Bitcoin’s wild price swings have turned off much of Wall Street. But the blockchain technology behind it has caught the eye of major financial companies, which have invested millions in figuring out how it could streamline their operations.
Blockchain’s proponents say that it will revolutionize financial services, making it easier to settle transactions, including stock trades. Cross-border trading could become faster and less dependent on middlemen and paperwork.
Now, one expert who was early to blockchain has become a major skeptic.
Angus Champion de Crespigny, who ran the blockchain division specializing in finance at Ernst & Young for years, was excited about the technology at first. But by the time he left the firm, he was extremely skeptical about blockchain’s usefulness for businesses. Ernst & Young, for its part, said in a statement that “we continue to see areas in financial services institutions where permissioned or private blockchains really can provide value.”
Barron’s spoke with Champion de Crespigny, 36, recently about what changed his mind.
Barron’s: How did you get into blockchain?
Champion de Crespigny: I started at EY in August 2008 and left in August 2018, 10 years to the day. I joined coming out of engineering school. I have an engineering background and worked across cybersecurity, data analytics, regulatory compliance, technology. In about 2013, I read about Bitcoin in one of those columns in a magazine on the airline. With my background, I could see how exciting this could be, but also what sort of a regulatory minefield people were walking into.
I got very involved in the community then, which was quite small. There was a time up until about maybe mid-2014 when I knew every single company in the New York area that was working on this, and all of the people. It has obviously expanded a little since then. I started advising on regulatory considerations, which are now kind of commonplace. Over time at EY, as more and more clients were asking about it, I was more and more the go-to guy. We eventually formed a group. So while I was actively working on it starting in 2014, the group was really formalized in 2015.
At the start was it all Bitcoin, or were there companies experimenting with other uses for blockchain?
At the time, in 2014, it was almost all cryptocurrency. The private-blockchain stuff started toward the end of 2014 and into 2015. We pulled together a group. Our clients wanted to understand where or even if there were opportunities for them. We as a group would pull together our business experts and our regulatory experts, and we would have our technology experts there that would help determine if there was something there and what was the best way to capture value.
And were you starting mostly in financial services?
Yeah, I looked after financial services, and [another executive] looked after everything else.
What were the early days of blockchain like? Were you optimistic at the time?
Yeah, I was optimistic. It would be silly for me to say otherwise. My views were aligned with a lot of the common views at the time.
What changed that initial view?
What I found as we helped some of our clients analyze this is that each of them started coming across the same problems. There is a story I remember as a kid about a group of mice gathering around, wondering how they are going to protect themselves from the cat. Someone comes up with a great idea of putting a bell around the cat’s neck. Until one of the wiser mice says, “OK, that sounds great. How are we going to get it there?”
That is a little bit like this industry. If we could create one big blockchain that everyone is on, that isn’t owned by anyone, that works perfectly, if everyone agrees on the standards—then it would be a great setup. In reality the process to get there is just incredibly, incredibly complicated. Typically, as it evolves, you end up having to coordinate everyone. And if you can coordinate everyone, then there is often a better technology to use than a blockchain.
Why is that?
Blockchain works by everyone agreeing on the rules and those rules being enforced in the software. With Bitcoin the rules are very, very simple. You can’t send something that you haven’t received. With a lot of the enterprise or private blockchains that people are trying to do, it gets far more complicated. You have got to decide what are the rules that we are going to input into our system.
Anyone who has done any sort of consortium work knows that getting them to agree on a path forward is incredibly difficult. Once you can get all of those stakeholders together, you generally form some sort of trusted central entity anyway. If you managed to do that coordination, which is the difficult thing, there is technology that you can use that is far easier to manage when that central organization can be the one that is managing it.
What technology is easier to use?
Just a distributed database, which is faster. The reason it is faster and the reason it is more efficient is because it is all built around a central controlling entity. You want a blockchain when you don’t know who you can trust, because you don’t want any one party being able to arbitrarily change those things. The thing is that in the business world, we have legal contracts to do that. If you already formed a consortium, if you formed a central group, you may as well just give them the keys, because any sort of maintenance, errors, upgrades are far easier to manage when there is a central controller than it would be to get everyone to make all of the changes simultaneously.
