which some of us will be some of the terminology, the vocabulary will be unfamiliar. So we’re going to try and unpack that because I think this is one of those things, of course in the news recently. We’ve all been watching what’s happening with Bitcoin. We’ve all been talking about central bank, digital currencies. We’ve all been trying to wrap our heads around what’s going on. But it’s , isn’t it? When you’re on the outside, so you’re on the inside. You can help us understand more. So I remember in around 2014-15   people started to talk about smart contracts and lawyers starting to shake thinking, oh, we’re not going to be here anymore. The same way that AI was going to take everybody’s jobs in banking and finance. So what is a smart contract really?

David Stancel: [00:01:59] That’s a tough question because actually smart contracts are more similar to actual applications and programs then to the regular kind of contracts. Smart contracts are basically ordinary. They are not so smart actually, they are pretty dump usually.  It just  application like a piece of code of software that is being run on a decentralized network. So that’s basically the one single major difference between  any kind of regular application that is run on a single server architecture and smart contracts that run on blockchain networks, such as typically Ethereum or others, where they are being simultaneously run on thousands of computers that are in the network. And of course this network has some peculiar functionalities and traits because it’s open, it’s a very decentralized, anybody can join the network and participate in the network by running these applications, which of course brings some challenges when it comes to building and deployment of such applications.

Helene Panzarino: [00:03:09] David, can I ask you, you said it’s an application, which is interesting and also we could have gone down a whole bunch of jokes about smart lawyers, dumb lawyers. We will do that she says. Does it do something, does it trigger something by being embedded or part of that network?

David Stancel: [00:03:26] I mean it does whatever we embed into it,  whatever we program into it. Actually, even the co creator of Ethereum Vitalik Buterin, he was a retrospectively found out that we recognize that the term smart contract was not the best choice for this. Because as I said, there are these kind of programs that are like regular kind of piece of software. But the more convenient term for it would be persistent scripts because given the architecture, they are deployed on this decentralized architecture, which is very censorship resistant. One of the traits of these application is that once they are deployed on the network, it’s really hard or almost impossible to remove those applications to stop them, to tamper with the code and  that’s probably why we are here and why we are talking about cryptocurrencies and blockchain space because this kind of unique trait that has not been present in our role. Before the invention  of blockchain.

Helene Panzarino: [00:04:31] Okay, now I understand better and I see what you’re saying because I think you’re right. The term is slightly misleading and that probably confuses people. Now we’ve talked about what they are and from a piece of part of the tech of it, how do we actually use them currently? And that might be in financial services, but that might be somewhere else. So just maybe a couple of examples of how we use it.

David Stancel: [00:04:52] Yeah probably anybody who has been following the blockchain space could hear probably a thousand times like how all kinds of application and usage cases for blockchain and for smart contracts, since it’s basically a piece of software. So it can do pretty much anything you programming suits. So it can be used in multiple ways. But still it’s true even today that the most of the use cases, whether it’s for blockchain, but also for smart contracts, it’s in the financial space what we called  DeFi decentralized  finance. We’ll  talking about probably next time. Most of the things happen currently today when it comes to smart contracts. So we have lots of basically applications, pieces of code that behave like financial institutions, even though they are not, they’re just really like a simple piece of code or set of smart contracts that are compost together and interact with each other. They perform functionalities such as exchanges, lending platforms or they allow us to create the synthetic derivatives on top of the blockchain networks and our insurance products and  all kinds of things. Of course, apart from these financial use cases, there is lots of things going on in the area of logistics and healthcare industry as well. Basically these smart contracts could allow us to, of course automate lot of processes in all of these areas, but through is most of the attention is still being paid to the financial use cases.

Helene Panzarino: [00:06:21] And could one of the ones that send, for example, you mentioned  shipping or in other areas, is that something like, could smart contracts be used in trade finance in that regard?

