Researching Lecturer and Student from the EVAF: Blockchain Technology Will Revolutionise Significantly More than the Internet

“The financial sector is currently undergoing major transformations,” said the Associate Professor at Vilnius University’s Faculty of Economics and Business Administration (VU EVAF), Dr Alfreda Šapkauskienė. Together with Ieva Turskytė, a third-year student in the Economics study programme, she is conducting research on central bank digital currencies, which could become a new type of money.

Neither the pandemic nor the fact that they could not see each other in person prevented Assoc. Prof. Dr A. Šapkauskienė and I. Turskytė from carrying out their joint activities. With the assistance of the VU EVAF lecturer, the third-year student wrote a research paper and took part in an international scientific conference, as well as winning the Research Council of Lithuania (RCL) project. This year, they intend to once again submit an application to the RCL for next year’s research project.

“We haven’t met in person and only talked on Microsoft Teams. My lecturer and supervisor taught me the basics of corporate finance in my second year of studies. I really enjoyed the course, as guests from various companies took part in the lectures. I use the knowledge that I acquired to this day. It was probably this course that encouraged me to approach the lecturer and to write the research paper,” revealed I. Turskytė.

“The first time that I started teaching second-year students coincided with the pandemic. I normally gave lectures to senior students. It was a challenging year, as no one had encountered this phenomenon before, which forced everyone to switch to remote learning. It was a really sad experience, as it limited the possibilities of establishing open contact with the students and getting to know them more deeply. But the pearls shine through, even when we’re teaching remotely. I have been working with students as an academic supervisor for many years, but Ieva is exceptional in the sense that she was my youngest student to bravely accept the challenge of research. I am surprised by how much Ieva has already achieved, while still only a third-year student,” the VU Assoc. Prof. said, discussing her student.

New research topic – Central Bank Digital Currencies

A. Šapkauskienė is a VU Associate Professor who has been working as a lecturer for several decades. Her research areas are related to cryptographic assets, blockchain and financial technologies. According to the lecturer, while financial technologies have been developing for many decades, she became interested in them with the emergence of the innovative blockchain technology that gave rise to the development of bitcoin.

“The blockchain operating technology was first described at the end of 2008, but the first research on this subject only emerged in 2016-2017. Since the end of 2017, the public has become increasingly interested in crypto assets. As researchers, we are always interested in researching new phenomena, and cryptographic assets are unique in that their properties have been constantly changing during this period. The growing supply of digital currencies has increased the pressure and presented a challenge to the financial sector. In response to market changes around the world, central banks have initiated the process of developing central bank digital currencies (CBDCs). Thus, when Ieva and I started working together last year, central bank digital currencies became our new research subject as there was barely any research on this in Lithuania,” A. Šapkauskienė explained.

Talks about central banks creating digital currencies intensified in 2019, when the social network giant Facebook unveiled its plans to launch a global payment network that would use a new cryptocurrency called “Libra” (later renamed “Diem”). The network intended to use blockchain technology combined with the best features of traditional networks. This ambition drew the central banks’ attention. According to A. Šapkauskienė, the idea was opposed because its implementation threatened the financial stability, monetary sovereignty and control of government entities.

“Seeing that the market is expanding and technology is offering so many new opportunities, the central banks realised that they must enter this market. Therefore, the central banks launched their development of cryptocurrencies. In 2020, there were approximately 36 countries that announced they were conducting research on digital currencies, or that they had plans to introduce such currencies. More than a hundred countries have now announced the development of CBDCs. To make a long story short, Lithuania, as a European Union and a eurozone country, is talking about the digital euro. It would not replace, but would complement the money we already use, and would encourage innovations in retail payments through the introduction of new technologies,” said the VU researcher.

I. Turskytė also became interested in this topic, and is currently working on a research paper based on the subject. According to her, the Bank for International Settlements (BIS) has emphasised that cryptocurrencies have a speculative aspect, i.e. when it comes to investing, people see opportunities for profit, but it is also a non-regulated area. Another unique feature of cryptocurrencies is anonymity.

“In the development of central bank digital currencies, anonymity is considered to be essential. Only after reaching a certain amount would checks be conducted concerning who spent the money and why. This would still make the security checks work. In the case of the current cryptocurrencies, anonymity is both a good and a bad thing. There are opportunities for money laundering, terrorist financing, drug trafficking, etc. However, I believe that central bank digital currencies – although for now they are largely a concept, as there are subtleties to the financial stability and all aspects of monetary policy – are a great opportunity to step into the electronic world, and to adapt to people’s needs,” I. Turskytė stated.

