UBS is the largest bank in Switzerland, the 19th largest bank in the world by market cap, and the world’s largest manager of private wealth assets. In March of this year the megabank opened a FinTech Innovation lab in London, at Level 39 in the heart of the city, placing Alex Batlin at the helm as the Senior Innovation Manager. Batlin had been working on FinTech at UBS since 2002, and for the past few years has been the Global head of FinTech CTO research.
“Our innovation Lab at Level39 will provide a unique platform to explore emerging technologies such as blockchain and crypto-currencies, and to understand the potential impact for the industry.”
– Alex Batlin, UBS Senior Innovation Manager
Now in charge of a bank-wide RD project to explore digital currencies, smart contracts, and distributed ledger technology, it’s Batlin’s job to report their impact on existing financial service business models, and the future opportunities they can provide to all UBS employees while tailoring a market insights report for the UBS executive team.
In January, before his lab opened, he was already neck-deep into the world of cryptocurrencies and was posting extensively about Bitcoin on his LinkedIn blog. His opinion on what made bitcoin so special appears to be that it offers a “disintermediation of trust,” by cutting out the middlemen in financial transactions.
He explained that bitcoin was created in response to the 2008 financial crisis, and the ensuing lack of trust in bankers. He then makes the case that it is likely that the world’s unbanked, all 2.5 Billion of them, will adopt bitcoin due to a lack of alternatives. If so, he reasons, the whole world might follow.
“No need to open bank accounts or deal with VISA, PayPal etc. Imagine if just half of the unbanked started using Bitcoin – would the rest of the world be able to resist it?”
He then estimates the likely timeline for that trend to occur by referencing a chart showing the mobile broadband penetration timeline for the developing world, and even draws close parallels between bitcoin and gold. Many more posts have followed, where he speculates on subjects such as decentralized identity, the legality of blockchain assets, Distributed Autonomous Corporations, the Internet of Things. Throughout them all is a continuous thread, how to make blockchains, and even cryptocurrencies, work for banks.
Batlin’s team launched a global blockchain research competition in August, offering more than US$300,000 in prizes. In September they announced an initiative to build a “settlement coin,” which would be an altcoin used between banks. Not long afterwards, UBS joined in with eight other major banks to form a collaborative joint working group exploring blockchain technology, led by Wall Street-based R3 CEV.
The purpose of this group is to use a common blockchain for interbank settlements, eventually giving each bank the ability to operate in a trustless environment, and deal with transfers much more quickly and efficiently.
The group plans to collaborate on design and research, engineering a “state-of-the-art enterprise-scale shared ledger solutions,” that they will jointly deploy. If all goes as planned, the group says that their blockchain can help achieve better security, reliability, performance, scalability, and auditing.
Today the number of banks in the consortium is 42, and since UBS’s blockchain lab is one of the most experienced, it is likely that Batlin’s words on the subject of bitcoin hold a lot of weight throughout this large group of bankers.
Other banking executives reading his blog are in for an equally conflicted experience, especially from his latest post from Thursday, entitled Crypto 2.0 Musings – Bitcoin Supremacy in which Batlin shows both of his newfound roles very clearly. For instance, he has followed the block size debate and other issues within bitcoin very closely, and is convinced that there are no problems with bitcoin that the developer’s won’t fix soon.
“I looked through Bitcoin’s technical issues I have been capturing since January and came to the conclusion that all of them will be solved in due time,” Batlin stated, citing work done by Bitcoin developers as well as the Bitcoin community. He gave examples of transaction scaling, confirmation delays, no quality of service guarantees, and transaction privacy, among others.
Showing understanding of the incentive structure behind Bitcoin, Batlin explained that “Bitcoin avoids centralised control of money supply by gradually disbursing bitcoins as reward to miners until the 21 million limit is reached – an incentive for third parties to validate transactions.”
“Bitcoins are divisible down to 8 decimal points, so only 2.1 quadrillion satoshis, smallest Bitcoin transaction unit, can ever be mined, which will not cover the approximately 2.12 quadrillion cents in circulation today within combined Euro, US and UK economies alone. Adding extra decimal points should not be a complex fix to implement.”
He even remains a fan of bitcoin as he reports that it slides around the legal requirements imposed by governments, because he believes that this condition won’t last forever. “Bitcoin avoids centralised control of payment system through pseudonymity, affording security and confidentiality in a consensus-based system without revealing legal identity, required for know your customer (KYC) and anti- money laundry (AML) controls. Governments managed to overcome such hurdles for cash, and they will again for Bitcoin.”
When he does show a lack of enthusiasm, the reasons are economic. He explains in great detail, using well over 1,600 words, why an elastic money supply, which includes all Fiat currency, is needed and beneficial. “Bitcoin’s gold standard fixed supply approach appears to be the right one, as it removes banker’s risk from the economy,” Batlin begins, “yet the world rejected it over 40 years ago, why?”
“The UK’s rejection of gold standard lead to a sharp devaluation in sterling, which surprisingly helped UK to recover from the crisis. Perhaps then a fixed money supply is not always a great idea.”
His arguments spell out a need for money that doesn’t just reflect the “cold hard” value of an asset, but also includes an “IOU” promise of labor to be performed in the future economy. And since we need a confidence, or work-based money, we additionally “need someone like a banker to assess confidence in a promise of work-based currency.”
“So, fiat currencies are not like bitcoin, they are actually bank deposit IOUs linked to fiat currencies and are banker’s confidence in state’s ability to entangle society into a promise of work and asset’s ability to hold value, in order to keep the economy ticking over – they encourage value creating behaviour.”
Although this economic argument is not likely to convince bitcoin users that follow Austrian Economics, Batlin’s blog should still be frequented by all bitcoiners. It reveals the best-case attitude from bankers on a range of cryptocurrency topics. Even when they understand bitcoin well, and even when they are bullish on the currency, their underlying drive is not as simple as co-opting bitcoin for profit.