Crypto Means Business

Susan Athey Talks the State of Payments, Blockchain and Ripple

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Susan explains the economics of virtual currencies at Stanford. Photo: YouTube

Don’t get me started on the awesomeness that is economist Susan Athey.

The Stanford professor is the winner of the John Bates Clark Medal. If you’re not familiar with that prize, it’s awarded to “that American economist under the age of forty who is adjudged to have made the most significant contribution to economic thought and knowledge.”

In 2012, she was elected to the National Academy of Science. Today, her research focuses on the economics of the Internet, marketplace design, and the intersection of computer science, machine learning, and economics. (She’s also on the board of Ripple.)

But what really takes Susan’s awesomeness to the next level is her ability to breakdown the complex and communicate it in such inspiring but simple fashion to laymen like me.

It’s a sentiment that Quora likely shares. A few months ago, they announced Sessions, sort of like an AMA for Quora domain experts.

Susan held one yesterday and it was as illuminating as always.

Some highlights:

The world’s financial infrastructure today just isn’t going to cut it.

First, a tiny bit of background for the uninitiated (experts can skip below for my thoughts): today we don’t really have a solid foundation on which to build modern, digital financial services. 4% of wires fail; it can cost $40 to send $40; even banks have to wait days for international transfers; and a large share of money remitted home by the world’s poorest goes to transaction fees. Most of the world’s infrastructure is decades old; old, analog processes have been digitized but not rebuilt in entirely new ways.

The impact Bitcoin has had is profound—particularly as a catalyst for change and new approaches to finance.

Bitcoin was a proof of concept that inspired the imaginations of engineers, entrepreneurs, and innovators all over the world; and it also served as a catalyst for an industry that had been resisting innovation as it was bogged down by and distracted by regulatory compliance and recovering from the financial crisis. The industry went from saying “we’ll never all be able to coordinate on technological changes” to “if change is coming, I want to be a part of it.” In my view, the importance of a catalyst for action cannot be understated, especially when dealing with large, conservative firms with disparate interests.

These are early days.

One way to think about it all is like the beginning of the internet. Early on there was a lot of discussion of protocols, packets, etc., but it took many years and many layers of services on top before it was useful. And the first commercial uses had a lot of questionable elements (policy-makers in the 1990s were alarmed by the pornography and use of the internet for criminal activity). Bitcoin is in this earlier stage, before people have figured out what to do with a new technology

The Internet’s been around for a while, but we only got things like Uber very recently.

If you think about all of the layers of the technology stack that Uber built on – smartphones, GPS, mapping technology, cloud computing services, innovations in marketplace business models and consumer familiarity with ratings systems, comfort with payment systems, etc.—we can understand why Uber only arrived decades after the internet was born.

These are exciting times for the space.

So my prediction is that although we may not know yet exactly HOW things will change, we will see change in basic financial infrastructure so that money can move more easily, and we’ll all ultimately look to the popularization of Bitcoin as the catalyst that got the industry and governments and entrepreneurs moving quickly. Ripple (where I’m on the board) has met a lot of success working with forward-thinking, major international financial institutions (e.g. Santander is a strategic investor) who want to use Ripple’s technology to streamline money movement. At least one of the world’s leading central banks is working on (early stage) research about a government sponsored digital currency.

A very Susan overview of Ripple.

Ripple built its technology to be well suited to moving fiat currencies (dollars, Euros) with a digital currency playing the role of a “hub” or bridge currency to lower costs and thicken markets. Financial institutions have showed a great deal of interest in this technology. But Ripple’s customers also expressed a need for protocols that transcend a single ledger; their Interledger Protocol provides a way for banks or other institutions to move value BETWEEN ledgers (banks’ internal ledgers, the ledgers of consortia, Bitcoin ledgers, the Ripple ledger) efficiently and near-instantly, and with relevant information incorporated.

Ultimately, she describes a blockchain reality very much in line with Marley Gray’s multi-chain vision.

In the end, each use case has its own needs; privacy, speed, centralization v. decentralization; some firms would rather not have any association or relationship with Bitcoin for a variety of reasons. I believe that different technologies will evolve for the different use cases, sometimes built on top of existing technologies like Bitcoin, other times starting from scratch. It will be interesting to see how things develop!

Susan covers an incredibly wide breadth of topics in her Quora Session—from the impact of machine learning to why it’s such an exciting time to be an economist right now.

Read economist Susan Athey’s full Quora Session.

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