Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 16th October 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: $5,800: Bitcoin Price Hits New Record High

Decrypted: In September China’s announcements to ban token sales and Bitcoin exchanges sent Bitcoin’s price tumbling, but a few days ago the cryptocurrency’s price rallied to a new all-time high, hitting more than $5,200 on Thursday and following up with repeat performance on Friday, to break $5,800.

There’s been a lot of speculation as to the reasons behind Bitcoin’s recent price surge. Some speculate the upcoming Bitcoin Gold and Segwit2x hard forks, reports that Goldman Sachs is considering Bitcoin trading and rumors that China might reverse the bans and ease restrictions.

Our take: Last month China’s government, the People’s Bank of China (PBoC) and local financial regulators, imposed a nationwide ban on cryptocurrency exchanges that caused Bitcoin and the entire cryptocurrency market to drop.

But in the past few days, it would looks like the fears caused by China’s bans have been completely shrugged off by the market.

Yet, there’s been plenty of speculation about a Chinese reversal of the bans, and recently there have been reports in Xinhua, a state-owned news publication of China, suggesting that China’s ban is only temporary, until the Chinese government releases a stricter regulations for KYC and AML  for trading platforms.

CnLedger, a cryptocurrency news outlet in China posted on Twitter about the news in Xinhua:

“Xinhua News, official press agency of CN: Virtual currencies have become the top choices of underground economies. We shall adopt ‘0-tolerance policies’ towards crimes hidden underneath and take measures such as record-keeping, licensing, AML processes, real-name, limiting large transactions.”

With the new price high, Bitcoin’s market cap hit $97 billion, up over 480 percent year-to-date. Bitcoin’s new price level also triggered a positive rally for the entire crypto market. Ethereum was up over 5% over the last 24 hours, while Litecoin went up almost 14%. The combined market cap for all cryptocurrencies once again climbed towards the Sept. 1 high of $172.5 billion,  with Bitcoin being over 55 percent of the total market.

Another reason behind Bitcoin’s price increase could be the upcoming hard forks. We are expecting two hard forks for Bitcoin, that will create two new rival clones of the cryptocurrency. The first is Bitcoin Gold and its expected to happen on October 25, and second is Segwit2x in November, when Bitcoin’s block size will increase from 1Mb to 2Mb.

The last time we had a hard fork for Bitcoin was on August 1, when Bitcoin Cash was born. At the time anyone that had Bitcoin, automatically received and equal amount of Bitcoin Cash. Bitcoin holders received one BCH for each BTC they owned.  The same will happen with these upcoming forks. Holders of Bitcoin (BTC) will automatically receive Bitcoin Gold and this is a likely reason why investors are buying BTC, driving the price up. They want to get some “free money” and flip it when it goes up. When Bitcoin Cash opened in August, it was trading around $200 and in three weeks it almost reached $1,000 and a market cap around $16 billion.

There’s also been talk that Goldman Sachs is considering a trading operation focused on Bitcoin and other digital currencies. Smart and forward thinking financial firms are getting involved with cryptocurrencies. Golman Sachs will be joining the ranks of companies like Fidelity, that has been experimenting with Bitcoin and crypto.

Last but not least are the recent comments by Christine Lagarde, IMF’s Managing Director:

“I think that we are about to see massive disruptions. it’s important to look at the broader implications of technologies like digital currencies. My hope is that we can participate in that process because I see that as a very cross-border process.”

Many argue that Bitcoin could reach $7,500 by the end of the year, but plenty of volatility is still ahead, as regulators will be taking positions to control things. While this creates uncertainty around Bitcoin and other cryptos, investing in new things is not for the faint-hearted.

Everything is about perspective. Brisk fall mornings like today, wake up the senses. So did Bitcoin last week, when it hit its new record price. One more time it reminded us that regardless of naysayers and regulators, the real power lies with the people that believe. The price of Bitcoin isn’t going up, but dollars are getting very cheap, and they’ll get even cheaper.

Anyone getting into the crypto space, investing and trading, should be doing it because they believe in Bitcoin and blockchain: “In the world of business, the people who are most successful are those who are doing what they love.” – Warren Buffet.

News Item 2: Bitcoin Competitors Are Being Built in Ex-Google Coders’ Laptops

Decrypted: Since 2013, we’ve seen more than 1,500 cryptocurrencies, with around 800-900 actively traded today, but for now Bitcoin is the king. Several offer certain technical advantages over Bitcoin,  alternatives to digital cash, software development, social media, and other services powered by blockchain.

The better known ones are Ethereum, Litecoin, Ripple, Dash, Monero but there’s more in the woodwork, hoping one day they to dethrone the leader and become king of the hill.

