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Cryptocurrency’s Necessary and Inevitable Evolution

cryptocurrency

Cryptocurrency’s Necessary and Inevitable Evolution

Cryptocurrency is at the precipice of ushering in the next era of finance. However, in order to be regarded as a commodity, traded and managed in the same way we now do with precious metals, equities, and derivatives, cryptocurrencies must become subject to similar rules, regulations, and trust mechanisms that apply to traditional assets. Such assurances are necessary for cryptocurrencies to achieve their full potential. Banks and financial institutions, as well as other industries, require security at scale and other layers of assurance, like insurance and chain of custody tracking. Adopting the means to develop a high level of trust is an absolute necessity for implementing cryptocurrency in a meaningful way. The question is, how do we get there?

Traditional asset management firms act as fiduciaries on behalf of their partners, subject to rules that ensure the safekeeping and custody of the assets they hold on behalf of their clients. Becoming a fiduciary in the world of cryptocurrency is a complex process, requiring a combination of specialized software and hardware, physical security, as well as clear policies and processes that ensure safe custody of assets. It also requires establishing the means to adopt the regulatory underpinnings for strictly digital assets, and that affords customers the kind of transparency and assurances—track record, management team, balance sheet—that ensure custodial trust is essential.

However, that does not exist in traditional cryptocurrency exchanges where the roles of broker-dealer, clearinghouse, bank and custodian are all handled by a single organization, usually an exchange. That’s too risky for large scale financial operations.

Here are a few elements that should be adopted to mitigate that level of risk and provide acceptable assurances for institutional and large-scale industrial adoption:

Adopt the SOC 2 digital security framework. SOC 2 is a set of rules developed by the American Institute of CPAs to establish a certifiable process of strict, auditable controls for building confidence, and ensuring trust and integrity, in service organizations dealing with digital assets.

Require that institutions act as fiduciaries. Fiduciaries are required to act in the best interests of their clients and must abide by a number of rules and adopt safeguards meant to establish and ensure trust. Fiduciary rules protect the client in the event of wrongdoing, error, or as a backstop to a catastrophic event such as being hacked. Safeguards associated with fiduciaries include insurance, funds in escrow, capital in reserve, security and other procedural checks, and no commingling of client coins.

State-of-the-art security. Digital assets have proven difficult to secure. Trust and security for institutional management of cryptocurrencies require the strictest, strongest technology and processes available, including multi-signature access using private keys, as well as a combination of both online (“hot”) and offline (“cold”) storage of assets to minimize risk.

If we start with these three things, we can accelerate the process of establishing necessary trust in cryptocurrencies. Even though it is counter-intuitive to the prevailing ethic, the benefits of using cryptocurrency in today’s global marketplace demand that at least the leading forms of cryptocurrency, like Bitcoin and Ethereum, adopt rules and even submit to regulations on par with those dictating the operation of traditional financial exchanges. This high level of trust would allow organizations to take advantage of the cryptocurrency’s “frictionless” ease of use and access while providing assurance of the asset’s security.

This type of evolution has happened again and again in financial services. Over the last half-century, security in financial services has evolved from an approach focused on building imposing physical controls, to one emphasizing digital trust. Over that time, we’ve observed those changes in the construction of financial institutions. At one time banks were imposing fortresses built of granite blocks and steel bars, outfitted with armed guards, and intended to send the clear message that your wealth was safe inside. Then, after currency was taken off the gold standard and protected with insurance policies, banks became open, airy, and inviting facilities that emphasized convenience.

Today, a bank may be nothing more than an intermediary operating from a web site or smartphone application. As long as the client is content that their money is secure, there is little concern for the format. That is because security has fully transitioned from the physical to the digital and, while there remains something of the past in our concept of cash and currency, the shift is complete. Cryptocurrency is the natural, next-step in the industry’s evolution.

