Behind the Scenes of Blockchain and Crypto
By Bill Hortz
Recent advancements and current developments are vastly accelerating the transformative potential of blockchain technology. Imagine a future where crypto meets cash; where blockchain is driven by strong regulation, preventive security, verified identity and a seamless customer experience. This will scale the uses of digital assets and cryptocurrencies into everyday financial services and global economic activities.
It represents a complete transformation in all the incumbent technology in the banking and payments world and there is no going backward. For the first time in history, we have universal transparent ledgers that are unalterable, that any customer in the world can access. It is an important moment for banking and payments. The idea that a government can ban or say, “Let's just stop this blockchain and cryptocurrency thing”. It is like saying, hey, let's stop the internet. You cannot. So, the big question is how do you shape it in the right direction?
To better understand where we are and where we are going in blockchain development, and get beyond the hype and the noise, we were introduced to Marshall Hayner, CEO of Metallicus – a San Francisco-based FinTech company building the world’s most customer-centric, digital asset banking network supporting retail and corporate clients by providing global access between traditional banking and digital assets. Marshall has been actively involved in the forefront of blockchain technology development for 14 years and gave us a behind-the-scenes view on what is currently happening in this fast-changing space and how it will lead to building a better global financial system.
Practical Benefits of Blockchain
According to Hayner, some of the practical benefits of blockchain that makes payments and banking more secure is that the information on our credit cards and accounts will not give account access like we have today. Everything will be digital and on secure blockchain digital ledgers.
Currently, for example, credit card information, such as the 16 digits and the bank identification number, the expiration, the security code on the back, provides the ability to charge that card. But that is not the case in cryptocurrency. If you have the zip Bitcoin address, you cannot pull money out of that address.
The development of centralized identity and permission systems to further evolve blockchain, has removed the risk oflosing digital assets or having it compromised. The identity systems, capabilities and permissions will be able toprevent hacking. Hayner predicts that the decentralized identity of the digital asset holder is going to give way to all the compliance, tooling and tech to build even better payments and banking systems than we have had in the past.
The stumbling blocks
Cryptocurrency has allowed open transactions and cross-border payments that have, as Hayner puts it, been “a Pandora's box of innovation” because it has allowed a lot of bad players and unscrupulous actors to try and hide under the guise of decentralization to manipulate and cause problems.
According to Hayner, the future of blockchain is a more regulated space, where it will eventually replicate a lot of the traditional financial systems around AML controls, identity, OFAC controls, everything that you see in the modern payments world, whether it's Visa, MasterCard, Bank of America or other international banks. They all follow very similar frameworks.
Now blockchain is entering into the next generation of cryptocurrency that is going to begin to focus on the open protocols for identity, for track and trade, anti-money laundering. These were things that were not popular discussions in the blockchain developer community 5 to 10 years ago. But blockchain and crypto are evolving and companies like Hayner’s are no longer afraid of building decentralized identity and anti-money laundering technology into blockchains in open and transparent ways.
However, Hayner emphasized that we should not recreate the walled gardens of the systems of the past, but should be coming together as an industry thinking about these open standards and how they apply to all blockchains; how we connect those standards to become a stronger industry, to fix the problems that existed in banking and make it better. We do have to embrace regulation and stop infighting between blockchains and recognize that the true enemies are those bad players like Sam Bankman Fried of FTX who abuse the financial system.
Building Blockchain Platforms Collaboratively
Hayner explains that the two major blockchain offerings that Metallicus has built are an open community where you have other developers coming in and building on it. You have what they call DAO-driven governance which is decentralized and stands for Decentralized Autonomous Organizations. So, they have multiple individuals or companies working on the blockchain platform and technology, and they are all contributing to the governance and the shape of the chain. But they are also building their companies into the blockchain through the technology and by also contributing to the open-source elements and community development.
So blockchains are really multi-firm teams working together to address common interests in fixing and enhancing global payment systems.
The future of blockchain and crypto
According to Hayner, every cryptocurrency company is going to ultimately have to be partnered with a bank. Banks are going to start to get into crypto, crypto custodians are going to start to become banks, and banks are going to start to buy crypto custodians. Hayner says we are beginning to see this phenomenon now, which is an interesting time in crypto.
In the future cryptocurrency exchanges will have to prove both their reserves and also their liability. Hayner believes that banks power our economies but the integration of blockchain technology will create better, faster, more secure, transparent payment systems. We can expect better compliance because for the first time, we are going to have complete records between all institutions of the different types of activities that are happening. The end result will be a reduction in fees, a better experience for small business, for entrepreneurs, and ultimately for consumers as businesses give more rewards back to their customers.
Hayner says that they have received a lot of pushback from other industry players that do not want increased regulation and safeguards but he believes that this is the way forward for cryptocurrency. He predicts a little bit of growing painsduring this period because cryptocurrency has given rise to a lot of these bad players and over the last year we have seen a number of them fall apart. But according to him, the answer is compliance and regulation, but then also integrating it with the technology and the industry coming together.