In recent podcasts, we addressed three themes, among other topics: how artificial intelligence and machine learning (AI/ML) can change how decisions get made; how blockchain can transform how we transact and how we record and communicate things; and how technology shapes how we trade stocks.  We entered 2020 with a lot to watch.  Perhaps this decade will be the “roaring ‘20s of FinTech.”

From Here to There for AI/ML.  The promise of AI/ML is transformative, and companies (small and large, new and longstanding) are fast at work developing and deploying real-world applications, from autonomous driving to growing crops to detecting cancer.  But as our discussions with a philosopher, a neuroscientist, and a computer scientist fleshed out, there’s still a lot we humans need to learn about AI/ML.  For example, precise functioning of machine neural networks remains the subject of intense research to understand how a machine’s “brain” learns and decides on its own, besides supervised learning and pattern recognition.  It is believed to be the gateway to artificial general intelligence.  These technological questions have brought to the fore ethical questions concerning AI/ML, such as how to keep machines from reproducing, let alone exacerbating, pernicious biases.  Profound questions like whether machines can feel or have consciousness are even being asked.  Indeed, some wonder whether AI/ML may force us to reassess what it means to be human if a machine ends up closely replicating the kind of cognition and sensing that is uniquely characteristic of people.

Wrestling with these diverse considerations – as well as ensuring that individuals have the knowledge and training to benefit from new opportunities as automation spreads – will, we think, help engender understanding and acceptance of AI/ML as it moves into its next phases.

The Integration of Blockchain into Everyday.  Blockchain is about more than bitcoin and ICOs.  There also are stablecoins, central bank digital currencies, and utility tokens.  Leveraging blockchain to improve payment systems has been a work-in-progress for some time.  And Facebook’s Libra stirred up considerable debate last year.  But the role of blockchain as a distributed ledger/database technology is allowing people to rethink the tech stack in many industries and businesses, not just finance and money.  Implementations in supply chain, food safety, digital identity, and healthcare are among many other uses being explored for both the private and public sectors.

One takeaway from 2019 is that lawmakers and regulators remain focused on these developments.  A related point:  There’s still a good deal of regulatory uncertainty that businesses must contend with.  More regulatory clarity in 2020 would help spur innovation in the U.S.  It can be difficult and costly to shape and execute your business strategy if regulatory requirements and prohibitions aren’t clear, especially when your business uses an emerging technology.  In the past, regulation has been refined in light of technological change without compromising important objectives like promoting transparency, rooting out misconduct, and halting the financing of illicit activity.  The same should happen for blockchain to avoid stifling innovation.  In fact, if blockchain is leveraged for compliance and risk management purposes, it might help promote the goals of investor and consumer protection, safety, and law enforcement.

Two of our guests are deploying blockchain well beyond financial services in very different ways.  We heard about a company using blockchain to create a platform for the re-selling of mobile phones.  Another guest explained how they are combining blockchain and the internet of things through crowdsourced networks that connect sensors to track items, such as medicines, and events, such as wild fires.  If these use cases are any indication, the possibilities seem endless.

When Equity Markets and Physics Meet.  We’ve been trading stocks for a long time.  The NYSE, for example, traces its roots to the Buttonwood Agreement of 1792.  The technological changes from then to now are too many to catalog.  It all nets out so that today, sophisticated algorithms search for liquidity across tens of markets in the U.S. alone, and stocks trade in fractions of a second.  Electronification won out.

When it comes to equity market structure and performance, investors want speed, efficient prices, and low search costs.  Investors also want to avoid information leakage that can cause their own buying and selling to move the market against them.  But investors don’t necessarily prioritize each aspect of the investor experience in exactly the same way; execution quality is nuanced, with several variables.  Investor choice matters so that investors have the chance to attain the experience they prefer under particular conditions.  Technology, along with advanced quantitative methods, has allowed for more trading diversity – and thus more investor choice – by enabling exchanges and alternative trading systems (sometimes called dark pools) to differentiate themselves by the products, services, and matching engines they offer.

There’s also market conduct.  The SEC’s job is all about market integrity – that is, safeguarding investors from fraud, misappropriation, and manipulation.  The SEC and other financial regulators themselves use technology and quantitative analytics to detect wrongdoing.  This is consequential since the tactics of misconduct have become more clever.

Having said all of this, technology in our stock markets hasn’t yet reached the limits of the laws of physics.  In other words, there’s still room for technological advancement.  What will quantum computing mean for stock markets?  How will AI/ML allow buyers and sellers to interact more “intelligently”?  How will blockchain and smart contracts disrupt clearance and settlement?  How will data science impact how markets are policed?

We’ll be keeping an eye on all of this and more in the ‘20s.

This post comes to us from Troy A. Paredes, a former commissioner of the U.S. Securities and Exchange Commission and the founder of Paredes Strategies LLC, and Lee A. Schneider, general counsel of blockchain developer Block.one. It is based on recent episodes of their podcast, “Appetite for Disruption: The Business and Regulation of FinTech.” The authors wrote this post before the recent COVID-19 outbreak and wish everyone health and safety during this difficult period.