David Stancel: [00:06:30] Yeah, definitely trade finance is definitely one of the areas where it’s been explored and being used. What it boils down to is always that traditionally, oftentimes it was the case in the corporate environment, enterprise environment, when it comes to blockchain, there was always this kind of dilemma of whether to use a permissionless open public blockchain networks or the so-called private blockchain networks that are set up only between some of the entities involved in those business processes or consortias.  Typically this way, if you have more permissioned environment, the blockchain kind of a little bit is losing the edge compared to regular enterprise legacy solutions and databases. It can be done there, but because it usually has been deployed in this way and we couldn’t see so much network effect and adoption coming in there.

Helene Panzarino: [00:07:25] And I can appreciate the permissioned blockchains or almost like databases, to be honest, in some ways aren’t there. There’s always be confined it or safer. I think there was always also that discussion, whether it’s true or not about the amount of energy involved in mining and rogue miners and how they could have control and if you’re in financial services, then we don’t need that. We need some other form of control and that say permissioned blockchains or wannabes people in this space are having problems with some of the regulators and other areas as well. So it’s not been a smooth ride really for anybody. I think in that space, either. You mentioned Ethereum early on and again, in episode one, we talked about the actual Bitcoin cause it was, oh, you know, it’s all the rage as it were. So what is Ethereum and how is it different to Bitcoin?

David Stancel: [00:08:14] Okay.  Ethereum was created by probably now, already quite famous person, founder of Ethereum Vitalik Buterin, who was back then a young boy who was a journalist a Bitcoin magazine.  He was a college dropout who started to work on Ethereum because he basically took the concept of Bitcoin and I was like, okay, we have a really cool decentralized network that we use for sending and receiving transactions and moving the store, like some value over the internet naturally, but we could extend this concept and enrich it with some other functionalities, not just to do kind of simple transactions, but basically we could try to upload any kind of programs and applications. He conceived the concept of this blockchain network that would have on top of it, the ritual of Turing complete virtual machine, which will be capable to compute anything at the big program, into it, given enough competition of power.  That’s what he did. He wasn’t actually the first one to do so. There were some attempts before Ethereum was conceived, but they kind of failed. And Ethereum was probably, definitely the only one at that point around 2014, when it was introduced caught up and got lots of attention from the community. And lots of people started to work on it and then in 2015, the Ethereum network launched and allowed us to do this smart contract applications to create assets on top of Ethereum, which was not so easy to do on top of Bitcoin. Even though if we would probably talk to Bitcoin maximalists, they would argue that you can do all these things out on top of Bitcoin, but it’s more complicated. And for some reason it doesn’t happen there so much. At least in this era, this Ethereum stole the show for the Bitcoin and now us, that’s why a lot of people think that there is discussion about possible flipping, which means that Ethereum would flip Bitcoin in terms of the market cap value. Because it can actually capture the whole lot more value because there’s so much more activity on top of the Ethereum which is actually true. Many people don’t know that, but for the last few months, that’s has been the truth that Ethereum has been settling much larger volumes, transaction volumes, there has been much more going on  on the network. Because it can be used for so many use cases. So, and it has also become infamously victim  of its own success because the network is congested and they are very high fees currently on the network, which are being solved throu any other solutions. But this is how Ethereum is different to Bitcoin and of course now in 2021, we have also a lot of, a lot of competitors to Ethereum that are trying to enter the arena of smart contracts. And they’re coming up with different innovations and different design trade-offs for the smart contract networks.

Helene Panzarino: [00:11:15] You mentioned assets and uses or use cases in the Ethereum. So could you have a couple of examples of what assets might be created or what a couple of these use cases might be?

David Stancel: [00:11:25] Probably people who have been following the blockchain space, they remember the term ICO and this ICO craze that we had, the 2017.

Helene Panzarino: [00:11:35] It seems like a long time ago.

