IBM is a bright spot among fortune 500 companies with a vision for using blockchain to solve critical business challenges. Building on a history of deep experience in the transaction business, IBM is working today to take blockchain tech to the mainstream and find innovative ways to build on these trustless systems.
Nitin Gaur, Director of IBM Blockchain Labs, joined Crypto Insider for a chat about what IBM is doing with blockchain, how artificial intelligence can be utilized in this space, and the history of IBM when it comes to building on payment and transaction systems.
We present to you the full transcript of our chat and hope you will get a fuller understanding of how blockchain technology is being put to use at a corporate level to solve global challenges.
Watch in the embed above or watch on YouTube.
Full transcript of Nitin Gaur’s interview with Crypto Insider’s Nathan Ashworth:
Nathan: So, one thing is, with most Fortune 500 companies today, they see how important Blockchain is, they maybe see the potential, but IBM is kind of an exception, you have jumped on this, probably for several years now. When did this first get on the radar, at IBM, that you decided as a company that you were going to start investing in this heavily?
NITIN GAUR: Yeah, so, it is an interesting story because I used to run mobile payments, for us, in terms of figuring out what it means to handle, you know, the whole journey from – and we are still in that phase – going from the normal traditional payments rails to simplifying it, an economic inclusion agenda of many companies is going after mobile payments. In that journey in early 2012, me and my team we met with about 65 plus different payment processors in the world. And in that conversation Blockchain began to surface up in many of those. And some of us went back and said, okay we need to figure this out, because it’s Bitcoin, and many of us were just curious, but we knew what Bitcoin was.
We went and researched the hell out of this, we spoke to IBM research, we had an early project of Blue Coin inside of IBM, this is earlier on, no one really knows about it, but we did have that project, but you know, it is one thing to have a technical project, it is another to make it commercial. You need business case, you need investments, you need some of these things. And I think, late 2013, when some of our senior client executives began to ask us about our point of view, was when we got into it, and then we announced to the world that we are going fully with it. There is something else you should know, the reason why we got into it, it’s because it is not just a panacea, it is not just cool tech, that we have to do it. If you look at IBM’s business, we have been in transaction systems since the inception of transaction systems, this goes back to our very old business of mainframe leading to all the database technology, all the CICS and base technologies.
So, if Blockchain would be the next generation transaction system, which is what it is destined to be, then we are as much disrupted as the financial institutions that we talk about being disrupted, and many other industries. So, I think it’s an important step, an important investment and technology in my opinion. So, that’s when we announced to the world and we haven’t looked back, I think it is working well for us as well.
Nathan: So, the most recent development I saw was the World Wire service, but I am sure there are other things. But can you talk about that a little bit in relation to Stellar and how that works?
NITIN GAUR: Yeah. So, a few things on this. One is, what we need to talk about in the industry is protocols, which means that at this point in time, there are many companies working on different technology platforms, different protocols, there’s layer one, layer two for optimization, layer three for interoperability between protocols, similar to what we have seen early days with the internet. We had basic link layer protocols, and we have IP which was abstracted and then you have application level protocols which made the internet to what it is today.
We are in the similar level of infancy and, so, from our perspective, some execs thought that we should not put all eggs in one basket which, as you know, we were heavily invested and one of the founding members of the Linux Foundation, which runs an open source community driven project called HyperLedger. So a few execs embarked on this payment network, which was based on Stellar.
So, Stellar is the underlying technology, what is important is not the rails, which is the network behind the scenes, but what is important is what we are trying to achieve with World Wire, and the ability for us to be able to fence off provides a more regulated way to transact, be able to introduce newer business models by introduction of what we call ‘stable coin’ which is one way to digitize Fiat in the regulated way. I think it opens up a lot of horizons and a lot of business models which is normally interesting but at the same time solves some real challenges around speed of movement, of money, as well as liquidity challenges that many of the financial services, the non-banking financial services are experiencing.
So, to me, that is something that is more important otherwise there are many networks in the world, who are aiming to solve the issue of faster movement of money, in my opinion, World Wire is aiming to address some of the, barring the regulatory approval of course, is aiming to solve some of the foundational issues of payment or movement of money, not just domestically but also cross-border. So, I think that is an important distinction that I would like to draw.
