An Interview with Tomasz Mloduchowski — CTO at Etch
Tomasz discusses his background and thought’s on Etch.
What is your background?
Welcome, I’m Thomas Mloduchowski the CTO at ETCH. My background is in financial services and blockchain started about 10 years ago however, beforehand I was involved in a number of beacons projects and cryptographic projects, studying at MIT which gave me a good trajectory to get involved with bitcoin. From that I learnt about other potentials for this technology, and I realised that blockchain is far more transformative than cryptocurrency. Because of this the last few years I focused on running different consultancies, businesses and projects in the cryptography space. That gave me the ability to process various opportunities such as payroll.
About a year ago I ran into the construction blockchain consortium that was then being formed at UCL. That’s an organisation that spans from the world of computing to the world of architecture. That organisation focuses on applications of blockchain in the space of construction. Through that I met Euros, who had the idea of blockchain for payroll. That idea became Etch.
Etch is unique, it bridges the real world of heavy duty construction with the virtual world of finance. From that background we have been able to extrapolate into how the payroll system should look. In the future, we are not going to be signing timesheets. Money will be happening automatically, just like doors open automatically for you today. Because of that we have built a technology that allows you to work on a construction site, get paid for what you’ve earned and get paid immediately.
When the idea for Etch was first circulated around NOMAN ventures about four months ago, I was attracted to it for a number of reasons. firstly it bridges the right industries; it bridges blockchain, construction and finance. Secondly because of the team. Euros has managed to put together a great collective. His own experience in construction makes him credible to the clients. There are many blockchain companies and companies in general that try to reinvent an industry that they don’t understand. Etch is not one of those. we understand construction deep in. With my participation we understand finance deep in. Because of these two options, we are able to deliver products that fit in today’s world. The complexity in these industries and the complex political landscape of construction. But the same time, we also able to deliver on the cryptography, construction industries as well as the workers.
What is your vision for Etch?
Our vision for Etch is to transform the industry around payroll and employee management. In order to do that that we bring the right stakeholders together. Todays payroll is in antiquated system that dates over 500 years. You work, you report to your manager who confirms that you’ve worked and for how long you worked. You take that report to the cashier and eventually, you get paid. That takes months at a time and exposes employees to risks, especially where the company they work for hasn’t been paid either. With Etch, you get paid for every moment you work. People have been talking about a daily wage, a monthly wage an hourly wage. We are talking about a minute wage and a second wage. Your £10 per hour is a penny every four seconds. So why don’t you get paid every four seconds? There’s no good reason not to with today’s technology, but we are still stuck being paid as we were during the the mediaeval times. Being paid whenever it fits the employer, not whenever you work.
Why is Etch only being built now?
In the financial sector we have a concept called the perfect storm. Perfect storm is what happens when the conditions for a particular business venture are being met just now. Etch is in that exact situation. At the same time we have the reinvention of payroll and the reinvention of employee-work relationships. We also have the availability of mobile phones, wallets, communications and cryptography and finally blockchain. The technology that underpins both cryptocurrencies as well as major banks operations today make it possible to implement a project like Etch.
Etch will bring all three technologies together to bring timesheets — except they are digital. We bring beacons that have been used before, to identify locations in stores. But this time, will use them to confirm that an employee has been present on site when they need to. We use mobile devices because nowadays everybody can be expected to have a smart phone on them all the time. Finally we use blockchain in financial services to allow us to process payments quickly and efficiently.
In 2017 all of these technologies have reached maturity that is sufficient to implement our vision. In the financial sector, we are able to execute immediate payments linked financial cards, like debit cards and credit cards linked to networks such as banks and other payment systems. All of which are being supported by the government and open banking initiative and payment services directive too. On the cryptography side and the mobile phone side, beacons are ubiquitous they can be bought for less than five dollars and deployed at will. Finally on the employee relationship side, people are becoming accustomed to gig economy, to work by the hour, by the minute — and so are regulators.
What are the main challenges you foresee for Etch?
Oh, the challenges question that comes up all the time in business. There’s a mix, there’s a mix of challenges that are standard for any start up. This can be anything from stamping, funding, operations, stability, partner disputes and a whole host of things that can go wrong. But that’s normal. Nothing would be built if we didn’t have those challenges. So let’s not even bother talking about it and let’s talk about challenges that are unique to Etch.
In Etch we are dealing with a regulatory environment both on the financial side and the payroll side. We don’t know which direction the environment will take with its relationship to the employees. However one thing is certain and that is betting against the markets never works. The market moves towards piecemeal employment where people spend a couple of hours, a couple of days a month on a construction site and then moving onto the next.
The market also evolves in the direction of integrated finance with directions coming from Brussels, London and Washington every month. and on top of Etch, there is also a risks involved in execution. Execution that links different payment mechanisms to different stakeholders that might not be happy about the direction we are taking the business, as well as issues around the status quo. We are changing how the industry works. That means we are preventing some of the existing players from earning their money the way that they used to. That’s called innovation.
For every time that you take someone’s ability to make easy money, we move the society in the process. we provide more efficiency and we allow them to restructure. That said, a lot of businesses in the construction industry rely on the idea that they don’t have to pay on time, that they don’t have to honour their obligations. That they can screw the weaker party. We are taking an issue with that. We are taking an issue with that because that leads to more and more different consequences. Like payday loans… all sorts of financial products being created to bridge the gap between when you work and when you get paid. These institutions are likely to oppose our idea.
