Raj Chowdhury: Blockchain will be replacing the building blocks of many information technology infrastructures

Raj Chowdhury: Blockchain will be replacing the building blocks of many information technology infrastructures

Today we are talking to Raj Chowdhury, the Managing Director of HashCash Consultants and a recognized expert in blockchain and cryptocurrencies. Raj writes for Economic Times, Business World and advises industry leaders on the adoption of Blockchain.


Interviewer: Blockchain & Bitcoin Conference Bengaluru (BCB)

Speaker: Raj Chowdhury (R.C.)


BCB: Hello, Raj. We all know that the Internet became a gamechanging technology for banks last century. In your opinion, will blockchain become similarly important in banking in the 21st century? Why do you think so?

R.C.: If you recall the early 90s when we had a dotcom boom, the idea of businesses was to eliminate the middlemen, we can see it in real estate, and in many other companies that are over the internet that have successfully eliminated the middleman. And it has happened in many industries from ecommerce, for example, one of the largest book retailers has been outcompeted by Amazon. So we have seen these things in the last couples of decades. But when you look at the financial industry, we still have those intermediaries, when we have to make a payment. For example, if I would like to send a payment to you, it would be my account debited from my bank and sent to your bank. So it’s a transaction between the banks and it’s not a direct transaction between you and me. So we need advent of blockchain and cryptocurrencies. The advantage here is that we are able to establish a transfer value on a peer-to-peer network.

So we have the components of the technology in the past, but what Bitcoin gave us is the understanding that we could combine cryptography and distributed ledger technology and use it in the transfer of value. This will be a huge game-changer as big as the Internet, because it’s a very foundational technology and it could be implemented in many industries, not just the financial industry. It could be extrapolated to, say, the supply chain industry or furnishing or so many other industries where value transfers happen. So it will be replacing the building blocks of many information technology infrastructure in various articles of industry. So we will see this becoming more and more prevalent in the next couple of years, taking the next two to three years. People see that blockchain has been changing many aspects of our life just as the Internet did or is doing right now.

BCB: Apart from working at HashCash Consultants, you are an active investor at Satoshi Angels. Why do you focus on investments in blockchain startups particularly related to the financial field?

R.C.: You see, investment in startups has to begin with you. So the protagonist is you when you understand the industry. Startup is a game where you are trying to achieve the impossible. So you need to have specific expertise in that domain. The reason that I prefer to invest in this area is that, the first and most important thing, is that this is the area of my expertise. I’ve been a bank executive for a few years and I’ve been in the payment side of things in this industry. And more importantly, I did the first implementation between the ICICI Bank and NBD in UAE. So this is the area I understand very well, that is the most important point to meet, so I am able to contribute to the extent I would like to. Secondly, you know, this is such a huge market.

The disruption that will happen in this market is huge in the next coming years, in the next two or three years. So this is where I would want to be, this is possibly the only market, the emerging technology and market that would be the largest disruption that we will see in the next decade. So, one is my own personal experience and expertise and second is the market which is huge and it’s extremely interesting and the disruption will be something that we have not seen before.

BCB: Please, share your knowledge as an experienced investor: how do you understand that the startup you are investing in would be able to grow and bring the return on investments in the future?

R.C.: So I think that in this area there a couple of markets. One is understanding cryptocurrency markets and second is understanding blockchain markets. And then there is a place where there is an intersection of blockchain and cryptocurrency markets. So these are the three specific areas. For example, in the blockchain market you have, you know, implementation of blockchain within your existing IT infrastructure. For example, you understand how the bitcoin network works. It’s essentially helping you to establish a bitcoin, which is assumed to be something of value, which is transferred. This is a parity transfer according to the bitcoin network. The same philosophy can be extended to the transfer of assets, rights, or documents. For example, you want to send me one dollar. If you send me a picture of a dollar through email, I will have the dollar in my email, but that’s not a value transfer. Because you have a copy of the dollar. So nothing can establish or the email cannot establish the fact that you have actually transferred that value to me, or vice versa.

What blockchain gives you is the ability to extend the dollar over the blockchain in the network and establish with a very high amount of certainty that the dollar has now been transferred to this ID, or this person holding that ID, or the public key in the bitcoin or cryptocurrency wallet. This can be extrapolated to any asset, so assets can be traded over blockchain network, for example, even through a public network you could transfer assets. Or the technology can be used within the existing bank infrastructure in the transfer of assets between banks, or customers of those banks, or corporates, corporate customers of those banks, retail corporate customers. The same fundamental can be used to transfer financial messages, which is the big part of what the financial industry does.

So, today they use SWIFT messages that could be replaced with blockchain messaging. It could be used for transfer of assets or documents, and then finally it could also be used for transfer of value or actual transactions. All three possibilities exist in this market.