Nathan: So, that was another thing that I was going to ask you, about stability, and you mentioned the stable coin, the stronghold USD, which is IBM’s stable coin, is that how you mitigate…
NITIN GAUR: It’s not IBM’s stable coin. There is an element here you have to understand, the stable coin, just like tether and just like the other recent ones, like Gemini and USDC, they all have to be backed by collateral which is Fiat, US dollar-based. Stronghold is a startup, and because we are a network, we are inviting various entities to issue stable coin on our network. Stable coin on its own doesn’t do anything until you have a network for it to operate on.
So, Stronghold is one of those entities that basically is one of the participants on the network which is issuing stable coin. Of course, we also aspire to get banks, various MDOs, non-banking financial institutions, and also accept other stable coins that happen to be running on other networks, but the notion of stable coin is that it’s a digitized version of the Fiat, that’s kept in the bank and it’s collateralized, which means that you and me can rest assured that the token that me and you are exchanging is backed by the guarantees of the currency of the country, and that way I think the stable coin is meant to do that. So, it is collateralized, it is backed with collateral, and it’s a tokenized form of Fiat, which allows me to move money and address the notion of issuance, redemption and acceptance of the network, because it is Fiat.
Nathan: Is that how you would mitigate against volatility that you see all over the place in crypto markets?
NITIN GAUR: Correct. That’s a good point you bring up, because in many cases the genesis of stable coin which we talk about as a digital asset that is collateralized by a stable asset, which is USD or Euros, or one of the basket currencies, issued, collateralized and guaranteed by a regulated financial institution for the purposes of transaction processing and settlements on the Blockchain network, that’s how we sort of define it. So, from that perspective, most transactions, whether you buy or you sell, you transact any of the financial instruments, at the end of the day you are settling back with movement of money.
So, there is a duality for a transaction, whether you are buying a car or a house, you eventually have to settle that with some form of payment of money. With the volatility of crypto, for obvious reasons, we see there is a need for the regulated entities to exploit Blockchain and take advantage of some of these concepts that are trying to solve the issue of time and trust. And stable coin makes that entry point there in that realm to say, “we can still do things that are regulated, blessed by the regulators and is the right way to do it,” except that we are only applying technology in a meaningful way to, again, address the issue of time and trust and remove the intermediaries in the cost that’s associated with it, and yet be able to conduct business in a digital fashion. That is the end goal of what we are trying to achieve with this, if that make sense.
Nathan: Yes, that makes perfect sense because that was my other question, how do you convince these other companies, these other Fortune 500 companies, IBM’s clients, to deal with Blockchain when you just look at Bitcoin today [Nov. 14th] had more than a 10% drop in value and so if you are transferring money all over the world, how do you guarantee that even in the fraction of a second you will get what you put into it on the other end?
NITIN GAUR: Yeah, the thing is if you look at, and that’s a valid point you bring up, there is FX risk when you exchange foreign exchange. When you hold onto it, and if the value of that foreign exchange goes down that’s an FX risk. There is a regulatory risk, there is a market risk, depending on geopolitical issues that govern the valuation, the perceived valuation of those currencies, because at the end of the day, any currency is a belief system, we are valuing the currency based on not just a sum total of the economic activity.
But at the same time, there is a trust element to it, regardless of how much gold the country might have, the political climate has an impact on its valuation of its currency. So, from that point of view, I think that what stable coin does, and that is why the definition is important because you can’t really have stable coin backed by any Fiat, because the currency that is backing up should also be stable, otherwise it is not stable coin. An example that we give in Zimbabwe is a perfect example with their hyperinflation that went through, and the changes in their notes, now they are on the bond notes, which is pegged to a Euro dollar, it is hard to collateralize these stable coin with unstable currency, and that’s why I think the definition of having a basket currency makes sense, because in many cases, these basket currencies are stable currencies around the globe, namely US dollar, Euro, GBP and Yen as the four dominant stable currencies.
