1
00:00:00,880 --> 00:00:03,250
The following content is
provided under a Creative

2
00:00:03,250 --> 00:00:04,640
Commons license.

3
00:00:04,640 --> 00:00:06,850
Your support will help
MIT OpenCourseWare

4
00:00:06,850 --> 00:00:10,940
continue to offer high quality
educational resources for free.

5
00:00:10,940 --> 00:00:13,510
To make a donation or to
view additional materials

6
00:00:13,510 --> 00:00:17,470
from hundreds of MIT courses,
visit MIT OpenCourseWare

7
00:00:17,470 --> 00:00:18,363
at ocw.mit.edu.

8
00:00:23,190 --> 00:00:25,410
GARY GENSLER: So
payments part two

9
00:00:25,410 --> 00:00:29,640
we're going to chat a little
bit about the overview today.

10
00:00:29,640 --> 00:00:32,130
Readings, of course
as we always do.

11
00:00:32,130 --> 00:00:34,830
And then what was yesterday?

12
00:00:34,830 --> 00:00:37,900
Does anybody want to tell
me what yesterday was?

13
00:00:37,900 --> 00:00:39,206
Kelly?

14
00:00:39,206 --> 00:00:40,580
AUDIENCE: The 10th anniversary.

15
00:00:40,580 --> 00:00:42,330
GARY GENSLER: 10th
anniversary of bitcoin.

16
00:00:44,710 --> 00:00:46,760
What else was yesterday?

17
00:00:46,760 --> 00:00:48,470
It was Halloween.

18
00:00:48,470 --> 00:00:50,780
No, it is not my birthday again.

19
00:00:50,780 --> 00:00:52,910
Stop that, Tom.

20
00:00:52,910 --> 00:00:55,190
So we're going to
chat a little bit,

21
00:00:55,190 --> 00:00:57,800
we're going to have some
fun about happy anniversary

22
00:00:57,800 --> 00:00:59,000
or birthday.

23
00:00:59,000 --> 00:01:02,390
Would you call it a
birthday or anniversary?

24
00:01:02,390 --> 00:01:03,360
Anniversary?

25
00:01:03,360 --> 00:01:05,570
OK.

26
00:01:05,570 --> 00:01:07,580
Birthday, all right.

27
00:01:07,580 --> 00:01:09,770
There's no established
vocabulary really

28
00:01:09,770 --> 00:01:10,440
in this field.

29
00:01:10,440 --> 00:01:11,062
So--

30
00:01:11,062 --> 00:01:12,210
AUDIENCE: Birthday
comes in January.

31
00:01:12,210 --> 00:01:12,988
GARY GENSLER: What's that?

32
00:01:12,988 --> 00:01:14,780
AUDIENCE: Birthday
comes in January.

33
00:01:14,780 --> 00:01:15,947
GARY GENSLER: The birthday--

34
00:01:15,947 --> 00:01:17,720
Hugo, why's the birthday
come in January?

35
00:01:17,720 --> 00:01:19,510
AUDIENCE: Birthday
marks [INAUDIBLE]..

36
00:01:19,510 --> 00:01:22,920
So the music is [INAUDIBLE].

37
00:01:22,920 --> 00:01:24,204
GARY GENSLER: Riham?

38
00:01:24,204 --> 00:01:27,186
AUDIENCE: Birth means death
at a point in time in my mind,

39
00:01:27,186 --> 00:01:31,460
so anniversary
[INAUDIBLE] is better.

40
00:01:31,460 --> 00:01:32,630
GARY GENSLER: You got--

41
00:01:32,630 --> 00:01:34,580
did you get that?

42
00:01:34,580 --> 00:01:38,500
Birth also connotes death.

43
00:01:38,500 --> 00:01:41,480
Did I have that?

44
00:01:41,480 --> 00:01:44,980
And so Rahim was saying she
would go with anniversary.

45
00:01:44,980 --> 00:01:47,390
But we have birth over here.

46
00:01:47,390 --> 00:01:50,330
We're going to chat a little
bit about that and try--

47
00:01:50,330 --> 00:01:52,990
the existential.

48
00:01:52,990 --> 00:01:55,670
Then we're going to talk about
payment systems and the sort

49
00:01:55,670 --> 00:01:58,250
of some of the pain points.

50
00:01:58,250 --> 00:02:00,235
And we'll have a
lively discussion.

51
00:02:00,235 --> 00:02:01,610
What do you think
the pain points

52
00:02:01,610 --> 00:02:03,580
are in the payment system?

53
00:02:03,580 --> 00:02:05,360
I, of course, will
have listed some,

54
00:02:05,360 --> 00:02:08,150
but your input's
the most important.

55
00:02:08,150 --> 00:02:11,240
How does blockchain fit
into this payment system,

56
00:02:11,240 --> 00:02:15,560
and why so far haven't there
been any really economy-wide

57
00:02:15,560 --> 00:02:19,180
or system-wide adoptions yet?

58
00:02:19,180 --> 00:02:21,680
So one might even say what are
the pain points of blockchain

59
00:02:21,680 --> 00:02:24,140
technology that
there has not yet

60
00:02:24,140 --> 00:02:26,480
been some of those adoptions?

61
00:02:29,270 --> 00:02:33,530
We're going to chat a little bit
about some blockchain payment

62
00:02:33,530 --> 00:02:36,140
companies, and
there are not many.

63
00:02:36,140 --> 00:02:38,000
I mean, there are
many white papers

64
00:02:38,000 --> 00:02:41,370
but there are not many that
have actually taken off.

65
00:02:41,370 --> 00:02:43,220
And then wrap it up.

66
00:02:43,220 --> 00:02:47,540
So the study
questions which we're

67
00:02:47,540 --> 00:02:50,010
going to sort of dig into
rather than right now

68
00:02:50,010 --> 00:02:54,400
but just what
lessons can be taken.

69
00:02:54,400 --> 00:02:57,272
So for my layer two help us.

70
00:02:57,272 --> 00:02:59,480
We're going to come back to
these when we sort of dig

71
00:02:59,480 --> 00:03:01,970
into the paint points.

72
00:03:01,970 --> 00:03:05,000
What are the opportunities
in cross-border and so forth,

73
00:03:05,000 --> 00:03:06,830
and the trade offs
of using permissioned

74
00:03:06,830 --> 00:03:09,230
versus permissionless systems.

75
00:03:09,230 --> 00:03:13,250
So happy anniversary,
happy birthday

76
00:03:13,250 --> 00:03:17,030
for some, 10 years ago.

77
00:03:17,030 --> 00:03:17,900
It's remarkable.

78
00:03:17,900 --> 00:03:21,680
Actually, some people say it
was November 1st because I think

79
00:03:21,680 --> 00:03:24,590
when it actually got on
the website it was November

80
00:03:24,590 --> 00:03:25,790
1st in parts of the world.

81
00:03:28,760 --> 00:03:32,090
So what do we know about
the 10th anniversary?

82
00:03:32,090 --> 00:03:33,440
Just some fun statistics.

83
00:03:33,440 --> 00:03:35,760
This has all
happened in 10 years.

84
00:03:35,760 --> 00:03:39,600
So the price is around
$6,300 to Bitcoin out

85
00:03:39,600 --> 00:03:41,950
of nothing, Satoshi Nakamoto.

86
00:03:41,950 --> 00:03:43,955
And it's $110 billion in size.

87
00:03:46,550 --> 00:03:49,040
We might not all know
each other in 10 years,

88
00:03:49,040 --> 00:03:51,600
but write down for yourself
on a piece of paper--

89
00:03:51,600 --> 00:03:54,710
this is a real exercise I'm
asking you to do for yourself.

90
00:03:54,710 --> 00:03:57,950
Write down for yourself
and put this piece of paper

91
00:03:57,950 --> 00:03:59,720
somewhere or put
it on your laptop.

92
00:03:59,720 --> 00:04:02,240
You can put it down, where do
you think the price of Bitcoin

93
00:04:02,240 --> 00:04:05,890
will be 10 years from today
on the 20th anniversary?

94
00:04:05,890 --> 00:04:08,080
And remember this
course in 10 years,

95
00:04:08,080 --> 00:04:11,590
and look back, and
laugh at yourself.

96
00:04:11,590 --> 00:04:13,930
Just we won't all
know each other.

97
00:04:13,930 --> 00:04:18,490
Maybe there'll be
a group chat, but--

98
00:04:18,490 --> 00:04:19,242
what's that Alit?

99
00:04:19,242 --> 00:04:20,950
You don't want to
guess where it is-- you

100
00:04:20,950 --> 00:04:23,120
don't need to share it with me.

101
00:04:23,120 --> 00:04:26,350
No, no, but write down
and think about it.

102
00:04:26,350 --> 00:04:30,560
Where do you think this
will be in 10 years?

103
00:04:30,560 --> 00:04:32,488
Is this a hard question?

104
00:04:32,488 --> 00:04:35,530
[INAUDIBLE]

105
00:04:35,530 --> 00:04:37,918
Alpha, do you want to share
your number with the class?

106
00:04:37,918 --> 00:04:39,960
AUDIENCE: We're even just
debating directionally,

107
00:04:39,960 --> 00:04:42,410
it's really going to
be higher or lower.

108
00:04:42,410 --> 00:04:44,660
GARY GENSLER: Well,
how many people

109
00:04:44,660 --> 00:04:48,710
think it'll be
lower in 10 years?

110
00:04:48,710 --> 00:04:51,760
OK, I'd say it's about 30%, 35%.

111
00:04:51,760 --> 00:04:54,310
How many higher?

112
00:04:54,310 --> 00:04:57,190
Yeah, that's 60%, 65%.

113
00:04:57,190 --> 00:04:59,720
Alin, you-- you did
two Alin split, right?

114
00:04:59,720 --> 00:05:02,280
AUDIENCE: Think
it's going to be 0.

115
00:05:02,280 --> 00:05:04,030
GARY GENSLER: I think
that would be lower.

116
00:05:04,030 --> 00:05:04,645
[LAUGHTER]

117
00:05:04,645 --> 00:05:06,260
AUDIENCE: It is,
because in 10 years

118
00:05:06,260 --> 00:05:07,940
the system might
change so dramatically

119
00:05:07,940 --> 00:05:10,347
it might be unfair to
even call it bitcoin.

120
00:05:10,347 --> 00:05:11,430
GARY GENSLER: Fair enough.

121
00:05:11,430 --> 00:05:13,340
It might have evolved
into something else.

122
00:05:17,180 --> 00:05:18,195
Back here please.

123
00:05:18,195 --> 00:05:19,570
AUDIENCE: I just
want to comment.

124
00:05:19,570 --> 00:05:21,260
Isn't the real
question market cap,

125
00:05:21,260 --> 00:05:23,720
because that's what people are
actually using the currency

126
00:05:23,720 --> 00:05:24,440
for?

127
00:05:24,440 --> 00:05:26,607
Because the question of
what's the price going to be

128
00:05:26,607 --> 00:05:30,080
presupposes a set number of
shares of coins or tokens.

129
00:05:30,080 --> 00:05:33,450
So the way that people are
mining coins in the future also

130
00:05:33,450 --> 00:05:34,820
depends on the price.

131
00:05:34,820 --> 00:05:36,420
GARY GENSLER: So I think you
raise a really good question.

132
00:05:36,420 --> 00:05:37,490
If you're writing
something down you

133
00:05:37,490 --> 00:05:39,800
could write down the market
cap rather than the price.

134
00:05:39,800 --> 00:05:40,610
You could say--

135
00:05:40,610 --> 00:05:44,510
I mean, in the Leeds case you
would still say 0 for both,

136
00:05:44,510 --> 00:05:46,400
but you might say
that-- of course.

137
00:05:46,400 --> 00:05:48,410
Because it depends
on how many coins

138
00:05:48,410 --> 00:05:51,470
there are, how many
shares there are.

139
00:05:51,470 --> 00:05:54,830
Does anybody want to take
the other side from this--

140
00:05:54,830 --> 00:05:55,770
the other Alin?

141
00:05:55,770 --> 00:05:57,660
AUDIENCE: I think
it'll have zeros--

142
00:05:57,660 --> 00:05:59,383
it'll have zeros in the price.

143
00:05:59,383 --> 00:06:01,300
GARY GENSLER: It will
have zeros in the price.

144
00:06:01,300 --> 00:06:01,820
Hugo?

145
00:06:01,820 --> 00:06:04,320
AUDIENCE: Well, I just want to
respond to the other comment.

146
00:06:04,320 --> 00:06:06,278
Do you know exactly how
many bitcoin there will

147
00:06:06,278 --> 00:06:07,580
be in about 10 years from now?

148
00:06:07,580 --> 00:06:09,913
GARY GENSLER: Do we actually
know how many bitcoin there

149
00:06:09,913 --> 00:06:10,797
will be in 10 years?

150
00:06:10,797 --> 00:06:11,380
AUDIENCE: Yes.

151
00:06:14,120 --> 00:06:16,610
GARY GENSLER: Hugo says
you do because it's

152
00:06:16,610 --> 00:06:18,290
written in the code.

153
00:06:18,290 --> 00:06:19,790
Remind me your first name?

154
00:06:19,790 --> 00:06:20,410
Isaac.

155
00:06:20,410 --> 00:06:22,398
AUDIENCE: So I
think one is mining.

156
00:06:22,398 --> 00:06:24,940
I know that some folks may have
a better technical background

157
00:06:24,940 --> 00:06:27,380
on mining and the way
you dedicate resources

158
00:06:27,380 --> 00:06:28,370
based on price.

159
00:06:28,370 --> 00:06:32,540
But I'm seeing a shake-up
ahead, so maybe not.

160
00:06:32,540 --> 00:06:34,310
The other piece of
it, I think, is just

161
00:06:34,310 --> 00:06:35,470
thinking about the flow.

162
00:06:35,470 --> 00:06:37,220
Thinking about the
bitcoin that's actually

163
00:06:37,220 --> 00:06:38,960
being traded or transacted.

164
00:06:38,960 --> 00:06:41,020
If there's a
restricted market cap,

165
00:06:41,020 --> 00:06:44,140
it's similar to looking at big
cap stocks trading in China.

166
00:06:44,140 --> 00:06:46,057
You know, you don't
actually get a real price.

167
00:06:46,057 --> 00:06:47,682
GARY GENSLER: While
I agree with those,

168
00:06:47,682 --> 00:06:49,690
there's one other reason
we might not know the--

169
00:06:49,690 --> 00:06:51,405
AUDIENCE: People
could stop mining.

170
00:06:51,405 --> 00:06:53,030
GARY GENSLER: People
could stop mining.

171
00:06:53,030 --> 00:06:55,280
AUDIENCE: In five
years if it's zero.

172
00:06:55,280 --> 00:06:57,690
GARY GENSLER: Oh, that's if
it really just dwindles out.

173
00:06:57,690 --> 00:06:59,660
Nobody wants to expand.

174
00:06:59,660 --> 00:07:01,490
But what's one other
reason why it could

175
00:07:01,490 --> 00:07:03,610
be a different number that--

176
00:07:03,610 --> 00:07:04,235
Shimon?

177
00:07:04,235 --> 00:07:04,860
AUDIENCE: Fork.

178
00:07:04,860 --> 00:07:06,600
GARY GENSLER: A fork.

179
00:07:06,600 --> 00:07:10,980
There could be a consensus
amongst 51% of the parties

180
00:07:10,980 --> 00:07:17,070
on this node to change the
what I'll call monetary policy.

181
00:07:17,070 --> 00:07:19,650
We've seen that
twice in Ethereum.

182
00:07:19,650 --> 00:07:25,080
Ethereum was having a certain
mining or block reward.

183
00:07:25,080 --> 00:07:29,620
They cut it in half once--
or they cut it from 5 to 3,

184
00:07:29,620 --> 00:07:31,720
and I think now they're
going from 3 to 2.

185
00:07:31,720 --> 00:07:34,410
It was not in the
original Ethereum.

186
00:07:34,410 --> 00:07:36,990
So there could be a consensus.

187
00:07:36,990 --> 00:07:39,990
It's not written
about a lot, but it

188
00:07:39,990 --> 00:07:41,610
could be either
what's called a fork

189
00:07:41,610 --> 00:07:45,660
or it could be so almost
unanimous that everybody

190
00:07:45,660 --> 00:07:48,303
went for a change in
the monetary policy.

191
00:07:48,303 --> 00:07:50,220
All right, so that's
just a little bit of fun.

192
00:07:50,220 --> 00:07:52,680
Some other quick
numbers and facts.

193
00:07:52,680 --> 00:07:57,840
There's 17.3 million
coins right now.

194
00:07:57,840 --> 00:08:04,260
So 17 million coins
have been mined so far,

195
00:08:04,260 --> 00:08:08,210
550,000 blocks roughly.

196
00:08:08,210 --> 00:08:10,410
189 gigs.

197
00:08:10,410 --> 00:08:14,280
Transactions per day, quarter
of a million transactions.

198
00:08:14,280 --> 00:08:17,680
And then if I've got
my decimals right,

199
00:08:17,680 --> 00:08:20,800
the hash rate is 10
to the 18th times 50.

200
00:08:20,800 --> 00:08:22,630
That's seven
trillion times harder

201
00:08:22,630 --> 00:08:25,650
than when it was in 2009.

202
00:08:25,650 --> 00:08:33,130
There's seven trillion more
computational power in Bitcoin

203
00:08:33,130 --> 00:08:36,669
now than there was
nine or 10 years ago.

204
00:08:36,669 --> 00:08:42,830
It takes about 1/3 of 1%
of the world's electricity,

205
00:08:42,830 --> 00:08:46,680
and there were some
nice comments overnight

206
00:08:46,680 --> 00:08:48,770
in the discussion
for this class about

207
00:08:48,770 --> 00:08:50,420
whether that's a
good thing or not.

208
00:08:50,420 --> 00:08:53,980
And maybe it's not a good thing.

209
00:08:53,980 --> 00:08:55,860
So that's Bitcoin anniversary.

210
00:08:55,860 --> 00:08:58,770
A couple other things,
unique addresses.

211
00:08:58,770 --> 00:09:01,850
There's a little bit over
500,000 unique addresses--

212
00:09:01,850 --> 00:09:05,130
Bitcoin addresses.

213
00:09:05,130 --> 00:09:07,280
So if there's tens
of millions of people

214
00:09:07,280 --> 00:09:10,040
that have Bitcoin and only half
a million Bitcoin addresses,

215
00:09:10,040 --> 00:09:13,370
what does it mean about the
probably 20 or 30 million

216
00:09:13,370 --> 00:09:16,280
people that believe they
own Bitcoin but don't

217
00:09:16,280 --> 00:09:17,390
have a Bitcoin address?

218
00:09:17,390 --> 00:09:18,265
Where do they own it?

219
00:09:20,850 --> 00:09:21,358
James?

220
00:09:21,358 --> 00:09:22,400
AUDIENCE: In an exchange?

221
00:09:22,400 --> 00:09:23,858
GARY GENSLER: Yeah,
on an exchange.

222
00:09:23,858 --> 00:09:26,180
Or in some custodial--

223
00:09:26,180 --> 00:09:29,150
in essence relying
on somebody else

224
00:09:29,150 --> 00:09:31,310
if there's a half a
million unique addresses,

225
00:09:31,310 --> 00:09:34,805
but it's thought there's
20 to 30 million accounts.

226
00:09:38,890 --> 00:09:41,510
10,000 nodes.

227
00:09:41,510 --> 00:09:43,650
And bitnodes is a
website where you

228
00:09:43,650 --> 00:09:45,090
can see where the nodes are.

