The editorial staff of The Cryptonomist had the opportunity to interview Pasquale Sorgentone, entrepreneur (founder of the companies Business Changers and Future’s Value) and researcher in the field of Blockchain and Decentralized Finance, topics about which he wrote in his book (currently only in Italian) “Il Futuro del Valore” (The Future of Value), which received excellent feedback in terms of sales and reviews.
This is an interview full of interesting and innovative ideas, and we are happy to share it with our readers.
How did the idea for the book come about?
There are already several books that talk about Blockchain from a technical point of view and its possible uses. “Il Futuro del Valore” intends to follow a different, multidisciplinary approach, which considers all facets, not only technical but also economic (in terms of monetary and financial policies), organizational/managerial, regulatory and procedural. After all, Blockchain, more than other technologies, is an admirable combination of different disciplines.
Is it a book for beginners or for experts?
For both. The complexity of the topics grows with every chapter. The content is organized as a kind of journey, where there is a logical thread throughout the succession of chapters, but, at the same time, each chapter can be read independently of the others, depending on the reader’s specific interests. In fact, some chapters are quite complex for beginners, who can skip them without compromising the overall understanding of the book. This very modularity has been very much appreciated by readers.
In the book, you also talk about monetary policies, a very popular theme in this historical period when the Recovery Fund, the injection of liquidity into the market, etc., are discussed. What is your point of view on this subject?
As described in the book and to simplify a bit in this interview, there tend to be two schools of thought on monetary policy: the Keynes school (inflationary) and the so-called Austrian school (deflationary).
The monetary policies of governments are Keynesian, while most crypto assets follow monetary policies closer to the theory of the Austrian school. In this particular historical period, marked by severe economic depression, one cannot disregard, in my opinion, a Keynesian approach of “economic impulse”, with spending led by the Public Administration and a strong injection of liquidity into the market, which in the medium term is not painless, but certainly serves to absorb the crisis in the short term. From my point of view, central banks should inject non-repayable money instead of loans, but I do not want to get into a political discussion.
When you talk about Bitcoin, you say that in your opinion the legendary inventor of Bitcoin, Satoshi Nakamoto, is not a single person. Why is that?
My opinion is that it is not a single person, but a group of people hiding behind a pseudonym. The creation of Bitcoin required various and interdisciplinary skills (computer science, mathematics, monetary policy, finance, statistics, game theory, sociology) and it is very difficult that all these skills are held by a single person, not even a modern Leonardo da Vinci.
Among other things, the hypothesis of the existence of this legendary figure has also created certain imitations, such as, for example, Craig Wright and Roger Ver (creators of the Bitcoin forks Bitcoin Satoshi Vision and Bitcoin Cash). The presence of big egos has been one of the problems in the crypto ecosystem so far.
But is Blockchain just crypto assets?
No, it’s much more than that, although crypto assets are an important part of it. From 2016 onwards, the Blockchain has been increasingly in the spotlight and there have been strong (sometimes perhaps even excessive) expectations about the technology, whose possible areas of use are not always clear to non-experts. In any case, it is a technology that can significantly support global economic development. A study by Grand View Search predicts that the worldwide market for Blockchain will be worth $58 billion by 2025.
What do you think are the main areas of application of the Blockchain?
Blockchain technology has the potential to transform different business models in the long term and could lead to significant efficiency gains in global supply chains, financial transactions (Trade Finance, Trade Union Mortgages, Capital Market), supply chain tracking, integration between public authorities (local and central), identity/property management, decentralized social networks and so on. However, perhaps the most innovative and disruptive cases of use have yet to be identified.
Many Blockchain projects do not go beyond a demo and never reach production. Why is that?
A report published in 2017 by consulting firm Deloitte found that out of a total of 26,000 Blockchain projects started in 2016, only 8% remained active after 3 years. This figure probably got even worse in the following years, as the number of projects that survive is quite low, precisely because of the challenges that a Blockchain project faces. My personal opinion is that Blockchain should be implemented with business model initiatives that are consistent with the characteristics of the technology. It doesn’t make much sense to try to bring existing use cases to the Blockchain, which are already in place and built on legacy technologies, solely to follow the hype.
What are the challenges of Blockchain projects?
As Blockchain evolves and new applications emerge, there will be a number of challenges to address, from multiple perspectives: technology, regulation and governance. Blockchain represents a major change compared to traditional technologies and methodologies used in the digital world. It places trust and authority in a decentralized network rather than in a classical central institution. This is clearly a change that, at first glance, could be disorienting. In fact, the implementation of Blockchain projects presents as the main critical success factor the governance of the project and the revision of business processes, rather than the technological aspects themselves.
So, from a technical point of view, you don’t see any problems?
In terms of technical aspects, there are challenges to be faced as well, in particular the speed and efficiency with which Blockchain networks now perform peer-to-peer transactions have a high aggregate cost (at least for permissionless Blockchains), as data is replicated on every node of the Blockchain and consensus algorithms can be burdensome, especially Proof-of-Work ones. Scalability is the main technical challenge.
