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  • GARY GENSLER: Today we're coming back to blockchain and money,

  • Act Three of this course.

  • Now that we've done a little of the basics, a little bit

  • of the economics, and now it's some use cases

  • through the lens of finance.

  • And to say something about one, why

  • I thought it'd be worthwhile to structure the course this way,

  • and what I'm hoping we all get out

  • of these next 10 or 11 lectures is

  • that I thought that it was important after laying

  • some foundation of what blockchain technology might

  • or might not be, and cryptocurrencies,

  • and of course, talking about the economics,

  • is to use one field that's the most dominant field right now

  • about potential blockchain technology

  • use, which is finance.

  • It's not the only area, but finance is

  • completely reliant on ledgers.

  • It's completely reliant on moving property rights

  • around multiple parties.

  • And of course, the first use case

  • was about Bitcoin, which was a peer-to-peer money.

  • So I thought even if you're thinking

  • about this in terms of health care,

  • thinking about it terms of the internet of things,

  • et cetera, many, many other use cases, why not take finance.

  • Now it also happens to be my comparative background.

  • And I've spent the last three or four decades of my life

  • around finance.

  • And so I can be most helpful and dig deep,

  • you know, probably as deep as you

  • want to get in the mortgage market, the payment markets,

  • the exchange markets.

  • I've probably been there at some point in my career,

  • or still have contacts and networks and have studied it.

  • But no doubt, with the 80 of you in this room, or 90 or so,

  • you're going to press me.

  • And that I like that.

  • I will say last weekend was really

  • a joy reading 50-plus papers that it was only about 25

  • of you that had decided to hand in papers early in classes 2

  • through 9.

  • But class 10 was 50-plus of you.

  • So I really do have a sense of the class

  • in terms of what you think about finance and blockchain.

  • Of course, you'll probably do the same.

  • I think I might design it differently the next time.

  • But if you all hand in--

  • if 50 or 60 of you hand in the papers for class 23,

  • it will be--

  • and you have that right.

  • I'm not taking that away from any of you.

  • But it means I might be delayed getting back all the projects.

  • I want to say two or three other things overall.

  • In terms of where we are, we're halfway through the semester.

  • And Sabrina and Thalita and I did

  • a good job of just saying, how are we

  • doing on class participation?

  • And I've kidded a lot, and I've joked a lot about who's talked

  • and so forth.

  • We're down to about 15 of you that have never

  • talked in this whole 12--

  • so I want to work with you.

  • I'm not trying to torture anybody.

  • And I really want you to all not to worry

  • too much about your grades.

  • I want you to worry a little bit,

  • but not too much about your grades.

  • But if you've not spoken yet, and you

  • haven't gone online-- two people have gone online, both of whom

  • I've responded to.

  • You know, come see me.

  • Try to figure out how to be part of this community

  • and this discussion, whether it's

  • in class or online in some way.

  • Cause again, I want this to be a positive learning

  • experience for everybody.

  • In terms of the papers and just some overall things,

  • by and large they were good.

  • Some were extraordinarily good, which

  • you'd expect with such a talented group of people.

  • But some really made me think and challenged me and so forth.

  • It is a bell-shaped curve.

  • Some, on the other hand--

  • not many-- kind of missed the mark.

  • So I just want to say a couple of things.

  • One is, it's not about just answering the three study

  • questions.

  • The study questions are really to spur the dialogue here.

  • There's three questions.

  • Not many of you, but two or three people just sort of just

  • tried to answer those.

  • Think about it as a uniform three-page paper.

  • Five is the limit.

  • One or two of you that did six or seven pages.

  • That's fine, but it's just--

  • you don't need to, and it's more work, in a sense, for us.

  • Two is, I really did try to give feedback and comments.

  • And overall what we're trying to get to is,

  • what are the economics here?

  • What is there about append-only logs and consensus protocols

  • amongst multiple parties writing to a shared ledger?

  • So multiple parties updating some state

  • of economic-- an economic state, really--

  • of property rights or something.

  • And what verification costs, what networking costs,

  • could be lowered.

  • And it's unfair, because all of you

  • are going to try to figure out a final project together.

  • And I went back over the weekend looking at the final projects.

  • I think there's some really neat ideas that you're looking at.

  • But at the core is what verification costs, what

  • networking costs, can you lower.

  • Why do append-only logs consensus

  • amongst multiple parties sharing a ledger, and possibly

  • a native token.

  • Because you don't have to do something around

  • permissionless native tokens.

  • But I think some of you will get there.

  • And we'll have some exciting thoughts.

  • So those were my thoughts.

  • If I say in the comments to your paper--

  • and I only did this two or three times--

  • come see me, don't be scared.

  • It might just be I want to pursue.

  • I said this on some really excellent papers,

  • and I said this on one or two that just

  • I thought it'd be worthwhile to talk about.

