Show Notes
https://www.forbes.com/sites/laurashin/2017/01/10/what-is-one-of-the-worlds-largest-derivatives-exchanges-doing-with-bitcoin/#7f294ef66b1aTranscript
Laura Shin:
Hi, everyone. Welcome to season two of Unchained. A podcast produced by Fractal Recording and put out by me, your host, Laura Shin. A Forbes contributor covering blockchain, cryptocurrencies, and fintech. Thanks for tuning in.
If you listened to season one of the show, and like what you heard, please review, rate, and subscribe to Unchained on iTunes or wherever you get your podcasts. It helps get word out about the show.
I’d like to extend a thank you to our sponsor, Onramp. Branding isn’t just a logo. Your brand is the essence of who you are and what you offer your customers. Onramp is a full-service creative and design agency that provides its clients with concise and exceptionally designed branding, websites, and marketing materials that will resonate with your audience, affect their purchase decisions, and ultimately grow your business. You can learn more at thinkonramp.com.
For today’s episode, I’m speaking with Sandra Ro, Executive Director of Digitization at CME Group. Ro is responsible for the company’s digital asset and blockchain, or distributed ledger, technology initiatives. Previously, as executive director of Foreign Exchange Research and Product Development, she was responsible for the global development of CME Group’s FX solutions, within listed and cleared over the counter products.
Ro is a core member of the Post-Trade Distributed Ledger Group, a London based industry organization with over 40 institutional members focused on bringing together regulators with sell side and buy side firms to collaborate and discuss the impact of blockchain and distributed ledger technology.
Welcome to the show, Sandra.
Sandra Ro:
Thank you, Laura, for having me today.
Laura Shin:
So, lets start by telling the listeners what it is that you do now.
Sandra Ro:
So, what I do today is I run digitization initiatives at CME Group. My background is actually in technology and capital markets. I began my career as a financial services financial engineer, structuring FX derivatives solutions for institutions to manage FX and MNA risks. I joined CME Group about five years ago out of the London office, as you mentioned, to head up FX research and product development. We started researching cryptocurrency, Bitcoin, a few years back and that’s evolved to now, earlier this year where we formed a group called Digitization.
Laura Shin:
And for our listeners who don’t know that much about CME, what is its history and its role in financial services?
Sandra Ro:
So, CME Group is where the world comes to manage risk. We are a company of exchanges dating back more than a century that started as a place for farmers to lock in prices for their crops, and today we cover every major asset class and you can access our markets in 150 different countries worldwide.
Laura Shin:
And how did Bitcoin and cryptocurrency get on the radar of CME?
Sandra Ro:
So, a friend of mine back in late 2012, I believe, actually introduced me to Bitcoin. He was an FX AlgoTrader who had just started trading Bitcoin and said that hey, you should read this whitepaper. You should research Bitcoin and I did. So, I read Satoshi Nakamoto’s whitepaper on Bitcoin and that’s how it all started in terms of my interest in the space.
Laura Shin:
And why do you think it captured your imagination?
Sandra Ro:
Well, I think I was immediately taken back, or sorry, taken by the revolutionary potential of basically a global payments network based on a completely decentralized peer to peer, you know, open source protocol. For me, that just represented a way to move money or value faster, cheaper, and more efficiently than the mediums that are available today, and I think if anyone is a user of cross border payments, you know, it’s clear that there’s room for improvement because the mediums today are costly and slow.
Laura Shin:
In terms of what you were doing at CME at the time, how did you start to make a connection that this could be relevant for the work that you do?
Sandra Ro:
So, as I mentioned, I was running FX Research and Product Development and obviously we were focusing on FX products, and when Bitcoin came into the picture we started researching what the impact of that could be on traditional FX markets, but I think what we really thought was truly interesting about this particular crypto was the fact that it could represent a new asset class and that it actually had attributes that are very distinct and different from traditional asset classes today.
Laura Shin:
And what are some of the indications you had that, that was the case?
Sandra Ro:
Well, the three major attributes I think that I would put, you know, cryptocurrencies or cryptos under is the fact that make them unique. One is as investable products, which you then could say all the other asset classes are that way too, where you buy and hold. Absolutely.
Number two, medium for payment, but in this case not backed by any specific sovereign state, so Bitcoin used, for example you don’t have to pay for a service or a good, but I think the third attribute is the most interesting and unique, which is the use of cryptos as a technical mechanism within a network to move around value.
