1 00:00:01,090 --> 00:00:03,460 The following content is provided under a Creative 2 00:00:03,460 --> 00:00:04,850 Commons license. 3 00:00:04,850 --> 00:00:07,060 Your support will help MIT OpenCourseWare 4 00:00:07,060 --> 00:00:11,150 continue to offer high quality educational resources for free. 5 00:00:11,150 --> 00:00:13,690 To make a donation or to view additional materials 6 00:00:13,690 --> 00:00:17,650 from hundreds of MIT courses, visit MIT OpenCourseWare 7 00:00:17,650 --> 00:00:19,090 at ocw.mit.edu. 8 00:00:22,600 --> 00:00:26,350 GARY GENSLER: Today we get to explore one of the use cases 9 00:00:26,350 --> 00:00:31,270 where there's actually a lot of activity going on in blockchain 10 00:00:31,270 --> 00:00:34,210 technology, trade finance. 11 00:00:34,210 --> 00:00:37,390 We also have, I think, at least two 12 00:00:37,390 --> 00:00:40,030 of the groups for final projects are doing things 13 00:00:40,030 --> 00:00:41,560 on trade finance. 14 00:00:41,560 --> 00:00:45,580 There might be some that haven't disclosed that to me 15 00:00:45,580 --> 00:00:47,260 or after today might shift to it. 16 00:00:47,260 --> 00:00:49,450 You never know. 17 00:00:49,450 --> 00:00:54,700 And I think 8 or 10 of you actually wrote 18 00:00:54,700 --> 00:00:56,110 your individual pieces today. 19 00:00:56,110 --> 00:00:59,020 So it's 15 or 20 of you that have been spending 20 00:00:59,020 --> 00:01:01,210 a lot of time on trade finance. 21 00:01:01,210 --> 00:01:05,650 And I think the reason is that there's a lot of application 22 00:01:05,650 --> 00:01:07,520 of the underlying technology. 23 00:01:07,520 --> 00:01:12,730 And that's what I'm going to try to do today and then 24 00:01:12,730 --> 00:01:15,730 hopefully get the help from the two groups 25 00:01:15,730 --> 00:01:22,180 that have some final projects in this regard and so many 26 00:01:22,180 --> 00:01:24,840 of you that wrote on this today. 27 00:01:24,840 --> 00:01:28,720 I'm going to go through readings and study 28 00:01:28,720 --> 00:01:31,660 guide, what is trade finance. 29 00:01:31,660 --> 00:01:32,920 So we're going to run through. 30 00:01:32,920 --> 00:01:35,462 I'm going to give you a little sense of what trade finance is 31 00:01:35,462 --> 00:01:38,300 from my perspective. 32 00:01:38,300 --> 00:01:41,410 And then we're going to just go into the blockchain 33 00:01:41,410 --> 00:01:43,300 projects themselves. 34 00:01:43,300 --> 00:01:46,900 So we'll skip through these because we're 35 00:01:46,900 --> 00:01:48,940 going to be chatting about what attributes 36 00:01:48,940 --> 00:01:50,800 that trade finance really has. 37 00:01:50,800 --> 00:01:52,070 Well, Alpha you have a group. 38 00:01:52,070 --> 00:01:53,830 What attributes is trade finance? 39 00:01:53,830 --> 00:01:57,520 What attracted you to this? 40 00:01:57,520 --> 00:01:59,350 AUDIENCE: Multiple stakeholders that 41 00:01:59,350 --> 00:02:03,125 are changing, transferring data and information. 42 00:02:03,125 --> 00:02:04,750 GARY GENSLER: So two things that I just 43 00:02:04,750 --> 00:02:09,160 heard multiple stakeholders transferring a lot of data. 44 00:02:09,160 --> 00:02:11,580 Anybody else, what other attributes are there? 45 00:02:11,580 --> 00:02:13,080 AUDIENCE: There's a lot of paperwork 46 00:02:13,080 --> 00:02:16,500 that is being transferred between the importer, exporter, 47 00:02:16,500 --> 00:02:19,348 and the banks, issuing banks and beneficiary banks. 48 00:02:19,348 --> 00:02:20,890 GARY GENSLER: So not only is it data, 49 00:02:20,890 --> 00:02:23,320 but it's still actually a lot of paperwork. 50 00:02:23,320 --> 00:02:27,820 And actually often times actual physical paperwork. 51 00:02:27,820 --> 00:02:30,060 There are still companies, I mean, 52 00:02:30,060 --> 00:02:32,800 they're not as persistent now as they were years ago called 53 00:02:32,800 --> 00:02:36,880 document couriers that literally brought 54 00:02:36,880 --> 00:02:38,783 the documents around the globe. 55 00:02:38,783 --> 00:02:40,450 AUDIENCE: You have different regulations 56 00:02:40,450 --> 00:02:42,790 in different countries. 57 00:02:42,790 --> 00:02:47,360 It's hard to see and trust one central authority 58 00:02:47,360 --> 00:02:51,070 that it's going to give you all you need done on the charge. 59 00:02:51,070 --> 00:02:54,110 GARY GENSLER: So a lot of different regulatory regimes. 60 00:02:54,110 --> 00:02:56,500 But also different countries. 61 00:02:56,500 --> 00:02:59,470 So you have some information asymmetries. 62 00:02:59,470 --> 00:03:04,580 And thus those issues of trust across those jurisdictions. 63 00:03:04,580 --> 00:03:07,460 AUDIENCE: Along the lines of the issues of trust, 64 00:03:07,460 --> 00:03:09,945 there's also a lot of fraud with it as well, 65 00:03:09,945 --> 00:03:13,500 a lot of double spend and financing issues that 66 00:03:13,500 --> 00:03:14,770 come with this space. 67 00:03:14,770 --> 00:03:19,090 GARY GENSLER: So a lot of fraud and double spend. 68 00:03:19,090 --> 00:03:21,805 Or in trade finance, it has another term, actually. 69 00:03:21,805 --> 00:03:24,012 Anybody? 70 00:03:24,012 --> 00:03:27,510 It's double financing. 71 00:03:27,510 --> 00:03:30,030 But it's basically the same conceptual framework 72 00:03:30,030 --> 00:03:32,520 as a double spend. 73 00:03:32,520 --> 00:03:36,420 Can I finance one set of goods, one cargo being 74 00:03:36,420 --> 00:03:39,540 shipped across the Atlantic or Pacific, can I fund it twice? 75 00:03:42,640 --> 00:03:45,857 And so that's a bit of the fraud. 76 00:03:45,857 --> 00:03:47,690 AUDIENCE: And also because of the high cost, 77 00:03:47,690 --> 00:03:50,570 and also all the due diligence, like small and medium 78 00:03:50,570 --> 00:03:53,380 enterprises have a very hard time getting it, 79 00:03:53,380 --> 00:03:55,130 like because of the financial crisis 80 00:03:55,130 --> 00:03:56,995 and also all the terrorist attacks. 81 00:03:56,995 --> 00:03:59,120 GARY GENSLER: So do you think that small and medium 82 00:03:59,120 --> 00:04:02,023 sized enterprises have a difficulty for the reasons you 83 00:04:02,023 --> 00:04:04,190 just said, because of terrorist attacks and so forth 84 00:04:04,190 --> 00:04:07,100 or is there something more broadly that's going on, 85 00:04:07,100 --> 00:04:09,520 maybe even for centuries? 86 00:04:09,520 --> 00:04:11,660 New hand here. 87 00:04:11,660 --> 00:04:14,450 AUDIENCE: I know it's more of a problem like small financing 88 00:04:14,450 --> 00:04:18,958 that they don't have access to the find the things they need 89 00:04:18,958 --> 00:04:20,750 that are required, their business requires, 90 00:04:20,750 --> 00:04:21,872 the essential things. 91 00:04:21,872 --> 00:04:24,080 GARY GENSLER: And I can't tell whether it's a hand up 92 00:04:24,080 --> 00:04:25,934 or you were fixing your hair. 93 00:04:25,934 --> 00:04:26,762 AUDIENCE: Um, both. 94 00:04:26,762 --> 00:04:28,730 GARY GENSLER: Both, OK. 95 00:04:28,730 --> 00:04:31,190 AUDIENCE: So I guess I was going to say, 96 00:04:31,190 --> 00:04:34,160 so small businesses often don't have the resources 97 00:04:34,160 --> 00:04:36,850 administratively to deal with paperwork. 98 00:04:36,850 --> 00:04:41,670 So often the operational burden becomes so costly for them, 99 00:04:41,670 --> 00:04:46,680 that it is no longer actually profitable for them to trade. 100 00:04:46,680 --> 00:04:49,200 GARY GENSLER: And also small businesses-- you want to add? 101 00:04:49,200 --> 00:04:51,260 AUDIENCE: They just don't have a credit history. 102 00:04:51,260 --> 00:04:54,290 So banks tend to not want to finance them. 103 00:04:54,290 --> 00:04:56,217 They just don't trust them. 104 00:04:56,217 --> 00:04:57,050 GARY GENSLER: Right. 105 00:04:57,050 --> 00:04:58,670 AUDIENCE: I just want to put some numbers to make 106 00:04:58,670 --> 00:04:59,587 it clear to everybody. 107 00:04:59,587 --> 00:05:03,290 I was looking at a study for the Asian Development Bank 108 00:05:03,290 --> 00:05:06,770 saying that small and medium sized enterprises are 109 00:05:06,770 --> 00:05:08,210 the most credit constrained. 110 00:05:08,210 --> 00:05:10,760 Around 50% of their demands are being 111 00:05:10,760 --> 00:05:15,560 rejected by banks for trade finance, whereas 7% 112 00:05:15,560 --> 00:05:18,690 to multinational corporations. 113 00:05:18,690 --> 00:05:20,600 GARY GENSLER: So this small and medium 114 00:05:20,600 --> 00:05:23,150 sized enterprises also are smaller. 115 00:05:23,150 --> 00:05:24,980 They're not as well known. 116 00:05:24,980 --> 00:05:30,220 And trade finance, just by definition, is cross border. 117 00:05:30,220 --> 00:05:32,880 It's cross jurisdiction, cross country. 118 00:05:32,880 --> 00:05:36,530 How does somebody in the US know a small business in Kenya? 119 00:05:36,530 --> 00:05:39,620 Or pick your countries-- 120 00:05:39,620 --> 00:05:42,780 China and Mexico. 121 00:05:42,780 --> 00:05:46,425 So there is a lot of information challenges. 122 00:05:46,425 --> 00:05:48,800 That's been the history of this business for a long time. 123 00:05:52,340 --> 00:05:54,410 We'll hold off on the ongoing projects. 124 00:05:54,410 --> 00:05:56,100 But we'll come back to that. 125 00:05:56,100 --> 00:05:58,130 So we had a bunch of readings. 126 00:05:58,130 --> 00:06:03,830 I updated this because it's ever changing. 127 00:06:03,830 --> 00:06:06,020 And I hope that if you had a chance 128 00:06:06,020 --> 00:06:10,730 to dig in to the Bain review. 129 00:06:10,730 --> 00:06:13,860 I thought as these writings go, it was probably 130 00:06:13,860 --> 00:06:15,110 a little better than some of-- 131 00:06:15,110 --> 00:06:18,860 I'm sorry for any of you going into consultancy, Tom. 132 00:06:18,860 --> 00:06:22,130 But as these things go, I thought it was better than some 133 00:06:22,130 --> 00:06:24,770 of the Deloitte papers and PwC papers 134 00:06:24,770 --> 00:06:27,110 that are still quite helpful. 135 00:06:27,110 --> 00:06:31,370 But I thought this was a little bit more detailed. 136 00:06:31,370 --> 00:06:35,160 So what is the background, the economic background? 137 00:06:35,160 --> 00:06:36,350 This is just from-- 138 00:06:36,350 --> 00:06:39,020 I think I pulled this from some World Bank figures. 139 00:06:41,960 --> 00:06:47,600 Worldwide exports of goods are $17 trillion. 140 00:06:47,600 --> 00:06:49,880 Services are 5 or 6 trillion. 141 00:06:49,880 --> 00:06:52,610 But trade finance is really around the exporting 142 00:06:52,610 --> 00:06:55,130 of goods more than services. 143 00:06:55,130 --> 00:06:59,840 I'm not really familiar with it in the service context. 144 00:06:59,840 --> 00:07:03,380 And manufacturer's $12 trillion. 145 00:07:03,380 --> 00:07:06,710 Fuels, agriculture, you can see that. 146 00:07:06,710 --> 00:07:11,090 So that's basically the body of it. 147 00:07:11,090 --> 00:07:14,240 And the financing, international finance-- 148 00:07:14,240 --> 00:07:16,730 and I purposely use words. 149 00:07:16,730 --> 00:07:19,400 This is the financing of international trade. 150 00:07:19,400 --> 00:07:22,590 It can come in two different ways. 151 00:07:22,590 --> 00:07:25,700 One is if the bank is guaranteeing something 152 00:07:25,700 --> 00:07:28,970 or the bank is supporting it through the documents. 153 00:07:28,970 --> 00:07:33,710 This is the traditional definition of trade finance. 154 00:07:33,710 --> 00:07:36,820 It is letters of credits and documentary collection. 155 00:07:36,820 --> 00:07:38,570 Anybody want to tell me what a letter of-- 156 00:07:38,570 --> 00:07:41,212 what the difference of two things are? 157 00:07:41,212 --> 00:07:42,920 Since we've got a whole bunch of people-- 158 00:07:42,920 --> 00:07:45,550 I see a hand up. 159 00:07:45,550 --> 00:07:47,970 AUDIENCE: A letter of credit is a formal letter 160 00:07:47,970 --> 00:07:52,020 from a bank just laying out the terms of credit extended 161 00:07:52,020 --> 00:07:54,540 to let's say the next year. 162 00:07:54,540 --> 00:07:56,910 GARY GENSLER: OK, so it's a formal letter laying out 163 00:07:56,910 --> 00:07:58,020 the terms. 164 00:07:58,020 --> 00:08:01,130 But critically, what is it doing? 165 00:08:01,130 --> 00:08:02,750 AUDIENCE: Removes counterparty risk. 166 00:08:02,750 --> 00:08:05,910 Removes the counterparty risk away from your buyer 167 00:08:05,910 --> 00:08:06,423 to the bank. 168 00:08:06,423 --> 00:08:08,340 GARY GENSLER: So it removes counterparty risk. 169 00:08:08,340 --> 00:08:11,230 It's guaranteeing payment. 170 00:08:11,230 --> 00:08:13,420 But there is a second form that banks 171 00:08:13,420 --> 00:08:15,625 support this market in a very big way 172 00:08:15,625 --> 00:08:18,670 is documentary collection. 173 00:08:18,670 --> 00:08:22,640 Anybody familiar with DCs? 174 00:08:22,640 --> 00:08:25,760 It's basically the banks are moving 175 00:08:25,760 --> 00:08:28,880 the paperwork, this incredible paperwork around the globe. 176 00:08:28,880 --> 00:08:31,550 And we'll dive into this a little bit. 177 00:08:31,550 --> 00:08:35,450 And they're not-- they're not taking counterparty risk. 178 00:08:35,450 --> 00:08:38,929 The banks themselves are not guaranteeing the credit. 179 00:08:38,929 --> 00:08:41,840 But they are performing enormous services 180 00:08:41,840 --> 00:08:44,820 in terms of the paperwork. 181 00:08:44,820 --> 00:08:50,210 And in essence, it's documents versus performance or documents 182 00:08:50,210 --> 00:08:54,530 versus authentication that goes in. 183 00:08:54,530 --> 00:08:55,820 A bunch of different ways. 184 00:08:55,820 --> 00:08:59,030 Factoring and forfaiting, not that this 185 00:08:59,030 --> 00:09:01,190 is a quiz on these terms. 186 00:09:01,190 --> 00:09:03,810 But these are different terms. 187 00:09:03,810 --> 00:09:06,410 Factoring is when you sell receivables, 188 00:09:06,410 --> 00:09:08,300 short-term receivables. 189 00:09:08,300 --> 00:09:10,970 Forfaiting is when they're longer term. 190 00:09:10,970 --> 00:09:13,670 So they're kind of a little bit the same thing. 191 00:09:13,670 --> 00:09:15,740 But one is short-term receivables, 192 00:09:15,740 --> 00:09:17,390 short-term letters of credit. 