What is the future of cryptocurrency? Is the Polish Government resistant to the crypto industry? Who benefits from the immobility of the Polish government? Digital coins: is it more than just speculation? We talk with Krzysztof Piech, a crypto expert from Poland.
Dawid Paluch: Why do you think that the Polish government is against cryptocurrency regulation?
Krzysztof Piech: For fear of something new. However, this is not the fear of technology itself, because the government officially declares support for e.g. artificial intelligence. It is also fear of the political risk – who should be blamed for supporting technologies earlier famous for drugs, Silk Road (an online auction platform offering illegal products in exchange for Bitcoin – ed.), etc.
There is also a banking lobby that does not help and even tries to stop this development. After the actions of the central bank in spring last year, the commercial banks closed most of the accounts for crypto companies. Prior to that Polish banks were one of the most open to them in the world.
What can be done to help Polish companies in the blockchain industry?
We have tried to talk with the authorities for a long time. We did analyzes, we proposed legal solutions. The only thing we can do now is to help Polish startups to do business abroad. It has become more difficult recently because the Exit Tax has entered into force (19-percent tax for Polish companies that generate income outside of Poland – ed.).
It is much easier for Polish companies to negotiate with the governments of other countries than with the Polish authorities. In Poland it is like in this old saying: “the grass is always greener on the other side of the fence”. Poles have definitely a shorter path to success abroad than in their own country. I estimate that over 90% of Polish blockchain startups are registered abroad.
Polish companies, cryptocurrency exchanges in particular, prefer to move out and pay enormous transfer costs, because, at the end of the day, it is more cost-effective.
Recently, BitBay (Polish cryptocurrency exchange – ed.) said that the transfer to Malta cost them PLN 10 million (over $2.65 million). Huge money! After all, you can hire many people for that amount.
It was a deliberate decision of the Polish central bank (NBP) and the Polish Financial Supervision Authority (KNF) to get rid of BitBay from the country. The government did nothing in this regard; it only stood aside and watched, and later it was too late to do anything.
Another cryptocurrency exchange similarly closed its activity. Investors lost PLN 40 million (almost $11 million), 70 people lost their jobs. There are many more such cases. Countries with more progressive governments (Malta, Estonia, Lituania, the UK) profit from that. The Polish authorities are destroying the most innovative sector of their economy, missing the chance that will not be repeated in the next 20 – 30 years. There will be no such opportunity when Poland starts from the third position in the world in the field of the new technology.
The Polish government prefers solutions that are safe at this very moment, instead of those that may be beneficial in the long run. However, you said in one of the interviews that you ‘see a lot of potential for using blockchain in the banking system’. In Poland, several banks have tried to develop this technology.
I specialise in analysing economic policies of governments, esp. innovation policies. I did a lot of advisory projects for the government, esp. evaluation of its interventions. So I have enough experience and knowledge to see where competitive advantages of Poland really are. We have innovative retail banking. Just add to this the new technology, and you can have the best banking in the world. The blockchain technology could be implemented here because blockchain has very good use in the payment field.
After the first attempts to apply this technology in PKO BP, there is a rumor that the bank has already begun to work intensively on other blockchain applications. Someone there has noticed with a little amount of work and time at least a few PLN million a year can be saved.
You’ve worked on the concept of a blockchain-based bank.
There is still a team that is trying to create something like this. However, after researching the Polish banking scene, I came to the conclusion that the creation of such a bank in Poland is not possible due to regulatory issues.
Knowing that, we tried to limit our project to one element, which is the basis of every banking system – money.
Rather a digital currency. The project to build a local stable coin pegged to Polish zloty is called dPLN (digital PLN). After quite a short period of work on this project, we faced a reluctance, hostility even, from the central bank. As a result, we had to stop the project and to this day there aren’t any companies in my country that would dare to create a digital version of the Polish zloty. There are however such attempts abroad. I still think that these efforts are not particularly good and it can be done much better.
We have suspended the dPLN project and we are waiting for a change in circumstances. We have tried to speak about this project with a few foreign central bank, but we shall see what will happen in the future.
So this project has not been closed, it is only postponed for “better times”?
Yes, the technical and conceptual design is prepared. Ever since we began to deal with it, we have not seen anyone creating a better concept.
This is the future of banking and financial services: to make the most of the blockchain technology. This sector has to mature first, not to mention the regulator.
What do you think about the current crypto recession? Will Bitcoin return to the price level from a little over a year ago? Recently, you said that BTC would survive, regardless of the turmoil in the market.
The current situation is completely normal. After the speculative bubble almost 1.5 years ago, there is a bear market. In 2014, when we had a similar situation, the market slump lasted nearly two years. As in any market after a speculative bubble, ineffective projects are falling. The most efficient ones will survive.
It is similar with Bitcoin. It may not be transactionally very effective, but it has its advantages: infrastructure, marketing and interesting ideas (e.g. Lightning Network).