So, I just want to be discerning between the fact that it is not just pegging to any Fiat. It is using these currencies, and they have advantages that most countries, people like to use the word, exotic currencies, they like to use the word, non-basket currencies. These are countries like India and Nigeria, where if you want to exchange between these two countries, you will still have to go through US dollar or Euro as a step-through currency because there is no real fungibility between Indian Rupees and Nigerian Naira for example. So, using the stable coin as an intermediate liquidity measure solves a lot of issues that I am suddenly now pegging, you know movement for settlement purposes, and still providing a step-through currency that is needed in the system. I think that is one of the issues that cost a lot of money to intermediaries as well as the entities that are managing it, you know, the network. Does that make sense?
Nathan: Yeah, totally. That’s why I wanted to get more in-depth on that. So how does IBM view Bitcoin? I mean, do you do any development of that? Is that just kind of the tech part of cryptocurrency and you don’t get into that as much, because it is not as useful for what you are doing?
NITIN GAUR: So, it is interesting because anybody who is involved in Blockchain, you cannot and you should not ignore the foundation of Blockchain which is Bitcoin. That’s the origin, that’s the genesis. So, many of us are enormously interested and, we all, like the technical community, is enamored with a lot of technical coolness. But we also know that all the tech that has gone into Blockchain is not new, the databases, the encryption, the cryptography, the linkages, the hash algorithm. They are not exactly new technologies, but putting it all together, to create this mechanism, to enhance trust and be able to induce a trust mechanism that creates a trustless system is very attractive. And then, from there, you morph a model of permission versus permission-less distinction that we make in the industry.
So, technologically, we are very interested, but I think we have worked with a lot of regulated entities, we ourselves are regulated. So, in many cases, just working with Bitcoin and also protecting the curiosity for business applications becomes a challenge for the same reason that the Bitcoin community prides itself of the strength of anonymity and trustless nature of it. It becomes hard to implement KYC AML type elements and there are regulations there for good reasons to prevent not just nefarious activities, but also control the ill-use of funds traveling across the globe. So, in my perspective, I think that it becomes difficult. So, from a business application perspective, we are applying the technology to re-invent and re-design business flows and create new ecosystems, but from IBM’s perspective, we are not involved directly with using Bitcoin as a meaningful application in a regulated business world, if that makes sense.
Nathan: Yeah, absolutely, I just wanted to ask about that, because that’s the elephant in the room. Like you said, that’s the genesis. When you look it up, you don’t see much with IBM and Blockchain and Bitcoin, it’s always kind of these other things. Like you talk about the regulation, and that makes total sense. So, you are in banking and finance, what other industries are you into or do you see in the next 5 years where IBM is going to make inroads?
NITIN GAUR: So, we are not just in banking and finance. I would like to clarify that piece. The industries, at least IBM and my team have worked on for ages has been diverse. So financial services itself has 6 pillars that we classified. Namely insurance capital markets, capital market infrastructures, payments, retail banking, corporate banking, wholesale banking. So, even banking is not as simple as just calling it financial services. In addition to financial services, we have looked into supply chain and supply chain has logistics, trade finance. We looked into health care. We are looking into government. We looked into, for example, healthcare from a pharmaceutical perspective versus healthcare as an EMR/EHR which is the Electronic Health Record industry.
So, I think, because we are IBM and because we have been a de-facto technology provider to many of these industries, the expectation from these industries and our clients has been the fact that, as a technology leader, you are supposed to provide a point of view and perspective. So, ranging from ad fraud, which is media entertainment, to telecommunication, to healthcare, to government, to financial services. Me and my team globally have explored every possible, imaginable use case that you could think of. In terms of coming up with the point of view and perspective and saying, where can we apply this meaningfully? And of course, like any new tech, there is a lot of hype, and it is up to us to cut through the hype and provide the technical acumen and the design work to say, for these use cases, this makes sense, apply the tech. And so, heads down, 4 to 4 and a half years, a collection of us, and industry experts at IBM, have been focused on their silos to define, delineate and discern between the meaningful use cases for every industry.
Nathan: So, that goes with another question I have. If you look at Blockchain, it is kind of a giant database, almost, and how do you differentiate something like a SQL database when you are dealing with a client. How do you differentiate a use case where you say Blockchain is the appropriate technology to use for something?
