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Tomorrow's money is decentralised - Interview with Frank Schwab.

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The monetary system and the payment system as we know and use it today dates back to the 19th and 20th centuries. Are blockchain technology and cryptocurrencies the future of money or just a big bubble? In the following interview, you will learn from Frank Schwab why the money of the future is decentralised.

Mr Schwab, before we get into the topic, tell us something about your career so far and especially how and why you got into the world of cryptocurrencies?

Frank Schwab: I trained as a banker 32 years ago and then studied business informatics, but have remained loyal to banking for 32 years now and, among other things, was at Deutsche Bank for 21 years and implemented the Yahoo Deutsche Bank 24 credit card there in 2001, for example. In principle, that was already a digital currency with which you could pay at the first online shops. In 2010, I started my own business and worked as a consultant for banks when it came to transformation and change. In the same year, I joined Fidor Bank, which is also where I first came into contact with cryptocurrencies and blockchain.

How would you explain Bitcoin to someone in a short and simple way? Why are the blockchain and Bitcoin really a revolution?

Frank Schwab: The monetary system and the payment system we know and use it today dates back to the 19th and 20th centuries. The payment processes were never built for this digital world as we experience it today. And that is completely different with a Bitcoin: The Bitcoin was only built for this world and that is already a significant difference in handling. The other thing is the transaction fees. They are very different in an international comparison, depending on whether you pay with your credit card, by bank transfer, etc. The fact that the Bitcoin is ultimately a private matter is also important, that the Bitcoin is private money or a private digital asset. With Bitcoin, there is neither a state nor a bank nor a central bank behind it, but only this open-source software. And all those involved who make this Bitcoin network available and who believe that Bitcoin is a digital asset for the digital world.

In any case, the regulators are having a hard time classifying it. Is Bitcoin an asset, a currency? How would you actually classify Bitcoin?

Frank Schwab: First of all, there is the traditional, so at the very end, money is what two parties who want to exchange value accept as payment. And if there are two people who say okay, Bitcoin is good for me, then for those two people it is exactly a medium of exchange. Traditionally, there are three criteria with which you can define money: Is it good as a unit of account? You can do that with bitcoin, but not very easily. For example, a car costs 1 or 2 Bitcoins, a bread roll is a zero with several decimal places, but somewhat inconvenient in everyday life. The other thing is service as a payment transaction. So Bitcoin is totally easy to transfer from A to B if you have a corresponding app - for the digital natives that's no problem. And then you also get over the store of value. Bitcoin is admittedly insanely volatile seen in its very large fluctuations in value, but it's not like gold doesn't have fluctuations and it's already somehow comparable to gold. So all in all, I would say that bitcoin fulfils all three requirements for money, and many cryptocurrencies do. But there is another capability that money traditionally does not have, whereas bitcoin or other cryptocurrencies do. Many cryptocurrencies have the property that they are also programmable. As an example, you could trigger certain payments depending on the published profit, for example, or you could think of a currency for people under 18 that they can use to buy everything except alcohol, etc. That's what ultimately makes cryptocurrencies potential currencies. And that was the question: is it money, what makes it potential money? But we also have to somehow take into account how young this concept and these thoughts are. The general public has only been talking about it for five or six years, if at all.

In your book you describe an analogy to the automobile. Here, the skepticism was so great at the very beginning that people had to walk with flags next to the moving cars.

Frank Schwab: That's the way it is when it comes to innovation. At the beginning, you don't know exactly what you have and where it will lead. In the end, however, it is not relevant for the masses how it is technically, but rather the question: What benefit does this kind of money bring? But at the moment when it is useful for a certain group, there is a very high probability that it will be used.

We established earlier that money is trust. Why should I trust the blockchain and no longer a central authority such as a central bank or commercial bank or the state?

Frank Schwab: I'll try to explain it another way. Why do we believe that the plane will land? Why do we get on a plane? Ordinary mortals don't understand why these many tonnes of steel are flying in the air, nor do the majority understand how such a plane actually works. I can imagine a little bit, but honestly, I don't know. Why do I get on anyway? Because I've seen enough others get off. And when I flew the third time myself, the fear of flying also disappeared, simply because of the repeated positive experience. And then I just have to trust the people who fly such a plane. Comparing the blockchain to a digital land register or a digital cash register is a very good comparison, because every cash entry is recorded. For example - and this is what distinguishes the blockchain from everything else - I can't reverse a transaction. So once I have made a transaction, it is recorded for all eternity. And the special thing is that anyone who has a certain technical understanding can understand it. And that's a big difference from many other things. I don't know how many people there are on earth who know exactly how an airplane works and who can build and control one. Many more people could check whether what is happening in the blockchain is legal. And that is the big difference. It is also built in an open source way. This means that everyone can see the code, everyone can contribute to the code and make a contribution. If the majority of those involved find this change to be good, then it even goes into the further development of the code.

That cryptocurrencies will prevail in certain areas in the medium to long term, I am firmly convinced of that. Just like the internet has established itself. And no one turns it off any more because the benefits are so great.
Frank Schwab

We live in the euro area and have no problems when it comes to payment transactions. Other countries in Africa or South America have completely different requirements and sometimes actually use Bitcoin in their daily lives. Is our mistrust also due to the fact that we basically see no need for a new payment or money system?

