Mosaic’s Co-founder speaks at Chatham House

On March 28, Mosaic’s Co-founder, Dr Garrick Hileman, gave a talk on blockchain technology and Bitcoin at Chatham House, the independent policy institute based in London.

The audience was attended by representatives from financial and legal institutions as well as academia. Garrick’s talk covered several themes such as an explanation of blockchain and distributed ledger technology, the origins of Bitcoin, smart contracts, and the legal implications of the technology. This article will provide a high-level overview of Garrick’s talk but we advise you to watch the full video which can be found here.

Source: chathamhouse.org/event/chatham-house-primer-blockchain

Garrick’s talk had four key themes:

The invention of ‘blockchain’ Can a cryptocurrency become widely used money? How does blockchain technology work? Empirical data versus the “Hype” Broader applications of blockchain technology and smart contracts

The Invention of ‘blockchain’

Garrick began his talk by explaining how blockchain technology emerged and why; he explained that it grew out of concerns with privacy and financial protection on the internet. He also provided high-level explanations of how blockchain technology and the Bitcoin network works, the concept of decentralization and the mining process. He contrasted blockchain networks with traditional fiat-money networks, explaining that in the latter, the currency and the institution (e.g., a particular bank, SWIFT, and so on) are separate, while for the former, the currency, bitcoin, plays an integral and inseparable role in the dynamics of the Bitcoin network. This difference opens up a world of possibilities for blockchain networks such as the concept of ‘programmable money’ and smart contracts.

Can a cryptocurrency become widely used money? How does blockchain technology work?

Next, Garrick talked about whether a cryptocurrency such as Bitcoin can fulfil the functions of money. Garrick distinguished between money’s three functions: a store of value, a medium of exchange, and a unit of account. Bitcoin, to some extent, successfully manages to act as a medium of exchange and store of value. However, even goods and services paid for in bitcoin tend to use a fiat currency as the unit of account and simply allow users to pay in bitcoin at a variable exchange rate. Given its volatility, it is unlikely bitcoin will function as a useful unit of an account.

Garrick argued that there are ultimately five factors that drive demand for alternative currencies:

Economic Crises

Financial inefficiencies

Politics

Technological advances

Entrepreneurial motivation

In Garrick’s view, the demand for Bitcoin has been and will continue to be driven by all these factors to an extent, but especially (4) and (5).

Garrick next gave a brief and simple explanation — not easily achieved with such a complex topic — of how blockchain technology works. He drew a comparison between blockchain technology and email — comparing one’s email address and password to a bitcoin address and private key, for example.

Empirical data versus the “Hype”

Using a range of empirical data to challenge some of the hype around blockchain technology and cryptocurrencies, Garrick compared the impact the internet had on communication and the impact blockchain technology and Bitcoin can have on value transfer. For example, the internet disintermediated telecommunication firms by bringing in open, programmable packet-based communications.

Source: Balaji Srinivasan, 21 Inc

In a similar manner, cryptoassets and blockchain networks will help disintermediate financial institutions. Previously, banks have acted as the gatekeeper for financial value transfer; however, anyone can trade a bitcoin via the public blockchain. The internet and blockchain technology opened up the possibility of permissionless innovation for communication and value transfer respectively.

Source: Balaji Srinivasan, 21 Inc

Garrick next went on to question whether ‘bitcoin is a bubble’ — as the current hype would have it — by comparing the bitcoin price run-up (and subsequent fall) to other price corrections in bitcoin’s history. In addition, he explained that whereas it was estimated a year ago that there were about 5–10 million unique active members of cryptoassets, that number currently stands at around 15–30 million — a testament to the growth of real interest in blockchain technology.

Broader applications of blockchain technology and smart contracts

In the final part of his talk, Garrick covered the topic of ‘smart contracts’ and broader applications of blockchain technology. Smart contracts enable ‘programmable money’ which has wide applications such as ‘stable coins’ or automated insurance. He also briefly addressed issues such as the future potential of blockchain, areas for potential abuse and misuse, and whether there are reasons to be cautious of the evolution of blockchain. Garrick then answered questions from the floor, including ones about the legality of blockchain technology and differences between Ethereum and Bitcoin.

This article has summarized some of the key themes Garrick covered in his presentation, but to get an in-depth understanding we recommend watching the full video of his Chatham talk.

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