Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 24th July 2017

The Blockchain Bitcoin & Crypto Weekly CXO Briefing is all you need to know, each week, jargon free for CXO level business leaders and investors who will use this technology to change the world. Each week we select the 3 news items that matter and explain why and link to one expert opinion.

For the intro to this weekly series, please go here.

News Item 1: South Korea Officially Legalizes Bitcoin, Huge Market For Traders

Decrypted: South Korean has made Bitcoin legit. The South Korean government has decided to pass a bill that would make Bitcoin transfers legal and provide a regulatory framework for Bitcoin trading platforms and exchanges.

Mr. Park Yong-jin, a member of South Korea's ruling party, is leading the changes. He is working on revisions and amendments that will provide a foundation for digital currencies in the country. One of these revisions is for the existing Electronic Financial Transactions Act and will provide the necessary legal approval for cryptocurrency transactions. The new set of regulatory frameworks for Bitcoin will facilitate the growth of the South Korean Bitcoin market.

Our take: Not so long ago, the future of cryptocurrencies in South Korea was uncertain and whether the country would take steps towards regulating digital currencies. But the recent news made the intentions of the South Korean government are very clear. The future of money is linked to cryptocurrencies and South Korea understands it.

Recent news of cyberattacks on local cryptocurrency exchanges like Bithumb, have made a significant contribution and helped create awareness to the masses about digital currencies. Also, despite the lack of regulations, the South Korean cryptocurrency market has been growing by leaps and bounds. The country has seen an increasing number of fintech startups that are building services for remittance and finance, establishing South Korea as a regional fintech hub. To further fuel this growth, the government lowered the capital requirements for Bitcoin remittance companies. Additionally, researchers from the South Korean central bank recently released a report that described how virtual currencies can coexist with fiat currencies.

South Korea recently legalized Bitcoin remittances. Worldwide, 230 million people send $580 billion in remittances each year, and South Korea, with a population of over 50 million, has a large remittance market. The most recent World Bank estimates show remittance inflows of $6.5 billion and outflows of more than $5.9 billion for S. Korea. The new regulations will create more competition in the financial services market. Traditional banks will now have to compete with new crypto players that are offering cheaper and faster services.

While interest in Bitcoin is exploding all around the globe, the jump seems to have been particularly strong in South Korea. Bitcoin has become incredibly popular in the country, with trade volumes going through the roof in recent months. This year South Korea made it to the world’s largest Bitcoin trading markets. The South Korean Bitcoin market processes over 14% of global Bitcoin trades and its the third largest market behind the US and Japan. While the South Korean government continues to legislate Bitcoin and cryptocurrencies, we can expect trading volumes to increase and the South Korean Bitcoin exchange market to surge.

Even though the new bill in South Korea is big news, its only part of the larger picture that is positioning Asia at the forefront of cryptocurrency world. Earlier this year, Japan passed a new law that officially recognized cryptocurrencies, Singapore announced it had successfully digitized its currency using Ethereum and China begun testing a prototype of its own national digital currency.

Clearly, Asia is leading the adoption and defining the cryptocurrency future. Hopefully, the rest of the world and countries like the US. will start waking up and get in the game before it’s too late.

News Item 2: $7 Million Lost in CoinDash ICO Hack

Decrypted: CoinDash, an Israeli startup, opened its planned Initial Coin Offering on June 17, in order to raise capital by selling its own tokens. The site was hacked minutes before the ICO opened to the public and around $7 million in Ethereum was stolen. The hackers broke into the Coindash website and replaced the Ethereum address that was posted on the site with their own address, so instead of money going to Coindash, the funds ended up going directly to the hackers.

While CoinDash ICO still managed to raise $6.4 million in a pre-sale to early investors, the hackers stole 43,488 Ether, around $7 million at the time of the theft, before the company discovered what was going on and was forced to shutdown their token sale. When Coindash realized what happened, they took down their website and posted announcements on the site and social media, alerting investors of the hack and urging them to stop sending money to the fraudulent address. After the hack, in an announcement posted on their website, Coindash said they would give tokens to the investors that participated in the ICO, before it was shutdown.

Our take: The CoinDash hack was not the only one this week. On a smaller scale, the InsureX ICO suffered from a similar type of hack, which caused people to send around 1,100 ETH to a bogus Ethereum address. Also hackers discovered a vulnerability in Parity's Wallet and exploiting the vulnerability they were able to steal approximately 153,000 Ether, estimated at $32 million. With the cryptocurrency market estimated at $100 billion, the concept of anonymous wealth is raising questions about the right to anonymous identity.

These hacks certainly raise a lot of questions about the state of readiness and security measures these companies are taking with their ICOs. The most important question they raise is how can you trust unknown companies to build the product they are claiming, when they cannot secure their website? Governance and trust are issues that are coming up more and more lately, when people talk about ICOs.

The CoinDash hack was very simple to execute and could of been easily prevented.

