Vinay Gupta — How Blockchain Will Change Our Global System in the Next 10 Years
A talk by Vinay Gupta (the CEO of Mattereum) at the Blockchain Innovation Conference in Utrecht—directly following Prince Constantijn’s talk on the importance of blockchain startups — on the future of global trade in the era of blockchains.
Transcript
Vincent: Vinay Gupta has been very active, he was very much involved in the most powerful platform at the moment, Ethereum, and I asked him “Can you think about our society 10 years from now and how it will change?” He’s our last speaker, give him a big hand — Vinay, thank you very much for coming! [applause]
Vinay: I’m going to talk a bit about the structure of global trade, because fundamentally the blockchain’s primary impact is either going to be on global trade or it’s going to be nowhere at all. If we can’t do something about the conditions of global trade, what we will see is the collapse of globalisation and a massive drop in living standards, as well as the collapse of our ability to do international coordination to deal with threats like climate change, and this is not a theoretical possibility; this is an actual lived reality. The set of cultural forces which led to the UK deciding to drop out of the EU are also causing problems in America around NAFTA, there’s an enormous amount of pressure caused by the collapse of the Trans-Pacific Partnership Agreement. We’re in a position where the current model of globalisation is no longer safe or sustainable, and the factors that cause that are complex, but it basically comes down to the desire that individual nations have for sovereignty and control, and an international regime which has served some people a lot better than others.
While all of that has been going on in the trade area, at the same time the Internet has continued its forward march into every aspect of life with enormous transformative impacts. So the first thing I want to say is the blockchain is simply the next generation of the Internet. It doesn’t replace the Internet, it doesn’t extend the Internet; it’s just the Internet gets better. And it’s been getting better for really at this point 30 years, it’s had consumer-facing services at scale for about 20 years, social media is now about 10 years old. The Internet continues to evolve, it continues to change, it continues to pull people closer together. And at the end of the day, what is the blockchain? It’s basically just a way to email money or potentially goods to people. There’s a bunch of magic in the background that makes it possible, but the bottom line is you say you want to move some money, some data, some proof of ownership for goods from one place to another, you drop them into this piece of software, it moves, all the cryptography and all the rest of this stuff are lined up in a way that make that movement tangible, visible and permanent, and everybody is happy with the results.
Now, on one hand that’s not that big a deal. On the other hand, can anybody imagine trying to get around the modern world now without access to maps on your smartphone and search? How do we know things? Can you imagine going to a library every time you need to look something up? It seems unimaginable! Cities are completely impossible to navigate without little guidebooks and the need to look up the addresses and trying to figure out where you were and where you’re going, looking at street signs trying to resolve things, getting in taxis because you just have no way of figuring out where you were. So there are huge changes in the structure of our lives. Social media: how do you keep track of your relatives, your aunt’s cousin? You’re never going to find these people again if Facebook vanishes. So although these changes are incremental they’re also revolutionary, because once you’re up on these new platforms, everything which came before is forgotten and it vanishes.
So if we look forward to a kind of future in which the all-singing and all-dancing blockchain trade system has become real, the idea that we could go backwards to enormous stacks of paper duct-taped to the front of container ships… It just doesn’t make any sense. Once you’ve gone into the new systems, the old systems look absurd. So from the future of 10 years forward, the first thing, the first core lesson is that the existing systems that we use for managing global trade will look absurd. It will be unimaginable that we ever did things in the way that we do them today in 10 years, and that’s true for almost everything that the Internet comes into contact with. Once you’ve had the Internet for a while, whatever came before, however you used to do it just becomes so obsolete you can’t even imagine it was there, and it happens really quickly.
The older members of the audience, do you remember when telephones were all connected to walls? How long ago is it that telephones were connected to walls? It’s about 20 years, and in 20 years the idea that telephones would ever be connected to walls… Can you imagine if you told people “Next year there’s going to be some new legislation that all telephones will be permanently connected to a wall.”? Unthinkable. Telephones before they were smart: unthinkable. So there’s a compression of time where we just get used to the way that things are that totally removes all sense of history, all sense of stasis. We’re moving into the future and we’re moving into the future very fast, and when we look backwards what we’re doing right now will just make no sense.
