Ep. 229: Lamont Black - Navigating the Digital Finance Future: Crypto & Blockchain

< Intro >

– Welcome to another enlightening
episode of Count Me In.

Where we delve into the pressing issues

shaping our world and the business landscape.

Today, we have the privilege of
hearing a wonderful conversation

between our guest host,
Kelly Richmond Pope,

accounting professor and author,

and Lamont Black, an Associate Professor

of Finance at DePaul University.

They discuss an issue that is at the forefront

of finance innovation;

cryptocurrencies and blockchain technology.

Lamont brings his vast
knowledge and expert insights

to help demystify these complex topics

and explain their relevance
to the finance industry.

So whether you're a CFO, a controller,

a finance professional,
or simply a curious listener,

prepare for a deep dive exploration

into the world of blockchain and cryptocurrencies.

Let's get started.

< Music >

– So Lamont, thank you so much
for joining me, today.

And if you could start by just
introducing who you are.

– So I'm an associate professor
of finance in the Driehaus

College of Business at the DePaul University.

So I'm one of your colleagues.

–You are one of my colleagues.

And, so, I want to welcome you
to the IMA podcast series.

And I have been working with
the IMA, a little over a year.

Working in research and thought
leadership about ethics,

corporate governance, risk, and
you know my favorite love, fraud.

And as we watch the news, read the news,

what has just been in the news,

so much, in the past, I'd say 18 months,

is this really weird word called cryptocurrency.

And when I came to you, originally,

about trying to understand what
in the world is cryptocurrency.

What you shared with me
was how important it was

to understand blockchain.

And what I want to do, today,
is have you really break down

the importance of understanding blockchain.

Because what I think the world
is getting a little scared about

is when you keep hearing about cryptocurrency,

these exchanges that are falling apart.

And, I think, everybody is really skeptical

of this concept of cryptocurrency.

But what I know you feel is, though,

people might be scared of that.

But you still need to understand
the soundness and the value

of the underlying technology,
which is called blockchain.

So could you tell us a little
bit about what blockchain is

and why we need to know about
it as managerial accountants?

– Yes, so blockchain is the
platform behind cryptocurrency.

And blockchain is a technology,

that, I think, everyone should
be trying to understand.

It's really a system of shared record keeping.

So if you think about how we now live,

in the information age, most
of what we do is involving data.

That data is being stored and shared

using different systems, today.

Whether that's on the cloud
or other types of servers,

and the blockchain is a
way of sharing information.

So that it's recorded on a shared ledger.

So you can really think of blockchain

as a system of accounting.

And what makes it different is that

rather than these ledgers
being held in a private form.

Different ledgers on different institutions

that, then, have to communicate,

blockchain cuts across all those silos.

It's a way of recording information

across an entire network.

Sharing that information with the network,

that makes it very secure, very
transparent, and very efficient

for sharing information.

So as we move deeper and deeper

into the digital economy and e-commerce.

I think every organization
should be trying to understand

how do we store and share
information on the internet.

I think blockchain is likely
that next platform.

And, so, even in the world of accounting,

this is where things are likely headed.

– So that's a great explanation,
and it really makes me feel

a lot more comfortable
in understanding that.

Although, I hear all this
craziness about cryptocurrency,

and cryptocurrency is just where
you shouldn't put your money.

You've made me feel a lot more comfortable

about why I need to understand blockchain.

But let me digress, for a second,

what in the world is going on
with all that we hear about FTX,

and the collapse of these exchanges?

What is that conversation even about?

And how does that affect

or how should it affect our
opinion of blockchain?

– Yes, so cryptocurrency is the money

that is transferred across public blockchains

like Bitcoin and Ethereum.

And, so, people can own Bitcoin
and ethereum as digital assets,

and crypto prices ran up,
dramatically, during COVID.

There are different arguments
for why that occurred.

But one of them would be the
amount of monetary stimulus.

As people had all these different
sources of income coming in.

Let's say through stimulus checks

in the form of fiscal stimulus, that
money flowing into the economy.