229
00:09:47,650 --> 00:09:50,310
And it's concentration of
where the actual nodes are.

230
00:09:54,000 --> 00:09:56,760
So pretty spread around.

231
00:09:56,760 --> 00:10:01,060
There's not any alpha
in Ethiopia yet.

232
00:10:01,060 --> 00:10:04,350
In fact, I don't see--

233
00:10:04,350 --> 00:10:04,850
what's that?

234
00:10:04,850 --> 00:10:06,824
Do you see two in Kenya?

235
00:10:06,824 --> 00:10:09,960
AUDIENCE: Yeah, there's
two little dots.

236
00:10:09,960 --> 00:10:11,888
GARY GENSLER: Anybody
from Greenland?

237
00:10:11,888 --> 00:10:13,340
No.

238
00:10:13,340 --> 00:10:15,380
And of course, it's
spurred this whole thing--

239
00:10:15,380 --> 00:10:18,700
we've seen this map before,
but initial coin offerings.

240
00:10:18,700 --> 00:10:22,035
$28 billion roughly raised.

241
00:10:22,035 --> 00:10:23,910
Again, we don't know if
the numbers are right

242
00:10:23,910 --> 00:10:26,795
but this is what this 10
year anniversary or 10

243
00:10:26,795 --> 00:10:27,920
years since it all started.

244
00:10:30,900 --> 00:10:32,390
This means there's
a lot of capital

245
00:10:32,390 --> 00:10:35,150
chasing this field right now.

246
00:10:35,150 --> 00:10:36,900
So anybody want to
write down whether they

247
00:10:36,900 --> 00:10:41,840
think ICOs are still going
to be around in 10 years?

248
00:10:41,840 --> 00:10:47,110
How many people think initial
coin offerings will be around?

249
00:10:47,110 --> 00:10:47,820
About half.

250
00:10:51,070 --> 00:10:53,260
And so the other-- oh,
I know where Alin is,

251
00:10:53,260 --> 00:10:54,970
but where are the rest of you?

252
00:10:54,970 --> 00:10:55,890
I don't actually know.

253
00:10:55,890 --> 00:10:57,348
I think they're
going to slow down.

254
00:10:57,348 --> 00:10:59,860
I think in 2019 and
2020 they'll slow down

255
00:10:59,860 --> 00:11:03,400
because so many
will have failed,

256
00:11:03,400 --> 00:11:05,207
the market will sort
of adjust and say,

257
00:11:05,207 --> 00:11:07,540
well, we're not going to
invest in these unless there is

258
00:11:07,540 --> 00:11:10,640
a much better business model.

259
00:11:10,640 --> 00:11:13,280
And so it's spurred, this is
just a bucket of other coins.

260
00:11:13,280 --> 00:11:17,000
There's 1,600 odd coins,
probably 1,500 plus of them

261
00:11:17,000 --> 00:11:19,400
will fail or maybe all 1,600.

262
00:11:19,400 --> 00:11:23,310
But 1,500 plus
will probably fail.

263
00:11:23,310 --> 00:11:26,690
I might be done with--
oh yeah, crypto finance.

264
00:11:26,690 --> 00:11:30,290
Actually there's not as much
volatility as there once was.

265
00:11:30,290 --> 00:11:34,190
We're slowly getting
a more stable coin.

266
00:11:34,190 --> 00:11:37,550
It doesn't mean it
will stay this way,

267
00:11:37,550 --> 00:11:41,660
but to the extent that
Bitcoin stabilizes in pricing

268
00:11:41,660 --> 00:11:44,690
and stabilizes for
a long period there

269
00:11:44,690 --> 00:11:47,510
might be a little
bit more use of it.

270
00:11:47,510 --> 00:11:48,860
But I wouldn't read--

271
00:11:48,860 --> 00:11:51,350
six months does not
make enough history

272
00:11:51,350 --> 00:11:56,210
to say that the volatility's
out of this thing.

273
00:11:56,210 --> 00:11:59,870
All right, so let's go
back to payment systems.

274
00:11:59,870 --> 00:12:02,568
So now I'm going to ask,
what are the pain points?

275
00:12:02,568 --> 00:12:04,610
I mean, maybe just putting
up the chart tells you

276
00:12:04,610 --> 00:12:06,068
where the pain
points are, but this

277
00:12:06,068 --> 00:12:08,600
is the chart we talked
about Tuesday as to what

278
00:12:08,600 --> 00:12:11,990
some of the challenges are.

279
00:12:11,990 --> 00:12:15,920
Anybody want to give me
some thoughts on this--

280
00:12:15,920 --> 00:12:18,350
this was a consumer on
one end and a consumer

281
00:12:18,350 --> 00:12:20,450
on the other end, it
happens to be a US model.

282
00:12:20,450 --> 00:12:22,940
But it's not that different
in most countries.

283
00:12:22,940 --> 00:12:27,260
But what pain points could
blockchain help address

284
00:12:27,260 --> 00:12:32,000
in this complex system?

285
00:12:32,000 --> 00:12:33,530
So pain points.

286
00:12:33,530 --> 00:12:35,270
Anybody want to give me--

287
00:12:35,270 --> 00:12:36,810
Brodish.

288
00:12:36,810 --> 00:12:38,890
AUDIENCE: There are
too many intermediaries

289
00:12:38,890 --> 00:12:42,750
in the system, which means
that too many parallel ledgers.

290
00:12:42,750 --> 00:12:45,070
GARY GENSLER: So
multiple intermediaries

291
00:12:45,070 --> 00:12:47,020
with parallel ledgers.

292
00:12:47,020 --> 00:12:48,377
What else?

293
00:12:48,377 --> 00:12:50,710
AUDIENCE: I guess the usual
suspect would be high costs.

294
00:12:50,710 --> 00:12:53,200
GARY GENSLER: So high
cost, usual suspect.

295
00:12:53,200 --> 00:12:55,720
World Bank estimates it's
between a half a percent

296
00:12:55,720 --> 00:12:58,840
and 1% of world
GDP, which would be,

297
00:12:58,840 --> 00:13:02,230
I guess, about $400 to
$800 billion a year.

298
00:13:04,730 --> 00:13:05,230
Zan?

299
00:13:05,230 --> 00:13:06,910
AUDIENCE: Speed of execution.

300
00:13:06,910 --> 00:13:08,357
GARY GENSLER:
Speed of execution.

301
00:13:08,357 --> 00:13:09,940
So what do you mean
when you say speed

302
00:13:09,940 --> 00:13:11,890
of execution and payments?

303
00:13:11,890 --> 00:13:14,230
AUDIENCE: I guess the
ability for a counterparty

304
00:13:14,230 --> 00:13:19,130
to receive the money
and be able to spend it.

305
00:13:19,130 --> 00:13:21,310
GARY GENSLER: So the
final settlement--

306
00:13:21,310 --> 00:13:23,350
sometimes it's
authorization, clearing,

307
00:13:23,350 --> 00:13:26,500
settlement-- but
final settlement

308
00:13:26,500 --> 00:13:28,405
often doesn't occur
for a couple of days.

309
00:13:31,350 --> 00:13:36,820
AUDIENCE: But I would then like
for the customer perspective

310
00:13:36,820 --> 00:13:40,947
just closing three seconds.

311
00:13:40,947 --> 00:13:42,780
GARY GENSLER: So it's
a really interesting--

312
00:13:42,780 --> 00:13:44,070
there's a bifurcated market.

313
00:13:44,070 --> 00:13:46,690
From the customer's
perspective, there's

314
00:13:46,690 --> 00:13:48,490
great speed of settlement.

315
00:13:48,490 --> 00:13:51,760
For the merchant's
side, the merchant

316
00:13:51,760 --> 00:13:56,650
might not have that is
what you're highlighting.

317
00:13:56,650 --> 00:13:59,040
Sorry.

318
00:13:59,040 --> 00:14:01,920
AUDIENCE: So are
those for the bank?

319
00:14:01,920 --> 00:14:04,740
Like if I have never had a
bank account and [INAUDIBLE]

320
00:14:04,740 --> 00:14:07,770
so it's very difficult for me
to go through all this process.

321
00:14:07,770 --> 00:14:09,770
GARY GENSLER: All right,
so financial inclusion.

322
00:14:09,770 --> 00:14:13,420
So we had cost, financial
inclusion, latency at least

323
00:14:13,420 --> 00:14:17,170
for the merchant side, lots of
intermediaries as Brodish said.

324
00:14:17,170 --> 00:14:19,570
There's a lot of ledgers--

325
00:14:19,570 --> 00:14:23,800
there are multiple ledgers that
might have some reconciliation

326
00:14:23,800 --> 00:14:26,350
and cost to them.

327
00:14:26,350 --> 00:14:27,490
Sure, Sean.

328
00:14:27,490 --> 00:14:29,560
AUDIENCE: Real
time FX settlement.

329
00:14:29,560 --> 00:14:31,600
GARY GENSLER: Real
time FX settlement.

330
00:14:31,600 --> 00:14:33,240
What do you mean there?

331
00:14:33,240 --> 00:14:35,470
AUDIENCE: When you
have one currency,

332
00:14:35,470 --> 00:14:38,170
it basically can convert the--

333
00:14:38,170 --> 00:14:41,415
if you have the US dollar
[INAUDIBLE] to Russian ruble.

334
00:14:41,415 --> 00:14:45,215
And then if you can
pledge that into one kind

335
00:14:45,215 --> 00:14:47,435
of cryptocurrency,
you could actually

336
00:14:47,435 --> 00:14:51,000
resize you know that token,
you can settle the trade

337
00:14:51,000 --> 00:14:51,950
right away.

338
00:14:51,950 --> 00:14:53,790
GARY GENSLER: So I
think I'm with you.

339
00:14:53,790 --> 00:14:55,540
It's basically cross-border.

340
00:14:55,540 --> 00:14:58,360
Jumping from one currency,
one fiat currency

341
00:14:58,360 --> 00:15:01,450
to another, which happens
to be technically jumping

342
00:15:01,450 --> 00:15:03,520
from one ledger system--

343
00:15:03,520 --> 00:15:06,850
the US dollar ledger
system, did you say ruble?

344
00:15:06,850 --> 00:15:07,675
Ruble.

345
00:15:07,675 --> 00:15:08,800
Do they have ledgers there?

346
00:15:08,800 --> 00:15:10,050
Yeah, they have ledgers there.

347
00:15:13,565 --> 00:15:18,680
You know, as a
background story, I

348
00:15:18,680 --> 00:15:21,950
used to attend the
financial stability board

349
00:15:21,950 --> 00:15:25,160
meetings in Switzerland
from time to time.

350
00:15:25,160 --> 00:15:29,180
And when Russia was going to
have the next G20 meeting--

351
00:15:29,180 --> 00:15:31,460
I think it's next going
to be in Argentina,

352
00:15:31,460 --> 00:15:34,160
but that was the year is
going to be in Russia--

353
00:15:34,160 --> 00:15:37,220
the deputy governor
of the central bank

354
00:15:37,220 --> 00:15:41,630
wanted to have a
dive into issues

355
00:15:41,630 --> 00:15:45,020
that were in my area,
the derivatives space.

356
00:15:45,020 --> 00:15:47,700
So I got to know
something of that.

357
00:15:47,700 --> 00:15:49,700
They do have ledgers is
what I just want to say.

358
00:15:49,700 --> 00:15:53,480
I did know this.

359
00:15:53,480 --> 00:15:55,310
So what are some of the things?

360
00:15:55,310 --> 00:15:58,550
I heard from you cost,
delayed settlement especially

361
00:15:58,550 --> 00:16:00,050
for the merchant side.

362
00:16:00,050 --> 00:16:02,990
I didn't hear anybody
talk about charge backs.

363
00:16:02,990 --> 00:16:05,840
So does anybody want to tell
me about why merchants are not

364
00:16:05,840 --> 00:16:09,160
happy what's called
charge backs,

365
00:16:09,160 --> 00:16:12,557
or is this something
more a US thing?

366
00:16:12,557 --> 00:16:13,840
Brodish?

367
00:16:13,840 --> 00:16:20,300
AUDIENCE: So we saw the last
class that out of $100, $2.75

368
00:16:20,300 --> 00:16:22,620
was being given
to the friend of.

369
00:16:22,620 --> 00:16:25,050
Multiple interpreter is
like the issuing bank

370
00:16:25,050 --> 00:16:26,250
and the [INAUDIBLE].

371
00:16:26,250 --> 00:16:27,875
GARY GENSLER: So
there's a lot of cost,

372
00:16:27,875 --> 00:16:29,850
2 and 3/4 percent
in the US, when it's

373
00:16:29,850 --> 00:16:32,430
crossed the credit card rails.

374
00:16:32,430 --> 00:16:35,120
But one of the features
is charge backs.

375
00:16:35,120 --> 00:16:37,745
AUDIENCE: There's just a lack
of finality to the transactions.

376
00:16:37,745 --> 00:16:40,290
So I think you talked about
the example of the campaign

377
00:16:40,290 --> 00:16:43,360
after the campaign
was over having people

378
00:16:43,360 --> 00:16:45,620
claiming the charges
were fraud or whatever

379
00:16:45,620 --> 00:16:47,227
and having to give
back [INAUDIBLE]..

380
00:16:47,227 --> 00:16:48,060
GARY GENSLER: Right.

381
00:16:48,060 --> 00:16:51,600
So merchants don't
really have finality.

382
00:16:51,600 --> 00:16:53,106
Jack.

383
00:16:53,106 --> 00:16:55,603
AUDIENCE: Sometimes charge
backs are recourse for things

384
00:16:55,603 --> 00:16:56,770
that weren't actually spent.

385
00:16:56,770 --> 00:16:58,490
So doesn't this kind
of affect what--

386
00:16:58,490 --> 00:17:00,240
consumers might not
be as willing to enter

387
00:17:00,240 --> 00:17:02,157
a transaction that has
that level of finality.

388
00:17:02,157 --> 00:17:03,157
GARY GENSLER: All right.

389
00:17:03,157 --> 00:17:04,907
So I think-- remind
me your first name?

390
00:17:04,907 --> 00:17:05,490
AUDIENCE: Dan.

391
00:17:05,490 --> 00:17:06,240
GARY GENSLER: Dan.

392
00:17:06,240 --> 00:17:08,670
So Dan and Jack really
have the two sides of this.

393
00:17:08,670 --> 00:17:10,589
From the consumer--

394
00:17:10,589 --> 00:17:13,560
I'm sorry, Jack's
the consumer side,

395
00:17:13,560 --> 00:17:14,910
and Dan's the merchant side.

396
00:17:14,910 --> 00:17:17,819
From the merchant, they
want finality of settlement.

397
00:17:17,819 --> 00:17:21,000
They want, I've
sold you a good--

398
00:17:21,000 --> 00:17:22,560
I was working on a campaign.

399
00:17:22,560 --> 00:17:25,760
We weren't selling a good,
but we got a donation

400
00:17:25,760 --> 00:17:28,310
and we wanted to know
that $2,700 was there.

401
00:17:28,310 --> 00:17:33,130
Or I sell a good, a cup
of coffee, and it's done.

402
00:17:33,130 --> 00:17:35,040
But from Jack's
perspective, well, I

403
00:17:35,040 --> 00:17:37,330
might not have gotten
a good or service.

404
00:17:37,330 --> 00:17:39,610
I'm going to dispute it.

405
00:17:39,610 --> 00:17:43,390
You say that I'm a monthly
subscriber to the New York

406
00:17:43,390 --> 00:17:43,890
Times.

407
00:17:43,890 --> 00:17:46,140
I'm not a monthly subscriber
to the New York Times.

408
00:17:46,140 --> 00:17:49,560
I don't want to pay the
$15 a month because I'm not

409
00:17:49,560 --> 00:17:52,680
getting the New York Times,
and it's called a charge back.

410
00:17:52,680 --> 00:17:56,250
And so it's really consumers
and merchants are a little bit

411
00:17:56,250 --> 00:18:01,020
on the different side,
but in the US that's

412
00:18:01,020 --> 00:18:04,170
part of that 2 and 3/4 percent.

413
00:18:04,170 --> 00:18:06,410
But merchants, probably
in the US at least

414
00:18:06,410 --> 00:18:09,420
say, I'd rather not be there.

415
00:18:09,420 --> 00:18:12,960
And then it's whether customers
are going to push back.

416
00:18:12,960 --> 00:18:14,790
Fraud, of course.

417
00:18:14,790 --> 00:18:17,460
Privacy I didn't
hear anybody say,

418
00:18:17,460 --> 00:18:21,060
but the current payment rails
actually in the modern computer

419
00:18:21,060 --> 00:18:25,620
age gives everybody along the
chain, a lot of information

420
00:18:25,620 --> 00:18:27,950
about all of us.

421
00:18:27,950 --> 00:18:29,510
Now, many of us don't mind it.

422
00:18:29,510 --> 00:18:31,220
I still want to
use my Visa card,

423
00:18:31,220 --> 00:18:33,260
and I want to use
my bank account,

424
00:18:33,260 --> 00:18:35,180
but know that we
are all giving up

425
00:18:35,180 --> 00:18:38,270
a little bit of our
personal identity

426
00:18:38,270 --> 00:18:40,310
because they know how we spend.

427
00:18:40,310 --> 00:18:41,960
And based on those
spending patterns,

428
00:18:41,960 --> 00:18:46,750
they can know whether we like
guns or we don't like guns.

429
00:18:46,750 --> 00:18:49,010
And in the political
space there's

430
00:18:49,010 --> 00:18:50,600
people sort of look
at those things.

431
00:18:50,600 --> 00:18:57,520
Or how you live your
life in many ways.

432
00:18:57,520 --> 00:18:59,180
And in good ways,
too, because it

433
00:18:59,180 --> 00:19:02,570
means they can market to us
what books we want to read,

434
00:19:02,570 --> 00:19:05,270
and what wines we want to drink.

435
00:19:05,270 --> 00:19:08,720
But it's privacy, as well.

436
00:19:08,720 --> 00:19:10,300
Financial inclusion
was mentioned.

437
00:19:10,300 --> 00:19:11,600
Rahim?

438
00:19:11,600 --> 00:19:14,600
AUDIENCE: To the
privacy is cyber attacks

439
00:19:14,600 --> 00:19:16,920
and identity theft.

440
00:19:16,920 --> 00:19:19,925
So I will say this
is a big pain point.

441
00:19:19,925 --> 00:19:21,050
GARY GENSLER: So I should--

442
00:19:21,050 --> 00:19:21,800
good.

443
00:19:21,800 --> 00:19:23,240
I agree with you.

444
00:19:23,240 --> 00:19:24,740
Cyber attacks and so forth.

445
00:19:24,740 --> 00:19:27,110
So with all these pain
points the question is,

446
00:19:27,110 --> 00:19:30,890
will blockchain help address
some of these or all of these?

447
00:19:30,890 --> 00:19:33,657
So then we go back to
benefits of blockchain.

448
00:19:33,657 --> 00:19:35,240
What are the two big
benefits that you

449
00:19:35,240 --> 00:19:38,510
keep hearing me spout about
whether it's from Christian

450
00:19:38,510 --> 00:19:40,120
Catalini's paper or just--

451
00:19:40,120 --> 00:19:40,890
Kelly?

452
00:19:40,890 --> 00:19:42,970
AUDIENCE: The cost
of the network

453
00:19:42,970 --> 00:19:44,810
and then the cost
of the verification.

454
00:19:44,810 --> 00:19:47,030
GARY GENSLER: Yeah,
so verification cost

455
00:19:47,030 --> 00:19:48,150
and networking cost.