While rumors have surfaced and angry investors expressed that CoinDash ICO theft was an inside job (1, 23, 4), it will be interesting to see how the CoinDash team handles credibility from this point forward, by reimbursing investors and not only, as CoinDash’s image is significantly damaged. I don't know and I don't really care if the rumors are true. The CoinDash hack could have been prevented or minimized if investors knew in advance the address where they were going to send funds to. Startups planning ICOs should publish their funding address in advance on multiple platforms, including news outlets and social media. Even if hackers mess with one site, it becomes hard for them to hack all of them.

I also read some posts about the Insurex hack, that questioned the use of a WordPress template for an ICO: "Hacks like these demonstrate why using a basic WordPress template for a company website -especially one with ICO plans- is absolutely unacceptable right now". Why? WordPress or WordPress templates are not the problem with these hacks. Its the people running them and using these technologies. They are the ones that need to make sure they plan their ICOs correctly. Sometimes when people start to see dollar signs, their vision gets blurred. Technology was not the problem with the CoinDash and InsureX ICOs hacks, instead it was blatant mismanagement and lack of proper planning. And that's why people are talking about governance, regulation and trust when it comes to ICOs. These kinds of attacks will occur more often and are proof of the lack of diligence behind some ICO projects.

Hopefully one of the items on future ICO planing checklists, will be the use of ENS. For most people, using 160 bit hexadecimal encoded hash string is not ideal. The Ethereum Name Service (ENS), brings human readable names to Ethereum, just like DNS addresses did for the Internet. ENS eliminates the need to copy or worse type, long hexadecimal addresses. With ENS, users can send money to someone at "someone.eth" instead of "0x4cbe58c50480…", and interact with a smart contract at "smartcontract.eth".

The Achilles' heel of cryptocurrencies has been the protection of private keys, that control someone's cryptocoins. Bitcoin and Ether transactions are completely transparent, and all transactions are recorded on the blockchain, a global, public and immutable ledger. On the other hand, blockchain wallets are completely anonymous. Until someone turns their cryptocurrency into fiat currency, it’s almost impossible to know who actually owns the digital wallet. Unlike fiat currencies, cryptocurrency theft is instantaneous, irreversible, and typically anonymous.

Yet, hackers have already found workarounds for turning cryptocurrencies to fiat currencies. For example, the hackers involved in the Petya/NotPetya ransomware attack used a bitcoin tumbler to basically launder the money through high-volume addresses, mixing stolen bitcoins in with legitimate transactions, making the stolen funds nearly impossible to trace.

Hacks like these make us question the security and legitimacy of ICOs and trusting unknown startups with our money. It remains to be seen if these hacks will curb the enthusiasm for ICOs, but certainly public perception is not improved by hacks like these.

News Item 3: Interview with Vinny Lingham of Civic.com

We are starting a series of interviews with people from the crypto ecosystem and today we’re kicking off with Vinny Lingham from Civic.com. Vinny Lingham is a South African Internet entrepreneur who is the co-founder & CEO of Civic and previously the founder and CEO of Gyft & Yola. Last month with Civics’ ICO, he raised $33 million and I thought it would be interesting to get his take on Bitcoin, Blockchain and the current state of ICOs.

Tell us a little bit about yourself, what you’ve been up to in the past and what led you to create Civic?

I am a serial entrepreneur. I was born and grew up in South Africa and got started in search marketing and the search economy. From there I moved to software as a service, then I got into mobile gift cards and now identity. The rational of what I’ve done is an evolution of my way of thinking of things. Initially, I started a company to make money, then as I developed a bigger view of the world, I moved to Silicon Valley and started to think of bigger problems. With my last company, Gyft, we solved the problem of physical assets, gift cards and codes, and through this process I learned a lot about identity, identity theft, how the payment world was under attack and the identity problem has not been solved. Before Civic, I had done three startups. Building companies is very satisfying, so this time around I wanted to build something big, strong, something long lasting that solves a long-term global problem and I picked identity as the space. Because I love Bitcoin and Blockchain, with my co-founder I started Civic, and eventually we want to use blockchain for voting to solve problems around democracy as a big global challenge for the world.

Growing up in South Africa, how did that impact your thinking and how did it drive you to do the things that you’re doing now?

Without doubt, being born in South Africa and witnessing the challenges, the Apartheid, the injustices, the debasement of currency, inflation and all these societal issues that you have in Africa and then coming to America and having a different view of the world, gave me a lot of insights for some ways to fix the world and make it a better place. I had a lot of drive being an underdog, and going to place like Silicon Valley you want to prove yourself. So here I am.

If personal data is immutable on a Blockchain, one cannot simply change it, what are the security risks that worry you and how do you protect against threats and hacks at Civic?

Well we don’t store the data on the blockchain, all that is stored on blockchain is verification hashes, that make sure that you can prove that you are who you say you are, and the actual data is stored on your device. If you lose your device, it’s the same as your files at home being raided. So, because every user stores their own data and the blockchain just keeps a record of verifications of that data, the risks individually are medium to low and the risks to the network are virtually non-existent. You would have to steal every person’s phone to get their data. So, if a billion people use it, you would have to steal a billion phones, and that’s not going to happen. The biggest potential risk to us, is quantum computing in about 10-15 years, but at that point we can just change the algorithms and produce some quantum resistant techniques to counter. I think there are enough people working on the quantum problem, but right now it’s not an issue and everyone believes it will be solved in time.

