Well, let me give you the background and the story. It’s interesting. I am from Denmark and studied polytechnics there. During studies (mid 1980s) I started one of the first Internet service providers in Denmark. This was the very early days of the Internet when nobody understood what impact it would have on our societies across the planet. However I saw how this technology promised a democratization of access to information, and how it could potentially upgrade lives of people around the globe, letting people in one country see across the fence to another, understand why the grass is greener there and potentially challenge their own government. Or, how students in the developing world could suddenly access science information in places where they did not have (or could not afford) up-to-date libraries, if they even had libraries, and educate themselves basing on the most recent science published. But the Internet at that time was mostly pornography. It changed, as we all know. Today we have world leaders arguing that access to the Internet should be a human right.
During the years driving the Internet Service Provider (ISP) in Denmark, I made good business, and channeled some (most) of the proceeds into new business ideas, and I am behind a number of start-ups investing both my own time and money. I am an entrepreneur, the future of technology is what drives me, this is my passion since childhood.
I made an exit in late 1990s and moved to Switzerland in January 2000, back to Denmark in 2002 and finally back to Zug again in 2006, first time I moved for business reasons, second time because I realized after moving back to Denmark that I fell in love with Zug. After some years of being happy contracting/consulting for both small and large companies in Zug and the Greater Zurich are I came across the Bitcoin phenomena and got my second eureka experience. Just like with the Internet back in the mid 1980s, I saw how this technology could potentially democratize access to value, or more precisely opportunity, and across the globe in the same manner the Internet evolved.
We were but a few in Zug toying with this new technology, less than 10 people, and there was really nobody else to talk to, nobody else understood. To learn deep down what this technology can do, I decided to build an entire distributed ledger myself (programmed my own blockchain) and came up with an idea for a product on how banks could operate on Bitcoin, legally. This meant bridging the absolute privacy this technology was made to enshrine, which stands in stark contrast to banks that have to prove regulatory compliance and pass audits (KYC/AML). Trying to sell this idea to local and global banks I was kicked out while they were calling me a terrorist (literally).
I realized I was too alone in the world with this, so on January 1st 2016 my wife, Beata, and I created Crypto Valley Forum, an events group with the goal to pull people in from other places to Zug, to openly discuss ideas and grow an ecosystem of entrepreneurs in this space. It took only a few months and we had 100s of people flying in from across the globe. Apparently, there were others who needed someone to talk to, and there was a blatantly obvious need for an ecosystem of likeminded people to discuss and develop ideas with. This became my full-time occupation, bringing people together, and I needed help due to the massive workload. Some local friends started helping (most notably Reto Gadient and Daniel Diemers) and the message of Crypto Valley Zug as the hotspot for this new technology was born, started to thrive, and ripples ran around the globe hitting home in every corner. It was amazing.
After a year we decided to “incorporate and professionalize” this movement into Crypto Valley Association (CVA). I recruited the board and we founded the association in January 2017, and started out with an ambition of becoming the leading blockchain center on the planet. The first half year was fantastic, we actually succeeded, but then came the ICOs (Initial Coin Offerings, the massive crowdfunding schemes the press has been focusing on mostly), and in a few months more than a billion USD came through a small group of, say, 120ish people in Zug. People lost their minds.
The association grew into a platform for marketing investments this way rather than a conductor for innovation and entrepreneurship, and it became political. I was approached politely from high office in Swiss government addressing a problem that CVA might be exceeding certain legal boundaries, basically selling investments without prober approval, and I took that warning and passed it on to my board as well as other stakeholders, including local politicians. However, nobody seemed to care enough to act, which worried me greatly. I managed to fight the problem from inside alone, and in a quiet way to avoid bad press for Zug or Switzerland, and got to a point of restructuring with some on-and-off help from a number of both insiders and outsiders.
However, nobody else really wanted to stand up for it and put themselves in the firing line, so long story short the end result is a renewed organization with a predominantly corporate mindset, and I share an opinion with great many people from here that the original vision is diluted, if not gone. There are a number of great initiatives in Crypto Valley, however some of the best moved away to other places, most notably Singapore, Berlin and Scandinavia. Zug still has one of the highest concentrations of great minds in blockchain technology, and some really “gets it”, that is, understands to decentralize and democratize various business verticals in ways that very likely will disrupt existing structures faster than the Internet disrupted a few decades ago.
