PwC Strategy& FinTech expert: Tokenization will enable millennials to invest in what matters to them
Award-winning futurist author Daniel Diemers talks about cyborgs and humans, new financial services like tokenization, blockchain regulation and developments in mature and emerging markets.
Daniel Diemers studied economics at the University of St. Gallen HSG and has a PhD in “Virtual Communities.” In 1997 he won the European Honeywell Futurist Award and his book “Virtual Triad: Cyberspace, Cyborgs and Artificial Intelligence” was published in 2002.
As an entrepreneur and founder, he worked in the field of Internet-based early warning systems. Since 2005, he has been advising banks, corporates and regulators across Europe and the Middle East on strategy, digitization, FinTech and distributed ledger technology (DLT). He also acts as the Head of Blockchain EMEA (Europe, the Middle East and Africa) at Strategy&, the global strategy consulting team at PwC, and works closely on topics such as blockchain, crypto and tokenization.
Daniel is co-founder of the Swiss Finance + Technology Association and Crypto Valley Association, member of fintechrockers.com, angel investor and is closely associated with the international FinTech and blockchain community. Blocks99 had the pleasure of speaking with Daniel at the Singularity Exponential Finance Summit in Zurich, Switzerland, in November 2019.
Blocks99
Your book, “Virtual Triad, Cyberspace, Cyborgs and Artificial Intelligence,” won the European Honeywell Futurist Award in 1997. Could you sum up its main hypothesis?
Daniel
Back then I already said, digital is going to be so important. I said, that it’s going to take over the analog. I also said, that we’re going to see bionics – machines becoming human – robots, AI, all that stuff. But at the same time, I pointed out that questions arise: How will society be able to handle it? What will it mean to be human? What will it mean to society, to families? We’re replacing parts of the body, we’re augmenting our capabilities, we’re basically going to implant chips and make us constantly better. So, that was my big picture theme, the question of where our society is heading with all that tech stuff.
Blocks99
That’s fascinating – you were thinking about this in 1997.
Daniel
I was at university, researching. This was a new field, we called it cyberspace, internet. I was very fascinated with what technology will do to us, to the body, to interactions, to relationships, basically to the world. Not just to financial services – it’s much broader.
Blocks99
What is your view on how technology impacts growth in society? Has it changed over the 20 years since writing your book?
Daniel
I haven’t seen much change honestly. And I think what we’re lacking is broader dialogue. So what are the limits of cyborgization? Okay, there was for example a discussion at the Olympic Games about athletes who have artificial legs and cannot run with the others because they’ll be much faster. That was the end of the discussion.
But in the future, you’ll have micro stuff implanted such as enhanced organs or nanotechnology. So that’s going to be increasingly difficult. We still hold on to this idea in sports that a human is a human and there’s no augmentation. But in probably five to ten years, that’s going to sound increasingly ridiculous.
In my opinion, we need to teach children in school how to critically embrace technology. We shouldn’t be to blind, open your arms and say, “throw anything at me,” but also not be saying thatany technology is bad and wedon’t like it.”
Blocks99
It’s an interesting point that the resistance tends to crumble in the moment where you see a personal advantage. I have a piece of titanium in my knee.
Daniel
Great, I love it. It’s better than ever now, right? And definitely more durable than bone structure.
Blocks99
Well, I’ve run four marathons with it. But returning to your academic work and publishing, you published an article recently, “Banking in 2050 – a look into the future” you forecast a “Swiss Crypto Franc.” The Association of German Banks has recently called for a digital euro and Tunisia has officially launched the e-dinar. Please share your thoughts on CBDCs and what they could mean for decentralized cryptocurrencies.
Daniel
The “Fintechrockers” Switzerland wrote an anonymous paper about two years ago calling for a Swiss Crypto Franc. The idea of that paper was not just for the central bank to launch it -that’s fairly easily done. The main question is on which blockchain you should launch it, right? And the suggestion was to actually build a Swiss government blockchain, where every of the 26 cantons has to run at least one node by law. So, you would create a 26-node blockchain that is called Swiss blockchain and then the Swiss national bank could issue their Swiss Crypto Francon that node.
Nowadays everyone calls for it, and the European Union will probably think about it too. I think it’s not that dramatic. I’m not even that enthusiastic about it because it’s not going to change that much. Whether you pay with an Euro or with a crypto Euro issued by a central bank, it’s still corresponds to an Euro and they will make sure it’s not volatile. What’s more interesting is the efficiency gains. In my talk, I referred to a European Central Bank that looked at the clearing and settlement of the pound, which costs them around 250 to300 million a year. With blockchain technology, you can reduce that to probably 10, 20 million, right? And just because of that, I would do it.
