From Satoshi to nakamo.to

Michael Geike is the CEO of Advanced Blockchain AG, a group that focuses on the design, development, and deployment of DLT software for businesses and their operations and services. The company is collaborating with startup nakamo.to in the creation of peaq, one of the only projects working with DAG at its base layer, instead of the blockchain.

nakamo.to: how did it all begin?

nakamo.to’s inception dates back to 2012. At that time, I was working as a Team Manager for the Payment Analytics Team within the Data Intelligence unit of Zalando, and I received a call from Robert Küfner, later to become the founder of nakamo.to, who enthusiastically introduced me to the world of bitcoins and the technology that lies behind them. I had never heard of bitcoins before, but the moment I started digging, I realized that they compiled all of the fields I had worked in: there’s mathematics (I’m a mathematician), algorithms and data science (which is what I was focusing on at Zalando), and finance (I worked as a trader at JP Morgan for six years). The more I delved into this technology, the more I understood how revolutionary it would be. We immediately started a mining operation, which proved to be rather successful. Two years later, Robert and I set up Smart Equity AG, the first publicly listed company in Europe created as a professional Bitcoin mining firm. Shortly later, however, the bitcoin exchange Mt. Gox went bankrupt, and we had to leave this endeavor. We stayed invested and connected to the crypto-scene, and in 2016, when the markets began picking up again, and more people started talking about it, nakamo.to came to life.

nakamo.to has a very specific vision behind it. Could you tell us more?

With nakamo.to, we decided to create our own DLT. Back in those days, we began having the vision that the whole world would be tokenized. Tokenization means that anything in the world, from tangible goods, like houses or clothes, to intangible ones, such as services, will have at some point in the future a digital unit that exists solely for the purpose of representing such assets in the digital world. This makes it much easier to trade, transfer ownership, prove, stake, lend, verify and validate a certain condition of an asset, opening up a whole world of new possibilities. And we considered DAG (Directed Acyclic Graph) to be the most suitable concept to build the technology that would make this tokenization happen.

What’s the difference between DAG and Blockchain?

DAG (Directed Acyclic Graph) is a mathematical concept which can be applied to a new type of blockchains if you will. Blockchains are composed of blocks in a chain, DAGs have more of a tree structure, with different nodes at different levels. This peculiarity gives them an efficiency advantage over traditional blockchains.

Why is that?

Well, there are four main advantages of our DAG-Technology when compared to traditional blockchains. First, it makes mining a thing of the past: no blocks mined means no need for miners, nor mining equipment or waste of energy. Second, the non-linear tree structure makes it highly scalable. Third, transaction fees are lower, as there’s no miners’ cut, making even zero-value transactions (just sending information for example) possible. Finally, it can tackle complex applications and use cases that traditional blockchains can’t take on yet.

So how can DLT be applied in, for example, the fashion industry?

When it comes to the fashion industry, DLT can help tackle the business of fakes. For a client of ours, for example, we’re developing a system to insert near-field communication (NFC chips) in their handbags. Data can be retrieved via this chip, which is stored in a decentralized database and verified by distributed ledger technology through a blockchain. This makes the data immutable: it cannot be hacked or changed, giving the buyer 100% trust that the handbag is authentic. DLT also aids supply chain management: the fashion industry’s supply chain is a complex one, with various suppliers at different levels. A DLT-based fashion supply chain would allow a diffused and transparent distribution of verified data among the different parties.

And in automotive?

The same principle above can be applied to the automotive industry, where authenticity is a crucial matter and the supply chain is composed of many stakeholders, just as in the fashion one. Cars are made of many components, all of which can be counterfeited. One of the most common manipulations is that of the mileage: with a DLT based architecture, the buyer could verify if the mileage displayed in the car is the actual one by checking the corresponding data in the blockchain. Furthermore, now that electric cars are increasing in usage, we will, for example, need an infrastructure through which people can charge their cars anywhere conveniently. This means being able to source energy from anyone, anywhere, and in the best case scenario that requires a decentralized platform, where consumers and businesses can exchange electricity for money peer to peer, where the users don’t have to worry about trust and payments happen automatically, and securely. These kinds of platforms are exactly what DLT is being developed for.

DLT has been around for ten years now. By when do you expect it to be normalized, and part of our lives?

I think we’ll have to wait from 5 to 10 more years to see it widely used. This technology is now at the same stage the Internet was in the ‘90s: most people have heard about it, but not many have used it, and there’s still a lot of skepticism around it. Now, the industry is past the hype peak, and it’s becoming a more grounded technology.

So you think that in 5 to 10 years we’ll manage to have a clear regulation as well?

We will. I think we’ve learned the lesson. The time of ICOs (Initial Coin Offerings), the method of raising funds in an unregulated environment that disrupted the finance industry is being replaced by a new wave, that of STOs (Security Token Offerings), which are basically the sale of tangible securities in a regulated way. Jurisdictions and countries around the world are working to find good regulations for STOs to happen in a more protected manner. My wish is that we accelerate this process in Europe, as it is a great opportunity to attract talents and young businesses.

What about cryptos? Do you think that the adoption by central banks and governments will mark the end of digital currencies as they were first conceived?

In the future, cryptocurrencies will remain – and will actually get stronger, it’s only a matter of time. Their volatility is simply due to the fact they are not widely used in everyday business yet, and speculators cannot agree on whether they ever will be. Fiat currencies have a much bigger problem than volatility, especially in the long run. When you begin printing them, you get stuck in a loop that you can’t get out of: you need to print more and more to keep them stable, all the while knowing they will eventually collapse. But traditional currencies are doomed to fade away: the future will only belong to cryptos, which are just way more efficient, transparent and programmable. These currencies won’t be related to local boundaries such as countries, but to functions: we’ll buy cars with one crypto, book flights with another, and so on. But highly centralized power cryptos might be a short term improvement over Fiats, but are doomed to fail, and won’t be part of this scenario in the long run.