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How Blockchain Will Shake Up the Financial World: 5 Questions for Author Alex Tapscott

December 11, 2019, 12:30 PM UTC

Alex Taspcott is best known for his best-selling book Blockchain Revolution, which he co-wrote with his father about the power of distributed ledger technology. The 33-year-old Toronto resident is also an accomplished executive in the world of finance, which is the subject of a new anthology he edited, Financial Services Revolution.

The book, which will be out in February, is a compilation of essays from leading figures in finance and blockchain, including CoinDesk editor Michael Casey and law professor Primavera De Filippi. In Tapscott’s preface, he explains how digital tokens and other elements of blockchain technology are poised to disrupt big banks, clearing houses, and many other pillars of the finance industry.

Fortune spoke with Tapscott about the major themes of the book, and how the world of blockchain and cryptocurrency have changed since Blockchain Revolution was published four years ago. Our conversation has been edited for brevity and clarity.

Fortune: How has the world of blockchain changed in recent years?

Alex Tapscott: Our first book came out in 2016 when people beyond the traditional tech world were awakening to the idea that the underlying tech behind cryptocurrencies like Bitcoin could be used on a much broader level.

The value of the cryptocurrency market then was $9 billion. Fast forward to today and the cryptocurrency market has grown 25 fold. But if you look beyond such numbers, some of the biggest innovations are happening in enterprise and in government. 

All three pillars of our modern world are now deeply invested and engaged in the blockchain. At first it was just civil society working through boot-strapped projects like Bitcoin that originated in distrust of authority. Now you’re increasingly seeing governments who are piloting the idea of crypto-fiat currencies, and private industry efforts such as Facebook’s Libra. 

What trends do you see in how government is responding to crypto?

AT: The response of government has been very uneven, and reflects an ongoing wariness of crypto. 

In the case of individual countries, we have China moving first as they seek to digitize the yuan by 2022 or 2023. Whatever final form a Chinese crypto-yuan might take, it will look nothing like Bitcoin. In fact, its purpose will be quite the opposite: rather than an instrument of economic privacy, autonomy, and freedom, the government can use this to exert greater control over the population of China, but also in the rest of the world through trade and loans.

The U.S. government is going to have to follow suit if they want to maintain the hegemony of the U.S. Dollars as global reserve currency. What they eventually embrace won’t look like Bitcoin and be decentralized, but it will have many similar properties. If U.S. leaders drag their feet longer, they will cede their country’s century of world leadership to its current archrival as the world’s financial center of gravity shifts east and markets are transformed by digital assets and cryptocurrencies.

How will the tech industry use blockchain in the future?

AT: Let me start with this concept of digital landlords like Google and AliBaba, which are like the feudal landlords of the agrarian age. Just like in feudal times, we till the digital land and the most valuable asset, our data, goes to the landlord, and in exchange we get access to a few free services. This is a bargain we’ve entered without really appreciating the consequences, and I think people are just now starting to realize it wasn’t always the best trade.

Looking forward, the implications of tech companies embracing crypto are profound. On the positive side, there are many people who don’t have banking and credit. In many parts of the world, more people have access to a Facebook account than a bank account. If Facebook and others use crypto to give them an easy way to move cash, that’s a positive thing. 

On the other hand, these companies are not accountable to citizens the way governments are in a democracy, and don’t always act with integrity. Initiatives such as Libra could have a destabilizing effect in many countries where the monetary and banking system is considered weak or unreliable. You’ll see some countries fighting back and, potentially, even outright banning this.

In North America, Libra might not launch but the genie is out of the bottle. If it’s not Facebook, it will be Google or Amazon or someone else. I’m not suggesting any of these outcomes are desirable but the contours and fault lines of these emerging landscapes are already visible. It’s an unstoppable force coming against this unmovable object of government and traditional finance and the impact will be cataclysmic.

Which company is poised to be the first mover in disrupting finance? 

AT: Facebook is in the best position because they have a massive network of customers and a global use case for crypto in the form of cross-border money transfers. They also have a skilled technical team under David Marcus. But they also have a trust problem, which is not entirely unwarranted, and the government is paying attention.

It’s possible Facebook could blow open a wall that will let others travel through. If Libra does launch, will Jeff Bezos be okay with people spending Facebook currency in Amazon’s eco-system? No way, it will drive him up the wall. And the other big companies will launch their own currencies.

In China, Ali-Baba and TenCent, with its massive virtual video game economy, are poised for big crypto adoption. Unlike in the U.S., where American tech giants are running up against government resistance, it’s likely China’s tech giants will launch these initiatives with the active support of government.

What are the lessons that came out of 2017’s crypto bubble pop?

AT: There are a lot of lessons. A lot of projects were trying to justify a digital token model when they were trying to get interest in early stage projects. This led to startups raising way more money than they needed. If you look at the most successful projects, including Bitcoin and, to a lesser extent, Ethereum, which raised a modest amount, they were bootstrapped while many later ones saw a misallocation of capital.  

Another lesson is that crypto attracts the best and most desirable people in the world, and also some undesirable people just looking to make money off token projects. Flushing out the latter category of people will be important to the future of the industry itself. Finally, these projects need to address more questions of practical utility that were not answered during the boom.

There’s been a $650 billion decline in crypto, which is meaningful. But the dot-com crash brought about a $5 trillion decline in public equities. My point is that the value is the popping of the crypto bubble is less than a tenth the size of the NASDAQ bubble. But look at the size of the NASDAQ today. From the embers of that flameout, some of the world’s most powerful companies were born.

If you take a look at the long-term view, the vast majority of companies and projects launched in 2017 will most certainly fail. But not all bubbles are inherently bad. Throughout history, there have been bubbles that created value and those that didn’t. The tulip mania in 17th century Holland and the South Sea Company in the 18th century destroyed value but the bubbles in railway and Internet stocks built the infrastructure for future economies. While the jury is still out, I believe the irrational exuberance that defined crypto in 2017-2018 has done something similar and its impact will be felt long into the future.

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