Frank Schwab: Ah yes, that is certainly the case. We don't have an internet problem either. I have a 600 gigabyte line in my house, which is great. But it looks different depending on which street I'm on in Berlin. But in principle I agree: in principle everything works for us. It just doesn't work very fast. Compared to other regions in the world we just don't notice yet because we live here and not somewhere else.

A central issue with Bitcoin, but also with many other cryptocurrencies, is the argument that they have a fixed number, i.e. they cannot be multiplied, which creates price fantasy. Do you think the Bitcoin would have been such a huge story in a different central bank environment - keyword QE and negative interest rates?

Frank Schwab: No, I don't think so. But I personally believe that Bitcoin is the starting point of this development. Nobody can predict where it will end. The Bitcoin has the advantage that it is the first of its kind and is limited to 21 million. In my view, the central banks have already overslept a bit and have certainly underestimated how quickly this will happen and how quickly it will be accepted. Of course, many people are now trying to counter this with CBDC’s (Central Banks Digital Currency).

What role does the topic of inflation and central banks play in the adoption of cryptocurrency by the general population?

Frank Schwab: The only role of central banks is to have the monetary value of a currency stable and that is not an easy task. It looks like they will have a very difficult time over the next five years to fulfil this task. If it doesn't succeed, suddenly not only the super-rich who could try it out, but a whole other breadth of society is thinking about alternatives. And then we go back to the airplane. Similar to when the Telekom shares were issued and droves of new investors flocked to the market, the experience of these people will matter this time too. If the IPO had been done five years earlier and all people had had a positive experience, we would have a very different culture in Germany. That's why this time, too, experience will be very decisive. And if cryptocurrencies manage to generate a certain stability over a period of time compared to traditional fiat currencies, then it could go the other way this time.

Sure, you can ban all that now. You can also ban alcohol burning. Technically, it's just that people can still do it, regardless of whether it's banned or not. If anyone believes that this will go away, then I would say they are thinking strangely.

Let's assume that inflation remains at a high level in the long term and an increasingly broad mass invests in Bitcoin. We all have smartphones. I have cryptos in my wallet, you also have a wallet and we are now doing business with each other and we don't have to ask anyone else. Will the success of cryptocurrencies become their undoing, after all, it could also become a threat to central banks if we all really start being our own bank?

That certainly won't happen in the next 5 or 10 years. The future is hybrid. And what the long future will bring then, I don't know either. That cryptocurrencies will prevail in certain areas in the medium to long term, I am firmly convinced of that. Just like the internet has established itself. And no one turns it off any more because the benefits are so great. Why should the state be afraid of it now? In the end, it's about whether we pay taxes or not. It doesn't matter how we do it.

At this point, can you give us a few practical use cases where cryptos are superior to the current system? What can we expect in the future?

Frank Schwab: One of my favourite examples is social media, the Facebook and Instagram business models. At the end of the day, we put all our content in there and Facebook makes money out of it through advertising, and disproportionately so. It's quite an achievement that Facebook provides such a platform. That should also be paid for. But the point is: Facebook is more or less Facebook. The people who have millions of followers are the only ones who have a benefit here. And even they have a problem, of course, if Facebook blocks their account. Then their business model no longer works. This could also be organised in a blockchain-based and decentralised way. In open source, models that are built decentrally on many computers, the reader pays the content creator with a cryptocurrency and the platform also gets a small share - a fair model.

Another example is machine-to-machine payments, where an electric car pays for charging and parking with its own wallet. This is exactly what today's banking system was not built for, but cryptocurrencies were.

Henry Ford and Thomas Edison said a long time ago that the only fair currency - if you want to create one - must be based on energy. The bottom line is that bitcoin is "backed by energy". After all, the store of value is created by the fact that a lot of energy is needed to solve cryptographic tasks using special computers. What is your opinion of Bitcoin and the often criticised energy consumption? Contrary to popular opinion, can mining even make a positive contribution in the future?

Frank Schwab: That Bitcoin consumes a lot of energy, that's obvious. But what kind of energy does it consume? At the moment, the miners and those who validate the transaction by generating new coins naturally seek out the cheapest electricity. And that's partly nuclear, partly lignite (coal), if no one else is burning it and it can be mined quite cheaply. But it is also increasingly hydropower, geothermal energy, wind power and solar energy.

If I can produce energy very, very cheaply, so to speak, then that is the highest motivation for Bitcoin miners to use it. And it is very likely that in a few years' time people will be generating and using green energy as much as possible, because that is quite simply the cheapest thing to do.

Somehow, therefore, this discussion is a bit strange. The fact that we have to say goodbye to the fossil age has hopefully been understood by everyone by now, and from that point of view I don't see the problem. I'm not saying that bitcoin is the solution. The solution is that we only use renewable energies in the future. Preferably water, wind and solar power. As long as that's not possible, maybe nuclear energy isn't the worst thing after all. And whether cryptocurrency will then help to accelerate this process? Maybe. But to talk things down now because mining uses a certain energy, I find that somehow difficult.

Thank you very much for the interview, Mr Schwab!

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