Cryptocurrencies: the future of money or a trend running out of steam?

Maya: Okay, great. So can you tell us a little, or can you actually define maybe cryptocurrency for us, for all of the novices out there that would like a nice, succinct definition? What is it?

Alexandre: A lot of people say cryptocurrency, crypto assets—you know, you’ve got different ways of referring to it. My favorite is “crypto assets” because, in my opinion, it’s not really a currency in the traditional sense as defined by central banks. It’s more of an asset, and I think it’s something that any investor should have in their portfolio, even if in a limited capacity. Cryptocurrencies were created in 2009 by Satoshi Nakamoto, who invented Bitcoin. We don’t know who he is or where he is now, but what he launched is a very powerful technology that allows anyone on Earth to send and receive cryptocurrencies. It started small but grew rapidly through the power of the internet, leading to 500 million people owning cryptocurrencies today. From a technology standpoint, it’s great because it’s open and anyone can jump in at any time. It allows the transfer of value between people, ensuring safety and efficiency in transactions. It’s both a protocol and an asset that can be traded, with now around 60,000 different cryptocurrencies globally.

Maya: Okay. Can you give us some examples? Because you mentioned assets, so different kinds, I suppose. And then you also mentioned that they have a value. So what kinds of things are we looking at that can be classified as cryptocurrencies?

Alexandre: The biggest one is Bitcoin, often considered as digital gold. Over time, if you look at its returns, they’ve been impressive. Bitcoin is currently worth around $65,000, having grown from just a few cents over the past 15 years. Then you have other big contenders that offer different features. For example, while Bitcoin is seen as gold, Ethereum is like the processing layer—offering smart contracts that add business logic to the cryptocurrency and the protocol. This enables a wide range of use cases, from NFTs to decentralized finance, bringing additional value beyond just storing and transacting value, as Bitcoin does.

Maya: Okay. And right now, today, who are the people and in what regions are we seeing the use of cryptocurrency?

Alexandre: It’s interesting because the US is one of the places where crypto is widely adopted, but it’s also a region that hasn’t fully regulated it yet. In Europe, we tend to regulate first and then build businesses. The US, on the other hand, is like the Wild West—less regulation, but it’s working because huge companies in the US are now leaders in the crypto space, similar to what happened with the internet. However, regulation is coming quickly there. Beyond the US, you see grassroots adoption in various countries, including Africa and Asia. For instance, Vietnam is one of the biggest crypto countries, which might surprise some people. Nigeria has also started legitimizing cryptocurrency recently. Europe is doing well in this space too.

Maya: And do we see differences in the way that people are thinking about it and using it in those different regions?

Alexandre: Yes, definitely. In some regions, cryptocurrencies are used primarily for remittances. In countries with high inflation, crypto is a way to maintain value and keep money safe. For example, in places where inflation is over 100% or even 20%, having an asset that’s not tied to the local financial market or external markets is very appealing to people.

Maya: Okay. And just in terms of some of the countries that you just mentioned, like Vietnam and Nigeria, can you tell me a little bit about the link between financial inclusion and the use of cryptocurrency?

Alexandre: One of the original promises of Bitcoin was to be the “money of the internet,” making financial transactions accessible to anyone, anywhere. Today, this promise hasn’t been fully realized, but the potential is still there. Anyone can download an app and start receiving Bitcoin instantly—no complicated Know Your Customer (KYC) processes are required unless you’re buying crypto from an exchange. This simplicity makes it a powerful tool for financial inclusion, especially in countries where traditional banking services are inaccessible. For younger people who don’t have credit cards but do have smartphones, crypto provides an easy way to start transacting.

Maya: Okay. So you talked a bit about transactions and you talked a little bit about investment, but what about financing and lending? What’s the link between what can be done there with cryptocurrency?

Alexandre: That’s a more complex topic, though there are plenty of lending apps available today, especially on Ethereum. These apps allow people to lend their funds and earn revenue from it. On the flip side, people can also borrow funds in crypto. The interest rates in this space are quite high at the moment. This concept is part of what we call decentralized finance, or DeFi. It’s become pretty big now, with a few hundred billion dollars locked in these protocols. However, digital assets and cryptocurrencies don’t have the same loan volumes as traditional finance, which means it’s still a developing area in comparison to the established financial markets.