So, the example that I think of is when XRP or Ripple’s token was created to move around euros and dollars, for example, using XRP as a technical mechanism, or rail.
Laura Shin:
What you’re describing here sort of is how people describe blockchain technology, but you are attributing it to cryptocurrency and you know you’re relating it to the way that XRP moves value. So, when you do that are you really saying that the value does reside in the cryptocurrency or in blockchain technology?
Sandra Ro:
What I’m saying here is that you have a now network that is able to tokenize either brand new assets or create token versions of physical world assets and move them around in a virtual world. The blockchain piece is very important because obviously it’s the underpinning, or the rails, that will move these tokens around, but what I’m highlighting here is that for the first time, you’ve got potentially “tradeable assets”, which are representative of different attributes. One in particular, the technical mechanism, that it could have value as well.
Laura Shin:
Okay and we started this question by you talking about how the cryptocurrencies themselves were investable assets, but I know you’re also very active in blockchain, so could you just sort of break out for me, you know, the two different FX that you think that these, you know, cryptocurrencies and then the technology itself will have on a company like CME or similar companies in the financial services sector.
Sandra Ro:
Sure, I mean I can’t, I cannot speak for other financial services companies, but I think this is a new digital asset class from a token perspective or a cryptocurrency perspective and we’re beginning to see Bitcoin as the first, but not the last, and there will be tokenization of physical world assets as well.
That is different from the discussions that are happening in the financial services with regards to blockchain and particularly its implications for let’s say, for example, post trade processes, post trade services, and what that will shape. The technology could shape over the next few years, in terms of how that evolves, and I think that’s a very big piece that’s gotten the attention of, you know, a number of financial services companies.
Laura Shin:
And what do you see as some of the most exciting applications in that area?
Sandra Ro:
From our perspective as you know with one of the world’s largest clearinghouses, we are definitely looking at various aspects of how the technology itself could help solve problems for us, for our customers, improve our customer experience, and you know offer potentially new business opportunities or services that we may not offer today that could be offered tomorrow.
Laura Shin:
What are some examples of current processes that you feel could be improved?
Sandra Ro:
So, when you look at what positive attributes the blockchain technology can offer, sharing of information is one that, you know, I like to highlight because that’s where you could have information that’s been traditionally siloed be shared across, let’s say, between a CME and our clearing member or ourselves and you know, an end-user client. These are all basic siloed information, which may be siloed today, that could actually be shared tomorrow, and I’m not saying that it’s shared information across the board.
There has to be guidelines around, you know, which information is shared, but with blockchain technology this becomes a lot easier to do and that golden source, or that golden copy that’s often discussed is possible. Where everyone could have a golden copy of a specific set of information, transactions, records, and that when there are changes and updates made to a specific set of records, that will be readily available to that subset of network.
Laura Shin:
And you also mentioned that the technology gave you guys new opportunities, you know, in terms of products and services that you could offer. What would be some examples of those?
Sandra Ro:
So, you may have seen a couple of weeks ago we launched the Bitcoin Reference Rate and Bitcoin Realtime Index. It’s something that we had publicly announced back in May and we’ve now launched, officially, a few weeks ago, in November, and this is exactly the sort of thing that CME does, which is to bring transparency and price discovery to markets.
This is what we’ve done for a wide range of asset classes for more than 100 years, so the fact that we’ve launched two Bitcoin pricing products is right in line with what we’ve done in our history.
So, let me explain a little bit more about the Bitcoin Reference Rate and the Bitcoin Real-Time Index. The BRR aggregates the trade flow of major Bitcoin spot exchanges during a specific calculation window. Once a day, it’s transparent reference rate against the U.S. dollar at 4 p.m. London time. The real time index, it calculates a global demand to buy and sell Bitcoin aggregated into a consolidated order book and it reflects the current fair price of bitcoin in U.S. dollars, in real time, and it’s published approximately once every second.
Laura Shin:
Wow. How did you choose which exchanges to use for the reference rate?
Sandra Ro:
So, the exchanges, which are currently part of the data which flows into our technology partner of crypto facilities who calculate the rate and then pushes that through to CME. Those exchanges are Bitfinex, BitStamp, GDAX, which is the former Coinbase name, itBit, Kraken, and OKCoin out of Hong Kong.
