Last October I wrote about my vision for the future of the crypto industry for The Independent. Since then, events have developed rapidly. In April, the capitalisation of all cryptocurrencies hit an all-time peak of $2 trillion (for comparison, total funds in gold number $8 trillion).
The entire financial market is going crazy watching the price of bitcoin on a roller coaster, pushed up and down by tweets from Elon Musk. The founder of Tesla and Space X recently wrote: “The true battle is between fiat [government-issued currency] & crypto. On balance, I support the latter”. I do not agree about the word “battle” - peaceful coexistence is not only possible, but inevitable. The crypto sector can no longer be banned; we need to think about how to use it for the common good. Especially since cryptocurrency (in different forms) is only one of the elements – one with great potential – for use by government institutions .
For example, it is no secret that a significant part of hundreds of billions of dollars that various charity foundations raise every year do not reach those who need the help. There is always a risk of fraud by those managing it and donors do not always have the opportunity to verify how exactly their donations were spent - they have to trust reports, which can be easily falsified.
Modern blockchain technology can solve this problem. Just imagine: on one hand - a community of rich people who are willing to share their wealth, and on the other hand - a poor family that does not even have the money they need. A charitable organisation, for its part, could use a blockchain platform for collecting and distributing donations. All transactions are stored in a distributed "ledger", in which the data cannot be changed or deleted.
Then the charitable organisation issues the equivalent to the sums of collected money, and distributes it on cards, which retail or catering entities agree to accept for a certain set of vital products. A family could download a special application in the form of a virtual payment card to their smartphone, or be issued with one.
An anonymised account on the blockchain is tied to each card, and any donor could potentially view details of expenditure by the charity. The same mechanics can be used for charitable projects in any realm - medical care for children, protection of wildlife and the environment and support for culture and the arts.
Let’s take banking, to which I dedicated 25 years of my life. In the language of programmers, “peer-to-peer” or p2p is a computer network in which all users communicate with each other directly. In the world of finance, the function of such a server used to be executed by banks. They serve clients by conducting cash and settlement transactions with their money, and borrow from them at interest with deposits. They provide liquidity for business development in the form of loans.
But that's all in theory. In practice, many banks have confused the concepts of "client" and the ancient Roman "clientela" (patron-dependent farmers), treating customers as their servants. Human greed is ineradicable, so it can boil down to the fact that money ends up in the pockets of some in the bank, turning them from bankers into banksters (derivate from “banker” and “gangster”). This trend became especially evident in the 21st century, which has given rise to such a phenomenon as the international offshore oligarchy. Every year, as a result of embezzlement, this uber-class’s wealth increases by $1 trillion, reaching $70 trillion. I call this phenomenon “global financial apartheid”.
As I noted in my previous piece, blockchain technologies have led to a real p2p revolution in the world of money and capital. Due to cryptocurrencies, financial market participants are now able to conduct transactions without the participation of a bank as intermediary. Moreover, all these transactions are completely transparent and can be traced by any user of the blockchain network.
To understand how much this makes life easier and saves money, I can give you an example from personal experience. While on a recent holiday to Indonesia, I agreed with local partners to help build a boutique hotel in Bali. Upon my return to Russia, I needed to transfer $100,000 to them. If it were a standard banking operation, it would take me weeks, and a bunch of papers, which threatened to “eat up” a significant part of the investment. The wallet-to-wallet transfer took a few seconds.
But cryptocurrency in its various forms is only a payment tool in the “economy of peers”. The appearance of "smart contracts" is what could revolutionise corporate finance. A smart contract – invented in the 1990s by the cryptographer Nick Szabo – is a software algorithm that records information about the ownership and the sequence of execution for the elements of a contract. These obligations are executed automatically, without human participation.
As a result, the decentralised finance (DeFi) industry has emerged and rapidly developed, in which the bankers themselves (as well as numerous other so-called "servants": lawyers, brokers, auditors, insurers, et al) are not needed, since their functions are performed by smart contracts. The decisive contribution to the DeFi architecture was the Ethereum blockchain, created by Vitalik Buterin, and Binance Smart Chain, founded by Changpeng Zhao (well known as CZ). In early 2020 the value of funds in DeFi was just over $500m, now it is $100bn. According to a study conducted earlier this year in the United States among accredited investors, 72 per cent of them are planning to invest in DeFi projects.
