Charles Hoskinson is one of cryptocurrency’s foremost personalities. Here, in the first installment of a two-part interview, he tells Digital Bulletin why global payment systems are broken and how blockchain platforms can bring in billions of people from the economic cold
Technology has made it easier than ever to pay for goods and services with the tap of a card or the click of a button. As a result, the payments industry is booming, with fintech startups and challenger banks giving consumers more choice than ever before over their finances. It led to the value of M&A activity in the fintech sector tipping past $100 billion for the first time in 2019.
But while the developed world reaps the benefits and convenience of this booming payments market, billions of people find themselves effectively locked out of the global financial system. Primarily made up of people living in developing nations, these people are being hamstrung by a lack of credit records, access to financial services and formal identity documentation.
Typically, incumbent governments have lacked the economic means or desire to build the infrastructure necessary to lift their people out of financial services poverty, especially in unstable geopolitical areas where regimes can change at the drop of a dime. But technology could be about to alter the landscape forever.
It is a subject Charles Hoskinson is deeply passionate about. The 32-year-old Colorado-native will be well known to anybody with a passing interest in the cryptocurrency world, as an Ethereum (ETH) co-founder, founder of Cardano (ADA), CEO of IOHK (Input Output Hong Kong) and the director of The Bitcoin Education Project.
Having left his role at Ethereum over disagreements about the direction of the blockchain-based platform, Hoskinson went on to team up with former Ethereum colleague Jeremy Wood to establish IOHK, which is in the business of building cryptocurrencies and blockchains for corporations, government entities and academic institutions.
IOHK took payment exclusively in the form of Bitcoin, a strategy that paid off in spades when the value of the cryptocurrency skyrocketed. Having chased in his virtual chips, Hoskinson is now reckoned to be one of the wealthiest crypto figures in the world, somewhere between $500 million and $600 million depending on who you listen to, and enough to keep IOHK operating for at least a couple more decades.
When Digital Bulletin speaks to Hoskinson, he is rubbing shoulders with the great and the good at the Davos Economic Forum, which must be just about the best place on the planet to spend the week networking. It is rarified air for somebody who has been described as a maverick, a boardroom brawler and a straight talker, but Hoskinson makes no apology for his style.
“You need to have strong opinions if you are an entrepreneur, especially in emerging markets,” he says. “It is very easy in the legacy world to be polite and political but I just don’t have the patience for it because there are three billion people on the planet that are excluded from the global economy and they’re not living so well – there is no excuse for that.
“I’m outspoken because I believe we have a limited window to decide how the world is going to work in the 21st century. It is going to be either distributing power to the edges or more of the same times ten, where power is consolidated and centralised. This means structural poverty that people cannot escape from.”
It is this drive that led Hoskinson and his team to develop Atala, an open-source blockchain framework, which unlike other blockchain platforms, is primed for cryptocurrency use. Using Atala in combination with a cryptocurrency could, says Hoskinson, provide a secure and dependable means of payment for people currently without one.
IOHK is currently working on a feasibility study with Ethiopia’s Ministry of Innovation and Technology to get a deeper understanding of how to build admissabe currency.
“The problem we are trying to solve is that you’ve got four million people in Addis Ababa [Ethiopia’s capital city] trying to pay their utility bills, it takes hours because they have to stand in line at kiosks and there are not enough of them,” Hoskinson states.
“What the Minister for Technology wants to do is take the local currency, the Birr, and let people go to telecommunications stores and use those locations as cash-in and cash-out stores as they are well distributed and easy to use.
“You then use a digital token that represents that money and it will live on your phone. The use case of that will be allowing people to pay their utility bill whenever they want, wherever they want using that application.”
If successful, the initiative could lead to a general payment system linked to the Birr, as well as the opportunity to develop digital identity systems. Following the feasibility study, there is the potential for a trial designed by the Ministry of Innovation & Technology and IOHK where a subset of Addis Ababa’s four million population would use the payment system in an A/B testing environment, with it being scored on criteria such as efficiency, satisfaction and metadata per transaction.
IOHK and Hoskinson would then be looking at a full roll-out. It is a drawn out process, he admits, but one he is fully committed to.
“If we’re successful we will have built a payment system for four million people that has a great chance to become a payment system for all of the country, which is 106 million people and then a pan-African payment settlement system. It’s a high-risk, high-reward play,” he comments.
“This is a system that will not require power from a government or need a traditional company to run and operate, so you’re not going to get middle men sucking value from every transaction. We want to be a part of this conversation to help people be in charge of their identities, their assets and their data.”
Hoskinson is clearly passionate about the potential he perceives that project to have, and believes, if successful, it could prove to be a use case for other large-scale projects across the African continent, which is home to some of the fastest-growing economies in the world. However, a lack of financial infrastructure – Ethiopia has posted double digit GDP growth on numerous occasions over the last decade, but doesn’t have a stock market – is a barrier to securing direct foreign investment.