Basecoin is one of the contenders, a token with a rules-based monetary policy built into its blockchain system. Bascoin is backed by high profile investors, that include 1confirmation, Andreessen Horowitz, Bain Capital Ventures, Digital Currency Group, MetaStable Capital, Pantera Capital, PolyChain Capital and AngelList CEO Naval Ravikant.

Our take: One of the problems that Bitcoin and other cryptocurrencies face today, is price volatility. All of the cryptocurrency transactions are speculative in nature, with traders simply betting on ups and downs, with almost no use as a medium of exchange. Price volatility makes it difficult for people and merchants to use cryptocurrencies for every day transactions or use them to keep all their life savings, because prices can fluctuate hugely, on a daily basis.

Consider issuing a Bitcoin loan. If the price drops significantly at any point before the end of the loan’s term, the lender is left holding a significantly devalued stream of payments.

The lack of price stability hinders mainstream adoption of cryptocurrencies.

Basecoin, a new cryptocurrency that has all the benefits of traditional cryptocurrencies, privacy, anonymity, decentralization, but with a monetary policy built into the blockchain that keeps the price of each token pegged to a stable asset, for example USD or basket of assets, dynamically adjusting its market price through the creative use of a combination of tokens.

As explained in the white paper, the idea is that the protocol would be set up to mirror an asset or an index, say the U.S. dollar or the Consumer Price Index, at which point it would use oracles (links to trusted, external data sources) to monitor exchange rates. The protocol would then automatically expand or contract its supply of tokens to maintain its value. In that sense, it is the world’s first “algorithmic central bank,” operating without need for human discretion.

Even though the development of efficient blockchains has come a long way since 2009, scalability remains to be a major issue for blockchain. Several companies are working various approaches to solve the scaling question, with many implementing side-chain or off-chain solutions.

Cypherium is another contender that is building a blockchain that wants to handle an expanded workload more easily. Cypherium is creating an entirely new blockchain by combining the strengths of Bitcoin’s Proof-of-Work and Byzantine Fault Tolerance consensus mechanisms. This novel consensus mechanism adopts the idea of decoupling key block mining from micro blocks for faster transaction processing, first pioneered in Bitcoin-NG.

Currently, the Bitcoin blockchain supports an average throughput of 7 transactions per second. The Cypherium chain aims to accommodate thousands of transactions per second.

Bitcoin isn’t going away anytime soon and most likely will remain the top global cryptocurrency, because it has by far the biggest network effect and the Bitcoin network continues to grow much faster than other cryptocurrency. Other cryptocurrencies will take over specific niches (Ethereum  Smart contracts) and we can expect newcomers to offer unique twists, creating solutions that will help the entire market evolve and push cryptocurrencies into mainstream adoption.

News Item 3: First 1GB Bitcoin Block Has Been Mined on Testnet

Decrypted: Bitcoin Unlimited developers working together with researchers from the University of British Columbia and from nChain, mined the first ever 1GB block on a Gigablock Testnet.

Gigablock Testnet, also known as BUIP065, has four specific objectives, including the set-up and maintenance of a global test network capable of supporting up to 1GB blocks and sustained Visa-level transaction throughput (3,000 TPS) on the Bitcoin network.

Any successful scaling milestones by the GigaBlock initiative will first be implemented on Bitcoin Cash.

Our take: Scaling has been one of the biggest issues in the recent history of Bitcoin. While a few years ago, only cents were needed to transfer money to another wallet, today fees are high, sometimes above $10, and can take hours to confirm the transaction. Bitcoin transactions are completed when a block is added to the blockchain, but at present Bitcoin’s blocks are limited to 1MB every 10 minutes.

Currently, Bitcoin is able to process about 3-7 transactions per second. Despite the fact Bitcoin (BTC) continues to be the most followed fork, its 1mb block size, limits the number of transactions that can go inside a block, and the time it takes to generate a new block in the blockchain. When you compare this number with Visa’s 24,000 transactions per second, it obvious that Bitcoin desperately needed changes to improve scalability.

The Gigablock Testnet initiative is backed by Bitcoin Unlimited developers, nChain (blockchain technology research and development) and the University of British Columbia. The goals are to determine how large blocks Bitcoin can handle, as well as identify the bottlenecks that may obstruct the network’s scalability, which currently pales in comparison to Visa’s throughput.

Increasing the network’s block size limit from 1MB is needed to reduce fees and make confirmation times reliable again. Bitcoin Cash has already shown that lower fees are acceptable, although confirmation times can still be skewed due to the current network situation.

