Some people hear the word ‘blockchain’ and think of Bitcoin, the extremely fluctuating digital currency that is built on top of the blockchain digital ledger.

Michael Casey envisions a world of “DeFi” – decentralized finance – an ecosystem of financial applications built on blockchain and cryptocurrency technologies. DeFi has the potential to function as an alternative to centralized institutions like banks, reducing bureaucracy and providing financial services without geographic barriers.

Casey, director of content for CoinDesk, a media outlet covering the blockchain and digital asset industry, shared his optimism at the recent EmTech conference hosted by MIT Technology Review.

In a session titled “Demystifying Decentralized Finance,” Casey, a former lecturer at MIT Sloan, spoke about the benefits of the crypto hype, the regulatory spectrum, and the adoption of Bitcoin around the world.

Here are some observations from Casey, who also hosts the “Money Reimagined” podcast:

DeFi is better than “TradFi”

When asked about the real-world problems solved by decentralized finance, Casey pointed to the myriad entanglements of traditional finance – the system of banks, exchanges and brokerage houses, and other financial intermediaries. In mainstream finance, public governance, which involves laws and licensed financial institutions, acts as the source of trust – and that’s a problem, Casey said.

“Trust in middlemen imposes massive frictions on our system, hidden frictions that are just extremely costly,” Casey said. “And it leads to financial exclusion, it leads to blackouts, it leads to security threats and all kinds of things.”

In decentralized finance, a public blockchain acts as a source of trust, bypassing these officials.

“A lot of new ideas in DeFi basically disintermediate credit, for example, or allow transfer across borders of a stablecoin that can go from you to your cousin in Nigeria and disintermediate all of those functions in the middle,” Casey said.

“And not only does this save costs, but it enables the open application of new functionality” – leading to a larger lending, borrowing and payment ecosystem, automated market makers, collateral systems self-executing, stable coins, etc., Casey said.

The hype isn’t necessarily a bad thing

Bitcoin and other cryptocurrencies are subject to a significant amount of hype and speculation – everything from the rapper’s recommendations to China’s decrees can drive values ​​up or down.

It’s a marketing problem for the cryptocurrency industry, Casey said.

“This community is obsessed with making money fast, and I don’t think it helps in terms of policy and regulatory framework to have crypto bros touting their ‘Lambos’.

That said, he sees value in noise and boastfulness.

“It’s funny, I was very cynical about all the speculation and all the hype. But I’ve come to understand that the crazy energy that comes with the get-rich-quick desire actually has side benefits that fuel the innovation ecosystem. “

And it always has been, he added. “This is what New York was built on, this is what Amsterdam was built on, this is what London was built on. Basically we are building a kind of new crypto civilization here.

Regulation is welcome – to a point

As the cryptocurrency industry in the United States has grown exponentially in recent years, debate has intensified over the degree and type of regulatory oversight appropriate to protect investors while leaving room for innovation – at least some purists claiming freedom from government oversight was a point. blockchain right from the start.

Specifically, industry watchers have been keeping a close watch on U.S. Securities and Exchange Commission Chairman Gary Gensler, a former professor of practice at MIT Sloan, who has publicly said he is in favor of greater regulation.

Casey does it too.

“I’m not some kind of narco-capitalist who thinks this is all going to live perfectly in a completely unregulated world,” Casey said. “The point is, we have to figure out what this regulation should look like.”

Much of the current financial regulation has been designed to monitor intermediaries who owe a fiduciary duty to investors, users, consumers, etc., Casey said. But decentralized financial systems, at least in theory, create a framework in which at least some of this regulation is redundant.

“So we end up superimposing excessive regulation, and all that does is make it much more difficult to create innovative things, while at the same time creating a protective compliance barrier around the banking system in place,” Casey said.

Regulation must protect consumers but also allow the benefits of DeFi – financial inclusion, a more open system and innovation from creators – to flourish, he said.

Energy consumption is a challenge

Bitcoin and other cryptocurrencies have been criticized for the large amounts of computing power during the mining process, during which transactions are validated and entered into the public ledger. The New York Times estimated that the process of creating Bitcoin to spend or trade consumes around 91 terawatt hours of electricity per year, more than what is used by Finland, a nation of around 5.5 million. residents.

Casey objected to the suggestion that energy consumption is a fundamental issue with cryptocurrencies.

“The more Bitcoin grows, the more consumption there will be. We have to move civilization forward, ”he said. “There is a whole host of reasons why you might argue that [Bitcoin] is a much more valuable trading system than the US financial system and the dollar-based international monetary system, and all the costs and energy that goes into it.

Since Bitcoin and its power consumption is not going to go away, Casey advocated “thinking outside the box in system design.”

For example, Bitcoin mines could be set up alongside solar or wind farms, with mining subsidizing the production and development of that energy, leading to a decentralized energy grid.

“It’s really counterproductive when we get ‘Oh, Bitcoin is consuming too much’ because we can turn the tide and turn Bitcoin into an engine of development,” Casey said.

China is a roadblock, but not a deal breaker

MIT Sloan data shows that China had by far the highest number of cryptocurrency miners of any country – until September, when Chinese regulators issued a blanket ban on all crypto transactions and mining.

This decision could benefit the United States, where most minors currently reside. Beyond that, Casey said he’s not worried about China threatening Bitcoin’s dominance in the long run.

“It’s a mole game; Bitcoin is popping up everywhere, ”he said.

El Salvador in September became the first country in the world to officially adopt Bitcoin as legal tender.

Beyond that, “You look at Argentina, you look at Mexico, you look at Nigeria, you look at parts of the Middle East, and you see some really interesting adoption patterns, not only of Bitcoin, but also of Bitcoin. stable payments, etc., ”Casey says.

In these places and elsewhere, cryptocurrencies “solve real world problems for people who have been left out of the financial system and pay heavy remittance systems, and don’t trust their governments to run their systems.” monetary, ”Casey said.

“As big as China is, no matter what, there is only a small piece of this global network that is really going everywhere right now,” he said.

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