NITIN GAUR: So, it’s a good question, I have written extensively about this, we published a book that talks about this in detail. Database is a technology, and Blockchain also has a database. Blockchain is a database. Blockchain has a computer. If you look at Ethereum, they will tell you that it is a massive, giant computer that amalgamates the world capacity to be able to give you that singular of compuing power that distributed or decentralized computing does for you. You have to read those two things right. There is data and there is digital assets. We formed foundational tenets, things like trade, trust, ownership, transactionality are some of the tenets that you need to have. Which means that if you are solving a data problem, then we have enough mature technology around whether it is centralized or distributed or no-SQL or SQL database, you have a plethora of those technologies that have solved, and they all have the strengths and they all are fit for a purpose.
But in many cases, if you are dealing with multi-party scenarios, that there is a need for time and trust. There are two constructs that we solve which is time and trust. But if there is a need for multiple parties to transact and ensure that there is a trust enabled between those two or three parties and that there is a digital asset in the system. I think that’s when Blockchain emerges to the surface as a viable, economical, and a meaningful solution. If you are solving database problems using Blockchain, you can, and there are many people that have just done that. But you are not exploring the full promise of Blockchain which is going towards a model that creates a positive network of multiple parties and gives birth to new business models that simply don’t exist today. The ability for me to splice up an asset into small pieces and distribute them.
I just can’t do that today, and Blockchain gives you the vehicle to do it. So, when you compare them, remember this, there has to be foundational tenets, great trust, ownership, there has to be a notion of digital asset, there has to be multiple parties that leads to the need for trusting the network, and then some of these tenets are becoming a solution in the design, sort of imperatives. Suddenly now, I think to me, I think Blockchain begins to make sense. Otherwise, we are solving database problems.
Nathan: Right, that makes sense. Another thing is, IBM is also into AI (Artificial Intelligence), we all remember Watson on Jeopardy, and we see all the commercials of what things you’re doing there. Does AI tie into Blockchain in any way?
NITIN GAUR: Yeah, it does. So, there are a few things, and that’s a brilliant question. What is interesting is what is emerging, not just AI but IOT as well. So imagine shipping. We are trying to create a digital network, so there are a lot of fungible tokens which is the Bitcoin, Ethereum that we can exchange things over value. But then, there are also non-fungible tokens, your identity, your healthcare, which makes more meaning to you, and only to you. And you can rent them for benefits, you can give your healthcare records to clinical trials, you can give your healthcare records to insurance companies, they can give you a discount for allowing them to do studies with it.
But at the end of the day, it’s your asset. As opposed to Bitcoin, Ethereum, and many crypto assets that you can exchange for anything else of value. So, IOT and Blockchain has value because now I can create a digital twin, and so, as the real assets, such as your car, your home, your containers and supply chain, your shipping boxes, as you tokenize them, then you create an additional twin. IOT and Blockchain make perfect sense as an amalgamated tech. Same thing with AI. AI is all about data. it’s all about Artificial Intelligence, our intelligence comes from data, comes from experiential nodes, comes from inferences, comes from analysis and collectively we use the word AI, but AI requires a lot of learning for you to get intelligence. Like the day you were born, you weren’t intelligent, it took you time, it took you data points for you to get to that point. I think there are two different maturity curves. Blockchain is at a fairly nascent maturity curve, whereas AI is at a much more mature level. Also, Blockchain is about transactions and data, which means that Blockchain has to mature to a point where you have a meaningful network with X amount of Blocks that have processed transactions that contains data for you to apply AI models, to make sense of these Blockchain transactions that have been occurring.
So, it is a matter of time and maturity curve, but there is an intersection with Blockchain and IOT, Blockchain and AI, Blockchain and data sciences, to be able to give you a more intelligent digital transaction network. Again, creating business models that don’t exist today. That’s the next generation of Amazon, the next generation of Googles of the world, I think.
Nathan: Right. So I know you said earlier not to talk about the rails World Wire system, but I am going to ask. You’ve been working with Stellar, but are there qualifications that you look at if you were looking at evaluating other chains, for example. Do you look at proof-of-stake chains versus a proof-of-work chain for something you consider for a project or what kind of guidelines do you look at?
