Former US Secretary of the Treasury Larry Summers took part in a fireside chat at Consensus 2016 today, in which he spoke in depth about emerging financial technologies such as blockchain and bitcoin and the impact such inventions could have both separately and together.
Moderated by Alan Murray of Fortune Magazine, the session found Summers bringing the dialogue of the bitcoin and blockchain worlds closer together, as he framed the ideas less as competitors, but possible outcomes of a larger change in economic processes enabled by technology.
Summers projected that there would likely be three outcomes from this evolution: That blockchains will co-exist with traditional fiat currencies; that blockchains will be enabled by bitcoin; that blockchains will eventually interact with digital currencies, but not bitcoin.
While Summers remains open-minded about the possibility that a digital asset could serve as a global currency or store of value, he predicts that the underlying technology is likely to be more impactful.
Summers told the audience:
“Is the blockchain technology going to be fundamental? I think the answer is overwhelmingly likely to be yes. Is bitcoin going to be a valuable store of value, the same way as people use gold? I don’t know, but I think that certainly the answer is ‘no’ doesn’t seem like the right position to take.”
Summers went so far as to predict that this transition could play out in different ways in the wider financial system.
For example, he said that he believes we could see companies like JPMorgan accommodate bitcoin along side more traditional currencies like dollars and euros.
He suggested that this transition, however, depends on how quickly it gains traction in the market.
“Bitcoin has the same character a fax machine had. A single fax machine is a doorstop. A world where everyone has a fax machine is an immensely valuable thing,” he quipped.
Rethinking bitcoin
Still, while Summers wouldn’t place a direct bet against innovators in the space, he said it was likely that the technology underpinning can be replicated by incumbents in potentially successful ways.
“While there are arguments you can’t get all the benefits [of blockchain] without bitcoin, my suspicion is that ways will be found to get those benefits without the uncertainty in the value of bitcoin relative to the ways people hold money and denominate transactions,” he said.
However, he noted in instances of disruptive change, new entrants are perhaps more likely to succeed in developing new technologies, and that he could imagine blockchain disrupting enterprise finance even if digital currencies fail.
“I don’t have a prediction to make with confidence about current big financial institutions, or the aspiring ones represented in this room,” he said, adding:
“I think it’s not right to say that blockchain is the world of existing financial institutions, and bitcoin is the world of new financial institutions.”
But, Summers doesn’t see this as being the responsibility of regulators to prevent, even if it impacts the economy.
He added: “I don’t think we should designing our policies with the idea of maximizing employment in the financial sector.”
Image via Mike Cohen for CoinDesk