The research project is setting up a global network of Bitcoin mining nodes configured to accept blocks of up to one thousand times larger than the current block size (1GB). These nodes are connected with transaction generators, each capable of generating and broadcasting up to 200 transactions per second. To identify bottlenecks and measure performance statistics, a series of “ramps” are performed, where the transaction generators are programmed to increase their generation rate following an exponential curve, starting at 1 transaction per second and concluding at 1000 transaction per second.

The Gigablock scaling initiative has been in the pipeline since July 2017, when both nChain and Bitcoin Unlimited convened at a workshop in Vancouver, Canada. Both groups share a common vision of scaling Bitcoin on-chain.

Bitcoin Core’s reluctance to larger on-chain capacity, pushed supporters of bigger blocks to fork Bitcoin in August. Supporters of bigger blocks and on chain scaling have formed an active community, around Bitcoin Cash. Bitcoin Cash was created on August 1, and now is trading around $300 with a market cap of $5 billion. A couple of weeks after it launched Bitcoin Cash made a bold move of increasing capacity to a default 8MB blocks and scraping away Segregated Witness.

Bitcoin Cash wants to empower merchants and users with low fees and reliable confirmations. The goal of Bitcoin Cash is to increase the number of transactions that can be processed, and supporters hope that this change will allow Bitcoin Cash to compete with the volume of transactions that PayPal and Visa can handle by increasing the size of blocks.

Now this latest breakthrough, makes the 1MB blocks look so 1980s. If the Gigablock initiative is able to increase the Bitcoin block size, making it reliable and workable, it could make Bitcoin even more viable for mainstream adoption in the future.

OpinionBitcoin’s price bubble will burst under government pressure

Bitcoin is a decentralized, denationalized digital currency operating outside the traditional banking and governmental system.

The biggest advantage that Bitcoin brings to the table is the ability to by-pass the conventional payment models. It connects buyers and sellers across national borders at minimal transaction costs. One doesn’t need to have a bank account to hold Bitcoins, and certainly, payments are a lot faster compared to traditional payment methods.

The price of Bitcoin has soared this year, from $1,000 to over $5,800 a few days ago. And it not only Bitcoin. Ethereum started the year at $8 and has traded as high as $400. In 2017, every week new tokens are issued, and Initial Coin Offerings have raised close to $2 billion in the first two quarters, so far this year.

While there are many other cryptocurrencies available today, Bitcoin has become synonymous with the word “cryptocurrency.” Anyone who has traded Bitcoin has come across the volatility and price fluctuations.

This has kept Bitcoin in the news.

The current price of Bitcoin has a 91% correlation with the volume of Google searches for bitcoin-related terms, according to a study by SEMrush, a search engine marketing agency. Google searches for “Bitcoin” go up and down, with the price of Bitcoin.

It has also made Bitcoin a lot of enemies.

It is no wonder then that both government agencies and financial institutions have remained skeptical of Bitcoin. Regulators are at odds over how to regulate Bitcoin and other cryptocurrencies,. Regulators in the U.S., Singapore, Japan Russia and China are looking at regulatory measures to control the growth of digital tokens and how to tax them.

China recently made it illegal for companies to raise new funds by issuing virtual tokens and shutdown exchanges. Japan is ready to introduce regulatory oversight on cryptocurrency exchanges in October. Meanwhile, the U.S. Securities and Exchange Commission (SEC) provides guidelines on its website for investors to consider before participating in token sales.

One of the reasons that people think Bitcoin is a bubble, is because its just so new for most. Bitcoin has come to the forefront, surpassing the performance of other financial assets. Earlier this year the price of a Bitcoin surpassed that of an ounce of gold for the first time. Currently, all the Bitcoin in the world is worth close to $80 billion.

Blockchain has found its way into financial markets, but for many Bitcoin is the black sheep. Jamie Dimon, JP Morgan’s CEO,  just might be Bitcoin’s biggest hater. A couple of days ago he said “governments around the world will crush Bitcoin,” regulating digital currencies out of existence. He admitted that the Bitcoin could reach $100,000 before it “goes to zero” and pointed that speculators are the biggest driver behind a recent rally.

But some factors have been working to Bitcoin’s advantage: economic and political uncertainty in several countries, increased inflow of institutional money and mainstream momentum by more and more people.

Some of the world’s biggest central banks have been running programs on adopting digital currencies. From the PBoC to the MAS and E-Estonia, many are looking to have their currencies go digital. In Sweden, they have already declared cash dead and India recently had a massive demonetization drive, part of which was driven by the need to make cash transactions digital.

Through a digital currency, central banks can trace funds more easily, hence be able to tax them. It also reduces the costs of printing and maintaining paper currencies, which according to some estimates costs up to 1.5% of GDP. Additionally, the cost of handling physical cash reduces for banks consequently reducing the need to operate physical bank locations.