Maya: Okay. So I think one of the things we hear often about cryptocurrency is its volatility. Some people say that it doesn’t have much of a future because of this. I’d like to know whether you agree or disagree with that.

Alexandre: My view is that Bitcoin and cryptocurrencies represent an emerging market. As with any emerging market, there’s volatility, especially given the limited supply of assets like Bitcoin—there will only ever be 21 million Bitcoins. As more people adopt it, the price naturally increases. Right now, with only about 500 million users, there’s still a huge potential for growth. Institutions have just started dipping into it. In my opinion, the volatility is largely due to the fact that it’s still a very young technology and financial investment. Bitcoin’s market cap is around a thousand billion dollars, which is just a drop in the ocean compared to the entire financial market. This means there’s plenty of room for growth. We’ve seen the introduction of Bitcoin ETFs in America this year, and they’ve brought in roughly 20 billion dollars so far. This institutional interest, along with increased ways for Wall Street to get involved, will gradually reduce the volatility of these assets over time.

Maya: Okay. And one of the other things we often hear about is linked to illegal activity, like hacking. It’s interesting because a lot of the merits we hear on the other side are that it’s a safe way to do things. So can you tell me a little bit about what’s going on with that? How do you keep up with all the different security measures that you have to maintain with something that’s natively online and on the internet?

Alexandre: There are two sides to your question. First is the security aspect. You have various ways to secure your crypto and ensure it doesn’t get stolen. Early on, it was like the Wild West, but now there are solutions like Ledger—a French company that creates hardware wallets. These wallets allow you to store your cryptographic keys in a USB-like device that has a secure chip element. Additionally, there are banks or exchanges that offer custody services for consumers. Typically, these entities have professional-grade tools and robust security features, so as long as you stay within these ecosystems, you shouldn’t lose your money. However, if you start exploring beyond these secure environments, the risks increase.

On the other side, there’s compliance and risk management, especially concerning anti-money laundering (AML) and terrorism financing. In my previous role at Chainalysis, and based on the latest reports, we’ve seen that while the percentage of criminal activity related to cryptocurrencies is decreasing, the absolute value is increasing. This is because as the protocol matures and more funds are moved globally through crypto, the total amount of money involved naturally grows. The share of illicit activity is going down proportionately, but because the total volume is larger, the actual value linked to illegal activities has also risen. However, this illicit activity still only represents about 0.20% of all funds transferred via cryptocurrencies, which is pretty low. Moreover, governments are spending significant resources to combat this, and I believe these efforts are proving effective.

Maya: Okay. So what would you say are some of the trends in this industry that we’ve seen in 2024 and some of the things that we’ll see leading into 2025? And I’d also like to know, after you answer that, if you could tell me maybe about one of the craziest ideas that you’ve heard in a way that someone or a bank, either an individual, could leverage cryptocurrency.

Alexandre: Right now, there are several key trends shaping the crypto industry. One trend that continues is the focus on NFTs, though I’d say the initial craze has cooled. It’s not dying but evolving. Initially, there was this huge hype where people were buying digital collectibles, like those famous apes, and using them as profile pictures on social media. Some of these NFTs were valued at millions because of their scarcity—only 10,000 of them existed. But as the market matures, people are realizing that the speculative nature of NFTs might not hold as much lasting value compared to other digital assets.

Another significant trend is the move toward tokenization, especially of real-world assets. This is where things get really interesting. The idea is to tokenize tangible assets like buildings or houses, using cryptocurrency to represent ownership shares. The revenue generated from these assets can then be distributed to the token holders. It’s an area with great potential because it could simplify and speed up the process of buying and selling property shares, making it more accessible. Of course, there’s still a need to be cautious about the legitimacy of these assets and whether the token truly represents something of value.

Decentralized finance, or DeFi, is another area that’s been growing consistently over the last four to five years. It’s shown remarkable growth and innovation, and it’s likely to keep evolving.

As for some of the craziest ideas I’ve seen in crypto, I’ve witnessed the industry grow and change dramatically since 2012. In the early days, there were projects that got funding simply because they were crypto-related, with companies raising millions based on hype alone. However, downturns in the market have been good in a way because they weed out the unserious projects, leaving only those with real value.

I’ve seen projects involving artificial intelligence and GPUs tied to crypto, but sometimes they lacked a clear, practical use case. If there’s no real value or thought behind why crypto is needed for a particular project, it’s unlikely to succeed. So while the space is full of innovation, it’s also a place where ideas that don’t have a strong foundation tend to fade away.

