Thursday 28 May 2020 2:17 pm BEQUANT Talk

Hanna Halaburda talks to BEQUANT

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Hanna Halaburda is the Associate Professor at NYU Stern School of Business and formerly part of the Bank of Canada. Hanna specialises in the the economics of digital currencies, blockchain, and the impact of technology on an organisations business strategy.

Hanna gave an exclusive interview to BEQUANT Talks to discuss her thoughts on the post Covid-19 financial paradigm and what this means for digital assets like cryptocurrency.

Hanna Halaburda is the Associate Professor at NYU Stern School of Business and formerly part of the Bank of Canada.
(Leonard N. Stern School of Business)

What in your view will happen to crypto post COVID?

COVID disruption has pushed us to do more things remotely and digitally. Even though the tough social distancing measures (which are actually physical distancing measures) are being relaxed, we will keep doing more things remotely and digitally. Both these forces create a more favorable environment for the adoption of blockchain solutions and cryptocurrencies. The experience of the last few weeks reinforced what we already knew: we could benefit from more digitization, more automation, and more coordination and unification of data coming from disparate sources. This is where blockchain, smart contracts, and cryptocurrency have a strong advantage.

It’s not news that we benefit from digitization. Many companies have been dragging their feet, but physical distancing is challenging to implement when we need to pass each other pieces of paper. As Marie Wieck, former GM for Blockchain at IBM, points out, even companies who thought they are fully digital have learned now that they still need some manual processes (https://www.youtube.com/watch?v=XFvAbEgt50s&t=399s). That actually may point more to automation gaps than just digitization gaps. Automation gaps got exacerbated during lock-down because more than ever, we realized that manual processes are subject to human delay. Automation has always been prized for decreasing human error. We still, of course, worry about human error. But with a vast chunk of the population working from home and getting distracted, the effect of human delay is more visible than before. The need for automation is what opens the way for more smart contracts together with crypto. And the use of both will increase.

Finally, the COVID crisis has also shown that we need a better way to collect, coordinate, and unify digital information quickly. It is true about the data showing the development of COVID pandemic, but also about data in many companies that see their workforce (and data sources) more dispersed. This is where blockchain technologies, with a number of consensus solutions to choose from, come in.

All this shows clearer than ever need for such solutions, and we may expect greater exploration, innovation, and, eventually, adoption.

Let me also point out what we do not see in this crisis, which may affect the future of crypto, something we predicted in our book 4 years ago when we wrote our book about digital currencies (https://works.bepress.com/halaburda/28/). We did not see the flight away from established, centralized institutions. Sure many governments and institutions mismanaged the response to COVID. But what we have argued for – and it seems increasingly clear now – is that coordination, transparency and trust are crucial in such a response, and fully decentralized systems might not deliver on these and end up taking too long to respond.

What is your organization doing that is involving crypto?

At NYU Stern, we do a lot of research and teaching on blockchain, smart contracts, FinTech, and cryptocurrencies.

In research, we look at these issues from the perspective of IT in business, strategy, finance, and marketing. I have researched the role of cryptocurrencies and tokens, as well as smart contracts, in various market interactions in papers with other NYU Stern Technology professors, Yannis Bakos and Natalia Levina, and our PhD student Semi Min (www.halaburda.ca). Professor Anindya Ghose investigated the importance of blockchain and crypto from marketing and technology perspective.

NYU Stern Finance professors, Sabrina Howell and David Yermack, together with Marina Niessner (Yale & AQR) conducted one of the first studies giving us a systematic insight into the ICOs (https://www.nber.org/papers/w24774). Other research papers, by Kose John, Franz Hinzen and Fahad Saleh (McGill) investigate sustainability of Bitcoin fee structure (https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=3334262).

We also have amazing PhD students specializing in crypto and blockchain: Nicholas Garcia, Franz Hinzen and Semi Min. In fact, NYU Stern was the first business school to award a PhD for a dissertation on blockchain and cryptocurrencies, to Fahad Saleh, who is now a professor at McGill University.

Moreover, NYU Stern offers a variety courses at both MBA and undergraduate level specifically focused on crypto, blockchain and Fintech. They are offered by myself, Yannis Bakos, Kathleen DeRose, David Yermack and Richard Brener. David Yermack’s course was the first cryptocurrency course offered in a business school, and in addition to a finance professor he is also a lawyer, which has allowed him to incorporate the legal considerations of crypto, which is a very important aspect. Every year this and the newer courses continue to be very popular.

Why do you think the crypto market is experiencing a high right now?

But is it? Compared with what? What I see is that crypto market went down together with the traditional market mid-March and is recovering since. The recovery has been strongest for Bitcoin. It is probably related to the halving. Since the COVID crisis and block reward halving are happening so close together, it won’t be easy to disentangle the individual effects of each. But other cryptocurrencies, like Ether, are recovering a bit slower to get back to their pre-COVID prices.

One thing that we haven’t seen is a run-up in crypto mid-March. This is significant. It has been argued that crypto is a safe haven when government-issued currencies are in crisis, a sort of like digital gold. The COVID crisis is the first global crisis since the introduction of Bitcoin. The previous crisis, the Great Recession of 2007-2009, is what launched Bitcoin.

A big premise that accelerated the popularity of Bitcoin was that had it been around in 2007, people could flee to Bitcoin and away from shaky and mismanaged government-issued currencies. But with this next crisis, we haven’t seen such a flight to crypto such as Bitcoin or Ethereum.

This does not invalidate the premise of Bitcoin as a safe haven from currency crises. But it requires us to think carefully which crises Bitcoin can save us from. The main argument of Bitcoin was that it saves us from currency manipulation.

There was a lot of direct currency interventions as a result of the government policies during the Great Recession, and pundits still disagree whether these interventions were beneficial, neutral or harmful for the economy. In the COVID crisis, we haven’t seen any significant currency interventions that could be interpreted by libertarians as currency “manipulation”.

Blockchain technology holds promise – what do you think is a good use for it in the current situation in the world?

Supply chain. This seems to be the most promising. In my ongoing research, I investigate commercial uses of blockchain. In one of the projects, with Yannis Bakos, we collect information about commercial blockchain projects.

In the pilot data we have analyzed, we see that blockchain projects have been announced to solve a variety of issues. But the implemented blockchain projects are mostly used for certification or provenance and payments. This is not surprising.

As an append-only, temper-evident database, blockchain is particularly useful for reliably tracking movement of assets (money or goods). This is an active project (see more at blockchain.stern.nyu.edu) and we are still collecting project data.

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