Civic is in a crowded space and there are lots companies trying to solve the same problem. How do you view your competition, who do you think your competitors are and how do you differentiate?

Really, we are the only company focused on building a global consumer identity brand and we’re going to continue to focus on that. Now, if someone decides to come and build a global consumer identity brand, then we’ll have a competitor to talk about. But for now, no one is doing it, we are the only ones and we’re going to keep doing what we do. Again, my guess is that doing B2B or selling to governments is kind of easy, it’s a well-defined space, but to capture the hearts and minds of consumers, well that’s not easy. We have a first mover advantage, we have a token out there, stronger than any other crypto token, from our initial coin offering and token sale. So, I think we’re in a good spot and we will continue on out exiting course and not spend a lot of time with our competitor’s products, as we are in different markets.

Being a serial entrepreneur that has raised money from VCs, what do you think of ICOs in comparison with fundraising though the traditional venture capital model?

Look, I think the venture capital model provides forms of governance and support at a micro level and what ICOs and token sales provide is lack of governance at a macro level. You go from having one or two VCs funding the business, to something like 10,000 people. The flip side is there is no real governance, so these people must really trust you. It’s all about the team. Can you trust the team to execute by themselves or do they need parental supervision? And that’s where the big time is going to happen in the space. So, I don’t think venture capital is going to disappear, but I think it’s going to be really diminished for crypto companies, to an extent. I think we will see a hybrid, where you’ll see VCs are moving earlier in the process to help smaller companies build their products and provide governance. But I think the bigger raises, the series A and B funds are going to be disrupted in this space. They can’t really compete with a crowd sale on crypto right now. I think this will become the general way of funding. The industry is going to respond negatively to these uncapped, egregious token sales, where ICOs are raising hundreds of millions of dollars, without a plan to use the funds. Pure greed to an extent. The market has reacted violently to that already and the Ethereum market is down massively because of as these uncapped projects, which create a liability towards the Ethereum ecosystem. We’ll see what happens, but I think the market will self-regulate by price and we’ll find people being a lot more circumspective of where they put their money, and hopefully slower and steadier growth will prevail. I really think, we can’t have people raising a billion dollars when they haven’t proven anything yet. It’s very harmful.

What other problems to do you see and what can be done?

Well, the I think it’s the hard fork situation of Bitcoin right now, the whole scaling debate, that’s the biggest impediment to stability in the space. With Bitcoin stable, everything else can sort of function, but it’s not stable and that presents some serious existential risks for Bitcoin now. I think the ICO mania has put a damper on the space, it’s a function of supply and demand and a matter of people disciplining themselves. Right now, even a professional trader or someone that’s in the space heavily can’t keep up with the number of ICOs and token sales happening every day. You can’t do the due diligence on all these projects, it’s just too much of a crapshoot and you don’t know what you’re going to get. As a result, you’re going to have market expense to research all these projects, even for the best of us it’s not easy to keep up, and giving people more money than they know what to do with is not a healthy situation.

I am sure you heard about today’s Coindash ICO hack. What suggestions would you make to projects planning their ICOs?

First, contact Civic, because it would impossible to happen with our technology. You must scan a QR code using a mobile app and the code can only be generated and released from our servers at Civic. We’ve done it very securely and we’re playing around with the idea of making what we did available to more companies. So, we are open to being the identity vendor and partner for preventing that sort of thing.

What do you think we can expect on August 1st with SegWit and the possible fork? Are we going to have a fork with Bitcoin?

I’ve been Mr. Doom and Gloom for six months, and nothing I’ve seen so far has made me change my mind. We may have a hard fork, but there’s definitely going to be chain split.

Opinion: Pathological BIP91/UASF Scenarios

BIP91 is locked in on the Bitcoin network, but to put things in perspective, its only the first step towards Segregated Witness (SegWit) being activated. Even though we've reached an important milestone, there are several more things that need to happen before SegWit actually activates and increases the capacity of the network.

The sole purpose of BIP91 was to lower the threshold for SegWit activation. The BIP141 proposal, which was released more than a year ago, required 95% of the miners to support it, in order to activate SegWit. In a sense, BIP91 is simply a vote on whether the existing SegWit proposal should be lowered from a 95% threshold, to an 80% threshold.

Even though more than 80 percent of the miners have signaled BIP91, that doesn’t actually guarantee anything and it doesn’t necessarily mean that these miners will finally activate SegWit.

The BIP91 lock-in is just the first step to activating SegWit on the network. The BIP91 lock-in was achieved with relative ease. The steps that follow are much more complex. So for now, there is no reason to get your hopes up just yet, as this lock-in period means nothing, until change actually happens on the network. Signaling intent for a solution and effectively supporting it, are two very different things. The number of nodes signaling for BIP148 has actually increased at a faster rate over the past week. Miners might be signaling for SegWit, but that does not mean that they are actually running the right software for Segwit2x. Things can still take a very different turn. BIP91, BIP141 and activating SegWit are only part of the equation. And let not forget November, when SegWit2x’s built-in hard fork happens.

