David Prais, one of the most visible global authorities on blockchain entrepreneurship as well as chairman at Cofound.it, a global platform connecting blockchain startups with users and investors, thinks that blockchain has a very bright future! First in the domain of the financial industry, but also in many other industries. Blockchain real world solutions are taking longer to both be developed and adopted than one might have hoped. This is one of the biggest blockchain’s weaknesses, says Prais, who also believes, that illegal activities should not be given protection by technological masking and that someday we will learn how to trust bookkeepers and politicians. You’ll be able to hear him on the main stage of the PODIM Conference on Wednesday, 16 May, and enjoy his daring, revolutionary speaking style!
According to the data on European Commission’s web pages, the EC launched the EU Blockchain Observatory and Forum and will invest some € 300 million in projects, supporting the use of blockchain in a number of technical and societal areas through its programme Horizon 2020. Do you see a bright future for blockchain based solutions in the near future, why and in which fields?
Yes, I see a very bright future for blockchain companies and the effects on associated industries. The Financial sector is clearly one of the first to be affected, but we are already seeing solutions being developed in many other industries.
What do you think are the blockchain’s biggest weaknesses?
Early use case adoption. Real world solutions are taking longer to both be developed and adopted than one might have hoped.
Do you see blockchain’s immutability as a weakness or as something positive?
The immutability is both core to blockchain and one of it’s strengths.
In theory, the use of blockchain is beneficial when one does not trust in the bookkeeper. Would you agree, that if bookkeeper can be trusted, a distributed ledger solution loses its appeal and a centralized solution can be used instead?
No, One would always hope to trust the bookkeeper, but we need to learn from our experiences sometime. We may well trust this bookkeeper, but in time they will get replaced. We often trust politicians too, someday we will learn!
Why do you think we develop blockchain’s solutions that tend to remove governmental institutions as bookkeepers (for example blockchain based land registers), especially when the removal of the bookkeepers comes with a cost?
Please refer to the previous answer! But seriously. Are we looking at initial costs or ongoing costs? Initial costs may, for now, be high, but a) they will come down, and b) automated systems, in theory, at least, should be cheaper than skilled labour.
Use of blockchain opens many legal questions. The first one is probably should one regulate blockchain or its products. European legal framework is generally speaking about the principle of technical neutrality. Do you think this principle should also apply to the use of blockchain and its products?
Yes, I strongly believe in net and tech neutrality. That again is one of the basis of the blockchain and ‘trustless’ systems and economies. Regulation is important to stop criminality and abuse of systems, but over time we will see a stabilization of community managed systems and globalised trust.
Nowadays, different crypto assets are prevailing blockchain’s products. If the principle of technical neutrality is applied consistently, some crypto assets might be characterized as financial instruments, others as so-called utility tokens, third as cryptocurrencies, fourth as concert tickets, fifth as proof of ownership ... Do you think it's possible to distinguish between those types of crypto assets; to draw a clear line between them?
One of the key benefits of tokenised systems is the ability to add ‘value’ to a token beyond a single class. So we will see asset tokens that also have utility beyond traditional single asset class products. So a share in a company that will also give you access to a seat at a football match etc..
Currently, only crypto assets that fall under the category of financial instruments are regulated. That leaves the vast majority of crypto assets, namely so-called utility tokens, outside regulatory scrutiny. But economic interests of the token holder are the same as of a shareholder. However, the current legal framework that governs respective legal relationships is fundamentally different. Shareholders have many (corporate governance) rights through which they might influence issuers business decisions. Utility token holders have none. Do you believe that the introduction of rules that would apply to tokens that give investors reasonable expectations of profit would help to solve that discrepancy?
This is a complex area, sadly with no simple answer. Utility tokens in the main, are currently not highly utilitarian, as such many are speculative investments in a concept of utility that does not exist at present, as such it is a speculation in the future utility of that token. Some may think this as having more of the dynamic of a security than a true utility token. Over the next couple of years we should see the regulatory framework clear up some of both the confusion and also the misunderstandings in this space.
Currently, legal nature of crypto assets might differ between different jurisdictions. Consequently, issuers have different obligations towards investors. What is your view on streamlining worldwide requirements for issuers? Is this even possible? More importantly, is it possible to streamline investor protection? How to make it easier for European investors to exercise their rights against the third country issuer. And vice versa. How to protect European issuer from unfounded claims from third countries?
The same is true of most investment asset classes on a global basis. Does anyone believe the US offers the same protection on listed securities as Bhutan or Venezuela? There will be a coming together, but no unification, and new jurisdictions will emerge where some of these assets will be based. The reasons for this will be both economic and legislative. Those regions or nations that balance the interests and responsibilities of both the issuers and the consumers will benefit greatly.
Another disruptive blockchain’s products are smart contracts and so-called digital autonomous organizations. The latter represent new structures that already act as issuers of obligations (embedded in tokens), even though they do not have legal personality. What is your opinion on those? Should they be regulated? Or forbidden? At least when one cannot identify a person that could be held responsible for the actions of such organization (as for example when the decision was made by majority voting of organization’s participants and executed via smart contract)?
I believe, in time smart contracts will become ‘legal entities’ in their own right. Autonomous organisations may find themselves in breach of certain rules and outlawed in the same way as some political and commercial organisations are now. Illegal activities should not be given protection by technological masking.
In last year ICO funding has surpassed venture capital funding. But venture capital firms provide more to companies than just funds in return for equity. They can offer startups strategic guidance and help them with the development of the company. On the other hand ICOs foster (at least in theory) product awareness. What is your view on benefits and risks of either one?
Does anyone really believe this! VCs promise a lot, and some ‘shockingly’ even deliver, but it is a rare VC that delivers what they promise. They have their investors interests at their heart, not the entrepreneurs, which needs to be fully understood. The alignment of these interests is often not the same. The same can happen in ICO’s where the investors are looking for returns on a different timescale to the founders. So in reality similar issues can occur, but in the case of ICO’s the impacts on the business are generally less traumatic.
Currently regulatory sandboxes are springing up in many EU member states. The EC has already promised that it will present a blueprint with best practices on regulatory sandboxes. Why do you believe sandboxes are important or beneficial? What use cases do you see?
So, I do not particularly see these sandboxes as very useful in their current structures. They tend to have limitations on the size of the company in terms of Turnover, employees or activities. I understand why regulatory authorities wish to maintain a level of control while they learn, but please, do not penalise the startup for either being successful or trying to work with the authorities and help them learn. The more successful startups have avoided these sandboxes and work out of international jurisdictions that allow them to flourish.
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. You can also write to Matjaž Slak at firstname.lastname@example.org