  • But I'm trying to just get through this all with you

  • and have you learn.

  • So there's just some overall thoughts

  • on where we are halfway through.

  • Post SIP week.

  • Today we're going to talk about payments.

  • And Thursday we have a guest, Alin.

  • If you want to get mic'd up, I've

  • got a mic up here somewhere for you,

  • cause I'm going to call on you.

  • Or you can speak from there.

  • ALIN DRAGOS: I'll be loud.

  • I'll be very loud.

  • GARY GENSLER: Yeah.

  • That's not hard, is it?

  • So what are we going to do?

  • We're going to talk about just what are we

  • trying to cover for the rest of this semester?

  • Sort of call it H2 in blockchain and money.

  • The readings, payment systems, ledgers, and credit cards.

  • Just a little bit of history all together.

  • And that's when you're going to meet Alin.

  • Not computer science Alin, but payment Alin.

  • And we're going to talk about mobile payments, which

  • is a very significant change all the way

  • around the globe in payments.

  • Then global and US payments statistics.

  • Bitcoin and blockchain we're going to come back to.

  • And then conclusion.

  • And remember, whether it's this week, next week,

  • or the following week, this is all just

  • to sort of say, well, wait.

  • What are these use cases tell us about blockchain?

  • What are these use cases tell us about cryptocurrencies?

  • My goal isn't that everybody here is an expert in payment.

  • But if your final project is around the payment space,

  • or if you ultimately want to go along and become

  • an entrepreneur and do something successful in this space,

  • hopefully these two lectures today and Thursday will help.

  • And I can't remember exactly what next week is.

  • Next week's central bank and commercial banking.

  • So next week we're going to turn to central bank

  • digital currency and what's going on in Sweden,

  • and why the e-krona project's interesting,

  • but how's Canada looking at it through their Jasper project?

  • What's China kind of thinking about

  • and why they're a little worried about this space?

  • And yes, what's the private sector doing

  • around stable value tokens?

  • So you have sort of a similar thing

  • coming both from central banks and from the private sector.

  • I just came from a meeting where one of Larry's colleagues--

  • he's from the Harvard Business School--

  • a professor at Harvard Business School

  • came over because he's got a stable value token project.

  • And so that's kind of next week.

  • We're then going to go and talk about ICOs.

  • You couldn't do a course in blockchain and money

  • if we didn't talk about initial coin offerings

  • with, of course, $25 or $30 billion that's been raised.

  • It's an enormous crowdfunding opportunity for any of you

  • that want to be venture and entrepreneurial

  • after this course.

  • But it's an important, also, test.

  • Are there attributes of certain economies where

  • native token is appropriate?

  • It will spur as an incentive function.

  • I'm not willing to give up.

  • I know some of you are minimalist.

  • I'm still thinking of the Skins and the gamers.

  • Larry, when you weren't here we identified our most avid gamers

  • in the class.

  • And so we always refer to Skins, Shields, and Swords

  • as a form of native token in the gaming sites.

  • But where there might be economics-- token economics.

  • So we'll sort of turn to that.

  • On the 15th of November we've got

  • a couple of guests in Jeff Sprecher and Kelly Loeffler,

  • who run the Intercontinental Exchange and the New York Stock

  • Exchange and others, but have real live payments and crypto

  • exchange.

  • We're going to turn--

  • oh-- I'm sorry.

  • I got it out of order.

  • Primary markets, ICOs is before and after Thanksgiving,

  • I guess.

  • And then do a little of the back office side.

  • The back of a side is clearing and settlement.

  • I mean, why is the Australian stock exchange

  • using a permissioned system?

  • Might you use something else?

  • Why is the international swap and dealer association

  • using smart contracts now to try to rationalize a lot

  • of their payment flows?

  • So we'll get to real live use cases that

  • are happening around smart contracts

  • and permissioned clearing systems.

  • A little bit of trade finance, digital ID.

  • I know at least one group is doing some--

  • one of the groups here is doing something on digital ID.

  • So you'll be out ahead of us.

  • So that's kind of a review of H2 for us.

  • So we had a bunch of readings.

  • Some of them were quite short.

  • I don't know, because you're on sip week,

  • whether you were able to go through them.

  • But maybe I should just ask, does anybody

  • want to tell me about some of the major trends in payments?

  • I don't know how sleepy everybody is or whether--

  • Priya, I saw your hand, or you were scratching your nose.

  • AUDIENCE: Either ways, I'll go.

  • GARY GENSLER: All right.

  • AUDIENCE: So digital wallets is a big thing now.

  • All the articles acknowledge how kind of [INAUDIBLE]

  • according to what you see in China where

  • you have a digital wallet, and you pay directly,

  • cutting out all the intermediaries that we

  • can't [INAUDIBLE].

  • GARY GENSLER: So one big, big trend.

  • I mean, I've got a bunch of discussion on this,

  • but let's identify them.