The Cryptonomist interviewed Massimo Morini, advisor of the Cardano Foundation and professor of blockchain and cryptocurrencies at the USI University of Lugano to talk about technology, AI, and the future of DeFi.
How do you see the evolution of blockchain technology in the next five years and what role do you see for your work in this development?
In the coming years, perhaps less than five, blockchain technology will need to fully become itself in order to continue growing. Truly decentralized and increasingly usable. With the growth in size, the biggest risk is that it will be noticed only because it is at the edge of the regulated world. The salvation lies in its identity. Bitcoin has continued to grow because it is truly decentralized, and in its own way used precisely for this reason.
Ethereum is even more interesting because it has used its growing decentralization to give rise to a new economy, made up of DeFi projects and the technology to make them scalable and secure, even at layer two. Much is still to be done, especially on the Governance side. With Cardano, for example, we are working on the transition to decentralized governance. Cardano is taking this path with a determination that is still not seen enough in other ecosystems. And for decentralized governance to work, the users who participate must know the system they govern, in its mathematical, technological, and economic aspects.
What are some of the most promising applications of blockchain and cryptocurrencies that you see emerging, especially in the context of the global economy?
Let’s remember that the blockchain does not have a truly clear distinction between technology, investment, financing, and application. The token, for example, is the unit of blockchain technology, it is a form of financing, it is an investment, it is a tool that enables other applications from DeFi to tokenization. Now I am fascinated by how the growth of tokens has given rise to DeFi, which is driving the growth of layer two, stimulating applications where data and calculations are verified with great efficiency. The world now faces what we know to be one of the greatest opportunities in history, AI. Many also consider it a great risk, but it is necessary to understand in what sense.
For me, AI is a risk to the extent that it becomes opaque, manipulated, private. Then it can end almost everything we know. If instead it remains transparent, verifiable, objective, then there is no need to be afraid. The blockchain world has the only technology to do it: homomorphic encryption, hash on immutable ledgers, zero-knowledge proof… they can provide privacy and verifiability, prevent manipulation, certify algorithmic steps, and increasingly even for complex algorithms. Who knows if this might be the killer app… Or rather, the saver app.
Cardano is known for its sustainable and scalable approach to blockchain. Can you explain how these characteristics differentiate Cardano from other blockchain platforms and what advantages they offer?
Cardano is often remembered for the privacy and scalability of its e-utxo system, or for the inclusivity of its staking system that everyone can participate in, and without costs to the environment. These are great qualities that have required and still require a lot of work. But I believe that Cardano is more than that. Cardano was born with a very clear and very honest plan. It recognized the difficulty of bootstrapping every blockchain and therefore sought to grow transparently and then began to truly decentralize consensus, succeeding in a few years.
Today it is doing so with governance. In the meantime, it has used its resources consistently and reliably, as its resource management mechanisms are algorithmic and parameterized. This is almost unique in the history of blockchain, and it is necessary to truly decentralize. Right now, Cardano is passing this living algorithm to those who will have to take care of it in the long term, the users. And this must be done well. The history of Cardano is promising.
How do you think blockchain and cryptocurrencies can integrate with traditional financial institutions? Are there specific challenges we need to face?
Neither the blockchain world nor the institutions should miss the opportunity arising from the debate on Central Bank Digital Currencies. If these are based on a technology compatible with the blockchain, then we will truly see integration, and it will be faster than expected. Otherwise, integration slows down by years. But only by years, because if the institutions forget that the idea of the CBDC was born from Bitcoin and propose some solution even more centralized than those of today, they too will seize a huge opportunity.
The blockchain can make banks more reliable and efficient while maintaining their decentralization, and it can provide citizens with the only form of digital money that can truly replace cash as that part of the currency we prefer to manage independently. A technology too similar to traditional ones and even more centralized, even if well managed by the central bank and with the participation of banks, cannot achieve these goals and will actually increase systemic risks, managing to endure.
As a Professor at USI in Lugano, what are the main challenges and opportunities in teaching blockchain and cryptocurrencies? What skills do you consider essential for students who want to enter this field?
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The blockchain is not “a” technology. It is a set of disciplines. The mathematics of cryptography and algorithms, the technology of platforms and programming, the economics of game theory, markets, and accounting on distributed ledgers. It is not easy to find students who have, or who are ready to develop, this background. Even though USI, which has a focus on economics and finance on one side, and technology and computer science on the other, starts off quite well in this regard. Then any student will delve deeper into one part and less into another, and will add to these more or less in-depth knowledge, those other skills needed by the community, communication, marketing, social, legal. But it is important in this sector to keep an open mind, never to be afraid of technology or the evolving regulatory framework, to know more even if you can never know everything. Indeed, this attitude is stronger in blockchain than in any other sector, and it is one of its contributions to society and individuals.
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Decentralized finance is gaining more and more attention. What are your predictions for the future of DeFi and how do you think it will influence traditional financial markets?
Traditional markets have been stagnant for over a decade, since the time of the great financial crisis. For better or worse, they have lost the driving force they had when I entered the sector, before the crisis. Now it is technology that leads, and in reality, the DeFi sector is the only part of finance that continuously grows and innovates. And it does so against all odds, without having clear rules, and without creating even half of the instabilities that are almost normal in finance. It has been more than two years since the first, and to date almost the only, serious problem that arose around this world, the case of FTX and others from the same period. But just over a year since four of the largest bank defaults ever, saved only by central banks. This is talked about less, but banks know they are the symptom that something is wrong and are doing more than it seems. But to date, they cannot escape the safety of a world where everything is hyper-regulated to ultimately be protected by the central bank. Similarly, blockchain struggles to give itself those rules that it could and that could make the world understand why it can work better than traditional systems. As of now, the two sectors communicate, but it is a dialogue between the deaf.
