Get Trading Recommendations and Read Analysis on Hacked.com for just $39 per month.

This piece is penned by Nicholas Levenstein, who has been a classical musician,  IT and Strategy Consultant and financier. Nicholas has a BA (cum laude) from Yale University and an MBA from University of California, Los Angeles. Recently Nicholas has been bitten by the bitcoin bug and is contemplating various arbitrage and financial strategies.

Much of the blockchain news and debate is about technical matters.  In meeting Farzam Ehsani I was delighted to know the philosophical and spiritual underpinnings of a very interesting businessman, analyst, manager and technician.  

Nothing I would have assumed about Farzam Ehsani was true.  We met via email last month: “Hi Nick, Great article on BitMEX. Could you kindly send me the screenshots as offered in your article? Many thanks! Farzam.”  Based on no knowledge of Middle Eastern language, ignorance of history and excitement that an influential financier had read my article my imagination went wild about an interview: An Arab merchant prince from some spice-trading dynasty was including an unbanked generation of African tribespeople through the blockchain. The Massai were now trading cattle on the Serengeti and accepting payment in Litecoin through smartphones.  I was a little off.

As it turns out Ehsani is of Persian origin and born in my adopted city … in Los Angeles where we may beat out Tehran for number of Iranians.  Farzam Ehsani’s (“FE”) resume reads as total establishment: he attended the University of California system’s best school, UC Berkeley and his profession credentials include consulting stints at Deloitte Consulting and McKinsey & Co. before becoming a corporate officer at Johannesburg’s Rand Merchant Bank.   

If you imagined FE as a soulless, corporate android, you would be wrong.  From one of the most financially money-crazed years,1999, in one of the most money-crazed places, San Francisco, CA, FE’s first stop was at the Baha’i World Center in Haifa, Israel.  At the Baha’i Center he worked as a gardener planting seedlings and extracting earth worms.  During college years at Berkeley FE wrote speeches during a summer internship in the country of his upbringing, Kenya, for Klaus Topfer, a German Federal Minister and, at the time, Executive Director of the United Nations Environment Programme.  


Advertisement:

Social justice was always part of FE’s outlook: “I could never get over the inherent injustice that I deserved more than, for example, a boy born 200 miles to the South in Mexico just because we were born in two different countries.  I would probably have more opportunity and {social welfare guarantees like} Medicare and Social Security.  This seems inherently wrong. It never made any sense to me.  We’re all humans.  Borders are manmade.  Why do we let them be so divisive?  The reason I specifically now love blockchain and crypto-currencies is that they pay no heed to national borders. They recognize people as people wherever they are.  This whole idea of unity is very important to me.”

Farzam Ehsani’s opinions on regulation and the internet start earlier than you might imagine.

FE says “Current populist ideas such as unbridled nationalism are momentary setbacks in humanity’s social evolution toward recognizing its inherent unity. If you look at our history, you see our highest level of social structure starting at the family level, then evolving to the tribe, then city state and finally the nation state.  The nation state is only 400 years old.  Today, advances in technology such as the internet and transportation have brought people together from all over the world, yet our current social organizational structures are limiting our progress. It’s undeniable that we’re moving toward a more unified world with global institutions in character and authority. Whether we get there through an orderly or disorderly process is another question, but there is no doubt about humanity’s oneness and the need for social organization that transcends the nation state.” We’ve tried transcending the nation state with the Euro, but having monetary union without fiscal or political union isn’t sustainable.

“In the cryptocurrency world there is sometimes a strong anarchistic element in which all forms of governance or regulation are to be shunned and abandoned.  One can understand this sentiment as many of our supposedly trusted institutions in society – political, economic and religious – that are responsible for governance and regulation have breached this trust.  However, let’s take the example of a traffic light. Traffic lights are regulation dictating when we should stop or go.  When traffic lights are out we complain to the highest of heavens. because we know that this regulation helps everyone get to where they need to quicker and safer.  Ironically, good regulation actually leads to our liberation. However, not all regulation is good. If I had a traffic light that was red the whole time, I would rebel against that regulation.  But the solution is to fix the traffic light, not to get rid of the traffic light.”

Farzam Ehsani’s believes that the world economy may be a bumpy ride for a few years.

“From 2008 through 2010, the Greek crisis, and into 2012-13 with the Cypriot financial crisis, a few things shocked me.  What I realized during those times was that we are nowhere near having an optimal financial system.  The concept of justice is important in our world and most of our social structures and riddled with injustices.  We’re seeing a real movement of power into people’s hands, through {internet} technologies that led to the Arab spring.  {National leaders} are held accountable by free communication through the internet.  Technologies like the blockchain also have {the power through monetary empowerment to change} how people interact and give much more power to the people.”

“2008 was a walk in the park compared to what we’re going to see in the future.  Our financial system has not recalibrated.  The whole point that we have unconventional monetary policy is precisely because conventional monetary policy has failed.  

Blockchain is not a panacea, but it will make things better and conventional players can help

“Blockchain is such a wonderful technology, but it will not solve our social ills. Like a knife can carve a beautiful sculpture or be used to harm people, blockchain technology is a magnificent tool, but its use will determine how well it impacts society.  At Rand Merchant Bank in the Foundery [the FinTech unit where FE works] we’re trying understand this amazing technology and work with other banks, regulators and financial markets infrastructure players to bring about the benefits of this technology to South Africa at large.  It calls for a new paradigm in which historic competitors have to collaborate.  Without collaboration, this technology can’t bring about any benefit.