There is a lot of speculation about that is finally going to happen, but for now we'll just have to be patient and see how things develop. But given the extremely positive reaction for BIP91, we are already seeing people who were holding off on Bitcoin entering the market again.

The market is gaining confidence, in light of a positive outcome to the scaling debate, which drove the price of Bitcoin over $2,800 this past week. I think when SegWit is activated around the end of August, we'll see the price of Bitcoin go well over the $3,500 and the entire cryptocurrency market turn bullish again, with prices surging across the board.

Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Wrap of Week #28: Bitcoin, Riskalyze, Uport, Nigeria, Eos Venture Partners, Corporate Venture Capital

The Fintech Genome platform

Join any of the conversations on the Fintech Genome. The global community is sharing insights, creating great conversations, and business is starting to happen.

Check also the latest topics that include ICOs, WealthTech, Lending, Insurance, bitcoin & blockchain, Web 3.0, API, etc.

Screen Shot 2017-07-22 at 12.30.21 PM.png

If you enjoy reading the Daily Fintech insights by our experts then Subscribe to this newsletter.

If you want to engage and converse with the Fintech community è Register on Fintech Genome. 

China and India – bright spots in Corporate Venture Capital recovery

cvc

Image Source

Corporate Venture Capital (CVC) has seen a steady rise for the last few years. Between 2011 and 2016 the number of large corporates establishing their own Venture Capital capability nearly tripled. Last year CVCs participated in about 40% of VC deals that happened in Asia. With major global events such as Brexit and Trump dampening investor appetite in VC funds, CVC deal volumes saw a global dip of 2% last year. However, there are data points indicating its likely to take off in a big way this year.

The CVC world has had challenges due to the compensation structure for the Partners and lack of nimble decision making capabilities. Partners at CVCs have traditionally not been compensated as well as a Partner in an independent VC fund. Also, if the VC arm of a Corporate cannot make independent decisions in quick time, it affects both the startups and the corporates. Sometimes CVCs lose good deals due to their lack of agility, but often they hurt startups by making them wait for investment decisions, and turn them down after a few months of due diligence.

Global KPMG

The brighter side of the deal is that, once the deal has gone through, the Corporate can be a massive launchpad for the startup. And for this very reason, Startups seem to be more forgiving of the red tape and the bureaucracy that they have to go through to get the deal closed.

That said, there is no denying that CVCs have evolved their models over the last few years, and are here to stay. In Asia, Softbank announced the launch of their $100 Billion fund, with $25 Billion of their skin in the game and Apple contributing $1 Billion, the fund has seen good traction since launch. The other big announcements were Baidu’s $3 Billion fund and Samsung’s $1 Billion fund.

Chart_01c

CVCs in India had a good year 2016, until Q4, where only 4 deals were closed. However the general trend last year was that the deal count went up, but the size of the deals came down compared to 2015. This is in contrast to most other top VC ecosystems in US, China and Europe where capital was moving towards more matured (growth stage) firms. VCs in India preferred smaller sized deals in early stage firms, resulting in a higher deal count. The only other region that had had CVC investments go up in the first half of last year was UK, but there was a slow down in H2 2016 post Brexit.

China on the other hand, had a slowdown in CVC investments last year after a strong 2015. This trend is expected to change because, between China and the US there were about 53 new CVCs that were launched last year. They are expected to get more active this year. Also, many VCs and CVCs are eyeing China for Fintech deals in a big way since the start of 2017.

China

Image Source

If CVCs in India perform anywhere close to what they did in Q1 and Q2 2016 and if the new CVCs in China start deploying, we are likely to see a CVC recovery. With VC investments shrinking globally over the last eight years, and CVC’s slice of the VC pie at an all time high (17%), the recovery of CVC might just be what the VC industry needs.


Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.


 

 

 

 

Midas Touch Interview with Sam Evans of Eos Venture Partners on the future of Insurtech

sam evans eos

Venture Capitalists make their living by getting the timing right on trends. Too early is not good. Too late is not good. Getting it right is hard. That is why the best make so much money. That is also why it is interesting to interview those with that Midas Touch.

There are generalist VC. There are Fintech specific VC. Even more specific is an Insurtech specific VC. We decided to interview somebody leading that market – Sam Evans of Eos Venture Partners.

The Bridge Funding model

Eos see themselves as a bridge between the Insurance incumbents (Insurance carriers, Reinsurance and Brokers) and the entrepreneurs. In VC terms, the LPs (Limited Partners) are Insurance companies. Those LPs expect financial returns for sure and Eos Venture Partners will get paid based on those returns. However the strategic returns are more important.

B2B2C and Level 3 Partnership Maturity

Sam talked about the problems of the B2C model for startups (high CAC and the needs for a big marketing budget) and the problems of the B2B model (long and uncertain sales cycles).

Sam did not call it B2B2C, but that is effectively what the alternative that is neither B2C or B2B is called. This is what we refer to as Level 3 in Partnership maturity in the mega trend we have been calling the “great Fintech convergence” (see this post from December 2015).