Who makes that kind of software that is blockchain without the headaches of blockchain?
The traditional ones are [
] SQL Server and
Any traditional enterprise database can be set up to be distributed in that way. This is technology that has been around for a long time. People are now being sold a dream that a blockchain is going to be easier to do all of this, and I just don’t think that’s accurate.
Are there other benefits to databases with centralized control?
Blockchains by design are set to run independently and not essentially take orders from anyone else. If there is a bug, all of these pieces of software are just going to keep on running and the only way that you can stop that bug is to basically turn all of them off. You need to upgrade the software and then send that out to everyone. Now you can say, “Why don’t we have some central way to coordinate those upgrades?” But if you have some central way to coordinate those upgrades, then we are back to the previous problem, which is you are trusting some central party to propagate those upgrades. In which case, again, why not just use a database?
When you were at Ernst & Young, were your clients abandoning projects when they didn’t work as planned?
There were a few different ones. In some cases where I didn’t see the value, I would suggest that I would provide some other technology that’s possibly more efficient or more practical for what they were trying to do. In certain cases they would say, “Yes, but we want to do it anyway because we want to learn about this technology. We think it will be important for our business.” So we would help with that. I would be totally frank and honest with anyone who was looking to pursue this—highlight the concerns or the possible doubts where relevant and show them the best technology.
Why did you end up leaving EY?
My passion is looking at public blockchains, in particular value transfer. I think Bitcoin is so far the winner with that, but I’m open to other technologies. This is an exceptionally exciting technology for the developing world, and I wanted to focus full time on that. There is a much larger mandate at the firm, and I think they are going to be very successful with that. But this is my passion. Since I was a teenager, I thought about running my own business. I’m from a family of entrepreneurs.
Explain what you’re doing now.
There are a number of projects that I’m working on, including pulling together workshops for asset managers to help them manage cryptocurrencies. I am advising businesses on regulatory issues and helping to establish Bitcoin and cryptocurrency infrastructure here and abroad.
What do you think of people who say, “I like blockchain but not Bitcoin. Keep me away from that Wild West stuff”?
I think they misunderstand how blockchains actually work and what their benefit is versus other technologies. Staying away from Bitcoin right now makes sense for a lot of people. If you look in the U.S., there is little need for people to use it here. But there is opportunity if you look at this as something beneficial to many other parts of the world.
I think we have a habit in the West of being rather Western-centric and not realizing that there are a significant number of people in the developing world who don’t trust their local government, at least not enough to store all of their money in that local currency. Having some sort of digital alternative is very beneficial to them. So there is a lot of misunderstanding as to what this technology is and what it can do. You really need to get down to how this technology works at the transactional level and make assessments yourself rather than running on buzzwords and hype.
Let’s say I agree with you that a lot of this is hype. Nonetheless, very serious companies and organizations are putting billions of dollars now behind blockchain projects. The Australian Stock Exchange is using it to remake its settlement system.
is changing how it tracks its supply chain. Are they somehow completely blinded or selling snake oil? Are they just doing it for the headlines, or is this real?
I won’t comment on specific companies, but there is a certain amount of headline chasing. I think once you have spent a certain amount of money with this you better have something to show for it. Also if someone is going live with one of these systems, and they fully control the network, then really what you’ve got is just a database. But you can call it a blockchain because that’s the type of database that it is on. If you have 100% control over that database, it functions effectively the same.
said blockchain would be worth $3.1 trillion-plus to businesses in 2030. Do you think that’s possible?
I didn’t see where private blockchains could create any value to business. So I am not sure how they assess those numbers. The thing is at the 20,000-foot level, it sounds like it makes sense, because you get told this could automatically reconcile and get rid of errors. When it comes down to the technical nuts and bolts, how does it actually do that? But most errors are at the inputs and outputs of the systems. I haven’t seen anyone who has been able to tell me how to actually do it. I think there is a lot of strategic thinking and buzzwords and not enough hands-on technical knowledge.
Write to Avi Salzman at firstname.lastname@example.org