“There is a lot of foundational work to do and you can look at it as a challenge but we look at it as a great market opportunity because there is no incumbency. There is no Microsoft or SAP – there is no vendor preference. We think we can get in on the ground floor with a blockchain solution that can be the foundation for everything,” says Hoskinson.
“People always love it when they are in charge of their identity, information and money. It intrinsically makes sense to them and there is a suspicion of government and foreign actors for obvious reasons. This is a continent that has been deeply exploited in many cases. It is refreshing when you come in and say you want to build something together and as a partner.
“We worked with the local university to train 22 women to become programmers so we could have a group of people who could service these deals proactivity, which took two years. We flew people out to live here and to train, which most Western companies aren’t prepared to do. But we are.”
Hoskinson and IOHK are attempting to change the conversation and reminagne how financial systems can be democratised using emerging technologies, therefore, in his own words, pushing power from a few people in the centre, to the general population around the edges.
Whether or not we grasp this chance to use technology for the betterment of all will be one of the defining issues of this generation and many to come, he argues.
“We live in an age of wonder, one with amazing technology and productivity,” Hoskinson concludes. “America manufactures more today than we did on our golden days in the 1960s and 70s, and that is because we are far more efficient because of great technology.
“So with all of that, why the hell are three billion people still not living well? Because we have bad systems. And we don’t have a lot of time left to fix them.”
Can today’s startups take on the tech giants?
No matter how big a company becomes, it simply cannot be the best at everything. There will always be incredibly smart people with better ideas who can create something new quicker than the market leader. The pace of change is moving so fast that it’s impossible for tech giants to stay ahead of the curve when it comes to every market they invest in and every service they offer.
Of course, there are occasions where the tech leaders see the writing on the wall and are able to adapt quickly and completely reinvent themselves. A good example is Microsoft. Of the current crop of behemoths dominating the tech industry, Microsoft has the longest track record of evolving to keep pace with innovation and changes in the market – it’s been doing so for more than 40 years now.
By essentially killing off their huge PC software business in favour of selling cloud services that accomplished the same results (Office 365), they saved themselves from being displaced by Google.
That said, Microsoft certainly hasn’t won in every market it’s tried to enter, particularly with hardware. We all remember when Microsoft launched Zune in 2006 to compete with the iPod, before unceremoniously discontinuing production of the device just five years later. More recently, they ceased development of the Windows Phone mobile operating system as the platform failed to attract third party app developers.
The fact remains that no matter how big and powerful the competition is, solutions that are better, faster and/or cheaper will always come out on top if they are presented and harnessed in the right way and to the right audience.
Startups are focused on one single product
Industry titans will always be under pressure to diversify in order to sustain their growth and will see a great deal of success in the process. Small businesses benefit from doubling down on a single flagship product or service, while their larger rivals are spreading themselves thin.
Etsy is a good example of a smaller rival successfully fighting back against one of the tech giants. Its rapid success is due to the fact it charges smaller fees than Amazon and has also invested in helping its business customers provide quick, complimentary shipping. It offers further benefits to merchants that its bigger rival doesn’t, such as helping them receive payments earlier in the sales process. Etsy has subsequently seen its revenues and stock grow rapidly this year.
We’ve taken a similar approach at Wasabi – the combination of creating a leadership team with very specific expertise and focusing on one core product has enabled us to create an offering that gives more to the customer at a lower price than our bigger competitors.
Tech giants aren’t always watching their back
Incumbents often fail to respond to disruption when they see it, so if your startup is offering a better solution, that isn’t to say competitors will immediately catch on. They may lack the technical expertise that new teams possess, or they may just be plain arrogant and complacent in their dominance.
For example, U.S. Steel dominated the American steel industry throughout the 60s and 70s and certainly didn’t see Nucor as a threat when they entered the market with a new and, at the time, unproven technology that allowed them to steal enormous market share. Similarly, Corning Glass displaced an entire industry of copper cable manufacturers through the development of optical fibre – since the companies that manufactured copper wire had no idea how to make glass fibre, they had no way out of their demise.
When under threat from a disruptive new entrant, many tech companies will invest in innovating their offering where their skills and intellectual property are an advantage. However, often they don’t get their fast enough because the management team lacks the foresight to anticipate the inevitable. Kodak is a classic example – by the time they recognised the threat posed by digital photography, it was already too late for them to reinvent themselves.
Every industry titan was once a startup
Tech giants will always have the advantage of money, influence and brand recognition as they look to expand their service and find new ways of making money. But as it’s been proven time and time again, startups that are able to identify holes in the existing tech and provide better solutions that appeal to the demands of the market have every chance of competing successfully.
Innovative disruption is inevitable in every market. Every company, no matter the size, will eventually be challenged by new players in the market. Even Jeff Bezos has revealed he believes Amazon will eventually fail. Startups that can confidently say they have a disruptive offering should never feel intimidated by the competition. After all, every tech giant started out in the same boat as a small, unknown player going after a much bigger market. It doesn’t take long for people to figure out there’s a better way of doing things.
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