Maya: What are some of the projects you’ve seen around artificial intelligence involving crypto?

Alexandre: There are quite a few projects at the intersection of AI and crypto, and the quality varies. On one side, you have projects that aim to leverage AI to optimize or innovate within the crypto space. For instance, some projects use AI to improve trading algorithms, predict market trends, or enhance security measures. Others are exploring ways to use blockchain to create decentralized AI models where contributors are rewarded with tokens for providing data or computational power.

However, not all projects are successful or practical. Some ideas seem appealing because they merge two popular technologies—AI and crypto—but don’t always result in meaningful or viable applications. It’s important to critically assess whether integrating these technologies actually adds value or if it’s just a trend-driven approach.

Maya: Right. Okay. One of the other things that we sometimes hear when people talk about blockchain and crypto are environmental concerns. So can you tell me a little bit about what some of those challenges are and how people in the space are trying to work to improve them?

Alexandre: Environmental concerns are indeed significant, particularly with Bitcoin. The major issue comes from the mining process. Bitcoin mining requires substantial computational power to solve complex mathematical problems, which validates transactions and creates new blocks on the blockchain. This process consumes a lot of energy.

Currently, a significant portion of Bitcoin mining energy comes from renewable sources—more than half. This is partly because renewable energy often has surplus during off-peak times, like at night, which would otherwise go to waste. Mining can provide a way to utilize this excess energy effectively.

Additionally, the crypto industry is exploring ways to reduce its environmental impact. For instance, some projects are transitioning from energy-intensive proof-of-work systems to more energy-efficient proof-of-stake systems. Proof-of-stake requires far less computational power, reducing energy consumption.

Overall, while the environmental impact of Bitcoin is a valid concern, the industry is working on solutions to mitigate it. The integration of renewable energy in mining operations and the evolution of blockchain technologies toward more energy-efficient models are steps in the right direction.

Maya: I mentioned the DBX study that we’re part of about, I think it was the study that we did two years ago. One of the stats that came from that was that people found or people said that actually, a third of the people that we surveyed said that they are willing to trust the bank that gives them information about cryptocurrency. They also trust the bank to act as an intermediary to invest in it. So I’m wondering whether or not that figure of a third of the people surveyed is something that surprises you, or do you think that it makes perfect sense in the context that we’re in right now?

Alexandre: I think it makes perfect sense. If you look at the adoption of cryptocurrencies in Europe, for example, you see that France sits at around 11%. So more than 7 million people in France own crypto. And we’re one of the more traditional countries when it comes to investing in Europe. If you look at the Netherlands, for example, it’s around 15%, and it’s pretty much the same in the UK. The US is over 20%.

Banks have had difficulties understanding the flows of crypto investments and where people are putting their money because they don’t have the right tools to track these transactions. This creates a challenge for them in assessing the true demand from their customers.

Given the history of crypto scandals, like the collapse of FTX and various hacks, people are naturally looking for safer, more secure options to manage their crypto investments. Banks are perceived as a safer choice for holding assets. So it’s logical that over 30% of people would prefer to use their bank for crypto investments—it aligns with the desire for security and reliability.

Maya: So, in terms of the software and the services that technology companies can offer these banks, what are some of the things that you think are the most important for us to offer banks so that they can then enable their customers to possibly invest in crypto?

Alexandre: We’re developing a crypto banking platform that will complement our core banking offerings. The aim is to provide an end-to-end solution for banks, covering everything from customer onboarding to trading, custody of digital assets, and compliance and reporting requirements.

Our platform will enable banks to offer their customers—whether retail, corporate, or institutional—the ability to handle and store crypto assets securely. This is crucial because retail banking margins are very thin, and there’s significant competition from digital banks and fintechs like Revolut. Traditional banks need to find new ways to stay relevant, attract young customers, and generate revenue.

For instance, in France, revenue from crypto transactions last year was around 500 million euros. This represents a significant revenue opportunity for banks if they can tap into this market. By offering a comprehensive crypto banking service, banks can enhance their service portfolio and potentially capture a portion of this growing revenue stream.

Maya: Okay. And what are some of the aspects of an enhanced or personalized user experience in the context of a product that could help banks, that you would say are the most important things if a bank wanted to actually offer this kind of service to their customers?