Laura Shin:
And how did you decide which ones to use?
Sandra Ro:
So, the decision-making process was actually a very long vetting process whereby there were extensive back testing done, review of the methodology, interviews with each of the exchange member, or potential exchange member management, and an iterative process where we looked at the trading history, their methodologies, and were given insight into some of their governance and corporate procedures.
Now, we have an oversight committee, which is available. All that information’s available on our website, cmegroup.com/bitcoin, and you can see who is on that oversight committee as well as documentation on governance, and they’ve just completed and will have available exactly how exchanges will be evaluated as new exchanges are added or exchanges are removed from the methodologies, and just to be clear, the BRR and the BRTI have two very distinct and different methodologies, which are also available.
Laura Shin:
What are they?
Sandra Ro:
As I mentioned, one is about aggregating trade flow over a specific calculation window once a day, and then the other one is actually calculating global demand buy and sell on an aggregated basis, that’s reflected at current fair price once a second.
Laura Shin:
So, why did you decide to launch these two products and what impact do you believe they’ll have on the ecosystem?
Sandra Ro:
Sure. There are a number of Bitcoin index products out available in the market and we’ve looked at a number of the current offerings. The reason why we decided to launch the BRR and the BRTI is that we felt that not only is it important to have a sound methodology, but also really taking into consideration that these products are pricing products, which need to also have a certain level of governance and oversight, and so these products follow IOSCO principles and even though they are not regulated benchmarks, we’re very much treating them with the sort of care and you know high standards that we would expect for any of our benchmarked products.
Laura Shin:
And for our listeners who don’t know, explain IOSCO.
Sandra Ro:
So, the IOSCO principles were published, and this is all publicly available on IOSCO’s website, which basically delineates the metric…not the metrics, but the principles that should be followed for any pricing product out there in the world, so that’s across asset classes. So, these guidelines are principles that we’ve taken from their documentation and applied to our pricing products and one of the, you know, conditions is to look at having an oversight committee and an administrator. These functions are, again, guidelines, but these are things that we’ve chosen to adopt for the two pricing products.
Laura Shin:
So, when you look at these products, who do you think will be the main users of them?
Sandra Ro:
So, the two pricing products will attract, actually, a wide range of users. As you can imagine there will be crypto traders and cryptocurrency users today who will want to use the product. For the Bitcoin Reference Rate in particular, it’ll be attractive for those who want to build products on top of a sound reference rate and so anyone who’s marking their books, you know mark to market. Anyone who is looking to do, say, an OTC product on top of a rate, is looking for a rate, the BRR is definitely the choice to look at and the BRTI is going to appeal to anyone who obviously is trading crypto, or sorry Bitcoin, today and needs to have a live price feed.
Laura Shin:
You have a unique perspective because obviously your firm is, you know, planted in kind of like traditional financial services and yet here you…and you know, tell me if I’m putting words in your mouth, but it seems that there’s sort of like a new ecosystem in, you know, developing out of these blockchain-based assets. So, what are some of the products and services that you feel are needed in order to grow that ecosystem?
Sandra Ro:
Sorry, Laura, I didn’t catch the first part. You mean in digital assets in general?
Laura Shin:
Well, more that, you know, CME Group obviously has a long history and it’s really implanted in the traditional financial services sector, but then here we have a new world growing of financial assets, and so I’m curious, you know, from your perspective what you feel like that ecosystem needs to grow.
Sandra Ro:
There are a number of different things that you need for any market to grow and this is still a nascent market. I realize Bitcoin’s been around for eight years, or nearly eight years, but the adoption of it mainstream has yet to come and you know there’s some challenges around on and off ramps right now. I think when you look at how easy it is to access, for example Bitcoin, there’s still frictions and I think when some of those frictions are taken away and it’s easier to go in and out of Bitcoin as a user, that will help a lot.
Further to other digital assets coming, I think you will see more and more digitized tokens coming onto the market and that includes an announcement that we just made with regards to our partnership with The Royal Mint to launch a digital gold product.
Laura Shin:
So, let’s dive into that a little bit more. What is it and how did it come about?
Sandra Ro:
Sure. Happy to talk about that. So, we’ve been working with The Royal Mint for some time and we just announced the partnership and that we will provide, CME Group will provide, the technology infrastructure for The Royal Mint and to realize what they envisage for The Royal Mint RMG product, which is called Royal Mint Gold.