193 00:09:17,390 --> 00:09:19,580 One are longer term. 194 00:09:19,580 --> 00:09:21,920 You can actually take import and export loans 195 00:09:21,920 --> 00:09:27,470 out which are longer term. 196 00:09:27,470 --> 00:09:29,720 And they're about a whole inventory and a whole supply 197 00:09:29,720 --> 00:09:30,750 chain. 198 00:09:30,750 --> 00:09:33,800 You can get financing beforehand, supplier credit, 199 00:09:33,800 --> 00:09:36,590 and a new form aboard called supply chain financing 200 00:09:36,590 --> 00:09:39,770 where you're really funding the whole supply chain. 201 00:09:39,770 --> 00:09:43,250 But we're going to focus primarily on the first two. 202 00:09:43,250 --> 00:09:47,430 And most of the blockchain projects in this space 203 00:09:47,430 --> 00:09:50,970 are focusing on the first two. 204 00:09:50,970 --> 00:09:55,420 But international trade also has trade credit. 205 00:09:55,420 --> 00:09:57,800 What's open account? 206 00:09:57,800 --> 00:09:59,300 What does that mean in any business 207 00:09:59,300 --> 00:10:01,714 when we're here at Sloan, somebody? 208 00:10:04,612 --> 00:10:06,070 Alean I'm not going to call on you. 209 00:10:06,070 --> 00:10:07,153 I'm not going to make you. 210 00:10:07,153 --> 00:10:08,010 Jake. 211 00:10:08,010 --> 00:10:10,480 AUDIENCE: Trade is that when you ship the goods like prior 212 00:10:10,480 --> 00:10:11,550 to payment being due. 213 00:10:11,550 --> 00:10:12,268 GARY GENSLER: So? 214 00:10:12,268 --> 00:10:14,560 AUDIENCE: So you ship goods prior to payment being due. 215 00:10:14,560 --> 00:10:15,140 GARY GENSLER: All right. 216 00:10:15,140 --> 00:10:16,640 AUDIENCE: The payment is due like 90 days later. 217 00:10:16,640 --> 00:10:18,400 GARY GENSLER: So it's due 90 days later. 218 00:10:18,400 --> 00:10:20,620 Open account is what most businesses do. 219 00:10:20,620 --> 00:10:23,440 If you just say I'm shipping something, send an invoice. 220 00:10:23,440 --> 00:10:27,540 And the terms might be 2 and 30. 221 00:10:27,540 --> 00:10:32,190 You get a 2% discount if you pay prompt, but 30 days, just open 222 00:10:32,190 --> 00:10:32,690 account. 223 00:10:35,600 --> 00:10:39,650 In domestic business that's how most services are provided 224 00:10:39,650 --> 00:10:41,660 and goods are shipped is open account. 225 00:10:41,660 --> 00:10:44,720 It's the international export business 226 00:10:44,720 --> 00:10:45,890 that you find it different. 227 00:10:45,890 --> 00:10:50,430 Then cash in advance, of course, is what it sounds like. 228 00:10:50,430 --> 00:10:53,590 And consignment is all the other way. 229 00:10:53,590 --> 00:10:55,300 An exporter would actually ship. 230 00:10:55,300 --> 00:10:57,190 You'd put it on your shelves. 231 00:10:57,190 --> 00:10:59,350 You wouldn't have to pay. 232 00:10:59,350 --> 00:11:02,800 And the exporter continues to have the risk of the sale. 233 00:11:02,800 --> 00:11:07,650 Not used a lot in international trade. 234 00:11:07,650 --> 00:11:12,860 You can also get public guarantees or insurance. 235 00:11:12,860 --> 00:11:19,910 So that's the whole world of these $17 trillion of trade. 236 00:11:19,910 --> 00:11:22,040 Only about 5 or 6 trillion is thought 237 00:11:22,040 --> 00:11:27,110 to be actually using trade credit, letters 238 00:11:27,110 --> 00:11:32,300 of credit and documentary commitments, 239 00:11:32,300 --> 00:11:33,500 these two main things. 240 00:11:38,350 --> 00:11:40,040 So this ranges it. 241 00:11:40,040 --> 00:11:42,650 This gives you a little bit of a flavor. 242 00:11:42,650 --> 00:11:46,510 And this you can think of is what's the most secure 243 00:11:46,510 --> 00:11:48,730 for the exporter is over here. 244 00:11:48,730 --> 00:11:52,240 The exporter is going to have the most security 245 00:11:52,240 --> 00:11:54,910 if they get cash in advance. 246 00:11:54,910 --> 00:11:57,490 But does an importer like that? 247 00:11:57,490 --> 00:11:58,030 Not really. 248 00:11:58,030 --> 00:12:00,490 An importer really would rather have 249 00:12:00,490 --> 00:12:05,380 consignment, having risk all the way on the other side. 250 00:12:05,380 --> 00:12:08,960 Consignment would say the exporter takes all the risk. 251 00:12:08,960 --> 00:12:11,630 So it's all about commercial terms. 252 00:12:11,630 --> 00:12:14,440 But you can think of it as the other side of this 253 00:12:14,440 --> 00:12:20,200 is the least attractive for the importer is paying 254 00:12:20,200 --> 00:12:21,850 cash in advance. 255 00:12:21,850 --> 00:12:26,010 The most attractive to the exporter is cash in advance. 256 00:12:26,010 --> 00:12:28,680 And every one of these happens somewhere. 257 00:12:28,680 --> 00:12:32,790 In a $17 trillion market, $17 trillion of exports, 258 00:12:32,790 --> 00:12:38,190 all of this is open for negotiation. 259 00:12:38,190 --> 00:12:40,425 But think of the exporter likes this curve. 260 00:12:43,160 --> 00:12:46,070 And the importer likes this. 261 00:12:46,070 --> 00:12:53,620 And as I will show in a second, most of the market 262 00:12:53,620 --> 00:12:55,250 is in the middle. 263 00:12:55,250 --> 00:12:56,995 So now trade finance. 264 00:12:59,900 --> 00:13:04,207 Exporters, importers, advising banks, and issuing banks. 265 00:13:04,207 --> 00:13:06,290 And what you're going to quickly sort of sense is, 266 00:13:06,290 --> 00:13:08,690 there's a lot of room maybe for blockchain technology 267 00:13:08,690 --> 00:13:12,530 because there's a lot of moving parts. 268 00:13:12,530 --> 00:13:16,910 By the way, normally if you work at Wall Street 269 00:13:16,910 --> 00:13:18,740 or at a commercial bank, you might never 270 00:13:18,740 --> 00:13:20,360 touch trade finance. 271 00:13:20,360 --> 00:13:23,780 It's just like a department that if you're on a trading floor, 272 00:13:23,780 --> 00:13:27,400 you're not really thinking about a lot. 273 00:13:27,400 --> 00:13:30,500 Who's worked on a trading floor here? 274 00:13:30,500 --> 00:13:33,240 Did you ever think about trade finance? 275 00:13:33,240 --> 00:13:34,660 No. 276 00:13:34,660 --> 00:13:36,640 But it's a big market. 277 00:13:36,640 --> 00:13:38,130 It's a very big market. 278 00:13:38,130 --> 00:13:42,990 But basically, the exporter and importer sign a contract that's 279 00:13:42,990 --> 00:13:44,878 for the sale of goods. 280 00:13:44,878 --> 00:13:45,545 It could be oil. 281 00:13:45,545 --> 00:13:48,360 It could be agriculture product or manufacturers. 282 00:13:48,360 --> 00:13:51,870 The importer then arranges with an issuing bank 283 00:13:51,870 --> 00:13:53,790 a letter of credit. 284 00:13:53,790 --> 00:13:57,950 The letter of credit is sent to the exporter's bank. 285 00:13:57,950 --> 00:14:03,630 Sometimes the exporter's bank puts a second guarantee on it. 286 00:14:03,630 --> 00:14:07,290 The exporter's bank might be actually guaranteeing 287 00:14:07,290 --> 00:14:11,410 the importer's bank performance. 288 00:14:11,410 --> 00:14:14,830 So there's hundreds of different arrangements. 289 00:14:14,830 --> 00:14:18,190 But the classic thing is that the importer gets 290 00:14:18,190 --> 00:14:21,190 a letter of credit to say, look, you don't know me, 291 00:14:21,190 --> 00:14:28,000 but you can take the risk and I get this letter of credit. 292 00:14:28,000 --> 00:14:32,200 You exporter will get your money based upon some documents, when 293 00:14:32,200 --> 00:14:34,660 you put some documents together and send them to me 294 00:14:34,660 --> 00:14:39,640 that you've actually put your oil or agricultural products 295 00:14:39,640 --> 00:14:41,900 on a ship. 296 00:14:41,900 --> 00:14:43,950 So shipping is a big part of it. 297 00:14:43,950 --> 00:14:47,750 The second piece of this is, how did the documents actually go? 298 00:14:47,750 --> 00:14:51,410 The exporter then ships something. 299 00:14:51,410 --> 00:14:54,620 The shipment usually leads to some documents. 300 00:14:54,620 --> 00:14:56,120 And at the time of the shipping, you 301 00:14:56,120 --> 00:15:00,380 see number six in this little box over here 302 00:15:00,380 --> 00:15:02,570 is, the exporter, when they ship something, 303 00:15:02,570 --> 00:15:05,570 also sends some documents to their bank. 304 00:15:05,570 --> 00:15:10,530 Their bank sends it overseas to the bank in Kenya, 305 00:15:10,530 --> 00:15:17,670 let's say, even though that doesn't have any ports. 306 00:15:17,670 --> 00:15:19,617 Ethiopia, you have ports, right? 307 00:15:19,617 --> 00:15:20,700 AUDIENCE: Kenya has ports. 308 00:15:20,700 --> 00:15:22,890 GARY GENSLER: Kenya has ports, sorry. 309 00:15:22,890 --> 00:15:23,742 You're landlocked. 310 00:15:23,742 --> 00:15:24,450 All right, sorry. 311 00:15:24,450 --> 00:15:25,325 So I've got it right. 312 00:15:25,325 --> 00:15:26,460 So Kenya-- I got it wrong. 313 00:15:26,460 --> 00:15:29,340 But Kenya's got ports. 314 00:15:29,340 --> 00:15:31,560 But the exporter, at the same time they're shipping, 315 00:15:31,560 --> 00:15:34,200 will also send the documents, but send the documents 316 00:15:34,200 --> 00:15:34,890 to their bank. 317 00:15:34,890 --> 00:15:36,580 Their bank sends it to the foreign bank. 318 00:15:36,580 --> 00:15:38,790 The foreign bank says, ah-ha. 319 00:15:38,790 --> 00:15:41,790 That triggers the condition in the letter of credit. 320 00:15:41,790 --> 00:15:44,410 Payment will be made. 321 00:15:44,410 --> 00:15:48,070 And payment can be made when you put the goods on the ship. 322 00:15:48,070 --> 00:15:51,160 Payment maybe is made when the goods 323 00:15:51,160 --> 00:15:54,200 get to the foreign country. 324 00:15:54,200 --> 00:15:56,280 All these arrangements can be different. 325 00:16:00,200 --> 00:16:02,290 So this gives you a sense of the change. 326 00:16:02,290 --> 00:16:08,380 Letter credits were estimated in 1970 to be about half 327 00:16:08,380 --> 00:16:09,970 of all of trade. 328 00:16:09,970 --> 00:16:13,590 Now they're about 15%. 329 00:16:13,590 --> 00:16:16,620 World Economic Forum Bain papers that you all 330 00:16:16,620 --> 00:16:22,827 had the pleasure of either reading or skimming or you'll 331 00:16:22,827 --> 00:16:23,535 read it tomorrow. 332 00:16:26,610 --> 00:16:30,360 But letters of credit is a big piece of the market. 333 00:16:30,360 --> 00:16:36,430 Primary open account has widened as part of the market, 334 00:16:36,430 --> 00:16:41,020 I think, in part because international trade 335 00:16:41,020 --> 00:16:43,270 is probably more dominated by large companies 336 00:16:43,270 --> 00:16:44,440 now than in the past. 337 00:16:44,440 --> 00:16:46,990 And in the 1970s, even the large companies 338 00:16:46,990 --> 00:16:49,480 didn't know if they could trust each other. 339 00:16:49,480 --> 00:16:53,020 The larger enterprises, larger multinationals 340 00:16:53,020 --> 00:16:55,570 really would prefer just to trade on open account 341 00:16:55,570 --> 00:16:58,710 and extend each other's credit rather 342 00:16:58,710 --> 00:17:03,580 than using the banking system to guarantee their credit. 343 00:17:03,580 --> 00:17:09,869 But trade finance is still a good call at 15% to 20%, 344 00:17:09,869 --> 00:17:14,349 which would still be rather significant numbers. 345 00:17:14,349 --> 00:17:17,520 So that's a little bit on the sort of questions 346 00:17:17,520 --> 00:17:20,819 about trade finance, how it fits in, before we start talking 347 00:17:20,819 --> 00:17:22,379 about blockchain projects. 348 00:17:25,170 --> 00:17:27,243 I think I had one other thing. 349 00:17:27,243 --> 00:17:29,160 Here are all the parties that can be involved. 350 00:17:33,290 --> 00:17:36,180 And just to sort of confuse us all, 351 00:17:36,180 --> 00:17:38,390 here is a list of some of the documents. 352 00:17:38,390 --> 00:17:42,340 And that's not even a complete list. 353 00:17:42,340 --> 00:17:44,680 I went to a legal website to find out 354 00:17:44,680 --> 00:17:48,640 what all the different documents you might have. 355 00:17:48,640 --> 00:17:50,350 Anybody know what a bill of lading is? 356 00:17:53,074 --> 00:17:58,750 AUDIENCE: It's some kind of receipt from the vessel carrier 357 00:17:58,750 --> 00:18:01,450 that is carrying your goods. 358 00:18:01,450 --> 00:18:03,640 And whoever owns that bill of lading 359 00:18:03,640 --> 00:18:05,470 has the right to claim the goods. 360 00:18:05,470 --> 00:18:07,240 GARY GENSLER: Right. 361 00:18:07,240 --> 00:18:08,800 So it's like a warehouse receipt. 362 00:18:08,800 --> 00:18:11,440 Remember, we talked about some of the origins of money 363 00:18:11,440 --> 00:18:13,660 were around warehouse receipts because I 364 00:18:13,660 --> 00:18:18,340 might put my corn or wheat or gold or bronze in a warehouse. 365 00:18:18,340 --> 00:18:23,950 A bill of lading originally, though the definition is moved 366 00:18:23,950 --> 00:18:27,760 on over the centuries, the original definition it was 367 00:18:27,760 --> 00:18:30,850 like a warehouse receipt on a ship 368 00:18:30,850 --> 00:18:34,930 that you took your products or goods and placed it on a ship. 369 00:18:34,930 --> 00:18:39,820 And you had a bill of lading because it was on the ship. 370 00:18:39,820 --> 00:18:42,570 And you could actually, just like those original forms 371 00:18:42,570 --> 00:18:46,200 of money, warehouse receipts, you could sell a bill of lading 372 00:18:46,200 --> 00:18:48,570 or discount it and get money for it. 373 00:18:48,570 --> 00:18:50,700 So bills of lading have centuries 374 00:18:50,700 --> 00:18:54,000 old, maybe thousands of years of history, 375 00:18:54,000 --> 00:18:55,670 similar to warehouse receipts. 376 00:18:55,670 --> 00:18:57,630 And in essence, you might think of a bill 377 00:18:57,630 --> 00:19:00,150 of lading a little bit as a form of money. 378 00:19:03,910 --> 00:19:06,790 But what did I list just for fun? 379 00:19:06,790 --> 00:19:09,845 50 different documents. 380 00:19:09,845 --> 00:19:10,345 Alean. 381 00:19:10,345 --> 00:19:11,520 AUDIENCE: How easy is it to fake one of these? 382 00:19:11,520 --> 00:19:12,310 GARY GENSLER: Say it louder. 383 00:19:12,310 --> 00:19:14,440 AUDIENCE: How easy is it to fake one of these bills 384 00:19:14,440 --> 00:19:15,915 and claim someone else's goods? 385 00:19:15,915 --> 00:19:17,290 GARY GENSLER: Very good question. 