NITIN GAUR: Yeah, that’s a loaded question, man. I will tell you this. Proof-of-work, proof-of-stake, I have done extensive research in this area where these are trust systems. So, again, remember a blockchain solved the issue of time and trust. Time because you have this notion of synchronous data dissemination, so as opposed to a business process going through in sequence, suddenly now Blockchain has the ability to disseminate the data based on a business process.
Trust is foundation, and these consensus mechanisms do exactly that, they provide network specific tasks, trust, models. So proof-of-work, proof-of-stake, delegated proof-of-stake, Byzantine full tolerance, and each of these that I have described have their own variation where people have said, “look this is not efficient, let me alter this piece, or let me create a better model to make this more efficient because there is an issue in terms of transactions,” and there is a whole series of things that are happening in that space. So, these are trust systems, these are sort of layer 1, this is the most foundation of any Blockchain network, and each of the use case will define their own consensus mechanism, define their own trust mechanisms that go with it. So, from a rails perspective, I look at that, I always look at that, because that defines the interaction between participants, that defines the economic viability of the solution, that defines the trust mechanism, that also defines the flaws. If there is a way for me to collude the industry or the network will collude and will try to cheat the system because that’s essentially the foundation and the fundamental of game theory. People will game the system to their advantage regardless of how you design it. And, so, that’s important, but from a rails perspective, imagine rails is a vehicle for you to be able to move an asset in the network from point A to point B, by ensuring that there are certain rules of governance, there are certain rules of exchanging of assets that are adhered to.
So, I look for those foundation elements, but I also look for what is the additional asset, what are you trying to move on this? Because if you are trying to go in retail payment space, then if you choose proof-of-work which is truly a trustless system, and Bitcoin has proven that. Then it is non-feasible because one, it is too expensive, or it will eventually get expensive, learning from the Bitcoin and Ethereum experience. It is not scalable, if you are doing 12 transactions per second, you can’t do business at the speed that we aspire to achieve it with. Which means something’s got to give. So, I look at the economic viability, I look at speed, and that’s why projects like EOS or Credits. You know Credits is a project coming up in Singapore, and the team is spread across the globe, in London, Russia and so is EOS, again, a global project. These projects are aiming to solve some of the scale issues, which makes it ubiquitous. Until we reach ubiquity it will always be a romantic encounter with Blockchain, I think.
Nathan: It makes sense, that was a lot of question, but then you answered all my inquiries about that. I wanted to know what you thought about it because the cost factor is important, and once you start moving things at the size and scale worldwide, some of these chains just cost a fortune to validate these transactions.
NITIN GAUR: Sure.
Nathan: And so that’s why I was asking.
NITIN GAUR: No, that’s cool.
Nathan: One other thing I noticed is that IBM has partnered with Columbia University now and they are doing an online course for Blockchain development, have you been involved with that? Do you know anything about that?
NITIN GAUR: Yeah, of course, we are involved, I think we are launching it next week sometime. So, it is called an accelerator, it is not just a course. The idea of Blockchain is 2 things. It’s hard for one company, just like in the past, you could adopt a technology, like AI, you could adopt AI, and apply different models and a company can then take advantage of it. With Blockchain it is a team sport. A company or an enterprise cannot simply consume Blockchain and take advantage of it, it has to have a network effect, which means the problems that you are solving today, that you are solving for yourself, whether it is an intracompany, interaction between participants, which eventually has the impact of network, which means you are solving not your problems, you are solving the industry’s problems is some of the foundation for it.
This Columbia University accelerator is aiming to achieve just that, to be able to address industry’s specific consortium, specific problems. So, it is not just about a course, of course, it is housed in Columbia because of the brain, trust, and talent and some of the business acumen that they bring to this, and the academic and this healthy learning environment, to question things, to be able to do things in a meaningful way. But I think it is just more not about just having a course, because launching a course doesn’t solve a problem, but this is actually working with academia, working with industries, working with technology companies, creating the right business models to launch technology meaningfully and that’s the intent of the accelerator program with Columbia.
Nathan: Well, great. I don’t have any more questions for you but I really do appreciate your time tonight.
NITIN GAUR: Yeah. So, hopefully, you got what you are looking for…