Ripple Labs is thrilled to announce that Karl-Theodor zu Guttenberg is joining the advisory board. Mr. zu Guttenberg is the Chairman and a Founder of Spitzberg Partners LLC, a New York-based boutique corporate advisory and investment firm that provides strategic counsel and investment insights on European and international political, economic, diplomatic, technology, and security issues.

He served as Minister of Economics and Technology and then as Minister of Defense in the cabinet of German Chancellor Angela Merkel. As the youngest Defense Minister in German history, he led the most significant structural reform of the German armed forces since the Bundeswehr’s founding. During his time in office, Minister zu Guttenberg was Germany’s most popular politician.

Mr. zu Guttenberg was a Member of Parliament (Bundestag) during 2002-2011 and served as spokesman on the Foreign Affairs Committee. He was also a Member of the Parliamentary Assembly of the Council of Europe and Secretary General of Germany’s co-governing CSU party.

Mr. zu Guttenberg is a Distinguished Statesman at the Center for Strategic and International Studies (CSIS) in Washington, DC and serves as Senior Advisor to the European Commission leadership on global Internet freedom. He sits on a variety of international corporate and not-for-profit boards, has published numerous op-eds and articles, and holds a law degree from the University of Bayreuth. He currently lives with his wife and two daughters in Greenwich, CT.

Tell us about yourself!

I am a European global citizen with Bavarian-German roots, currently living in the New York area. After an inspiring and turbulent 10 years in high-level politics with all the ups and downs, I gladly returned to the private sector enjoying a “free” life and the opportunity to gain deeper knowledge of the most pressing issues for the next generation.

In this respect, I’m a fiercely independent political mind, free of the limitations associated with a life in government. At the same time I invest thoughts and money in innovation that has the potential to successfully adapt to and overcome the challenges of our time.

Having always been the youngest (German Minister of Economics and Technology, later of Defense), I am now a 42-year old and happily married father of two wonderful daughters. Besides my New York-based business, I regularly write and speak about certain “hot topics,” ranging from Russia and Ukraine to Iran, Syria, and the Middle East.

I am also affiliated with the Center of Strategic and International Studies (CSIS) in Washington, DC as a Distinguished Statesman. I sit on a number of corporate advisory and not-for-profit boards and advise the European Commission leadership on global technology and Internet freedom issues.

How are you enjoying America? How have you been spending your time? Spitzberg Partners is a new venture. Could you tell us a little bit about it and what the long-term vision is?

My family and I quickly fell in love with the United States after we moved here in the summer of 2011. While Germany remains our home, America has given us wonderful new friends and a fresh perspective on what is happening back in Europe.

I spend the bulk of my time as the Chairman of Spitzberg Partners, the NYC-based boutique corporate advisory and investment firm I founded in 2013 with Ulf Gartzke, a long-time friend and colleague who has lived in the US for the last decade.

Our core mission is to help technology and financial services companies invest and expand their business in major European and emerging markets. We have a unique background in high-level government positions and an excellent team with specialists in new technologies and financial markets. We provide our clients with critical insights into political and regulatory developments affecting their corporate strategy and competitive positioning. We also help select European companies take advantage of trade and investment opportunities in the US and Canada.

Our vision for Spitzberg Partners is to be the leading boutique advisory firm with an in-depth understanding of how key players in the public and private sector are now working to protect their interests in a world that is shifting from government to “Googlement”—driven by the unprecedented ability of companies to gather, store, and evaluate vast amounts of (personal) data.

What’s your assessment of the current space regarding payments? Where do you see us headed?

The traditional payments system is antiquated, costly, inefficient, and in need of disruption. The problem is that it is very profitable for entrenched players (oligopolists) who have a vested interest in maintaining the status quo. Additionally, it is not in the DNA of large firms to innovate effectively.

There is no question that cryptocurrency and the associated infrastructure—specifically the Ripple protocol—represents a dramatic step forward that cannot be ignored. Put another way—this technology cannot be un-invented or have the genie put back in the bottle. Even more important is Ripple Lab’s approach and potential to redefine the environment of (international) financial transactions.

Traditional banking models like correspondent banking urgently need to adapt to the realities of a digitized and interconnected world. Large and small firms across the financial services industry will need to integrate this technology into their operations or risk being passed by competitors.

As one government official recently told my firm—we cannot stick our heads in the ground and pretend this technology does not exist. The vision of Chris Larsen and his team is in my eyes the most innovative and promising concept on the market.

This space has historically been difficult to navigate from an entrepreneurial or innovation perspective. There are so many factors at play: whether it’s entrenched players, politics and regulation, or simply the operational risks of dealing with money. But there is this sense that real change could be coming. What’s different today than say 10 or even 20 or 30 years ago?

This is an interesting question because it is important to understand some key differences between innovations in the financial sector as opposed to emerging tech in other fields such as cloud computing, robotics, social media, etc. While people are willing to accept growing pains with certain new technologies, financial products and transactions have no margin of error. In a sense, I think that the unique challenges faced by financial innovators mirror those seeking to disrupt healthcare.

Despite these challenges, we are riding a wave of innovation that will fundamentally change many elements of our lives. It is impacting the entire world in one form or another. The Ripple protocol, Bitcoin, and general innovation in finance are key parts of this movement—and as such, I believe that it reaps the benefits of the credibility that earlier innovations have built. Financial innovation will be ignored at your own peril.

What are the biggest challenges ahead—specifically in the political and regulatory realm?