Farzam Ehsani speaks about macro-economic issues with cryptocurrency

I asked: “you wrote last year: “While we fell in love with bitcoin and the genius of Satoshi we also realized that the bitcoin vehicle wasn’t designed for all terrains.”  What currencies, if any, hold special promise and why?

FE replied “One of the main things that excites me is the portability of {all} cryptocurrencies.  The internet allows us to send emails at near the speed of light.  While the transfer of cryptocurrencies doesn’t quite take place at the speed of light it is a massive improvement on our traditional financial systems.  If I sent money through the traditional banking system, it is ludicrously slow and expensive in comparison.  In the future, the concept of a cross border payment will be as silly sounding as the concept of a cross border email.

Cryptocurrency could effect some traditional banking functions

“People don’t realize when you put money into a bank you are accepting a liability from the bank.  We don’t have deposit insurance in South Africa.  In the case of a bank-run the likelihood is that the government will step in, but there’s no guarantee of it. There is no way to hold fiat money without taking out money and putting it in your pocket.  The beauty about this is you can take digital cash.  It’s portable, it’s digital now.  That’s a fundamental shift.  

Bitcoin has scaling issues, but also subtly would play a different role from fiat in economies geared for inflation

“Some people like to take stands about things; ‘this is the way it’s going to be.’ I like to take a more humble approach.  We don’t know exactly how things will turn out.  A lot of people say let’s get rid of fiat currency.  But let’s think about bitcoin in its current state for a moment and let’s take Venezuela as an example given its inflationary problems at the moment.  If Venezuela abandoned the Bolivar and everyone used Bitcoin instead, at full capacity every Venezuelan would only be able to submit one financial transaction every two months.  That clearly won’t do.

Author’s note: there are 31,500,000 people in Venezuela.  There are 86,400 seconds in a day.  Apparently the bitcoin block chain can handle four transactions per second.  For each Venezuelan to get in a transaction per day it would have to do 365 transactions per second.   . FE has a point.

“There’s progress in a secondary layer to the Bitcoin network, such as the Lightning Network that will allow much more throughput than the current network allows but we’re not there yet.

The other thing is that bitcoin is a deflationary currency which is great as an investment, but people don’t fully appreciate what this would mean for borrowing money.  How would our system work if I had to borrow Bitcoin to buy my house, but the price of Bitcoin increased more than my house and so I couldn’t repay my debt?  It is much better to borrow in an inflationary currency (such as government money) than a deflationary unit of value (such as Bitcoin or gold).      We don’t have all the answers. We don’t know yet what a sustainably better economic system might be.  We have to maintain a posture of learning.  We act, we learn, we reflect, etc.”

This is a revolutionary technology. It questions so much about what you take for granted in money and finance.  A lot of effort goes into changing minds before you can execute those changes. While I aspire to be at the cutting edge of the technology, there are a lot of people you need to convince before you win them over.”

Either Way Something has to give in banking.

A white paper FE wrote, “The Advent of Crypto-Banking,” referred to a McKinsey study which pegs money transfer revenue banks globally earn at US$ 1.7 Trillion, a stunning 2.2% of world the economy as measured by the US CIA.  

According to FE the 40% of revenue taken in by banking for transfers will change.  “A lot of the profits come from a lack of transparency and inefficiency. What blockchain is doing is breaking those barriers down. Right now there are so many costs associated with transacting that need to fall away. In South Africa you cannot get a free bank account without a monthly fee today.  Things like that will start changing.  I do think the margins will go down in banking but at the same time volumes will go up in financial service, because more people will be included.”  

Interviewee as interviewer and we return to Baha’i

FE wanted to know all about my own education, my life experiences and currently what my sources of information were; literature, news, podcasts, etc.  I understand his corporate success – he’s eternally curious.

The implications of FE’s above-referenced banking article are potentially alarming.  FA seems to see blockchain enabled currencies and records not only as a parallel financial system, but as one that would that would eventually be controlled by governments or large institutions.  FE believes that transparency in a blockchain could prevent corruption by making sure earmarked payments went to the right type of recipients.   However, if such computer technology had existed, it also could have helped enforcement of German Nazi, South African Apartheid or our own American “Jim Crow” racial laws in the past.  

FE has Baha’i-inspired faith that in the future national and I imagine global governmental bodies will eventually do the right thing, but a lot has to change first, from our political systems to our economic ones.  Says FE “It’s potentially our system that creates the behavior we see in our leaders.  The very process of getting your name on the ballot in our current electoral system would seem to disqualify you from having the necessary qualities to lead.  There’s a lot wrong with the current system, regardless of who gets elected.  

Says FE “Today, people put up their hand to get elected. By contrast, imagine a world in which no campaigning was entertained and people were free to vote for whomever they wanted rather than a restricted list of names on a ballot.  If everyone participated in a multi-stage secret ballot vote according to whom they believed would serve best, the kind of leader that emerged would be much different to what our current system produces.  You would get to solutions that are different from what we currently have.  The Baha’i electoral process works in such a way. It is a beautiful process to witness.  “

“A lot needs to change in the way our society functions.  It’s not just our political and economic systems that need to change, but our attitudes towards the environment, towards the extremes of wealth and poverty, towards the equality of women and men, towards people of different races, nationalities, creeds, and economic backgrounds.  We are currently witnessing forces of integration and those of disintegration in our society.  What will have to ultimately emerge are new systems, including new monetary systems, that better serve humanity.  ”

And thus ended our interview.  What a great steward for Blockchain in an established Financial institution.   

Advertisement:
Advertisement:

Posted by Nicholas Levenstein