A lot of that ended up in crypto.

And, so, Bitcoin almost reached $70,000

for one Bitcoin by late 2021.

And as we moved into this year
and our economy started to slow,

inflation started to rise, largely
as an outcome of COVID,

crypto prices started to collapse.

Now, some people focus on the collapse

of the crypto market as
being something unique.

But I just would point
out that the stock market

also entered bear market territory

in the first half of this year,
and in particular, tech stocks.

So tech stocks are very risky.

And, so, speculative assets
during an economic slowdown,

those prices tend to fall the most.

I view crypto as a form of technology.

It's the frontier of technology.

So, to me, it's no surprise that

as risky assets have sold off this year,

crypto has gotten hit the hardest.

Now, as it relates to the exchanges,

that's really been the problem this year.

Because most people when they buy
crypto, they buy it on an exchange

like Coinbase, here in the US, or FTX,
which was an offshore exchange

headquartered in the Bahamas.

Now, many people wanted to jump

on the crypto bandwagon,
especially, as prices were rising.

And, so, a lot of people

were investing their money
in exchanges like FTX.

But one thing that people
didn't fully appreciate,

in this period of time, is when
you own crypto on an exchange,

you don't actually own the crypto itself.

It's really being held on your behalf.

And, so, FTX is what's called
a centralized exchange.

When a centralized exchange
fails or goes bankrupt,

you're going to lose your money.

They're going to freeze those redemptions.

You're not going to be able to get it back.

And, so, now, I think a lot of the fear

around cryptocurrency is not
just in the price volatility,

it's also the fact that you could lose everything.

And, so, I think crypto does
have a PR problem, now,

of people just being hesitant

and confused about where all this is headed.

– Well, and I think what's interesting,

about our conversation, is
as managerial accountants,

as CFOs, as controllers, as finance professionals.

We could be interacting with
clients and or in an organization

that either embraces blockchain
or accepts cryptocurrency.

At the way that they handle transactions.

And, so, it's really important for us

to understand some of these nuances.

And my question to you is this

how do I know what exchange
I should engage with

if I do want to purchase cryptocurrency?

Because I do have to use an exchange, correct?

That's the only way.

– Yes, it's the only way to
enter the crypto ecosystem.

So if you think of cryptocurrency
as a currency, a form of money,

then, it's like a foreign currency.

If you want to buy euros with dollars,

or if you want to bring the
euros back into dollars,

there's an exchange rate.

And, so, the price of crypto
is really an exchange rate

between dollars and crypto.

And the U.S. money, the dollar,
is a fiat currency.

And there's a long history behind that term

but it, basically, means that we are
no longer on the gold standard.

So the U.S. dollar is not
backed by anything physical.

It is a fiat currency.

But in order to buy crypto,
you have to go through

something called a fiat on-ramp.

Because you're basically
buying crypto with U.S. dollars.

You can't do that just anywhere.

You have to go through
one of these exchanges,

which is why that's the starting
point for most people.

But one key point that
I would like to highlight is

you don't have to keep your
funds on that exchange.

And, so, the exchange that I typically
use to buy crypto is Coinbase.

Because Coinbase is a
U.S.-headquartered institution.

It's publicly traded on the U.S. stock market.

Highly regulated by the SEC.

And, so, it's, relative to FTX, a little
bit safer but not totally safe.

There could be a run on Coinbase as well.

But once you own crypto on Coinbase,

you then have several options.

You could move that money into
something called a digital wallet.

And what makes a digital wallet different

from an exchange is that
you, then, own the crypto.

You manage what's called the private key.

There's no risk of bankruptcy
for some type of exchange

because it's like money in your wallet.

Just like U.S. dollars in a physical wallet,

this is crypto in a digital wallet.

You own it, you manage it,

and so it protects you from
some of those types of risks.

– For the first time, in my life,

I understand everything you're saying.

– That's great.

– But you know what how
you described the exchange

is making transactions on your
behalf versus the digital wallet.

I understand it because
I actually own some crypto.