456
00:19:48,150 --> 00:19:49,817
We're not going to
go back through this,

457
00:19:49,817 --> 00:19:57,150
but can lowering the
verification cost address

458
00:19:57,150 --> 00:19:59,320
basically some of
these pain points,

459
00:19:59,320 --> 00:20:02,480
including this
cybersecurity one?

460
00:20:02,480 --> 00:20:05,210
And where does
that fit together?

461
00:20:05,210 --> 00:20:06,690
I mean, Alon?

462
00:20:06,690 --> 00:20:11,820
AUDIENCE: I would add, does
blockchain add problems?

463
00:20:11,820 --> 00:20:14,760
So it may solve some problem
but add other problems.

464
00:20:14,760 --> 00:20:17,890
And then we need to nab those
problems and seize them.

465
00:20:21,370 --> 00:20:23,490
GARY GENSLER:
You're ahead of me.

466
00:20:23,490 --> 00:20:24,670
No, no, it's good.

467
00:20:24,670 --> 00:20:26,020
It's good.

468
00:20:26,020 --> 00:20:27,820
In fact I'm going
to go, challenges.

469
00:20:27,820 --> 00:20:29,560
Which problems
you're going to add.

470
00:20:29,560 --> 00:20:30,477
AUDIENCE: Scalability.

471
00:20:30,477 --> 00:20:31,560
GARY GENSLER: Scalability.

472
00:20:31,560 --> 00:20:32,410
What other problems?

473
00:20:32,410 --> 00:20:34,950
Brodish I've heard
from, over here.

474
00:20:34,950 --> 00:20:37,130
AUDIENCE: High
transaction costs.

475
00:20:37,130 --> 00:20:41,290
GARY GENSLER: High transaction
costs, one blockchain.

476
00:20:41,290 --> 00:20:44,080
AUDIENCE: Takes some days
to process the transaction.

477
00:20:44,080 --> 00:20:45,250
It's slow.

478
00:20:45,250 --> 00:20:46,630
GARY GENSLER: So it's slow.

479
00:20:46,630 --> 00:20:48,070
So scalability is slow.

480
00:20:48,070 --> 00:20:49,570
It might be high
transaction costs.

481
00:20:49,570 --> 00:20:50,070
Alexis?

482
00:20:50,070 --> 00:20:51,480
AUDIENCE: And interoperability.

483
00:20:51,480 --> 00:20:52,780
GARY GENSLER: Interoperability.

484
00:20:52,780 --> 00:20:53,970
So it's all our friends.

485
00:20:53,970 --> 00:20:54,860
Stephanie?

486
00:20:54,860 --> 00:20:57,538
AUDIENCE: There's also the
issue of error resolution.

487
00:20:57,538 --> 00:20:58,830
GARY GENSLER: Error resolution.

488
00:20:58,830 --> 00:20:59,560
Good one.

489
00:20:59,560 --> 00:21:01,160
AUDIENCE: Like
when consumers are

490
00:21:01,160 --> 00:21:04,300
trying to fix something wrong
with like fraudulent card

491
00:21:04,300 --> 00:21:05,350
transaction or something.

492
00:21:05,350 --> 00:21:09,277
Like with blockchain, if it's
immutable you can't do that.

493
00:21:09,277 --> 00:21:11,110
GARY GENSLER: Right,
so it's this trade-off.

494
00:21:11,110 --> 00:21:14,890
It's a little bit like what Jack
was saying about charge backs.

495
00:21:14,890 --> 00:21:17,770
From the customer's side there
might be an actual error--

496
00:21:17,770 --> 00:21:19,875
it's a different type
of error, but an error,

497
00:21:19,875 --> 00:21:21,250
and I want to be
able to say, I'm

498
00:21:21,250 --> 00:21:23,590
not taking the New
York Times any longer.

499
00:21:23,590 --> 00:21:26,380
I'm sorry to the New York
Times, I'm just picking.

500
00:21:26,380 --> 00:21:28,550
But you're saying there
could be true error.

501
00:21:28,550 --> 00:21:29,640
Shimon, did you--

502
00:21:29,640 --> 00:21:31,600
AUDIENCE: Isn't
like the core system

503
00:21:31,600 --> 00:21:35,552
where we have these delays in,
is that really technologically

504
00:21:35,552 --> 00:21:37,510
advance-- sort of a
business issue in the sense

505
00:21:37,510 --> 00:21:43,670
that [INAUDIBLE] finality opens
up a lot of exposure for fraud.

506
00:21:43,670 --> 00:21:46,150
So the core level that
we see will probably

507
00:21:46,150 --> 00:21:51,270
go up a lot if someone
could game the system,

508
00:21:51,270 --> 00:21:54,970
get their cash out
at the same time.

509
00:21:54,970 --> 00:21:56,740
It'd be very hard
to trace it back.

510
00:21:56,740 --> 00:22:00,780
GARY GENSLER: So
Shimon's raising,

511
00:22:00,780 --> 00:22:03,090
maybe we have
delayed settlement.

512
00:22:03,090 --> 00:22:05,970
Maybe we don't have
immediate finality

513
00:22:05,970 --> 00:22:11,160
because as a market feature we
want some delayed settlement

514
00:22:11,160 --> 00:22:15,030
to protect against fraud, to
make sure that there's not

515
00:22:15,030 --> 00:22:16,650
errors as Stephanie says.

516
00:22:16,650 --> 00:22:21,750
Maybe there's a delay
for business reasons.

517
00:22:21,750 --> 00:22:23,850
But-- Kelly?

518
00:22:23,850 --> 00:22:25,560
Now, anybody want to
take the other side?

519
00:22:25,560 --> 00:22:27,185
I want somebody to
take the other side.

520
00:22:27,185 --> 00:22:28,080
This Alin.

521
00:22:28,080 --> 00:22:30,360
AUDIENCE: I mean, I'm
biased, I'll admit it.

522
00:22:30,360 --> 00:22:33,510
But I think that
basically that says

523
00:22:33,510 --> 00:22:35,400
let let's have an
inferior system out there

524
00:22:35,400 --> 00:22:37,680
because it's good.

525
00:22:37,680 --> 00:22:39,480
And it's like, yeah,
I mean, I think

526
00:22:39,480 --> 00:22:41,880
to some extent you do
want-- there are benefits

527
00:22:41,880 --> 00:22:43,653
to having a delayed settlement.

528
00:22:43,653 --> 00:22:45,570
But there are also a lot
of benefits on having

529
00:22:45,570 --> 00:22:48,360
finality, so why not have both?

530
00:22:48,360 --> 00:22:50,690
You don't need just have
an inferior settlement

531
00:22:50,690 --> 00:22:53,670
kind of system out there and
say, OK, this is established.

532
00:22:53,670 --> 00:22:56,665
You can also bring
another solution right

533
00:22:56,665 --> 00:22:58,290
beside it that actually
offers finality

534
00:22:58,290 --> 00:22:59,270
for people who want it.

535
00:22:59,270 --> 00:23:00,600
GARY GENSLER: All right,
so if everybody remembers,

536
00:23:00,600 --> 00:23:02,650
Alin works at the digital
currency initiative.

537
00:23:02,650 --> 00:23:04,163
Used to work in payments.

538
00:23:04,163 --> 00:23:06,330
He's admitting he might
have a little bit of a bias,

539
00:23:06,330 --> 00:23:09,720
but he's saying, fine, you
want some delayed settlement.

540
00:23:09,720 --> 00:23:11,940
But shouldn't we
have an alternative?

541
00:23:11,940 --> 00:23:16,970
Because not every market
will want delayed settlement.

542
00:23:16,970 --> 00:23:17,520
Eric?

543
00:23:17,520 --> 00:23:19,080
AUDIENCE: Yeah,
but I just wanted

544
00:23:19,080 --> 00:23:22,590
to tie these two points of view
to another challenge, which

545
00:23:22,590 --> 00:23:25,982
is the issues on the
handling of governance.

546
00:23:25,982 --> 00:23:27,690
In the case of
[INAUDIBLE],, for example,

547
00:23:27,690 --> 00:23:30,370
there's a little bit of
more elaborate governance

548
00:23:30,370 --> 00:23:33,330
of the distributed
arrangement of the blockchain.

549
00:23:33,330 --> 00:23:41,680
That decision between going
from supposedly a theft close--

550
00:23:41,680 --> 00:23:42,450
a fork.

551
00:23:42,450 --> 00:23:46,440
So handling a
centralized arrangement

552
00:23:46,440 --> 00:23:49,230
is much easier than a
blockchain [INAUDIBLE]..

553
00:23:52,660 --> 00:23:54,680
GARY GENSLER: Rhys?

554
00:23:54,680 --> 00:23:57,870
AUDIENCE: Another challenge
is the government regulation

555
00:23:57,870 --> 00:24:01,820
on the anti money laundering
and the [INAUDIBLE]..

556
00:24:01,820 --> 00:24:03,780
GARY GENSLER: Yeah, right.

557
00:24:03,780 --> 00:24:06,540
So-- Kelly?

558
00:24:06,540 --> 00:24:09,810
AUDIENCE: I'm not sure if this
ties into the finality of it,

559
00:24:09,810 --> 00:24:13,170
but one of the articles talked
a little bit about the fact

560
00:24:13,170 --> 00:24:16,320
that there is an issue with
managing liquidity given

561
00:24:16,320 --> 00:24:18,390
the speed of the
transactions, especially

562
00:24:18,390 --> 00:24:21,120
at the corporate level where
the value of the transactions

563
00:24:21,120 --> 00:24:22,510
are much higher.

564
00:24:22,510 --> 00:24:24,737
There's a bit of an opportunity
cost trade-off there.

565
00:24:24,737 --> 00:24:25,570
GARY GENSLER: Right.

566
00:24:25,570 --> 00:24:28,400
So we're going to
chat about that

567
00:24:28,400 --> 00:24:31,830
in a minute about the
liquidity in particularly

568
00:24:31,830 --> 00:24:37,320
using a cryptocurrency as
a bridge between two fiat

569
00:24:37,320 --> 00:24:37,890
currencies.

570
00:24:37,890 --> 00:24:40,470
But it has somewhat to
do with the volatility

571
00:24:40,470 --> 00:24:43,200
of cryptocurrencies.

572
00:24:43,200 --> 00:24:46,570
But I would say to
this point about--

573
00:24:46,570 --> 00:24:54,090
I'm coming back to Alin versus
Dan, or Shimon, really--

574
00:24:54,090 --> 00:24:58,110
sorry, different debate.

575
00:24:58,110 --> 00:25:02,460
I think that this new technology
is coming along at a time

576
00:25:02,460 --> 00:25:06,990
where we can shorten
settlement, and a lot

577
00:25:06,990 --> 00:25:10,950
of the delayed settlement
in payments, in Wall Street,

578
00:25:10,950 --> 00:25:14,670
and securities we used to have
that you would do equity trades

579
00:25:14,670 --> 00:25:17,940
transaction day plus five days.

580
00:25:17,940 --> 00:25:20,680
Before I was born,
too, long time ago.

581
00:25:20,680 --> 00:25:23,430
Then it went to
transaction day plus three.

582
00:25:23,430 --> 00:25:26,640
And in Europe they went to
transaction plus two days--

583
00:25:26,640 --> 00:25:29,280
two days for settlement
of securities trades

584
00:25:29,280 --> 00:25:32,070
somewhere 10 or 15 years
ago, and the US caught up.

585
00:25:32,070 --> 00:25:37,170
The US was behind and just went
to transaction plus two days.

586
00:25:37,170 --> 00:25:44,370
But I think technology could
be t plus 0 in securities,

587
00:25:44,370 --> 00:25:49,140
and in payments you could
go to real time payments.

588
00:25:49,140 --> 00:25:53,040
The US Federal Reserve
had a big process

589
00:25:53,040 --> 00:25:57,810
where they got public
comment, and they're

590
00:25:57,810 --> 00:26:02,460
moving towards what's called
real time payments by 2020.

591
00:26:02,460 --> 00:26:05,520
Now, maybe it will be adopted in
2021 because it'll take longer

592
00:26:05,520 --> 00:26:12,260
to roll out, but I think
that technology does provide

593
00:26:12,260 --> 00:26:16,040
that it will be more options.

594
00:26:16,040 --> 00:26:17,690
And in some cases,
the markets will

595
00:26:17,690 --> 00:26:21,740
stay with delayed settlement
because it's just history,

596
00:26:21,740 --> 00:26:23,913
it's just legacy.

597
00:26:23,913 --> 00:26:26,080
And other times it will
stay with delayed settlement

598
00:26:26,080 --> 00:26:27,490
because they actually prefer it.

599
00:26:27,490 --> 00:26:30,190
I think in the securities
world some people actually

600
00:26:30,190 --> 00:26:32,020
prefer delayed settlement.

601
00:26:32,020 --> 00:26:33,890
We'll talk about this
in a few lectures,

602
00:26:33,890 --> 00:26:37,870
but they'd prefer it because it
allows shorting of securities.

603
00:26:37,870 --> 00:26:40,120
When you actually borrow
somebody else's security

604
00:26:40,120 --> 00:26:45,360
and sell it, you usually
sell it before you borrow it.

605
00:26:45,360 --> 00:26:49,560
And so the whole parts
of our capital markets

606
00:26:49,560 --> 00:26:52,290
that are built around
delayed settlement,

607
00:26:52,290 --> 00:26:56,880
because you usually sell,
borrow, and settle rather

608
00:26:56,880 --> 00:26:58,580
than borrow, sell, and settle.

609
00:26:58,580 --> 00:27:00,330
AUDIENCE: So if you
put securities lending

610
00:27:00,330 --> 00:27:03,540
on a blockchain, then you're
able to immediately point

611
00:27:03,540 --> 00:27:06,840
to the varo that you
get and trace that back.

612
00:27:06,840 --> 00:27:09,360
When you then have
securities lending on a t0

613
00:27:09,360 --> 00:27:11,190
and you can short on
t0, know exactly what

614
00:27:11,190 --> 00:27:13,280
securities will be borrowed?

615
00:27:13,280 --> 00:27:17,420
GARY GENSLER: I think that it
is technically feasible to move

616
00:27:17,420 --> 00:27:22,160
stock borrow onto a blockchain.

617
00:27:22,160 --> 00:27:23,700
I'm agreeing with that.

618
00:27:23,700 --> 00:27:26,390
But the question is whether
the economics of that market--

619
00:27:26,390 --> 00:27:29,330
whether the market participants
want to actually arrange

620
00:27:29,330 --> 00:27:32,630
the borrow before they
sell because currently

621
00:27:32,630 --> 00:27:35,060
they sell before they
arrange the borrow.

622
00:27:35,060 --> 00:27:37,850
AUDIENCE: But they have to get
the locate on that same day,

623
00:27:37,850 --> 00:27:39,380
right?

624
00:27:39,380 --> 00:27:43,190
GARY GENSLER: Well, when it's
t plus 2 depending upon--

625
00:27:43,190 --> 00:27:46,480
I'm sorry I'm speaking finance
here, but maybe you'll help me.

626
00:27:46,480 --> 00:27:49,460
AUDIENCE: Well we have to give--

627
00:27:49,460 --> 00:27:51,460
I used to be in
sales and training.

628
00:27:51,460 --> 00:27:53,460
We had to get a borrow,
like a reference number,

629
00:27:53,460 --> 00:27:58,160
before someone shorted something
so they couldn't short.

630
00:27:58,160 --> 00:28:01,930
I don't know if it's
changed, so I don't know.

631
00:28:01,930 --> 00:28:03,560
GARY GENSLER: No,
it might be that I'm

632
00:28:03,560 --> 00:28:05,870
the old season dog that
was-- now that you're

633
00:28:05,870 --> 00:28:07,340
saying they're tighter.

634
00:28:07,340 --> 00:28:07,940
But--

635
00:28:07,940 --> 00:28:09,940
AUDIENCE: If a client
wanted to short something,

636
00:28:09,940 --> 00:28:14,270
they would call me, and then I'd
have to call the market maker,

637
00:28:14,270 --> 00:28:16,570
get a borrow, get
a reference number.

638
00:28:16,570 --> 00:28:18,710
And they would carve off
that amount, whatever

639
00:28:18,710 --> 00:28:20,420
they wanted to
borrow, so it wasn't

640
00:28:20,420 --> 00:28:21,830
available for anyone else.

641
00:28:21,830 --> 00:28:23,270
Then they sold it.

642
00:28:23,270 --> 00:28:24,510
So it was like--

643
00:28:24,510 --> 00:28:26,668
it was done on a
ledger, but yeah.

644
00:28:26,668 --> 00:28:29,210
GARY GENSLER: So the market may
already be moving towards it.

645
00:28:29,210 --> 00:28:30,680
AUDIENCE: So I work in the
securities lending desk

646
00:28:30,680 --> 00:28:31,952
that he used to call.

647
00:28:31,952 --> 00:28:32,910
That's what I'm saying.

648
00:28:35,730 --> 00:28:38,690
And that came into
effect after 2008

649
00:28:38,690 --> 00:28:40,090
with the no naked short selling.

650
00:28:40,090 --> 00:28:42,097
And so then you had to
get the locate on teaser

651
00:28:42,097 --> 00:28:43,680
on the same exact
day that you borrow.

652
00:28:43,680 --> 00:28:47,058
But you didn't actually need
to borrow the stocks until t3.

653
00:28:47,058 --> 00:28:49,100
GARY GENSLER: So you just
had to have the locate.

654
00:28:49,100 --> 00:28:50,810
AUDIENCE: You just need to
have a good locate on it.

655
00:28:50,810 --> 00:28:52,130
AUDIENCE: So you
couldn't double lend.

656
00:28:52,130 --> 00:28:53,672
AUDIENCE: But I
guess my question was

657
00:28:53,672 --> 00:28:55,400
if you moved that
securities lending

658
00:28:55,400 --> 00:28:58,250
transaction to a blockchain,
you could immediately borrow it

659
00:28:58,250 --> 00:28:59,820
and be able to trace that.

660
00:28:59,820 --> 00:29:01,435
And then when it
came against recall--

661
00:29:01,435 --> 00:29:02,810
GARY GENSLER: So
for those of you

662
00:29:02,810 --> 00:29:05,600
that are not as close to the
world of finance, and stock

663
00:29:05,600 --> 00:29:09,470
loan, and stock borrow,
the point of the discussion

664
00:29:09,470 --> 00:29:16,830
is that markets have evolved
built upon delayed settlement.

665
00:29:16,830 --> 00:29:18,390
And the delayed
settlement may well

666
00:29:18,390 --> 00:29:21,180
have been because they all
evolved from paper, not

667
00:29:21,180 --> 00:29:22,860
computer days.

668
00:29:22,860 --> 00:29:25,560
So we had authorization,
clearing, settling

669
00:29:25,560 --> 00:29:27,600
in the payment
world, but in stock

670
00:29:27,600 --> 00:29:33,330
borrow you had to actually
locate a security to sell.

671
00:29:33,330 --> 00:29:35,310
It sounds like there's
some market evolution

672
00:29:35,310 --> 00:29:38,910
post-2008 that you actually
had to add an identifier,

673
00:29:38,910 --> 00:29:40,890
though you didn't
have to borrow.

674
00:29:40,890 --> 00:29:45,510
My point is that all of this
can be put on a blockchain,

675
00:29:45,510 --> 00:29:48,630
but there's also
economic market realities

676
00:29:48,630 --> 00:29:51,240
as to whether somebody wants to.

677
00:29:51,240 --> 00:29:52,980
And I think, let's
see, if you're

678
00:29:52,980 --> 00:29:57,630
Dan you don't want charge backs
but Jack still wants them.