386 00:19:17,290 --> 00:19:19,830 So is was a point earlier. 387 00:19:19,830 --> 00:19:21,610 And again, this goes back centuries 388 00:19:21,610 --> 00:19:26,980 that there's been a lot of fraud around faking a bill of lading 389 00:19:26,980 --> 00:19:30,420 or a bill of exchange, a warehouse receipt, 390 00:19:30,420 --> 00:19:34,750 in another effort. 391 00:19:34,750 --> 00:19:38,500 So what you have is you have a lot of forms of notary, 392 00:19:38,500 --> 00:19:41,740 well before cryptography, a lot of forms of notary 393 00:19:41,740 --> 00:19:48,910 where various transport agents and shippers had to really 394 00:19:48,910 --> 00:19:53,154 have seals and forms of ways to say this was a committed. 395 00:19:55,760 --> 00:19:56,450 Leonardo. 396 00:19:56,450 --> 00:19:58,380 AUDIENCE: And I think part of the problem 397 00:19:58,380 --> 00:20:02,150 is that each one single piece of those documents 398 00:20:02,150 --> 00:20:04,860 are easy to falsify. 399 00:20:04,860 --> 00:20:08,000 That's why this system became so burdensome 400 00:20:08,000 --> 00:20:09,830 in terms of paperwork, because they started 401 00:20:09,830 --> 00:20:12,620 to build a lot of steps to guarantee 402 00:20:12,620 --> 00:20:15,300 that you can track all those things and make sure 403 00:20:15,300 --> 00:20:17,810 you reduce the risk. 404 00:20:17,810 --> 00:20:22,310 It's relatively easy to get one of those faked too. 405 00:20:22,310 --> 00:20:25,400 GARY GENSLER: And it's why many people think this is actually 406 00:20:25,400 --> 00:20:32,420 one of the better use cases, better ecosystems for a revised 407 00:20:32,420 --> 00:20:34,910 technology similar to blockchain or actually 408 00:20:34,910 --> 00:20:38,830 blockchain technology itself, a lot of multiple parties. 409 00:20:38,830 --> 00:20:43,940 And though I only listed seven, you can have multiple banks. 410 00:20:43,940 --> 00:20:46,640 You can have the importer's bank, the exporter's bank, 411 00:20:46,640 --> 00:20:50,410 between them you can have a correspondent bank, right, 412 00:20:50,410 --> 00:20:54,970 so at least three banks in the chain or sometimes even more. 413 00:20:54,970 --> 00:20:58,000 Freight forwarders, shippers, customs 414 00:20:58,000 --> 00:21:00,480 agents in both countries. 415 00:21:00,480 --> 00:21:01,656 You have a question, James? 416 00:21:01,656 --> 00:21:03,280 AUDIENCE: Nope. 417 00:21:03,280 --> 00:21:07,630 GARY GENSLER: So lots of parties, lots of documents, 418 00:21:07,630 --> 00:21:10,040 high chance of fraud. 419 00:21:10,040 --> 00:21:12,910 And guaranteeing validation and verification 420 00:21:12,910 --> 00:21:15,340 is a big piece of this marketplace. 421 00:21:19,610 --> 00:21:22,110 So then the question is, can you put somebody in the middle? 422 00:21:22,110 --> 00:21:26,380 See that little blockchain in the middle, kind of cute. 423 00:21:26,380 --> 00:21:29,670 All right, you're not going to laugh a little with me. 424 00:21:29,670 --> 00:21:34,130 That's the question, so multiple parties involved. 425 00:21:34,130 --> 00:21:36,860 Verification is critical to all the workflows 426 00:21:36,860 --> 00:21:40,250 and the economics. 427 00:21:40,250 --> 00:21:43,400 And it relies on significant document flows. 428 00:21:43,400 --> 00:21:46,380 That's the basic. 429 00:21:46,380 --> 00:21:47,690 And it's what-- 430 00:21:47,690 --> 00:21:49,760 Today's lecture is really to say well 431 00:21:49,760 --> 00:21:52,160 whether you're looking at health care records, 432 00:21:52,160 --> 00:21:54,590 whether you're thinking about commercial real estate, 433 00:21:54,590 --> 00:21:59,020 you're thinking about internet of things, 434 00:21:59,020 --> 00:22:02,710 remind yourself of trade finance because this is probably 435 00:22:02,710 --> 00:22:04,660 one of the best use cases, at least 436 00:22:04,660 --> 00:22:06,870 for permissioned blockchains. 437 00:22:06,870 --> 00:22:09,280 So you can debate whether it could be 438 00:22:09,280 --> 00:22:11,050 done on a traditional database. 439 00:22:11,050 --> 00:22:14,350 But it's multiple parties. 440 00:22:14,350 --> 00:22:16,210 Lots of validation and verification 441 00:22:16,210 --> 00:22:20,300 is important, an awful lot of different documents. 442 00:22:20,300 --> 00:22:22,450 And there there's property rights involved. 443 00:22:22,450 --> 00:22:24,940 Critically, there is key property rights 444 00:22:24,940 --> 00:22:27,400 because when you're shipping oil on the high seas 445 00:22:27,400 --> 00:22:31,720 or shipping any bits of that $17 trillion on the high seas, 446 00:22:31,720 --> 00:22:35,040 people want to finance against it. 447 00:22:35,040 --> 00:22:36,960 AUDIENCE: I have one question for me 448 00:22:36,960 --> 00:22:38,320 to better understand this. 449 00:22:38,320 --> 00:22:40,240 How do you finance these from sending a good 450 00:22:40,240 --> 00:22:43,280 from San Francisco to Boston? 451 00:22:43,280 --> 00:22:44,950 And the same time, why? 452 00:22:44,950 --> 00:22:47,110 Is it a matter of that we need all these documents 453 00:22:47,110 --> 00:22:49,027 and we need to put documents on the blockchain 454 00:22:49,027 --> 00:22:50,930 or can we just get rid of the documents? 455 00:22:50,930 --> 00:22:53,395 Why don't we see the same thing in intra-US? 456 00:22:56,350 --> 00:22:57,730 GARY GENSLER: Very good question. 457 00:22:57,730 --> 00:23:00,920 Though the word trade finance has come to mean, 458 00:23:00,920 --> 00:23:06,710 for many decades, maybe hundreds of years, international trade, 459 00:23:06,710 --> 00:23:09,740 the same can be true for domestic trade, 460 00:23:09,740 --> 00:23:12,560 particularly as you're going, as you said, from San Francisco 461 00:23:12,560 --> 00:23:14,450 to Boston. 462 00:23:14,450 --> 00:23:19,060 You could use a letter of credit between 463 00:23:19,060 --> 00:23:23,600 a major domestic manufacturer and a small business in Boston. 464 00:23:23,600 --> 00:23:26,510 So I might say, I don't want to take-- 465 00:23:26,510 --> 00:23:30,770 sorry, Joe Quin, but you're that small manufacturer. 466 00:23:30,770 --> 00:23:33,470 You're that small entity in Boston. 467 00:23:33,470 --> 00:23:36,290 And Tom's not willing to take your credit risk. 468 00:23:36,290 --> 00:23:38,990 You could still want to have a letter of credit. 469 00:23:38,990 --> 00:23:40,400 It wouldn't be called technically 470 00:23:40,400 --> 00:23:42,890 a bill of lading if it's not on a ship, 471 00:23:42,890 --> 00:23:45,870 even though that term sometimes is used. 472 00:23:45,870 --> 00:23:51,930 But everything back here could happen in domestic trade, 473 00:23:51,930 --> 00:23:53,430 but usually doesn't. 474 00:23:53,430 --> 00:23:57,240 Most of domestic trade is done on open account. 475 00:23:57,240 --> 00:24:01,060 But some of it's done on letter of credit especially, 476 00:24:01,060 --> 00:24:02,865 if just small businesses. 477 00:24:02,865 --> 00:24:04,290 Does that help? 478 00:24:04,290 --> 00:24:06,120 AUDIENCE: Yes. 479 00:24:06,120 --> 00:24:09,780 I'm trying to think why do we need it in one case 480 00:24:09,780 --> 00:24:11,013 and not in the other one? 481 00:24:11,013 --> 00:24:12,180 GARY GENSLER: There's more-- 482 00:24:12,180 --> 00:24:15,390 I think it's applicable in both. 483 00:24:15,390 --> 00:24:17,430 It's more applicable on international trade 484 00:24:17,430 --> 00:24:23,280 because you have more challenges of trust, 485 00:24:23,280 --> 00:24:26,370 I would even say information asymmetries. 486 00:24:26,370 --> 00:24:31,890 If you're sitting in China and you're exporting to Kenya, 487 00:24:31,890 --> 00:24:35,220 you have less chance to actually know that local community. 488 00:24:35,220 --> 00:24:38,990 And your bank in China doesn't know them either. 489 00:24:38,990 --> 00:24:44,610 And so what was built up to satisfy those issues of trust 490 00:24:44,610 --> 00:24:46,830 is the banking sector largely picked up 491 00:24:46,830 --> 00:24:50,510 that, either guaranteeing the documents 492 00:24:50,510 --> 00:24:53,220 or actually guaranteeing the credit. 493 00:24:53,220 --> 00:24:53,720 Hugo. 494 00:24:53,720 --> 00:24:56,387 AUDIENCE: There's also something to say for like border control, 495 00:24:56,387 --> 00:24:56,980 right. 496 00:24:56,980 --> 00:25:00,480 Like, I know, in my lab we've had like waste materials 497 00:25:00,480 --> 00:25:02,760 shipped to us internationally. 498 00:25:02,760 --> 00:25:06,450 And customs agents really even care about that. 499 00:25:06,450 --> 00:25:10,480 You have to put a price on that, even if it has no price. 500 00:25:10,480 --> 00:25:13,440 So like if you could just put something on a car 501 00:25:13,440 --> 00:25:16,890 and drive it from San Francisco to Boston, 502 00:25:16,890 --> 00:25:17,910 then maybe like, yeah. 503 00:25:17,910 --> 00:25:19,610 If you're driving from Canada to the US, 504 00:25:19,610 --> 00:25:21,570 it would be different from shipping it 505 00:25:21,570 --> 00:25:23,290 from China to the US. 506 00:25:23,290 --> 00:25:27,150 But I think the trust issue comes up a lot more 507 00:25:27,150 --> 00:25:30,180 when you're dealing with international and regulatory 508 00:25:30,180 --> 00:25:32,065 differences between the two places. 509 00:25:32,065 --> 00:25:33,690 GARY GENSLER: I'm not saying it doesn't 510 00:25:33,690 --> 00:25:35,220 exist in domestic trade. 511 00:25:35,220 --> 00:25:38,040 It definitely exists in domestic trade. 512 00:25:38,040 --> 00:25:42,390 But international trade long ago created a system 513 00:25:42,390 --> 00:25:46,960 to address different languages, different cultures, 514 00:25:46,960 --> 00:25:50,570 different regulatory regimes, taxing regimes. 515 00:25:50,570 --> 00:25:53,040 And it was going on a ship. 516 00:25:53,040 --> 00:25:55,470 AUDIENCE: Even more anti-money laundering. 517 00:25:55,470 --> 00:25:57,240 So there is other regulation that 518 00:25:57,240 --> 00:26:00,070 is part of the policy that complicates it. 519 00:26:00,070 --> 00:26:01,740 One nation, a letter of credit-- you 520 00:26:01,740 --> 00:26:03,630 need to make sure that you're not 521 00:26:03,630 --> 00:26:08,730 breaking any regulation between different jurisdictions. 522 00:26:08,730 --> 00:26:14,010 Part of it will be ML as well or ABC or whatever. 523 00:26:14,010 --> 00:26:14,990 GARY GENSLER: James. 524 00:26:14,990 --> 00:26:17,100 AUDIENCE: But, I think, looking at that question, 525 00:26:17,100 --> 00:26:20,380 it seems like we are using technology, 526 00:26:20,380 --> 00:26:23,190 in this case, blockchain to fit into the existing 527 00:26:23,190 --> 00:26:24,488 framework of how things work. 528 00:26:24,488 --> 00:26:26,030 But shouldn't the question be flipped 529 00:26:26,030 --> 00:26:28,380 to say, hang on a second, do we need blockchain 530 00:26:28,380 --> 00:26:30,370 in a system that is better designed, 531 00:26:30,370 --> 00:26:32,400 not having 50 different documents, 532 00:26:32,400 --> 00:26:36,030 and actually thinking about the actual problem. 533 00:26:36,030 --> 00:26:38,160 I can see the point of the trust which 534 00:26:38,160 --> 00:26:40,560 may need a blockchain solution. 535 00:26:40,560 --> 00:26:41,790 But a lot of that-- 536 00:26:41,790 --> 00:26:44,010 be that trucking receipts, railroad receipts, 537 00:26:44,010 --> 00:26:48,390 or cargo receipts, those are historical relics. 538 00:26:48,390 --> 00:26:50,090 Surely there must be a technology 539 00:26:50,090 --> 00:26:52,927 other than blockchain that could solve the problem. 540 00:26:52,927 --> 00:26:54,010 GARY GENSLER: Well, maybe. 541 00:26:54,010 --> 00:26:56,230 Or maybe blockchain technology is just 542 00:26:56,230 --> 00:26:59,110 the right technology that's coming along 543 00:26:59,110 --> 00:27:03,280 in the 21st century to solve it better than initially pieces 544 00:27:03,280 --> 00:27:08,080 of paper and literally document couriers that 545 00:27:08,080 --> 00:27:09,932 had to be trusted to do it. 546 00:27:09,932 --> 00:27:11,890 AUDIENCE: They've gone the way the dodo, right? 547 00:27:11,890 --> 00:27:12,973 So-- 548 00:27:12,973 --> 00:27:15,640 GARY GENSLER: Well, they haven't fully gone the way of the dodo. 549 00:27:15,640 --> 00:27:17,440 AUDIENCE: While I think that there's 550 00:27:17,440 --> 00:27:21,220 much to be said about blockchain that creates trust in parties 551 00:27:21,220 --> 00:27:24,913 that may not naturally trust each other, 552 00:27:24,913 --> 00:27:27,580 the problem seems to me is there is a lot of things that doesn't 553 00:27:27,580 --> 00:27:30,490 need to happen in this day and age, as you mentioned, 554 00:27:30,490 --> 00:27:32,420 domestic mail services. 555 00:27:32,420 --> 00:27:34,480 It's between sender and receiver. 556 00:27:34,480 --> 00:27:39,070 What happens in between is tracked by UPS or whoever. 557 00:27:39,070 --> 00:27:42,390 But what we certainly don't see is all of that list of stuff 558 00:27:42,390 --> 00:27:43,390 while this is happening. 559 00:27:43,390 --> 00:27:47,340 But it's unnecessary, domestically, 560 00:27:47,340 --> 00:27:49,200 GARY GENSLER: You might be right. 561 00:27:49,200 --> 00:27:52,020 But what's happened well before blockchain technology came 562 00:27:52,020 --> 00:27:54,720 along is digitization. 563 00:27:54,720 --> 00:27:58,230 But part of the trade can't be dematerialized. 564 00:27:58,230 --> 00:28:00,660 See in the securities business, what 565 00:28:00,660 --> 00:28:03,120 we talked about when we talked about clearing and settling 566 00:28:03,120 --> 00:28:06,150 of securities, the equity ownership 567 00:28:06,150 --> 00:28:07,710 has been dematerialized. 568 00:28:07,710 --> 00:28:10,660 And it started to happen in the 1970s. 569 00:28:10,660 --> 00:28:15,150 The legal right that you have this cash flow 570 00:28:15,150 --> 00:28:21,600 called an equity interest in Apple is all digitized. 571 00:28:21,600 --> 00:28:24,990 Part of this trade is not digitized, $17 trillion 572 00:28:24,990 --> 00:28:30,020 of physical goods on the high seas. 573 00:28:30,020 --> 00:28:32,300 So I still think you're going to need something 574 00:28:32,300 --> 00:28:37,490 that shows that the physical goods made it on a ship 575 00:28:37,490 --> 00:28:40,500 or on a cargo vessel of some sort. 576 00:28:40,500 --> 00:28:43,050 And so there are some differences. 