  • Level 1: Incomprehension. The other party just looks strange and it is hard to imagine a productive conversation. Men are from Mars, Women are from Venus. Incumbents are older white men in suits and ties. Entrepreneurs are Millennials in casual clothes (skewing too male, but that is another story). Of course all stereotypes are wrong but they do impact how we see things.  Whether the incomprehension is based on fear or disdain, the reaction is the same – inertia. Incumbents seek to overcome the incomprehension problem by funding Accelerators and Hackathons. There is still a problem getting that understanding from the few people interacting with the startup ecosystem to the mainstream line of business managers – but it is a start.
  • Level 2: Funding. Banks take minority equity stakes in Fintech ventures through their Corporate Venture Capital (CVC) unit. This is the level that most relationships have reached. (Funding while still in Incomprehension mode is clearly dangerous).
  • Level 3: Strategic. This is where the relationship drives needle-moving revenues and profits for both parties. This may or may not include an equity relationship; the strategic relationship comes first.

Startups also go through three levels of understanding:

  • Level 1: Incomprehension. Incumbents are dinosaurs and our amazing UX will crush them (B2C). Or they are customers and as long as they pay top dollars upfront for our technology we love them (B2B).
  • Level 2: Funding. Lets pitch them for our Series A.
  • Level 3: Strategic. We want revenue share – that is a scalable model. So we know that means we also have to share risk. We will have a pragmatic discussion about branding.

This is what Sam Evans was referring to when he describes being a bridge.

How Insurance and Banks are different

Banks were slow to react to the threat/opportunity of Fintech. The first answer was Level 2. Clearly this does not scale. Not all Banks can have a Corporate VC unit. Even the best have to work hard to get great deal flow and eventually face the strategic dilemma of which comes first – financial or strategic returns. Big Bank’s Corporate VC unit have to gain the trust of entrepreneurs who might worry that Big Banks want to learn from them and then build in house or buy a struggling competitor. In other words, Big Banks could be competitors or partners. Small Banks don’t have an option to be competitors; they are partners that entrepreneurs can feel comfortable with. Yet it is inconceivable that lots of Small Banks will set up their own Corporate VC unit (or maintain them in tough times when the best ventures are funded).

Insurance incumbents moved much faster when Insurtech came along. This is particularly true of Reinsurance. This is the trend we call Reinsurance As A Service.

4 Investing Themes

Sam identified 4 types of opportunities that they seek:

  1. AI in Life & Health using “quantified self” data (wearables and other devices such as wifi connected scales). This exploits the crazy situation today where premiums are based on occasional batch snapshots based on a medical exam. For more, see this post.
  2. Commercial Insurance. This has many sub segments such as Cyber and Flood Insurance. Sam gave one example of the latter that resonated and it was very simple. Assessing risk based only on geo code (eg Zip Code in America) misunderstands risk of the house on the river vs the house on the hill. The opportunity windows is particularly open in SME Insurance – see this post for more.
  3. Claims Processing. Sam gave us the data that this accounts for 60-70% of the cost. It is also a big UX driver as speed/simplicity of claims process is what gets customers talking positively or negatively about their carrier. This has some hard tech problems, because getting it wrong leads to fraud. For more please see this post.
  4. Digital Distribution. Eos is working in partnership with a tech company called Convista who have developed a digital front office solution called One Digital Office (ODO). ODO acts as a distribution channel for Eos portfolio companies and can also be used as the platform to launch new Digital Distribution products. Digital Distribution covers what we have been calling the Robo Brokers as well as simple comparison services (which are scaling fast in blue ocean markets where there are  a lot of de novo customers getting insurance for the first time (India, China, Africa etc).

Bernard Lunn is a Fintech deal-maker, investor and thought-leader. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

New core banking platform to bolster Nigeria’s micro finance banking sector

It may come as some surprise, but in Nigeria over 1000 Microfinance Bank licenses (MFBs) have been issued by the central bank to small finance institutions in less than 10 years.

The purpose of these institutions is to broaden access to finance to low-income earners and small, micro businesses. Similar initiatives are at play across other developing nations, with India being one of the more prominent and well-known countries to created tiered access to banking licenses.

And while basic access to credit and savings accounts are important on the consumer front, the flow on effects for underdeveloped countries when business financing is addressed are significant.

Research shows that while SMEs account for, on average 51 percent of GDP in high-income countries, for less developed nations this figure stands at a paltry 15.6 percent. This lag is an effective handbrake on pulling many of these nations out of poverty.

A big part of this differential is down to a lack of access to growth funding for SMEs and micro businesses. Currently the International Finance Corporation (IFC) has estimated a financing gap of US$2.1 – 2.6 trillion currently exists amongst developing nations. And while finding funding to meet this need is one challenge, the bigger piece of the puzzle is how to get it to those in need in fast, reliable and secure manner.

To address exactly this, the Nigerian Central Bank announced this week that plans are afoot to build a new core banking system specifically for the nations MFBs. With a branchless mentality from day one, the core banking system will dramatically lower delivery costs for MFBs, and allow them to further extend their reach into the under-banked markets they seek to service.