It’s a really extraordinary time, I think, to be at the forefront of this technology and we believe that RMG will appeal to many sectors of the gold investment market. So, let me talk a little bit about how it works.
The Royal Mint itself is in a thousand-year-old institution, 100 percent owned by Her Majesty’s Treasury in the UK, United Kingdom, and basically, we’ve partnered. TRM as we call it, The Royal Mint, has partnered with CME Group to build and launch a digitized gold product called Royal Mint Gold, RMG, and we anticipate that Royal Mint will change the way that traders and investors will trade, execute, and settle gold, and the RMG will be issued as a digital record of ownership for gold stored at TRM’s highly secured onsite bullion vault storage facility, and that is where the gold will be held. So, for every RMG there will be gold to back that RMG. It will be fully reserved.
CME itself will develop, implement, and operate the product’s digital trading platform and we do plan to operate that 24/7, very similar to the way Bitcoin or some of the other digital assets trade, and unlike the traditional physical spot cost model for investing in gold, with management fees and ongoing storage charges, RMGs will actually offer ownership with the underlying gold with the option to conversion to physical gold with zero storage costs, and that’s significant from an investment standpoint.
Laura Shin:
How does that work exactly? I now, with this new product, you know let’s say that I want to purchase some. How is the process different both for me and then on the backend?
Sandra Ro:
So, for day one, as we’re calling it, which is a mid-2017 launch, we are actually expecting to have a small number of institutions and investment intermediaries to participate. So, in terms of direct access by retail, that will not be available for the first issuance, but there will be secondary trading available, which through intermediaries an individual may open an account if they have…if they are able to open an account with an intermediary who is participating in the first issuance.
Laura Shin:
Can you continue a little bit? Like, how does the technology work on the backend in terms of, you know, what used to be the process and then what will now be the process?
Sandra Ro:
So, let me…I can talk a little bit about the way the current OTC bullion market works, which is it’s a largely OTC, over the counter, bilateral market that is traded by the banks. So, there’s a number of banks who trade in that market and it is, for the most part, not done on the screen. So, the difference here is that you’re seeing digital gold, RMGs in this particular instance, traded on a screen so you get price transparency with a electronically traded, or digitally traded trading platform.
The backend is where we’re going to record the direct ownership of the gold and that will provide the transparency of the ownership. So, again, I’m going to use the word transparency because what you get is pricing transparency, pricing discovery on the frontend with a digital trading platform and you get the record of ownership, transparency, on the backend with the blockchain technology.
Laura Shin:
Because this is something that’s backed by a physical product how does the technology connect to the physical items? Like you said that you could actually redeem this for the gold, so how is that connection made?
Sandra Ro:
So, one RMG represents one gram of gold and The Royal Mint will have the ability and there’ll be procedures for how this will occur, but for those who wish to transform their RMG into physical gold, will make a request to The Royal Mint. The Royal Mint will convert that request into physical gold and it will be delivered to whatever location the delivery occurs. Now, of course, they’ll be charges with respect to that, but that will be possible.
Laura Shin:
This, you know, aside from the reference rate and the index is, you know, one of the first blockchain products that you guys are working on. Why did you decide to use this as one of your first to launch?
Sandra Ro:
The opportunity came as we have a longstanding relationship with The Royal Mint and we spent a great deal of time once we learned that they wanted to launch a digital gold product to see if we could help work with them to develop and turn this into a reality, and this is a real production ready product that will be tradeable mid next year and for us, you know, this was an opportunity to grow and build a market alongside what we, you know, do today.
It’s an extension of innovation and applying a new technology as well as going into the digital asset space. For us it has many attractive attributes for why we’ve decided and also the partner, The Royal Mint, is a venerable partner and a very close partner that we are very happy to build this with.
Laura Shin:
I’m just going to pause you right there to bring in a word from our sponsor.
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You travel a lot around the world and have met many of the players in cryptocurrency. What geographical differences are you seeing in cryptocurrencies in each region? It could, you know, be anything from usage to the entrepreneurial and developer communities, to the regular regulatory environment.
Sandra Ro:
So, Laura, you are correct. I spent a lot of time traveling around meeting with lots of different people in the network from the fintech firms who develop the cutting-edge technologies, to my industry peers who are working on various projects or regulators who are obviously in government entities who are focusing on learning more about this space.