My core belief is that our financial system is built on very old technology – all new hardware, but old software. Some of the software code was written 20 to 30 years ago. There has never been enough pressure to just wipe it out and code it new, so we’re always building layers on top of layers and software on top of software. I think the time has come to really radically think if we need to build this all from scratch. Then blockchain will make sense and will be embedded – not everywhere, but there will be interesting use cases. Just managing cash in the future will become very cumbersome for banks. And in some countries like Sweden, I think you can’t ride public transport anymore with cash, you need to pay cashless.
Blocks99
I wonder if you could talk a little bit about the blockchain activities at Strategy&.
Daniel
We have a Global Head of Blockchain, Steve Davis. I’m responsible for the EMEA region – Europe, Middle East, Africa. In the Middle East and Africa we see, unfortunately, not as many projects happening as in Europe or Asia. And, of course, as Strategy&, were tech provider agnostic, so we work and operate on any blockchain.
PwC’s audit assurance people audit blockchains, which I think in the future, is going to be an important thing as the public opinion is often that blockchain is trustless, but it helps if someone trustful confirms that it works. It’s only trustless once the protocol is out there. If the protocol is faulty, if there’s a bug, then the whole thing crumblesOf course, auditors and assurance experts can make sure it’s all fair and square. And then think tokenization, right? I mean, doing a token is easy. We can do this in a couple of hours, days. But then you need the whole system around it. And if there’s gold backing a token, someone needs to make sure the gold is really in the vault and is legally accessible, that there are no other claims on that gold, etc. I think that’s going to be one of the focus areas for PwC in the coming three to five years.
Blocks99
How do see the trend affecting the accounting and auditing industry in general?
Daniel
It’s a skill game. But then again, how many people do you need to audit a blockchain? Once I know the protocol is good, and it’s rolled out on, let’s say, 10,000 nodes, do I really have to go through every single node and check whether they run the protocol? Probably not. Likely I can automate that. So, we’ll need fewer people to do audits but more specialized and tech-savvy people.
We’ll see new skill sets and also maybe some jobs will just go away because, in a blockchain, you have no need to make sure what A has on their ledger is the same as on B’s ledger, because that’s basically what the blockchain does. The so-called “reconciliation” where auditors have to reconcile five different ledgers from five different IT systems – that work goes increasingly away, which will likely have implications on a workforce of more than 200,000 people around the world.
Blocks99
You touched on tokenization. I wonder if you could talk about how you see tokenization in the future.
Daniel
I think there are going to be different strands. Classic bankers and asset managers want to tokenize shares, bonds and similar financial instruments. It will make our classic financial services more efficient, take down the costs and make transactions easier. Fractional ownership will be possible. You can give people access to certain asset classes that today are just too cumbersome to transfer or too expensive. Exciting as well is that you can create whole new products that we haven’t even thought of. Future music rights are a typical example. You can tokenize music rights and put them on a blockchain. Millennials don’t want to have stocks from the Standard & Poor’s and NASDAQ indices – that doesn’t mean anything to them. They like to passionately invest. They probably also want to invest in sustainability. They have passions for architecture, nice buildings or cars or art, and they say: “I want to invest in art, but I can’t afford a million for a painting. I have just 100 bucks, what can you give me for that?” Today, the art dealer would say: “Well, for 100 I can sell you a book about Picasso.” But in the future, you will be able to buy fractional ownership of famous and new painters, and that’s going to open a whole new avenue in financial services for the next generation. They’ll say, “Stop hitting me with your boring equity shares of big companies I don’t even know. I want to invest in a musician. I like this musician, she makes amazing music, I want to invest in the royalties she’s going to make in the future.” As a student, you’re usually cash-stripped, and then later you work and get more and more cash. If you’re a good and bright student, why can’t you say, “I’m putting a token on my future earnings. If you really believe in me, buy my tokens, and I’m going to pay you back from my first two years of salary.”? STOs can be a good way of crowdfunding.
Blocks99
Are there any tokenization projects coming out of Switzerland that you are excited about?
DD
There are many, but I can’t really talk about them in detail. What I can talk about is the infrastructure for the tokenization. We have a couple of projects that are now delayed because the different exchanges that want to trade tokens are also delayed. So there’s this lack of infrastructure and that’s the point I often highlight. There is no reliable data provider. I can go to the Internet and Google and ask for a price. We need a kind of the Bloomberg or Reuters service for crypto. We need price points, reliable data, that I can get through an API that I pay for.
