Use cases of Bitcoin in the long tail of international trade – an interview with Quora top writer Joseph Wang

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Follow me on a visit to HongKong in November 2017 to visit Joseph Wang, co-founder of Bitquant Research Laboratories and top writer on Quora (2014-17) about use cases of Bitcoin. A conversation about the meteoric rise of Bitcoin and the different perception of cryptocurrency in Asia versus Europe.

Joseph, Bitcoin just climbed above $ 8,000 today [editor’s note: the interview was conducted on November 20th 2017]. Many people in Europe remain skeptic whether this is justified, and whether there is any value at all in a currency you can’t buy anything for. Where do you see the value of Bitcoin?

Joseph Wang: The market for bitcoin is certainly overheated right now and a lot of the recent price surge is driven by pure speculation. We might see a correction of that soon when speculators try to cash in. For now, Bitcoin remains a high return high volatility asset, but the introduction of Bitcoin futures by the Chicago Stock Exchange, the CME, NASDAQ and others might smooth that out in the future. Anyway, I believe the big, the unique value of Bitcoin lies not in it being an object of financial speculation, but in its capacity to store wealth and to facilitate international trade.

Let us expand on that thought. The Bitcoin community has long been split between proponents of making it fit to use as digital money, thus increasing its scalability, and those who argue for its main function being the store of wealth, much like “digital gold”. Could you please explain why you believe it’s the latter?

Joseph Wang: Sure. So I’m certainly not speaking for the whole world, but for Asia, and for China especially, the question of digital money or mobile payment has already been answered. In China alone, WeChat Pay has 600m active users and AliPay has 520m. There’s just no need for another digital payment solution. However, there is a huge need across the Eastern hemisphere to have an alternative global currency that, from a state’s perspective, is outside US control, and from a citizen’s perspective, is outside the local government’s control and independent of the sometimes shaky local fiat currency. Bitcoin fulfills all of these characteristics. People are flocking to it as a new, global store of value because it is scarce, yet easily movable and divisible, and thus transferable across borders. And that, to me, explains a huge part of the attraction of Bitcoin apart from the recent buzz and the speculation. If Europe needs a mobile payment solution, other blockchain settlement implementations can do the job. And WeChat Pay, AliPay, Paypal or Transferwise for that matter have shown that people don’t necessarily need a blockchain to pay for their coffee or send money home.

You also mentioned Bitcoin’s capacity to facilitate international trade as a second major advantage. What excites you about use cases of Bitcoin in international trade?

Joseph Wang: First of all, for full disclosure, at my company Bitquant we are funding loans using Bitcoin to promote trading goods between Africa and China. Now, to your question, I see huge benefits in blockchain technology, and thus in Bitcoin as its major and most trusted means of settlement, in enabling direct commerce between people of different countries that to-date just does not exist?

And why is that? What hinders people to engage in direct commerce and how does blockchain help here?

Joseph Wang: By establishing trust through technology. To-date it has been very difficult to do business with someone you don’t know, have never met personally, and might or might not ever meet again. So you rely on middlemen to provide that trust, i.e. extend credit and facilitate the transaction. That’s what banks are for and why they’re so central to our economies. However, a bank will not facilitate what is not profitable to it. So the keyword here for me is “the longtail of international trade”. Bitcoin enables this longtail. I’ll give you an example of what we do at Bitquant: Through bitcoin, we provide trade finance to buy coffee from farmers in Tanzania and sell directly in China, avoiding banks and other distributors in the traditional supply chain, and distributing the gain to the farmers. Now the banks don’t lose anything because today they don’t engage in these forms of small, direct commerce as transaction volumes are low and their transaction cost would be too high. But for the individual farmer this small extra can make a big difference, and on a combined scale, the longtail can amount to substantial added value.

In Europe, there is a large movement towards more locally sourced food. Consumers want to know where they’re buying from, and in China, the same is true. So blockchain can help a lot to make this happen.

Joseph Wang: Exactly. Again, big corporates can manage their supply chains perfectly well with a centralized system. But blockchains allow the longtail, the farmers in my example, to build up a reputation that you are a legit coffee seller. And the consumer can access the record on the blockchain to check exactly what batch of coffee she got.

This is a very good example for how blockchain technology can actually expand and not cannibalize commerce. On the whole, how do you evaluate the maturity of this technology and what needs to happen?

Joseph Wang: We are still in the early days. Many liken the situation to what the Internet was in the nineties, and while I believe adoption will happen much faster this time, it’s not far off. So far, the only business making money off blockchains are the exchanges. But this is bound to change as the sector is professionalizing rapidly. As much as the investment and trading side will mature through bitcoin being listed on major exchanges and the issuance of tokenized securities only open for accredited investors, the business building side will expand as libraries and templates for smart contracts will be published and open sourced to provide the link between the business-minded and the technology-minded people. And then we will see real, profitable business enabled by the blockchain.

What else do you see necessary to promote real Use-cases of Bitcoin and blockchain technology?

Joseph Wang: I think the point is exactly that no centralized effort by any state is needed, or possible. To the contrary, I think both Bitcoin and Ethereum are key drivers in leveling the playing field for international business.

How is that?

Joseph Wang: By competing for cryptocurrency trade volumes and for blockchain-enabled businesses. While Hong Kong, as one of the traditional financial hubs of Asia, has proven to be very open and friendly about cryptocurrencies, Singapore has adopted a very proactive stance on ICOs (Initial Coin Offerings), what they see as an equity vs. a utility token and how they are going to be treated legally. Thus the blockchain scene in Singapore is thriving, attracting both talent and major capital inflow to Singapore. Other hotspots for ICOs include the canton Zug in Switzerland, Gibraltar and Estonia. Note that all of those are relatively small countries that are suddenly sensing a seat at the big table for this new way of doing business. This is why I started Bitquant in Hong Kong to help promote and aid in the development of this exciting new technology!

Joseph, thank you so much for your time!

About Joseph Wang:
  • Joseph is a physicist by training with a bachelor’s degree from the Massachusetts Institute of Technology, Cambridge, and a PhD in astrophysics from the University of Austin, Texas.
  • Prior to founding Bitquant, he spent over 6 years as Vice President of front office quantitative analytics and equities derivatives teams at JPMorgan Chase, responsible for infrastructure coding of pricing libraries used through all asset groups.
  • Today, Joseph is the Chief Science Officer at Bitquant Research Laboratories, a financial technology startup in Hong Kong, where he focuses on the development of scalable and “one-stop shopping” open source trading systems which can be used by individual investors, small hedge funds, and family offices.
  • His current research involves investigating the valuation of bitcoin options, and research in the dynamics of the upcoming RMB equity option market.
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More information about Bitquant and use cases of Bitcoin can be found on the website: http://www.bitquant.com.hk. Joseph is also one of the top writers on Quora about Bitcoin with a total of 35.5m answer views https://www.quora.com/profile/Joseph-Wang-9, and code geeks can check out his source code at https://github.com/joequant/bitquant

About the Author

Dr. Thomas Reinbacher is computer scientist and management consultant and works as independent adviser in Munich and Beijing. If you want to work with me please find me on http://dr-reinbacher.com/

Interview led by Dr. Thomas Reinbacher and Julian Hoelz © Thomas Reinbacher. Disclaimer: All information presented herein is given strictly on a non-reliance basis and under the exclusion of any responsibility or liability, in particular with regard to loss or damages and/or administrative and regulatory sanctions