577 00:28:43,050 --> 00:28:43,818 Erik. 578 00:28:43,818 --> 00:28:44,860 Still haven't heard from. 579 00:28:44,860 --> 00:28:46,220 AUDIENCE: Yes. 580 00:28:46,220 --> 00:28:50,320 Just to address a concern of James 581 00:28:50,320 --> 00:28:55,460 that many of the manual plus the station projects 582 00:28:55,460 --> 00:28:59,020 fail at the beginning because they actually did that. 583 00:28:59,020 --> 00:29:02,450 They kind of tried to reflect exactly what happened 584 00:29:02,450 --> 00:29:07,160 in the manual world into the digitized world, which resulted 585 00:29:07,160 --> 00:29:08,860 in many inefficiencies. 586 00:29:08,860 --> 00:29:12,090 And this is not the case. 587 00:29:12,090 --> 00:29:17,690 We're not actually trying to do exactly that off line process 588 00:29:17,690 --> 00:29:18,935 using blockchain technology. 589 00:29:18,935 --> 00:29:20,060 That's not the alternative. 590 00:29:20,060 --> 00:29:25,820 But that actually made me think that I wanted to point out this 591 00:29:25,820 --> 00:29:29,510 to your argumentative of centralized databases. 592 00:29:29,510 --> 00:29:31,430 And centralized databases have been around 593 00:29:31,430 --> 00:29:32,940 for more than 60 years. 594 00:29:32,940 --> 00:29:35,300 They've been digitizing manual processes for a while. 595 00:29:35,300 --> 00:29:39,300 The question comes is, why didn't they already digitize 596 00:29:39,300 --> 00:29:41,490 these sort of problems? 597 00:29:41,490 --> 00:29:45,860 The answer is because this trade finance issue 598 00:29:45,860 --> 00:29:50,000 has special characteristics that make it especially 599 00:29:50,000 --> 00:29:53,460 suitable for it to be addressed by these specific technologies. 600 00:29:53,460 --> 00:29:55,760 So that's why I would argue that. 601 00:29:55,760 --> 00:29:58,600 GARY GENSLER: And what do you think that specialness is? 602 00:29:58,600 --> 00:30:00,050 AUDIENCE: It's precisely the fact 603 00:30:00,050 --> 00:30:03,710 that you have multiple stakeholders dealing 604 00:30:03,710 --> 00:30:09,140 with information that goes among all of these moving parts 605 00:30:09,140 --> 00:30:11,940 and you have a high cost of trust. 606 00:30:11,940 --> 00:30:15,710 So what you're actually doing is using blockchain technology 607 00:30:15,710 --> 00:30:18,680 permissioned or otherwise to address 608 00:30:18,680 --> 00:30:22,015 this specific challenge. 609 00:30:22,015 --> 00:30:24,140 GARY GENSLER: And you have a property right as well 610 00:30:24,140 --> 00:30:27,290 that people often want to borrow still against while it's 611 00:30:27,290 --> 00:30:29,750 on the high seas. 612 00:30:29,750 --> 00:30:33,770 But I agree it may well be that the blockchain technology is 613 00:30:33,770 --> 00:30:36,470 not the only solution to this. 614 00:30:36,470 --> 00:30:42,050 But it does feel like it's a particularly fertile area. 615 00:30:42,050 --> 00:30:44,630 And we're going to turn right now to some of the projects. 616 00:30:44,630 --> 00:30:48,000 And there is a lot of projects in this space. 617 00:30:48,000 --> 00:30:48,500 Alean. 618 00:30:48,500 --> 00:30:50,315 And then we'll go in back to Aviva. 619 00:30:50,315 --> 00:30:54,710 AUDIENCE: So is the overarching goal here to fix the fraud 620 00:30:54,710 --> 00:30:57,292 or to fix the complexity, what's the goal? 621 00:30:57,292 --> 00:30:59,250 GARY GENSLER: Well it's a really good question. 622 00:30:59,250 --> 00:31:01,550 So those working on projects, is it 623 00:31:01,550 --> 00:31:04,440 more about fraud or the complexity? 624 00:31:04,440 --> 00:31:05,963 AUDIENCE: Fraud. 625 00:31:05,963 --> 00:31:07,130 GARY GENSLER: So efficiency. 626 00:31:07,130 --> 00:31:08,672 AUDIENCE: Yes, the complexity I guess 627 00:31:08,672 --> 00:31:10,400 is a function of the fact. 628 00:31:10,400 --> 00:31:12,870 GARY GENSLER: So you can you can drive a lot of efficiency, 629 00:31:12,870 --> 00:31:16,670 which is due to the complexity. 630 00:31:16,670 --> 00:31:19,610 I think, that's one of the overarching goals 631 00:31:19,610 --> 00:31:27,760 is driving efficiency, but also to lower the fraud or the loss 632 00:31:27,760 --> 00:31:28,970 to fraud. 633 00:31:28,970 --> 00:31:29,570 It's both. 634 00:31:29,570 --> 00:31:31,580 But I think it's driven more by the efficiency 635 00:31:31,580 --> 00:31:33,360 from my readings of this. 636 00:31:33,360 --> 00:31:34,885 AUDIENCE: Fraud. 637 00:31:34,885 --> 00:31:36,510 GARY GENSLER: More by the efficiencies. 638 00:31:36,510 --> 00:31:38,030 AUDIENCE: What's the fraud rate? 639 00:31:38,030 --> 00:31:39,780 GARY GENSLER: I don't know the fraud rate. 640 00:31:39,780 --> 00:31:41,820 That's a good question. 641 00:31:41,820 --> 00:31:45,135 We'll see if we can find it out Aviva was going to be next. 642 00:31:45,135 --> 00:31:47,510 AUDIENCE: So let's say that trade finance does transition 643 00:31:47,510 --> 00:31:50,200 to a blockchain and then that it's 644 00:31:50,200 --> 00:31:51,560 more in the private blockchain. 645 00:31:51,560 --> 00:31:57,338 So then how do we solve the problem of interoperability? 646 00:31:57,338 --> 00:31:59,130 GARY GENSLER: Can I hold that, because it's 647 00:31:59,130 --> 00:32:00,713 a very good question that will come up 648 00:32:00,713 --> 00:32:03,260 when we talk a little bit about some of the IBM projects, 649 00:32:03,260 --> 00:32:05,840 particularly with one of the largest shippers? 650 00:32:05,840 --> 00:32:07,590 So it's the right question. 651 00:32:07,590 --> 00:32:09,997 But we're going to chat about when we talk about it. 652 00:32:09,997 --> 00:32:12,080 Can I talk about some of the projects or was there 653 00:32:12,080 --> 00:32:13,920 something? 654 00:32:13,920 --> 00:32:16,410 So where are we? 655 00:32:16,410 --> 00:32:19,290 Well, there's five big consortium. 656 00:32:19,290 --> 00:32:21,630 Two of them you can see are backed on-- 657 00:32:21,630 --> 00:32:23,310 or working on the Corda. 658 00:32:23,310 --> 00:32:28,020 That was R3 Corda that we talked about earlier this semester. 659 00:32:28,020 --> 00:32:30,120 Two are on IBM. 660 00:32:30,120 --> 00:32:34,020 One that's on a Ping An Group, we 661 00:32:34,020 --> 00:32:36,690 didn't talk about earlier this year. 662 00:32:39,510 --> 00:32:42,300 So letter of credit approach. 663 00:32:42,300 --> 00:32:45,247 Receivables and payment guarantee financing, which 664 00:32:45,247 --> 00:32:46,330 is a little bit different. 665 00:32:46,330 --> 00:32:48,030 This is, we already have receivables, 666 00:32:48,030 --> 00:32:48,960 how do we fund them? 667 00:32:51,510 --> 00:32:55,870 Monitoring open transactions and letters of credit. 668 00:32:55,870 --> 00:32:59,610 And then the Hong Kong group is a supply chain record keeping. 669 00:32:59,610 --> 00:33:04,260 And just if you want to see it sort of visually, 670 00:33:04,260 --> 00:33:06,420 this is all the banks that are involved 671 00:33:06,420 --> 00:33:09,430 in each of the consortium. 672 00:33:09,430 --> 00:33:14,190 And you'll see basically that there's some overlap, I think, 673 00:33:14,190 --> 00:33:16,530 unless I'm mistaken. 674 00:33:16,530 --> 00:33:18,450 I and G might be in a couple of them. 675 00:33:18,450 --> 00:33:21,480 I think two of these consortia maybe have now merged. 676 00:33:24,570 --> 00:33:25,920 But it goes a little bit. 677 00:33:25,920 --> 00:33:28,680 It's not fully going to answer your question of Aviva. 678 00:33:28,680 --> 00:33:31,590 But even if there were five different consortium trying 679 00:33:31,590 --> 00:33:35,750 to figure this out amongst different groups of banks, 680 00:33:35,750 --> 00:33:38,210 at some point in time to really gain a great deal 681 00:33:38,210 --> 00:33:42,530 more efficiency, how do they operate, how do they transact 682 00:33:42,530 --> 00:33:47,000 across their platforms? 683 00:33:47,000 --> 00:33:50,120 Now they each, obviously, don't want to give up economic rents. 684 00:33:50,120 --> 00:33:54,203 They don't want to give up market power to somebody. 685 00:33:54,203 --> 00:33:55,620 They don't want to all of a sudden 686 00:33:55,620 --> 00:33:58,680 find out that some entrepreneur is charging them 687 00:33:58,680 --> 00:34:04,380 so much because they created a network, because the one 688 00:34:04,380 --> 00:34:10,170 consortium that figures this out early on could price pretty 689 00:34:10,170 --> 00:34:14,760 close to their cost structure, but later on could, you know, 690 00:34:14,760 --> 00:34:17,520 price a lot higher and collect a lot of monopoly 691 00:34:17,520 --> 00:34:20,489 or economic rents. 692 00:34:20,489 --> 00:34:22,583 So I don't know where this will sort out. 693 00:34:22,583 --> 00:34:24,000 And I don't even know that they're 694 00:34:24,000 --> 00:34:28,290 going to want to solve the interoperability problem 695 00:34:28,290 --> 00:34:29,530 amongst themselves. 696 00:34:29,530 --> 00:34:30,250 Sean. 697 00:34:30,250 --> 00:34:33,989 AUDIENCE: One interesting kind of finding fault with consortia 698 00:34:33,989 --> 00:34:36,630 is all of the banks listed up there, 699 00:34:36,630 --> 00:34:38,670 all these are Asian bank or European bank. 700 00:34:38,670 --> 00:34:40,830 None of the US banks are actually participating. 701 00:34:40,830 --> 00:34:44,130 I see US Bank, so one. 702 00:34:44,130 --> 00:34:46,860 GARY GENSLER: But do you see JP Morgan Chase? 703 00:34:53,280 --> 00:34:59,190 Now, who's the largest issuer of trade finance in the world? 704 00:34:59,190 --> 00:35:00,570 AUDIENCE: US Government? 705 00:35:00,570 --> 00:35:01,170 GARY GENSLER: What's that? 706 00:35:01,170 --> 00:35:02,590 AUDIENCE: It's not the US Government, is it? 707 00:35:02,590 --> 00:35:03,632 GARY GENSLER: No, no, no. 708 00:35:03,632 --> 00:35:04,450 I think it's-- 709 00:35:04,450 --> 00:35:07,430 I think it's HSBC. 710 00:35:07,430 --> 00:35:08,640 I might be mistaken. 711 00:35:08,640 --> 00:35:09,900 AUDIENCE: I think it's HSBC. 712 00:35:09,900 --> 00:35:11,567 GARY GENSLER: You think too, it is HSBC. 713 00:35:15,220 --> 00:35:16,550 But you're right. 714 00:35:16,550 --> 00:35:21,530 The five big-- Wells Fargo is not on there either. 715 00:35:21,530 --> 00:35:24,030 Now that doesn't mean they're not working on other projects, 716 00:35:24,030 --> 00:35:26,140 because here here's some other projects. 717 00:35:26,140 --> 00:35:27,870 And these aren't the consortia. 718 00:35:27,870 --> 00:35:29,280 I'm just giving us flavor. 719 00:35:29,280 --> 00:35:31,530 There's a lot going on in this space. 720 00:35:31,530 --> 00:35:34,500 And those of you who are doing final projects, 721 00:35:34,500 --> 00:35:38,640 I challenge you to think about these projects. 722 00:35:38,640 --> 00:35:41,650 And say, well what are you recommending that's different, 723 00:35:41,650 --> 00:35:42,150 you know. 724 00:35:42,150 --> 00:35:46,072 It's not just me too, me too financial, not the other 725 00:35:46,072 --> 00:35:46,820 me too stuff. 726 00:35:51,110 --> 00:35:53,430 India's interesting to me. 727 00:35:53,430 --> 00:35:58,530 There's another consortium that wasn't on that page. 728 00:35:58,530 --> 00:36:01,620 And I'll probably pronounce it wrong. 729 00:36:01,620 --> 00:36:03,390 "Final Cal" or "Finic Cal." 730 00:36:03,390 --> 00:36:04,140 AUDIENCE: Finacle. 731 00:36:04,140 --> 00:36:05,223 GARY GENSLER: What's that? 732 00:36:05,223 --> 00:36:06,570 AUDIENCE: Finacle. 733 00:36:06,570 --> 00:36:08,490 GARY GENSLER: Are you familiar with that? 734 00:36:08,490 --> 00:36:10,040 AUDIENCE: Not much, I just know the pronunciation. 735 00:36:10,040 --> 00:36:11,582 GARY GENSLER: Just the pronunciation. 736 00:36:11,582 --> 00:36:12,840 Thank you for helping me out. 737 00:36:12,840 --> 00:36:14,170 I needed it. 738 00:36:14,170 --> 00:36:16,790 For validation documents and payment, 739 00:36:16,790 --> 00:36:19,290 so they're not really saying we're just trade finance. 740 00:36:19,290 --> 00:36:22,020 But we're going to validate all the documents This goes more 741 00:36:22,020 --> 00:36:23,300 to fraud. 742 00:36:23,300 --> 00:36:26,880 I think this project, validating the documents, saying, 743 00:36:26,880 --> 00:36:28,920 yes, they're true and good, and you can 744 00:36:28,920 --> 00:36:31,440 lend against these documents. 745 00:36:31,440 --> 00:36:33,150 And a lot of times these documents 746 00:36:33,150 --> 00:36:35,250 are the bills of lading and bills 747 00:36:35,250 --> 00:36:39,760 of exchange or loan lendable and so forth. 748 00:36:39,760 --> 00:36:43,700 So a lot of projects, one-- 749 00:36:43,700 --> 00:36:45,780 I could only find and there may be others, 750 00:36:45,780 --> 00:36:47,910 I could only find one with a token. 751 00:36:47,910 --> 00:36:49,660 And I put it up there last, Ethereum 752 00:36:49,660 --> 00:36:53,640 based ConsenSys, the company that's 753 00:36:53,640 --> 00:36:57,930 run by Joe Lubin who is the Canadian venture capitalist who 754 00:36:57,930 --> 00:37:03,570 helped back Vitalik Buterin and Ethereum. 755 00:37:03,570 --> 00:37:06,330 ConsenSys has 300 or 400 people at least 756 00:37:06,330 --> 00:37:10,230 working in ConsenSys doing Ethereum based projects. 757 00:37:10,230 --> 00:37:14,010 So I was pleased to see I could find one native based token. 758 00:37:14,010 --> 00:37:19,050 But to my knowledge, all of the consortia and all of the ones 759 00:37:19,050 --> 00:37:22,320 I listed up there are permissioned blockchains 760 00:37:22,320 --> 00:37:23,910 from what I can tell. 761 00:37:23,910 --> 00:37:27,010 But I'm curious, those of you who are working on this, 762 00:37:27,010 --> 00:37:31,740 have you found any native token projects here? 763 00:37:31,740 --> 00:37:34,110 AUDIENCE: There is still b-verify, 764 00:37:34,110 --> 00:37:37,170 which is a project from the Media Lab. 765 00:37:37,170 --> 00:37:39,910 It doesn't have a native token per se, 766 00:37:39,910 --> 00:37:42,510 but uses permissionless blockchain, 767 00:37:42,510 --> 00:37:45,510 existing permissionless blockchain infrastructure 768 00:37:45,510 --> 00:37:53,040 to gain the readability of lots of statements 769 00:37:53,040 --> 00:37:58,200 to build a warehouse receipts use case. 770 00:37:58,200 --> 00:38:01,680 So they are using transactions in the Bitcoin network 771 00:38:01,680 --> 00:38:05,190 right now to write-- 772 00:38:05,190 --> 00:38:07,650 GARY GENSLER: But does b-verify have a token? 