679
00:29:57,630 --> 00:30:00,210
And in the delayed
settlement Shimon

680
00:30:00,210 --> 00:30:02,670
wants to keep his
delayed settlement,

681
00:30:02,670 --> 00:30:05,200
and Alin wants to
go the other way.

682
00:30:05,200 --> 00:30:10,580
And I suspect that in some
markets, let's go with Dan

683
00:30:10,580 --> 00:30:15,490
and Alin are together, that
finality will be important.

684
00:30:15,490 --> 00:30:17,610
And what blockchain
allows, it allows

685
00:30:17,610 --> 00:30:24,270
for the economics of finality
to be a fair debate in a sense.

686
00:30:24,270 --> 00:30:27,840
A level whereas in the
past you couldn't even

687
00:30:27,840 --> 00:30:33,310
have the debate because
it was so paper intensive.

688
00:30:33,310 --> 00:30:36,280
So blockchain changes
that economics.

689
00:30:36,280 --> 00:30:38,035
Let me go back a
slide to say why--

690
00:30:42,100 --> 00:30:44,450
what are the
possible suitability

691
00:30:44,450 --> 00:30:49,390
of payments to the
blockchain technology world?

692
00:30:49,390 --> 00:30:51,190
And these were some
that I threw out.

693
00:30:51,190 --> 00:30:54,100
Payment systems use ledgers.

694
00:30:54,100 --> 00:30:55,800
Geez all right,
that's the sweet spot.

695
00:30:55,800 --> 00:30:57,140
They use ledgers.

696
00:30:57,140 --> 00:30:59,120
In fact, that's what
Satoshi Nakamoto

697
00:30:59,120 --> 00:31:00,980
started this whole thing on.

698
00:31:00,980 --> 00:31:03,890
Multiple parties
certainly want to read,

699
00:31:03,890 --> 00:31:06,050
and in a lot of circumstances
multiple parties

700
00:31:06,050 --> 00:31:07,650
want to write to the ledger.

701
00:31:07,650 --> 00:31:11,670
Like actually record
to the ledger.

702
00:31:11,670 --> 00:31:13,580
So it's kind of right
in the middle of this.

703
00:31:13,580 --> 00:31:15,990
You might be able to
lower verification costs,

704
00:31:15,990 --> 00:31:18,500
but more importantly
verification costs

705
00:31:18,500 --> 00:31:22,380
are really critical to
the economics of payment.

706
00:31:22,380 --> 00:31:26,610
That you have the money that
you say you have, or the value.

707
00:31:26,610 --> 00:31:30,870
You're sending it to this
account and not that account.

708
00:31:30,870 --> 00:31:32,790
So in a sense, I look
at this and I go,

709
00:31:32,790 --> 00:31:41,650
this feels like fertile ground
that hasn't yet been plowed.

710
00:31:41,650 --> 00:31:44,440
Because 10 year anniversary--

711
00:31:44,440 --> 00:31:52,030
or birthday-- we're
still not there.

712
00:31:52,030 --> 00:31:53,800
But any other thoughts?

713
00:31:53,800 --> 00:31:55,360
I mean, micro
payments is another,

714
00:31:55,360 --> 00:31:56,907
but Alin, you're the expert.

715
00:31:56,907 --> 00:31:58,990
AUDIENCE: Yeah, I mean,
the one thing that I think

716
00:31:58,990 --> 00:32:01,810
is exciting to some of the folks
in the DCI, myself included,

717
00:32:01,810 --> 00:32:03,310
is the fact that
we can attach codes

718
00:32:03,310 --> 00:32:05,890
to these movements of value.

719
00:32:05,890 --> 00:32:09,770
So you can program
these chunks of money.

720
00:32:09,770 --> 00:32:12,040
GARY GENSLER: And are
you saying attach code

721
00:32:12,040 --> 00:32:14,650
to identify it's
Kelly's payment,

722
00:32:14,650 --> 00:32:17,890
or it's James' payment, or
are you saying identify code

723
00:32:17,890 --> 00:32:20,110
in the form of smart contracts?

724
00:32:20,110 --> 00:32:22,210
AUDIENCE: Basically
it's smart contract.

725
00:32:22,210 --> 00:32:23,770
Just say, hey,
you know what, I'm

726
00:32:23,770 --> 00:32:27,600
going to release the funds
of this individual side

727
00:32:27,600 --> 00:32:29,350
and this individual
side at the same time,

728
00:32:29,350 --> 00:32:30,767
and then you get
the money, right?

729
00:32:30,767 --> 00:32:33,640
And that adds an additional
layer of complexity

730
00:32:33,640 --> 00:32:36,790
that traditional payments of
the Visa, MasterCard variety

731
00:32:36,790 --> 00:32:38,140
don't have.

732
00:32:38,140 --> 00:32:42,190
So you get a whole new layer,
for lack of a better word,

733
00:32:42,190 --> 00:32:43,950
of possibilities.

734
00:32:43,950 --> 00:32:46,173
When you start
adding, OK, I'm going

735
00:32:46,173 --> 00:32:47,590
to I'm going to
give you something

736
00:32:47,590 --> 00:32:49,840
if it's sunny outside.

737
00:32:49,840 --> 00:32:52,868
OK, we can make that
happen real time.

738
00:32:52,868 --> 00:32:54,410
GARY GENSLER: We
didn't have a real--

739
00:32:54,410 --> 00:32:56,980
AUDIENCE: Would that
eliminate some cost and--

740
00:32:56,980 --> 00:32:58,850
I mean, with the
Visas and whatnot?

741
00:32:58,850 --> 00:33:02,380
GARY GENSLER: Can you say a
little louder just so we--

742
00:33:02,380 --> 00:33:05,050
AUDIENCE: I get his
point, yes, but I

743
00:33:05,050 --> 00:33:08,290
mean, it will eliminate
the trust issue,

744
00:33:08,290 --> 00:33:11,620
which is with the Visa?

745
00:33:11,620 --> 00:33:13,840
GARY GENSLER: I'm
not sure I get why.

746
00:33:13,840 --> 00:33:16,330
AUDIENCE: The cost, and
the transaction movement,

747
00:33:16,330 --> 00:33:18,430
and the validation.

748
00:33:18,430 --> 00:33:19,810
Wouldn't that be eliminated?

749
00:33:19,810 --> 00:33:21,850
Yes, you have a smart contract.

750
00:33:21,850 --> 00:33:23,295
It's adding a layer.

751
00:33:23,295 --> 00:33:26,260
But on the other hand, it's
eliminating some layers

752
00:33:26,260 --> 00:33:28,050
from the other process, as well.

753
00:33:28,050 --> 00:33:30,050
AUDIENCE: Yeah, so assuming--

754
00:33:30,050 --> 00:33:32,090
so the onus is on
the technologies

755
00:33:32,090 --> 00:33:34,660
that build this to make
sure that you don't lose

756
00:33:34,660 --> 00:33:36,580
functionality that you
have in a Visa world

757
00:33:36,580 --> 00:33:39,490
because otherwise nobody would
use this whole new way of doing

758
00:33:39,490 --> 00:33:40,135
payments.

759
00:33:40,135 --> 00:33:41,510
So it's assumed
that you may take

760
00:33:41,510 --> 00:33:45,100
part of what the technology
offers and then add

761
00:33:45,100 --> 00:33:46,872
additional functionality.

762
00:33:46,872 --> 00:33:48,580
GARY GENSLER: I'm
going to say I'm pretty

763
00:33:48,580 --> 00:33:50,500
relaxed about the open laptops.

764
00:33:50,500 --> 00:33:54,160
I get less relaxed about
people texting during class,

765
00:33:54,160 --> 00:33:56,980
and I know that we're
all multitaskers.

766
00:33:56,980 --> 00:34:00,188
But I'm the most
relaxed you can imagine,

767
00:34:00,188 --> 00:34:02,230
but I'm starting to get
a little on my edge here.

768
00:34:02,230 --> 00:34:02,740
Tom?

769
00:34:02,740 --> 00:34:04,550
AUDIENCE: So I get
that blockchain

770
00:34:04,550 --> 00:34:07,930
allows for smart contracts,
and it's obviously

771
00:34:07,930 --> 00:34:09,833
a much more brute
force system where

772
00:34:09,833 --> 00:34:11,500
you're talking about
like attaching code

773
00:34:11,500 --> 00:34:13,120
or the payments are automated.

774
00:34:13,120 --> 00:34:16,150
I think of like I set up an
automatic payment of my cable

775
00:34:16,150 --> 00:34:16,889
bill every month.

776
00:34:16,889 --> 00:34:20,860
And so it's like as soon as
that payment comes to me,

777
00:34:20,860 --> 00:34:22,600
I pre-authorize
it to go through.

778
00:34:22,600 --> 00:34:28,989
So why can't you, in a
non-blockchain setting,

779
00:34:28,989 --> 00:34:31,730
establish basically a smart
contract that's got some more--

780
00:34:31,730 --> 00:34:33,730
GARY GENSLER: A
conditional payment?

781
00:34:33,730 --> 00:34:34,730
AUDIENCE: Right.

782
00:34:34,730 --> 00:34:37,010
So do you have to
have a blockchain

783
00:34:37,010 --> 00:34:39,257
to have a smart contract?

784
00:34:39,257 --> 00:34:41,090
AUDIENCE: Sorry, if I
could respond to that.

785
00:34:41,090 --> 00:34:43,540
One of the coolest use
cases that I've heard--

786
00:34:43,540 --> 00:34:45,889
and I'm not going to name
any entities, but you know,

787
00:34:45,889 --> 00:34:49,280
this blockchain-based
let's say company

788
00:34:49,280 --> 00:34:52,100
for lack of a better word who
wants to pay their employees.

789
00:34:52,100 --> 00:34:54,949
And I said, look,
you join me here now,

790
00:34:54,949 --> 00:34:57,777
we're going to make a smart
contract that basically

791
00:34:57,777 --> 00:35:00,110
is going to pay you for your
services for the next three

792
00:35:00,110 --> 00:35:01,170
years period.

793
00:35:01,170 --> 00:35:01,670
That's it.

794
00:35:01,670 --> 00:35:04,410
There's no additional at
such a such frequency.

795
00:35:04,410 --> 00:35:06,500
And we sign a contract
now and that's it.

796
00:35:06,500 --> 00:35:07,850
You're going to get paid, right?

797
00:35:07,850 --> 00:35:10,550
And then you start
working and you actually

798
00:35:10,550 --> 00:35:12,680
have a very ensured
way that I will get

799
00:35:12,680 --> 00:35:16,140
paid that nobody can stop it.

800
00:35:16,140 --> 00:35:17,677
Today you don't have that.

801
00:35:17,677 --> 00:35:19,760
There are many things that
will happen-- you know,

802
00:35:19,760 --> 00:35:21,460
management happens,
you know, whatever

803
00:35:21,460 --> 00:35:23,960
happens I can find a way to--
got to get around all of that,

804
00:35:23,960 --> 00:35:24,980
right?

805
00:35:24,980 --> 00:35:26,480
That's kind of
useful to make sure

806
00:35:26,480 --> 00:35:28,563
that, hey, I'm going to
get paid for [INAUDIBLE]..

807
00:35:28,563 --> 00:35:29,560
That's useful.

808
00:35:29,560 --> 00:35:32,240
AUDIENCE: Do you have
to then put aside--

809
00:35:32,240 --> 00:35:34,340
like if I am your
employer, I have

810
00:35:34,340 --> 00:35:38,110
to put that three years worth
of salary into a lockbox

811
00:35:38,110 --> 00:35:40,360
and I can't do anything with
it for those three years?

812
00:35:40,360 --> 00:35:41,610
AUDIENCE: Yeah, if
you're escrowing

813
00:35:41,610 --> 00:35:42,527
three years more work.

814
00:35:42,527 --> 00:35:46,013
AUDIENCE: It's a limitation.

815
00:35:46,013 --> 00:35:47,180
All of this is a limitation.

816
00:35:47,180 --> 00:35:48,750
It's not like you
suddenly have free money,

817
00:35:48,750 --> 00:35:50,330
it's all good for
everyone, right?

818
00:35:50,330 --> 00:35:52,790
But there are useful things
that show up-- usable things

819
00:35:52,790 --> 00:35:53,990
that we never thought about.

820
00:35:53,990 --> 00:35:55,490
So I think all I'm
saying that there

821
00:35:55,490 --> 00:35:56,765
are a lot of possibilities.

822
00:35:56,765 --> 00:35:58,760
And I don't know the
right use case for it.

823
00:35:58,760 --> 00:35:59,870
And I don't know,
it's just an example

824
00:35:59,870 --> 00:36:02,465
that I thought was like, that's
pretty cool, I could use this.

825
00:36:02,465 --> 00:36:03,590
But you know, you're right.

826
00:36:03,590 --> 00:36:04,850
I mean, there are
many implications.

827
00:36:04,850 --> 00:36:07,070
But just the very fact that
you have a whole new area

828
00:36:07,070 --> 00:36:09,510
to explore, to me
that's exciting.

829
00:36:09,510 --> 00:36:11,655
Like we've seen what
the system does.

830
00:36:11,655 --> 00:36:12,530
We've seen it, right?

831
00:36:12,530 --> 00:36:15,530
Like we bank 90% of the people.

832
00:36:15,530 --> 00:36:17,423
If you're in the 10%,
that's kind of sucky.

833
00:36:17,423 --> 00:36:19,590
But for the [INAUDIBLE],,
this kind of works, right?

834
00:36:19,590 --> 00:36:22,500
You know, you have deep lines
too, it's awesome, right?

835
00:36:22,500 --> 00:36:24,830
But we've hit the
ceiling of what

836
00:36:24,830 --> 00:36:26,528
we can do with this system.

837
00:36:26,528 --> 00:36:28,070
Maybe there's an
additional approach.

838
00:36:28,070 --> 00:36:29,300
Let's see what happens there.

839
00:36:29,300 --> 00:36:30,925
GARY GENSLER: I
invited Alin because we

840
00:36:30,925 --> 00:36:36,110
needed a little bit more
maximalism in the room

841
00:36:36,110 --> 00:36:37,730
I'm sorry, James?

842
00:36:37,730 --> 00:36:40,100
AUDIENCE: But think back
to the point earlier,

843
00:36:40,100 --> 00:36:41,930
it's do we really
need blockchain

844
00:36:41,930 --> 00:36:46,420
to do a lot of the stuff that
smart contracts promised to do?

845
00:36:46,420 --> 00:36:47,822
I mean, I set up my--

846
00:36:47,822 --> 00:36:49,280
in the UK, our
system [INAUDIBLE]..

847
00:36:49,280 --> 00:36:51,470
That happens, that just
disappeared from my account

848
00:36:51,470 --> 00:36:53,490
at a certain time period.

849
00:36:53,490 --> 00:36:55,680
Doesn't involve blockchain.

850
00:36:55,680 --> 00:36:58,630
I could see some benefits
of blockchain, but again,

851
00:36:58,630 --> 00:37:01,410
a lot of the smart
contracts, can we

852
00:37:01,410 --> 00:37:03,210
not already use
existing systems,

853
00:37:03,210 --> 00:37:04,442
make those systems better?

854
00:37:04,442 --> 00:37:06,400
But this goes back to
the whole payment system.

855
00:37:06,400 --> 00:37:09,810
There are a lot of
players in the field that

856
00:37:09,810 --> 00:37:13,786
haven't been innovating the
last 20 years, what we read.

857
00:37:13,786 --> 00:37:17,460
But can they not make existing
systems so much better

858
00:37:17,460 --> 00:37:18,742
without the use of blockchain?

859
00:37:18,742 --> 00:37:20,700
GARY GENSLER: So the
question is, do you really

860
00:37:20,700 --> 00:37:22,260
need blockchain or
is it just going

861
00:37:22,260 --> 00:37:25,500
to be a catalyst for sort of
the legacy systems to kind of

862
00:37:25,500 --> 00:37:29,400
do what they otherwise
technologically could have done

863
00:37:29,400 --> 00:37:34,680
but it's a kind of sharp kick
in the backside to kind of do

864
00:37:34,680 --> 00:37:36,147
a little bit better?

865
00:37:36,147 --> 00:37:37,980
AUDIENCE: That's a
really good point, right?

866
00:37:37,980 --> 00:37:40,250
That's something that we
debate a lot about them.

867
00:37:40,250 --> 00:37:42,332
And it actually
is as we sit now,

868
00:37:42,332 --> 00:37:44,790
it's absolutely possible that
this would be the way, right?

869
00:37:44,790 --> 00:37:47,402
So one example that shows
up frequently is BitTorrent.

870
00:37:47,402 --> 00:37:49,360
So BitTorrent, for those
of you who don't know,

871
00:37:49,360 --> 00:37:52,575
it's a way in which you share
video online and nobody--

872
00:37:52,575 --> 00:37:54,520
it has a lot of
problems with it,

873
00:37:54,520 --> 00:37:57,850
but it catalyzed and change the
entire distribution of media,

874
00:37:57,850 --> 00:37:58,683
right?

875
00:37:58,683 --> 00:38:00,600
It has a lot of problems
so it didn't work out

876
00:38:00,600 --> 00:38:03,450
the way folks thought it would,
but it still kind of changed

877
00:38:03,450 --> 00:38:04,523
the whole industry.

878
00:38:04,523 --> 00:38:06,440
And it is absolutely
possible that blockchains

879
00:38:06,440 --> 00:38:08,010
will take that path.

880
00:38:08,010 --> 00:38:10,565
It's unclear now, but
it's absolutely possible.

881
00:38:10,565 --> 00:38:11,940
GARY GENSLER: So
blockchain could

882
00:38:11,940 --> 00:38:14,520
be just a catalyst
like BitTorrent was,

883
00:38:14,520 --> 00:38:19,520
and then all of a sudden at the
end of the day we got Apple--

884
00:38:19,520 --> 00:38:21,740
what do they call it?

885
00:38:21,740 --> 00:38:23,360
Apple Store, thank you.

886
00:38:23,360 --> 00:38:26,497
But Zan, were you're trying to--

887
00:38:26,497 --> 00:38:28,580
AUDIENCE: Yeah well, I was
going to build on that.

888
00:38:28,580 --> 00:38:30,560
I think I've already
seen that happening.

889
00:38:30,560 --> 00:38:33,650
Like I was looking
into Swift recently

890
00:38:33,650 --> 00:38:36,350
and I think after blockchain
in the past few years

891
00:38:36,350 --> 00:38:39,680
they launched the Global
Payments Innovation Initiative.

892
00:38:39,680 --> 00:38:42,050
Which seems like, all
right, we recognize

893
00:38:42,050 --> 00:38:44,300
that our infrastructure
is legacy

894
00:38:44,300 --> 00:38:47,235
and we need to do something
to kind of keep current.

895
00:38:47,235 --> 00:38:49,110
And they've spent and
invested a ton of money

896
00:38:49,110 --> 00:38:52,430
in unifying standards across
the messaging platform

897
00:38:52,430 --> 00:38:53,950
and making it much
easier to use.

898
00:38:53,950 --> 00:38:57,080
So not a blockchain
solution, but has certainly

899
00:38:57,080 --> 00:38:57,663
been an event.

900
00:38:57,663 --> 00:38:59,955
GARY GENSLER: Right, so it's
been a catalyst for Swift.

901
00:38:59,955 --> 00:39:01,520
Ripple has been a
catalyst for Swift

902
00:39:01,520 --> 00:39:03,750
that we're going to
talk about in a minute,

903
00:39:03,750 --> 00:39:05,420
but others have been as well.

