Jack Nikogosian kickstarts his interview with TV2 Kras with this interesting and important question. He has been in the Fintech industry for about 6 years, where he has worked with digital money, programmable money, cryptocurrencies, and lots of other exciting projects. About 50% of the world’s population today does not have a bank account, this means that adult people around this earth can not sell anything online and profit from it because if you do not have your identification papers in order and you do not have a lot of money, then there are very few banks that would have you as a customer. Jack emphasizes that In the digital world when we talk about digital money or cryptocurrencies, the intention is that you should be able to send value to any person on this globe without intermediaries having to be involved.
Blockchain technology provides opportunities for this to become a reality, which of course is hugely exciting but also can be seen as a threat to the banking world and to the traditional markets and networks we have today. This is why Jack chooses to call it a “revolution” because for the first time in world history, you can actually make your own money or conceptualize your own payment networks without going to jail.
What is the primary purpose of a bank?
Jack describes the definition of a bank as a financially regulated institution which has laws to accept clients’ deposits from you and me, as well as companies and then they have laws to lend them to others. The idea of a bank is to keep money “safe” and take some kind of risk by lending it to people who need to buy a house, boat and other assets. If we have DKK 100 in the bank, there is no DKK 100 with our name on it, they do not exist 1 to 1 like, for example, cash does.
Cash on the contrary, is available 1 to 1 . For example, if you have a DKK 100 banknote in your hand, you know that it has a government guarantee, as it is printed by the national bank and it is safe, as no one takes it from you and you can give it to another person if you choose so. On the other hand, when you put the same DKK 100 in the bank, they take 10 DKK and put them in the central bank and they spend DKK 90 on lending to others who need a loan. The people then pay interest on their loans and the bank makes some money on their bank operations.
This means that the money we have in the bank does not exist 1 to 1, but rather exists as a form of debt certificate. If a financial crisis was about to hit us and everyone wanted to withdraw their money out of an ATM, then there would not be enough money in the bank for this to be possible, this phenomenon is known as Bank Run or Bank Storms in Danish.
For example, if a bank goes bankrupt and you have a company account in the bank with DKK 2 million on it, then the DKK 2 million disappears, just as it happened with the Amager Bank case. When money is fragmented, when it is digital, then it is no longer scalable. They are no longer safe because if I have to move a debt certificate from Danske Bank to JP Morgan, I still have to involve Danske Bank and JP Morgan, even though it is a digital interface. What ARYZE is proposing is we say we need to make a 1 to 1 representation of money that is not fragmented and based on lending, ie. when we receive a deposit of 100 USD, then we would put 100 USD in the Central Bank of the United States. We will not keep any money in our bank layer, we will not lend them out and we will not offer credit so your money must exist 1 to 1 and it must exist in such a way that even if ARYZE ceases to exist as a financial institution then the money must be found. We do not touch the money and more importantly, the money is not ours.
In short, Jack explains that in this example your DKK 100 in Danske Bank is not yours, it is Danske Banks. Your USD100 in JP Morgan is not yours, it’s JP Morgans. However, the USD 100 that you keep in ARYZE is yours. He emphazises that contractually, the money is yours and they do not touch them, unlike traditional banks, they do not invest with it and nor do they take any risk on people´s money. That’s why he calls it digital cash and not just digital money, this is an important part of it.
After Blockchain came into being, it became possible for everyone on this earth to use this supercomputer which is almost the same for everyone, so for example whether Facebook, Disney or Tivoli would make their own coin on a blockchain, then they can do this and these would be just as safe as the others because they exist on the same platform and they can talk to each other crosswise.
What is tokenization of assets in relation to banks?
Tokenization means that you take a traditional asset such as gold, silver, property, money etc something that exists in reality and then you make a digital representation (Token) of the asset on a blockchain. One could think about it in the same way as gift cards for a specific store,1 e-krone to represent 1 DKK or a real estate token to represent an investment in something real estate, but what’s interesting is that when things get tokenized you can move them around, on a network that is not controlled by anyone, it lives on the internet and is free from intermediaries.
Whereas, traditionally if you want to move 1 DKK then you are dependent on a bank or a network that can handle this. But now, all of a sudden we experience that you can move property, gold, silver, oil etc, all kinds of value in a split second to any person on this globe. With the same ease of sending an email, where in the past we used to depend on the postal service, paper and ink.
What is happening in the banking world today is that analog processes and analog money are being digitized. This means that they are much more mobile and secure than they have been so far. According to Jack, of course there must be a mechanism for borrowing money, but the place where we can borrow our money and the place where we can keep our money do not necessarily have to be the same thing.
Jack believes there should be a place where we can keep our money free of loans and free of debt. One could then perhaps use Peer to Peer lending to borrow money from each other without intermediaries. With programmable money, there is no need to borrow money from the bank but from ordinary people who we do not even know in a safe way, ie. there is no one who says no to you and you are not dependent on specific requirements that can hinder the development of your ideas.
Bitcoin is often associated with things that are shady and there was also a part of it that was in the beginning, because there were very few people who used it and then it was very easy to trade with things that are illegal. But when you look at the numbers on how many transactions actually happen per day on Bitcoin and how many of those transactions are actually used for, for example, potentially illegal things and money laundering, I think there is less than 1%. In the big picture, when we look at how money laundering happens on this planet, it most often happens through the banks, specially through the world’s largest banks, because it is extremely difficult to find out where the money comes from (proof of funds) due to the number of transfers often associated with these operations. For example,when you transfer money from one bank to another and then another and a third, etc. then the bank no. 4 does not know where the money comes from. Therefore, there are lots of financial constructions that, among other things, involve property assets, FX markets, where currencies are traded internationally and all sorts of other things in the real world that support money laundering.
With blockchain and programmable money, you can always prove where the money has been. This facilitates proof of funds, and the use of algorithms to create risk profiles so that you can identify unusual patterns using artificial intelligence and big data. Whereas today in the big banks, Jack believes they would rather have 2000 compliance officers who sit all day and look at a screen while trying to figure things out. He claims that it can be done better and more effectively with technology.
Technology is amazing and one can really do extraordinary things with it and think great thoughts. You should not be limited by how things necessarily operate today if it can be done better, so we build a bank with a clear conscience in place where we simply say,all that about selling your data, showing you advertisements, spending your money on risky investments, having customers we should not have – We simply do not. On the contrary, we are building a bank as it should have been built in the first place and we can with technology, we can prevent money laundering, we can monitor money and where the money comes from, we can do countless things if we start on a digital platform instead of trying to clean up 150-year-old banking operations that now need to be digitized. It is perhaps better that we release some air out of the balloon , so to speak and ask ourselves if it can be fair that the banks should be forgiven for their mistakes and their risk-taking?
I do not think so, nor do I think you think so.
To learn more about Jack Nikogosian, connect with him on LinkedIn, or check him out on Facebook. If you’d like to read more about crypto, blockchain, and tokenization, check out our blog or visit our website.