Alexandre: The key challenge is that developing such a service isn’t just about creating a product; it’s about integrating a comprehensive solution. Banks will typically require two to three years to build everything from scratch. We’re not starting from the ground up ourselves; instead, we’re partnering with specialized companies to bring together the best solutions on a single platform.

From a UX/UI perspective, it’s crucial to make the platform as user-friendly as possible. We’re aiming for an end-to-end approach that simplifies the experience, much like how stock trading or Assurance Vie works in France. We want to ensure that the platform is not only easy to use but also secure and compliant with reporting standards.

We’re focusing on building a system that’s tailored for users between 18 and 40 years old, who represent the majority of crypto owners. It’s currently a tech-centric field, so the interface needs to be intuitive for these users. As the space matures, our goal is to expand usability to a broader audience, including older users, by making the experience increasingly user-friendly.

Maya: Okay. A question that’s a little bit of a change in pace. I wanted to ask you about the digital euro. The ECB is proposing this, and I wanted to ask you if you think or how you think that it’s going to impact everything that’s going on in the crypto space.

Alexandre: Digital euros and cryptocurrencies serve different purposes. Cryptocurrencies are about investment and operating outside of traditional government systems. For example, Bitcoin is a global asset that isn’t tied to specific currencies like the euro or the dollar. While it might have some correlation with financial markets, it generally operates independently.

On the other hand, a digital euro is essentially a central bank digital currency (CBDC), designed to be a digital form of fiat currency. Its main role is to complement the existing financial system, providing a secure, regulated form of digital money that is tied to the euro. This could potentially offer more stability compared to cryptocurrencies, which are known for their volatility.

The introduction of a digital euro might lead to greater integration of digital payments into the traditional financial system, but it won’t necessarily replace or directly compete with cryptocurrencies. Instead, it could coexist with them, serving different needs and preferences within the financial ecosystem.

When you look at the digital euro, it’s essentially the new form of cash for the EU zone. It will be accessible to everyone and usable everywhere, providing a stable and non-volatile payment option. Its appeal lies in its simplicity and its availability both online and offline. It’s a significant addition to the European payment landscape, and it’s important to recognize that it serves a different purpose compared to cryptocurrencies.

Maya: Okay. All right. Makes sense. So my second-to-last question for you is actually about people out there who are looking for reliable sources about what’s going on in the crypto space or advice that they can get or interesting things or crazy ideas. Where do you go to get your information about all of this? What are you reading? What are you watching? Who are you listening to?

Alexandre: Yeah, so I’m quite active on Reddit, though I’d caution that it can be a mixed bag of quality. For more reliable information, I recommend CoinDesk and Cointelegraph. Both are reputable sources with strong journalism in the crypto space. CoinDesk is particularly well-regarded for its in-depth articles and analysis.

In France, I follow a content creator named Hacker, who has a growing following on YouTube with around 700,000 subscribers. He produces insightful podcasts and videos on crypto.

Additionally, Michael Saylor, the CEO of MicroStrategy, provides valuable insights into the crypto space, especially from an investment perspective. Andreas Antonopoulos is another key figure; his early videos and explanations about Bitcoin have been instrumental in understanding the fundamentals of crypto. He’s known for his clear and comprehensive breakdowns of complex topics.

Maya: Okay, good. Thank you for the advice. And the last thing I wanted to ask you is what would you say to all of the naysayers, the people who are still on the fence, the people who think that investing in crypto or maybe building something for their customers about crypto is not a good idea? The ones that are hesitant, what would you say to them?

Alexandre: So I think the perspective on crypto has shifted significantly. When I first got involved, there was a lot of skepticism, but over the past two to three years, especially with the recent bull run, more people are exploring and understanding it. The concept can be challenging because it’s a departure from the traditional notion of money, which has historically been managed by public institutions like central banks.

For those who are still skeptical, I would suggest they take the time to educate themselves about crypto. Often, skepticism comes from a lack of understanding or exposure. Many people have only seen negative headlines—like hacks or dramatic losses—without delving into the technology or the broader context.

Just like with stocks, the volatility in crypto can lead to significant losses if one isn’t careful, but it can also offer substantial opportunities. The key is to approach it with the same diligence and research you would for any other investment. If you’re hesitant, try to learn more about it. Dive into the fundamentals and consider its potential from a different angle. You might discover aspects that challenge your initial views or offer new opportunities.