There will be more 51% attacks and many currencies will not survive. It is already clear that Proof of Stake (PoS) may not be the best solution, because it leads to centralization of the market too much. The industry tries to find other consensus protocols.
And where is the place for Poland in this scenario?
Polish IT developers will participate in it whether the government like it or not. The only question is whether startups from Poland will be actually Polish or foreign. Being a patriot, I tried to do something to make life for Polish startups easier. I can only hope that something can be changed in this regard. The government of another country has recently probed us to find out what could be done to make life for Polish companies easier so that they could more easily move to this European country.
Which country are we talking about?
I can not reveal anything yet, because it is too early. We shall see what will happen next. You should criticize the authorities for what they do, because the world may look better.
Lithuania is a good example. A tiny country that started its blockchain industry from scratch, and thanks to the leadership of one man, Marius Jurgilas – a member of the central bank management board, a lot of interesting initiatives were developed there. Thanks to that, startups from many countries move to Lithuania. In two years, the authorities of this country have done more than the Polish authorities during the last 5 years
You said once: “recognizability of cryptocurrencies is related to their price, not to how many people use them on a daily basis.” It sounds as if the cryptocurrency market was based on speculation only.
Unfortunately, it is. However, I would say that this is not an extraordinary case in the history of the world. Why did people start to be interested in cars? Because the price of the Ford Model T began to be affordable for Americans. If it was not for the right price, the car would be attractive only for geeks, criminals and rich people. Such relationships between price and popularity are normal.
It can also be an advantage.
Only a small group of IT developers in our country would know what this blockchain thing actually is.
Speculation is built in Bitcoin, though it was not supposed to be that way. Satoshi Nakamoto did not intend to build a speculative asset but a transaction system. The fact, that this happened, fueled interest in technology and is the best possible marketing that you can imagine. Nothing turns people on more than the possibility of quick profits in a short time.
It may be quite risky because there are speculative bubbles. On the other hand, however, it is a powerful marketing tool. Thanks to this accelerated incubation, we have many interesting initiatives. We have an Initial Coin Offering (ICO), where the history of ICO’s uprising and collapse last only 1.5 years. After the ICO, part of the utility tokens will survive, some will not. Nevertheless, there are successors. Perhaps the Security Token Offering (STO) will be more popular if only regulators allow it to operate. So we have another innovation. Usually you would have to wait 10 years for this type of change, and here it happens in less than two years. Thanks to the value that it is associated with and the huge money that you can invest in, we have another wave of innovation in a short period.
You have mentioned the STO. On the one hand, many people think that this is a lot better form of fundraising than ICO. On the other hand, China considers STO to be illegal.
Yes, China immediately banned the STO for a very simple reason: the outflow of capital from China. Chinese authorities saw that much money was flowing out of the country during the ICOs and tried to prevent it. They do the same thing with STO.
People criticized the ICO for so-called “wild market”. Someone could raise funds, sometimes very large sums, and then disappear with them. STO will be more regulated. Profit scale will probably be lower, but that’s also good, because this should be safer for investors.
As a result, we are approaching markets such as NASDAQ, etc., and this is just a step away from the STO exchanges. What’s next? Farewell to traditional stock exchanges. Those platforms that do not adapt to the era of tokenized financial instruments will not matter any more. New exchanges will be created. In comparison with them, NASDAQ will be quite a small market. We are talking about the possibility of opening up to the global market of completely different, smaller companies from the farthest corners of the world.
As you pointed out, you predicted the 2008 crisis. So let’s predict the future. What will happen to the crypto and blockchain industry in the next few or several months?
On the crypto market we see the decline. The question is what will happen next. Is this only a temporary correction or a longer trend? If this is a longer tendency, it means that investors will withdraw funds from more risky investments. They will transfer assets e.g. from IT sector to more secure ones: gold, government bonds, etc. If it happens, we are facing the global slowdown.
The second issue is the lack of correlation between Bitcoin, cryptocurrencies in general, and other goods, such as securities, gold, etc. Thanks to that, some investors may treat cryptocurrencies as an attractive way to diversify the portfolio. If prices of cryptocurrencies stabilize or start to grow, we can expect a huge boom due to the interests of institutional investors, because so far the crypto industry has been missing them.
Blockchain technology is continuously evolving and will be still developed. However, can the cryptocurrency industry collapse?
I don’t think so. Everyone talks about the use of blockchain and high hopes are associated with it, but it should be remembered that the largest blockchain adoption so far has been in cryptocurrencies. Nobody will challenge that for a long time.
It is easier to create something based on what we have already than to invent new blockchains that will not have cryptocurrencies in them and will not be related to them in any way.
Time will show how everything will change. Human ingenuity is, after all, unlimited.
Krzysztof Piech – Lecturer, Economist, and Business Consultant with over 20 years of experience living in Warsaw, Poland. For several years, Piech has been considered one of the best experts in cryptocurrency and blockchain technology in Poland.
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