As ForkLog reported earlier, a group of crypto-enthusiasts from Ukraine is attempting to launch a blockchain platform designed for banking that could become a fully-fledged alternative to Visa and MasterCard, and provide financial institutions with full functionality to run their operations.
The project is being developed by Attic Lab, a Kyiv-based startup. Speaking with ForkLog, Attic Lab’s founder and CEO Sergei Vasilchiuk shared his vision on the project’s social effect, key problems of the banking sector, and the concept of government-issued cryptocurrencies.
FL: Sergei, let’s start with cryptocurrencies, or, for that matter, the so much talked about state-issued cryptocurrencies.
S.V.: First there are lots of problems arising from speculations about the cryptocurrency term itself. Unfortunately, there’s no one to come up with a single universal name that could be interpreted unambiguously. Some say ‘electronic money’ meaning PayPal, while others associate ‘cryptocurrency’ exclusively with bitcoin.
The second negative factor is the low level of public awareness of cryptofinance. Some just see no difference between bitcoin and blockchain, which is hardly surprising when you take into account the technological complexity of the whole thing. It’s sad when I hear downright nonsense from my peer programmers who are just too lazy to study the matter, yet try to look aware and contemporary. The worst thing is when such self-proclaimed experts pretentiously explain the essence of blockchain to an average user. It forms a distorted opinion of cryptocurrencies, while the concept of ‘government issued cryptocurrency’ faces hostile reaction or lacks any perception whatsoever.
Therefore, as long as we don’t have a regulatory structure, there will always be confusion about how to call it. We just have to be patient and wait until it’s all over.
FL: Do you have your own version?
S.V.: I think it’s up to the regulator. If the names would be given by companies and developers, there’ll always be discord. There must be just one who says, “from now on it will be known as that.” I personally prefer to use legal and financial terms, so let’s call it ‘electronic money with cryptographic accounting’.
FL: What are the benefits of such blockchain-based e-money give for the state, businesses, and regular people? And what’s the downside if there’s any?
S.V.: As you already know, we are writing a blockchain-based accountancy e-money system that can be used by banks. Initially we tried to change blockchain in such a way so that it would help banks to earn money. However, after a while we realized that blockchain has changed us and the way we think.
We also realized that blockchain is most needed on national and supra-national levels. This technology, just like Dr. Doolittle, comes wherever there is a cancer of mistrust. This applies to the state as a structure, and, unfortunately , Ukraine is not an exclusion. Bureaucracy and corruption have compromised the state so badly people just don’t trust the government. That’s why blockchain’s overarching aim is to bring back the trust, including that to the monetary policy. While some discuss with joy or downright sarcasm how bitcoin could eliminate intermediaries represented by banks, I see blockchain as an opportunity to eliminate corrupt bureaucrats as intermediaries between the government and the people.
Today I see serious efforts on the government’s side to restore the trust and maintain transparency. However, politicization of the society and mass media distort the results. There is some sort of an informational prism that nullifies the government’s best efforts. Still, there’s no tool to independently estimate the results of government initiatives and programs that one could trust. Blockchain may solve this problem. Few doubt that parallel lines do not cross. Similarly, blockchain, with its cryptographic basis, may mathematically prove efficiency or failure of governance.
FL: What are possible scenarios for practical application of such solutions?
S.V.: Let’s imagine the government declares its intent to fund certain social welfare subsidies. The allocated money goes to the bank, where a part of it is spent on servicing the same money, while another part is ‘lost.’ The remainder is distributed among ‘dead souls,’ and what is left finally reaches the recipient. Everyone is aware of the scheme and no one ‘can’ put a lid on it.
Or, let’s model a more specific situation with targeted subsidies assuming there’s a group of people requiring medicines, for instance those suffering from insulin-dependent diabetes. Presently, the process goes as follows: the respective ministry gets real money and distributes it across the regions. Local authorities distribute the money again, and over all those ‘distributions’ there’s abuse and irregularities all over the place. Considering the scale and exuberance of such schemes, the cost of tackling it often exceeds the cost of the misconduct.
And now, let’s imagine the state has a nationwide blockchain-based money system with open ledger operating in real time. Such system could provide the government with an opportunity to create various values, say, a hryvnia pegged to all things related to medicines. Such pharmacy hryvnias can be spent in drug stores only. Drug stores, in their turn, can redeem it at a particular bank only, in non-cash form. This means that the money assigned to the subsidies can be spent at a drugstore only.
Moreover, ministries can distribute the values among end users – a particular old lady or an ill person – automatically, with no involvement of corrupt intermediaries. All information is stored in the ledger, so that everyone can see the entire vertical, starting from the minister and down to the postman. They all can see who exactly got the money, when, and where. Furthermore, we can see in which drugstore the money has been spent, and that the drugstore has redeemed it for cashless money at a government bank.
Therefore, we can have unprecedented control. At the same time we have to understand that no revolution is needed here. Solutions like these have to be implemented gradually, grain by grain, just by taking some areas and showing how it works.
FL: And when it comes to end users, what’s their benefit?
S.V.: The service is aimed at people in the first place. End users will be able to have their subsidies and other kind of social support, and interact with the state directly. Nobody will be able to take their money as long as they have the private key. Everything will be absolutely transparent, and the state will be able to account to the taxpayers for each penny it had spent. This will also eliminate all those bastards who make money on old people and children. There sure will be some attempts to compromise blockchain systems, but a chain of blocks has no period of prescription, and this is bad news for all dishonest people.
FL: Considering the historically high level of corruption in Ukraine, aren’t you afraid that the counteraction on the state officials’ side will be too high?