904
00:39:05,420 --> 00:39:07,430
But I still would
challenge the group--

905
00:39:07,430 --> 00:39:09,860
and it's sort of what we're
all trying to do here--

906
00:39:09,860 --> 00:39:14,030
are there still opportunities
that an append-only log,

907
00:39:14,030 --> 00:39:17,660
that you're appending,
you're adding information

908
00:39:17,660 --> 00:39:23,660
to the registry or the ledger,
you're not deleting it--

909
00:39:23,660 --> 00:39:25,040
well, this is going to be good--

910
00:39:25,040 --> 00:39:28,250
and you need a consensus
of multiple parties writing

911
00:39:28,250 --> 00:39:29,810
to the ledger.

912
00:39:29,810 --> 00:39:31,328
A special guest.

913
00:39:31,328 --> 00:39:32,552
AUDIENCE: Hi, it's Sri.

914
00:39:32,552 --> 00:39:33,650
Many of you know me.

915
00:39:33,650 --> 00:39:36,040
GARY GENSLER: Sri
many people might now

916
00:39:36,040 --> 00:39:38,985
is Priya's significant
other-- husband, I think.

917
00:39:38,985 --> 00:39:40,610
AUDIENCE: But that's
not why he's here.

918
00:39:40,610 --> 00:39:42,320
GARY GENSLER: He's not here--
he's here as a payment expert.

919
00:39:42,320 --> 00:39:44,530
AUDIENCE: No, that's
the reason why I'm here.

920
00:39:44,530 --> 00:39:45,800
GARY GENSLER: No, but
you are a payment--

921
00:39:45,800 --> 00:39:46,420
do you want to introduce--

922
00:39:46,420 --> 00:39:47,837
AUDIENCE: Well,
I'm not an expert.

923
00:39:47,837 --> 00:39:50,480
I work for MasterCard,
and I happen

924
00:39:50,480 --> 00:39:51,890
to be Pria's husband, as well.

925
00:39:54,450 --> 00:39:56,477
I've been in this
industry for a few years.

926
00:39:56,477 --> 00:39:57,310
AUDIENCE: Priceless.

927
00:39:57,310 --> 00:39:58,690
AUDIENCE: Price?

928
00:39:58,690 --> 00:39:59,700
AUDIENCE: Priceless.

929
00:39:59,700 --> 00:40:00,533
AUDIENCE: Priceless.

930
00:40:00,533 --> 00:40:02,052
Exactly, we're
still running that.

931
00:40:02,052 --> 00:40:04,010
GARY GENSLER: So you're
at MasterCard payments,

932
00:40:04,010 --> 00:40:06,800
and give us your
thoughts on this.

933
00:40:06,800 --> 00:40:09,020
AUDIENCE: So I'm actually
in the opposite camp

934
00:40:09,020 --> 00:40:12,050
from this blockchain
and cryptocurrency

935
00:40:12,050 --> 00:40:14,130
for a few reasons.

936
00:40:14,130 --> 00:40:16,140
GARY GENSLER: So you're
in a minimalist camp?

937
00:40:16,140 --> 00:40:20,120
AUDIENCE: You can
call it minimalist.

938
00:40:20,120 --> 00:40:21,830
I believe that you
can do everything

939
00:40:21,830 --> 00:40:25,280
that blockchain promises
it does using the currency

940
00:40:25,280 --> 00:40:28,520
systems we have.

941
00:40:28,520 --> 00:40:30,420
There are a couple
of reasons for that.

942
00:40:30,420 --> 00:40:33,580
Number one is crypto
is expensive average

943
00:40:33,580 --> 00:40:35,060
per transaction.

944
00:40:35,060 --> 00:40:37,790
You can always
secure transactions

945
00:40:37,790 --> 00:40:42,090
in systems we have today
using technologies that exist,

946
00:40:42,090 --> 00:40:45,300
but you don't need to have
a Bitcoin or a blockchain,

947
00:40:45,300 --> 00:40:47,250
as an example.

948
00:40:47,250 --> 00:40:49,070
So interlockability
that you're talking

949
00:40:49,070 --> 00:40:53,360
about when it comes to
Bitcoin and the other kind

950
00:40:53,360 --> 00:40:55,610
of advantages about
distributed measures,

951
00:40:55,610 --> 00:40:58,160
everything can be accomplished
through the systems

952
00:40:58,160 --> 00:40:59,480
we have today.

953
00:40:59,480 --> 00:41:03,500
They just don't choose to do
it because it's expensive,

954
00:41:03,500 --> 00:41:06,560
and it will be expensive
when you scale blockchain

955
00:41:06,560 --> 00:41:10,180
to the millions of people in
other industries you have.

956
00:41:10,180 --> 00:41:11,860
It will become expensive
there, as well.

957
00:41:15,900 --> 00:41:20,960
So the two main things that are
important in payment systems

958
00:41:20,960 --> 00:41:23,690
are acceptance and scale.

959
00:41:23,690 --> 00:41:25,100
Simple.

960
00:41:25,100 --> 00:41:29,160
If you achieve the acceptance
and scale to blockchain, sure.

961
00:41:29,160 --> 00:41:31,410
That'll work, and everybody
will be using blockchains,

962
00:41:31,410 --> 00:41:33,410
and Bitcoins, and
it'll all work.

963
00:41:33,410 --> 00:41:36,530
The problem is it's
taken us 40 years

964
00:41:36,530 --> 00:41:39,550
to achieve acceptance of scale
with Visa and MasterCard,

965
00:41:39,550 --> 00:41:42,290
and [INAUDIBLE] of
this whole ecosystem.

966
00:41:42,290 --> 00:41:44,090
It's taken a long time.

967
00:41:44,090 --> 00:41:45,650
And it's working.

968
00:41:45,650 --> 00:41:48,710
And if you want to replace
that with this new system

969
00:41:48,710 --> 00:41:52,050
and achieve the same level
of acceptance and scale,

970
00:41:52,050 --> 00:41:55,130
think about how big
of an effort that is.

971
00:41:55,130 --> 00:41:56,620
It's almost impossible.

972
00:41:56,620 --> 00:41:59,270
And the amount of dollars you
would have to spend on that,

973
00:41:59,270 --> 00:42:00,710
why?

974
00:42:00,710 --> 00:42:03,950
GARY GENSLER: So I see a
few people want to take--

975
00:42:03,950 --> 00:42:06,460
Hugo are you going to
take the other side?

976
00:42:06,460 --> 00:42:08,033
AUDIENCE: I can start, sure.

977
00:42:08,033 --> 00:42:09,950
GARY GENSLER: And then
we're going to move on,

978
00:42:09,950 --> 00:42:12,320
but I want to hear
the other side.

979
00:42:12,320 --> 00:42:14,960
And I thank you for being
willing to speak up,

980
00:42:14,960 --> 00:42:16,620
because it's really helpful.

981
00:42:16,620 --> 00:42:20,640
And I don't know your role at
MasterCard, but it's just--

982
00:42:20,640 --> 00:42:21,140
what's that?

983
00:42:21,140 --> 00:42:22,220
AUDIENCE: Product management.

984
00:42:22,220 --> 00:42:23,600
GARY GENSLER:
Product management.

985
00:42:23,600 --> 00:42:27,068
But you're speaking for yourself
personally or MasterCard?

986
00:42:27,068 --> 00:42:29,360
AUDIENCE: MasterCard is
dabbling in blockchain as well,

987
00:42:29,360 --> 00:42:32,212
so I'm speaking for personally.

988
00:42:32,212 --> 00:42:33,920
GARY GENSLER: Because
MasterCard actually

989
00:42:33,920 --> 00:42:37,010
filed a patent with
the US Patent Office

990
00:42:37,010 --> 00:42:40,570
for crypto fractional banking.

991
00:42:40,570 --> 00:42:45,200
And Bank of America has 43
patents in the crypto space,

992
00:42:45,200 --> 00:42:47,390
and Visa's filed for
patents in the book.

993
00:42:47,390 --> 00:42:51,200
So you have Visa, Bank
of America MasterCard,

994
00:42:51,200 --> 00:42:56,090
and others filing for patents
on blockchain fractional banking

995
00:42:56,090 --> 00:42:57,330
payments and so forth.

996
00:42:57,330 --> 00:43:00,650
So it's sort of an
interesting side.

997
00:43:00,650 --> 00:43:04,130
We'll get established
Professor Lessig.

998
00:43:04,130 --> 00:43:05,840
AUDIENCE: Just one
qualification on this.

999
00:43:05,840 --> 00:43:09,320
It kind of depends on
who you are right now.

1000
00:43:09,320 --> 00:43:14,300
I mean, because this is all
true as a description of banking

1001
00:43:14,300 --> 00:43:16,640
in the developed world,
but to the extent

1002
00:43:16,640 --> 00:43:18,650
you're talking about
these transactions

1003
00:43:18,650 --> 00:43:22,580
outside the developed
world then the coefficients

1004
00:43:22,580 --> 00:43:25,170
on these variables
changes significantly.

1005
00:43:25,170 --> 00:43:29,120
So if you have no reliable
legal infrastructure,

1006
00:43:29,120 --> 00:43:32,150
then blockchain technology
becomes a real plus

1007
00:43:32,150 --> 00:43:33,680
relative to a world
where you have

1008
00:43:33,680 --> 00:43:38,240
a very reliable infrastructure,
which is obviously developed.

1009
00:43:38,240 --> 00:43:40,280
GARY GENSLER: So
what Larry shared

1010
00:43:40,280 --> 00:43:42,800
with us is, well, there's a
lot of different countries--

1011
00:43:42,800 --> 00:43:44,015
180.

1012
00:43:44,015 --> 00:43:47,190
There's 1.7 billion people
still not banked in the world.

1013
00:43:47,190 --> 00:43:50,240
Half of sub-Saharan
Africa, for instance.

1014
00:43:50,240 --> 00:43:53,840
So there is still
a challenge there.

1015
00:43:53,840 --> 00:43:55,070
I'm sorry, Hugo, we--

1016
00:43:55,070 --> 00:43:57,630
AUDIENCE: I was going to
say something similar.

1017
00:43:57,630 --> 00:43:59,727
Like I appreciate
the argument but it

1018
00:43:59,727 --> 00:44:01,810
kind of sounds like, it's
not broke, don't fix it.

1019
00:44:01,810 --> 00:44:05,000
Like we've spent so much
money building this system.

1020
00:44:05,000 --> 00:44:07,160
So you know it
works now, but like,

1021
00:44:07,160 --> 00:44:09,590
let's not look at what
technological innovation can

1022
00:44:09,590 --> 00:44:10,090
add.

1023
00:44:10,090 --> 00:44:11,882
AUDIENCE: Well no,
that's not what I meant.

1024
00:44:11,882 --> 00:44:16,640
What I meant was it's not if
it's not broken, don't fix it.

1025
00:44:16,640 --> 00:44:21,020
We have achieved so much in the
payments world over the past 40

1026
00:44:21,020 --> 00:44:22,340
years.

1027
00:44:22,340 --> 00:44:27,430
Improve it while maintaining the
goodness of the infrastructure

1028
00:44:27,430 --> 00:44:30,080
that exists today, instead
of blockchain is just a rip

1029
00:44:30,080 --> 00:44:33,890
and replace the whole thing
which doesn't solve a purpose.

1030
00:44:33,890 --> 00:44:34,580
AUDIENCE: Sure.

1031
00:44:34,580 --> 00:44:38,990
I don't think that blockchain
is the, like, one stop shop

1032
00:44:38,990 --> 00:44:40,280
for everything.

1033
00:44:40,280 --> 00:44:42,530
I'm more on the
Bitcoin maximalist side

1034
00:44:42,530 --> 00:44:46,850
where I think, sure, if you have
a global currency where you can

1035
00:44:46,850 --> 00:44:52,100
go anywhere, and use it,
and it's self-sovereign

1036
00:44:52,100 --> 00:44:55,560
and you can do all that,
that would be great.

1037
00:44:55,560 --> 00:45:01,490
I know like MasterCard and Visa
have an interest in saying,

1038
00:45:01,490 --> 00:45:03,590
well, we've spent
so much money, you

1039
00:45:03,590 --> 00:45:06,120
can use MasterCard and Visa
in most places in the world.

1040
00:45:06,120 --> 00:45:11,810
But what happens if you go
into the middle of some village

1041
00:45:11,810 --> 00:45:15,120
in India or sub-Saharan
Africa or wherever,

1042
00:45:15,120 --> 00:45:17,540
and they don't
take a credit card.

1043
00:45:17,540 --> 00:45:21,290
But they have a cell phone
with a Bitcoin wallet,

1044
00:45:21,290 --> 00:45:22,670
I can still transact there.

1045
00:45:22,670 --> 00:45:24,075
And yeah.

1046
00:45:24,075 --> 00:45:27,045
AUDIENCE: You can transact
with a real currency, also.

1047
00:45:27,045 --> 00:45:29,060
AUDIENCE: Right,
but then they have

1048
00:45:29,060 --> 00:45:32,870
to go through the process of
changing that and [INAUDIBLE]..

1049
00:45:32,870 --> 00:45:36,263
GARY GENSLER: So let's take
Brodish and then we'll--

1050
00:45:36,263 --> 00:45:37,680
this is a good
debate, by the way.

1051
00:45:37,680 --> 00:45:40,090
AUDIENCE: Since the
discussion came to India, so--

1052
00:45:40,090 --> 00:45:41,184
[LAUGHTER]

1053
00:45:41,184 --> 00:45:43,886
GARY GENSLER: So we
have our expert now.

1054
00:45:43,886 --> 00:45:47,570
AUDIENCE: So there could be
a third solution, as well.

1055
00:45:47,570 --> 00:45:50,860
So we have once we're in the
readings of the last class,

1056
00:45:50,860 --> 00:45:54,110
as well, the united
payment interests in India,

1057
00:45:54,110 --> 00:45:56,630
which is not a
blockchain solution.

1058
00:45:56,630 --> 00:45:59,270
So the government of
India has actually

1059
00:45:59,270 --> 00:46:02,330
promoted a new entity
called a payment bank, which

1060
00:46:02,330 --> 00:46:04,790
is like a no frills,
no service kind of bank

1061
00:46:04,790 --> 00:46:08,540
to promote financial inclusion.

1062
00:46:08,540 --> 00:46:11,600
And based on that, just using
a unique identification number

1063
00:46:11,600 --> 00:46:14,700
and just a mobile device you
can make any sort of payments

1064
00:46:14,700 --> 00:46:16,340
of any denomination.

1065
00:46:16,340 --> 00:46:20,740
It can be very, very
local currency as well,

1066
00:46:20,740 --> 00:46:23,480
and you can do all of
that at real time basis

1067
00:46:23,480 --> 00:46:25,320
without any of these
intermediaries.

1068
00:46:25,320 --> 00:46:27,410
And those are low
cost transactions

1069
00:46:27,410 --> 00:46:30,452
without leveraging on the
blockchain technology.

1070
00:46:30,452 --> 00:46:32,410
AUDIENCE: So what you
need an [INAUDIBLE] card?

1071
00:46:32,410 --> 00:46:34,990
AUDIENCE: You need a [INAUDIBLE]
card, which is more than--

1072
00:46:34,990 --> 00:46:37,747
it's more than 95%
coverage in the country.

1073
00:46:37,747 --> 00:46:39,330
AUDIENCE: What's the
name of the card?

1074
00:46:39,330 --> 00:46:42,460
Just like, do you need some
form of identification?

1075
00:46:42,460 --> 00:46:44,640
GARY GENSLER: So
India's really been

1076
00:46:44,640 --> 00:46:48,840
at the cutting edge in the
last, say, two to three years

1077
00:46:48,840 --> 00:46:51,020
partly because
they could leapfrog

1078
00:46:51,020 --> 00:46:52,430
some of the card rails.

1079
00:46:52,430 --> 00:46:56,270
There was not broad
adoption or access

1080
00:46:56,270 --> 00:46:59,930
Sri has talked about in
India for credit cards.

1081
00:46:59,930 --> 00:47:02,850
And so similar to
what we saw in Kenya

1082
00:47:02,850 --> 00:47:06,230
And we talked about
on Tuesday in China

1083
00:47:06,230 --> 00:47:11,090
where companies, private
sector, leapfrogged,

1084
00:47:11,090 --> 00:47:13,550
in India it was more if I
believe it was the government

1085
00:47:13,550 --> 00:47:15,350
sector rather than
the private sector

1086
00:47:15,350 --> 00:47:19,400
said we want to bring a
great many of the population

1087
00:47:19,400 --> 00:47:21,020
into a system.

1088
00:47:21,020 --> 00:47:24,620
So they created a
unique ID system.

1089
00:47:24,620 --> 00:47:28,040
I can't remember the
name of each of these.

1090
00:47:28,040 --> 00:47:30,380
That's the card.

1091
00:47:30,380 --> 00:47:32,960
They created a payment--

1092
00:47:32,960 --> 00:47:35,205
IMSP, if I got that right?

1093
00:47:35,205 --> 00:47:36,580
AUDIENCE: IMPS
was the older one.

1094
00:47:36,580 --> 00:47:38,038
Now it's UPI.

1095
00:47:38,038 --> 00:47:39,080
United payment interface.

1096
00:47:39,080 --> 00:47:42,470
GARY GENSLER: A payment system,
which is not 270 basis points

1097
00:47:42,470 --> 00:47:45,890
but probably is measured and
single to low double digit

1098
00:47:45,890 --> 00:47:48,560
basis points.

1099
00:47:48,560 --> 00:47:55,490
Your actual pay, everybody
in India, your employment

1100
00:47:55,490 --> 00:47:56,700
goes into this.

1101
00:47:56,700 --> 00:48:01,100
And there's biometrics
as well to the ID system.

1102
00:48:01,100 --> 00:48:03,170
Now there, might be
cybersecurity risks

1103
00:48:03,170 --> 00:48:07,070
that this is all then in a
sense somewhat centralized.

1104
00:48:07,070 --> 00:48:09,610
But India sort of leapfrogged.

1105
00:48:09,610 --> 00:48:11,870
It's kind of interesting.

1106
00:48:11,870 --> 00:48:13,240
But we've had a lively debate.

1107
00:48:13,240 --> 00:48:15,320
Is finality something
we want or not?

1108
00:48:15,320 --> 00:48:17,570
Is charge back something
we want or not?

1109
00:48:17,570 --> 00:48:19,520
Can you do this all
without blockchain,

1110
00:48:19,520 --> 00:48:22,250
or is blockchain
something that's needed?

1111
00:48:22,250 --> 00:48:24,440
And of course, the question
even if blockchain's

1112
00:48:24,440 --> 00:48:27,710
really kind of neat
and good, will it just

1113
00:48:27,710 --> 00:48:31,520
get the incumbents to
move a little bit more

1114
00:48:31,520 --> 00:48:33,470
into innovation and
lowering their costs?

1115
00:48:33,470 --> 00:48:35,950
Do you want to
close this one out?

1116
00:48:35,950 --> 00:48:38,720
AUDIENCE: I think I
may add something else.

1117
00:48:38,720 --> 00:48:40,820
It's censorship resistant.

1118
00:48:40,820 --> 00:48:46,160
So everyone can be
exchanging Bitcoins

1119
00:48:46,160 --> 00:48:49,475
without any government
forbidding it.

1120
00:48:49,475 --> 00:48:51,350
GARY GENSLER: Now, it's
an interesting thing.

1121
00:48:51,350 --> 00:48:56,150
If it's censorship resistant
to you must extend me credit

1122
00:48:56,150 --> 00:49:00,230
and you can't decide whether
I get credit based on my race,

1123
00:49:00,230 --> 00:49:03,350
or religion, or
ethnicity, and so forth,

1124
00:49:03,350 --> 00:49:05,690
that's probably something
a broad group of people

1125
00:49:05,690 --> 00:49:07,580
would say, that's pretty good.

