Santiago Velez is the co-founder and Research & Development Division Lead at Block Digital Corporation. Block Digital focuses on computing in support of decentralized ecosystems. He was a nuclear engineer in the power generation industry for 20 years and got into the space as he got very attracted by the gains and the price action that was going on in the market. It took some time before understanding the underlying technology or the problems it was to solve, however, as an engineer, he started looking into it in significantly greater detail. Ever since, it’s been the single most interesting thing for him in terms of this intersection of computing, code, monetary policy, economics, financials, and human interaction.
Interview Date : 12th February 2021
Can the government confiscate Bitcoin?
I think that the government has the authority to seize your Bitcoin or any other digital asset because we’re not exempt from seizure with any other contracts. For example, if I commit a crime, they can seize my liberty, or if I don’t pay my mortgage, they can seize my home and evict me. So, we’re already comfortable in society with viewing the state with the ability to enforce contracts or laws that mean seizure. So, I don’t think that Bitcoin or digital assets have a special place outside of that. If it would, it would represent an existential risk to the government. If there’s an existential risk to the government, it means they can’t function anymore and we wouldn’t have a society. Therefore, I think it is important that we as citizens are active in our government and promote responsible seizure and just laws so that we have rights around our properties.
Can we hide Bitcoin from the government?
As US citizens, we have certain rights in our constitution and there are certain rules that the government has to follow before they can seize your assets. Pablo Escobar, who was a big drug dealer from Colombia where I was born, used to say the same thing about the cash he buried in the jungle. If you bury a bunch of cash in the jungle, indeed the government can’t confiscate it, but now you can’t use it either. It’s in a hole somewhere, but there’s no way you express value with it in a meaningful way like buying property or buying goods and services. Money only exists in the framework of a system of laws, so hiding your Bitcoin and trying to run around the world to maybe try to find a jurisdiction that will take you in is really the same as being exiled. Moreover, Bitcoin is arguably the most transparent ledger ever to exist, so the idea that you’re going to hide is very bad.
Do we wait for laws to be created before conducting activities in a network with no legal framework?
In the United States, if there’s no law telling me I can’t do something, I’m going to do it. In Japan, maybe they don’t want to step on the toes of the sovereign or society. In a sense, that’s a very good thing to hear because you find yourself fortunate to live in a place where people have respect for their society and their institutions. However, it can delay progress. For example, if there’s more value to be extracted through safe experimentation, it can delay that process like the lightning network is being in Japan. Whereas it is the opposite in the United States; people see that there’s no particular law and they decide to run and explore as much as possible before restrictions are put in place. That is the motto in Silicon Valley.
Is Bitcoin a problem for our sovereign?
Our sovereign is the government because they are an expression of our democracy, at least in democratic countries. I feel that, if you’re concerned about your government in a democratic country, then there is a deeper problem that really has nothing to do with Bitcoin. It has to do with this crisis of confidence in your institutions. So, if you don’t think that your government is responding appropriately, you’ve got bigger things to worry about than your wallet. You should be advocating how your government is run, and never fear your government because it is supposed to be a representation of you, your friends, and your family. If we get to a point where we’re fearing our government because they’re not held accountable to us, then and that’s a bigger problem not just reserved for Bitcoin.
Will the dollar disappear?
The dollar is still 70% of all transactions around the world, and it is not going to disappear soon. However, I think cryptocurrencies will play an important role in currency competition. Different from local currency competition, supranational currencies like Bitcoin or Ethereum that give an individual human the ability to express value globally will force central banks to make decisions they would not do in the past. So, cryptocurrencies force a type of discipline and the nation-state has to learn how to operate within the constraints of a global market. The US dollar, which acts like the world’s reserve currency, enjoys an exceptional privilege that a lot of other currencies do not. So, in terms of who has the most to lose is going to be the dollar because it may no longer enjoy that exceptional privilege it does today.
What kind of discipline would we like to see?