It really is, at the moment, a big learning process for many of the institutions that we’ve spoken to. Many of the financial services firms are definitely working on proof of concepts. I think you will begin to see, in 2017, more visibility around, perhaps pilot level, production ready products.
The universe of potential applications is so wide, I think it’s hard to say whether one dominant use case is prevailing over another, but between cross border payments, between reporting app or use cases. You know derivatives as well as equities, swaps. There’s just a whole myriad of different discussions that are happening and I think the most challenging bit is keeping on top of what are the latest technologies that are evolving.
Even from earlier this year when you look at January to December of this year, the advancements that have been made, you know, are pretty phenomenal. There’s still a lot of development work and you know problems to be solved, but in a 12-month period there’s been an awesome amount of development around the world and likewise, I think, there’s a big challenge for regulators and government entities and industry to keep up with all that information flow, and also to understand what the true implications are.
Laura Shin:
Well, so in terms of geographical differences, you know, I know that there are some in terms of regulation. Then there’s usage differences in, you know, the amount of trading we see of Bitcoin in China versus, you know, other regions. You know, what are some of the trends that you’ve noticed as you’ve gone to the different cryptocurrency communities around the world?
Sandra Ro:
Well, I think, actually, we can go back to data to actually say that we’ve seen some real support around correlation between when there’s government uncertainty, or sovereign currency issues to Bitcoin usage. Look at what we’ve seen in recent weeks in India, since the government’s demonetization efforts with getting rid of their 500 and 100 bill rupees, that you’ve seen a surge in the interest and usage of Bitcoin, as well as the premium between Bitcoin onshore and Bitcoin offshore prices skyrocketing.
This has also occurred in countries like Venezuela, Argentina, Ukraine and the list goes on. I think there’s statistical evidence that shows that, you know, in the eight years that Bitcoin’s been around, that surge occurs when those types of issues happen in governments where there’s either instability or the currency itself is having issues and that, you know, shows that Bitcoin as the most prevalent current crypto, is an alternative that people can turn to or do turn to.
Laura Shin:
And when you say that, I also know that in the past you have spoken about how you don’t really think that cryptocurrencies are currencies, but more like their own asset class. So, when people are turning to them what do you feel is appealing to them and yet at the same time how do you feel, you know, their choice of Bitcoin differs from like if they, you know, were to choose a rupee or, you know, a bolivar, or whatever?
Sandra Ro:
Yeah, so when times are stressed and there aren’t many alternatives, people turn to things called safe havens, and gold is considered a safe haven and over the years it looks like because Bitcoin is an alternative there is the potential for Bitcoin to be considered a safe haven as well. It’s an alternative and we just look at what’s going on in these countries. I think, you know, I think I would say look at the data.
Laura Shin:
Do you feel that at some point Bitcoin could become a safe haven similar to gold or is it something different?
Sandra Ro:
Well, we’ll have to see, but I’m…you know, I think it’s difficult to say, but there are limited alternatives when countries are stressed.
Laura Shin:
At the beginning of the conversation, you talked about how CME, you know, did see that there was potential for cryptocurrencies to become investment products and yet, you know obviously it’s still somewhat early, but I at least think that so far the only people who seem to view them that way are really other cryptocurrency enthusiasts. So, how do you think we get to the point where that become more of a general interest, where you know the everyday investor sees this as something that should be part of their investment portfolio?
Sandra Ro:
I think I mentioned this a little bit earlier about ease of access and ease of onramps and offramps. I think there’s some still big challenges to the user experience. I think a lot of people in the community have mentioned there’s no killer app yet. I think that’s true from a just usability standpoint, besides the fact that, you know, obviously there are technologists working on network issues around Bitcoin network itself, but I think you will hopefully see that we will have companies like, you know, startups or incumbents coming up with better and easier ways for things to become user friendly and when things become more user friendly, then the adoption rate usually increases as we’ve seen with previous technologies.
I mean, look at the smartphone. You know, 20 years ago compared to the way smartphones are used now it’s very different because apps came into play, and I think, you know, we need to have an easier way for people to adopt new technologies like this one and it’s not quite there yet. It’s still nascent.
Laura Shin:
For an earlier question, you talked about how right now Bitcoin is the leading cryptocurrency. Do you feel like there’s anything that could happen that could change that and make another one more popular?