People have become used to the idea that money doesn’t have to be a tangible representation of wealth, and that the ease of access that comes when wealth is digitized is a part of the value of an individual’s or organization’s finances. Today, more than a decade after Bitcoin’s advent, cryptocurrency represents the next phase of finance, but to get there means taking these important steps and adopting meaningful controls in order to satisfy the demands of traditionally staid industries like financial services. The good news is that, while the market recognizes that the mainstreaming of cryptocurrency is an inevitability, we have the model for making it work. We can—and must—do so for the benefit of the global economy.

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Nick Carmi is the Head of Financial Services at BitGo

commerce

Commerce, Currency, and Credit —and What’s Next

The notions of commerce, currency, and credit are nothing new. For centuries, we’ve found ways to barter, borrow, and repay one another through the exchange of goods, services, or credit. Exchange aside, every form of currency has an assigned value agreed upon by the individuals or organizations participating in the transaction.

Need a house or a plot of land? Everything had a price. Back then, we offered what we had…like goats, cows, or crops. In modern times and with the development of currency, we have turned to coins, paper, plastic, and other forms of credit to define the values of our exchanges.

If we begin to think about the evolution of commerce in the context of innovation, we simultaneously begin to wonder, ‘What’s next?’

As the COO of a fast-moving fintech company, I look to innovation to answer this fundamental question. It will always be top-of-mind for me, in order to ensure that our business is at the forefront of innovation when it comes to contemplating the many ways Americans — particularly those in the small business community — think about and gain access to commerce, currency, and credit.

Today, small businesses are faced with an unfavorable choice when considering taking on additional capital: curb their instinct to innovate and grow, or encumber themselves with debt. While the growth of small businesses will help our economy thrive, we can’t increase our ability to provide funding to small businesses by maintaining the status quo. So how do we inject businesses with funds, without ultimately harming that growth and innovation?  I suggest several ways: decrease our industry’s approval time and simplify the process; provide customized offers and understand the uniqueness of each business through the implementation of artificial intelligence and advanced technology, and restore the innate integrity and trust from the nascent days of commerce.

Here are three topline factors that will drive commerce, currency, and credit — and what’s next:

Convenience

If we look at the transition in the consumer payments industry as a leading indicator, we think about the emergence of fast-pay apps like Zelle, Venmo, or Apple Pay, one thing is clear: convenience is king. Even if it costs the consumer a dollar or two, it beats the basic, but now outdated steps of writing a check, (purchasing and) putting a stamp on the envelope, putting it in the mail, and making sure the mail person gets it on time. Certainly, checks have a role to play in the exchange of money — and perhaps always will — but fast cash apps represent the shift.

If we examine the ways that small businesses have historically gained access to capital, what were once nothing more than hard-copy applications followed up by mountains of paperwork issued by traditional banks that required waiting weeks or even months to hear of an approval, is rapidly evolving into what is now a full-fledged industry dedicated to providing capital in mere days or even hours  —with companies in industries ranging from online retailers to credit card processors, and more, working to deliver working capital in the near speed it takes to complete an ATM transaction. Just as odd as dropping a goat off today to pay for a good or service would seem, so too will be the long timeframe to secure small business capital via a long arduous process.  We are quickly moving to a couple of button clicks on your cell phone and capital will be delivered into your business account.

Channels

When discussing my philosophy about our business, three words colleagues often hear me use are “channel of choice.” They refer to finding our customers by identifying who they are, where they are, and what is their preferred method of communication; and of course, delivering superior user experience.

Which “channel of choice” will appeal to the busy mom-and-pop shop owner who calls us from her landline in search of new ways to gain access to capital for a new storefront facade; or to the construction company that does most of its business and banking online and prefers to be reached via the web; or, to the 20-something app developer who likes to do his business with a simple click on his phone?

Our success is contingent upon creating an appropriate environment and successful strategy for each of our customers, all of whom have varying degrees of means and preferences to interact with us.  While mobile interactions will continue the trend to dominate in preference, there will likely always be a need to handle interactions with just a simple phone call.  And delivering an intentional experience with all of those channels in mind will become the new normal

Caution

Over the past few years, the vulnerability of data, privacy, and information security systems has been exposed. As we move into a more digital environment where every piece of data is at your finger times, it’s incumbent upon us in the alternative financial services industry to evaluate the ways we protect the vast information we hold in similar ways customers expected traditional banks to hold and secure their deposits. The phrase “data is the new currency” is quickly becoming reality and expectations of security from those who provide us that information will be just as high as dropping of a deposit to your local bank. As mountains of information continue to become available, it will become a focus for all to consider how we store that information just as a bank locks up its currency in a vault.