773 00:38:07,650 --> 00:38:08,522 AUDIENCE: No. 774 00:38:08,522 --> 00:38:09,480 GARY GENSLER: No token. 775 00:38:09,480 --> 00:38:10,855 AUDIENCE: It's been restructured. 776 00:38:10,855 --> 00:38:11,510 Yeah. 777 00:38:11,510 --> 00:38:12,097 Yeah. 778 00:38:12,097 --> 00:38:13,430 GARY GENSLER: What's that Alean? 779 00:38:13,430 --> 00:38:17,065 AUDIENCE: I think they build on top of our research from Cecil. 780 00:38:17,065 --> 00:38:17,940 GARY GENSLER: Catina? 781 00:38:17,940 --> 00:38:18,560 AUDIENCE: Yes. 782 00:38:18,560 --> 00:38:19,060 Exactly. 783 00:38:19,060 --> 00:38:20,620 Yeah. 784 00:38:20,620 --> 00:38:23,340 Catina is a person. 785 00:38:23,340 --> 00:38:24,970 GARY GENSLER: So is that your research? 786 00:38:24,970 --> 00:38:25,260 AUDIENCE: That's right. 787 00:38:25,260 --> 00:38:25,690 Yeah. 788 00:38:25,690 --> 00:38:26,940 GARY GENSLER: That's terrific. 789 00:38:26,940 --> 00:38:31,470 But you're-- you're-- so you're going to talk to Eric. 790 00:38:31,470 --> 00:38:33,300 But you didn't have a token in that. 791 00:38:33,300 --> 00:38:34,300 AUDIENCE: No, you don't need a token. 792 00:38:34,300 --> 00:38:35,258 That's the whole point. 793 00:38:35,258 --> 00:38:36,570 Like Bitcoin is out there. 794 00:38:36,570 --> 00:38:37,650 It's a great system. 795 00:38:37,650 --> 00:38:40,600 And you can build on top of it efficiently, 796 00:38:40,600 --> 00:38:44,250 providing mutability to any permissioned app. 797 00:38:44,250 --> 00:38:46,743 So don't start it as a contract necessarily, 798 00:38:46,743 --> 00:38:48,910 unless, I don't know, maybe there's a need for that. 799 00:38:48,910 --> 00:38:50,368 But in a lot of things there's not, 800 00:38:50,368 --> 00:38:52,820 like digital identity, for example. 801 00:38:52,820 --> 00:38:54,620 That can be very conservative. 802 00:38:54,620 --> 00:38:56,370 GARY GENSLER: But if you put a token in it 803 00:38:56,370 --> 00:38:58,230 and sold it right into this bull market, 804 00:38:58,230 --> 00:39:01,130 I guess you wouldn't be sitting in this class. 805 00:39:01,130 --> 00:39:02,296 AUDIENCE: Well, yeah. 806 00:39:02,296 --> 00:39:05,420 [LAUGHTER] 807 00:39:05,420 --> 00:39:08,500 GARY GENSLER: But I mean, I'm glad you didn't put a token. 808 00:39:08,500 --> 00:39:09,722 I'm glad you're here. 809 00:39:09,722 --> 00:39:11,680 But I mean that's part of-- like you're saying, 810 00:39:11,680 --> 00:39:16,240 you didn't need it as a technological and commercial 811 00:39:16,240 --> 00:39:18,920 point is what you're saying. 812 00:39:18,920 --> 00:39:19,800 Leonardo. 813 00:39:19,800 --> 00:39:21,680 AUDIENCE: I was just going to mention, 814 00:39:21,680 --> 00:39:24,637 I happen to know a couple of people working on this project. 815 00:39:24,637 --> 00:39:25,970 GARY GENSLER: Which one of them? 816 00:39:25,970 --> 00:39:27,080 AUDIENCE: The last one. 817 00:39:27,080 --> 00:39:28,540 GARY GENSLER: Could you tell us something about it? 818 00:39:28,540 --> 00:39:31,550 AUDIENCE: Yeah, so I had to dig a little bit into the native 819 00:39:31,550 --> 00:39:33,080 talking that you mentioned. 820 00:39:33,080 --> 00:39:35,780 But most of the trading firms there 821 00:39:35,780 --> 00:39:42,440 are petroleum based, so like very large shippers of oil. 822 00:39:42,440 --> 00:39:46,160 Back to your point, bill of lading, in the commodity space, 823 00:39:46,160 --> 00:39:49,830 the petroleum bill of lading are the ones that most actively 824 00:39:49,830 --> 00:39:50,330 traded. 825 00:39:50,330 --> 00:39:53,987 And they change hands very often while the vessel is at sea. 826 00:39:53,987 --> 00:39:56,570 GARY GENSLER: Actually if I can add to this, because I learned 827 00:39:56,570 --> 00:40:00,290 a little bit about this when I was in the US Commodity Futures 828 00:40:00,290 --> 00:40:01,790 Trading Commission. 829 00:40:01,790 --> 00:40:06,260 The bill of lading for oil on the high seas 830 00:40:06,260 --> 00:40:09,260 can trade hands hundreds if not thousands of times. 831 00:40:09,260 --> 00:40:16,850 The oil coming from the Strait of Hormuz to Houston 832 00:40:16,850 --> 00:40:18,930 might change ownership in-- 833 00:40:18,930 --> 00:40:22,445 I don't know how long it takes a 15 or 30 day trip. 834 00:40:22,445 --> 00:40:23,603 AUDIENCE: About 20 days. 835 00:40:23,603 --> 00:40:24,770 GARY GENSLER: A 20 day trip. 836 00:40:24,770 --> 00:40:28,790 It can change the ownership hundreds of times. 837 00:40:28,790 --> 00:40:33,410 So those documents become tradable goods. 838 00:40:33,410 --> 00:40:34,800 And it's not just in theory. 839 00:40:34,800 --> 00:40:37,393 It's very much in practice. 840 00:40:37,393 --> 00:40:38,810 AUDIENCE: So the point I was going 841 00:40:38,810 --> 00:40:42,170 to make is I suspect they may be talking there must be 842 00:40:42,170 --> 00:40:46,680 some kind of collateralization against those, 843 00:40:46,680 --> 00:40:52,690 you know, the bill of lading from the company. 844 00:40:52,690 --> 00:40:55,290 GARY GENSLER: So Alpha, who I'm sure I remember everybody 845 00:40:55,290 --> 00:40:56,940 in your group, what can you tell us 846 00:40:56,940 --> 00:40:58,770 about what you're working on? 847 00:40:58,770 --> 00:41:01,250 How are you going to beat all these consortia? 848 00:41:01,250 --> 00:41:03,440 I'm thinking, you know, your final project is going 849 00:41:03,440 --> 00:41:04,847 to do better than these, right? 850 00:41:04,847 --> 00:41:05,680 AUDIENCE: Of course. 851 00:41:05,680 --> 00:41:09,120 [LAUGHTER] 852 00:41:09,120 --> 00:41:09,870 We're taking the-- 853 00:41:09,870 --> 00:41:12,210 GARY GENSLER: I did give these two groups the heads up that I 854 00:41:12,210 --> 00:41:13,377 was going to I call on them. 855 00:41:13,377 --> 00:41:15,342 So this is not just-- but yeah. 856 00:41:15,342 --> 00:41:16,800 AUDIENCE: We're taking the approach 857 00:41:16,800 --> 00:41:18,420 of just being very specific. 858 00:41:18,420 --> 00:41:20,440 So we're focusing on a narrow corridor 859 00:41:20,440 --> 00:41:24,360 between Chinese exports coming into Ethiopia. 860 00:41:24,360 --> 00:41:27,600 And so one there aren't many people, obviously, 861 00:41:27,600 --> 00:41:30,660 looking at that space, at least not yet. 862 00:41:30,660 --> 00:41:32,910 GARY GENSLER: And is it through the trade finance side 863 00:41:32,910 --> 00:41:35,140 or what I'll call the supply chain side? 864 00:41:35,140 --> 00:41:36,705 AUDIENCE: The trade finance side. 865 00:41:36,705 --> 00:41:38,580 And so we think it's particularly interesting 866 00:41:38,580 --> 00:41:40,330 around not just Ethiopia, but all 867 00:41:40,330 --> 00:41:42,540 of the sort of developing countries in that region, 868 00:41:42,540 --> 00:41:46,250 because credit and finance is already so limited. 869 00:41:46,250 --> 00:41:49,518 And so the domestic banking systems are undeveloped. 870 00:41:49,518 --> 00:41:51,060 GARY GENSLER: Domestic banking system 871 00:41:51,060 --> 00:41:52,133 in Ethiopia particularly? 872 00:41:52,133 --> 00:41:55,200 AUDIENCE: Right, and across East Africa, I would say. 873 00:41:55,200 --> 00:41:58,860 And so the reliance on trade finance in those import 874 00:41:58,860 --> 00:42:01,060 heavy economies, I think, is even higher. 875 00:42:01,060 --> 00:42:03,690 So the ping point, I think, is even stronger there. 876 00:42:03,690 --> 00:42:04,320 GARY GENSLER: James, did you have 877 00:42:04,320 --> 00:42:05,445 a question for their group? 878 00:42:05,445 --> 00:42:09,260 Anybody that has questions for the group, pile in. 879 00:42:09,260 --> 00:42:10,500 They'll take the advice. 880 00:42:10,500 --> 00:42:11,958 AUDIENCE: Not specific on this one, 881 00:42:11,958 --> 00:42:13,220 but more of a clarification. 882 00:42:13,220 --> 00:42:17,322 So I can clearly see that trade finance requires 883 00:42:17,322 --> 00:42:18,780 different parties and the ownership 884 00:42:18,780 --> 00:42:22,620 of the goods at any point in time in the supply chain 885 00:42:22,620 --> 00:42:24,870 is important, but-- 886 00:42:24,870 --> 00:42:27,240 GARY GENSLER: Particularly when it becomes commoditized, 887 00:42:27,240 --> 00:42:28,710 like oil and so forth. 888 00:42:28,710 --> 00:42:31,590 AUDIENCE: But from like over time-- 889 00:42:31,590 --> 00:42:33,390 a lot of the times I hear about people 890 00:42:33,390 --> 00:42:36,720 saying blockchain using, in this scenario, 891 00:42:36,720 --> 00:42:39,000 there's a supply chain. 892 00:42:39,000 --> 00:42:41,070 Given that they're not really exchanging it 893 00:42:41,070 --> 00:42:44,970 for money, are there actually any commercial cases or use 894 00:42:44,970 --> 00:42:48,170 cases with genuine useful points about supply chain 895 00:42:48,170 --> 00:42:49,170 being on the blockchain? 896 00:42:49,170 --> 00:42:51,600 I mean, tracing where my coffee bean came 897 00:42:51,600 --> 00:42:54,450 from on the blockchain is pretty useless to me. 898 00:42:54,450 --> 00:42:57,088 But people seem to think about it as a great thing. 899 00:42:57,088 --> 00:42:58,880 I can trace back where something came from. 900 00:42:58,880 --> 00:43:00,740 GARY GENSLER: Are you a coffee drinker? 901 00:43:00,740 --> 00:43:01,410 AUDIENCE: Yes. 902 00:43:01,410 --> 00:43:01,920 Yes. 903 00:43:01,920 --> 00:43:03,010 Not because of your class. 904 00:43:03,010 --> 00:43:03,180 GARY GENSLER: No. 905 00:43:03,180 --> 00:43:03,330 No. 906 00:43:03,330 --> 00:43:04,260 I just didn't know. 907 00:43:04,260 --> 00:43:08,587 You could drink tea to stay awake in my class too. 908 00:43:08,587 --> 00:43:10,170 AUDIENCE: But I just didn't understand 909 00:43:10,170 --> 00:43:12,020 when people keep talking about supply chain needing 910 00:43:12,020 --> 00:43:13,020 to be on the blockchain. 911 00:43:13,020 --> 00:43:15,410 I just don't understand why. 912 00:43:15,410 --> 00:43:17,250 Where's there is trade finance, absolutely. 913 00:43:17,250 --> 00:43:18,750 GARY GENSLER: All right, your solved 914 00:43:18,750 --> 00:43:21,240 is-- wait before everybody piles in. 915 00:43:21,240 --> 00:43:26,010 Does anybody have advice for China Ethiopia trade finance? 916 00:43:26,010 --> 00:43:27,510 I'm going to give everybody a chance 917 00:43:27,510 --> 00:43:29,130 to pile into James's question. 918 00:43:29,130 --> 00:43:32,995 But you're in a China Ethiopia trade finance. 919 00:43:32,995 --> 00:43:35,370 AUDIENCE: Yes, I have a question of the interoperability. 920 00:43:35,370 --> 00:43:39,990 I mean, what's the solution for the Ethiopian purchasers, just 921 00:43:39,990 --> 00:43:42,720 have to basically buy into whatever system 922 00:43:42,720 --> 00:43:45,200 these firms are using? 923 00:43:45,200 --> 00:43:49,610 So Ethiopian firms have to use letters of credit. 924 00:43:49,610 --> 00:43:51,180 So that's a regulation. 925 00:43:51,180 --> 00:43:53,910 So everything is done completely manualized right now. 926 00:43:53,910 --> 00:43:57,000 So we would offer just something very, very sort of specific 927 00:43:57,000 --> 00:44:01,690 like an eBill of lading or an eInvoice platform. 928 00:44:01,690 --> 00:44:03,556 It could be on a smartphone. 929 00:44:03,556 --> 00:44:05,190 My Impression is that it'd be easier 930 00:44:05,190 --> 00:44:08,090 to get the Ethiopian firms to buy into this, 931 00:44:08,090 --> 00:44:11,640 whereas the Chinese firms may have multiple options 932 00:44:11,640 --> 00:44:12,690 or multiple systems. 933 00:44:12,690 --> 00:44:17,280 So how would you approach getting them onto your system 934 00:44:17,280 --> 00:44:19,980 specifically or being able to utilize 935 00:44:19,980 --> 00:44:22,675 your system using websites or whatever else they are using? 936 00:44:22,675 --> 00:44:23,550 So yeah, so we agree. 937 00:44:23,550 --> 00:44:26,640 So you'd have to get just Ethiopian businesses and banks 938 00:44:26,640 --> 00:44:27,960 on the system. 939 00:44:27,960 --> 00:44:30,810 And so they would be sort of our initial customers. 940 00:44:30,810 --> 00:44:32,400 And for any Chinese bank that wants 941 00:44:32,400 --> 00:44:33,942 to do business to export to Ethiopia, 942 00:44:33,942 --> 00:44:35,850 they have to go through Ethiopian Bank. 943 00:44:35,850 --> 00:44:38,040 So inevitably, they'd have to go through this. 944 00:44:38,040 --> 00:44:38,850 GARY GENSLER: So it sounds like you're 945 00:44:38,850 --> 00:44:40,440 trying to build a solution. 946 00:44:40,440 --> 00:44:42,840 Your adoption is through the importer side, 947 00:44:42,840 --> 00:44:45,400 through the Ethiopian side initially. 948 00:44:45,400 --> 00:44:47,490 And then the Chinese exporters would say, 949 00:44:47,490 --> 00:44:50,040 well this is how I get into the Ethiopian market 950 00:44:50,040 --> 00:44:53,130 in a more secure, maybe more efficient, but certainly more 951 00:44:53,130 --> 00:44:54,090 secure way. 952 00:44:54,090 --> 00:44:57,940 Other thoughts on this project? 953 00:44:57,940 --> 00:45:01,170 AUDIENCE: I thought I saw there was a new consortium that 954 00:45:01,170 --> 00:45:05,280 was predominantly Chinese shippers and container 955 00:45:05,280 --> 00:45:06,215 companies. 956 00:45:06,215 --> 00:45:07,590 It wasn't on that particular one. 957 00:45:07,590 --> 00:45:08,450 GARY GENSLER: And it's not this. 958 00:45:08,450 --> 00:45:09,930 It's not the first one, The People's-- 959 00:45:09,930 --> 00:45:11,097 AUDIENCE: Not the first one. 960 00:45:11,097 --> 00:45:14,530 No, this one has a couple of Chinese shipping companies. 961 00:45:14,530 --> 00:45:15,750 It's very new. 962 00:45:15,750 --> 00:45:19,450 It's like November 8th or 9th or something that it was launched. 963 00:45:19,450 --> 00:45:21,030 So it's just getting started. 964 00:45:21,030 --> 00:45:22,320 They were looking for vendors. 965 00:45:22,320 --> 00:45:23,905 And yeah, it's a huge consortia there. 