Yes, I'm the accountant
that owns some crypto.

And let me tell you a little bit about
the way Lamont and I met, first.

Because, yes, we are colleagues
at DePaul University in Chicago,

but we also were in a movie together.

And we were in a movie about
a fast-appreciating asset,

at that time, called HEX.

And, so, there was this production company

that was doing a documentary

about this gentleman by
the name of Richard Hart.

And Lamont and I actually flew out

to the south of Spain to interview,

can you believe we did this Lamont?

Interview Richard Hart
at this undisclosed mansion

on the cliff of a mountain,
on the side of a mountain.

And I was completely skeptical
of everything crypto.

I didn't have the understanding
that, of course, you had Lamont.

But it was fascinating to
watch you go back and forth.

You were a finance superhero

going back and forth with this gentleman,

about this cryptocurrency that he created.

So my question to you is this;
when we did this project, together,

and all that you know about blockchain,

all that you know about crypto.

And then there's this new created
currency that this gentleman started,

what was your opinion of that experience?

What was your opinion of HEX, at the time?

– Well, that was a pretty crazy experience.

But it was great working with you on that.

So I think what's hard for a lot of people,

with cryptocurrency, is that
there are so many of them.

So I think everyone's now heard of Bitcoin.

Most people have now
heard of Ethereum or Ether.

Those are the two largest cryptocurrencies.

But if you go to a site like coinmarketcap.com

you can see that there are now
over 10,000 cryptocurrencies.

And, so, people wonder,
"Well, where should I invest?"

"What's right, what's wrong?"

"What's legit?
What's a scam?"

And I would acknowledge
that there are a lot

of cryptocurrencies that are a scam.

That's why I don't encourage
people to just follow hot tips.

You should never be looking

for some crypto that no one's ever heard of,

but you think is going to pump for
100 X over five days or whatever.

You should just focus on the core
ones like Bitcoin and Ethereum.

But this documentary, we worked on,

was for a particular
cryptocurrency called HEX.

Which is really an application,
a project, built on Ethereum.

And, so, what's also important to understand

with cryptocurrency is you
have your native tokens

that trade on the blockchain itself,
like Bitcoin or Ether on Ethereum.

But HEX is a project built on Ethereum

that can create its own token,
on top of the Ether token.

And that project, the documentary,

was really about is this
project legitimate or not?

And we were brought in, as the skeptics,

to try and ask some hard questions.

And I think we ended up in a place

where we were not fully convinced that

this was the future of cryptocurrency.

I'm a big fan of this space.

I do think cryptocurrency
has a lot of potential still.

But for some of these individual projects,

there are still a lot of question marks.

– Now, when you go in

and you do your consulting with organizations.

What do you find to be the questions

that the employee population may
have or the executives may have?

– Yes, so I'm in the finance department,

in the financial services area.

And, so, a lot of the firms that I work with

are financial institutions,
banks, credit unions.

Trying to understand what does this mean

for the future of money and banking,

which is actually how I got into this space.

So, as a quick background,

I'm a former economist from The Federal Reserve.

I was there through the financial crisis.

And, so, my background is very
much in risk and regulation.

But when I left The Fed to join DePaul

and started teaching money
and banking back in 2013.

It was my students who started
asking me about Bitcoin.

And that started a whole journey,
for me, about is Bitcoin money?

And I'm now convinced that

it is an important chapter
in the evolution of money.

Whether Bitcoin itself will become

a common means of payment,
it's still yet to be seen.

But money is digitizing and assets are digitizing,

I think everyone would agree with that.

And, so, the financial institutions
that I work with

are often inviting me in to speak
to their board of directors,

to speak to the leadership team.

To talk about strategy
and really strategic risk.

Could this emerging ecosystem
of crypto and blockchain,

potentially, disrupt traditional financial services?

If people start using blockchain as
a peer-to-peer payment system,

that could disintermediate banks and credits

from the payment network
and the payment system.

To the extent that people are now
able to get loans on a blockchain.