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Herk Christie is the Chief Operating Officer of Expansion Capital Group, a business dedicated to serving American small businesses, by providing access to capital and other resources, so they can grow and achieve their definition of success. Since its inception, ECG has provided approximately $400 million in capital to over 12,000 small businesses nationwide.

cryptocurrency

What is Cryptocurrency? Is It Accepted Globally?

Money is an ancient technology and is almost as old as language itself. Back in the day, before the introduction of money, all transactions were done with the barter system as products and services were not quite complex. For instance, a farmer who grew vegetables could exchange a reasonable quantity of it with wool from a Shepard. With the introduction of precious metal coins as currency, the barter system eventually faded out, and so did precious metal coins with the adoption of paper currency notes. With the advent of new technology, the older systems phase out giving way for new ones.

Cryptocurrency is a digital asset that is based on a network that uses strong cryptographic encryption techniques for carrying out secure financial transactions and is distributed across a large number of computers. Most cryptocurrencies employ decentralized networks based on blockchain technology which means every new block generated must be verified by each node before being confirmed. Simply put, a cryptocurrency is a virtual currency that is secured by nearly impossible to counterfeit cryptography.

Besides being the most secure way to conduct a transaction, it also happens to attract the lowest transaction costs, the prime reason for which is its decentralized system. Unlike conventional centralized systems used by banks, cryptocurrencies make use of each of the nodes to confirm the transaction. The conventional system can also be referred to as master-slave architecture in which the bank is the center of power, hence the master and all users are slaves whereas, in decentralized cryptocurrencies, each node is equipped with equal access to all financial services.

We humans are not exactly fond of change though. Despite the benefits of using a newer system, mass adoption takes a while. Did you know that until 1933, each dollar could be redeemed in gold? Did you know all Americans were required to turn in their gold on or before May 1, 1933, to the Federal Reserve in return for $20.67 of paper money per troy ounce? Yes, it was made illegal to own and trade gold by Executive Order 6102 by President Franklin D. Roosevelt whereas the gold standard was suspended in Britain on September 21, 1931. Many speculate that a similar blow from the government could happen anytime in the future since fiat currencies that are controlled by the government. Cryptocurrencies are global and will not be affected by decisions made by the government of one country or the other.

Currently, there are several thousand cryptocurrencies, Bitcoin, Litecoin, and Ethereum are the most popular ones. Check out this infographic by Total Processing to learn more about other advantages of cryptocurrencies.

Click here for a full-size image.

 

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This infographic originally appeared on TotalProcessing.com. Republished with permission.

Will Facebook’s Libra Help Bring Cryptocurrency To The Masses?

When Facebook announced plans for a stablecoin called Libra, the reaction from the cryptocurrency world ranged somewhere between skeptical and cautiously optimistic.

But, regardless of any specific merits of Facebook’s version of a digital coin, the social-media giant’s move could help speed the adoption of cryptocurrency to a larger audience, says Kirill Bensonoff (www.kirillbensonoff.com), a serial entrepreneur and an expert in blockchain.

The biggest issue now is that most people are not familiar with crypto; they think it’s difficult to use, and they may not trust it,” Bensonoff says. “Facebook will put a digital wallet on many phones and computers, and sending payments with crypto will become commonplace.”

Facebook’s Libra is proposed as a stablecoin, which is a form of cryptocurrency. Using Libra, people would be able to buy things or send money to others while paying, at most, minor fees. Unlike other cryptocurrencies such as Bitcoin, the value of stablecoins is tied to an asset such as gold, the U.S. dollar, the Euro or other currencies.

Facebook won’t have complete control of Libra. It’s just part of a bigger group of partners that’s creating the stablecoin.