966 00:45:23,905 --> 00:45:24,780 GARY GENSLER: No, no. 967 00:45:24,780 --> 00:45:28,930 This is one of the most active and it's remained active, 968 00:45:28,930 --> 00:45:32,560 but mostly permissioned blockchain chain technology. 969 00:45:32,560 --> 00:45:36,210 It's the most active and very vibrant. 970 00:45:36,210 --> 00:45:39,060 And if you had to say probability weighted, 971 00:45:39,060 --> 00:45:41,340 there'll be something successful in this space more 972 00:45:41,340 --> 00:45:46,530 than maybe some of the other spaces. 973 00:45:46,530 --> 00:45:50,130 So who wants to chime into James' supply chain-- 974 00:45:50,130 --> 00:45:51,120 this unit? 975 00:45:51,120 --> 00:45:52,120 You're going to jump in. 976 00:45:52,120 --> 00:45:54,450 So I just want to tell-- here's just two 977 00:45:54,450 --> 00:45:55,980 example of some shipping. 978 00:45:55,980 --> 00:45:58,170 And I just pulled up five quick examples 979 00:45:58,170 --> 00:46:00,450 of supply chain projects. 980 00:46:00,450 --> 00:46:03,880 But Eric, you want to address James coffee? 981 00:46:03,880 --> 00:46:06,580 You like coffee more than James. 982 00:46:06,580 --> 00:46:08,580 AUDIENCE: I won't give you an example of coffee, 983 00:46:08,580 --> 00:46:10,300 but let's say fruits. 984 00:46:10,300 --> 00:46:13,200 You have a big retailer chain that-- 985 00:46:13,200 --> 00:46:16,470 and I think the example is in Britain. 986 00:46:16,470 --> 00:46:19,260 Suddenly you have reports of sudden infection 987 00:46:19,260 --> 00:46:21,350 of E coli in a specific fruit. 988 00:46:21,350 --> 00:46:27,570 OK, so as a responsible measure, the retailer have to hold off-- 989 00:46:27,570 --> 00:46:32,420 actually has to know which part or which load of fruit is 990 00:46:32,420 --> 00:46:34,110 the one affected. 991 00:46:34,110 --> 00:46:37,040 So since the whole process of, you know, 992 00:46:37,040 --> 00:46:40,680 digging through a huge file of paperwork takes weeks. 993 00:46:40,680 --> 00:46:44,190 These guys would have to hold off a big bunch of fruit 994 00:46:44,190 --> 00:46:46,620 that they would eventually get lost 995 00:46:46,620 --> 00:46:50,590 with the economic implications of that. 996 00:46:50,590 --> 00:46:51,190 That was a-- 997 00:46:51,190 --> 00:46:52,103 They probably-- 998 00:46:52,103 --> 00:46:53,270 GARY GENSLER: So wait, wait. 999 00:46:53,270 --> 00:46:53,830 So let's see. 1000 00:46:53,830 --> 00:46:55,080 AUDIENCE: We're getting there. 1001 00:46:55,080 --> 00:46:56,930 We're getting there. 1002 00:46:56,930 --> 00:47:00,600 So having your supply chain connect 1003 00:47:00,600 --> 00:47:05,210 to a blockchain, that can allow you quickly 1004 00:47:05,210 --> 00:47:09,897 get the information within hours and immediately identify 1005 00:47:09,897 --> 00:47:11,480 which is the load that's been affected 1006 00:47:11,480 --> 00:47:15,460 and take it out with the decreased economic costs. 1007 00:47:15,460 --> 00:47:17,790 GARY GENSLER: So you got at least three other hands. 1008 00:47:17,790 --> 00:47:19,350 We'll go-- 1009 00:47:19,350 --> 00:47:21,020 AUDIENCE: So I tend to agree with James. 1010 00:47:21,020 --> 00:47:24,245 So what I've heard critiques of using 1011 00:47:24,245 --> 00:47:25,620 both blockchain for supply chains 1012 00:47:25,620 --> 00:47:29,220 for things like blood diamonds or preventing counterfeit goods 1013 00:47:29,220 --> 00:47:30,060 or whatever. 1014 00:47:30,060 --> 00:47:33,360 Diamonds we have DeBeers project. 1015 00:47:33,360 --> 00:47:35,530 Yeah, so I know these guys are doing that. 1016 00:47:35,530 --> 00:47:36,730 But the criticism. 1017 00:47:36,730 --> 00:47:40,385 I've heard is that because these aren't digital native goods, 1018 00:47:40,385 --> 00:47:42,510 there has to be an interface between the real world 1019 00:47:42,510 --> 00:47:43,680 and the blockchain. 1020 00:47:43,680 --> 00:47:45,120 GARY GENSLER: Physical good to the digital good. 1021 00:47:45,120 --> 00:47:47,010 AUDIENCE: And what I've heard from critics 1022 00:47:47,010 --> 00:47:50,010 is that it's at the point of origin 1023 00:47:50,010 --> 00:47:52,937 that fraud or counterfeiting whatever takes place. 1024 00:47:52,937 --> 00:47:55,062 And it's the point of origin, where that data needs 1025 00:47:55,062 --> 00:47:56,550 to take place anyway. 1026 00:47:56,550 --> 00:47:58,080 So it's garbage in garbage out. 1027 00:47:58,080 --> 00:47:59,720 You can put a counterfeit thing in, 1028 00:47:59,720 --> 00:48:02,100 but then that passes through the supply chain. 1029 00:48:02,100 --> 00:48:05,683 GARY GENSLER: We have Shammon, Raheem, and then Tom. 1030 00:48:05,683 --> 00:48:07,350 AUDIENCE: I'm going to pick James' side. 1031 00:48:07,350 --> 00:48:09,017 GARY GENSLER: Oh my god, I need somebody 1032 00:48:09,017 --> 00:48:10,860 on the other side of James. 1033 00:48:10,860 --> 00:48:13,062 AUDIENCE: Maybe you can help me in a sense 1034 00:48:13,062 --> 00:48:15,270 that like Walmart, right, is kind of a prime example. 1035 00:48:15,270 --> 00:48:16,980 They've implemented, et cetera. 1036 00:48:16,980 --> 00:48:19,920 But basically if Walmart just said like, so 1037 00:48:19,920 --> 00:48:22,380 basically they're using IBM infrastructure, right. 1038 00:48:22,380 --> 00:48:25,230 If they went to the supply chain said, look guys, 1039 00:48:25,230 --> 00:48:27,510 we hired IBM, OK. 1040 00:48:27,510 --> 00:48:28,860 Now you're going to send-- 1041 00:48:28,860 --> 00:48:31,510 every time this good can transfer hands, 1042 00:48:31,510 --> 00:48:33,510 you're going to to send that information to IBM. 1043 00:48:33,510 --> 00:48:33,840 That's it. 1044 00:48:33,840 --> 00:48:35,923 I mean basically that's what happened because it's 1045 00:48:35,923 --> 00:48:37,920 being stored on a server that IBM-- 1046 00:48:37,920 --> 00:48:41,247 like what is blockchain about? 1047 00:48:41,247 --> 00:48:42,080 GARY GENSLER: Well-- 1048 00:48:42,080 --> 00:48:45,390 AUDIENCE: Like I heard them how this is blockchain. 1049 00:48:45,390 --> 00:48:49,170 But I really don't see what is blockchain about it. 1050 00:48:49,170 --> 00:48:49,920 I mean basically-- 1051 00:48:49,920 --> 00:48:51,795 GARY GENSLER: So who wants to take-- who want 1052 00:48:51,795 --> 00:48:53,100 to take the other side for him? 1053 00:48:53,100 --> 00:48:53,850 And I know, James. 1054 00:48:53,850 --> 00:48:55,920 You're not taking the other side of James. 1055 00:48:55,920 --> 00:48:57,900 AUDIENCE: I think is a bit controversial. 1056 00:48:57,900 --> 00:49:00,820 But when I was in the UK a couple of years ago, 1057 00:49:00,820 --> 00:49:02,280 there were some activists talking 1058 00:49:02,280 --> 00:49:05,280 about the origin of weapons and some areas 1059 00:49:05,280 --> 00:49:08,790 where weapons were being smuggled in some war zones. 1060 00:49:08,790 --> 00:49:10,620 The point of origin in this case will 1061 00:49:10,620 --> 00:49:15,990 be the developed world, which is going into the US, UK, China. 1062 00:49:15,990 --> 00:49:20,850 If you can trace the origin of the weapons sent in war zones, 1063 00:49:20,850 --> 00:49:25,980 you could know how did it end up there and you can stop maybe. 1064 00:49:25,980 --> 00:49:26,760 I don't know. 1065 00:49:26,760 --> 00:49:28,950 You need to trust the data entry in the first place. 1066 00:49:28,950 --> 00:49:30,100 GARY GENSLER: You do have to have-- 1067 00:49:30,100 --> 00:49:32,058 AUDIENCE: But the point of origin in this case, 1068 00:49:32,058 --> 00:49:34,930 is not trusted. 1069 00:49:34,930 --> 00:49:38,620 It would be trusted because it would be manufacturers. 1070 00:49:38,620 --> 00:49:40,287 And most of the manufacturing would be-- 1071 00:49:40,287 --> 00:49:42,828 GARY GENSLER: I'm going to hold off because I want to get Tom 1072 00:49:42,828 --> 00:49:44,770 and then I'm going to give you a reply, James. 1073 00:49:44,770 --> 00:49:45,270 Tom. 1074 00:49:45,270 --> 00:49:47,640 AUDIENCE: Yes, so I am on the other side. 1075 00:49:47,640 --> 00:49:48,717 I think it works. 1076 00:49:48,717 --> 00:49:51,050 And it sort of goes back to Alean's original question of 1077 00:49:51,050 --> 00:49:53,850 whether or not this is about addressing fraud or addressing 1078 00:49:53,850 --> 00:49:55,540 the efficiency of the system. 1079 00:49:55,540 --> 00:49:57,530 The data entry is the same. 1080 00:49:57,530 --> 00:50:00,140 I mean, if the data entry from a paper system 1081 00:50:00,140 --> 00:50:04,860 or a non-block digital system or a blockchain system is bad, 1082 00:50:04,860 --> 00:50:07,080 then it's always going to be bad. 1083 00:50:07,080 --> 00:50:10,430 But if it's good, it's as good as it is right now and probably 1084 00:50:10,430 --> 00:50:12,560 as good as it's going to be short of like RFID 1085 00:50:12,560 --> 00:50:15,150 chipping every individual product, 1086 00:50:15,150 --> 00:50:17,900 then what it does is allow that same record to go 1087 00:50:17,900 --> 00:50:19,760 through the entire supply chain. 1088 00:50:19,760 --> 00:50:23,630 So what is deemed by whatever data input 1089 00:50:23,630 --> 00:50:28,780 system to be a conflict free diamond is seen by DeBeers, 1090 00:50:28,780 --> 00:50:33,860 the exporter, the producer, the porch, the ultimate importer 1091 00:50:33,860 --> 00:50:34,370 of the good. 1092 00:50:34,370 --> 00:50:39,470 And so you can save what are now verification costs in terms 1093 00:50:39,470 --> 00:50:43,760 of time by processing a railway receipt, 1094 00:50:43,760 --> 00:50:46,310 a trucking receipt, a shipping receipt, forwarding exchange 1095 00:50:46,310 --> 00:50:50,480 receipt by making that same document viewable 1096 00:50:50,480 --> 00:50:52,810 and immutable to all of the partners in the trade. 1097 00:50:52,810 --> 00:50:55,610 GARY GENSLER: And to Shammon's question, 1098 00:50:55,610 --> 00:50:58,430 I think you've framed the right question. 1099 00:50:58,430 --> 00:51:01,550 Basically, well, why not just the traditional database? 1100 00:51:01,550 --> 00:51:06,770 IBM is the software provider of Hyperledger Fabric. 1101 00:51:06,770 --> 00:51:09,020 Why not just give the information to IBM? 1102 00:51:09,020 --> 00:51:11,510 And in fact, maybe that's what Walmart is doing, 1103 00:51:11,510 --> 00:51:12,218 is what you said. 1104 00:51:12,218 --> 00:51:13,843 AUDIENCE: That's why I said what I did. 1105 00:51:13,843 --> 00:51:15,800 GARY GENSLER: Now I haven't dug deeply enough. 1106 00:51:15,800 --> 00:51:18,425 And often when you dig into these websites and the news 1107 00:51:18,425 --> 00:51:20,300 articles and the white papers you can't quite 1108 00:51:20,300 --> 00:51:23,150 tell how they're using IBM. 1109 00:51:23,150 --> 00:51:26,360 IBM, I think, has 1,500 people in their division 1110 00:51:26,360 --> 00:51:28,460 that does Hyperledger projects. 1111 00:51:28,460 --> 00:51:29,900 So they they're out there. 1112 00:51:29,900 --> 00:51:33,350 IBM is marketing this. 1113 00:51:33,350 --> 00:51:35,540 But I think the theory at least, because I'm not 1114 00:51:35,540 --> 00:51:39,290 going to be able to answer what Walmart's really doing. 1115 00:51:39,290 --> 00:51:43,430 The theory is it's more censorship resistant, 1116 00:51:43,430 --> 00:51:46,330 that the data is actually shared on multiple nodes 1117 00:51:46,330 --> 00:51:48,080 even if it's permissioned, even if there's 1118 00:51:48,080 --> 00:51:54,640 only 15 or 20 nodes or 30 nodes, that it's 1119 00:51:54,640 --> 00:51:57,010 more censorship resistant than if it's all 1120 00:51:57,010 --> 00:51:59,080 stored on an IBM server. 1121 00:51:59,080 --> 00:52:02,260 And I don't know the answer, whether the Walmart is actually 1122 00:52:02,260 --> 00:52:05,200 stored on 30 different nodes. 1123 00:52:05,200 --> 00:52:09,430 But if it were, then arguably then, 1124 00:52:09,430 --> 00:52:12,250 even though it's permissioned and private, 1125 00:52:12,250 --> 00:52:17,560 it's more censorship resistant and you can have more assurance 1126 00:52:17,560 --> 00:52:18,850 around this. 1127 00:52:18,850 --> 00:52:19,840 One of the challenges-- 1128 00:52:19,840 --> 00:52:23,740 Aviva left the room, on interoperability is this number 1129 00:52:23,740 --> 00:52:25,330 two, TradeLens. 1130 00:52:25,330 --> 00:52:31,390 TradeLens, the IBM and "Marks," "Merks," how 1131 00:52:31,390 --> 00:52:32,990 do you pronounce that company? 1132 00:52:32,990 --> 00:52:33,880 AUDIENCE: Maersk. 1133 00:52:33,880 --> 00:52:34,300 GARY GENSLER: Maersk. 1134 00:52:34,300 --> 00:52:35,200 It's one of the largest-- 1135 00:52:35,200 --> 00:52:37,492 it's one of the two or three largest shipping companies 1136 00:52:37,492 --> 00:52:38,930 in the entire world. 1137 00:52:38,930 --> 00:52:41,570 They come up with a project. 1138 00:52:41,570 --> 00:52:43,190 They announce it, tout it. 1139 00:52:43,190 --> 00:52:45,350 It's over a year and a half ago. 1140 00:52:45,350 --> 00:52:48,020 There's no adoption because the other shipping 1141 00:52:48,020 --> 00:52:49,970 companies are saying, why do I want 1142 00:52:49,970 --> 00:52:53,740 to adopt something with you? 1143 00:52:53,740 --> 00:52:58,540 Now it would be one thing if some neutral standard setter, 1144 00:52:58,540 --> 00:53:01,810 almost like in the internet the I Can or something. 1145 00:53:01,810 --> 00:53:06,940 But some neutral standard setter came up with a consortium. 1146 00:53:06,940 --> 00:53:09,070 But all the other shippers in the world 1147 00:53:09,070 --> 00:53:14,420 say, I don't want to give up to Maersk my data, my information, 1148 00:53:14,420 --> 00:53:17,540 and what might be also market power. 1149 00:53:17,540 --> 00:53:21,260 So interoperability works there as well. 1150 00:53:21,260 --> 00:53:24,350 All right, James wants to have a reply. 1151 00:53:24,350 --> 00:53:26,365 But are you all right holding off? 1152 00:53:26,365 --> 00:53:26,990 AUDIENCE: Sure. 1153 00:53:26,990 --> 00:53:27,990 GARY GENSLER: All right. 1154 00:53:27,990 --> 00:53:29,880 So we'll take two from my right. 