CEO Insights: Tim M. Zagar

Aristotle said, “The roots of education are bitter, but the fruit is sweet.” This is also true for understanding blockchain and the opportunities that lie ahead. From this perspective, we are publishing a translation of an interview with ICONOMI CEO Tim M. Zagar originally conducted by Klemen Kosak in Dnevnik (a Slovenian daily), Dnevnikov objektiv, January 21, 2018.

Tim M. Zagar is one of the few people who is not interested in Bitcoin as an investment. “Now it’s just a store of value, like gold,” he says. For many years now, he hasn’t owned bitcoin, becoming increasingly interested in what the underlying technology means for the future.

“Blockchain allows computers to communicate with each other without being controlled by people,” explains Zagar. He is convinced that this will change our economic and political systems.

In high school, Zagar designed websites for small businesses, but he later left programming to concentrate on business. He fully committed to blockchain in 2013 when he co-founded Cashila, the first bitcoin payment company certified by European regulators as a financial institution.

Today, Tim Mitja Zagar is the co-founder and CEO of ICONOMI, the first global digital asset management platform. The platform enables investments in early-stage start-ups engaged in technological innovation. ICONOMI boasts a valuation of $150 million.

Is it difficult to explain blockchain?

It is. That’s why I studied how the Internet was explained twelve years ago. I found out that even today it is still described by what it does. Blockchain can, of course, be explained abstractly: it is a decentralized database that cannot be changed. We can also explain how it differs from the Internet. The Internet is based on copying information. These are complete copies, but they are still copies. With blockchain, the original is digitally transmitted, so everyone has access to the original digital data record in the original database of all transactions. This is a very big difference. Remember how popular MP3s were a decade ago? If blockchain had existed at that time, MP3 sharing would not have been possible. The owner of the copyright would have easily been able to record the number of times someone had listened to a song. This control is very simple with blockchain — in fact, it’s automatic.

Do you think that blockchain will reach the same level as the Internet, where we all know what it is, but not many can explain it?

Definitely. Its influence will be even deeper. It is more comparable to the impact standardized timekeeping had.

When the whole world began measuring time the same way, it was a huge change for the world economy. Blockchain puts everything over the same denominator in a similar way. Lately, the Internet has begun to develop in the direction of computer applications talking to each other in networks. Blockchain provides a uniform language for this kind of communication.

How is that?

For example, premieres of big-budget films happen in the evening, in Japan first. With standardized timekeeping, they can know in America how many tickets have been sold in Japan and can easily adapt, opening more or fewer cinemas. This requires no effort, no one to contact. Communication is facilitated in the same way as units of measurement. If you ask the tailor for five meters of fabric, he or she will know exactly how much you need without any additional explanation. If there weren’t standardized units of measurement, the tailor might understand, but might not. The same is true of Internet applications: they either understand each other or they don’t. Blockchain delivers complete standardization. Perhaps this does not seem very important at first glance, but it is. It will affect everything, everywhere.

You said that the easiest way to describe the Internet is to describe what it does. What will blockchain bring us? Besides Bitcoin, of course.

We have to separate cryptocurrency and economics. I have been interested in the currency part from the beginning, and I also invested in bitcoin. But even then, I was already interested in what Bitcoin meant for the future. Bitcoin showed that digital originals can be transmitted online. Now it’s just a store of value, like gold.

I am more interested in technological advances that can make things work better. I wonder if it really has to take as long as it does to get a building permit or an entry from a land registry. Why do we always have to carry a health insurance card with us when they have all the information?

Because people want things to be run not just efficiently, but also safely.

Blockchain solves this problem. The current technology the Internet operates on is not 100% secure. You cannot be absolutely sure that someone will not abuse your information. Perhaps you can now be 99.9% sure, but blockchain provides 100% reliability. That is a crazy big difference.

Since only 100% confidence is enough for people not to question the safety of data?

And that means people can take control of their data. Let’s say a police officer stops me and asks for my information. I will have this information on my mobile device, and he will have no access to it unless I allow it. It would be similar with medical records. Of course, if you do not reveal your data to a police officer, you could face consequences, as you would now if you rejected an alcohol test.

