Fintech Review (FR): What did you do prior to starting Worldfree?
Kevin Kirchman (KK): I started my career at 14-years old as a professional programmer in banking software, working for my father’s company the Kirchman Corporation, which had 400 employees at one point. This allowed me to learn the software business over many years with roles throughout his company, as well as spending about 6 months working in all areas at a medium-size bank, as a guest of its president.
I have degrees in computer science and mechanical/aerospace engineering, and while at Cornell University as a grad student caught the AI bug. While working on my thesis in AI applications in engineering, I reasoned that we needed a science of knowledge before we could build successful language understanding systems. I spent many years independently developing a new perspective, including new theories of deduction (reasoning) and lexicology (meaning) among others, before returning and starting Worldfree to do Natural Language Reasoning (NLR).
The early Worldfree had commercial clients such as Proctor and Gamble and Baxter Healthcare, using software developed with these theories, and the company grew to 30+ people. Later, seeking consumer markets for the AI tech, I explored the cryptocurrency space, because of my background in Fintech. After reading most of the major papers in the field, I felt that storing everyone’s transactions for all time was wasteful and a security threat, and invented the Nodechain, which stands for “No Data Chain”.
FR: As a technical person, what is your opinion on the current state of all these coins that copy and paste from GitHub, more specifically why are you against open source?
KK: I have a strong history in banking software as my father was a pioneer in this industry, as a leader in the US banking market, with 6,000 banks worldwide using his firm’s software.
Criminals have big incentives if they crack the source code in financial software. Therefore, having open source gives these bad guys the time and tools needed to gain an explicit understanding of the code, which is undesirable for obvious reasons.
Ultimately, instead of constructing a stable code-body, open-source ends up stunting the improvement of the code and essentially inhibiting the innovation behind it. In my opinion, open source usage for financial transaction software is a bad idea, which I understand is a controversial stance to take, especially in this industry.
However, I do feel as if there are other ways to validate the functionality of software. We use third-party validation of software as well as novel “open functional validation”. Another issue that is a cause for concern is the time-constraints and experience of the programmers out there and how well they understand the code. Fixing all the bugs in the software is a very complicated process—does open source provide enough incentive to drive all the fixes? Again, I feel open-source fundamentally stunts innovation. The way we’re doing it allows for more innovation whilst improving the code which is closed, not open source. It is unfair of us to assume that everyone is dishonest—what we are trying to look for, rather, is failure modes, which is used in order to engineer the development of the code.
FR: How does blockchain technology need to change for it to be adopted by the majority of businesses?
KK: I fully believe that Blockchain has real value and functionality, but the functionality isn’t universally adaptable in every application, as it has specific functions in different areas. The issue is that we don’t want to allow someone’s transactions to be available to the public due to the likelihood of keys being stolen. Blockchain is a great technology for open registries where the need for information to be publicised is required and therefore has several different applications.
However, Blockchain isn’t the only possibility for cryptographics and peer-to-peer distributed systems. Blockchain has a role in financial transactions but it isn’t the only technology for them. The Nodechain is a fundamentally distinct technology for cryptocurrencies. It uses cryptographics and peer-to-peer distributed systems as well, but has a fundamentally different model which takes advantage of the different aspects of Blockchain.
FR: What difference does the Freemark have from tether the cryptocurrency that is backed by the US dollar and now the Euro?
KK: The idea with bitcoin was that it was an alternative to fiat. However, in a way, bitcoin may still be considered a form of fiat, the only difference being that a different group of people are asserting its value. In the case of Tether, it is being tied to a fiat currency. So, is it asset-backed? The US Dollar and the Euro are not asset-backed. That means you’re backing a cryptocurrency with something that is not asset-backed either.
So essentially what we are doing is grouping new technological advancements with traditional methods. This may improve how the system works, however, I do not think this is the best way moving forward for the world of cryptocurrencies.
The Freemark has two fundamental differences to most currencies. Firstly, it is asset-backed with a regulated, audited fund –similar to a university endowment. It is invested in a rational and prudent way. The Freemark owners are not compensated in proportion to the returns, so it isn’t a collective investment scheme. It provides much legitimacy and liquidity to the currency due to it being asset-backed.
Tether is backed by the US dollar and the presumption is that the US dollar is stable. However, the US dollar varies one to five percent a week and at times more. That is a clear sign of instability and shows a lack of connection to the physical world. Freemark, on the other hand, is pegged to a basket of 20 commodities which can be calculated through twelve-month moving averages of the commodities. Pegging a currency to the real world via the trading of commodities gives it an advantage over the variability of the US dollar due to that greater stability. Freemark is ultimately pegged to a basket of commodities and is asset-backed by a fund, giving it two different components. This gives us a sophisticated solution to a complex problem. Furthermore, we pay a royalty on the money supply growth to hedge against inflation and its acts as a special sort of reward I suppose. So, whilst inflation makes the US dollar worth less, we are turning this on its head and making money-supply growth into a positive.
FR: What various technologies does Worldfree use to build their technologies (NLP, NLR, NLU)?
KK: Natural Language Processing (NLP) and machine learning are very connected. The main component of NLP is its pattern recognition. When you’re reading a book, the first thing you do is identify a sentence. You see the punctuation and words in the sentence. They communicate a meaning to you because you understand the words. The structure and syntax of the sentence further communicates the meanings of the words, conveying an understanding through syntax and semantics. The first part of comprehension and reading is pattern recognition of NLP and it refers to the structure and words pattern recognition. Natural Language Understanding (NLU) delves into the meanings of the words and syntax itself. NLU comprehends the meanings of the words, syntaxes and structure of the sentences. Natural Language Reasoning (NLR) refers to the deduction of ideas. The lexical and graphical semantics and syntax meanings are all connected and useable by the theory of deduction. Reasoning is critical to the human-computer interface so that’s where Worldfree has been focusing its technological advancements. Natural Language Reasoning (NLR) occurs after NLP and NLU—we must first recognise and comprehend meaning before we reason, therefore NLR is an advance.