Are fiat currencies going crypto? Yes, they certainly will be.

Will Bitcoin replace digital fiat currency? Is it a bubble? Will governments “crush” Bitcoin and altcoins? Your guess is as good as mine.

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


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An Interview with CEO of collectAI – for working capital management

Fintech for too long has been focusing on UX, and with the advent of AI, there have been many firms focusing on customer journeys, that would lead to closure of a transaction. However, in recent times, the focus has shifted to back office operations, and adding efficiencies to these processes.


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Germany based collectAI ​​automates ​and digitizes ​invoices, ​dunning ​and ​debt ​collection ​processes ​and ​is ​the ​first ​digital ​end-to-end provider ​in ​receivables ​management. They have achieved significant traction in Europe by processing €25 Million since launch in 2016.

We had a chance to talk to Mirko Krauel, CEO of the firm on their progress and plans, and here are the key points he mentioned about his journey with collectAI.

What led you to collectAI?

After a Diploma in Business Administration, I was working as a management consultant within digital innovation of Banking and Payments industry. During my corporate experience, I noticed inefficiencies in various back office processes. I also noticed that the Fintech startups at that time were mostly focusing on customer experience. I chose the problem to solve and I felt AI would have to be my go-to technology for the problem.

What was the best part of the journey and what were the challenges?

The best part of the journey was getting the team together, the initial days of getting the product design and getting to the MVP. We had quite a few challenges with the Go-To-Market strategy and our sales cycle was also too long. So we had to sit down and work out a way of going after mid-sized clients to have a few closures and build credibility. We also employed a few project managers who were able to bring deployments to closure on a plan.

The other challenge we had was getting access to quality data to build the software, but with time, we are getting better at that too. 

Tell us about the AI software you have developed

The AI software has got better over time as we have learnt and the software has done so too. It now evaluates

  • The best timing to send a message for the payment collection
  • Payment methods to include
  • The tone to be included (friendly, neutral, strict tone)
  • If SMS, Post, Email is better for a customer
  • If a payment plan should be offered

And as a result we end up with a customized communication strategy for every customer.

How do you measure performance of your AI program?

I think it would have to be based on the efficiencies achieved. We have introduced an intelligent​ email ​functionality that led ​to ​an ​increase ​of ​the ​collection ​rate ​of ​33%, ​while ​processing ​costs have ​been ​reduced ​by ​up ​to ​41%. 

It is a big market in Europe alone where about 23% of debts are not paid on time. We have managed £25 Million processed through collectAI in the last 12 months.

Those are big milestones that we have achieved within 12-18 months, and they wouldn’t have happened without the hard work of the team in building a capable software.

Where do you go from here, what is in pipeline?

We need to scale the team across various functions. We need a bigger IT team, enrich our operations team and also get a few PMs. I have also plans for developing some self service features within the product, which will help customer experience and conversion. 

There are a number of AI startups coming up across Europe focusing on back office operations. However collectAI are well funded by their parent company Otto Group, Germany’s largest online retailer, and they have also demonstrated execution in the last 12 months. There is serious competition across the Atlantic, however, they seem to have the advantage in the European markets.

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.


Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 2nd October 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: Zen blockchain hopes to strengthen, broaden Bitcoin

Decrypted: Recently, the Zen Protocol came out out of stealth mode hoping to create an alternative to Ethereum and solve the “running out of gas” problem that can happen with Ethereum based smart contracts.

The Zen Protocol is a solution for decentralized, automatic contracts that runs in parallel to Bitcoin, just like a sidechain. The Zen Protocol eliminates some of the problems associated with Ethereum smart contracts. Zen allows its miners get to know the amount of computation a contract requires, before actually executing it. This makes it possible for contracts to execute extremely fast.

Our take: Smart contracts are one of the key innovations of Ethereum. The basic idea is programmable, self-executing contracts that are recorded and executed on the blockchain. Smart contracts run on the Ethereum Virtual Machine (EVM), that uses  resources for computation and data storage.

All transactions, from simple transfers to ICO smart contracts, require resources to execute. Each of these resources has an associated cost in “gas”. Gas is the metering unit to use EVM and the way miners are incentivized to process the transactions.

When a transaction is sent to EVM, it will start to execute, but if it does not have enough gas, it will eventually stop. When this happens, the amount of Ethereum spent on gas is not returned, but since the transaction did not actually complete on the blockchain, the main funds remain in the wallet.

Zen is a decentralized financial platform, built from scratch with the goal of providing people with a secure, scalable and useful infrastructure for creating their own financial instruments, and trading them directly without intermediaries.

