Interview by Katia Lang (CEO, TFT)
CommerceBlock provides a highly flexible and scalable open-source environment for companies assets such as precious metals and art. TFT’s Katia Lang met its founder, Nicholas Gregory to get the full story…
Katia: Imagine I would like to buy gold, how does CommerceBlock work?
Nicholas: There are many ways you can buy gold right now. You can go to a gold dealer and they’ll give you a piece of gold; you might then worry about being mugged and having it stolen off you, or you losing it. Or you could go to a website but you have to log in and you don’t technically own it.
We’re a technology service provider and can offer a solution. CommerceBlock builds a blockchain which sits on top of Bitcoin which would have a mapping of one token to one piece of gold. So you’d be able to go to a crypto exchange, like Bitfinex, and buy a token of gold for Bitcoin and you get gold sent to a private key. Bitcoin has two keys: public and private, which unlocks the Bitcoin. Now you have gold in your public key so that gold is yours, you don’t need a username and password, all you need is your private key. You can go to where that private blockchain is, show them your private key and you’d be redeemed the amount of gold.
A lot of people are using blockchain to solve these issues of centralised systems – the question is how do you make it decentralised? The more decentralised you make it, the fewer intermediaries. Traditionally, if I want to buy gold or an exchange-traded fund (ETF), I have to go via a broker, there’s a whole financial system I have to go through. Whereas over blockchain, essentially the gold miner can mine the gold, refine it, put it in a vault, and then onto the blockchain. Anyone can trade it and it can be traded on any crypto exchange in the world.
CommerceBlock builds a blockchain which sits on top of Bitcoin which would have a mapping of one token to one piece of gold.
There are a lot of regulatory hurdles. Our job is 30% technology, 70% dealing with the regulators, so we can’t just issue a cryptographic piece of precious metal. We’d have to ensure Know Your Customer (KYC) and Anti-Money Laundering (AML) checks, but it still removes intermediaries.
Katia: Tell me more about anti-money laundering and how it works?
Nicholas: In Bitcoin, you have a public address and a private key, so we could create a public address right
now because it’s a private blockchain or permission blockchain. Its public as anybody can see it but to have an address that works, you have to go through a KYC procedure. You put in your passport details and we work with a KYC vendor which would say you passed and then we give you an address that says you’re okay.
The system would never know who you are, it just knows that you’re legal. There is a link between the address and the vendor so you still have your privacy and anonymity but if you are a nefarious actor, you will flag up. The key aspect is that the person who runs the private, permission blockchain, doesn’t have access to your private details – they just know that your public key has passed KYC. If we work with a well-known vendor like Onfido, they would approve and we’d trust them.
Katia: Tell me about the journey and how it all came about.
Nicholas: I’m an ex-banker and technologist, originally starting with Merrill Lynch and then I moved to New York in 2012. I got into Bitcoin around this time, and once you get into Bitcoin, everything looks like blockbuster video and really you want to be working with Netflix. Bitcoin was so revolutionary. I liked the concept and culture. I started going to Bitcoin meet-ups and before I knew it most of my friends were involved in it.
In New York, they have the BitLicense, which makes it very hard to do anything in Bitcoin without going to jail. But where heavy regulation comes in, opportunity shows up and I worked with people I met in meet-ups, building over the counter (OTC) software. The legality around it is obscure but nobody stops you writing software. I think for some of the protocols we built from that, ended up becoming CommerceBlock.
once you get into Bitcoin, everything looks like blockbuster video and really you want to be working with Netflix
I moved back to London from New York in 2016, and at that point, Bitcoin was becoming more proven and institutions were talking about it. In the early days of the internet, the idea of someone putting their credit card details into a website, like Amazon, was unheard of, but before we knew it, it took over the world. It’s hard to say if Bitcoin will be a currency we can use in the pub but I think it will be a reserve asset. Its ten years old, every year it gets older it’s becoming more accepted. 2017 saw a crazy rise, but a lot of good things came out of that. Big institutions are now talking about it; you have corporates like Goldman Sachs investing in a few companies and more are trying to get regulated. The movement hasn’t stopped.
Katia: What are your thoughts on tokenisation of real-world assets including metals, land, and property?
Nicholas: There are a lot of companies working on security token offerings (STOs). Their approach has basically been to use blockchain. If you’re using blockchain as a replacement for a database, I think it’s a joke. Databases are fast and very efficient. I worked at banks that have huge budgets for technology but the issue is the human element. If you’re basically just saying let’s get a piece of land and put it on a blockchain but you need still need a username and password to log on to the system, you’ve just used the blockchain buzzword to get more sales and VC input.
‘Decentralised’ is another overblown word. When you have a more transparent system with fewer intermediaries it’s good because it provides you with secondary markets. For example, we worked with some art dealers who want to tokenise their art, as they have people around the world, like in Asia, who would love to own a piece of well-known art. They’d never be able to afford it, but it makes them happy. If we do something using blockchain principles with Bitcoin to secure it then no one can tamper with it, and we can trust it.
Katia: What is the link between the real world and the virtual world?
Nicholas: With a blockchain, every time there’s a transaction, it’s recorded on a public ledger. For example, with a gold blockchain, you can download it and have a ledger which checks all transactions. If ever your transactions get mutated or messed with then you know there’s an issue. The whole point of a blockchain is that anyone can download it and verify their own transactions. If I go to goldmoney.com, I don’t know what’s in their database, only what’s on their website. With a blockchain, I can download it and hire security to check that public ledger. Bitcoin is a ledger with an array of people around the world checking it and technology cryptographically verifying it. Therefore it’s impossible to change.
If you’re basically just saying let’s get a piece of land and put it on a blockchain but you need still need a username and password to log on to the system, you’ve just used the blockchain buzzword to get more sales and VC input
Blockchain gives you access. If it’s a blockchain you can verify and track its history. Yes, you always have to trust the gold is in the vault, but there’s only one layer of trust. With the financial system, I couldn’t even tell you the number of layers of trust that have to exist. It’s a mess; for me it’s all about reducing all these layers, as no one trusts the financial system anymore.
Katia: What do you think the future holds for crypto assets?
Nicholas: I believe Bitcoin will be a reserve asset in a few years’ time. The genie is out the bottle. I can’t predict the future but things like Brexit could accelerate or decelerate the process but I think it will accelerate it. If Brexit is a mess, the city will have to look for new and innovative ways of making money. London could be the place where everyone securitises and tokenises their assets. I’m hoping it will be a positive thing for fintech. Crypto is not dying, Bitcoin has been dead 110 times and it keeps coming back. In 2017, you had the ICO hype, which represented everything bad and good in crypto. But more people now know about crypto than ever before, which is a positive.