1126
00:49:07,580 --> 00:49:10,340
But if it's censorship
resistant to being like you can

1127
00:49:10,340 --> 00:49:14,810
drug traffic society might say,
well, that's not what we want.

1128
00:49:14,810 --> 00:49:17,160
So it's an interesting set of--

1129
00:49:17,160 --> 00:49:20,400
when the technology allows
you to be censorship resistant

1130
00:49:20,400 --> 00:49:21,980
but society says,
well, there's still

1131
00:49:21,980 --> 00:49:30,155
some social cohesion about drug
trafficking, or child labor.

1132
00:49:30,155 --> 00:49:33,080
And I'm using the ones
that are easy to hold onto,

1133
00:49:33,080 --> 00:49:35,840
so it's a little
interesting debate.

1134
00:49:35,840 --> 00:49:38,300
Yes?

1135
00:49:38,300 --> 00:49:41,690
AUDIENCE: So when we're speaking
about the underdeveloped

1136
00:49:41,690 --> 00:49:44,340
and developing part
of the economy,

1137
00:49:44,340 --> 00:49:45,590
and payments, and blockchain--

1138
00:49:45,590 --> 00:49:46,860
GARY GENSLER: Professor
Lessig's comments.

1139
00:49:46,860 --> 00:49:47,120
AUDIENCE: Yes.

1140
00:49:47,120 --> 00:49:49,280
And I think one thing
that we haven't addressed

1141
00:49:49,280 --> 00:49:52,140
is the last mile,
which is liquidity.

1142
00:49:52,140 --> 00:49:55,250
And so even if blockchain
addresses, let's say,

1143
00:49:55,250 --> 00:49:57,590
the accountability
of the transfer,

1144
00:49:57,590 --> 00:50:00,860
what it doesn't address
is the actual liquidity

1145
00:50:00,860 --> 00:50:05,000
and utilization in the last
mile on the ground, which

1146
00:50:05,000 --> 00:50:07,830
is very essential to
a developing economy.

1147
00:50:07,830 --> 00:50:08,940
GARY GENSLER: Right.

1148
00:50:08,940 --> 00:50:10,350
Sorry, remind me--

1149
00:50:10,350 --> 00:50:10,850
Aviva.

1150
00:50:10,850 --> 00:50:13,940
So Aviva, are you saying last
mile like that somebody could

1151
00:50:13,940 --> 00:50:18,470
actually use this cryptocurrency
in a store to buy their grains,

1152
00:50:18,470 --> 00:50:21,418
or their goods for the week
right to keep their family--

1153
00:50:21,418 --> 00:50:23,460
AUDIENCE: Yeah, so that
doesn't solve the problem

1154
00:50:23,460 --> 00:50:27,120
of adoption and scalability.

1155
00:50:27,120 --> 00:50:28,400
GARY GENSLER: Right.

1156
00:50:28,400 --> 00:50:31,190
Fiat money-- and before
we had paper money,

1157
00:50:31,190 --> 00:50:34,800
we had coins and everything--
money is a social construct.

1158
00:50:34,800 --> 00:50:36,440
We've talked about that.

1159
00:50:36,440 --> 00:50:40,160
And beyond its advantages
that it's used for taxes,

1160
00:50:40,160 --> 00:50:43,190
and it's good for all debts
public and private in most

1161
00:50:43,190 --> 00:50:47,570
countries, it really is
exactly what Aviva's saying.

1162
00:50:47,570 --> 00:50:51,440
That society at large
says, I will use this

1163
00:50:51,440 --> 00:50:54,010
as a unit of account.

1164
00:50:54,010 --> 00:51:00,760
That whether it's my employment,
or the milled goods I'm buying

1165
00:51:00,760 --> 00:51:06,070
to feed my family, it's this
unit of account that over

1166
00:51:06,070 --> 00:51:09,880
hundreds of years people
adopt until they don't.

1167
00:51:09,880 --> 00:51:11,500
I don't know how
long in Venezuela,

1168
00:51:11,500 --> 00:51:16,130
though I keep using their
currency as a unit of account.

1169
00:51:16,130 --> 00:51:19,540
So sometimes there's
last mile problem

1170
00:51:19,540 --> 00:51:24,040
is even with fiat
currency, but I not only

1171
00:51:24,040 --> 00:51:28,110
hear you, I share your
thoughts that where

1172
00:51:28,110 --> 00:51:36,260
is the adoption in the last
mile, if you well said.

1173
00:51:36,260 --> 00:51:40,820
So just we talked
about the challenges.

1174
00:51:40,820 --> 00:51:42,400
What are some companies?

1175
00:51:42,400 --> 00:51:44,100
Well, there's in crypto--

1176
00:51:44,100 --> 00:51:46,130
and I'm listing two or three.

1177
00:51:46,130 --> 00:51:48,140
But if you wanted to
talk about others,

1178
00:51:48,140 --> 00:51:50,870
I just listed in crypto
there's startups.

1179
00:51:50,870 --> 00:51:54,280
BitPay is one of the
most popular ones where

1180
00:51:54,280 --> 00:51:57,590
it was basically saying
to merchants, if you

1181
00:51:57,590 --> 00:52:02,240
want to take Bitcoin, we'll
convert your Bitcoin for you

1182
00:52:02,240 --> 00:52:03,650
to fiat.

1183
00:52:03,650 --> 00:52:06,272
And that's in essence
what they're doing.

1184
00:52:06,272 --> 00:52:08,520
So I'm going to take it back
to the Hillary campaign.

1185
00:52:08,520 --> 00:52:12,960
We had some donors that
wanted to give us Bitcoin.

1186
00:52:12,960 --> 00:52:15,570
We're a merchant in
a sense, but we also

1187
00:52:15,570 --> 00:52:17,430
wanted to elect a president.

1188
00:52:17,430 --> 00:52:19,840
And those donors might have
wanted to give us Bitcoin.

1189
00:52:19,840 --> 00:52:26,490
So one of my colleagues had
to investigate, could we

1190
00:52:26,490 --> 00:52:29,700
take Bitcoin, and what did it
mean under federal election

1191
00:52:29,700 --> 00:52:31,230
law, and things like that.

1192
00:52:31,230 --> 00:52:35,880
And we looked at whether to hire
BitPay or somebody like that.

1193
00:52:35,880 --> 00:52:37,650
We chose not to
because we didn't

1194
00:52:37,650 --> 00:52:40,950
think there was enough donors
who really wanted to give us

1195
00:52:40,950 --> 00:52:43,290
enough Bitcoin,
and we didn't think

1196
00:52:43,290 --> 00:52:46,470
we would freshen
up Hillary's image

1197
00:52:46,470 --> 00:52:47,850
because we were
going to announce

1198
00:52:47,850 --> 00:52:51,210
she's the Bitcoin
candidate or something.

1199
00:52:51,210 --> 00:52:52,710
Tom, did we miss it?

1200
00:52:52,710 --> 00:52:53,320
Is this--

1201
00:52:53,320 --> 00:52:54,640
AUDIENCE: Could've won
Wisconsin with that.

1202
00:52:54,640 --> 00:52:56,723
GARY GENSLER: We could've
won Wisconsin with that.

1203
00:52:56,723 --> 00:53:00,840
[LAUGHTER] OK.

1204
00:53:00,840 --> 00:53:03,660
I'm going to be
apologizing until my grave

1205
00:53:03,660 --> 00:53:07,140
for that election,
but this is it, right?

1206
00:53:07,140 --> 00:53:08,920
But it's a real story.

1207
00:53:08,920 --> 00:53:10,770
One of my colleagues
investigated it.

1208
00:53:10,770 --> 00:53:13,110
I'm not trying to throw him
under the bus or anything,

1209
00:53:13,110 --> 00:53:16,560
but it was just like, oh
my gosh, the amount of time

1210
00:53:16,560 --> 00:53:19,140
we would ad spend with
Perkins Coie, the law firm,

1211
00:53:19,140 --> 00:53:22,290
and what we would have to pay
to kind of think this through.

1212
00:53:22,290 --> 00:53:28,350
And we can only take
$2,700, so every day

1213
00:53:28,350 --> 00:53:30,330
would be a different
number of Bitcoin.

1214
00:53:30,330 --> 00:53:32,940
It could not be more
than $2,700 because there

1215
00:53:32,940 --> 00:53:36,990
was no way that we were going
to break the election laws.

1216
00:53:36,990 --> 00:53:41,080
So ultimately, the
project went away.

1217
00:53:41,080 --> 00:53:43,920
And the reason I share that
story is for a lot of merchants

1218
00:53:43,920 --> 00:53:46,080
right now, maybe as Aviva
said in the last mile,

1219
00:53:46,080 --> 00:53:50,145
the merchants are saying, I'm
not sure I need to do this.

1220
00:53:50,145 --> 00:53:51,270
But there's a way to do it.

1221
00:53:51,270 --> 00:53:53,820
If anybody in this room
starts a company and you say,

1222
00:53:53,820 --> 00:53:57,540
I want to take crypto, there
are companies out there

1223
00:53:57,540 --> 00:54:03,540
that will provide you that
interface and their fees.

1224
00:54:03,540 --> 00:54:05,760
Does anybody know BitPay's fees?

1225
00:54:05,760 --> 00:54:10,460
It wasn't part of the
readings, but other than Alin?

1226
00:54:10,460 --> 00:54:11,400
All right, Alin?

1227
00:54:11,400 --> 00:54:12,230
AUDIENCE: 1%.

1228
00:54:12,230 --> 00:54:14,550
GARY GENSLER: 1%.

1229
00:54:14,550 --> 00:54:16,530
So if you are a merchant--

1230
00:54:16,530 --> 00:54:20,180
Starbucks, the
Hillary campaign--

1231
00:54:20,180 --> 00:54:23,330
if you're a merchant
and you say,

1232
00:54:23,330 --> 00:54:28,430
I want to have less than
2.7%, I can have 1% fees.

1233
00:54:28,430 --> 00:54:30,830
I want finality and I
don't want charge backs

1234
00:54:30,830 --> 00:54:34,070
depending upon which
side of this you're on.

1235
00:54:34,070 --> 00:54:36,950
They're trying to just do
it as a lower cost solution.

1236
00:54:36,950 --> 00:54:38,160
1%.

1237
00:54:38,160 --> 00:54:39,110
Pria?

1238
00:54:39,110 --> 00:54:42,310
AUDIENCE: Similar story, but
maybe with a happy ending.

1239
00:54:42,310 --> 00:54:42,883
So a lot--

1240
00:54:42,883 --> 00:54:45,050
GARY GENSLER: Happier than
not winning the election?

1241
00:54:45,050 --> 00:54:47,540
[LAUGHTER]

1242
00:54:47,540 --> 00:54:50,480
AUDIENCE: So far a lot of
philanthropic organizations,

1243
00:54:50,480 --> 00:54:52,730
this is becoming
a very real issue.

1244
00:54:52,730 --> 00:54:55,060
So the Silicon Valley
Community Foundation

1245
00:54:55,060 --> 00:54:58,340
recorded a 30% increase
in its endowment

1246
00:54:58,340 --> 00:55:01,460
due to digital assets donations.

1247
00:55:01,460 --> 00:55:05,240
And it's happening in a few
community foundations as well.

1248
00:55:05,240 --> 00:55:07,490
It's a growing field
of interest, and there

1249
00:55:07,490 --> 00:55:08,690
even a story--

1250
00:55:08,690 --> 00:55:11,270
I mean, not a story,
It really happened--

1251
00:55:11,270 --> 00:55:13,820
of one of the exchanges
doing this service,

1252
00:55:13,820 --> 00:55:18,440
converting the digital
donations into fiat currency,

1253
00:55:18,440 --> 00:55:19,760
and it crashed.

1254
00:55:19,760 --> 00:55:22,820
Because the volume was just
so much they could not--

1255
00:55:22,820 --> 00:55:24,680
even the trickle they
could not keep up.

1256
00:55:24,680 --> 00:55:27,860
But this is becoming
a real thing now.

1257
00:55:27,860 --> 00:55:30,380
GARY GENSLER: And whether
it's a large foundation

1258
00:55:30,380 --> 00:55:32,390
or political campaign,
there's also a little bit

1259
00:55:32,390 --> 00:55:33,530
of reputational risk.

1260
00:55:33,530 --> 00:55:38,540
Because you want to make
sure that the funds are not

1261
00:55:38,540 --> 00:55:41,000
illicit funds.

1262
00:55:41,000 --> 00:55:43,070
So there's a little bit
of a reputational risk

1263
00:55:43,070 --> 00:55:45,847
that maybe a Starbucks
wouldn't have when you're just

1264
00:55:45,847 --> 00:55:46,805
buying a cup of coffee.

1265
00:55:49,550 --> 00:55:52,550
Never run a Starbucks, but--

1266
00:55:52,550 --> 00:55:55,310
So the crypto
exchanges and BitPay

1267
00:55:55,310 --> 00:55:57,320
sort of provide a
lot of services.

1268
00:55:57,320 --> 00:55:59,960
E-wallet companies
provide services.

1269
00:55:59,960 --> 00:56:00,560
Sean?

1270
00:56:00,560 --> 00:56:03,590
AUDIENCE: I'm just curious, how
does BitPay manage volatility?

1271
00:56:03,590 --> 00:56:05,120
How does it cash out?

1272
00:56:05,120 --> 00:56:07,290
GARY GENSLER: How does
it manage volatility?

1273
00:56:07,290 --> 00:56:10,440
AUDIENCE: So it only takes a 1%
cut of the transaction value,

1274
00:56:10,440 --> 00:56:13,470
but the volatility of
which can go over 1%

1275
00:56:13,470 --> 00:56:15,230
like every couple of seconds.

1276
00:56:15,230 --> 00:56:17,660
So in that case,
how do they manage?

1277
00:56:17,660 --> 00:56:21,680
GARY GENSLER: So they
are arranged basically

1278
00:56:21,680 --> 00:56:24,040
with a number of
crypto exchanges.

1279
00:56:24,040 --> 00:56:25,790
I once knew, but I
don't know whether they

1280
00:56:25,790 --> 00:56:28,370
have arrangements with
three, or five, or whatever.

1281
00:56:28,370 --> 00:56:31,460
And they basically are
pricing right at the--

1282
00:56:31,460 --> 00:56:35,810
so they have sort of close
to real time pricing.

1283
00:56:35,810 --> 00:56:39,140
So I'm going to buy
a cup of coffee.

1284
00:56:39,140 --> 00:56:41,290
The way the technology works--

1285
00:56:41,290 --> 00:56:42,470
and let's say it's--

1286
00:56:42,470 --> 00:56:46,460
what's a Starbucks cup
of coffee, it's $5?

1287
00:56:46,460 --> 00:56:49,160
It's pretty expensive, isn't it?

1288
00:56:49,160 --> 00:56:50,810
AUDIENCE: Depending
on what you buy.

1289
00:56:50,810 --> 00:56:52,573
GARY GENSLER: What's
your cup of coffee?

1290
00:56:52,573 --> 00:56:53,240
AUDIENCE: $2.25.

1291
00:56:53,240 --> 00:56:55,070
GARY GENSLER: $2.25, all right.

1292
00:56:55,070 --> 00:56:58,580
But in real time, the app--

1293
00:56:58,580 --> 00:57:02,690
the BitPay app-- is
computing what that is.

1294
00:57:02,690 --> 00:57:07,220
And they feel that within
these seconds for them

1295
00:57:07,220 --> 00:57:12,540
to convert at they
take volatility risk.

1296
00:57:12,540 --> 00:57:17,500
Is it possible that
in some transactions

1297
00:57:17,500 --> 00:57:19,710
the volatility eats
up the whole 1%?

1298
00:57:19,710 --> 00:57:20,620
Yes.

1299
00:57:20,620 --> 00:57:25,500
But basically they have
that in their pricing model.

1300
00:57:25,500 --> 00:57:32,430
And then move basically
Pria's Bitcoin to dollars,

1301
00:57:32,430 --> 00:57:34,960
and the dollars
goes to Starbucks.

1302
00:57:34,960 --> 00:57:45,580
And they guarantee
Starbucks $2.25 minus 1%.

1303
00:57:45,580 --> 00:57:50,800
Then there's startups
actually getting in.

1304
00:57:50,800 --> 00:57:52,240
But most of these--

1305
00:57:52,240 --> 00:57:53,980
at least the second,
third, and fourth--

1306
00:57:53,980 --> 00:57:57,060
are kind of
institutional services.

1307
00:57:57,060 --> 00:58:00,730
Now, there might be retail
services that I'm not--

1308
00:58:00,730 --> 00:58:03,160
Qurom was started by JP Morgan.

1309
00:58:03,160 --> 00:58:05,300
I think it might even still
be owned by JP Morgan.

1310
00:58:05,300 --> 00:58:06,730
It was going to be spun out.

1311
00:58:06,730 --> 00:58:09,790
But R3, Ripple, these
are really institutions.

1312
00:58:09,790 --> 00:58:15,010
Almost B2B or financial firm
to financial firm right now.

1313
00:58:17,740 --> 00:58:22,970
I couldn't find a really good
startup in the retail space,

1314
00:58:22,970 --> 00:58:25,400
but two weeks from
today you're going

1315
00:58:25,400 --> 00:58:29,050
to have Jeff Sprecher and
Kelly here, and you can--

1316
00:58:29,050 --> 00:58:32,340
Shrim, are you going to
be back on November 15th?

1317
00:58:32,340 --> 00:58:32,840
No?

1318
00:58:32,840 --> 00:58:35,690
But you'll be able to challenge.

1319
00:58:35,690 --> 00:58:37,340
They're going to have
a retail payments

1320
00:58:37,340 --> 00:58:40,340
system in their Bitcoin.

1321
00:58:40,340 --> 00:58:42,830
So it'll be interesting.

1322
00:58:42,830 --> 00:58:46,820
One retail payment solution
is if anybody walks over

1323
00:58:46,820 --> 00:58:50,990
to building E14 there's a
vending machine in the media

1324
00:58:50,990 --> 00:58:53,920
lab right now that
takes Bitcoin.

1325
00:58:53,920 --> 00:58:55,270
Thank you, MIT.

1326
00:58:55,270 --> 00:58:57,760
Thank you, the digital
currency initiative.

1327
00:58:57,760 --> 00:58:59,140
Thank you Alin.

1328
00:58:59,140 --> 00:59:02,650
But there is literally--

1329
00:59:02,650 --> 00:59:05,320
if you want to describe
it, you put a QR code up?

1330
00:59:05,320 --> 00:59:07,480
AUDIENCE: Yeah, I mean,
so yes absolutely.

1331
00:59:07,480 --> 00:59:09,340
So anyone who wants
to do that, we

1332
00:59:09,340 --> 00:59:11,690
can walk over there
and look at it.

1333
00:59:11,690 --> 00:59:13,150
It has cross change
slots so we can

1334
00:59:13,150 --> 00:59:16,220
transact real time between
three different currencies.

1335
00:59:16,220 --> 00:59:16,720
And--

1336
00:59:16,720 --> 00:59:18,345
GARY GENSLER: So you
can take Bitcoin--

1337
00:59:18,345 --> 00:59:20,140
AUDIENCE: Litecoins,
and you know,

1338
00:59:20,140 --> 00:59:21,690
dummy US dollars we call it.

1339
00:59:21,690 --> 00:59:24,067
But it's basically a stable
coin, it's a stable coin.

1340
00:59:24,067 --> 00:59:25,150
GARY GENSLER: Stable coin.