Zen enables everyone anytime anywhere in the world to create and trade financial products. The platform creates an open marketplace where users can operate various types of financial instruments, including options, futures, digital currencies, ETFs. This makes this new chain a more fully fledged financial system compared the others.

Zen can be utilized with real world assets, and not just blockchain related assets, as in the case of Ethereum. Because its a Bitcoin side chain, it’s part of the Bitcoin blockchain and all Zen nodes are also Bitcoin nodes. Its close connection with Bitcoin makes it possible to sell assets for BTC or to create Bitcoin-backed assets.

The Zen blockchain is secured by multiple proof-of-work algorithms, with token-holder voting on the balance between them. Multi-hash mining creates robust incentives for miners to deliver efficient, reliable security.

Zen smart contracts are written and secured by a subset of the F* functional programming language, allowing users to prove:

  • The amount of resources a contract will consume and provide the necessary fees for running the contract to miners, removing the need for a “gas” based system.
  • Their contracts meet a given specification, meaning they can prove the contract will definitely do (or not do) something given a specific set of parameters.

The Zen Protocol eliminates the problems with Ethereum smart contracts, when they run out of gas. The protocol utilizes contracts that never exhaust network resources and are always correct. In advance, miners know exactly how much computing power will be required to verify a contract. This allows for contracts to execute and transact faster.

News Item 2: Prime Minister’s Son to Head Barbados Blockchain Startup

Decrypted: Rawdon Adams, Bitt’s new CEO, takes the helm of the Barbados-based fintech company, a few months after the company revealed a plan to develop a pan-Caribbean settlement network, built on blockchain. The plan is to create a way to better connect the region and create a new type of digital currency: a regional cross-border blockchain currency.

While many solutions are being talked about, the problem of de-banking in the Caribbean is enormous. Its clear to everyone that something needs to happen. Leveraging Blockchain technology can lead to economic transformation in the region. The appointment of Adams adds clout to the startup’s regional plans. Rawdon is the son of Tom Adams, who served as the prime minister of Barbados between 1976 and 1985.

Our take: Smaller, poorer countries are being abandoned by big banks in an exodus commonly referred to as “de-risking” or “de-banking.” In the Caribbean, where many small countries with poorer populations reside close to each other, the problem is getting so bad that local businesses regularly have a hard time receiving remittances and paying suppliers outside of their own country, even when their trading partner is just the next island over.

When traveling between islands in the Caribbean, dealing with currencies has always been complicated. With 7,000 islands comprising 12 dependent territories and 13 sovereign island nations, trading and travel is complex, especially in terms of having the right money or making conversions when paying by card.

The growing trend in the Caribbean was the topic of a 2016 report by the IMF. No one knows exactly how much of the population is “unbanked,” or financially underserved, in Latin America and the Caribbean. However, estimates put the number as high as 70%, or more than 400 million people.

The UN Economic Commission for Latin America and the Caribbean, when examining the use of digital currency technology in the Caribbean, released a report with the goal of drawing attention to the opportunities and liabilities related to the technology.

The UN’s report noted that in March 2014, the Central Bank in Trinidad and Tobago issued public awareness information about digital currency, warning that “potential users of the product must be aware of the risks involved in investing in virtual currencies as regulators seek to establish appropriate frameworks to ensure the continued safe operation of the payments system and the smooth conduct of monetary policy.”

The report also stated that Trinidad and Tobago have the potential to become a hub of digital currency activity given its relatively low cost of energy, making it an attractive location for digital currency mining. Moreover, the research into Koblitz Group revealed two subsidiaries: Bitt, a digital currency exchange and ASICBLOCK, a hosted digital currency mining service.

In early 2014, the Koblitz Group was working on an initiative to establish a digital currency exchange to serve the Caribbean, with a launch in Barbados and then an expansion into Trinidad and Tobago.

Bitt was founded in 2013 in Barbados. Its a digital asset exchange that owns and operates a trading platform for Bitcoin and other fiat currencies. The company focuses on providing access to cryptocurrencies in emerging markets. Bitt has developed a high frequency trading platform, boasting military grade security, that includes a digital asset exchange, a mobile money wallet, a remittance platform, and merchant payment processing tools.

In 2016, Bitt launched the Barbadian Digital Dollar, the Caribbean’s first blockchain-based digital money. The Barbadian Digital Dollar is equivalent to one dollar issued by the Central Bank of Barbados. To create the digital dollar, Bitt took advantage of the Colored Coins protocol, that allows the creation of new assets on top of the Bitcoin blockchain.

Other central banks in the region are joining the project and Bitt will soon also handle Aruban florins and Bahamian dollars. The Eastern Caribbean Central Bank (ECCB) is engaged with Bitt for a pilot in the Eastern Caribbean Currency Union.