A new core banking system designed specifically for a new breed of bank is something developing nations, starting with little legacy infrastructure are well positioned to achieve. Similar new banking or new payments platforms in developed markets are far more difficult, requiring deep stakeholder engagements with powerful incumbent players – many of whom need to retrofit their own systems to be compatible.

It will certainly be interesting to see the speed at which Nigeria can deliver on this new infrastructure. But if it can, the rewards for the economy as a whole are immense.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

Best interests, Transparency, low commissions – the Riskalyze stack

The uncertainty around how the Trump administration will handle the DOL fiduciary role remains as we speak. But what is becoming clear is that one way or another the era of “Acting in the best interest of customers” and “Transparency” will only move forward. The cultural shift is happening and regulatory bodies are taking into account this crowdsourced sentiment despite confusions due to delays and objections from large institutional players.

The fiduciary role definition has been expanded as of the end of June and now it not only includes advisors handling retirement accounts but anyone giving ongoing advice even without charging a fee. This may push the industry to eliminate certain commission layers and certainly requires advisors working on commission to provide clients with a disclosure agreement, called a Best Interest Contract Exemption (BICE), in circumstances where a conflict of interest could exist (such as, the advisor receiving a higher commission or special bonus for selling a certain product). Read more details: DOL Fiduciary Rule Explained as of June 9th, 2017 | Investopedia

Riskalyze, a fintech that created the dynamic Risk Number metric, reports that the expansion of the fiduciary role has resulted in a spike in the demand for fintech solutions that can handle these issues. Advisors in the US have been relatively slow in embracing the new technologies for all sorts of reasons but mainly because fintech solutions have been scattered. Advisors need to be able to handle efficiently all the stack of the process, from onboarding, profiling, customizing strategies, dynamically adjusting, custody, execution, reporting.

FinancialAdvisorTechnologyLandscape-1024x574

Source

This remains a huge challenge because integration in this space is in the early stages. The industry catering to the needs of advisors is evolving as we speak. It consists of three main groups: (a) the large institutional players like TD America, Blackrock, Fidelity etc, who are developing fintech micro-services and integrating them or acquiring fintech startups and keeping then independent, (b) the independent Fintech startups that growing and integrating more services, like Betterment, Wealthfront, or Riskalyze, (c) the broad software providers, like Salesforce, Oracle etc.

Riskalyze is a great example of a Fintech that is growing into a full stack serving the complex needs of advisors. They started with their patented technology, Risk Number, that is a dynamic objective risk tolerance measure based on a quantitative framework rather than biased qualitative answers. They have added the capability to construct all sorts of portfolios based on this risk metric and have empowered advisors to clearly quantify the risk-adjusted outperformance with this method.

Riskalyze: “Our patented Risk Number® technology objectively calculates an investor’s true risk tolerance utilizing a scientific framework that won the Nobel Prize for Economics.”

Their most recent addition to the Riskalyze fintech stack is the Autopilot capability and the One-Click Fiduciary™ technology. These offer first multi-custodial capability to the advisors and direct execution. So, Riskalyze has built an invisible bridge directly into custody and execution. Autopilot takes model portfolios and implements them, handles the dynamic rebalancing as dictated from any change in the Risk Number. One-Click Fiduciary™ technology keeps accounts on track after that and surfaces the right decisions for advisors to handle an risk number drift, changes in the model, or putting new dollars at work.  Strategists and research firms such as BlackRock, Cambria, CLS Investments, First Trust, LikeFolio, Longboard Asset Management, Morningstar Managed Portfolios, SEI Investments, and Swan Global Investments have become a part of Riskalyze’s multi-custodial automated account platform.

Riskalyze’s offer to advisors has two pricing options:

Screen Shot 2017-07-17 at 12.42.00 PM

Hello to “Transparency, Best interests, and low commissions!”

Efi Pylarinou is a Fintech thought-leader, consultant and investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

 

 

 

 

Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 17th July 2017

The Blockchain Bitcoin & Crypto Weekly CXO Briefing is all you need to know, each week, jargon free for CXO level business leaders and investors who will use this technology to change the world. Each week we select the 3 news items that matter and explain why and link to one expert opinion.

For the intro to this weekly series, please go here.

buy-bitcoin_1280-770x421.jpg

News Item 1: The guy who photobombed Janet Yellen with a “Buy Bitcoin” sign has received nearly $16,000 in donations

Decrypted: As Federal Reserve Chairman Janet Yellen was speaking to the House Financial Services Committee last Wednesday, something interesting happened. Almost perfectly placed behind her right shoulder a sign appeared telling people to buy Bitcoin. A young man wearing a suit and pink tie, the “Bitcoin Sign Guy”, drove news around world and maybe even caused the price of Bitcoin to go up, as a frenzied group of traders did exactly what the sign said, they bought Bitcoin.

Our take: The timing was perfect. As Janet Yellen was saying she would oppose almost any attempt to audit the Federal Reserve, he put up the sign and reminded us that Bitcoin can replace central banks, as the first decentralized global reserve currency.