1155 00:53:29,880 --> 00:53:31,010 AUDIENCE: I think there's another issue which 1156 00:53:31,010 --> 00:53:32,677 is more about the economics of it, which 1157 00:53:32,677 --> 00:53:35,280 is, OK, let's say that Walmart adopts, 1158 00:53:35,280 --> 00:53:38,615 like basically right now they can force a lot of the supply 1159 00:53:38,615 --> 00:53:39,470 chain to adopt this. 1160 00:53:39,470 --> 00:53:42,313 I think there's a real question about what they're 1161 00:53:42,313 --> 00:53:43,730 going to do with that data, right, 1162 00:53:43,730 --> 00:53:46,670 because essentially what it does it allows them access 1163 00:53:46,670 --> 00:53:47,900 to the end producer. 1164 00:53:47,900 --> 00:53:52,530 So the production of mangoes is very fragmented, right. 1165 00:53:52,530 --> 00:53:53,780 But then you get consolidated. 1166 00:53:53,780 --> 00:53:57,110 So there are multiple steps along the chain 1167 00:53:57,110 --> 00:53:59,570 that actually extract economic value, not the growers. 1168 00:53:59,570 --> 00:54:01,370 I mean, they're kind of screwed, right. 1169 00:54:01,370 --> 00:54:05,960 But now Walmart can go directly to the growers, 1170 00:54:05,960 --> 00:54:09,750 because now they have access to the data of who the grower is, 1171 00:54:09,750 --> 00:54:12,560 what their productivity is, and how much they produce 1172 00:54:12,560 --> 00:54:15,020 or what time of the year they produce, et cetera. 1173 00:54:15,020 --> 00:54:17,630 Well, there's a question about whether they 1174 00:54:17,630 --> 00:54:20,810 want to cooperate with that or how much information I 1175 00:54:20,810 --> 00:54:22,790 want to share with that if I'm in the middle 1176 00:54:22,790 --> 00:54:25,190 and I'm actually accepting economic rent right now. 1177 00:54:25,190 --> 00:54:28,510 GARY GENSLER: Right, so if the whole supply chain is somehow-- 1178 00:54:28,510 --> 00:54:30,538 AUDIENCE: It's not just the administration. 1179 00:54:30,538 --> 00:54:32,330 GARY GENSLER: Yeah, that's right, the data. 1180 00:54:32,330 --> 00:54:36,330 Just like Facebook collects data or Visa collects EMI 1181 00:54:36,330 --> 00:54:39,940 data, that maybe Walmart would collect data. 1182 00:54:39,940 --> 00:54:42,440 AUDIENCE: My question takes the Walmart example a little bit 1183 00:54:42,440 --> 00:54:42,940 further. 1184 00:54:42,940 --> 00:54:44,900 I'm curious to understand do you put 1185 00:54:44,900 --> 00:54:47,040 a supplier early on in the process, 1186 00:54:47,040 --> 00:54:49,610 say a farmer or something selling to Walmart, 1187 00:54:49,610 --> 00:54:53,090 do they even have exposure in terms of the user experience 1188 00:54:53,090 --> 00:54:56,210 that they are on blockchain or does this just 1189 00:54:56,210 --> 00:54:57,740 become the back end. 1190 00:54:57,740 --> 00:54:59,550 I guess, I understand what we've talked 1191 00:54:59,550 --> 00:55:01,490 in terms of private keys for digital currency. 1192 00:55:01,490 --> 00:55:03,530 I'm trying to connect how that ties to the user experience 1193 00:55:03,530 --> 00:55:04,030 here. 1194 00:55:04,030 --> 00:55:06,450 They have like scanners that they basically 1195 00:55:06,450 --> 00:55:09,520 scan or it's their phones or whatever, right. 1196 00:55:09,520 --> 00:55:12,890 So you have third parties using these linkages. 1197 00:55:12,890 --> 00:55:18,523 They don't know basically where this data is going. 1198 00:55:18,523 --> 00:55:19,690 GARY GENSLER: So I'm honest. 1199 00:55:19,690 --> 00:55:22,410 I'm going to take Shammon's description of it. 1200 00:55:22,410 --> 00:55:24,680 I'm not as close to the Walmart. 1201 00:55:24,680 --> 00:55:27,800 I think in the trade finance side, the consortium 1202 00:55:27,800 --> 00:55:34,820 that these and these, the importer, the exporter, 1203 00:55:34,820 --> 00:55:40,100 the banks, the shippers, and the best of these 1204 00:55:40,100 --> 00:55:44,060 are meant to have a lot of involvement and exposure, 1205 00:55:44,060 --> 00:55:51,060 because even though this looks pretty complicated and it is, 1206 00:55:51,060 --> 00:55:52,460 they're large institutions. 1207 00:55:52,460 --> 00:55:53,090 They're banks. 1208 00:55:53,090 --> 00:55:53,870 They're shippers. 1209 00:55:53,870 --> 00:55:57,080 They're freight forwarders, except for maybe 1210 00:55:57,080 --> 00:56:00,740 the small and medium sized enterprises in Ethiopia. 1211 00:56:00,740 --> 00:56:04,860 But then they're an importer that needs to have involvement. 1212 00:56:04,860 --> 00:56:07,850 I think on the supply chain side, the Walmart, 1213 00:56:07,850 --> 00:56:10,520 an individual grower of mango, you're 1214 00:56:10,520 --> 00:56:14,020 saying from your understanding Walmart's not looking for them. 1215 00:56:14,020 --> 00:56:17,212 AUDIENCE: Again, this is because they're very proud of that. 1216 00:56:17,212 --> 00:56:19,670 They're proud of the fact that they can actually influence. 1217 00:56:19,670 --> 00:56:23,970 The reason why is because they have the last mile. 1218 00:56:23,970 --> 00:56:25,987 It is very simple. 1219 00:56:25,987 --> 00:56:28,070 GARY GENSLER: But they would have to have some way 1220 00:56:28,070 --> 00:56:29,090 to do what Tom said. 1221 00:56:29,090 --> 00:56:33,290 They have to be able to put into digital form 1222 00:56:33,290 --> 00:56:35,825 the physical asset, the mangoes are from this pack farm. 1223 00:56:35,825 --> 00:56:36,450 AUDIENCE: Yeah. 1224 00:56:36,450 --> 00:56:38,140 But they can use a cell phone. 1225 00:56:38,140 --> 00:56:40,740 You know, so you type in, OK, so you know like-- 1226 00:56:40,740 --> 00:56:41,700 GARY GENSLER: A scan. 1227 00:56:41,700 --> 00:56:42,325 AUDIENCE: Yeah. 1228 00:56:42,325 --> 00:56:45,020 GARY GENSLER: A QR code or something. 1229 00:56:45,020 --> 00:56:46,322 James, you want to reply? 1230 00:56:46,322 --> 00:56:47,780 And then we'll go back to you here. 1231 00:56:47,780 --> 00:56:48,530 AUDIENCE: Just quick points. 1232 00:56:48,530 --> 00:56:49,160 I think-- 1233 00:56:49,160 --> 00:56:50,880 GARY GENSLER: Are you convinced yet? 1234 00:56:50,880 --> 00:56:52,742 AUDIENCE: No. 1235 00:56:52,742 --> 00:56:54,200 I think ultimately there's no doubt 1236 00:56:54,200 --> 00:56:55,900 that once the digital record's created, 1237 00:56:55,900 --> 00:56:58,160 the digital immutability, whether it's 1238 00:56:58,160 --> 00:57:04,310 a blockchain or a very secure standard traditional database, 1239 00:57:04,310 --> 00:57:05,910 they are going to be the same. 1240 00:57:05,910 --> 00:57:08,000 The digital records, it's fine. 1241 00:57:08,000 --> 00:57:10,190 But in the fiscal world in the context 1242 00:57:10,190 --> 00:57:14,120 of supply chain, whether it's from the origin 1243 00:57:14,120 --> 00:57:17,420 or any other individuals along the chain, all it takes 1244 00:57:17,420 --> 00:57:20,410 is one bad actor to do something to the physical good. 1245 00:57:20,410 --> 00:57:23,510 But while traditional record is immutable, 1246 00:57:23,510 --> 00:57:27,240 you're link between the physical and digital is not guaranteed. 1247 00:57:27,240 --> 00:57:32,570 So I still don't see how a physical commodity can 1248 00:57:32,570 --> 00:57:35,420 be guaranteed to go from one end to the other of the supply 1249 00:57:35,420 --> 00:57:39,520 chain without ever being tampered or altered. 1250 00:57:39,520 --> 00:57:43,628 That is still a big question for me. 1251 00:57:43,628 --> 00:57:44,420 GARY GENSLER: Hugo. 1252 00:57:44,420 --> 00:57:45,560 AUDIENCE: Yeah, I was going to say that. 1253 00:57:45,560 --> 00:57:47,540 I don't know if that's the objective. 1254 00:57:47,540 --> 00:57:51,045 Because if you take diamonds, right, and as long as you-- 1255 00:57:51,045 --> 00:57:53,420 like what people care about when they're buying a diamond 1256 00:57:53,420 --> 00:57:55,480 is just the margin, right. 1257 00:57:55,480 --> 00:57:58,400 But my point is that it doesn't stop anyone along the supply 1258 00:57:58,400 --> 00:57:59,120 chain to have-- 1259 00:57:59,120 --> 00:58:02,840 It just makes it more expensive. 1260 00:58:02,840 --> 00:58:03,667 But, but-- 1261 00:58:03,667 --> 00:58:05,750 GARY GENSLER: Seriously, I think you're holding it 1262 00:58:05,750 --> 00:58:07,790 up to too high of a standard. 1263 00:58:07,790 --> 00:58:11,960 Because even the oil, let's go back, not diamonds, but oil. 1264 00:58:11,960 --> 00:58:16,430 For quite some time you could have a bill of lading 1265 00:58:16,430 --> 00:58:17,400 and then sell it. 1266 00:58:17,400 --> 00:58:19,700 And as I mentioned earlier for the 20 days 1267 00:58:19,700 --> 00:58:23,180 that things are coming from the Mideast to Houston, 1268 00:58:23,180 --> 00:58:27,060 that might transact 20 times, 100 times 1269 00:58:27,060 --> 00:58:29,710 today in 2018 markets. 1270 00:58:29,710 --> 00:58:32,660 And nobody is actually looking to see whether the oil has 1271 00:58:32,660 --> 00:58:36,680 been somehow siphoned off the ship and it's no longer there. 1272 00:58:36,680 --> 00:58:40,970 So there are aspects of trust that would still 1273 00:58:40,970 --> 00:58:47,170 be in the system with somebody certifying when the ship is-- 1274 00:58:47,170 --> 00:58:49,700 I don't remember the word, but on board, 1275 00:58:49,700 --> 00:58:53,060 when the oil is put on the ship and when it comes off. 1276 00:58:53,060 --> 00:58:56,720 And there's validations at those moments 1277 00:58:56,720 --> 00:59:00,060 that would then communicate to the digital records. 1278 00:59:00,060 --> 00:59:01,310 AUDIENCE: But I guess that's-- 1279 00:59:01,310 --> 00:59:03,110 GARY GENSLER: Then you could do that through inspections 1280 00:59:03,110 --> 00:59:03,640 of diamonds. 1281 00:59:03,640 --> 00:59:05,390 I don't think you're going to change that. 1282 00:59:05,390 --> 00:59:07,640 I think that's still going to be important. 1283 00:59:07,640 --> 00:59:10,490 But what you can do is Alean's earlier point, 1284 00:59:10,490 --> 00:59:12,830 you can lower a lot of the cost. 1285 00:59:12,830 --> 00:59:16,380 You can drive a lot of efficiency. 1286 00:59:16,380 --> 00:59:20,215 And you can probably lower the fraud around the documents. 1287 00:59:20,215 --> 00:59:20,840 AUDIENCE: Yeah. 1288 00:59:20,840 --> 00:59:22,190 So I guess my point-- 1289 00:59:22,190 --> 00:59:24,130 one of my-- I guess what I'm saying is-- 1290 00:59:24,130 --> 00:59:24,950 GARY GENSLER: And then we're going to move on. 1291 00:59:24,950 --> 00:59:27,158 AUDIENCE: If the trust isn't there in the first place 1292 00:59:27,158 --> 00:59:30,050 or you have to rely on some other trust, what exactly 1293 00:59:30,050 --> 00:59:31,970 is blockchain adding in terms of the physical, 1294 00:59:31,970 --> 00:59:34,140 the digital records? 1295 00:59:34,140 --> 00:59:36,140 That's what I'm finding difficult to understand. 1296 00:59:36,140 --> 00:59:38,690 But I think I'll finish up with a quick point. 1297 00:59:38,690 --> 00:59:41,030 I spoke to someone at the conference from ExxonMobil, 1298 00:59:41,030 --> 00:59:43,030 since we're talking oil. 1299 00:59:43,030 --> 00:59:45,530 And he does a supply chain and implementation of blockchain. 1300 00:59:45,530 --> 00:59:49,650 And I challenged him, why not use a standardized database? 1301 00:59:49,650 --> 00:59:52,370 And he said, well, it's because if you're going to get everyone 1302 00:59:52,370 --> 00:59:55,760 along the chain to upgrade to a new system, 1303 00:59:55,760 --> 00:59:58,178 it's far easier by telling them, oh, it's blockchain, 1304 00:59:58,178 --> 01:00:00,720 rather than saying, well, I have this sophisticated database. 1305 01:00:00,720 --> 01:00:02,512 GARY GENSLER: I'm going to hold that point. 1306 01:00:02,512 --> 01:00:03,890 I'm agreeing with that point. 1307 01:00:03,890 --> 01:00:05,545 But we had Dan and Jay. 1308 01:00:05,545 --> 01:00:06,170 AUDIENCE: Yeah. 1309 01:00:06,170 --> 01:00:07,700 I just want to say, I mean, I fell 1310 01:00:07,700 --> 01:00:11,210 like this is way more feasible for a smaller 1311 01:00:11,210 --> 01:00:16,180 kind of vertically integrated supply chains, 1312 01:00:16,180 --> 01:00:17,750 where like for DeBeers where like 1313 01:00:17,750 --> 01:00:19,950 they own every kind of step in the process. 1314 01:00:19,950 --> 01:00:21,950 And therefore, you kind of-- 1315 01:00:21,950 --> 01:00:26,210 can really trust and trace the flow of the product. 1316 01:00:26,210 --> 01:00:30,440 But something for like groceries where you have, 1317 01:00:30,440 --> 01:00:32,670 kind of, farmers all over the world 1318 01:00:32,670 --> 01:00:35,580 and, you know, there's seasonality, right, changing. 1319 01:00:35,580 --> 01:00:39,650 So there's just so many smaller shops that I can't ever 1320 01:00:39,650 --> 01:00:42,950 see it being feasible for them to adopt kind of a high level 1321 01:00:42,950 --> 01:00:45,590 technology. 1322 01:00:45,590 --> 01:00:47,720 GARY GENSLER: You may well be right, 1323 01:00:47,720 --> 01:00:51,800 though QR codes have been adopted in millions 1324 01:00:51,800 --> 01:00:55,520 of retail establishments, when 20 years ago it was kind 1325 01:00:55,520 --> 01:00:57,710 of like, what's this all about? 1326 01:00:57,710 --> 01:00:59,030 In fact 30 years ago-- 1327 01:01:01,853 --> 01:01:03,770 he's in the news because he just passed away-- 1328 01:01:03,770 --> 01:01:07,510 but President George Herbert Walker Bush, 1329 01:01:07,510 --> 01:01:09,050 some people say part of the reason 1330 01:01:09,050 --> 01:01:12,080 he lost the election in 1992 was that he 1331 01:01:12,080 --> 01:01:15,270 didn't know what a scanner was in a grocery store. 1332 01:01:15,270 --> 01:01:17,090 And he was president of the United States. 1333 01:01:17,090 --> 01:01:17,965 Can you imagine that? 1334 01:01:17,965 --> 01:01:21,560 But he didn't because he grew up in an era 1335 01:01:21,560 --> 01:01:23,990 and it was happening while he was in the White House. 1336 01:01:23,990 --> 01:01:28,400 And now you couldn't imagine not knowing what a scanner is. 1337 01:01:28,400 --> 01:01:30,590 So I agree with you. 1338 01:01:30,590 --> 01:01:35,200 But what's happening in 20 years is sometimes hard to predict. 1339 01:01:35,200 --> 01:01:37,670 AUDIENCE: Yes to build on that a little bit, I 1340 01:01:37,670 --> 01:01:39,555 think if you are completely vertical, 1341 01:01:39,555 --> 01:01:41,930 then you don't really need blockchain in the first place, 1342 01:01:41,930 --> 01:01:43,998 because you have your own database. 