David Stancel: [00:11:39] Yeah, definitely. We had lots of, lots of projects that are trying to integrate blockchain to their applications. And usually what it meant was that they can kind of create a token that had some artificially created the functionality and role. It was just like a concept of before we called it credits or something like that, it depends on the applications, but now they were not on the SQL database, but they were on a decentralized blockchain network and they were more liquid . People and users could trade with them and that’s exactly what fueled the hype around it. And we could wittness all very broad spectrum of assets being created there. And  awesome when we look at today and all this defy space, we have these different decentralized, smart contract applications that are performing these financial activities. And because there are still some decisions that needs to be made from the perspective of the applications. So how do we do it? We have token holders. That have these token and have governance rise so they can vote on the changes onto protocols. And oftentimes these tokens come with different sets of rights or different sets of benefits. Sometimes they can even get some portion of the reward or of the profit generated by those protocols and so on.  It can be  different, but this is roughly  that like  what’s going on there. And we are now all these crypto assets that  are in from technological point of view they are pretty similar because they are just so cold ERC 20 tokens ,  but they have always different function in their own ecosystem.

Helene Panzarino: [00:13:25] It’s interesting, cause it seems like 2017 is almost, we would call it ancient history book. Do you remember the craze and the whole FOMO around it, that fear of missing out and closed,  token within a closed environment or  if you had a telco involved and a bunch of retailers and  you could spend get tokens and spend them within that closed environment and then go out to market and raise money initially for marketing and then for more. And it almost seems like that came and it went. And we forgot about those. You said the ICO was all the rage, right. And then we, that we haven’t spoken about it anymore. Now we’re speaking more about the different, as you said, the Ethereum and the competitors. So is it becoming now a very competitive environment or they’re, you know, 5, 10, 20, a hundred competitors to Ethereum?

David Stancel: [00:14:13] Ethereum historically has always had much more competitors than Bitcoin, because I think Bitcoin has a unique place in the cryptocurrency world that cannot be replicated so easily, but with Ethereum it’s not that easy or  it’s more complicated. The reason is that also lots of smart contract platforms that are coming to the market. They are for example, oftentimes replicate the Ethereum virtual machine. So if that person wants to develop on these new platforms, they can still use the same smart contract, the same language solidity, and that is used on Ethereum so it’s kind of easy for them to transfer. Of course, these new networks, there are quite many of them. I think today we can say that they are at least reasonable, like 10 reasonable competitors when it comes to the smart contract platforms.  All of them. Let’s say this 10 or 15, maybe even they come with different technologies. Some of them are pretty innovative. They do offer different trade-offs. They are typically more scalable than Ethereum but again, at some costs and that’s a more nuanced and deeper debate that we probably not going to have today, but there’s definitely a lot of competitors, especially this last year. We could see probably at least sounded like a seven, eight major smart contract platform being launched.  It’s still, we can say it’s in the beginning like all this platform just are now trying to bootstrap some communities and the show off.

Helene Panzarino: [00:15:52] And is that this is maybe a naive question for someone, as I said, who’s more lay person in this space. Is there an interoperability between these different competitors? And actually what’s the interoperability when it comes to FIA for example, with crypto as well. Does that exist?

David Stancel: [00:16:10] I mean, so the intro interoperable.

Helene Panzarino: [00:16:16] Funny word, isn’t it?

David Stancel: [00:16:18] Yeah. That’s tough one. So this phenomenon is usually provided by exchanges or brokerage companies typically. So that’s how we usually people transfer their fee and money into the smart contract platforms and the interoperability between the smart contract platforms themselves it’s a little bit more trickier. There’s no simple answer to that, but we do have definitely multiple ways how different smart contract platforms can communicate between each other. Oftentimes there are some ways that are more centralized and we have to kind of more rely on the third parties that we need to trust. And also, especially recently in the past few months, we could see on the markets and some of the  first solutions that are trying to completely mitigate these need to trust the third party in this way. So some so-called bridges that connect these platforms and that provide sort of trustless way how to transfer assets between those platforms. So, but it’s still, again, very early for the space. It’s very likely that I think in a matter of two years, let’s say all this measure platforms will be interconnected. Or this one, because we can say that usually Ethereum is connected probably to every single major competitor. But all of those other networks are not connected between themselves. So Ethereum was definitely  I would say trading venue of the new internet.