1341
00:59:25,150 --> 00:59:28,540
So Bitcoin, Litecoin,
and a stable coin.

1342
00:59:28,540 --> 00:59:31,000
And there's a vending machine
sitting in the media lab.

1343
00:59:31,000 --> 00:59:34,462
You put a QR code
up, if I remember?

1344
00:59:34,462 --> 00:59:36,430
AUDIENCE: Yeah, so QR
code on the machine.

1345
00:59:36,430 --> 00:59:42,430
you scan, we published an
app on Android and iOS.

1346
00:59:42,430 --> 00:59:46,240
And you basically scan your
home null or you computer,

1347
00:59:46,240 --> 00:59:48,280
you allow your phone to
control your computer,

1348
00:59:48,280 --> 00:59:50,080
and then you can send
money from your phone

1349
00:59:50,080 --> 00:59:52,180
to your vending machine.

1350
00:59:52,180 --> 00:59:53,090
Real time.

1351
00:59:53,090 --> 00:59:55,215
GARY GENSLER: But in that
case, the vending machine

1352
00:59:55,215 --> 00:59:56,640
receives the Bitcoin.

1353
00:59:56,640 --> 00:59:59,710
AUDIENCE: No, so we
actually added an arduino

1354
00:59:59,710 --> 01:00:02,860
as well that converts
the Bitcoin into impulses

1355
01:00:02,860 --> 01:00:05,650
that trick the machine
to say, these are coins.

1356
01:00:05,650 --> 01:00:07,810
So the vending machine
actually gets--

1357
01:00:07,810 --> 01:00:08,410
we tell it--

1358
01:00:08,410 --> 01:00:09,280
[INTERPOSING VOICES]

1359
01:00:09,280 --> 01:00:10,180
AUDIENCE: Yeah.

1360
01:00:10,180 --> 01:00:11,305
GARY GENSLER: There you go.

1361
01:00:14,190 --> 01:00:16,000
Check it out over
in the media lab.

1362
01:00:16,000 --> 01:00:18,840
It was rolled out for media
lab members' week, actually,

1363
01:00:18,840 --> 01:00:22,110
two weeks ago.

1364
01:00:22,110 --> 01:00:24,420
And then there's incumbents--

1365
01:00:24,420 --> 01:00:26,850
ICE's startup Bakkt.

1366
01:00:26,850 --> 01:00:31,420
I do put MasterCard on
there, Sharim, I do.

1367
01:00:31,420 --> 01:00:35,160
But it's remarkable how many
patents are being filed.

1368
01:00:35,160 --> 01:00:36,900
Hundreds of patents
are being filed,

1369
01:00:36,900 --> 01:00:39,363
but they're almost
all by the incumbents.

1370
01:00:39,363 --> 01:00:41,280
Now, is that because
they want to block others

1371
01:00:41,280 --> 01:00:43,530
from getting in, or are they
trying to create barriers

1372
01:00:43,530 --> 01:00:48,060
to entry, or are they doing it
because they see real prospect

1373
01:00:48,060 --> 01:00:50,550
and opportunity, and
they want to pursue it?

1374
01:00:50,550 --> 01:00:53,990
It's probably a bit of both.

1375
01:00:53,990 --> 01:00:55,580
Larry, you're shaking your head.

1376
01:00:55,580 --> 01:00:57,350
AUDIENCE: It's all
barriers to entry.

1377
01:00:57,350 --> 01:01:00,333
GARY GENSLER: It's all barriers
to-- you don't think it's any?

1378
01:01:00,333 --> 01:01:02,000
AUDIENCE: No, it's
all barriers to entry

1379
01:01:02,000 --> 01:01:03,460
and then the
argument's like this.

1380
01:01:03,460 --> 01:01:04,990
Our system's great,
and guess what?

1381
01:01:04,990 --> 01:01:06,710
The legal cost of
pursuing your system

1382
01:01:06,710 --> 01:01:08,510
is going to be
through the roof, so.

1383
01:01:08,510 --> 01:01:10,500
GARY GENSLER: And we'll get
some patents along the way.

1384
01:01:10,500 --> 01:01:12,216
AUDIENCE: No, those patterns
are the legal costs.

1385
01:01:12,216 --> 01:01:13,190
That's the point.

1386
01:01:13,190 --> 01:01:14,900
The threat of the
patent litigation

1387
01:01:14,900 --> 01:01:16,190
is enough to stop any--

1388
01:01:16,190 --> 01:01:18,620
so if you're a
venture capitalist,

1389
01:01:18,620 --> 01:01:22,240
then they walk in like you
make before your announcement,

1390
01:01:22,240 --> 01:01:23,550
you're dead.

1391
01:01:23,550 --> 01:01:26,080
GARY GENSLER: Well, Bank
of America has 43, so--

1392
01:01:26,080 --> 01:01:27,555
in the blockchain space, I read.

1393
01:01:27,555 --> 01:01:28,930
AUDIENCE: This is
the strategy in

1394
01:01:28,930 --> 01:01:33,580
every major incumbent complex,
so it's nothing new here.

1395
01:01:33,580 --> 01:01:35,330
GARY GENSLER: So is
it a sign that there's

1396
01:01:35,330 --> 01:01:37,310
something really real here?

1397
01:01:37,310 --> 01:01:42,260
That these startups might have
something to be figured out?

1398
01:01:42,260 --> 01:01:45,140
Visa's started a business
to business payment

1399
01:01:45,140 --> 01:01:47,410
connect in 2016.

1400
01:01:47,410 --> 01:01:49,490
They've even announced--
Visa's even outside it

1401
01:01:49,490 --> 01:01:51,080
hasn't had a lot of adoption.

1402
01:01:51,080 --> 01:01:52,820
They're not sure.

1403
01:01:52,820 --> 01:01:54,950
I think it's more permission
than permissionless,

1404
01:01:54,950 --> 01:01:56,390
by the way.

1405
01:01:56,390 --> 01:01:58,730
But this is kind of--

1406
01:01:58,730 --> 01:02:01,713
now, is anybody in their
own readings, maybe Alin--

1407
01:02:01,713 --> 01:02:03,380
I mean, I'm not trying
to be exhaustive,

1408
01:02:03,380 --> 01:02:05,210
but there's not a lot of--

1409
01:02:05,210 --> 01:02:08,600
because of some of these
issues back here, these

1410
01:02:08,600 --> 01:02:11,720
are real challenges,
but I would say these

1411
01:02:11,720 --> 01:02:15,550
are real possibilities, too.

1412
01:02:15,550 --> 01:02:16,713
Kelly and then Alin?

1413
01:02:16,713 --> 01:02:18,588
AUDIENCE: So what about
some of the companies

1414
01:02:18,588 --> 01:02:19,760
that sort of backed out?

1415
01:02:19,760 --> 01:02:24,440
And I'm reading Stripe ended
their export [INAUDIBLE]

1416
01:02:24,440 --> 01:02:26,666
program.

1417
01:02:26,666 --> 01:02:30,290
It sounds like a pretty
defeated situation,

1418
01:02:30,290 --> 01:02:33,735
but I don't really understand
that much exactly why.

1419
01:02:35,932 --> 01:02:38,140
GARY GENSLER: You want to
answer the Stripe question?

1420
01:02:38,140 --> 01:02:41,510
AUDIENCE: Yes, and
Stripe is not Bitcoin.

1421
01:02:41,510 --> 01:02:44,405
Stripe wanted to maybe
use Bitcoin as a service.

1422
01:02:44,405 --> 01:02:45,610
I mean, they're clients.

1423
01:02:45,610 --> 01:02:47,240
They're not the startup.

1424
01:02:47,240 --> 01:02:49,630
So I think backing up is--

1425
01:02:49,630 --> 01:02:52,150
it makes sense because
they're clients.

1426
01:02:52,150 --> 01:02:56,320
But there's many startups
out there that are still

1427
01:02:56,320 --> 01:02:57,390
here and not [INAUDIBLE].

1428
01:02:57,390 --> 01:02:59,500
GARY GENSLER: Yeah, and
just as background, Stripe

1429
01:02:59,500 --> 01:03:01,930
is a payment system provider.

1430
01:03:01,930 --> 01:03:05,980
So they're not extending credit
like a Visa, or MasterCard,

1431
01:03:05,980 --> 01:03:08,800
or they're not a network
like Visa or MasterCard

1432
01:03:08,800 --> 01:03:10,930
where actually they
don't provide the credit,

1433
01:03:10,930 --> 01:03:11,690
the banks do.

1434
01:03:11,690 --> 01:03:15,220
But they are a payment
system provider

1435
01:03:15,220 --> 01:03:17,800
that merchants
would hire, Stripe,

1436
01:03:17,800 --> 01:03:20,140
to interface with
MasterCard, Discover,

1437
01:03:20,140 --> 01:03:23,180
American Express, and others.

1438
01:03:23,180 --> 01:03:27,940
But why did Stripe decide
not to continue on this?

1439
01:03:27,940 --> 01:03:31,330
Partly they didn't see a lot
of adoption is what I took.

1440
01:03:31,330 --> 01:03:32,700
But Alin, you were going to--

1441
01:03:32,700 --> 01:03:33,910
AUDIENCE: Yeah,
just a couple of--

1442
01:03:33,910 --> 01:03:34,810
couple things I wanted to.

1443
01:03:34,810 --> 01:03:35,810
So this is a great list.

1444
01:03:35,810 --> 01:03:37,780
I think it's a great
starting point.

1445
01:03:37,780 --> 01:03:43,780
And the rule that I think at
some three months ago I had was

1446
01:03:43,780 --> 01:03:48,460
in the cryptocurrency space,
most non-speculation money--

1447
01:03:48,460 --> 01:03:50,650
so no like I'm going
to buy low, sell high--

1448
01:03:50,650 --> 01:03:53,920
is coming from either
exchanges or miners.

1449
01:03:53,920 --> 01:03:54,513
So you got--

1450
01:03:54,513 --> 01:03:55,930
GARY GENSLER:
Exchanges or mining.

1451
01:03:55,930 --> 01:03:56,290
AUDIENCE: Yes.

1452
01:03:56,290 --> 01:03:57,550
So that's where
the money's made.

1453
01:03:57,550 --> 01:03:59,440
If you don't speculate,
you're either a miner

1454
01:03:59,440 --> 01:04:01,447
and you make money or
an exchanger make money.

1455
01:04:01,447 --> 01:04:03,280
The miner down I think
would be interesting.

1456
01:04:03,280 --> 01:04:05,933
I think I would put Bitmain over
there because I think it's--

1457
01:04:05,933 --> 01:04:06,850
GARY GENSLER: Bitmain?

1458
01:04:06,850 --> 01:04:07,600
AUDIENCE: Bitmain.

1459
01:04:07,600 --> 01:04:09,390
So Bitmain, for
those who don't know,

1460
01:04:09,390 --> 01:04:12,790
is going through an
ICO, an initial--

1461
01:04:12,790 --> 01:04:13,810
sorry, IPO.

1462
01:04:13,810 --> 01:04:14,470
Initial--

1463
01:04:14,470 --> 01:04:16,166
GARY GENSLER: Public offering.

1464
01:04:16,166 --> 01:04:19,682
A traditional [INAUDIBLE].

1465
01:04:19,682 --> 01:04:21,140
AUDIENCE: They have
a lot of money,

1466
01:04:21,140 --> 01:04:24,070
there will be [INAUDIBLE]
a very hefty rate.

1467
01:04:24,070 --> 01:04:27,830
They want to stop producing AI
chips, artificial intelligence

1468
01:04:27,830 --> 01:04:28,330
chips.

1469
01:04:28,330 --> 01:04:30,310
So they're very good
at producing chips,

1470
01:04:30,310 --> 01:04:31,162
and they will go--

1471
01:04:31,162 --> 01:04:32,370
they'll go into one of those.

1472
01:04:32,370 --> 01:04:35,080
GARY GENSLER: But is Bitmain
in the payment space, using

1473
01:04:35,080 --> 01:04:35,950
blockchain for pay?

1474
01:04:35,950 --> 01:04:38,060
AUDIENCE: I mean, they've
invested in Circle,

1475
01:04:38,060 --> 01:04:40,158
which is another exchange,
so they're like--

1476
01:04:40,158 --> 01:04:41,200
they have a lot of money.

1477
01:04:41,200 --> 01:04:43,658
They're trying to kind of place
it towards other companies.

1478
01:04:43,658 --> 01:04:46,812
So yeah, so exchanges
of the finance or all

1479
01:04:46,812 --> 01:04:48,520
these other [INAUDIBLE],,
there are a lot

1480
01:04:48,520 --> 01:04:49,728
of exchanges that make money.

1481
01:04:49,728 --> 01:04:50,811
And the other ones aren't.

1482
01:04:50,811 --> 01:04:52,645
GARY GENSLER: So I want
to talk a little bit

1483
01:04:52,645 --> 01:04:53,980
about cross-border.

1484
01:04:53,980 --> 01:04:56,277
On Tuesday we put
up a complex chart.

1485
01:04:56,277 --> 01:04:57,860
I don't need to go
through that again,

1486
01:04:57,860 --> 01:04:59,650
but we all know and there's
a lot of people here

1487
01:04:59,650 --> 01:05:00,900
that probably send money back.

1488
01:05:00,900 --> 01:05:03,790
When you're moving
something overseas,

1489
01:05:03,790 --> 01:05:07,960
you're moving from one fiat
to another fiat currency,

1490
01:05:07,960 --> 01:05:09,730
it takes some time.

1491
01:05:09,730 --> 01:05:12,370
And the banking
system over centuries

1492
01:05:12,370 --> 01:05:16,900
has formed a way to do that to
move from one money to another,

1493
01:05:16,900 --> 01:05:20,650
or as we say, one ledger system
to another ledger system,

1494
01:05:20,650 --> 01:05:23,150
through correspondent banking.

1495
01:05:23,150 --> 01:05:27,610
And correspondent banking
is a reasonably concentrated

1496
01:05:27,610 --> 01:05:28,960
business.

1497
01:05:28,960 --> 01:05:32,110
One student sent
in the group chat

1498
01:05:32,110 --> 01:05:35,137
last night that there's only
really 10 banks in this field.

1499
01:05:35,137 --> 01:05:36,970
I don't know if that's
accurate, by the way,

1500
01:05:36,970 --> 01:05:39,970
but it is a very
concentrated business

1501
01:05:39,970 --> 01:05:41,960
because they're large
international banks.

1502
01:05:41,960 --> 01:05:43,780
Whether it's 10 or 20, it's--

1503
01:05:43,780 --> 01:05:47,590
you know, and they can charge
a little excess because they

1504
01:05:47,590 --> 01:05:49,060
have to have correspondence.

1505
01:05:49,060 --> 01:05:52,570
They have to have relationships
with all the local banks,

1506
01:05:52,570 --> 01:05:55,600
and they're taking some credit
risk-- the correspondent banks

1507
01:05:55,600 --> 01:05:59,020
standing in between-- some
credit risk of the local banks

1508
01:05:59,020 --> 01:06:02,590
on both sides in the
US and so forth and in,

1509
01:06:02,590 --> 01:06:05,900
let's say, Mexico if it's
between the US and Mexico.

1510
01:06:05,900 --> 01:06:10,540
So one idea that's
been around, it's

1511
01:06:10,540 --> 01:06:13,150
widely associated with
Ripple but it's not only

1512
01:06:13,150 --> 01:06:15,880
associated with Ripple
is this simple chart.

1513
01:06:15,880 --> 01:06:20,930
What if I move fiat to
crypto and crypto to fiat?

1514
01:06:20,930 --> 01:06:25,020
Just call it a bridge
crypto or bridge currency.

1515
01:06:25,020 --> 01:06:30,150
I can say I can go from
US dollars to Bitcoin,

1516
01:06:30,150 --> 01:06:35,570
or XRP, you fill in
the middle, and then

1517
01:06:35,570 --> 01:06:38,720
move over to the other fiat--

1518
01:06:38,720 --> 01:06:42,200
Mexican peso, in my example.

1519
01:06:42,200 --> 01:06:46,200
And might that take some
cost out of the system?

1520
01:06:46,200 --> 01:06:49,190
We have Sean's issue
earlier of volatility.

1521
01:06:49,190 --> 01:06:55,920
If the crypto is fluctuating a
lot, that causes some issues.

1522
01:06:55,920 --> 01:06:58,410
If there's a lot of
cost or friction,

1523
01:06:58,410 --> 01:07:03,480
because now you're doing two
currency exchanges not one.

1524
01:07:03,480 --> 01:07:06,360
I'm calling crypto a
currency for this purpose.

1525
01:07:06,360 --> 01:07:11,360
I know that crypto is not
technically a currency,

1526
01:07:11,360 --> 01:07:14,220
but for this moment
let me just call it--

1527
01:07:14,220 --> 01:07:16,530
you have two currency
exchanges, and thus you

1528
01:07:16,530 --> 01:07:20,580
have two bid ask spreads to pay.

1529
01:07:20,580 --> 01:07:22,920
Just the market makers
you need to pay the bid

1530
01:07:22,920 --> 01:07:26,370
ask spreads twice, and
you have some volatility

1531
01:07:26,370 --> 01:07:29,480
if the middle crypto
is moving around.

1532
01:07:29,480 --> 01:07:34,050
But this simple
diagram is a big part

1533
01:07:34,050 --> 01:07:37,050
of what Ripple is trying
to create with xRapid.

1534
01:07:40,250 --> 01:07:44,960
xCurrent is a messaging
app of Ripple's and it's

1535
01:07:44,960 --> 01:07:46,970
competing with Swift.

1536
01:07:46,970 --> 01:07:50,450
And it had some
reasonable adoption.

1537
01:07:50,450 --> 01:07:53,110
A lot of banks are
starting to use it.

1538
01:07:53,110 --> 01:07:56,140
But don't confuse that
with another product, which

1539
01:07:56,140 --> 01:07:59,500
is an interesting product that
kind of does this that goes

1540
01:07:59,500 --> 01:08:02,520
fiat to crypto, crypto to fiat.

1541
01:08:02,520 --> 01:08:04,290
So what problem,
what pain points

1542
01:08:04,290 --> 01:08:09,840
would this be solving if it
worked in the cross border?

1543
01:08:09,840 --> 01:08:11,720
Anybody want to remind
the class what the--

1544
01:08:11,720 --> 01:08:12,220
Tom?

1545
01:08:12,220 --> 01:08:14,637
AUDIENCE: Well, this reduces
the number of intermediaries.

1546
01:08:14,637 --> 01:08:17,550
You don't have to have your bank
engaged with a correspondence

1547
01:08:17,550 --> 01:08:21,330
bank, which engages with
a local bank, which then--

1548
01:08:21,330 --> 01:08:22,090
it sort of--

1549
01:08:22,090 --> 01:08:23,632
GARY GENSLER: All
right, so it might.

1550
01:08:23,632 --> 01:08:26,520
I'm going to say it might lower
the intermediation because you

1551
01:08:26,520 --> 01:08:31,580
still have on the two fiat sides
your local bank and a bank,

1552
01:08:31,580 --> 01:08:36,960
and to do the crosses you need
some market making function

1553
01:08:36,960 --> 01:08:40,790
which in Ripple's case they try
to build into the application.

1554
01:08:40,790 --> 01:08:43,200
And they have market makers
to provide liquidity.

1555
01:08:43,200 --> 01:08:45,300
There was a question
somebody mentioned liquidity.

1556
01:08:45,300 --> 01:08:46,790
Some liquidity.

1557
01:08:46,790 --> 01:08:49,073
But it might lower the
numbers of intermediaries.

1558
01:08:49,073 --> 01:08:49,990
What else might it do?

