Nouriel Roubini on the Big Blockchain Lie

Arcade token

As I have written a number of times already, including in my previous post, I still don’t get (i) why cryptocurrencies create better market conditions for building ventures than good old fashioned money, and (ii) why tokenization – instead of just giving investors and workers plain old money – is the only viable path to building a successful business in the digital era. And when the answer comes in the form of a libertarian soundbite about democratization of money, the burden of regulations or the end of intermediation, I am convinced the speaker knows nothing about history, technology or business. The answer has sham (or gullible) written all over it.

That, of course, doesn’t mean that I don’t believe in distributed ledgers (aka Blockchain technologies) as interesting solutions for solving some important transactional inefficiencies. It’s the whole obsession with tokenization and refusing to use real money that baffles me.

With this in mind, I was very encouraged by a series of Nouriel Roubini tweets over the weekend where Roubini – who made a public name for himself by being one of the few, brave souls to openly predict the 2008 economic crash – unabashedly called out the willful blindness, ignorance and outward deception of Crypto’s most ardent supporters. For example:

Then this morning, Roubini published this must-read article “Blockchain isn’t about democracy and decentralization – it’s about greed” where he makes all of the aforementioned arguments about the false narratives around cryptocurrencies, including:

In practice, blockchain is nothing more than a glorified spreadsheet. But it has also become the byword for a libertarian ideology that treats all governments, central banks, traditional financial institutions, and real-world currencies as evil concentrations of power that must be destroyed. Blockchain fundamentalists’ ideal world is one in which all economic activity and human interactions are subject to anarchist or libertarian decentralization. They would like the entirety of social and political life to end up on public ledgers that are supposedly “permissionless” (accessible to everyone) and “trustless” (not reliant on a credible intermediary such as a bank).

Yet far from ushering in a utopia, blockchain has given rise to a familiar form of economic hell. A few self-serving white men (there are hardly any women or minorities in the blockchain universe) pretending to be messiahs for the world’s impoverished, marginalized, and unbanked masses claim to have created billions of dollars of wealth out of nothing. But one need only consider the massive centralization of power among cryptocurrency “miners,” exchanges, developers, and wealth holders to see that blockchain is not about decentralization and democracy; it is about greed.

But he also makes an interesting observation about the non-crypto part of Blockchain as well:

Moreover, in cases where distributed-ledger technologies – so-called enterprise DLT – are actually being used, they have nothing to do with blockchain. They are private, centralized, and recorded on just a few controlled ledgers. They require permission for access, which is granted to qualified individuals. And, perhaps most important, they are based on trusted authorities that have established their credibility over time. All of which is to say, these are “blockchains” in name only.

It is telling that all “decentralized” blockchains end up being centralized, permissioned databases when they are actually put into use. As such, blockchain has not even improved upon the standard electronic spreadsheet, which was invented in 1979.

No serious institution would ever allow its transactions to be verified by an anonymous cartel operating from the shadows of the world’s authoritarian kleptocracies. So it is no surprise that whenever “blockchain” has been piloted in a traditional setting, it has either been thrown in the trash bin or turned into a private permissioned database that is nothing more than an Excel spreadsheet or a database with a misleading name.

I absolutely agree, and for the reasons he states, I actually like private blockchains. Not to change the world, but to improve processes. And if you control those spreadsheets, you are able to give your customers much more flexibility, protection and value. Works for me!


On Talking about Blockchain at South Summit

South Summit

South Summit which aspires to be the “the Leading Innovation Global Platform focused on business opportunities and disruptive trends, that gathers together the entrepreneurial ecosystem” was held last week in Madrid. My employer, Amadeus, was a big contributor to the summit both as a sponsor and by providing speakers on various items related to travel and technology. In a strange twist of fate, my very generous colleagues in the Amadeus Corporate Strategy team – who must know that I adore the stage — asked me to represent Amadeus on a panel about “Rebuilding Industry through Blockchain”. How could I say no to the limelight?