Revolutionising more than just the internet

“Blockchain is expected to revolutionise significantly more than just the internet, which in recent times has revolutionised the world, as it will affect almost all industries. In most cases, consumers adapt to it very quickly as it is easy to use, and it does not matter what technology is implemented to meet their needs,” the VU researcher said.

The digital euro would be a form of money issued by the central bank. This means it would be provided by the central bank and designed to meet the needs of the people: it would be risk-free and respect the privacy and data protection requirements. The central banks would be committed to maintaining the value of the money, be it physical or a digital currency.

In turn, in the cryptocurrency market, settlement in a blockchain eliminates the need for intermediaries as a means of ensuring control,” A. Šapkauskienė explained.

“If we had a digital euro, it would work other technological tools. How would it work? The European Central Bank (ECB), together with the central banks in the euro area, is still deciding on the operating principles. What’s certain is that it will act as an alternative to our current money. However, it will not be the same as the crypto market. It will not perform the same functions, but it will be centralised,” said A. Šapkauskienė.

Why would consumers want to use the digital euro? According to the ECB, there would be no additional costs for people using it for payments, and it could be used throughout the euro area. This means that the beneficiaries, such as merchants and small businesses, would be provided with another, additional way to receive payments from their customers. Thus, the population may not feel the impact of the transition to the digital euro, explained A. Šapkauskienė.

“We already use a lot of financial technologies, including contactless payment cards, as well as payments by phone, watches and other devices. It all seems to develop naturally. In the same way, we will start using the digital euro based on innovative technologies as a fast, convenient and secure means of making everyday payments. We cannot ignore the new technologies, regardless of the future of the cryptocurrency, which operates on the basis of blockchain technology and has the largest market capitalisation, because blockchain technologies, like other technologies, are constantly evolving and can be applied in all areas of life. For example, they are used to ensure transparency in voting,” the VU Associate Professor said.

Furthermore, according to the student I. Turskytė, one of the missions of the digital currencies issued by Central Banks will be education. According to her, young people are more receptive to technology and more likely to adopt new technologies. On the other hand, it can be challenging for an older person to recognise that blockchain is secure.

“For example, the Bahamas has a digital dollar. It has been successfully developed and implemented, but the utilisation rate is relatively low. There are many reasons for this, but one of them is that people are not well-informed about what it is and how to use it,” she explained.

Financial implications of the pandemic and war in Ukraine

With the start of the war, the Central Bank of Ukraine banned the purchase of many currencies, using the hryvnia to protect its national currency. It also banned digital money transfers, which slowed down the transfer process. While the government was concerned about keeping the financial lines open for donations, the central bank argued that restricting digital currency transactions was necessary.

According to A. Šapkauskienė, in the case of the war in Ukraine, cryptocurrencies can, in fact, serve to meet the rapidly growing needs to fund the military and non-governmental aid, and to support organisations providing humanitarian assistance. She revealed that, in 2020, when Belarus was hit by protests over the rigged presidential elections, individuals and international organisations were able to continue operating as they were funded using cryptocurrencies. However, these funds can also be used for malevolent purposes, e.g. to finance unfriendly regimes, money laundering and the like.

“At the same time, the sanctions against Russia affected the non-governmental organisations whose activities were directed against the regime. Cryptocurrencies can be used for both good and evil. They are largely unregulated. However, we shouldn’t ignore the fact that not only cryptocurrencies but also traditional money is used for payments on the black market,” said the VU lecturer.

According to A. Šapkauskienė, the ongoing war in Ukraine will unequivocally affect Lithuanian businesses: “The pandemic was not yet over when the war broke out, so the current situation is deepening the negative economic consequences. There’s no doubt about that. However, economic prosperity should not take precedence over the preservation of human life, humanity, democratic values and the territorial integrity of countries.”

I. Turskytė, who participates in the activities of the VU Student Investment Fund (VU SIF), said that she and her colleagues have noticed a significantly greater interest in investing among young people since the beginning of the pandemic.

“When people saved or received money and aid packages, they partly invested them in an unsustainable way, i.e. in cars and other things. It’s not always profitable, but investing, even if it’s sometimes unsuccessful, is a useful experience that you can learn from. Even now, the financial markets are very volatile. Some say now is a great time to invest, as those profits will triple or double, while others say the opposite will happen. Therefore, the pandemic sparked the interest of myself and my peers in investing,” I. Turskytė said.