I want to play a short video that is kind of a little bit of a story about that future. The details are kind of unimportant, but what I want you to think about is the sort of pacing of the future and the tone of the future. How quickly is the future coming, and what’s inevitable and what’s kind of all to play for? Inevitability is rationalisation of global trade and global finance, the ability to deploy computers to track things in a much more fine-grained way, all that stuff is completely inevitable; it doesn’t matter whose version of the future you’re looking at, it has all that stuff in it. What’s inevitable, what is to play for. What is coming quickly, what is coming slowly. Let’s play the video, and then I’ll talk a little bit more about where the blockchain really fits into these stories.
The content of this video really doesn’t matter. This one happens to be ours, but there are probably 50 companies with basically equivalent videos. They’ll talk about their specific part of that story, but there’s a general agreement that the future of global trade looks something like this, pretty much everybody in the industry knows that that’s how it’s going to go: the port people have one emphasis, the law people have another emphasis, the blockchain people have a third emphasis. But what everybody is looking for in that space is a uniform global trading system that allows you to move goods and services and financial products from one place in the world to another place in the world, with an absolute minimum of manual processes in the middle, and with all of the kind of complicated, messy legalistic stuff handled by automation.
Does anybody doubt that that is the global direction of travel? Does it not seem kind of obvious? You ought to be able to pick up a telephone and call anybody in the world, you ought to be able to email people money, you ought to be able to order boxes of things from China and have them actually arrive — this is obviously what’s going to happen. The blockchain solves some of these problems, process automation, using things like AI, solve other problems, new robot port infrastructure fixes third problems, international treaties, bilateral agreements, port-to-port networking, whatever happens it happens to be, solve other problems in that space. But this is the kind of inevitable push of history, and unless something dramatic goes wrong, that’s where we’re going. This is sort of the easy stuff, wearing my futurist hat rather than my CEO hat. The easy stuff is 10 to 20 years from now we will have taken a whole bunch of these awful paper legacy systems and we will have gotten rid of them. Easy. Maybe not easy to do, but it’s easy to predict that that’s where we’re going.
Now, the tricky questions are what currency are we going to use to pay for stuff in? Is it all going to be handled using the existing fiat currencies? Is it going to be handled using Chinese money rather than dollars? Is it going to be Special Drawing Rights on the World Bank model? Is the EU going to issue a currency, or are we going to pay for all with Facebook bucks? Very interesting question. The technology doesn’t change very much depending on what the payment instrument is, but what we’re beginning to see here is the intersection between the technology and the politics. There are 50 different ways that you could do this at a technical level, and at the end of the day they’ll all work about the same. Nobody really knows exactly how this stuff operates at a low level, but you can tell what kind of future we’re going into.
Then you ask the question about what are we going to use to pay for it, and suddenly there is electric uncertainty. Is the dollar going to be the future of global trade in a way that it has been in the past? Is it going to be completely displaced by the Chinese One Belt One Road programme? Is there even going to be a Euro? Political uncertainty, technological certainty. The technological trends are pretty easy to forecast, because we’ve got at this point 30–40 years of the Internet pushing forward down a technological track, and pretty much everything that the Internet touches winds up looking like the Internet: fast, cheap, efficient, traceable, trackable — it all kind of fits together in a story. But at the point where you get the political interface, this is where you get enormous amounts of uncertainty.
A second question: we agree there’s uncertainty about the payment instrument. Is it all going to be one a single public chain where everybody can see everybody else’s transactions right down to the nickel, some enormously-accelerated global blockchain? Or is it going to be on private chains which are operated one per company or one per trade network? Maybe it’s going to be one chain per commodity class, maybe it’ll be one chain per structural partnership. Or is it going to be a single global system, or is it going to be something in between that we haven’t seen before? Are the nation states going to be heavily involved in the convening of those systems, or are the nation states going to be largely hands-off, in the way that they have been largely hands-off the Internet to date? Huge areas of uncertainty there.