1343 01:01:43,998 --> 01:01:46,040 Your tracking everything as it goes through that. 1344 01:01:46,040 --> 01:01:48,540 The reason you need block chain is for the traceability when 1345 01:01:48,540 --> 01:01:50,090 you have 20 different parties. 1346 01:01:50,090 --> 01:01:53,690 But also once you digitalized this whole thing, 1347 01:01:53,690 --> 01:01:57,440 I mean, right now it's all paperwork, so you bring it-- 1348 01:01:57,440 --> 01:01:58,940 digitalization is going to allow you 1349 01:01:58,940 --> 01:02:00,920 to use other tools like IoT. 1350 01:02:00,920 --> 01:02:02,120 So you can maybe use-- 1351 01:02:02,120 --> 01:02:04,610 to take the diamond example, use computer vision 1352 01:02:04,610 --> 01:02:07,100 to actually tell that you have the exact diamond that you 1353 01:02:07,100 --> 01:02:09,920 started with at the end of the supply chain. 1354 01:02:09,920 --> 01:02:12,560 Or with food, that you can test the texture of food and things 1355 01:02:12,560 --> 01:02:13,280 like that. 1356 01:02:13,280 --> 01:02:14,697 So it's all about quality as well. 1357 01:02:14,697 --> 01:02:16,363 GARY GENSLER: By the way, you can hash-- 1358 01:02:16,363 --> 01:02:18,980 you remember that stuff, that broccoli at the beginning? 1359 01:02:18,980 --> 01:02:20,960 You can use cryptographic hashes also 1360 01:02:20,960 --> 01:02:24,560 to take pictures, to take other data about the diamond, 1361 01:02:24,560 --> 01:02:26,650 other data about the foods. 1362 01:02:26,650 --> 01:02:29,540 AUDIENCE: I'm just going to add, especially with the diamonds, 1363 01:02:29,540 --> 01:02:32,342 I got kind of razzed after reading the article because we 1364 01:02:32,342 --> 01:02:33,050 all know DeBeers. 1365 01:02:33,050 --> 01:02:36,420 They're like the best marketers out in the world. 1366 01:02:36,420 --> 01:02:37,940 They convinced every woman that they 1367 01:02:37,940 --> 01:02:39,230 need a diamond in their life. 1368 01:02:39,230 --> 01:02:42,380 They invented the concept of like a diamond engagement ring. 1369 01:02:42,380 --> 01:02:45,290 So I think like this is the perfect marketing ploy 1370 01:02:45,290 --> 01:02:49,670 to say they needed to blockchain for diamonds, like the entire-- 1371 01:02:49,670 --> 01:02:53,780 like DeBeers is the entire diamond industry 1372 01:02:53,780 --> 01:02:56,420 and how they now receive diamonds is already 1373 01:02:56,420 --> 01:02:58,280 completely regulated. 1374 01:02:58,280 --> 01:02:59,780 But with regard of about in house 1375 01:02:59,780 --> 01:03:03,440 and controlled by them because of the backlash 1376 01:03:03,440 --> 01:03:05,150 against like conflict-- 1377 01:03:05,150 --> 01:03:09,830 diamonds from conflict-- or conflict originated diamonds. 1378 01:03:09,830 --> 01:03:13,250 So for me, it just seems like a big marketing scheme 1379 01:03:13,250 --> 01:03:17,220 that they already feel like they have this under control. 1380 01:03:17,220 --> 01:03:20,840 But in order to like buy more consumer confidence, 1381 01:03:20,840 --> 01:03:23,590 they're using it. 1382 01:03:23,590 --> 01:03:27,170 GARY GENSLER: I think you land upon a point about marketing. 1383 01:03:27,170 --> 01:03:29,840 And James has said it earlier, and a little bit of others 1384 01:03:29,840 --> 01:03:31,520 in short. 1385 01:03:31,520 --> 01:03:33,470 Oil executives, says, well, it's the only way 1386 01:03:33,470 --> 01:03:38,110 I'm going to get broad adoption is if I call this blockchain. 1387 01:03:38,110 --> 01:03:40,770 And that might be true even of the Australian stock exchange, 1388 01:03:40,770 --> 01:03:45,210 even though I think there's a real use case there. 1389 01:03:45,210 --> 01:03:47,080 But it's about adoption. 1390 01:03:47,080 --> 01:03:49,270 Now DeBeers might be doing it because they 1391 01:03:49,270 --> 01:03:50,710 want to sell more diamonds. 1392 01:03:50,710 --> 01:03:52,390 The oil executive might be doing it 1393 01:03:52,390 --> 01:03:54,760 because he just wants to get rid of a legacy system. 1394 01:03:54,760 --> 01:03:56,500 Or the Australian stock exchange might 1395 01:03:56,500 --> 01:04:00,850 say, this is the only way I can get investment in getting rid 1396 01:04:00,850 --> 01:04:03,040 of a legacy system, because I can 1397 01:04:03,040 --> 01:04:05,680 either scare my board of directors 1398 01:04:05,680 --> 01:04:07,810 and say we have to do blockchain or I 1399 01:04:07,810 --> 01:04:10,060 can inspire my board of directors 1400 01:04:10,060 --> 01:04:12,370 by saying I have to use blockchain. 1401 01:04:12,370 --> 01:04:14,560 But nonetheless, blockchain technology 1402 01:04:14,560 --> 01:04:16,580 will have some adoption. 1403 01:04:16,580 --> 01:04:18,900 And I think it will have more adoption, 1404 01:04:18,900 --> 01:04:20,860 so it's more ripe for adoption. 1405 01:04:20,860 --> 01:04:22,840 And I'm going to turn to this again. 1406 01:04:22,840 --> 01:04:24,430 You know where I'm going. 1407 01:04:24,430 --> 01:04:27,710 It's like, yep, yep, you know, cost and benefits. 1408 01:04:27,710 --> 01:04:30,340 These are-- I'm doing this as a favor for all of you 1409 01:04:30,340 --> 01:04:32,920 too because, you're all writing your final projects. 1410 01:04:32,920 --> 01:04:35,310 But it's really about-- 1411 01:04:35,310 --> 01:04:38,500 it's going to be where there's multiple parties involved 1412 01:04:38,500 --> 01:04:42,070 in data and that data represents some property 1413 01:04:42,070 --> 01:04:45,560 right, either money. 1414 01:04:45,560 --> 01:04:47,740 In a dematerialized way, it's easier 1415 01:04:47,740 --> 01:04:51,520 to envision that's money versus security, money 1416 01:04:51,520 --> 01:04:54,190 versus something dematerialized. 1417 01:04:54,190 --> 01:04:57,070 It's a little harder as we've done today on the supply chain, 1418 01:04:57,070 --> 01:05:00,440 when it's against a physical asset. 1419 01:05:00,440 --> 01:05:04,120 But if there's multiple parties and where verification matters, 1420 01:05:04,120 --> 01:05:06,850 verification costs, you can probably 1421 01:05:06,850 --> 01:05:10,720 drive some efficiency with a blockchain technology solution. 1422 01:05:10,720 --> 01:05:12,310 Good question Shammon raises. 1423 01:05:12,310 --> 01:05:13,685 Well, wait a minute, maybe you're 1424 01:05:13,685 --> 01:05:16,390 just shipping the data to IBM. 1425 01:05:16,390 --> 01:05:18,130 Are you really shipping it to just-- 1426 01:05:18,130 --> 01:05:20,920 that's called a traditional database, a distributed 1427 01:05:20,920 --> 01:05:21,430 database. 1428 01:05:21,430 --> 01:05:25,270 Or do you get something out of censorship resistance? 1429 01:05:25,270 --> 01:05:30,370 And if it's truly shared in 20, 30, 50, or 100 places, 1430 01:05:30,370 --> 01:05:32,980 do you lower, as the Australian stock exchange really 1431 01:05:32,980 --> 01:05:36,370 does believe they'll do, lower reconciliation costs, which 1432 01:05:36,370 --> 01:05:39,002 is, again, a way to drive efficiency. 1433 01:05:39,002 --> 01:05:40,585 But I can't remember the number, there 1434 01:05:40,585 --> 01:05:47,410 are 77 member companies can all have a shared ledger 1435 01:05:47,410 --> 01:05:50,530 and then lower the cost of reconciliation. 1436 01:05:50,530 --> 01:05:52,210 It's still what somewhat controlled. 1437 01:05:52,210 --> 01:05:55,405 Those 77, it's not a public blockchain like Bitcoin. 1438 01:05:58,080 --> 01:06:02,160 So whether it's the two groups that are here today 1439 01:06:02,160 --> 01:06:03,420 that are doing trade finance. 1440 01:06:03,420 --> 01:06:05,878 And you have a harder challenge, by the way, because you've 1441 01:06:05,878 --> 01:06:09,910 got to go beyond this lecture. 1442 01:06:09,910 --> 01:06:12,670 Alpha's is going, yeah, sure. 1443 01:06:12,670 --> 01:06:16,860 But if you're doing commercial or consumer finance 1444 01:06:16,860 --> 01:06:19,130 or real estate or whatever, and there 1445 01:06:19,130 --> 01:06:21,500 are some really interesting projects amongst you, 1446 01:06:21,500 --> 01:06:24,060 just thinking about where is that value add? 1447 01:06:24,060 --> 01:06:28,110 What verification and networking costs are going to be lowered? 1448 01:06:28,110 --> 01:06:30,060 What's the competition doing? 1449 01:06:30,060 --> 01:06:33,180 Figure out if there's any consortium doing whatever 1450 01:06:33,180 --> 01:06:35,470 you're proposing to do. 1451 01:06:35,470 --> 01:06:38,220 Or is there any of the 3,000 to 5,000 white papers, 1452 01:06:38,220 --> 01:06:41,380 was there any ICO token? 1453 01:06:41,380 --> 01:06:43,750 And then if you want to do a slap down and say 1454 01:06:43,750 --> 01:06:46,900 why what they're doing is foolish and doesn't work 1455 01:06:46,900 --> 01:06:48,280 and you're doing something better 1456 01:06:48,280 --> 01:06:51,370 or you just want to learn, just please don't plagiarize. 1457 01:06:51,370 --> 01:06:56,470 But just look at what the competition's doing as well. 1458 01:06:56,470 --> 01:07:01,300 And why is an append only log, you know, the right way to go? 1459 01:07:01,300 --> 01:07:02,120 Alean. 1460 01:07:02,120 --> 01:07:05,700 AUDIENCE: What about competitors who are incumbents? 1461 01:07:05,700 --> 01:07:06,940 GARY GENSLER: Absolutely. 1462 01:07:06,940 --> 01:07:09,910 So you're still doing the mortgage product, right? 1463 01:07:09,910 --> 01:07:11,950 I don't know if you changed. 1464 01:07:11,950 --> 01:07:14,260 Yeah, what's happening in the mortgage market? 1465 01:07:14,260 --> 01:07:15,970 How is it being-- 1466 01:07:15,970 --> 01:07:20,170 whether it's securitized or underwritten 1467 01:07:20,170 --> 01:07:24,110 and whether it's traditional database management. 1468 01:07:24,110 --> 01:07:26,200 But it's also an interesting to know 1469 01:07:26,200 --> 01:07:29,080 if anyone else is trying to look at either permissioned or 1470 01:07:29,080 --> 01:07:34,460 permissionless systems and where you fit in to that, 1471 01:07:34,460 --> 01:07:36,200 because you're actually trying to raise 1472 01:07:36,200 --> 01:07:37,520 money on this, if I remember. 1473 01:07:37,520 --> 01:07:38,310 AUDIENCE: Yeah. 1474 01:07:38,310 --> 01:07:39,620 GARY GENSLER: Yeah, so to the extent that you're 1475 01:07:39,620 --> 01:07:41,590 going to raise money, those venture capitalists 1476 01:07:41,590 --> 01:07:44,690 are going to be asking tougher questions than I'll ever 1477 01:07:44,690 --> 01:07:48,310 be asking, at least I hope. 1478 01:07:48,310 --> 01:07:49,750 AUDIENCE: I honestly don't. 1479 01:07:49,750 --> 01:07:50,580 GARY GENSLER: Yeah. 1480 01:07:50,580 --> 01:07:51,080 Yeah. 1481 01:07:51,080 --> 01:07:51,735 I got it. 1482 01:07:51,735 --> 01:07:52,610 You want cheap money. 1483 01:07:52,610 --> 01:07:54,260 You want me to be the toughie. 1484 01:07:54,260 --> 01:07:54,760 Yeah. 1485 01:07:54,760 --> 01:07:56,540 All right. 1486 01:07:56,540 --> 01:07:59,480 And what are the trade-offs? 1487 01:07:59,480 --> 01:08:01,200 I'm not asking any of you to have solved 1488 01:08:01,200 --> 01:08:02,723 scalability and performance. 1489 01:08:02,723 --> 01:08:04,640 Some of the scalability and performance issues 1490 01:08:04,640 --> 01:08:06,930 won't be solved for 5 to 10 years. 1491 01:08:06,930 --> 01:08:08,200 But at least note them. 1492 01:08:08,200 --> 01:08:10,250 At least say, hey, this won't work 1493 01:08:10,250 --> 01:08:14,120 until this is solved or something like that. 1494 01:08:14,120 --> 01:08:17,930 Thursday we're going to do identity. 1495 01:08:17,930 --> 01:08:20,776 I can't remember, is anybody doing projects on identity? 1496 01:08:25,350 --> 01:08:26,359 You're together, right? 1497 01:08:26,359 --> 01:08:26,859 Yeah. 1498 01:08:26,859 --> 01:08:27,819 All right. 1499 01:08:27,819 --> 01:08:32,470 Be ready to chat on Thursday and share where you are. 1500 01:08:32,470 --> 01:08:36,500 Kelly's looking like you're going to be sick on Thursday. 1501 01:08:36,500 --> 01:08:38,319 You'll be here. 1502 01:08:38,319 --> 01:08:41,050 And how many of you are going to get your MIT 1503 01:08:41,050 --> 01:08:43,399 diploma on a blockchain? 1504 01:08:43,399 --> 01:08:44,660 AUDIENCE: You have option? 1505 01:08:44,660 --> 01:08:46,600 GARY GENSLER: Yes. 1506 01:08:46,600 --> 01:08:49,106 AUDIENCE: Do we get an option of not getting one? 1507 01:08:49,106 --> 01:08:49,843 I don't think so. 1508 01:08:49,843 --> 01:08:51,885 GARY GENSLER: Oh, you mean you think you have to. 1509 01:08:51,885 --> 01:08:53,385 AUDIENCE: I think it's done for you. 1510 01:08:53,385 --> 01:08:54,890 GARY GENSLER: Oh, it's done for you. 1511 01:08:54,890 --> 01:08:56,729 All right, there you go. 1512 01:08:56,729 --> 01:08:57,520 What's that? 1513 01:08:57,520 --> 01:09:00,689 You excited by that? 1514 01:09:00,689 --> 01:09:04,569 Do you think you can finance off of it though? 1515 01:09:04,569 --> 01:09:08,260 So trade finance, $17 trillion. 1516 01:09:08,260 --> 01:09:12,729 It's a very significant role that in financing 1517 01:09:12,729 --> 01:09:19,490 this $17 trillion of trade, lots of people involved, 1518 01:09:19,490 --> 01:09:22,189 sort of ripe for blockchain technology, 1519 01:09:22,189 --> 01:09:26,810 a lot of consortiums and projects underway. 1520 01:09:26,810 --> 01:09:29,330 But they're almost all permissioned systems 1521 01:09:29,330 --> 01:09:33,140 with a couple of exceptions. 1522 01:09:33,140 --> 01:09:35,420 But it feels like it's a catalyst for change. 1523 01:09:35,420 --> 01:09:37,700 I think that even if it's just simply 1524 01:09:37,700 --> 01:09:41,229 because it's the way to get adoption. 1525 01:09:41,229 --> 01:09:43,870 And I'm talking about trade finance. 1526 01:09:43,870 --> 01:09:47,920 And then there's this related part of the supply chain 1527 01:09:47,920 --> 01:09:50,080 management and so forth. 1528 01:09:50,080 --> 01:09:52,120 Any other questions or are we breaking early? 1529 01:09:52,120 --> 01:09:53,130 AUDIENCE: Early. 1530 01:09:53,130 --> 01:09:57,040 GARY GENSLER: Do you want anything? 1531 01:09:57,040 --> 01:09:58,270 All right, we'll break early. 1532 01:09:58,270 --> 01:09:58,870 Great. 1533 01:09:58,870 --> 01:10:01,320 [APPLAUSE]