Some business owners would rather keep the money in the bank account for longer. We are not worried about these consequence, we are not worried because every time we improve efficiency, we make it easier for clients to process payroll. We will give them enough savings by doing the right thing at the right time, rather than them having to process the payments manually, calculate and be responsible for taxes and finally worry about insolvency in the middle of that. Our solution is simple, efficient and will create justice in every industry. If we make the right choice the easiest choice people will make it.
What are the next steps for Etch?
So what’s in store for us. I want to talk about the financial side. The financial side is secondary to our vision. We are committed to delivering it regardless of the outcomes of our fundraising. That said, our focus for the next couple of weeks is to support the ability of the community to participate in our success and are doing it by the presale of service tokens. These are used in our platform to support payroll processing and to pay for our services once the platform is ready.
That said, we are already piloting a version with a single developer around Oxford UK. That pilot uses our technology to account and pay staff for their time working on the construction site. We are piloting a solution in a different industry as well. I’m currently forbidden from sharing details of the organisation. That organisation has a four digit number of employees. We are also introducing the technology with partners in the financial sector, looking at integrating it with debit cards, prepaid cards and existing financial networks. We are also pursuing a regulatory angle by seeking approval of the financial conduct authority. We are also improving the technology so that we can report directly to HMRC instead of having to go through a manual process. These are just on the technology side.
On the business side we are also seeking new clients partners and are looking forward to expanding internationally. About a month ago I spent two weeks in Canada exploring their markets and the extent to which the construction industry overseas can be affected by our solution. So on the expansion side, we are also talking about the Middle East, Asia and Africa. Locations which are being heavily built and have staff that need to be a tracked, identified, paid and accounted for. We also have progress to make on the product definition side.
Our initial product is Payroll. That said, being aware of employee location and Our initial product is Payroll that being said being aware of employee location and being able to monitor presence on a construction site is important for insurance purposes and is important for visibility up and down the chain of operations. That information over time can become more valuable than the payroll business itself. We are not banking on it, we are not betting on it, but we will be blind to not realise it. Finally the imbursement and remittance elements — many construction workers work from abroad. They have a desire to send the funds back home. Given our unique position within financial services and payroll, we are in the ideal position to offer them that service. Which means you can be working and your family can be paid straight away. Not tomorrow, not when Western Union decides to do its job, but right now.
Are you not just a Fintech?
One question which keeps coming up is are we not just another Fintech? We are blockchain, we are finance, we are regulated. Why aren’t we a Fintech? The main reason about it is because I don’t like the word Fintech. It says there is some “Fin” and some “tech”. Finance and technology have been together for as long as finance and technology have existed. In fact, the first computers were being built for finance. The first online processing was being built for finance. So what is so new about this fintech space? Well realistically investors wanted a buzzword. When the Lehman Brothers collapsed, people were looking for technology to solve our problems.
As a technologist, I’ve seen that pattern all over the place. People are always looking for technological solutions to human problems. The reality is it’s all about reinventing the process. Therefore, if you take the financial sector to its logical conclusion, using blockchain and computers and trust, we eliminate it altogether. That’s why block chain solutions in finance will always struggle, because there is significant interest in preventing them from realising their full potential. The financial sector does not provide utility by itself. It’s the glue that brings together different utilities.
The construction industry however is real. It’s even called real estate. you can touch it. When was the last time you touched your bank balance? Because of that, because of our performance in payroll, you can touch the effects of your labour. This is not Fintech. This is finance where it belongs. Servicing a real need, for real people, for a real reason. That makes it a lot more profitable than Fintech’s. All of the Fintech’s struggle because they try to replicate businesses that have been designed specifically around being inefficient. This is not another bank, it is not another debit card but it has those characteristics. It is simply a way to get paid. It is a way to solve a real problem for real people in real time.
What risks do you think should be addressed?
The question often comes up or should come up, from anybody using a technology such as Etch is — how reliable is it? How secure is it? What happens if it goes wrong? In my pocket right now I have two debit cards that have been issued as a beta. It is a very unique situation to be holding a payment card with a beta label on it. But yet people do because that is the price of the innovation.
This is the question being asked by regulators on every application. What are the contingencies? What can we process in the event of failure of the technology. In our case we are taking a very conscious approach and a very careful one. We are able to process the payments across the records and have enough contingencies to handle different situations. As we scale up we will have to deal with more and more unlikely scenarios. That is natural. But let’s not forget that we are building a system which uses a different signature to prove and edit things about what goes on. We are using that signature to be paired on a mobile phone, on the blockchain, on our server, on the employer’s server and potentially on the regulators. That provides a phenomenal amount of backup to restore the system from. Blockchain as such is resilient and is designed to uphold various degrees on stability.
Finally we have to compare ourselves to existing systems and existing systems ultimately, are crap. They are crap in a situation such Payroll where you have to submit a sum of money. Sometimes you don’t get paid for your overtime until two or three months later, because somebody forgot to file the paperwork. We are also dealing with existing unstable systems. Two years ago NatWest suffered a two day delay in processing payments. That is banking as of today. So while there are risks involved, the risks are decreasing over time as the technology matures. The risks are a result of technological immaturity, rather than a technological problem as it is in todays solutions.
How do your tokens work?
Another thing which comes up in discussions is the question of tokens.That’s because we have two classes of them. We have a pre-sale tokens which are being used by our clients to pay for our services going forward and is available on a pre-sale basis in order to build interest and support our development.
There is also a second class of tokens which is far more exciting. These are the employer tokens. We are tokenising British pounds. The way we do it is by using the existing regulations for money institutions, to create a digital representation of British pounds that are liabilities or cash balances for various employers. So when you are paying somebody you are paying them in pounds that is a carried on balance. As a result, we are able to move forward with cryptographically secure processing.
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