What I’m guessing people want is a really strong sense of what’s going to come, and what I want to point out here is that there are areas of very high certainty and there are areas of very low certainty. The areas of high certainty are everything the Internet touches looks like the Internet. What does it look like when you just figure out ways of dealing with all of the logistical problems in international trade, in the same way that Amazon pulled out more or less all of the logistical problems in ordering things off catalogues? The methodical process of applying process improvement and new technology investment to these kinds of problems results in the same kind of solutions. It’s the same kind of logic that makes all cars look roughly the same, because when you use the same software and the same standards for aerodynamic drag, there are only so many shapes you can make. This is the certainty.
The uncertainty is all the political stuff. Now, the blockchain comes from a political philosophy that I call Internet globalism. It really starts back in the 1990s when people talk about things like the Declaration of the Independence of Cyberspace. There is this notion that the Internet is a separate political place, and in that separate political place people should be free to say anything they want to say and they should be able to think any thought they want, and information doesn’t cost anything to transmit really, so things ought to be free of cost. That was the kind of early, utopian vision of the Internet, and that ran for a good long while and it gave us things like Wikipedia and the free software movement that have been enormously globally transformative.
Then post-9/11 you wind up with much more stress and much more conflict between this kind of Internet utopianism and the real world, and this culminates in an escalating series of exchanges, first Julian Assange, then Manning, then Edward Snowden. That rapid increase in volatility and violence between the Internet globalists and the State has been hugely definitive of the situation into which Bitcoin emerges. The early users of Bitcoin that give these currencies their value are people trying to send money to WikiLeaks to get around the payment embargos that had been set up in the banking system by Visa, that’s where the early users decided this stuff was going to be worth something. And here we are, in a centre of the state-regulated financial sector, kind of talking about the transformative potentials of these technologies. Well, there are certainly transformative potentials here, but we’re no longer in the kind of pedestrian, safe era of the Internet. We’re now in the volatile, political era of the Internet, when the way that these things go could affect the balance of power between the superpower trading blocs. GDPR is an enormous diversion of the flow of history, because it implies that were will be a European style of technology and an American style of technology and that they will be different; it’s an incredibly bold play by the EU, and I hope it’s successful.
So we come to this blockchain, and we say one more time what is inevitable and what’s to be played for. There are basically two ways that the nation state can respond to Internet globalism. The first way is tariffs and barriers, in an attempt to prevent the smooth integration of all of these global systems into something that just routes goods and services as smoothly as the Internet routes information. That approach will eventually result in isolationism, it will result in states which are as disconnected from the trading network as states that have strong national firewalls are from the Internet. There is a Chinese version of everything; you could get away with that if you’re China, you can’t get away with that if you’re the size of Switzerland. Countries like France are kind of in the middle: they might be able to swing it, they might not. So you either have a smooth, fluid connection with the international trade network as the blockchain builds it out, or you wind up with these attempts to maintain local sovereignty by putting up all kinds of barriers.
The other model is that you embrace these networks and extend as much national influence onto them as possible, and this was basically a very successful approach all the way through history. Every time there has been a new network over which human beings can exchange value, whether it’s roads, rail, telegraph, the international shipping network — as a nation, you were just pretty much defined by your ports. In these instances, what happens is that you get an extension of your national characteristics into the rest of the world. So I think that we can assume pretty safely that there is going to be a global trade backbone which does for the information layer of trade what containerisation did for physical goods: standardisation, payment rails, semantic Web concepts pulled onto the blockchain, international standards for smart contracts. At the 10-year horizon, all of that stuff will have gotten done and we will all be using it, and not using it will be as crazy as going back to phones that plug into walls.
The national strategy questions, however, become acute. Because if we wind up with a bunch of global competing standards to do blockchain stuff in different ways in different places, you don’t get the smooth end-to-end transmission. If half the world ran on one Internet standard and the other half ran on another, and you wind up with a series of gateway boxes and the thing wasn’t really end-to-end, it would be a massive, constant drain of resources dealing with those split points. Whether we wind up with one, two, three, four or dozens of these trading domains once all this Internet trade stuff is locked in is a completely open question. Whether we can figure out a relationship between the more entrepreneurial nation states and this oncoming Internet globalism, which gives the entrepreneurial nation states an opportunity to shape that globalism as it approaches, I think is the hot topic. And the Netherlands is ideally positioned to do that: hugely entrepreneurial, massive national will behind blockchain, and a very long and successful history of shaping trade… This is potentially yours. There’s an enormous opportunity to take the things you know about global trade and to apply them to this oncoming blockchain space. And that’s not just startups and it’s not just government; it’s every sector of civil society, it’s every sector of finance.