It was exciting, just like the early days, when someone would post something of reddit and Bitcoiners would rally to support it. It was like the College GameDay sign, that said “Hi Mom Send Bitcoin”, with the QR, and the guy ended up raising $25,000.

The “Bitcoin Sign Guy”, created a huge buzz in the news and drove the price up. But not matter how exciting the fireworks may be, it also showed us you can’t change an overall bearish trend with a cool story in the news. News stories like this can bump up the price for a while against the trend, but ultimately the trend always wins. Now we are back to new price lows with the upcoming possible user activated fork. The “Bitcoin Sign Guy”, was a nice break from the scaling debate that’s been going on.

Since the start of 2017, cryptocurrencies have had a phenomenal rally. But in recent weeks, they have been bleeding, as speculators are jittery, waiting to see how Bitcoin’s scaling debate will conclude on August 1st. The total market cap has dropped by $9 billion, almost 11% percent, with Bitcoin prices dropping below $2,100.

The “Bitcoin Sign Guy” reminded us why everyone got interested in Bitcoin in the first place. I was really happy to see that he did not hold up a sign for some other coin, like when Dennis Rodman wore a t-shirt for PotCoin, and it was Bitcoin.

Bitcoin has the power to replace the archaic, centralized banking system. Bitcoin has turned upside down everything we know about money, how its stored, who should control its production and how it is transmitted and managed.

Now, is the “Bitcoin Sign Guy” an important moment in Bitcoin history or will this kick off a series of aggressive and annoying copycats? Are we going to see a spree of similar events at stadiums, concerts or the next Trump speech? Hopefully not. It would of been better if the”Bitcoin Sign Guy” held up a QR code, instead of an actual Bitcoin address. So far his action has gone viral and spurred several attempts online, with photoshopped versions of the original picture, and copycats changing his address to their address.

News Item 2: uPort Announces Zug Digital Ethereum ID Pilot

Decrypted: Zug is known for being at the forefront of blockchain and crypto innovation, being the home to many companies that are innovating in this space. The most recent step in Zug’s journey, was the announcement to implement blockchain technology for digital identities, in order to offer its citizens innovative access to both local and international services.

Our take: In 2011 the World Economic Forum recognized that personal data had become an important new asset class. Personal data in the 21st century is a valuable resource that will touch all aspects of society. But today, the way we create and manage our digital identities is broken. Digital identity is fragmented between various service providers like Google and Facebook, that require multiple registrations and logins, while most people use the same password for the services they use, in order to remember it. According to BBC News, a typical consumer has 26 different logins but only five passwords. These centralized servers are honeypots of data, making them extremely attractive targets for hackers.

Based on the data from the World Bank, about 2.4 billion people in the world today lack official identification and can’t prove their identity. At the simplest level digital identity is a supplement to the real identity of a person. Digital identity is a set of credentials or attributes that allow a third party to verify the identity of that person. Digital identity, will allow people to own their data and manage their identities.  Why should we give our identity to a centralized structure that could be compromised?  That is the whole reason why there are so many issues with identity today. When centralized organizations get hacked our details are stolen.

Building trusted and distributed identity networks is a big step towards a whole new world. Blockchain is well suited for managing both consent and control of information. Blockchain technology can empower consumers to control their own identity and share with trusted organizations, using smart contracts that will determine how they can manage and use their data.

Last year, Estonia offered digital identities through their e-Estonia program. Estonians can access public services, financial services, medical and emergency services as well as pay taxes online, e-vote, provide digital signatures, and travel within the EU without a passport. Another country exploring blockchain identity is Australia. In 2016, Australia Post tested a blockchain digital identity platform that allows people to verify their identity in just a few minutes, using biometric data, and apply for a passport or mortgage from their smartphone.

The space is crowded with many solutions, each offering their own flavor of digital identities: Averon, BlockAuth, Blockstack, Bitnation, BlockVerify, Cambridge Blockchain, Civic, Credits, CredyCo, Cryptid, DataCoup, Enigma, Evernym, ExistenceID, Guardtime’s BLT, HYPR, Identifi, Open Identity Exchange (OIX), KYC-Chain, Netki, Pillar project, ShoCard, Tierion, UniquID and uPort.

Digital identity present us with and tremendous opportunity for disruption that can help us solve significant challenges such fraud risk, KYC and AML.

News Item 3: Dispute could mean financial panic in Bitcoin

Decrypted: The clock is ticking, as we are coming closer to August 1st. The Bitcoin scaling debate has reached a climax, and we are seeing the results in dropping prices and market cap. When everyone thought the Bitcoin “civil war” was over and a consensus was reached that would activate SegWit, Bitmain in June announced UAHF (User Activated Hard Fork), a contingency plan in response to UASF, in order to wipeout the risk that comes along with it.

Our take: Support for SegWit2x has reached high levels with mining pools, not seen with previous proposals. The majority have already pledged to activate Segwit2x, thus activating the long-awaited Segregated Witness (SegWit). But Bitcoin’s UASF isn’t backing down from the August 1st deadline. A sizable group of Bitcoin users remains mistrustful, and still plans to move forward with the BIP 148.