It’s very difficult to assess some of the true value of assets like homes, equities, or bonds. It’s a hard investment environment for people to assess what works because the markets are flooded with liquidity today. Also, interest rates being so low, it’s incentivizing people that invest to go further out on the risk curve. That’s a distortion of the way the markets should work.
If the central banks are excessively loose with their monetary policy, and they flood the system with liquidity, that liquidity will find its way to digital assets and inflate them. This is what makes Bitcoin go higher in price. All of a sudden now, people want to leave the fiat network because ownership in the Bitcoin network will represent a disproportionately stronger purchasing power.
It will also work as a hedge on potential inflation of fiat currency. Thus, it will really restrain the central bank’s ability to do whatever it is they need to do to stimulate their economy. In that sense, when you have networks that exist alongside one another like fiat and crypto, the ability of the fiat networks can no longer act arbitrarily even within their own borders. The sovereign now needs to consider that these competitor networks are going to suck away value forcing central banks and government fiscal policymakers to act in a more disciplined manner, like stop excessive money printing, stop excessively low-interest rates, solve the problem of price discovery, etc.
I think one of the biggest problems in the world today is not that we lack solutions or resources, but we lack good leadership, and the people are suffering from it. We lack the type of people who have the vision to see what’s wrong with the way things work and have the courage to lead people into the future to make it better. As a result, we have a crisis of confidence in our institutions. To some extent, cryptocurrencies are an expression of that. I feel it is very much a political statement when you participate in cryptocurrencies, and governments have started to recognize this.
Is there a demographic problem?
Demographically, cryptocurrencies are more aligned with the interests of digitally native people who understand what relationships are like on the internet versus geographic relationships. It is very difficult for non-digitally native people to understand why millennials might retreat into such systems, and it’s largely because they’re inheriting a very antiquated and anachronistic system that doesn’t function for them. For example, the average millennial coming out of college in the United States is burdened with thousands of dollars in debt. Houses are 5 times the price of what they should be, etc. The environment they are inheriting from their predecessors is not working. It’s no surprise that people buying into cryptocurrency are militants because the old system is not working for them.
Are there vulnerabilities in Smart contracts?
A smart contract is an intersection of engineering where you program something to try to solve a problem. Smart contracts kind of pretend to be law. I think that it represents the next phase of the internet of how we can construct applications, provide services and goods and remove intermediaries to make things more efficient. They are transparent in that they have their own native language that requires expertise, so people engaging in complex financial instruments like DeFi that run on smart contracts have significant vulnerabilities that are not all discovered. The problem is that smart contracts could represent unidentified risks, so you need to start building in the expertise of people to identify those risks. I consider a smart contract an investment that needs a good foundation, the right materials, workers, and labor to build an architecture that will operate properly.
What is value?
Value is an abstraction that human beings have created to facilitate something across space and time. So the dollar is a very simple manifestation of a symbol of having performed a piece of work in the past, which took a certain amount of energy and matter to accomplish this abstraction. Thus, I shall be able to redeem it in the future for something else. We can exchange it in relation to what society perceives as the relative worth. Hence, currency is a way of expressing yourself and your efforts against the efforts of others. Knowing that it’s a non-intrinsic abstraction means you can then put it into code on the internet, which is what cryptocurrencies are. As switching costs continue to lower, we will be able to express value in an agnostic way where a single unit of currency won’t have much of a meaning, rather on how networks are constrained by supply and demand.
Message to Our Japanese viewers
I would encourage people to really be skeptical about any claims that anyone makes in any digital or fiat ecosystem. The best thing you can do is to educate yourself by listening to as many voices as you can, reading as much as you can, and learning about the truth of what’s going on. Because this is still a very wild west that is a very unregulated space with a lot of pitfalls.
Interviewer , Editor : Lina Kamada
The Article published on this our Homepage are only for the purpose of providing information. This is not intended as a solicitation for cryptocurrency trading. Also, this article is the author’s personal opinions, and this does not represent opinion for the Company BTCBOX co.,Ltd.