So decentralized finance, or DeFi,
is an entire financial system

that's being built on the blockchain network.

And, so, banks and credit
unions are looking at this,

trying to figure out do they
have a role to play

in the future of this technology?

Because the original vision for crypto

was replacing banks, even
money without governments.

But with the importance of regulation,

with the importance of ethics and society.

What we're likely going to see is an integration

between traditional finance
and decentralized finance.

And banks and credit unions are
going to have a very important role

to play at that intersection.

– Interesting, well, Lamont,
this has been great.

What I'm also excited about is we
are working on a paper, together,

in conjunction with, of course, the IMA,

about the management, the risk of blockchain

and what managerial accountants

and finance professionals
need to know about this space.

So I hope that everyone that
listens to our conversation, today,

also reads the paper that we
write because it's eye-opening.

I know that I've learned so much

from working with you and listening to you.

I did purchase a little snippet of HEX

when we were doing that project, of course,

it is almost worthless at this point.

So I don't know that I am a big
cryptocurrency cheerleader, yet.

But I do have a respect for blockchain

and understand that it is
something that we need to know.

Like you said, I don't know where
we'll be five, 10 years from now,

but I do want to make sure
that I am current.

And this sounds like it
could be a big change.

Something that you said in one
of the answers to the questions,

is you talked about the idea that
blockchain is this decentralized,

peer-to-peer type process.

And I want to focus on
the word decentralized.

Because one thing that you said,

when you talked about it being decentralized,

is you then said that you used Coinbase.

Which Coinbase was highly
regulated, had oversight by the SEC.

And, so, what I took from your comments

is the point of this integration piece

is probably what makes
most people feel confident,

more confident and more secure.

Because there are pros and cons
about something that's decentralized.

The pro is you don't have this
third-party intermediary.

But the con is you don't have
the regulatory body

that may give a sense of security
and integrity to the data

that a lot of us, especially
accountants, are used to filling.

So I like how you talked about
this idea of the integration

of the two as opposed
to the replacement of one.

And that resonated with me

because for people like me
who are ultra-conservative,

especially, when it comes to money.

I think the integration and
appreciating the integration

of how this technology can
impact business transactions,

in the future, is really important to understand.

So I'm rambling a little bit,

but I finally understand
what you're talking about.

I'm not a cheerleader like you,
yet, but maybe one day.

Maybe one day.

So, any lasting thoughts
that you want to say

before we end our talk, today?

– Well, first of all, I'm very excited
to work on this paper with you, Kelly.

Because I think I'm coming at it
from the perspective of finance.

You're coming at it from the
perspective of accounting.

So in terms of managerial accounting,

we're going to bring those two perspectives.

Help people understand the
implications of this technology,

and help remove some of the
fear and hesitation around this.

Because, like you said, crypto
has very much gotten some

bad press, recently, because of FTX.

But I want to help people understand
blockchain and crypto are related.

We don't, necessarily, have
to pull these two entirely apart.

And, so, in this article,
we're going to talk about

public blockchains like Ethereum.

How can you use that for business

use cases and things like that.

So this will be a unique take
on blockchain, relative to some

of the other things that are out
there in the accounting space.

So I think we're going to have a lot
of value to bring to the profession.

– Well, thank you so much for
the time, Lamont, this is great.

And, listen, we have a movie premiere

coming up one of these days soon.

So we need to walk the red carpet,

bring our families to the red carpet,

talking about this crypto movie we did together.

So I can't wait for that day.

– I'm looking forward to it, too.

– Thanks so much for the time,
today, I really appreciate it.

– Thank you, Kelly.

< Outro >

– This has been Count Me In, IMA's podcast,

providing you with the latest
perspectives of thought leaders

from the accounting and finance profession.

If you like what you heard and
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and finance education,

visit IMA's website site at www.imanet.org.

Creators and Guests

Adam Larson
Adam Larson
Producer and co-host of the Count Me In podcast
Lamont Black
Lamont Black
Associate Professor of Finance at Napoli University
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