I have now left CVA completely to once again pursue my entrepreneurial angle, build businesses and to be profitable doing so. The three years I spent building Crypto Valley without any income at all takes a toll on many things, including private relationships. But the network I acquired through this is nothing less than outstanding featuring three years with a calendar completely packed with meetings. I met almost everyone in the blockchain scene, I talked to leaders from across the globe sometimes invited to their homes, I was traveling to conferences and speaking about this, educating government and ministers on how to navigate, regulators on how to address this challenge, etc. etc. I am actually still doing that although privately, and enjoying it even more.
Crypto Valley Association is (at least was from my side) meant to drive forward an ecosystem of the best minds, creating the infrastructure needed for a multitude of entrepreneurs to come and stay and work in Zug, by structuring a number of initiatives through what we called working groups. These are units consisting of volunteers spending (a lot of) their time for free driving one or other focus area forward. Examples would be regulatory lobbying, events or bringing investors and start-ups together. My intention was always to get to a point where local start-ups that fail (9 out of 10 do) would dissolve and the great minds behind them would be able to find new challenges, create new start-ups, or being employed in others, without having to leave the geographies of Crypto Valley Zug and surroundings. This is in reality the main reason of the success in Silicon Valley, good people stayed, and it started to work here.
It is my personal opinion that we lost that angle due to some of humanity’s flaws; greed, vanity and hunger for power. The whole scene got political and toxic and the vision got derailed into ambition. A few got extremely wealthy in the process. My last work for CVA during entire 2018 was an unforgiving struggle to replace the resisting leadership with a better. I succeeded with that but without help it took too long, and I think some of the traction in the ecosystem was lost and perhaps an opportunity lost. Time will show.
The minds in Crypto Valley (not Association) is another thing. They are great, many are still here, and new alliances are formed and ideas being shaped. My own new business venture is part of that and thriving really well, pursuing the vision of building the foundation to demonstrate the power of the technology.
Blockchain Technology is technology, just that. It’s software not much unlike what drives the Internet, but with an interesting twist. Let me explain. The technology allows – without diving into details – for two people to transact between each other without the need for intermediaries to guarantee integrity and trust in the transaction.
I remember back when I got the bug and built my own blockchain, my wife was asking me what this was all about. I tried to explain, and after a couple of hours she told me perhaps we should watch a movie. I simply could not explain it in a simple way. Being pushed into the corner over a year I boiled the explanation down to two words: Automating Trust. I used this to explain it at many conferences and meetings around the planet, and it seems a description that has taken hold.
Now, we all know that when we need to facilitate some transaction (buy or sell a house, obtain a loan, reclaim an insurance) some people have to be involved to check and validate that everything is honky dory, no cheating. These are the middlemen, the trusted parties in the value chain, think the notary or the banking escrow, that at least in our part of the world (for the most part) can be trusted. Not so much in other parts of the world where governments are riddled with corruption. What if a technology could provide that trust automatically, and virtually for free? It could potentially undermine corruption, quietly from below and without confrontation, by merely providing a somewhat more convenient alternative. Think about it.
Blockchain technology provides exactly one major value, it automates trust. How to use that for the benefit of all, or just for the benefit of one self, is up to ecosystems like Crypto Valley to figure out.
For me there are two major value propositions coming from this technology that can in fact automate the trust and do it for almost free, but the interesting part is how deep the rabbit hole really goes. I don’t know, yet, but I have always been good at seeing depths of rabbit holes, so I think I am entitled to do some qualified guessing here.
One thing is the denomination of a (crypto)currency. It’s endless. With Swiss Francs the smallest amount we can transfer is now a 5 rappen coin. But with crypto there is no limit. I could sell you, right now and for a handshake and a cold beer, 0.000000000000001% equity in my company. You would own that tiny fraction immediately, transferred by our mobile phones directly and it would cost virtually nothing to facilitate. No bank, no notary, no cost, no delay, no nothing, and it works – disregard regulatory challenges for this exercise. The technology takes care of it securely and (not yet quite) efficiently. This means you can break streams of value (deliberately not saying money) into tiny, tiny fractions harvested from potentially billions of sources without the otherwise massive costs of managing this. The financial system as we know it is in for a rollercoaster ride, if you follow this train of thought.
Another anecdote I often use in my speeches is that of the current monetary system, focusing on another human factor, the need for convenience. Back in 1250 or there about, Marco Polo and his wealthy merchant father in Venice, decided to take one of daddy’s many ships and go explore the world. And they sailed all the way away to China. After 30 years Marco returns to Venice, his dad died I think from natural causes on the travel, and Marco waves some paper notes in the streets of Venice claiming that in China they use paper for money. Everyone laughed at Marco for such a silly idea, everyone knowing that bags full of gold and silver was much better. Particularly the pope who lived there at the time almost got Marco thrown in jail for stirring up a new idea of using paper to represent money. Well, go figure, the pope had a lot of gold. It took a few decades and everyone used paper for money, representation of value scribbled on paper, and they did so simply because it was easier to carry in a wallet than those heavy bags full of metal. It was simply more convenient.