On the cryptocurrency market, you have companies, which operate payment processes, for example, BitPay or some other processes that are helping merchants to integrate with par system or give them payment buttons to accept bitcoin payments. There is another setup of companies, which act as trading platforms and wallets, for example, Coinbase, or ZPay, and companies like that in India. In the US, you have so many exchanges: Kraken, Bitstamp, BitConnect, Coinbase operates more as a retailer. So, these are very specific different markets that blockchain and cryptocurrency has. And each of these markets is very promising. So when you are looking at a company for investing, it’s important to understand that right now you can still go up for large markets, this is about time, because after that, maybe in other six months to a year those markets will be oversaturated, you will have to find more niche markets. Right now, you can go up for larger markets. That’s what we are doing, for example, we have invested in the exchange operating in India and they are starting up in the US in the next couple of weeks. So, we are running a blockchain network for CNet which has various banking applications operating on top of it, for example, we have retailer remittance application that banks use, we have pre-finance corporate payment application, we have payment processing application that leverages blockchain as well. So these are two markets that I am intently interested in, one is in the area of blockchain, and remittances, and payments, the other one is in the cryptocurrency area with the Indian exchange that will open up in the USA.

BCB: What is your attitude to the popular fundraising model used by startups – ICO?

R.C.: In the case of ICO, you have to understand that investing in an ICO is no different from investing in a startup company. And investing in a startup is always a risky affair unless you are an expert in that area. Even if you look at Venture Capital fund that invests in startups, you must have heard for many times that nine out of ten companies that were handicapped with this form of investing would possibly fail. They won’t possibly give the returns that investors are looking for. So, once again investing in an ICO is no different than investing in a startup.

Now, as a common man, you are investing in startup. You have to be aware of these risks. So whenever you are looking at an ICO, look at it as a company: will it succeed or will it fail. If you can understand the market and the business the company is in, only go for investing in an ICO in those cases. Otherwise, it’s a very, very risky affair. Because crypto only helps opening up this startup market to the public, which was previously a closed market to larger investors or institutional investors. So crypto is only opening it up to a common man. But it’s not helping you to reduce any of the risks associated with startups. You have to be very careful when investing in ICO.

Secondly, I’m all in favor of regulating ICOs as well, because it’s important that we have a legal framework and very clear communication and understanding from the common vendor of what he is getting into.

BCB: Reputed global financial experts differ in their opinions regarding the regulation of cryptocurrencies. Some say cryptocurrencies should be banned, while others think that a strict control is required, and still others support a mild regulation. Which approach is closer to you? Why?

R.C.: Instead of picking sides, I would rather say where I think this is possibly heading. That would give a better idea of what is coming ahead of us. Important here is that cryptocurrencies are not controlled by governments. And the governments cannot stop it. And if they could, they would have stopped it, because it will affect central banks and the way our global economy functions, as the matter of fact. So not a single government controls Bitcoin or Ether or any other cryptocurrency that is around there. And they cannot stop it. So the best option here is to regulate, otherwise, you will give rise to a black market, where you would not be able to control what’s going on with the cryptocurrency.

So I think that it’s very important for the governments to understand the technology and regulate it well so that, you know, the bad actors are filtered now, and the good actors are helped for the regulation, that is the key. You would hear this often, there are lots of anonymous transactions happening over bitcoin network, there is a lot of drugs and arms and other kind of illegal industries using bitcoin payments, and are paying in bitcoin for that. But, tell me, what is the currency in the world used the most to sell drugs and arms? What is it? It’s USD, right? US dollars, but we do not blame the US dollars for that. So I think it isn’t the right thing to be blaming cryptocurrency for the way the bad actors are using it. The only way to be able to reduce or help the good actors here is to regulate. I think what we have seen in many countries now from Japan to South Korea, many other countries in the world, is that they are moving towards the framework of regulation. They are studying and trying to create a framework, which would help the country and not kill the companies within the cryptocurrency and blockchain area, rather helping them to do the right things and regulate them in the way they can grow and compete with the rest of the world.

BCB: You will be a speaker at Blockchain & Bitcoin Conference Bengaluru. Please tell us more about the topic of your presentation.

R.C.: I will be talking about the area that really interests me – the impact of blockchain and cryptocurrency on the global banking system and central banks of various countries. That impact is huge. Imagine a world where you are able to buy, sell, and exchange assets over the Internet with anybody sitting anywhere in the world. So the power of that is huge, because many fiat currencies or national currencies would have much smaller impact and much smaller value in that case. If people are able to issue their own coins, the value of national currencies will diminish. Today you can see, like it or not, that one of the cross boarder remittances or payments are happening in Bitcoin.

BCB: Thank you very much for being here with us. Hope to see you at Blockchain & Bitcoin Conference Bengaluru.

R.C.: Thank you so much, it was a pleasure speaking to you. I will be looking forward to talk at the conference.


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