Sandra Ro:
It’s so early days, I think it’s hard to predict any winner.
Laura Shin:
But what do you think could change, kind of, that first mover advantage that Bitcoin has?
Sandra Ro:
Look at all the frictions that are there today and if you were able to create something that didn’t have any of those frictions and was just as appealing then there could be something to supplant the current leader.
Laura Shin:
And when you talk about frictions are you talking about the usability issues that you mentioned, or are you talking about how there’s, you know, some disagreement or tension over how to, you know, continue developing the protocol and building out new features?
Sandra Ro:
No, I’m focusing on really about the usability aspect of it. Like is it easy to get? Is it easy to use? Is the user experience really easy?
Laura Shin:
Although, I guess, a lot of that, it comes from more like apps and stuff so, right, or do you feel that there is a cryptocurrency that could be launched that would have those features built in rather than having them built on top by outside companies?
Sandra Ro:
It could be. I don’t think we have one yet so there’s plenty of room for improvements. You know this is so early days in this space that I think it would be difficult to say who is a winner and who isn’t.
Laura Shin:
And are there any new currencies that have caught your interest? I know that there’s a ton not only launching every day, but ones that have already been launched and you know garnered a fair share of investors.
Sandra Ro:
We are doing our research and evaluating the more prevalent ones that obviously exist today. Ether and Zcash being, you know, two. There are others that come to mind, but also, you know, as I mentioned before with our RMG product we are looking at the tokenization of real-world assets and that is potentially a far-reaching interest across not only the crypto space, but as well as to the traditional investor space.
Laura Shin:
And what would be an example of another real-world asset that you think could benefit from being moved onto the blockchain?
Sandra Ro:
So, the tokenization of physical assets, again, is a nascent area where there is interest and I think has a long way to go. Gold is the first, but there could be many others. If you look at what’s traded today, and can you tokenize any of those and what does that do in a digital world where trading can occur. There’s a lot of possibilities.
Laura Shin:
What are some examples of things that you think would be ripe for, you know, being tokenized in this fashion?
Sandra Ro:
Tokenization doesn’t reside just in metals. It can go across agriculture. It can go across energy. It can go across many different areas.
Laura Shin:
And when it comes to regulation, is there anything that you feel would need to happen to make digital assets more commonplace?
Sandra Ro:
I can’t speak on the behalf of regulators and what they’re thinking about, you know, crypto, but they’re…you know, you’ve seen in the press they are researching and working on this space and some of them have come out with some whitepapers and views.
Laura Shin:
Okay, but from the perspective of CME in terms of, you know, an industry player trying to launch products and services in this area, is there something that you feel would be helpful?
Sandra Ro:
Again, I can’t comment on, you know, what regulators should be doing or not doing, but what we are, you know, is a highly regulated entity who needs to operate in the parameters of our regulated status. So, we engage and have, you know, discussions but again the regulators will decide for themselves how they’re going to look at this.
Laura Shin:
Let’s do a little bit of blue-sky thinking. Let’s look five, 10, or even 20 years down the line. At that time, what part do you think cryptocurrencies and other digital assets will play in people’s lives or their portfolios?
Sandra Ro:
It has the potential to be an alternative uncorrelated to any other asset class and it has the potential to, you know, act as another way of expressing holding value, and that’s the thing. This is about the internet of value and how value is transferred in a digital world, which means that some of the traditional ways of looking at the way we store and hold value will evolve.
Laura Shin:
And for your work, when you look five, 10 or 20 years down the line, how do you think the technology will change the way that your company or your industry functions?
Sandra Ro:
There’s just so much and this is what’s really exciting about this technology that I feel like even though a lot of work is being done right now, we haven’t even scratched the surface of new areas and possibilities. That’s really going to transform the way we create new financial products or inspire the way processes are done, improve the way processes are done.
It just could be really transformative, and I think when you add the conversions of blockchain plus smartphones, and smart contracts, which you know I really haven’t mentioned until just now. What I like to call the blockchain apps, and other emerging tech like AI and VR, visual reality. We’re really talking about a world where financial services has a very different face and has a very different potential user experience and I think that’s where you can let your imagination, you know, evolve. It’s hard to say right now, I think, what all the possibilities are.
Laura Shin:
What would be, kind of, like an early example of a way that you could combine some of those technologies to create something new in financial services?