Now fast forward 800 years we are still using Marco and his Chinese friends’ good idea with the paper money. It comes with a cost though, let me name a few. First, the whole circus of keeping money in circulation is expensive and cumbersome. The paper notes can be counterfeited, so they have to be made in a special and rather expensive way. The metal coins often cost more to produce than the value they depict, and people still throw them in wishing ponds. And no country will ever have a 100% accurate idea on how much money is actually circulating out there, or where. Besides, old money notes get used, worn, have to be collected and replaced, and this adds more costs. Perhaps the worst part is that nations can decide to covertly print money, literally, and use that as a political instrument to create unfair trade competition with their neighbors. Cash is simply inconvenient and expensive now that we have digital means on our hands, and modern electronic payment system have come a long way, but not all the way.
Now imagine a system that provides full transparency for where money is, the currency cost virtually nothing to produce or maintain, and covert money printing can simply not be done without being done completely transparently for everyone one, including neighboring countries. It would massively reduce trade risks and particularly national costs maintaining a national currency – they understood this fact decades ago in my old Scandinavian home country where a national digital payment platform was a world’s first. It would make it all more convenient and that’s why I think it will eventually win. Simple convenience.
Insurance will undoubtedly be impacted in many ways, some already understood, some being experimented with at this time, and a few really good attempts on actual products already exists. This can be found online easily, just google it. I would like to point out one particular angle that should interest insurance greatly, and that is the fact that this technology is so well suited to enshrine audit trails and collect data in a trustful manner.
If I understand it correctly, insurance is about being able to relatively accurately calculate risk, and from that calculation estimate the cost (premium) for any given insurance product. If no data, no provenance, risk assessments gets inaccurate and offering a main-stream insurance product gets too risky.
In my view almost everything that can be insured – anything that can be relatively accurately risk assessed – has already been insured. In other words, the entire pie of insurance products is already invented and doesn’t grow much anymore – not many new insurance products are created. Insurance companies can use aggressive marketing and other mechanisms to fight for how big a slice of the pie they can get, but finding new pieces of pie is difficult.
The technology however has a very clear opportunity to increase the size of the pie substantially, to gather trusted data for more accurate risk assessments and therefore promises to innovate many new insurance products. Part of what my business is doing now is around this potentially enormous untapped market.
Decentralization and crowd-insurance is ultimately brought to clients, which is also the real disruption potential of insurance as we know it. We are not there yet since the technology is still in its early stages, but when (not if) the technology can scale enough and transaction costs gets dirt cheap, the opportunity to build decentralized systems operating autonomously where private individuals ensure each other through virtual pools of value (money) having almost no humans operating this, and therefore no real costs. This is more on the strategic horizon, as said before we are not there yet. How long will it take? Don’t know, I don’t have a crystal ball, but the Internet took 2-3 decades. This might very well come faster.
The banking world seems to have gotten the gist of this massive disruption potential, and is currently not sure how to handle it (read: How to stay in business). There is a large number of other business verticals just as easily disrupted, and insurance is most certainly one of them. In fact, in my company we are building software just for that, doing what we can to show the power of it while keeping well inside the regulatory boundaries, which again means as regulation adapts to this technology, we shall see increasing disruption happening. Personally, I would like to see an evolution here, not a revolution (which is usually what the crypto geeks want).
We still need to educate and build science around this new phenomenon, in particular what is called tokenomics (or token economics), a science that will combine economy, legal and technology in one discipline. This is only starting at universities as the professors and students start to toy with these ideas, and it will take time to refine, decades likely.
For the clients – and we might want to rename them to users in the future – this means best possible price and best possible service, since the economies built on top of blockchain technology can be made to incentivize the most desired behavior – and just how to go about that is related to the science I talk about above. This is however a longer discussion for another time, but one that is really exciting to understand. Just ask yourself who would be the right one to decide what is the “most desired behavior” and the challenge becomes a little clearer.
The challenges for the technology itself are many. An example is scalability; the amount of transactions per second is a problem, blockchains a slow due to their need for consensus building between the nodes (the computers that communicate in a network driving the security of it). Many would have heard of Bitcoin Mining and the fact that this so-called mining uses as much electricity as a small country. This is a trade-off in my opinion, since it’s needed to drive the market making and ensure the security (the trust in that nobody can cheat). This excessive power consuming mining phenomena is simply stupid and needs to go away, meaning new and better tech has to be invented for that.