One set of challenges that I am primarily interested in relates to political and regulatory affairs. While Bitcoin gained its initial popularity as a pet-project for anarchists, it is my belief that we have moved beyond cryptocurrencies being used as a way to withdrawal from the global financial system. Therefore, it will be regulated in some form. We see already the first, uncoordinated steps, specifically in Europe.

In this realm, policymakers are faced with a daunting challenge. No government wants to be seen as stifling innovation—and as such, many are taking cautious and hands-off approaches to policymaking. But at the same time, because of money-laundering and criminal concerns, they cannot simply let this industry develop in a vacuum.

Further, many people will look for regulations as one precursor to participating in this ecosystem, creating a chicken and the egg problem. Governments will need to find the right balance in order to safely facilitate innovation, protect consumers, and avoid regulatory arbitrage.

In addition, the power of the leading players in the banking industry is often underestimated. For many decades they have been the driving force shaping regulation in transaction banking with powerful intra-industry bodies (e.g., the Wolfsberg Group in correspondent banking).

What sort of time horizon should we expect for things to start developing and improving in a material/fundamental way?

I believe that a reasonable time horizon for material change is at least another two to three years. Mainstream cryptocurrency adoption will not take place until consumer applications become commonplace and easily usable for people, and we are still in the first stage of VC funding in the industry.

Significant and reliable regulatory changes for transaction banking will probably even take longer as the complexity and interdependencies of the matter requires an in-depth understanding, and governmental bodies around the globe will need to catch up.

A final challenge among all participants in the ecosystem will be to effectively manage consumer expectations. All of the publicity around cryptocurrency is creating the impression that it is more developed than it is. Likewise, episodes like MtGox garner widespread negative publicity, harming the credibility of the industry, even of other products than just the currency. People need to realize that there will be some hiccups along the way—like any new technology, and understand the risks that they face.

It’s very clear how a more efficient, expansive, and inclusive system could benefit many of those who currently don’t have proper access to traditional banking services, but thinking from the perspective of your average consumer who has a job and is comfortable—they are likely quite content with the current system.

They are happy to keep their money and the bank and buy things with their credit cards. Very rarely must they worry about international money transfers. Along those lines, much of what happens regarding the exchange of value is abstract, working invisibly in the background. Why should your typical consumer care? Why is this important to them and how will they benefit?

This is an excellent question, and it is one that I do not think can be fully answered today. Some initial thoughts: Once merchant adoption becomes more widespread consumers may expect to find a reduction of prices equivalent to a tax cut up to 3 percent—the fees typically charged by banks. This could substantially increase commerce globally, which is critical to continuing our fragile economic recovery.

Widespread adoption of Ripple will also provide a welcome boost to global development, as multibillion dollar remittance transfers will be conducted at a fraction of their current cost. The current remittance market is over $410 billion a year and according to the World Bank is expected to grow to over half a trillion dollars by 2016. Both immigrant communities and their countries of origin stand to benefit from Ripple’s disruptive technology. The news last month that Astropay in Latin America will open licensed gateways in seven different countries so people can send remittances is very exciting.

Additionally, we cannot ignore the potential that broad adoption will have for international trade. The ability to reduce transaction costs and exchange rate risk cannot be discounted as multiple major free trade agreements are being currently negotiated across the Atlantic and the Pacific.

However, the reason that I cannot fully answer this question is because nobody yet knows what these innovations will ultimately manifest themselves as. While we are already thinking about crypto’s applications beyond the financial system, nobody knows what the world will look like in 5-10 years. This is what makes the technology so exciting.

What was your reaction to the recent news that Fidor Bank is adopting the Ripple protocol?

I was extremely pleased to see Fidor—the Munich-based direct bank—take this bold step. You can be certain that the mainstream financial institutions will closely monitor its implementation.

However, it remains to be seen when the “establishment banks” will adopt this approach. Primary hurdles are regulatory concerns and price volatility. However, if consumer demand for new transaction models increases, these firms will need to accommodate their clients. Those who are willing to participate will certainly aim to capitalize on first mover advantages.

So how did you find out about Ripple and what are your thoughts about the technology and the team behind it?

From the moment I first met Chris Larsen and heard about Ripple, I was extremely impressed with his character and leadership skills. I am quite certain that he has the necessary vision to lead Ripple Labs through this exciting time.

Regarding the rest of the team, I believe that Ripple Labs hosts one of the most dynamic and talented groups of individuals that I have met. Further, I was encouraged by CTO Stefan Thomas’ willingness to audit multiple Bitcoin exchanges this year. This demonstrated to me both his and the company’s interest in being a responsible steward for the ecosystem as a whole.

Addressing the technology, I believe that the Ripple protocol not only addresses a key hurdle currently facing Bitcoin transactions—speed—but its protocol is interoperable with any digital currency, fiat currency, or other item. This flexibility, combined with the Ripple protocol’s scalability, makes the possibilities for its technology virtually unlimited.

What was your motivation to join the advisory board? What sort of a role do you see yourself playing?

My motivation for joining the advisory board is to help Ripple Labs successfully navigate key regulatory pitfalls that it will inevitably face throughout Europe and the rest of the world. I am also happy to provide Ripple Labs with my global network in the finance industry and to be a critical sounding board.

I’m confident that my background as former Economics, Technology, and Defense Minister combined with my work at Spitzberg Partners—focusing specifically on the political and regulatory challenges facing the technology sector—will be valuable for Ripple Labs.

The current ecosystem is fragile, and Ripple Labs will need to make informed and prudent decisions in an uncertain and fluid political environment.

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