November 2, 2018. Shanghai – As part of our 2018 Executive Forum series, CEIBS recently welcomed Radian Partners Founding Principal Jennifer Zhu Scott to our Shanghai campus for a lecture and Q&A session on “Blockchain Technology and a (Potentially) Decentralised Future”. The event was moderated by CEIBS Vice President and Dean Ding Yuan and attended by nearly 100 CEIBS alumni, students, and other members of the Shanghai business community.

The forum comes at a time when interest in blockchain technology is peaking in the wake of last year’s wave of initial coin offerings (ICOs) and subsequent cryptocurrency bubble which have since polarised opinions about peer-to-peer payment systems (and other uses of the technology).

“Many people think blockchain is going to change everything, but I don’t think so,” Zhu Scott told the packed auditorium. “The applications for blockchain are actually very narrow. But, with the right applications, the implications are very profound.”

Among other insights, Zhu Scott used the session to highlight the role and importance of trust in the adoption of new financial (and other) technologies. She also said that, when thinking about blockchain, there is a lot we can learn by looking back at history.

“About a thousand years ago, a bank in Sichuan first issued paper money to replace silver and gold and what happened there is people took a trust leap,” she explained. “They used to have to see the gold to see the money, but because the centralised institution was trustworthy, even though that piece of paper didn’t have any intrinsic value, they still used it.”

Even in digital cash systems like we have today, centralised institutions are intended to play an important role in monitoring transactions and maintaining trust. In 2008, however, people’s attitudes towards these institutions began to change as a result of the collapse of Lehman Brothers and the onset of the global financial crisis.

“During the financial crisis what happened was that people put trust in these banks and instead of being responsible for the customers and the investors the banks completely betrayed that trust, went down on a completely irresponsible route, and ended up causing the financial crisis,” Zhu Scott said.

In the midst of the 2008 crises, however, came the publication of a white paper by a person (or group of people) known as Satoshi Nakamoto entitled, "A Peer-to-Peer Electronic Cash System", which first introduced the bitcoin digital currency.

“What Satoshi Nakamoto did was a very intelligent and very powerful response to the failure of the trust in centralised institutions,” Zhu Scott said. “Not only did he have the vision and wisdom to stay anonymous, but what he also did was to remove the centralised financial institution by using proof of work.”

Since bitcoin and other blockchain databases are shared and are not stored in any single location, they are both publicly verifiable and nearly incorruptible – two factors which, in theory, should make them highly attractive in terms of maintaining trust among users. Unfortunately, as Zhu Scott pointed out, the gold rush set off by interest in cryptocurrencies has, in reality, attracted more than its fair share of scams.

“Even the genuine applications have been tainted by so many companies without the right intentions,” she admitted. “In the early phases people got very emotional and there were a lot of charlatans and people who were out there to try to rip people off.”

Nevertheless, like the internet to the dot-com bubble at the last turn of the century, Zhu Scott said she believes the 2017 cryptocurrency bubble represents an important turning point for blockchain. At the same time, she hinted there is still much work to be done to establish wider credibility.

“The cryptocurrency bubble has burst, but not enough and I think we need to go deeper to get rid of the bad players in the sector,” she said. “But, I think the burst of the cryptocurrency bubble is the beginning, not the end of token economy.”

Ironically, given the fact that blockchain was invented as a tool for decentralisation, Zhu Scott also told the audience at CEIBS that the next big trust leap might actually involve powerful central banking institutions such as the People's Bank of China issuing digital currency.

“I think digital currency is inevitable,” she stated. “It’s just a matter of time before a country issues a digital currency and China is positioned to be one of the first. We are already the most cash free large economy in the world.”

Ultimately, Zhu Scott argued that if China wants to internationalise the RMB while at the same time maintain capital control, digitising the currency using blockchain technology would offer central institutions a clear record of capital flow. Moreover, the introduction of a digital currency could be very beneficial if adopted by other countries along the Belt and Road.

“There are many incentives for China to issue a digital currency using blockchain, but the hesitation from the central bank is also that once you digitise RMB, in theory, corporations and individuals can directly have a relationship with the central bank,” she said. “So, what do all these commercial banks do?”

That is a very good question and one which could potentially be very disruptive.