Blockchain promises a lot in the healthcare field. It is supposed to allow us to use people’s health data to learn how diseases develop, how they can be prevented, and how they can be treated. But how do we combine blockchain, which allows individuals to fully control their information, with using large amounts of data to learn how to improve people’s well-being?

Most blockchains are pseudonymous. Individuals can put their data into use but still hide their identity. In the case of police control, at the request of the owner of the data, the information already provided by the police can be linked to the identity of a specific person. Credit cards work by the customer giving the seller a card, and the seller taking some money from it. You can allow access to your entire account, and the interface, in the form of a bank, is necessary for transactions to take place as you expect. Blockchain works by giving the seller exactly as much as the goods cost from your account. It is the same as paying in cash, but in digital form. No bank required.

What will blockchain mean outside the financial sector? It’s easier to imagine that money will exist in digital form than to imagine the digitization of cars, washing machine production, etc.

Because blockchain is a universal digital record, it will be important everywhere where what one machine does affects what another machine will do. Milking machines will put the amount of milk they produce in a blockchain. The data will be automatically understood by the computer at the distributor, by the cheese producer, and so on, all the way to the store and the consumer. In the end, wet will know exactly how each piece of cheese or container of yogurt came to the table. For example, events like the 2013 horse meat scandal would not be possible.

Even now, in every industry, large amounts of data are being collected, and manufacturers are working hard to adapt as quickly as possible.

Of course, milking machine production is already recorded in a database the farmer has on his computer. Tanks are already ready for day-to-day volatility, shops already anticipate what buyers will want on shelves next month, the government already estimates which milk products need increased production. And, of course, farmers are constantly thinking about whether it is better to sell milk abroad or at home, whether it is better not to sell it at all and make cheese instead, etc.

But blockchain will allow these data to be recorded in a universal database so they will be able to be read by any computer. This will create a new acceleration of global business, a new increase in productivity. The first adopters will have a great advantage.

Could blockchain be described as a technology that allows many more things to happen without people controlling them?

Sure. This is also generally a consequence of technological progress. When I was in Montenegro last year, I noticed that fewer people advertise apartments on the street than they did four years ago. Of course, since then, Booking.com has expanded to Airbnb, which greatly simplifies advertising for accommodation. People no longer have to stand in the sun and personally interact with tourists.

Does this mean that with blockchain, the human intermediaries we now need to ensure the security and reliability of transactions will no longer be necessary?
Blockchain provides an infrastructure for communication between computers. Computers will know a lot more, and the number of transactions between them will increase. For example, a car will be able to pay for fuel at the filling station, the milk tank will transact with the milking machine itself, etc. The number of transactions will be very high, too high to be processed with the technology on which payments and credit cards are based now. This is not a problem with blockchain.

If the numbers are recorded in a timely and reliable way, this will greatly simplify accounting. Will technology, therefore, soon be important for accounting and tax control?

Big accounting firms are already trying to integrate blockchain technology, but blockchain will also eliminate the gray economy. This is why state authorities are following the development of blockchain with such great interest.

There are always positive aspects of new technology, but there are also consequences that are not so popular with people. Automatically recorded data that is also completely reliable of course gives the possibility of greater control.

We can imagine that in the future, all citizens will have a registered digital wallet that will be able to receive only “clean” money, and that that will be the only possible way to pay for things. The gray economy will then not be possible because transactions will not be possible without payment of the relevant taxes.

In reality, human control over monetary transactions will not be necessary, since people will not have the opportunity to do anything that will not be completely in line with the rules of the official economy. There could only be a parallel, completely black economy that could not be linked with the official economy. If someone was to work in this economy, he or she would have to live completely outside of the system, since the money could not be laundered.

Large amounts of data are already being collected by web browsers and intelligence services, but they do not know exactly how to determine what’s valuable. Will blockchain enable machines to do this?

For the foreseeable future there will be more data available than people and machines will be able to analyze. Today, stores collect information about their customers, but they do not know what to do with it. It’s the same with Google and Facebook. Although they collect information about individuals’ activity on the Internet, they still do not know how to target advertisements and content that users would most like to see.

But at some point, they will know?