South Summit Selfie1
Obligatory onstage selfie courtesy of moderator Eneko Knorr

Besides me, the panel consisted of a serial entrepreneur/angel investor, the head of Blockchain at a major Spanish bank, and a Palo-Alta based VC. While the other panelists focused on Bitcoin and the case for cryptocurrencies, I discussed the four main uses cases that Amadeus has identified for the technology: managing traveler identity, more user-friendly loyalty programs, improving payment settlements, and baggage tracking. And while everyone else on the panel hailed Blockchain’s potential to disrupt intermediation in raising capital, I stressed that when evaluating the technology’s use cases, we had to take into account our B2B customers’ needs as well as those of travelers, and that to date the biggest problem our industry faces with Blockchain is that it simply does not meet our customers or their consumers’ demand for real-time transactions, inter-operability and customization.

So imagine that if Visa or Mastercard can process 5,000 transactions per second with the capacity to process more, Bitcoin can only process 12 per second but with the first transaction taking 10 minutes to settle. From what I understand, Amadeus processes over 50,000 transactions per second and over 50 million per day. Slowness and an IT platform’s inability to adapt on demand to customer-specific modifications and enhancements are show-stoppers in our industry. This doesn’t mean that Blockchain is not suitable but that for services like shopping, today the technology is just too slow and missing the necessary interfaces in order to make it end-user friendly.

When we got to the topic of whether cryptocurrencies were a valuable means for start-ups to raise capital, my fellow panelists were all very enthusiastic. As Amadeus does not have a position on cryptocurrencies, I kept my opinion to myself. Personally, I don’t buy the emotional argument that cryptocurrencies give more “control” to the individual over his money, or that they ultimately add value and enhance the marketplace for new ideas in ways that fiat money and the current regulations cannot.

Quite the contrary: investors want liquid markets where they can easily get their money in and out of ventures. Furthermore, efficient market theory tells us that the value of a security should reflect all available information in the market. Tech entrepreneurs may love the idea that they can cheaply raise large quantities of cryptocash without the costs and hassles of having to comply with regulations, but in the long run transparency and certainty create dynamic markets. You can raise more money on the U.S. stock exchange than say on the Indonesian one because investors know that they can easily exist an investment and that the market is efficient.

With the original securities acts of 1933 and ’34, the U.S. government wasn’t trying to protect the sophisticated investor from big corporate greed. The regulations were designed to protect the unknowing from being bamboozled by scams and ponzi schemes. They demanded transparency and disclosure of risks, exactly what today’s ICO market tends to lack with fairly scandalous, yet predictable results:

New data from Fortune Jack has found that ten of the most high-profile ICO scams have swindled a staggering $687.4 million from unsuspecting investors.

A recent study prepared by ICO advisory firm Statis Group revealed that more than 80 percent of initial coin offerings (ICOs) conducted in 2017 were identified as scams. The study took into consideration the lifecycle of ICOs run in 2017, from the initial proposal of a sale availability to the most mature phase of trading on a crypto exchange.

And if you thought you had just raised $30 million over night in Bitcoin, what is your money worth today?

So why should we think that the marketplace needs cryptocurrencies to raise capital? Certainly new ventures like AirBNB, Whatsapp, Facebook, WeChat, Twitter, Instragram, Uber, etc successfully raised capital with old fashioned money. The more I hear someone claim that cryptocurrencies will democratize money, the more I am convinced that the speaker has either absolutely no idea what he is talking about or is full of crypto-crap. That doesn’t mean that the current VC model is not a scam itself. To a certain degree it is. But paying workers in tokens instead of money or promising investors they’ll get rich quick without full disclosure is not the solution. It’s a swindle.

If you ask me, we shouldn’t be talking about Blockchain at all. Yes, I think it will be an important back-office tool to improve efficiencies, but not life-altering. What we should all be talking about is Artificial Intelligence which — for better or worse — is the real game changer.

Finally, I really enjoyed the opportunity to speak at the event. When I got off stage, I remembered something that Bill Clinton once said shortly after leaving the presidency:  the hardest thing about no longer being president was walking into a room and not being greeted with the presidential anthem. In other words, being on stage is addictive. It feels good to be listened to and treated with undeserved respect. Earlier in my career, I spent a lot of time speaking in public, and last week at the South Summit, I remembered how much fun it was to be on center stage, especially when afterwards you get to interact with very smart people. And the icing on the cake: running into friends and former colleagues at South Summit and reminiscing about the good old days.

Thanks all around to everyone involved, especially my excellent colleagues in CST.