Also, earlier this year, Bitt parnered with PwC to offer central banks and other institutions, access to PwC’s deep global expertise in blockchain research and knowledge, marketplace strategy, operational readiness and technology services.

Looking at the bigger picture, it seems like we have a new type of digital currency in the making, that will potentially span across several countries. With the appointment of Rawdon Adams, its likely that support from the Barbados government and other governments in the Caribbean region, could turn Bitt’s project into an initiative that potentially could impact the entire region.

News Item 3: Fidelity Investments Is Mining for Cryptocurrency 

Decrypted: Fidelity Investments is one of the largest investment firms, managing $2.3 trillion in assets. In May, during the 2017 Consensus conference, Abigail Johnson, Fidelity’s CEO, said that the company was in the business of mining Bitcoin.

The firm has been experimenting internally with Bitcoin and is now bringing some of those features to its broad customer base. Now, through the Fidelity website, cryptocurrency balances are visible to customers that hold an account with Coinbase.

Our take: Fidelity is one of the few US. financial firms that have taken a proactive approach to cryptocurrencies, speaking publicly about its cryptocurrency operations, while most of the big banks have been hesitant to adopt Bitcoin and are only now starting to explore blockchain technologies.

Fidelity has a small operations team in charge of mining Bitcoin, trying new wallets, and even experimenting on innovations to further augment cryptocurrency.

One of Fidelity’s projects is mining Bitcoin and Ethereum, which started for educational purposes, but now turns a nifty profit. Abigail Johnson said “We set up a small Bitcoin and Ethereum mining operation, that miraculously now is actually making a lot of money”.

Fidelity is reported to have purchased its mining equipment from the company 21 Inc.  It is unclear how many units they purchased or what type of mining power Fidelity has, but we can only assume their mining operation is still limited in power, considering it was only set up for educational purposes.

Additionally, Fidelity has updated its website to display cryptocurrency balances for a customer’s Coinbase account. Earlier this year, Fidelity began testing the view balance feature with employees who own digital assets on Coinbase. During testing, Fidelity found strong internal support for the partnership and ability to view digital asset holdings within their portfolio.

Fidelity Labs, the company’s research group, has made venture investments in a handful of Bitcoin businesses as well as partnering with university efforts, including the MIT Digital Currency Initiative.

Fidelity employees can pay for their lunch or coffee using Bitcoin in the cafeteria at its Boston headquarters. The firm’s charity arm also began accepting Bitcoin donations in 2015 and the company received $7 million worth of Bitcoin donations last year.

In 2017, the market cap for cryptocurrencies has grown significantly, especially Bitcoin and Ethereum. Despite the acceptance of the underlying blockchain technology, regulators and financial firms in the US have diverged from implementing cryptocurrencies in their daily business operations. But maybe the winds are changing and now we’ll start seeing more big financial services firms becoming more proactive with cryptocurrencies, contrary to some of the statements we heard in the past weeks.

Even though J.P. Morgan chief executive, Jamie Dimon, called Bitcoin a fraud, the bank’s traders were buying shares of an exchange traded fund that tracks cryptocurrencies. In a recent article on CNBC, James Gorman, CEO of Morgan Stanley, took a different stance saying that Bitcoin and other cryptocurrencies were certainly “more than just a fad.”.

Along with JPMorgan, more than a dozen banks, including Morgan StanleyGoldman Sachs Group Inc and Credit Suisse Group AG, have acted as brokers for buying and selling Bitcoin XBT on Nasdaq’s Stockholm-based exchange, according to Swedish online bank Nordnet AB.

It is good to see Fidelity Investments showing confidence in cryptocurrencies. This very public Bitcoin recognition makes Fidelity just one of a handful of big investment companies that have decided to integrate cryptocurrencies and  putting it in direct opposition to many others including the likes of J.P. Morgan, that continue to ignore what they can’t control.

OpinionIt’s Political: Why China Hates Bitcoin and Loves the Blockchain

Some governments love blockchain technology, but hate Bitcoin. Some governments are in panic, because they understand they can’t stop Bitcoin from becoming an alternative to their monopoly on money. Deep down, most governments understand the underlying value of blockchain, which is primary reason they are considering and are experimenting with their own versions of fiat digital currencies.

Bitcoin is largely an American invention. While no one knows who Satoshi Nakamoto really is, it is believed that he primarily spoke and worked on Bitcoin in English and eight years ago he refined his protocol with the late Hal Finney.

Yet, China and Russia have both shown interest in pursuing their own national cryptocurrencies, as part of their strategies to disrupt US. economic dominance. The Chinese government is speeding up investment in cryptocurrency technology to replace paper money with digital currency. The Ministry of Industry and Information Technology (MIIT) recently approved nine products that meet the country’s “trusted blockchain standards”, including Tencent Blockchain developed by online payment system Tenpay, and a platform from Chinese telecom conglomerate ZTE.

