Page 5 - March 2018 Disruption Report

CRYPTOCURRENCY
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CRYPTOCURRENCY Crypto’s wild ride
In a March 29th interview, Scott Galloway, marketing professor at New York University Stern School of Business, asks NYU Stern nance professor David Yermack to describe the crazy world of cryptocurrencies. Yermack responded:
...There are ... at this point more than 1,500 tokens and there are more almost every week coming to the market.
ETHEREUM
The clear number two [cryptocurrency] is Ethereum and ...like bitcoin, is a blockchain- based token. But, it’s meant to execute smart contracts that you can essentially give contingent instructions for insurance products and for the execution of promises that depend on each other. If you don’t make your car payment, your car will automatically be shut off and then you use the Ethereum tokens to provide what’s called the “gas” to make that contract execute in the background. Or, you can use the ether tokens as payment
to ful ll a commercial promise, maybe as a bond or a collateral payment for people who stipulate that they’ll perform some act and then either do or don’t do it.
Ethereum is a very ambitious language that’s meant to create this really new framework called the smart contract that would be a self-executing, self-verifying contract. In other words, [it’s] a contract that doesn’t need lawyers to enforce it when things go wrong.
It raises many novel legal problems, but at the same time will solve many others. In particular, you don’t have to go to court and get a lien when people don’t keep their promises. These smart contracts just automatically execute with certainty and you have to live with the consequences. ...The costs of dispute resolution ...are driven down and the cost of veri cation. If you can somehow use sensors remotely to the Internet of Things, as it’s sometimes called, to police people’s behavior. In compliance, you can really eliminate an awful lot of costs related to veri cation and enforcement. The real point of this is to solve moral hazard problems...
You’ll get much not only better compliance by borrowers but people may stay out of the credit pool entirely and so you’ll improve the quality of the people who do show up to borrow.
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