S.V.: Certainly, once they realize what irreversibility and stability of a distributed cryptographic system is capable of, the counteraction will be enormous. There’s no doubt about that, and we shouldn’t be under any illusions. However, there is a counteraction for every action. In the first place, it’s about people that get accustomed to the truth.
Let’s say, there is a pilot project of targeted subsidies in some province. Everyone has their state services in time and in a transparent way, and then there’s someone deciding to shut it down. There will be such an antagonism among the people that I doubt any politician or state official could withstand it. That’s why I’m sure the only chance for blockchain as a technology is to conquer the masses.
FL: A few weeks ago, the National Bank of Ukraine (NBU) has presented a road map for Cashless Economy, a project implying employment of blockchain technology in issuance of e-money we’re talking about. Are there any principal differences from your system, or perhaps what you are doing might be a part of that project?
S.V.: Unfortunately, I can’t comment on the National Bank’s plans. I’m not aware of the affairs of national importance, but my opinion is that it is Ukraine, a country with troublesome non-transparent economy, that requires blockchain implementation. The darker is the economy, the better it is for the technology. Therefore, the unique opportunity to implement the technology is just right here and right now.
FL: Who should regulate blockchain-based e-money? Should it be the central bank, or a specific supervisory entity? Or, maybe, it will be a peer-to-peer system?
S.V.: It’s hard to make any conclusions basing on rumors and short statements from the NBU. However, there’s one certain fact: if it is blockchain, and the regulator grants access to the open ledger so that anyone can see what happens, there will be many of those willing to regulate it. There could be an automatic way of collecting and analyzing information in real time, and everyone, be it an auditor or a regular student, will be able to become a small cell of control. This will lead to a sort of glut at first, as everyone will be eager to test the system, to control and criticize it. But eventually, when everyone sees the system is transparent, they will realize that everything works without any participation at all.
Once I’ve been to Georgia [a former Soviet republic – ForkLog]. They had huge problems with corruption as well, and I was amazed how fast the Georgians got accustomed to the better. Today there are no queues and no one takes bribes, and it seems there had never been such thing. We could have the same. Initially, everyone will fling themselves on the public data trying to find something, or take something out, or regulate, but then they’ll see there’s nothing to regulate, and will just forget it as a nightmare. Openness of government and trust of citizens will make such systems self-governed.
That’s why I love blockchain. It uses mathematical laws to describe the rules that no dark forces can change. One cannot bribe a distributed network or a cryptoprimitive. Cryptography was created to oppose compromising.
FL: How such a system could affect the legacy banking system?
S.V.: It won’t change anything for honest and systematic banks. They’ll just have another accountancy tool, which is more transparent. However, those who are used to play tricks with customers and invent shadow schemes, they will have problems. It will be quite risky to use cryptomoney in dubious operations.
This is the chance to show your honesty, openness and sincerity. I believe that banks should stop thinking how to earn from dubious operations. They should talk to businesses and solve their routine problems. They should service not just the financial sector, but also create products and solutions for small and medium businesses. Solving such problems would open new opportunities along with bigger fees and revenues. They just have to get their A into G, develop a marketing plan, and find developers capable of creating useful apps. If there’s no such an opportunity, they shouldn’t be afraid of letting their customers individually automatize governance via open APIs. It’s not Attic Lab’s know-how, it’s the spirit of the time we’re living in.
FL: In any case, old models are fading away. Banks will have to change, and change their business models. Ignoring it is a both futile and short-sighted approach. Do you agree with that?
S.V.: Frankly, I was amazed and amused with the term of ‘self-liquidation of a bank.’ I assume the banks are starting to realize it is impossible to make money as usual in the new reality. Of course, there are certain political aspects, but the fact remains: banks that don’t want to change will kick the bucket.
Only the strongest will survive and it will be those who have given a good account of themselves in the financial sector, and who can service financial requirements of big businesses. Or it will be the fastest, the ones able to offer the end user with modern services. Nobody wants to spend their time in lines or chat with a grumpy clerk. Consumers will choose the fast and remote services, so digital banking is the only option for a retail bank. Everything else is the thing of the past.
That’s why Ukraine desperately needs the opportunity of remote customer identification. Currently there’s a legal restriction specifying that a customer may be identified only at the bank’s office. Yet, as far as I know from open sources, the NBU is implementing what is called BankID, a rather advanced procedure of remote identification. The innovation would hardly solve the existing problems, but it will be a great breakthrough nonetheless.
FL: What macroeconomic effect could blockchain-based e-money have on the entire nation?
S.V.: I’m not sure I can give an accurate answer to this. It’s rather a question economists and financial experts. I know of a research in the UK which insists that nationwide deployment of cryptocurrencies could increase GDP by 3 per cent. I can neither confirm nor deny such statements, yet I know one thing for sure: it won’t be any worse. It can and has to become better, but not worse.
FL: We want to congratulate Attic Lab on becoming a nominee for Payspace Magazine Awards. What does this nomination mean for you and your company?
S.V.: Thanks! This is very important for our team for sure, yet for now it’s only about some interest towards a new and promising trend, not a cause to celebrate. We’ll have our champagne when people start using crypto money to solve their problems, and the word ‘blockchain’ becomes as plain and routine as ‘database’ or ‘internet.’
As a developer and CEO, sometimes I feel afraid of how enthusiastically and fast we move towards the unknown. It may sound pretentious, but now we’re more interested in social value of the matter, not its financial side. The greatest award of them all for us is social and governmental support of our mission.
Sergei Vasilchiuk was interviewed by Andrew Asmakov