But to set a price, I need a network of exchanges and brokers that are legal, regulated, and do just their normal job, finding prices in the market and providing liquidity. Today, we have the problem that some of the presumably more than 800 crypto exchanges are known and proven to be a fraud. So, it’s the infrastructure layer we’re all waiting for. And that will, I think, take a minimum of another two years, maybe three. Then, once the infrastructure is there and stable, you will see all these STO projects basically go crazy. And that’s going to be the exciting part because then you can build actual companies and startups and use cases and then also established banks and investment houses can operate on that infrastructure.
Blocks99
You are a co-founder of the Crypto Valley Association, right?
Daniel
I was very enthousiastic about it, we actually created that on request of the cantonal government. Zug became known as blockchain-friendly after Ethereum moved here. Therefore we had a lot of startups just coming over, and what they usually do, before they come, phone or email – they want to talk to someone. The economic development department of the canton of Zug received various calls every week. Then people came from Asia and other far away places to Zug and they particularly wanted was to get a guide or advisor to show them around and see where they can get an office installed.
So the government approached us in the community and basically asked us to build a nonprofit association to address this demand.So, we got together 10 or 15 people from the ecosystem and created the CVA, the Crypto Valley Association, as a non-profit association. Now, the Crypto Valley has grown – it’s of course not just Zug anymore, but also Geneva, Ticino and Zurich.
Blocks99
You mentioned finding office space is a service people are looking for. Maybe you could just tell us a few more things startups need that the association can provide?
Daniel
They are very interested in the legal framework and the Swiss regulations. Any startup wants to know if their business model is allowed and if it’s working here. So, the Crypto Valley Association, from the beginning, also had a regulatory working group. There’s now also the Swiss Blockchain Federation, which is more official and blending academia as well as politicians with the blockchain ecosystem. We are a true Swiss-wide blockchain association. Besides, we also do lobbying to make sure new laws don’t negatively impact the blockchain ecosystem. Tax rulings are another important topic. In matters of taxation there’s a big difference if you’re a Bitcoin day trader or run a charity organization, say, a blockchain-for-good focusing on Africa.
Another difficult part is to get the teams to Switzerland if they need to be here physically. Many of these startups got a global team with people from all over the world. The Swiss immigration process is complex and involves multiple government authorities. In the association, we provide guidance as far as possible. . Ideally, we would need a Blockchain-visa for specialists from around the world.
Blocks99
You touched on this. You’re responsible for advising banks, corporates and regulators in Europe, but also in the Middle East and Africa on blockchain, crypto and tokenization – probably among other things. Could you compare the regions?
Daniel
Europe has the most depth in terms of development. Sweden has been working on the e-Krona since 2016. Germany has a very large blockchain ecosystem in Berlin. And Lithuania and Estonia are ahead looking at implemented projects. So there’s a lot happening. And I think Europe is quite a good space to build your blockchain business. If you choose an EU country, you have the advantage of passporting options. The Middle East is more visionary and sometimes bolder, and there’s often a lot of government support for that. In Europe, we often have the attitude that it’s not the government’s job to innovate. In the Middle East, you see a lot of the push coming from the governments and sovereign wealth funds, and that can help if you want to kickstart a tech ecosystem.
What the most countries in the Middle East are lacking is this larger, local homegrown tech startup ecosystem. Startups are highly mobile, talent is highly mobile and if you’re young and want to work in the blockchain space, you’re happy to travel to any other city. You’re not staying at home and wait until the ecosystem builds around you. The same goes for Africa. Africa’s ecosystems are very fragmented. Almost every African country has its own blockchain association by now. But collaboration across countries is limited. Plus, many startups are “run” out of Western countries, say France or the US. I’d like to see more locally embedded startups and more cross-country collaboration. Africa is such a huge continent, so countries in the north probably don’t know what countries in the south are doingand vice versa.
Blocks99
Excellent. Well, that brings us to the end of the prepared questions. Is there anything you’d like to add?
Daniel
We haven’t spoken about Asia. I think Asia is amazingly interesting for blockchain development. Just look at the demographics – the future will definitely be in Asia. It will be very interesting to see how the technology develops there, and if you look at the platform opportunities there with WeChat,Line, Kakao, Alipay – even the smaller platforms easily field more than 200 Million active users. In Europe, we look over to Asia and say, “wow, this is scaling big!”, while we celebrate startups with 2 or 3 Million users. And that’s exactly also why we need to build the bridges between Europe and Asia. We may have some good ideas here, but the market is in Asia.
From a European perspective, it’s also interesting to note that Asian startups are often harder-working and less demanding when it comes to workplace perks. It may be a stereotype, but I’ve observed it repeatedly: compared to European Startups, Asian entrepreneur are putting in harder work, longer hours and, for example, drink instant coffee in the morning, rushing to work. – I don’t think Jack Ma’s first investment as an entrepreneur was a fancy original Italian espresso machine.
Blocks99
Thank you so much!
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