Accustomed to living off other people's money, the banksters have already suspected that something was wrong and sound the alarm. In March, a report was issued which warned that "decentralised finance is even more destructive than Bitcoin". I believe such concern is just the best confirmation that DeFi is a suitable tool that can drain the rotten swamp of world finance and pull out the economy that has turned into an appendage of the international oligarchy, as well as ensure a fair distribution of financial resources and benefits.
I have personal experience in the way that cryptocurrencies are changing the world of finance – and this has given me an insight into the possibilities for innovation that can help mould a more transparent financial system.
My team of crypto enthusiasts launched the Independent Decentralised Finance SmartBank & Ecosystem (InDefi Smartbank) - the first bank of smart contacts that provides a wide range of financial services in cryptocurrencies and digital asset management. InDeFi SmartBank works with stablecoins, which are equal to the US dollar - unlike bitcoin, they are not subject to exchange rate fluctuations and (it is important to note) are not the result of crypto mining. That is to say, they don’t require huge electric energy generation and thus do not indirectly harm the environment.
Due to the radical reduction of costs, all these services have become more affordable, while the openness and globality of the decentralised market can provide higher and more reliable profitability than the standard financial model. At the same time, all clients providing funds are the beneficiaries of the project, receiving IDF governance tokens for free. This digital asset, on which the InDeFi SmartBank profit is accrued, is freely-traded on the decentralised market. IDF holders also participate in the community that manages the project
We perceive our mission to take a new step, change the paradigm and open the door between the world of the crypto industry and the real economy, which creates real, not virtual value. The interesting and promising aspect of our project is to connect directly, without a bank or other financial structure as an intermediary, a person who has the ability and desire to become an investor with an entrepreneur in need of investment. At any time of the day, anywhere in the world.
What is the main challenge facing today anyone starting a business, especially in the sphere of startups and innovation? That's right - the starting capital. If you have a bright mind and brilliant ideas, but no money or assets to pledge, you will never pass the loan approval institutions at the bank. Crowdfunding is also problematic: investors remember the Initial Coin Offering (ICO) boom in the crypto world that happened five years ago, when huge money was accumulated for "brilliant ideas" by issuing unsecured tokens. And then the collectors bought themselves Bentleys and yachts, sending “greetings” to the cheated investors from around the world
We have invented an innovative financial method - Safe Coin Investing (SCI). It is symbolic that it was presented on 12 April, the day when 60 years ago the first human, Yuri Gagarin, overcame the shackles of Earth's gravity and went into space.
A “risk-free venture” sounds like an oxymoron. However, according to the smart contract developed by our team, investors' funds are deposited in InDeFi SmartBank, and only the annual percentage yield is provided to the venture project. This enables its initiators-fundraisers (if, of course, they can convince investors that their project is worthwhile) to receive required funding. The investor, for his part, receives for free tokens, which can be exchanged for a share in the business, and, if it is successful, can bring higher profits. If the rocket does not take off, then the investor does not lose anything (except the profit reinvested), since the deposit is reliably protected. If an investor decides that something is wrong, he can withdraw his money at any time by pressing one button in his smartphone.
The SCI model can provide p2p funding for innumerable start-ups and innovations. It is relevant not only for projects that are at the ground floor, but also for additional funding for already operating business. By visiting the InDeFi SmartBank website, in a few clicks any individual investor can become a co-owner of a business entity with capitalisation of $45m, in which I personally have already invested $10m - a project of electric passenger ships, branded as Emperium.
The first Ecovolt catamaran, completely developed by Emperium engineers, was launched in St. Petersburg last year; at the moment there are firm orders for several dozen vessels of various models - they are being built at our own shipyard. We plan to use the biggest 3D printer in the world for the production of vessels’ hulls. At the same time, by supporting this project, investors are contributing to solving environmental problems. According to the estimates of the International Maritime Organisation (IMO), water transport is responsible for 2.5 per cent of CO² emissions. This is my personal experience, but it points towards the transformative effect the technology around cryptocurrencies can have on the world of finance.
Returning to charity, DeFi endowments can be established on the same principles. There is no need to transfer digital assets collected by such a foundation to some third organisation with unclear “management” costs. They will generate a constant yield for charitable purposes, and this process will be crystal clear for each donor. Moreover, for every dollar he will obtain a fund governance token, and thus take part in deciding how to use the money. If the donor will find out that his donations are spent incorrectly, he can withdraw the contribution and transfer it elsewhere.
Thus, no matter how paradoxical it sounds, the computer algorithms that underlie the crypto industry, decentralised finance and blockchain technologies, can make our world not only more transparent, but also fairer.
Alexander Lebedev’s family co-own The Independent and Evening Standard titles