Because it’s not that you have to push the inevitable into being yourselves, it’s not like the entire burden of getting this thing to run is on a single nation’s shoulders. There are rooms like this one in every country in the world, and most of them are aggressively forward-looking. A few are a bit more kind of “Slow down, hang on, how are we going to do this?” but generally speaking, the movement is aggressively forwards. The question is how do we steer it? As a question of national strategy, and to some degree corporate strategy, how do you steer it? And the only way is you have to go first, you have to extend forward into this story, because the first person in this space is the person that gets to set the standards. But that whole technical standardisation process, the ways that we handle trade, all of those kind of systems are based on worldview and perspective and culture. You need some story about what’s happening at the end of the story, before you can decide how you’re going to do the next part; at every phase you have to be looking towards a goal.
My suggestion is that we make a very, very clear image of the future that we want, because otherwise we’re going to get a kind of future that happens by accident. And the future that we want is a future where we really do have a global trading system which is as easy to use as the Internet is now for sending information. We want it to be fair, we want it to be non-discriminatory, and we want it to allow nations to assert things that they will and will not permit on their soil successfully, but we don’t want the cost of erecting those kind of national barriers to be excessive. We want it to be easy to say, “You can’t import that to our country, it contravenes our health & safety regulations,” we want all that work to be done by machines. However the payments are managed, we don’t want there to be constant currency volatility in a way that makes it hard to get the deals done, we want it to be easy to buy and sell. And that’s not a terribly controversial thing, but if we all work together globally with that goal in mind, it should be much easier to avoid the kind of international snarls that could result in three or four or five global trading blocs, rather than a single end-to-end harness.
That to me is the big question about the future: do we wind up with a single system that supports many currencies and many laws and they’re interoperable, or do we wind up with separate systems, each one balkanised by legal norms and by payment standards? Those decisions are going to get made in the next probably 3–5 years, and places like the Port of Rotterdam could be at the very, very forefront of helping paint the picture of a single, integrated global trade system that supports local diversity but doesn’t result in balkanisation. That’s how I think it’s going to look in 10 years, and the decisions get made in rooms like this one — thank you very much for having me today! [applause]
Vincent: Vinay, thank you very much! What scenario do you think will be likely?
Vinay: I think most of this really revolves around the US and China. The One Belt One Road project is incredibly ambitious and very, very powerful, and if this turns into a joining together of models, in the same way that you could start a bridge from both ends and join them in the middle, it should be fine. But if it turns into a situation where you’ve got two separate bridges and they’re passing each other, now you have a problem, because the one which is completed first is the only one that will ever be completed. So whether it’s cooperation or a race condition is an open question. Multilateralism is a very, very difficult thing, but once it’s done it’s very, very stable. Do we want a unilateral global trade system or a multilateral one? If we want a multilateral one, we have to cooperate really effectively, including with the Chinese model.
Vincent: Seeing the leadership in both blocs, what kind of trust does it give you?
Vinay: Well, I’m not sure that the nation states are going to get to make most of the decisions on this stuff; it’s the corporations that do the actual trading that will decide what system they’re going to use. Take the US government: the US government employs about one person in a hundred in America, and they control maybe 5–10% of the budget totally. So if the entire nation decides they’re going to do things one way, the government follows rather than leads. Similarly with the Fortune 1000: if they decide that they’re going to use the following mechanisms for trade, pretty much everybody gets dragged along. All of these things are games of influence: it’s a half a percent in tariffs there and it’s a slightly better deal on taxation for special economics there, and it just kind of tips it a little one way or the other, and then time and replication, as people copy these models, gives you the historical track that you wind up in.
Vincent: Thank you very much Vinay, appreciate it — the big picture we’re leaving you with! [applause]
Learn more:
Join telegram chat:
