ETH News: You expressed reservations when blockchain was brought up as a subject in this interview. Why is that?
Roger Wattenhofer: The subject is fascinating, but there is a little too much hype around the term “blockchain”. I receive questions about this every day, from all sides: from the media, individuals and companies. I have never been such a popular teacher (smiling).
If you search for information about it on the Internet, you get the impression that blockchain is going to turn the world upside down. Is the subject overrated?
For the moment, yes, but this will subside. A blockchain involves several important technical discoveries, particularly in the areas of distributed computing and cryptography. I suspect many people have only become aware of what is currently possible with technology thanks to the blockchain hype. The concept of digital signature, for example, has also entered the public consciousness thanks to the term “blockchain”.
As a layman, however, it feels like it's time to jump on the bandwagon before it's too late.
Part of the popularity of blockchains has to do with the buzz around Bitcoin. Bitcoin is big and cryptocurrencies will change the world – I'm sure of it.
How does a blockchain work?
The term is used in different ways. Some people use it in the narrow sense, as a tool for bitcoin – in other words, a kind of Internet bank for transferring and storing money virtually. A broader definition of a blockchain is that of a digital accounting system. A “blockchain” is used to execute and store all kinds of transactions in a fault-tolerant manner – for example, money transfers, marriage records, changes in ownership of properties, etc.
What is the advantage of this?
A Bitcoin blockchain is “glasnost”: anyone can monitor which transactions are completed and when. Whoever is behind the transactions is encrypted, however. A blockchain therefore offers an interesting opportunity for transparent administration.
And this system is made of cast iron and waterproof?
I like to say, “Don’t bring blockchain to a gunfight.” » In a world of total anarchy, the strongest will prevail, with or without blockchain.
How long has this technology been around?
For a long time, in fact. A blockchain uses distributed computing and cryptography, two areas with a long tradition and numerous Turing awards. The combination of the two ideas has even existed for 25 years now. What is new is the hype around Bitcoin. Many people use the term “blockchain” because of bitcoin.
It seems to me that this still does not suit everyone and everything. Who benefits from it and who uses it?
It's not entirely clear. There are perhaps two main groups of Bitcoin users at present: the majority speculate on Bitcoin and invest in this cryptocurrency. They hope its value will continue to increase. Others use bitcoin for dubious purposes, including tax evasion, arms and drug trafficking, and ransom demands. In illicit circles, bitcoin is the ideal tool for conducting business without detection.
How will the system continue to evolve?
Bitcoin and other cryptocurrencies will certainly become more prominent. Bitcoin is a highly decentralized and unregulated form of cryptocurrency. The value of a bitcoin is not influenced by a national bank, but only by the market and users' confidence in their currency. Bitcoin doesn't care about inflation or unemployment rates. National banks attempt to control inflation through monetary policy. Bitcoin and other cryptocurrencies remain niche products. If they were really that important, national banks would have to formulate some sort of response.
What is the alternative?
I am confident that national banks will issue their own cryptocurrencies, such as the electronic pound sterling. Electronic Swiss francs are unlikely to be available anytime soon. My impression is that the Swiss National Bank is a bit conservative – even though it has a lot of expertise to draw on. At ETH Zurich, for example, several professors are familiar with the subject. Recently, ETH Zurich was even named the best research institution for blockchain technology. In the future, electronic francs may make it possible to create purely digital contracts. This would simplify, speed up and improve many legal concepts because mathematical expressions are more precise than verbal expressions. The next generation of lawyers should learn to program (smiles).
So, do we still need bankers?
Their profession will also transform. Personally, I think that digitalization will transform many professions in the future; many jobs will become redundant. Jobs will disappear wherever machines can do the job better than humans. Blockchain is just one aspect of this digitalization process. I am interested in how society will function when, in the future, only a third of the population has a job.
Do you think that full employment is on the verge of disappearing?
Yes, full employment is exceeded. I'm surprised politicians aren't paying more attention to this issue. They simply say that there will be enough new jobs. I'm not so sure.
So are things going to get interesting – or scary?
It's going to be interesting. Politicians must debate the welfare state of the future. What can the Swiss expect? A universal basic income? If so, what will this basic income include? How will this basic income be financed? By the national budget and more taxes, or by monetary creation by the national bank?
For you, what is the future of digitalization?
The wave is probably already breaking, but it's hard to see. Switzerland is already a high-tech country. Economically, it has even strengthened since the financial crisis. We have not yet noticed any major effects from digitalization. Instead, we are seeing the creation of more jobs in the high-tech sector in Switzerland, for example at Google. But in countries like Spain and Greece, the labor market crisis is already a reality. These countries are already feeling the impact of high unemployment on their daily lives and on society.
Aren't these just vague fears?
I do not think so. There is evidence. An example is the part of the work, which measures the labor cost/sales ratio, a ratio that has been declining for 25 years. Another example is unemployment. After all, the official unemployment rate does not measure real unemployment, but rather “new” unemployment. An alternative measure is the so-called activity rate, which represents the number of people of working age currently engaged in paid activity. In Switzerland, this rate is high and very stable. Yet this figure is decreasing all over the world, albeit slowly – but this has been happening continuously, also for 25 years! There are several reasons for this, including increased life expectancy. However, I think that the decline in the work share and the participation rate is at least partly due to digitalization.