FR: How does having a backed cryptocurrency by assets help bring utility?
KK: There are a few issues to address when speaking of asset-backed cryptocurrencies. The issues are the legitimacy and liquidity of a currency. Another widely recognised issue is the impact of inflation, which is not accounted for when considering cryptocurrencies in a world still linked with fiat.
Worldfree has worked to overcome this issue and feels that we have created a solution to this problem. FreeMark’s payment of royalties with respect to the growth in money supply is key in overcoming the issue of inflation. Inflation erodes the value of people’s savings, and is thus a disincentive to wealth accumulation. When governments increase money supplies, they do it without increasing the wealth in society—it’s just money, not wealth.
The FreeMark automatically provides savers with a royalty when the money supply grows—this is an incentive for savings and growing wealth. It works in the opposite way that fiat currencies work, because existing savers benefit when the money supply expands.
Asset-backed cryptocurrencies like the FreeMark thus have a big advantage over fiat currencies, whether crypto- or government. But to keep up with the royalties, and provide inflation and deflation resistance—essentially protecting the power of people’s savings, the assets have to be invested for rational returns.
The whole idea of asset-backing provides good functionality and provides a way to facilitate the payment of royalties and the payment of increased money supply of the cryptocurrency.
FR: How does the multiple asset backing work?
KK: Firstly, we have to segregate the asset-backing from the commodity pegging. The asset-backing is comprised of real estate and various other assets differing in liquidity, which are handled prudently whereby we only invest in lower-risk investments that will grow the fund, as opposed to investments which give the highest returns. On the commodity side, we do not want to be exposed to the volatility of any given commodity as all the commodities endure volatility due to the forces of supply and demand. As a matter of fact, we use 25 commodities in our basket of goods, with 5 kept in our reserves. If one of the commodities get too volatile over a time period, it will automatically be switched out. Then, each commodity is weighted, depending on their level of volatility. Least volatile commodities are given a weighting of 7%, with the medium range having a weight of 5% and the most volatile having a weight of 3%, so that we make a stable base. Thus, we use multiple commodities in order to mollify the effect of volatility via surges in supply and demand.
FR: A big issue that has started to be questioned in the crypto industry, whether certain cryptocurrencies are supposed to be classified as securities. If regulation were to happen what would you think will happen to the cryptocurrency market? Also, where would the free mark be in this scenario?
KK: The primary purpose of a currency in the traditional sense is a medium of exchange. So, are they securities? Well, not really. I mean you can have a coupon that you use in the supermarket that you would cut out of the newspaper in the olden days. There are a lot of issues due to the question. We should not presume that risk is evil- it is a part of life. Risk is inversely correlated to reward. Risk tolerance is up to an individual themselves and it’s something governments have to recognise and respect as well.
There is also a need for us to ask tough questions of regulators regarding the manner in which they regulate securities, especially in regards to marginal utility for less wealthy investors, and the irrationality of phasing out high reward investments. There is also the flip side to this where you’re regulating the greater part of humanity from investing in young firms extremely limiting the supply of funds. It is giving a better deal to existing players and is reducing social mobility and the funding for new ventures, which leads to a decline in job growth.
FR: What do you believe will occur in the next year or so technologically-wise in the crypto industry?
KK: I think firms will continue to address scalability challenges, which we’ve addressed with the Nodechain, and there are a lot of innovative concepts from an economic standpoint, ours being one of the more challenging to the current approach.
Worldfree recognises the value of Blockchain in the way we utilise the technology in our architecture. We take a lot of the advantages of blockchain and we incorporate it in the Nodechain in a much more scalable and secure version of cryptocurrency. Our asset-backing and pegging are all innovative things and we have patents pending which is of the utmost importance. Our technology could be an important influence and opportunity for both users and for cryptocurrency in general.
I am not going to deny that there a lot of innovative and capable people in the cryptocurrency space. Our technology is different and novel but there are also other people out there inventing good things. The ERC-20, for example, is a bit premature to be made a standard in the industry, which is only in its infancy. However, when the early adopters come together, the marketplace became viable, as the success of cryptocurrencies has shown.
Now, the rest of the world is taking note of what’s going on and they’re getting excited about the possibilities. So now it’s time for this technology to move into the mainstream which is really an entirely different marketplace. It’s the firms that make the transition from the early adopter marketplace to the mainstream marketplace that are going to be better engineered both economically and technologically.
FR: Are there any industries outside the financial industry that you believe are not blockchain proof?
KK: As innovators, we are trying to come up with better ways to do things. I don’t think that it’s about tearing down industries, rather it is about trying to figure out better ways to do things. There are possibilities that this new technology will augment, replace or improve existing traditional methods of going about our daily lives and functions. Yet, this new technology must prove itself by use and cryptocurrencies are doing just that by demonstrating persistence.
I guess you could say that it’s the same with our technology, where we are seasoned in the industry and we have developed commercial technologies that have been used by real firms and top global companies. We are always trying to create various technologies that can withstand the pressure of the global financial system and can incorporate other functionalities such as tax. We are constantly pushing the boundaries and trying to achieve this in the most intelligent way possible. As we see now in today’s markets, cryptocurrencies are disruptive and are essentially disrupting the disrupters. However, from an industry insider’s perspective such as myself, I feel as if it is all about trying to find the real value and functionality of the technology and how to successfully introduce it effectively into the market as opposed to disrupting industries. We are contributing to social mobility: as the new become the old, there is continuous change and improvements being made to benefit society.