1559
01:08:52,979 --> 01:08:56,899
AUDIENCE: There's usually
between exchanging currency

1560
01:08:56,899 --> 01:08:59,779
there's a balance between the
settlement time and the fee

1561
01:08:59,779 --> 01:09:00,350
that you pay.

1562
01:09:00,350 --> 01:09:03,740
So if you want quick settlement
you have to pay a higher fee,

1563
01:09:03,740 --> 01:09:06,950
or you can accept a lower fee
but it takes multiple days

1564
01:09:06,950 --> 01:09:08,899
sometimes to catch
over, so potentially it

1565
01:09:08,899 --> 01:09:09,812
could solve that.

1566
01:09:09,812 --> 01:09:11,479
GARY GENSLER: So this
is basically a way

1567
01:09:11,479 --> 01:09:14,600
that you can shorten
the settlement times.

1568
01:09:14,600 --> 01:09:16,784
This can be done
literally in seconds.

1569
01:09:19,330 --> 01:09:23,189
I'm not saying that you wouldn't
pay a little extra for it,

1570
01:09:23,189 --> 01:09:26,729
but this can be
done very quickly.

1571
01:09:26,729 --> 01:09:28,460
If you have arrangements.

1572
01:09:28,460 --> 01:09:32,000
So some contend-- and I've
spoken to them at conferences

1573
01:09:32,000 --> 01:09:32,870
and so forth--

1574
01:09:32,870 --> 01:09:36,750
that big corporate treasuries
are going to try to do this--

1575
01:09:36,750 --> 01:09:40,069
that the treasury function
of Apple and others

1576
01:09:40,069 --> 01:09:41,840
might take this up.

1577
01:09:41,840 --> 01:09:44,180
The big banks say
that's ridiculous.

1578
01:09:44,180 --> 01:09:46,970
The big banks say,
no, we can provide

1579
01:09:46,970 --> 01:09:50,840
real-time cross-border cash
movement between dollar

1580
01:09:50,840 --> 01:09:53,840
and euro, and dollar
and yen, and you

1581
01:09:53,840 --> 01:09:57,016
don't need to interpose
something in the middle.

1582
01:09:57,016 --> 01:10:01,370
AUDIENCE: Wouldn't that require
huge amounts of cash reserves

1583
01:10:01,370 --> 01:10:04,520
to be able to protect
against volatility, and not

1584
01:10:04,520 --> 01:10:06,860
only volatility of the
crypto, but the volatility

1585
01:10:06,860 --> 01:10:11,930
of the actual fiat for that
particular country [INAUDIBLE]..

1586
01:10:11,930 --> 01:10:13,970
GARY GENSLER: So the
question is, will it need

1587
01:10:13,970 --> 01:10:17,877
a lot of liquidity, basically?

1588
01:10:17,877 --> 01:10:19,460
You used a different
word maybe, but--

1589
01:10:19,460 --> 01:10:20,360
AUDIENCE: Reserves.

1590
01:10:20,360 --> 01:10:21,620
GARY GENSLER: Reserves.

1591
01:10:21,620 --> 01:10:25,100
But somebody who can
make markets in size

1592
01:10:25,100 --> 01:10:27,980
in crypto versus fiat,
in crypto versus fiat,

1593
01:10:27,980 --> 01:10:30,560
I think the answer
is yes in terms of--

1594
01:10:30,560 --> 01:10:33,740
the only probably
token right now

1595
01:10:33,740 --> 01:10:37,130
that has enough liquidity
in it to do this in size

1596
01:10:37,130 --> 01:10:38,780
is probably Bitcoin.

1597
01:10:38,780 --> 01:10:41,420
Even though Ripple
is promoting this

1598
01:10:41,420 --> 01:10:44,540
and it's sort of an
interesting technology,

1599
01:10:44,540 --> 01:10:49,140
they have a software, xRapid,
that you can do this right now.

1600
01:10:49,140 --> 01:10:53,360
They're promoting on XRP, but
is there enough liquidity?

1601
01:10:53,360 --> 01:10:55,910
Could you move more
than a million dollars?

1602
01:10:55,910 --> 01:10:57,350
Probably not.

1603
01:10:57,350 --> 01:10:59,840
You probably couldn't
move $100 million payment

1604
01:10:59,840 --> 01:11:02,606
without moving the market a lot.

1605
01:11:02,606 --> 01:11:04,040
Shimon.

1606
01:11:04,040 --> 01:11:06,775
AUDIENCE: So back to
finance, the only way--

1607
01:11:06,775 --> 01:11:08,150
GARY GENSLER: So
back to finance,

1608
01:11:08,150 --> 01:11:09,800
that's good from a
finance professor.

1609
01:11:09,800 --> 01:11:11,550
AUDIENCE: The only way
that this will work

1610
01:11:11,550 --> 01:11:14,810
is sort of subject to the cost
of arbitraging this, right?

1611
01:11:14,810 --> 01:11:18,770
You don't care about the value
of XRP provided that you're not

1612
01:11:18,770 --> 01:11:21,700
validating arbitrage
relationship between the two

1613
01:11:21,700 --> 01:11:23,020
fiats, right?

1614
01:11:23,020 --> 01:11:24,320
GARY GENSLER: That's correct.

1615
01:11:24,320 --> 01:11:26,325
AUDIENCE: So whatever
those frictions are,

1616
01:11:26,325 --> 01:11:29,270
you won't be able to
go underneath them.

1617
01:11:29,270 --> 01:11:33,290
And if you're Apple, I
don't see the treasury

1618
01:11:33,290 --> 01:11:34,260
in a business case.

1619
01:11:34,260 --> 01:11:39,500
If you're Apple and you're
banking with JP Morgan Chase,

1620
01:11:39,500 --> 01:11:45,710
I mean, they're probably
quoting you, you know, bips.

1621
01:11:45,710 --> 01:11:48,650
I mean, the two major
currencies, the spread

1622
01:11:48,650 --> 01:11:50,720
is like in bips.

1623
01:11:50,720 --> 01:11:54,740
GARY GENSLER: A bip is
1/100 of a cent, basically.

1624
01:11:54,740 --> 01:11:56,710
I mean, it's very tiny.

1625
01:11:56,710 --> 01:11:58,250
We'll get there, just a second.

1626
01:11:58,250 --> 01:12:00,260
AUDIENCE: I'm not
sure that isn't the--

1627
01:12:00,260 --> 01:12:02,000
GARY GENSLER: So
the proponents--

1628
01:12:02,000 --> 01:12:05,660
and then we'll come back--
proponents of this say, yeah,

1629
01:12:05,660 --> 01:12:09,740
JP Morgan might solve Apple's
needs between dollar euro,

1630
01:12:09,740 --> 01:12:16,220
but are they really doing it
between dollar peso, or dollar

1631
01:12:16,220 --> 01:12:19,063
Kenyan currency?

1632
01:12:19,063 --> 01:12:21,230
AUDIENCE: Let's say they're
not and the spread there

1633
01:12:21,230 --> 01:12:24,410
is 10 basis points,
50 basis points.

1634
01:12:24,410 --> 01:12:30,170
Well, that's going to be by
construction, the spread,

1635
01:12:30,170 --> 01:12:32,930
that's going to be [INAUDIBLE]
arbitrage that will be allowed

1636
01:12:32,930 --> 01:12:34,080
if you go that way to--

1637
01:12:34,080 --> 01:12:35,580
GARY GENSLER: All
right, so Shimon's

1638
01:12:35,580 --> 01:12:37,520
saying there's maybe
a cost in friction.

1639
01:12:40,940 --> 01:12:42,650
I think the proponents
of this would also

1640
01:12:42,650 --> 01:12:46,910
say there's a friction in time
moving from dollars to peso.

1641
01:12:46,910 --> 01:12:48,260
Remind me your first name?

1642
01:12:48,260 --> 01:12:50,360
AUDIENCE: My name's [INAUDIBLE].

1643
01:12:50,360 --> 01:12:52,947
Well, it's certainly true
even in pesos or any currency,

1644
01:12:52,947 --> 01:12:54,780
like, all these points
that anyone's getting

1645
01:12:54,780 --> 01:12:55,940
are extremely tight.

1646
01:12:55,940 --> 01:12:58,190
But there's still probably
like weekends, for example.

1647
01:12:58,190 --> 01:12:59,923
Weekends they're just
not quoted at all.

1648
01:12:59,923 --> 01:13:01,340
So if there's a
major event that's

1649
01:13:01,340 --> 01:13:02,882
happening over a
weekend that's going

1650
01:13:02,882 --> 01:13:05,600
to change the value of your
asset or your currency,

1651
01:13:05,600 --> 01:13:08,730
then you can't trade
until Sunday night

1652
01:13:08,730 --> 01:13:10,080
when Hong Kong opens.

1653
01:13:10,080 --> 01:13:14,150
And so there's still like
a 36-hour time period

1654
01:13:14,150 --> 01:13:16,880
that is completely [INAUDIBLE].

1655
01:13:16,880 --> 01:13:19,040
GARY GENSLER: So the
worldwide currency markets

1656
01:13:19,040 --> 01:13:23,780
are depending upon banks,
and banks do actually

1657
01:13:23,780 --> 01:13:24,395
have holidays.

1658
01:13:26,990 --> 01:13:29,940
I know it's sometimes
hard to believe, but.

1659
01:13:29,940 --> 01:13:32,210
And so there's a question of--

1660
01:13:32,210 --> 01:13:33,775
so there's a
question of friction

1661
01:13:33,775 --> 01:13:35,900
which Shimon would say if
it's even if it costs you

1662
01:13:35,900 --> 01:13:40,660
half a percent it better
get inside of that.

1663
01:13:40,660 --> 01:13:44,290
There's a question of settlement
delay, this could be faster.

1664
01:13:44,290 --> 01:13:46,040
But you're saying they
could change that--

1665
01:13:46,040 --> 01:13:48,450
JP Morgan can change that.

1666
01:13:48,450 --> 01:13:49,740
And then there's weekends.

1667
01:13:49,740 --> 01:13:53,080
Do you have 160 some hour week?

1668
01:13:53,080 --> 01:13:55,630
I'm going to go to
Alexis and back here.

1669
01:13:55,630 --> 01:13:59,310
AUDIENCE: I was just thinking
like-- because this system like

1670
01:13:59,310 --> 01:14:01,770
India at the end of
the day, it depends

1671
01:14:01,770 --> 01:14:05,040
on the a fixed rate
on the two fiat rate

1672
01:14:05,040 --> 01:14:07,260
on the normal markets, right?

1673
01:14:07,260 --> 01:14:10,410
So even if we can't
trade on a Sunday,

1674
01:14:10,410 --> 01:14:14,640
the rate is going to change
on the tax form based on,

1675
01:14:14,640 --> 01:14:17,400
I don't know, the assumption
of what the rate is going to be

1676
01:14:17,400 --> 01:14:18,337
tomorrow.

1677
01:14:18,337 --> 01:14:20,670
It's going to adjust, normally
you should adjust, right?

1678
01:14:20,670 --> 01:14:24,010
Because as has
been raised before,

1679
01:14:24,010 --> 01:14:27,130
adjust for new
arbitrage take place.

1680
01:14:27,130 --> 01:14:31,830
So even if it's possible,
doesn't this system

1681
01:14:31,830 --> 01:14:34,790
add more risk in terms
of two different risk--

1682
01:14:34,790 --> 01:14:36,780
fiat-crypto, crypto-fiat?

1683
01:14:36,780 --> 01:14:40,965
And just there will always be
the underlying risk of fiat

1684
01:14:40,965 --> 01:14:43,260
to fiat because
it's always based

1685
01:14:43,260 --> 01:14:45,050
on a price on the private--

1686
01:14:45,050 --> 01:14:46,800
GARY GENSLER: Hold
your question because I

1687
01:14:46,800 --> 01:14:48,630
want to see if the other--

1688
01:14:48,630 --> 01:14:49,530
yours comes in.

1689
01:14:49,530 --> 01:14:50,707
I got it, it's the risk.

1690
01:14:50,707 --> 01:14:52,290
AUDIENCE: I was just
going to bring up

1691
01:14:52,290 --> 01:14:56,910
the accessibility for
non-first world countries

1692
01:14:56,910 --> 01:14:58,550
or unbanked countries.

1693
01:14:58,550 --> 01:15:03,180
And I would be less concerned
about moving like a yard

1694
01:15:03,180 --> 01:15:07,470
and more concerned about, OK,
well maybe I could transact

1695
01:15:07,470 --> 01:15:08,780
like sub-$100--

1696
01:15:08,780 --> 01:15:10,363
GARY GENSLER: Do you
want to translate

1697
01:15:10,363 --> 01:15:11,760
for the room what a yard is?

1698
01:15:11,760 --> 01:15:13,890
My Goldman Sachs days
I knew what a yard is,

1699
01:15:13,890 --> 01:15:16,440
but some of the non-bankers.

1700
01:15:16,440 --> 01:15:17,810
AUDIENCE: It's $1 billion.

1701
01:15:17,810 --> 01:15:19,170
GARY GENSLER: $1 billion.

1702
01:15:19,170 --> 01:15:20,787
Now you can work on--

1703
01:15:20,787 --> 01:15:22,370
what trading floor
to did you work on?

1704
01:15:22,370 --> 01:15:22,960
[INAUDIBLE]

1705
01:15:22,960 --> 01:15:23,460
Citi.

1706
01:15:23,460 --> 01:15:25,350
Now you can work on Citi.

1707
01:15:25,350 --> 01:15:26,490
A yard is $1 billion.

1708
01:15:26,490 --> 01:15:28,754
At Goldman Sachs it's floor 2.

1709
01:15:28,754 --> 01:15:29,712
AUDIENCE: Yeah, oh boy.

1710
01:15:32,960 --> 01:15:35,970
GARY GENSLER: We measured
it differently, yeah.

1711
01:15:35,970 --> 01:15:39,420
AUDIENCE: But I
think if you wanted

1712
01:15:39,420 --> 01:15:48,020
to transact maybe like under
$100 from dollars to whatever,

1713
01:15:48,020 --> 01:15:51,395
no large bank is going to open
an account and do that for you.

1714
01:15:51,395 --> 01:15:52,770
You're going to
have to do that--

1715
01:15:52,770 --> 01:15:55,210
like a commercial bank,
if you have access to it,

1716
01:15:55,210 --> 01:15:56,940
there's a really
wide spread there.

1717
01:15:56,940 --> 01:15:59,380
So you can do this through
an app through a Stablecoin,

1718
01:15:59,380 --> 01:16:00,920
or Ripple, or
whatever, you're going

1719
01:16:00,920 --> 01:16:03,030
to be able to do it
for cheaper if you're

1720
01:16:03,030 --> 01:16:04,720
making like micro transactions.

1721
01:16:04,720 --> 01:16:06,725
GARY GENSLER: So
I'm going to react

1722
01:16:06,725 --> 01:16:08,850
and then trust bring it
all together and summarize.

1723
01:16:08,850 --> 01:16:11,610
It's the last slide, so.

1724
01:16:11,610 --> 01:16:13,690
Alexis' point about
risk, I agree.

1725
01:16:13,690 --> 01:16:16,260
I think that all of these
points are valid that there

1726
01:16:16,260 --> 01:16:18,210
is additional cost.

1727
01:16:18,210 --> 01:16:21,240
There's two hops
in this example,

1728
01:16:21,240 --> 01:16:23,010
and there's additional risks.

1729
01:16:23,010 --> 01:16:25,080
So the real business
case question

1730
01:16:25,080 --> 01:16:27,660
is, is there enough value
added on the other side?

1731
01:16:27,660 --> 01:16:29,340
Are you shortening
settlement cycles?

1732
01:16:29,340 --> 01:16:31,440
Can you do it on the
weekends when you otherwise

1733
01:16:31,440 --> 01:16:32,140
couldn't do it?

1734
01:16:32,140 --> 01:16:36,060
Could you move small dollar
amounts, maybe retail?

1735
01:16:36,060 --> 01:16:39,150
Because Western Union
still charges something

1736
01:16:39,150 --> 01:16:44,350
like 8% to 10% to do
cross-border remittances.

1737
01:16:44,350 --> 01:16:47,970
So send some money
to the Philippines,

1738
01:16:47,970 --> 01:16:50,400
and do it only for a
couple of hundred dollars,

1739
01:16:50,400 --> 01:16:54,350
and you're probably
spending 10%.

1740
01:16:54,350 --> 01:16:58,400
Could somebody build
inside of those types of--

1741
01:16:58,400 --> 01:17:02,000
now, $200 movement 10%'s $20.

1742
01:17:02,000 --> 01:17:04,190
You still have to bring
transaction costs down--

1743
01:17:04,190 --> 01:17:06,500
fixed transaction costs down.

1744
01:17:06,500 --> 01:17:11,060
But if you can bring the fixed
transaction cost down and have

1745
01:17:11,060 --> 01:17:14,985
enough liquidity, it's kind of--

1746
01:17:14,985 --> 01:17:17,630
I wouldn't count this out.

1747
01:17:17,630 --> 01:17:19,490
I'm one who sort
of doubts it will

1748
01:17:19,490 --> 01:17:21,620
be in the heart of
treasury function

1749
01:17:21,620 --> 01:17:25,070
that Apple will be using
it between dollar and euro,

1750
01:17:25,070 --> 01:17:28,940
but I want to say just
the wide spectrum and just

1751
01:17:28,940 --> 01:17:33,440
an interesting-- can crypto
be a bridge currency,

1752
01:17:33,440 --> 01:17:36,770
and might it be in the
world of stable value?

1753
01:17:36,770 --> 01:17:38,840
I hope-- I mean, this
was a good discussion

1754
01:17:38,840 --> 01:17:41,160
because this is what the rest
of the semester is about.

1755
01:17:41,160 --> 01:17:45,690
We're going to take use case
by use case and really debate,

1756
01:17:45,690 --> 01:17:48,420
and through it the learning
objective is for all of us

1757
01:17:48,420 --> 01:17:50,580
to leave with a little
critical reasoning skills

1758
01:17:50,580 --> 01:17:53,730
about when does an
append-only log with consensus

1759
01:17:53,730 --> 01:17:57,360
amongst multiple parties and
maybe a native token make

1760
01:17:57,360 --> 01:17:57,990
sense?

1761
01:17:57,990 --> 01:17:59,370
That's usually
called blockchain,

1762
01:17:59,370 --> 01:18:03,450
but Aline doesn't let me call it
blockchain technology anymore.

1763
01:18:03,450 --> 01:18:09,030
Next Tuesday is election day,
so I'm going to make my pitch.

1764
01:18:09,030 --> 01:18:10,842
If you're a US
citizen, please vote.

1765
01:18:10,842 --> 01:18:12,300
If you're not, I'm
not going to ask

1766
01:18:12,300 --> 01:18:14,340
you to vote but please vote.

1767
01:18:14,340 --> 01:18:18,240
Participate in our incredible
thing called democracy,

1768
01:18:18,240 --> 01:18:20,010
but we're going to
talk about central bank

1769
01:18:20,010 --> 01:18:21,240
digital currencies.

1770
01:18:21,240 --> 01:18:24,430
And so I think we're doing this
over two sessions, as well.

1771
01:18:24,430 --> 01:18:26,910
So next Tuesday is going to
be a lot about central banking

1772
01:18:26,910 --> 01:18:28,060
and so forth.

1773
01:18:28,060 --> 01:18:29,220
So thank you.

1774
01:18:29,220 --> 01:18:31,830
Happy anniversary, Bitcoin.

1775
01:18:31,830 --> 01:18:34,880
[APPLAUSE]