Sandra Ro:
Well, let me go back to my smartphone analogy. So, I said smartphones came in, like, 20 years ago and apps didn’t actually come along until about 10 years later, or so, and when you think about what that did for us, like smartphones were great, but then apps came along, and it just completely changed all of our behavior, right. Did any of us really think that we’d be holding wealth on our phones, which effectively you do when you’re tapping on your phone to check your accounts and you have all of this information sitting there.
Did we ever think that perhaps we may be doing transactions on our phones? I actually, you know, check things and sometimes I actually even conduct a financial transaction through my phone. I don’t think I would’ve imagined that 10, 15 years ago, so what are we talking about in the future. Well, by 2020 there will be more people with smartphones in the world than people with running water or electricity.
To me, that’s very profound, meaning that anyone in the world who’s got a smartphone may be able to hold their digital identity, will be able to hold, maybe, their wealth, digital financial records, and that all has very profound impact. I think not only on the democratization of financial services down to, you know, a much more global level, but also an increased accessibility, but it also just shows that there’s a much bigger macro-trend occurring, which is automation.
So, as all these technologies advance and then you add in, you know, as I mentioned mobile and smartphones. It’s going to create massive opportunities, but it’s also going to create massive structural changes and I think that, to financial services, is going through right now and that’s going to continue and that’s going to be very interesting to see how it plays out.
Laura Shin:
I think a lot of people are really excited about the different ways that this technology could transform not only financial services, but you know ultimately the world, our lives. You know, as you talked about, it would democratize access to financial services and stuff like that, yet at the same time you know we’re all very aware that it’s early days and there have been plenty of technologies in the past that have been fervently touted as being the panacea to a number of problems.
So, let’s say a decade from now that blockchain has actually failed to transform financial services the way that we imagined. Why do you think that might happen?
Sandra Ro:
So, first of all, you know that I’m an optimist in this sector, so I don’t think it will fail, but I hear you. There are definitely some obstacles and challenges. A few that I can think of are relating to the lack of network effect. Maybe there’ll be too many inoperable incompatible blockchains. You know another one is, you know, other technologies may leapfrog blockchain, so if you have certain technologies that, you know, do it better, which we haven’t thought of today. If that emerges over the next couple years, that could definitely prevent blockchain from becoming that blockbuster technology, and then furthermore, this is this the global technology that does require a network effect, so therefore, it will be important what the regulatory and legal framework looks like globally.
Laura Shin:
Okay, and just so we end on a positive note, what do you feel like would be the most exciting result that we could see once blockchain has transformed the sector?
Sandra Ro:
The most exciting things that we could possibly see is a world where a lot of the frictions that we see today, meaning things that are very costly like cross-border payments, wire transfers, or things that cost…sorry, that create frictions from a cost and inefficiency standpoint. If some of those big financial, you know, bottlenecks can actually be mitigated that would be good for everyone involved and that’s not just financial services.
So, I think what we need to start with is really how do we take existing, sort of old, decades old infrastructure that exists in certain areas and how do we make that much more streamlined and better without completely overhauling everything. I think it’s going to take time, but blockchain has the promise to do that.
Laura Shin:
And since we’re launching the 2017 year of this podcast with this episode, I’m just curious to know, also, do you have any predictions that you want to make for 2017 in terms of cryptocurrency and blockchain?
Sandra Ro:
I’ll leave that to you, Laura. I could get in big trouble for making any kind of predictions. I’m going to leave that to you.
Laura Shin:
Okay. Well, where can people learn more about you and your work or get in touch with you?
Sandra Ro:
Anyone does want to get in touch, I do have an email address. It’s [email protected], and also, if they’re interested in the Bitcoin related information, go to thecmegroup.com/bitcoin website and then for The Royal Mint RMG products, The Royal Mint itself has its own website that you can go to.
Laura Shin:
Well, thank you so much for coming on the show.
Sandra Ro:
Thank you, Laura, and Happy New Year. I look forward to a great 2017 in the blockchain world.
Laura Shin:
Thanks.
Thank you so much for joining us today. If you’re interested in learning more about Sandra, check out the show notes, which are available on my Forbes page, forbes.com/sites/laurashin. Thank you so much for tuning into episode one of season two. Check back in two weeks for episode two, and if you’ve been enjoying the podcast, please remember to review, rate, and subscribe to it in iTunes or your preferred platform. Thanks again for listening.