The US dollar’s position as the world’s dominant reserve currency gives the US enormous leverage over the world’s economy. The high demand for dollars in many different countries, allows the US. to constantly print more, making buying imports and borrowing money cheaper for the United States.

But the US. is holding on too tight. This is the primary reason the US. has not been pro-cryptocurrency. And this is potentially its down fall.

In such a globally connected economy, the impact of transitioning to blockchain will be profound and will likely turn any nation and industry on its head. Amazon dominates as a marketplace. Facebook dominates as a social network. Google dominates as a search engine. Airbnb dominates renting rooms. Blockchain, the distributed database that powers Bitcoin, could disrupt everything.

In an article on Bloomberg that Vlad Martynov, an adviser for the Ethereum Foundation said:

“Blockchain may have the same effect on businesses that the emergence on the internet once had — it would change business models, and eliminate intermediaries such as escrow agents and clerks. If Russia implements it first, it will gain similar advantages to those the Western countries did at the start of the internet age.”

The winners of the blockchain era, will be the countries and businesses that embrace it and Michael J. Casey sums it up perfectly:

“Given the current policy priorities of the Trump administration, the U.S. won’t likely be the winner in this. But neither will China if it continues on its present course. The age of cryptocurrency will deliver the spoils to countries, businesses and individuals that operate within a system of open access, property rights and free trade – the principles upon which U.S. hegemony was originally built”.

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.

MoneyOnMobile is a mobile operator agnostic alternative to M-Pesa for the Unbanked and Underbanked

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MoneyOnMobile is very low profile given how much traction they have. With a retail outlet distribution channel in India of 335,000 shops, 200 million unique phone numbers and more than 1 million domestic money transfer transactions processed in August 2017 alone, MoneyOnMobil should be top of mind for anybody tracking mobile money innovation.

Yet, although I keep a close eye on this space, I only heard about them a couple of weeks ago. Maybe we all instinctively gravitate towards something that resonates with our Western lifestyle. We can personally relate to the emerging middle class of India and so we can relate to ventures such as Paytm or the recently launched Tez from Google that serve that market.

It is harder to relate to the needs of the Unbanked and Underbanked and that is the market served by MoneyOnMobile and M-Pesa

As soon as I came across MoneyOnMobile,  I wrote about them here.

MoneyOnMobile has got the tag “Square of India”, partly because Jim McKelvey, a cofounder at Square is on the board of MoneyOnMobile. That positioning works well because of the connection through Jim and because Jim tells the story so well in this short video:

However this is a Western centric view and the analogy makes one think of credit card processing for small retailers. The analogy for MoneyOnMobile is closer to M-Pesa than Square and that is the analogy described in this post.

Disclosure: MoneyOnMobile is a client of Daily Fintech Advisers. I am not a financial adviser, please do your own diligence before investing.

The journey of discovery about MoneyOnMobile

When I tell people who know about mobile money in India about MoneyOnMobile, the journey of discovery goes like this:

“That sounds like Paytm.”

“Not really, Paytm and Mobikwik and Tez and many other ventures go after the emerging middle class of India. It is a great market of about 300 million people and Western models and bank/credit card rails translate reasonably well to that market. MoneyOnMobile in contrast is serving the Unbanked and Underbanked of India, a market closer to 850 million people. What is remarkable is that MoneyOnMobile have found a way to profitably serve that population which you could never do with Western bank/credit card payment rails”.

“OK, so it is more like M-Pesa”.

“Exactly. With one crucial difference. MoneyOnMobile is an open platform that is mobile operator agnostic”.

In this post I will elaborate on that thesis for those who need some more background explanation.

Although I did not know about MoneyOnMobile, I did write a post nearly 3 years ago in November 2014 basically saying that the world needs something like an open alternative to M-Pesa. When I wrote that I did not know about MoneyOnMobile, I just thought that something like that should exist. So when I came across MoneyOnMobile a few weeks ago I immediately saw how game-changing it was.

Why M-Pesa is so game-changing 

M-Pesa started in Kenya because people were trading their mobile phone minutes; in a world without bank accounts or landlines, these mobile minutes were vital to life and were a form of currency. The roadside stands (a kind of decentralized Walmart) became the bank where you could convert mobile minutes into Kenyan fiat currency and/or pay bills. Bankers lobbied the Kenyan government to kill it, but a study found it to be secure. Anecdotally, the Kenyan President wanted to pay his gardener and when he saw how easy it was to do this with M-Pesa he was sold.