Both sides have a lot to gain by reaching a consensus, but the lack of a central authority has made it difficult. While support for SegWit2x is high, the biggest concern the UASF side has is that SegWit2x seems rushed, mostly driven by anxiety that Bitcoin might loose its dominant position to Ethereum.

Fear and uncertainty have plagued the entire cryptocurrency market. In fact as Bitcoin prices have been dropping, we’ve also seen the prices of most cryptocurrencies suffer. The Bitcoin rocket has helped create value not just for Bitcoin, but for the entire cryptocurrency market. If Bitcoin forks, the resulting chaos will hurt the entire industry.

We’ll have to wait and see what happens. If 80% of the Bitcoin community adopts SegWit, everything should be fine. If it doesn’t, most likely UASF will be activated on August 1st. In this future, one I don’t want to imagine, its likely to have two bitcoins on August 1st. A Bitcoin Core coin (BCC) and a Bitcoin Unlimited coin (BTU). A hard fork would create two copies of the Blockchain, two networks and two versions of the software. This would leave it up to the miners and users to determine what version of the Blockchain they will support.

If the hard fork happens and the Bitcoin blockchain splits, users are at risk of losing their Bitcoin, which is why Bitcoin.org is urging everyone, to take a “bank holiday”. Bitcoin.org posted an announcement suggesting to take a few days off before the proposed changes take place and to wait for confirmation that the situation has been resolved, before users start trading again.

SegWit2x, UASF, UAHF… What’s going to happen?

I don’t think anyone knows how this will play out. For the time being, we can expect market volatility to continue, with prices dropping. This could be the best time to get in the market, with prices going low, while staying vigilant and ready to act once a clear outcome emerges and prices begin to surge again.

Opinion: ICOs are repeating the mistakes of crowdfunding

In 2016, $73 billion in venture capital was invested in U.S. startups, compared with $45 billion at the peak of the dot-com boom. A few days ago, Tezos hit a new record with its ICO, raising $232 million. Before that Block.One’s EOS raised $185 million and Bancor $153 million. These three ICOs racked in a whopping $570 million. So far the ICOs have had a phenomenal run.

ICOs are changing that way startups are raising money. They are letting startups from anywhere in the world raise money to fund their new innovative ideas. They give small investors the opportunity to get a seat at the grown-ups table and invest in new technology at the ground floor. But, just like any investment, there’s always a level of risk. Fraud is not new in tech and the hotter the business, the more scam artists will flock to it. And ICOs are super hot. But, in most cases, small investors don’t have technical knowledge or the understanding of the market dynamics for the startups they invest in, and very often they fail to see the difference between legitimate ICOs and those that are scams.

I don’t think the problem with ICOs has to do with the fact that people are paying upfront for a products that haven’t been built yet. By definition, entrepreneurship is about promoting the heck out of things that don’t exist yet, and convincing investors, staff, and customers to believe in the future they are describing. I think the problem lies with the lack of process, specifically the lack of a vetting process. Unlike IPOs or startups that go through the normal venture capital route, ICOs have not gone through a process where someone has evaluated the opportunity based on specific standards, to make sure that the ICO meets some basic requirements before it can start to take in investment capital. Unlike VC funded startups, ICOs don’t raise money from professional investors that spread risk across a portfolio, but from regular folk that want to make a buck. These smaller investors, need a level of protection. The lack of regulation, coupled with the fact that ICOs can raise all the money they need in a single round, removes any kind of accountability and allows scam artists to take the money and run. Historically, Silicon Valley forgives, even celebrates, failure. I am not sure how forgiving small investors will be, after they get scammed. In the end, who loses when someone get scammed? We all do! The entire ecosystem loses.

With ICOs surging in recent months, the Securities and Exchange Commission is taking a closer look at such offerings. The ruling in the recent case of SEC vs Traffic Monsoon, was very clear. Sellers beware! The federal courts authorized the SEC to take action against the Internet advertising company. Even though the Traffic Monsoon case did not involve an ICO, but a similar offering, it was indicative of how the SEC might approach ICOs.

Regulation cannot stop scam from happening. Even if the SEC or other organizations put in place regulations for ICOs, stupid day traders and ICO junkies will still get crushed. We still need to do our homework, understand what we are investing in, and be aware of potential signs of scam. A recent post in Fintech Genome, mentions a few signs, that investors should be aware of  before investing in an ICO:

  1. Short window to decide. This is a FOMO tactic.
  2. Uncapped raise. Imagine a traditional fund raise where investor asks “how much are you raising?” and the answer is “we won’t tell you”.
  3. Minimum Viable White Paper (MVWP). Term coined (sic) by Andreas Antonopolous. An empty GitHub is a bad sign.
  4. Lots of buzzwords and breathless hype on social media. You know the pitches that look like they were created by a random buzzword generator.

Initial Coin Offerings have unlocked a better way to raise money and create a network effect. Just like the dot-com bubble there is risk, but we can expect ICOs to give us the next Google’s and Amazon’s of the world.

Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.