Helene Panzarino: [00:17:55] It’s really fascinating, actually. And as you were talking, I was also thinking about everything that’s happened over like the last year and a half. And every time we talk about a cryptocurrency, we think about people that are outside the mainstream system. I mean, now we’re splitting it. We’re talking about central bank, digital currencies, as well as sitting alongside FIA .But also I sometimes think, industries run away with what the customer or the consumer wants. Are these solutions really beneficial to the consumer and the end user and possibly let’s do a little bit closer down on the unbanked or the under-banked people outside of the mainstream system, or is that just something that the industry is, we just talk about those marketing hype?.

David Stancel: [00:18:34] All of these things  we’re created in a way in there designed in a way so they are completely permissionless and accessible, ideally to everybody on the planet who has connections with the internet. But especially recently as the network got really popular and it got congested, the feasts Chiraq that it basically  eliminated All the regular mainstream retail users. And it has been the main trading venue for the speculators, market makers and very people who trade a lot. But I think looking forward the outlook is that definitely this, all this Netflix will be much, much more easier to use for regular people. I think kind of by accident what Ethereum happened to achieve is that I think they’re kind of almost solved this one of the kind of questions are on the open internet, the single sign on because  now, if you have extensions to your browser, such as Metta mask, which is probably one of the most used and most popular pieces of infrastructure when it comes to the Ethereum and the smart contract world, you can basically log in with this through mathematic , through  your Ethereum account to multiple services. They don’t need to even know your other identity because they just know your address and, since we are on the blockchain, all your past actions are being locked and recorded and are there out to be seen by everyone.

Helene Panzarino: [00:20:08] Everyone on the blockchain. This raises a really important points about the anonymity, but also having enough information about somebody we’re talking about that clearly in terms of digital identity after what happened around the world and in terms of COVID. You don’t need to know everything about me for me to walk into a bar and buy a drink, with my, Token or anything else that I’m using. You just need to know that I have the right. I have the permission to be able to do that. You don’t need to know my medical history, my address, my telephone number, my age, my, you know, all the other things about me. As long as the token says that I’m, I am where I’m supposed to be, or I’m allowed to be. And I think this opens up the discussion.

David Stancel: [00:20:49] Yeah. I think if you were showing me your Ethereum address I can say what kind of person you are.

Helene Panzarino: [00:20:57] Somebody who’s, well, probably more technically adept than I am. I have no Ethereum on that dress, right. I’m heavily into the trading. I mean, for me, this is fascinating. I was two weeks ago? I can’t remember one and a half ago I was on a panel and Vitalik the was the keynote that kicked off the panel in the middle east. So I think we also, the rest of the other parts of the world now are starting to look at this also as Africa, I mean the whole middle asian region middle east and north Africa is now taking notice. Whereas before it might’ve been something that we just looked at in our own little bubble, which is why I think also my head, I was thinking, you know, how does this help with parts of the world where we have a lot of remittance happening, or we have a lot of people that are coming in and working from abroad .Where we have a lot of people who are un-banked and under-banked, but have access to smartphones. Where we’re not, you know, some have very deep internet penetration, others don’t. And so they’re just onnot smart phones with dumb phones or the phones that aren’t accessing.  But it’s definitely something that’s capturing, people’s imagination more on a global basis. I have no doubt that we’ll be revisiting the subject. I know we’re coming up, actually, everybody on episode three of this series. We are going to look at decentralized finance and NFTs. Oh, I could talk for years about NFTs and whether or not they’re actually going to stick around or not, or is it just a fad? So, David, I feel more knowledgeable now than I did when we started, which is great. And I felt the same way we’ve finished the Bitcoin session. So I thank you for that. And I would say to everybody, if you’re subscribing or you’re joining us for the first time, go back and listen to the first episode and stay with us for the third episode. As I said, where we get to DeFi and NFTs. Thank you very much for being with us on Banking on air and everyone please for all the usual channels to subscribe and join us again. Thoroughly enjoyable.

David Stancel: [00:22:53] Thanks for having me. It was a pleasure.

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