We have so far seen what I think is the two main steps into the future of this technology.
The first was certainly Bitcoin, which is (just) a currency, albeit virtual. You could argue that the 50 franc note in my pocket is also virtual, as the paper and ink on it is not worth even close to 50 francs. In fact, gold and silver, having somewhat limited real utility (I mean, you can’t eat it), is also (just) representational, virtual.
The second step (version 2 if you like) is arguably the smart contracts that was invented with Ethereum right here in Zug by the now famous Vitalik Buterin. My own blockchain had a similar intent, but due to the work for Crypto Valley and later Association I put it aside to build our ecosystem instead. Many long evenings have gone by with good wine and late nights discussions with some of the greatest minds in Crypto Valley on how to solve the mining problem, or rather how to incentivize decentralization of mining – well, this gets a bit technical but in our team we have ideas on how to go about it.
The challenges during implementation, and I take it you mean when an insurance company wants to implement blockchain technology to gain a competitive advantage. Hmm, I think the main challenge is to understand the full potential of the technology, to face how disruptive it really is, and then deal with it strategically. Corporate structures are not good at this, it’s a known fact, but understanding it early might help mitigate the risks the disruption brings, to some extent at least. Education is key. Employing people who “gets it” is key as well, and not only somewhere down the organizational chart in the IT department. I mean geeks on the board, seriously.
I think I mostly answered that above, but let me add this. Have no doubt that once the technology really works – and it will eventually – there is simply no stopping it. I was once asked how to stop cryptocurrencies by someone very high in a nation’s food chain, because he feared the disruption could potentially remove some of the political and manipulative powers he had at his disposal, to steer the country in the “right direction”. My answer was simple: You can turn off the Internet, but there is really not much else you can do. He just stared at me. The challenge is therefore simply that many business models that has thrived for centuries may very well have to rapidly reinvent themselves within decades, and the understanding shaping that strategy has to be established yesterday.
What I see when I look at the world today is that capitalism is about to fail. The growth is, for lack of better wording, hijacked by a small elite, or big boys club, leaving the man on the street no access to the same opportunities. Mind you, I am not saying access to wealth, just the opportunity to create it. In USA we have the famous 1%, the people who own as much as the 99% others (whatever the exact numbers are, but you get what I mean). 30 years ago they were 5%. What are they in 30 years from now? 0.1%? The simple truth is that wealth is accelerating into fewer and fewer people’s pockets. This has happened over and over throughout history, and it never fails ending with some sort of bloodshed. It is not sustainable. And it is driven by greed.
Now greed is not necessarily a bad thing. It exists everywhere, in nature even. A tree will grow to shade over the next tree, bar out its sunlight so it grows bigger and the other tree dies. The greed is for sunshine in this case. In my view, greed can be regarded as the driver of competition, and therefore evolution. My father is a psychiatrist and a bit of a philosopher too, and he used to say that without natural greed there would have been no evolution, or Darwinism would not have worked. Makes sense. Still, nature managed to somehow create an equilibrium to foster the variety of life we currently have on our lonely planet. So greed in nature, if you like, worked really well.
I am a capitalist, or at least within the realm of current regimes and political variety I would place myself in the category of conservative liberal and capitalistic. I am also a believer in democracies, or at least in the democratic value that lies within the vote of the individual, that the population as a whole has the final decision. This isn’t quite working either, but as a clever man once said, capitalistic democracies are a terrible solution, but it’s far better than the alternatives. I concur. The technology we now have on our hands, this machine that can automate trust and drive incentivized economies, might actually be the best bet we have to correct capitalism to what it could be, should be, to balance out the hijacking of the growth by simply giving everyone the same access to opportunity, and leave it up to them to freely pursue their fortune the way they prefer.
I see how this technology has the potential to create a better and fairer world, and help humanity drive a more balanced evolution (in terms of wealth distribution, but not limited to). Like all new technology, it also has the potential to do harm, so solid understanding of it at the highest levels in societies and governments is crucial.
So as the Internet saw abuse from pornography in its early days, the blockchain scene has shown its ugliness in the light of dubious and massive investment schemes. The fact that a new unregulated technology appearing always attracts the crooks first is obvious. In a weird way you could say that the amount crooks flooding the scene initially is a really good proof of concept. As soon as the 99% good people out there starts using it, seeing it, it will go mainstream and evolve into something really great. Just give it time.