You mentioned the Proof-of-Work consensus algorithm, here’s a dry question: Proof-of-Work or Proof-of-Stake?
Proof-of-Work is the past, the future can only be Proof-of-Stake and Sharding because only this way can the speed and scalability necessary for mass adoption be achieved. In particular, Sharding allows the Blockchain to be partitioned to distribute the computational workload efficiently across the various nodes of the network. In this sense, I had high expectations about Gram (Telegram’s crypto asset), whose White Paper I considered the state of the art Blockchain technology. Too bad the SEC stopped them, but there are rumours that the Durov brothers (the founders of Telegram) have not given up yet.
Have you read the Italian’s Ministry of Economic Development’s “Summary of National Strategy” document about the Blockchain?
Yes, I have read it and will participate with suggestions in the public consultation. I think it is a good starting point, but we should try to arrive at a more concrete and detailed level of information. In general, I believe that innovation follows more of a bottom-up process (which comes from the world of start-ups and small/medium-sized companies) rather than a top-down process (which comes from governments and big multinationals).
A practical example of Blockchain innovation in Italy?
I’ll share an example dear to me: Equonomy. It is a non-profit initiative carried out by Business Changers, together with other partner companies, aimed at helping the Italian economy to recover in the post-Covid-19 period. The solution allows individuals to provide liquidity to Italian micro and small businesses in advance, in exchange for tokens to be used at a later date to obtain goods/services from the merchants whose liquidity has been anticipated.
This whole mechanism is implemented on a dedicated Blockchain. In addition to the upfront liquidity, Equonomy allows users to make payments via App with social distancing, make reservations and enable e-commerce solutions with local and global delivery. Essentially, Equonomy makes it possible to bridge the digital gap of micro and small businesses that do not have the skills and/or availability to enter the digital world.
Does Blockchain have any particular synergy with other emerging technologies?
In the book, I talk about the synergy between the 3 technological forces that will shape the world in the future, namely Blockchain, Artificial Intelligence (AI) and Internet of Things (IoT). In particular, the integration of AI and Blockchain can lead to the realization of two futuristic concepts with great potential: the development of decentralized Marketplaces and Decentralized Autonomous Organizations, better known by the acronym DAO, which are companies that manage themselves.
And with the IoT, machines could conduct trade on behalf of their human owners in a completely autonomous manner. Machines, thanks to the speed of analysis and transactions, could interact with each other and compete for the best prices through a market of offers and demands, as well as defining long-term business agreements, based on smart contracts.
This scenario (which may seem futuristic, but it is not) could have a big impact on the global financial system.
The book closes with DeFi (Decentralized Finance). You describe Decentralized Finance as perhaps the most fascinating application of the Blockchain.
The Blockchain and cryptocurrency market has developed into a vibrant ecosystem of investors, speculators, traders and end-users, but the sophistication of traditional financial markets is a long way from being reached, since so far several components of the banking and financial world (deposit accounts, loans, trading, wealth management, etc.) have been missing and, essentially, there was a lack of trading the value of crypto assets through time (the derivatives world).
DeFi has ambitious objectives: almost instantaneous loans without the need for long approval procedures, interest rates higher than in the traditional financial world, stock issuance in a streamlined and fast way, management of financial assets without intermediaries and between people who reside in different states and who do not even know each other.
What is the relationship of Decentralized Finance with traditional finance?
Compared to traditional finance, DeFi’s activities are not managed by an institution and its employees, but by rules encoded in a computer program residing on the Blockchain (the smart contract), whose code is open and transparent. DeFi services are designed in such a way that they can be used globally right from the start, without any territorial restrictions, unless there are obvious regulatory discrepancies. The services are also modular, allowing a high degree of flexibility in terms of the creation of financial products.
Will DeFi replace traditional finance? Are banks destined to die?
No. Traditional finance and banks will obviously not die: they will certainly have to adapt, taking into account Fintech companies, DeFi initiatives, the entry of new competitors (the technological giants) and, in general, the constant technological evolution. On the other hand, in order to establish itself, DeFi needs to integrate with the traditional financial and banking world, by creating all possible synergies (I know: some DeFi purists will be turning their noses up, but we need to be realistic and practical).
The book is well written, elegant in style but also informal and never pretentious. Quite unusual for an engineer, expert in technological innovation.
Yes, despite a degree in Engineering and a career of over 20 years in the world of technological innovation, I have a traditional liberal arts high school root and I have always loved to write. I also plan to write a novel, which at the moment is only in my head, but sooner or later I will realize it. The only thing missing is time.
Returning to the book “Il Futuro del Valore”, what are the next steps?
The book is available on Amazon for now.
Because of Covid-19, I have not yet given presentations of the book in the traditional way, but from the end of July, I will begin presenting it in Rome, Milan, Pescara, Naples.
In the meantime, I’m writing a second version that deepens some evolutions in Decentralized Finance and the impact of Covid-19 on traditional markets and on the crypto asset market (an analysis that is already present in the current version of the book, although it refers to the period April 2020).
In addition, I am in the process of completing the English language version, which will be published on September 21st, 2020.