Other companies will know. IBM did not make Microsoft, Microsoft did not make Google, and Google did not make Facebook. IBM understood hardware, and Bill Gates developed software with Microsoft. He developed a computer desktop, but he did not understand the Internet. That was Google’s area, but social networking was Facebook’s.

New technology is developed from the bottom up, and large companies are too inflexible and focused on what brought them success in the past. Therefore, it is essential that new technology is developed by new players.

How much should politics intervene in blockchain?

A little bit, for sure. Politicians see an opportunity to collect more taxes, which could, of course, lead to better public services. Overall, this seems like a good thing to me, because the attention of the government gives the developing technology legitimacy.

In addition to the potential additional revenue in blockchain policy budgets, politicians are also interested in improving bureaucratic procedures.

This, of course, is also very appealing. When we were thinking about blockchain projects in Slovenia that would be minimally controversial from a political point of view, we remembered the permits for supplementary work that have already been introduced in Slovenia with the aim of reducing the gray economy. It has to start somewhere, and other solutions will definitely follow, especially if the new technology lowers prices.

What politician would not want things to work better at the same or lower cost? Public administration will be cheaper, it will work better, and then someone will probably think of something else that can be improved and done with lower costs.

Do you mean the idea that blockchain will enable direct democracy?

The main concern about electronic elections is the security and reliability of expressing the will of the people, which is precisely what blockchain ensures. And why should they stop at elections? It will also be possible for every political decision to be decided using electronic referendums. Thinking about such changes also increases people’s dissatisfaction with the political-economic system.

Although we are talking about what the development of an existing technology will bring, it is still a prediction of the future. How confident are you that the future will really be like this and that it’s not just a fantasy?

The standardization of the blockchain will be part of everyday life, but how it will be expressed in practice is very difficult to predict. The fact is that there are no technological barriers for social regulation with direct decision-making mechanisms. The basis for it already exists.

What is the most important thing about blockchain people should know?

At the moment, it is probably necessary to warn against reckless investment in crypto. It’s not smart to invest in something just because it has had high returns in the past; you really have to understand the crypto-economy. The financial industry sells bitcoin as digital gold. As with gold, the demand for bitcoin is not associated with any useful value. And then they say that bitcoin is better than gold as a store of value since gold is harder to move. They conclude that bitcoin will increasingly replace gold. “Listen, dear investors,” they say. “The market capitalization of gold is currently between $5 trillion and $6 trillion, and bitcoin’s is only $300 billion, accounting for 2.7 percent of the market capitalization of gold. Do you think that next year this share will be 1% or 5%?” they ask. I would not be surprised if it reached 30% in the first bull market, maybe even more. There are many players in the financial industry who are hungry for a new product.

You do not personally own bitcoin, but do you offer it to investors?

Through our ICONOMI platform, which works on the Ethereum network, which is a kind of Bitcoin upgrade that represents a decentralized global computer, it is of course possible to invest in bitcoin.

We offer software, a platform for Digital Asset Arrays (baskets of digital assets), and managers pay us for the use of our services. Comparing the opportunity to invest in this new industry to finding gold in the Wild West: we are not the ones looking for gold, we are the ones selling shovels. We see where people are digging, but we do not know whether or not there is gold there.

What’s new about crypto funds?

Today, through our platform, people can invest small amounts in start-up companies. This was not possible in the past; you couldn’t invest 50 euros in Google. Start-up companies were dependent on a small number of large-scale venture capital funds. Our technology allows people to invest in start-up companies without the intermediary of venture capital funds. We provide financial and technology experts with the tools to buy the crypto coins of different companies and place them in baskets. Then an individual can buy this basket instead of buying twenty different coins individually. Disruptive investments are generally more meaningful, but what pushed us to create ICONOMI was the realization that people would want to invest in the crypto-economy and that it makes more sense to invest in the industry as a whole than to buy shares in individual companies.

Is this the future of the financial sector? The end of banks, the end of large investment companies?

Initially, investment firms and similar financial institutions will earn a lot because they have open distribution channels and relationships with investors. In the long run, however, they will definitely have to adapt.

Published in Objektiv, Dnevnik on February 20, 2018.