Elaine Ramirez
Vitalik Buterin.
China rocked the cryptocurrency world this month with one-two-punch regulations against initial coin offerings, then crypto exchanges themselves. But will China’s fears of decentralized currencies spill over into the rest of the world? Not necessarily, believes Vitalik Buterin, co-creator and flag bearer of ethereum, the second-most valuable cryptocurrency with a $27.5 billion market cap.
The regulations could be a long-term hurdle for China, either staying as they are or strengthening further, he says. After banning ICOs and regulating exchanges, the Chinese government may even start regulating mining. But the fallout to the rest of the world could be mitigated as governments have been taking a range of different approaches to regulations, some much more permissive than others, he says.
“In general China’s been banning everything from ICOs to Justin Bieber, so I don’t think other governments necessarily see it as a sign that they should copy whatever they do,” he said in an interview in Seoul on Tuesday. Even in China, people are sidestepping the government’s watchful eye. “A large number of Chinese people are already moving to Telegram [to skirt regulations], so they’re definitely finding ways around it.”
Other governments are generally taking a hands-off, neutral position on blockchain technology itself, focusing instead on regulating specific applications of it — an approach he says has been working relatively fine. “Probably with the exception of China, things are moving in a positive direction. The fact that [regulators] are actively looking at blockchain applications in their countries is important and definitely very useful and positive.”
Countries like Singapore, Thailand and Japan are taking steps to legitimize cryptocurrencies and initial coin offerings with light regulations or staying hands-off. “Especially in the early stages you need the flexibility to be able to go after bad actors without setting rules that are either on the one hand too restrictive or on the other hand that anyone can easily get around,” Buterin says.
Buterin, the 23-year-old co-creator of the Ethereum network, is in Seoul this week to meet with the enthusiastic community that has made Korea home to some of the world’s biggest ethereum exchanges. The mainstream messenger Kakao will add one more — an exchange offering some 111 digital currencies. While the technical understanding of the underlying blockchain technology lags in Asia due to language and cultural barriers, Buterin says the region’s interest has passed a hump.
Indeed, despite China’s regulatory announcements this month, the cryptocurrency craze is showing no signs of slowing down in Asia. Markets rebounded from the news, while South Korea beat China in total transaction volume. In the past few days, Singapore’s KyberNetwork raised $50 million worth of ethereum, while South Korea’s ICON project — which seeks to hyperconnect the whole country — raised 150,000 ether, worth $42 million. Even Macau gaming company Macau Dragon Group is seeking to raise $500 million through an ICO in the less regulated Hong Kong.
coinmarketcap.com
The price of Ethereum in 2017.
Mainstream adoption
Buterin predicts that in just a few years, ethereum will have the technical capacity to match Visa in terms of scale. To be clear, it does not mean digital currencies like ethereum will replace the role of banking or fiat currencies completely. But the global economic crisis of 2009 also showed that the fiat-based financial system needed a correction.
There is a role for each in the economy. Fiats provide economic stability, while cryptocurrencies fill a proven demand for quick digital transactions without a bank account or credit card, and help deliver economic incentives in public blockchain applications, Buterin says.
“There are good reasons to argue against the most expansive version of cryptocurrency maximalism, but I think people who are completely opposed to cryptocurrency having a role in the economy are running in the opposite direction,” he said at a press conference Monday in Seoul. “It’s definitely not true that the financial system as it existed in 2009 is just going to continue existing in the future with no large, substantial structural changes.”
In the short term, Buterin believes the separation between the crypto economy and the rest of the economy is a good thing, because it allows creators to innovate and sometimes fail without worrying about hurting those who are not part of the “experiment.” But down the road, once banks become more involved, the paradigm that will work for blockchains will likely not match that of traditional centralized finance, which is concentrated among a small number of banks.
“In the longer term, I do expect that cryptocurrency is going to fundamentally change some things about how both finance and the internet work. It is going to make financial systems, for example, look more like the internet in terms of how accessible they are, how easy they are to interact with,” he said.
Plugging holes
Elaine Ramirez
Ethereum enthusiasts listen to Vitalik Buterin at a meetup in Seoul on Monday.
Before such mainstream adoption can happen, several hurdles remain, including mining resources, transaction capacity, and perhaps more importantly, security. Multimillion-dollar hacks are not uncommon, with more than $40 million stolen from the network over three vulnerability exploits in July.
“It’s totally possible to make a system which is as scalable as Visa but that’s totally insecure. In order for people to use it, it has to, number one, be scalable enough to support the usage,” he said. “Number two, it has to have other things like security and privacy that people care about. I think all three are important challenges that we need to work on.”
For that effort, Buterin noted modifications to the Solidity programming language, coding standards, and the base protocol that makes it easier to write bug-free, safe smart contracts. Decentralizing the efforts over time will remain key.
“We are going to focus very heavily on continued research, focus on improving scalability solutions, improving privacy solutions,” he said. “I think that we’ve done a lot of work in bootstrapping the community but over time it’s going to do a better and better job of bootstrapping itself.”
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