What might all this mean for the future of cryptocurrencies – and for the average person who still knows little about them? Bensonoff says a few things worth knowing about Libra in particular and stablecoins in general include:

-Bringing stability to cryptocurrency. As the name implies, the idea of stablecoins is to bring more stability – and more peace of mind for wary investors – to the world of cryptocurrency. “I don’t think Facebook will bring stability immediately,” Bensonoff says. “I believe it’s going to take a lot more in terms of mass adoption, but Libra could be a step in the right direction.”

-The SEC’s view. Regulators at the Securities and Exchange Commission have been eyeing stablecoins with the possibility that some of them could be classified as securities. “That could put stablecoins in the same category as stocks, subject to the registration, disclosures, and accreditation of investors that demands,” Bensonoff says.

-Will Libra replace PayPal? Maybe not, considering that PayPay is one of the founding members of Libra, Bensonoff says. “I think they will have some influence on the direction,” he says. “However, crypto in general is a threat to all existing payment processors, including PayPal. I believe PayPal is smart and will adopt and accept crypto payments, and they will figure out a way to monetize it. The downside for them is they won’t be able to charge nearly as much as they do now.”

“I believe Libra is going to have a positive impact in terms of awareness, adoption and interest in cryptocurrency from both businesses and consumers,” Bensonoff says. “But at the same time, with that could come more regulatory scrutiny.”

About Kirill Bensonoff

Kirill Bensonoff (www.kirillbensonoff.com) has over 20 years experience in entrepreneurship, technology and innovation as a founder, advisor and investor in over 30 companies. He’s the CEO of OpenLTV, which gives investors across the world access to passive income, collateralized by real estate, powered by blockchain. In the information technology and cloud services space, Kirill founded U.S. Web Hosting while still in college, was co-founder of ComputerSupport.com in 2006, and launched Unigma in 2015. All three companies had a successful exit.

As an innovator in the blockchain and DLT space, Kirill launched the crypto startup Caviar in 2017 and has worked to build the blockchain community in Boston by hosting the Boston Blockchain, Fintech and Innovation Meetup. He is also the producer and host of The Exchange with KB podcast and leads the Blockchain + AI Rising Angel.co syndicate. Kirill earned a B.S. degree from Connecticut State University, is a graduate of the EO Entrepreneurial Masters at MIT, and holds a number of technical certifications. He has been published or quoted in Inc., Hacker Noon, The Street, Forbes, Huffington Post, Bitcoin Magazine and Cointelegraph and many others.

What is Cryptocurrency and How Is Its Global Acceptance

Cryptocurrency in layman terms can be described as a virtual currency that is not controlled by a centralized system. To further elaborate, the crypto in cryptocurrency comes from the word cryptography, which was a practice used during second world war to communicate securely with the use of hard to crack codes that represent critical information. One of the most popular cryptocurrencies is bitcoin which is based on blockchain technology and many other cryptocurrencies are based on the same principle.

Resistance is often the first reaction of masses towards new technology and you will be surprised to learn that electricity, automobiles, and the internet were initially made fun of. Whether it is electrification being called a fad over gas-powered lighting and heating solutions, automobile use disregarded as dangerous over the use of horses, or the scare that internet will be used by criminals, the prime reason for this behavior is the feeling of comfort with the existing system.

There is a lot of confusion around cryptocurrency as there is a lot of skepticism around it. Most people do not understand how it functions and hence they oppose it. Cryptocurrencies are also being blocked by certain countries and centralized banks as they are impossible to monitor and control. Since the transfer of funds can be made anonymously, its use for illegal transactions is seen as a threat.

The positive uses and prospects for the future that cryptocurrency holds outrun the fear and skepticism around it. Value of 1 Bitcoin was less than a cent when it started in the year 2008 and 2009 when the first Bitcoin block appeared. Its value peaked at a little less than $20,000 in December 2015 and 1 Bitcoin is currently valued at approximately $10,000. Want to learn more about cryptocurrency, Bitcoin, and stats on its global acceptance? Check out this infographic from Total Processing to learn about other cryptocurrencies such as Litecoin, Ethereum, and a new one which is yet to be announced from the house of Facebook.

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