Expert interviews

Expert interviews

PwC FinTech expert: Tokenization will enable millennials to invest in what interests them

by Blocks99

2 months ago

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 PwC Head of Blockchain EMEA 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

Yeah, very simple. I mean back then I said basically, digital is going to be so important. It’s going to take over the analog. We’re going to see bionics – machines becoming human – robots, AI, all that stuff. But at the same time, questions arise about how society handle it – what does it mean to be human? What does it mean to society to have families? We’re replacing parts of the body, we’re augmenting our capabilities, we’re basically going to implant chips. So, that was my big picture, where our society is heading.

Blocks99

That’s fascinating – you were thinking about this in 1999.

Daniel

I was at university, researching. This was a new field, 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 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 dialogue. So what are the limits of cyborgization? OK, there was a discussion at the Olympic Games – if you have artificial legs, you cannot run with the others because you’ll be much faster. That was the end of the discussion.

But in the future, you’ll have micro stuff implanted – micro grids, nanotechnology. So that’s going to be increasingly difficult. We still 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 ridiculous.

We need to teach children in school how to critically embrace technology. Not to be blind, open your arms and say, “Throw anything at me,” but also not to be a Luddite who says, “Any technology is shit, I don’t like it.” If your hip is not working, I’d replace it of course. But then, maybe I’m not allowed to participate in a golf tournament because my hip is enhanced and I can hit the ball 50 meters further and all my competitors will be pissed off, and go “He has a fake hip. He has a golf hip.” Now, I’m just fantasizing. Doesn’t exist. Yet.

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

Yeah, I love it. It’s better than ever now, right?

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

We wrote an anonymous paper about two years ago calling for a Swiss Crypto Franc, and 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 do you launch it, right? And our suggestion was to actually build a Swiss blockchain, a government blockchain, where every canton – we have 26 cantons – by law has to run at least one node. So you would create a 26-node blockchain that is called Swiss blockchain and then the Swiss national bank could issue their Swiss franc, e-Franc, on that node.

Now everyone calls for it, and the EU will probably think about it. I think it’s not that dramatic. And me, I’m not even that enthusiastic about it because it’s not going to change that much, whether you pay with a euro or with a crypto euro issued by a central bank, it’s still probably a euro and they will make sure it’s not volatile. What’s more interesting, of course, is the efficiency gains. In my talk, I referred to the Central Bank of England that looked at clearing settlement of the pound, which costs them around 250 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, 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. But I think the time has come to really radically think if we need to build this all from scratch and then blockchain 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 PwC.

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 as PwC, were tech agnostic, so we operate on any blockchain.

Our audit assurance people audit blockchains, which I think in the future is going to be an important thing because it’s trustless. But it’s only trustless once the protocol is out there. But if the protocol is faulty, and we’ve seen this in incidents, right? If there’s a bug, then the whole thing crumbles. And of course, auditors and assurance people can make sure it’s all fair and square. And then in tokenization, right? I mean, doing a token is easy. We can do this in a couple of 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. So 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, 40,000 nodes, do I really have to go through every single node and check whether they run the protocol? Probably not. Probably I can automate that. So we’ll need fewer people to do the audit but more specialized people.

So we’ll see new skill sets and also maybe some jobs will just go away because, in a blockchain, you have zero need to make sure what they have in their ledger is the same on this ledger, because that’s what a blockchain does. The so-called “reconciliation” where auditors have to reconcile five different ledgers from five different IT systems – that goes away, which has implications on a workforce of 260,000 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 all these things. It will make our 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 or too expensive. On the other hand, I think what’s really exciting is that you can create whole new products that we haven’t even thought of. I mean, think music rights – it’s a typical example. You can tokenize music rights, put them on a blockchain. And if I think of millennials,

they like to passionately invest. They don’t want to have stocks from Standard & Poor’s and NASDAQ indices – that doesn’t mean anything to them. They probably want to invest in sustainability. They have passions for 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 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 stupid shares of companies I don’t even know. I want to invest in a musician. I like this musician, she makes amazing sounds, 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 are a good way of crowdfunding.

Blocks99

Are there any tokenization projects coming out of Switzerland that you are excited about?

Daniel 

There are many, but I can’t really talk about them because those I know well are clients. 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 in presentations. There is no data provider. I can go to the Internet and Google, “What’s the price of this?” but we need a kind of the Bloomberg, 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 that are legal, regulated, that do a normal job. Today we have the problem of the, I don’t know, 800 crypto exchanges. Some of them are known to be a fraud. So it’s the infrastructure we’re waiting for. And that will, I think, take two years, maybe three. Then, once the infrastructure is there and stable, you will see all these 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 the established banks can operate with that infrastructure.

Blocks99

You are a co-founder of the Crypto Valley Association, right?

Daniel

Yeah, we actually built that on request of the government. Because Zug became known as crypto-friendly or blockchain-friendly after Ethereum moved there. So they had a lot of startups just coming over, and what they usually do, startups, before they come, they phone, they want to talk to someone. In the economic development department of the canton of Zug, they had calls every day. And then people came from Asia and they wanted to get a visit, they wanted a guide to show them around and see where they can get an office installed.

So the government approached us in the community and said, ‘Can’t you please build a nonprofit association that takes care of all these people?” So we created the CVA, Crypto Valley Association. And now the Crypto Valley has grown – it’s 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 regulations. Because any startup wants to know if the business model is allowed here. So the Crypto Valley Association, from the beginning, was a regulatory working group. There’s now also the Swiss Blockchain Federation, which is kind of a more official, Swiss-wide blockchain association.

We also do lobbying, to make sure new laws don’t negatively impact the blockchain ecosystem. Tax rulings are another important topic. There’s a big difference if you’re a Bitcoin day trader or run a charity organization, say, a blockchain-for-good focusing in Africa. So, you need to tax them differently. The next thing, and with that, we’re struggling, is the immigration part. Many of these startups that say, “We’ve got a global team: two people from Vietnam, two from Thailand, someone from the Middle East.” And we have still restrictions on immigration here. So that makes work quite difficult. But there’s usually a way to get around it. And in the association, we provide guidance: talking to a lawyer, how to get the team to Switzerland if they need to be here.

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, Estonia. So there’s a lot happening. And I think it’s 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 something.

But what the most countries in the Middle East are lacking is this local homegrown ecosystem. Because startups are highly mobile and 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 waiting until the ecosystem builds around you. Same in Africa. Africa’s ecosystems are very fragmented. Each country might have its own blockchain association. But Africa is a huge continent, so countries in the north probably don’t know what countries in the south are doing. And vice versa.

Blocks99

Excellent. Well, that brings us to the end of the prepared questions. Is there anything you’d like to add?

Daniel

I think Asia is amazingly interesting for blockchain development. Just look at the demographics – the future will be in Asia. It will be very interesting to see how it develops there, and if you look at the infrastructure built with WeChat line, Cao Cao, Alipay – in Europe, we look over and say, “Wow, this is scaling big!” And that’s also why we need to build the bridges between Europe and Asia.

From a European perspective, it’s also interesting to note that – from my observations here in Switzerland – Asian startups are often harder-working and less demanding when it comes to amenities. Asians are happy to work long hours and drink instant – I don’t think Jack Ma’s first investment was a fancy original Italian espresso machine.

Blocks99

Thank you so much!

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