The traction data from M-Pesa in Kenya is stunning. Read this article from SC College of Business at Cornell with this data:

“Today, Kenya is a leading actor in the mobile money sector: approximately more than 26 million subscribe to the network with over 127.000 agents. Between 31% and 50% of Kenya’s GDP is estimated to flow through this network, as over 50% of the population continue to be without a bank account and to rely on platforms such as M-Pesa.”

But there is one big problem with M-Pesa

M-Pesa is controlled by Vodafone. There is nothing wrong with Vodafone. They are a good mobile phone operator. However an open, mobile phone operator agnostic version of M-Pesa would be better. This is particularly true in India where there is tough competition from many mobile phone operators driving down prices (which is critical to the Digital India agenda of the Indian Government).

The other analogy that people reach for when they first come across MoneyOnMobile is Bitcoin. This is where it is useful to compare M-Pesa and Bitcoin. They are like mirror images of each other:

M-pesa bitcoin

If you replace M-Pesa with MoneyOnMobile in that comparison, the power of their model emerges because it is like M-Pesa, except that it is mobile phone operator agnostic.

Why fight over the Overbanked when the Underbanked are so hungry for service?

Disruption happens through outsiders who are not being served by the current financial system. Bankers, fighting over the overbanked in the West, are eying the 70% of the world that is unbanked. One of the simplest trends to ride in the 21st century is the rise of billions from subsistence farming into the consumer society. Each of those billions spends very little but in aggregate the market is big and when a country reaches the tipping point when a real middle class emerges, it becomes a very big market – witness China and more recently India and many countries in Africa today.

The reason why – price

Going after the blue ocean Underbanked market is so obvious. Why is not everybody laser focussed on this? The reason is simple. It is hard to serve the Underbanked profitably.

It is hard, but not impossible.

CK Prahalad popularised the idea of this demographic as a profitable consumer base in his 2004 book The Fortune at the Bottom of the Pyramid.

The iconic Bottom Of Pyramid success story was the single serving of shampoo sold by Hindustan Unilever Limited (HUL) in India, described well in this HBR article:

“Years ago, HUL pioneered the use of low-cost, single-use packets to make its products affordable for lower-income consumers who often shop daily for necessities (think of a ketchup packet, but filled with soap). Now these packets are ubiquitous in developing countries around the world. HUL itself sells 27 billion sachets a year.”

It should be easy to do this digitally where the marginal cost is zero; but it is impossible using bank/credit card payment rails. MoneyOnMobile has figured out how to make payments profitable even if the transaction is 1 Rupee (about US$0.015) – just like M-Pesa. Unlike M-Pesa, they are mobile phone operator agnostic.

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

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The Battle for the Billion – Payments in India heats up with Google Tez

A week ago Google launched “Tez” (meaning “fast” in Hindi), as yet another player in the payments segment in India. Indian payments industry has seen major growth over the last few years, thanks to the e-commerce boom. And e-payments is projected to be $500 Billion by 2025 – a market that can definitely accommodate multiple winners.


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A few questions I have been trying to find answers to since the launch are,

  • How does Google Tez stack up against the first movers, and the major players in this segment?
  • Is it too little too late for Google?
  • Will it help/hurt Google?
  • Will Google be satisfied with just the conquering the payments on smart phone market?

Before getting into these questions lets discuss the two key payment services in play here.

Unified Payments Interface (UPI) and UPI based apps: UPI is a feature that allows consumers to perform funds transfer, where the sender doesn’t need the bank details of the receiver. The funds transfer happens between two virtual payment address. Key differences between UPI and the other key methods of payments (NEFT/RTGS) are described here. UPI is currently used by 50 Indian Banks.

Apps that are predominantly UPI based, just act as a pass through layer for payments to happen. Examples are Google Tez, BHIM, PhonePe

e-Wallets: These are apps that store money and act as digital wallets, and will need to be topped-up from time to time with cash from either bank accounts or credit cards. When a money transfer is made, it moves from the sender’s e-Wallet to the receiver’s e-Wallet. PayTM is an Example.


BHIM was launched by the Government of India, and had quite a lot of success due to its simplistic design and interface. It is an app that supports only UPI transactions.

PhonePe, since its launch has been giving BHIM tough competition. It has richer functionalities for consumers from sending money to paying bills.

PayTM, ofcourse, is the one to beat in the Payments sector in India. PayTM is an e-Wallet, and has a different use case, as explained above. It has the first movers advantage and big money via investors such as Alibaba, and the might to take on Google at this stage.

Google Tez Features:

Tez takes a different approach to the Payments customer journey, perhaps to steer clear of the competition with PayTM. Tez is built on top of UPI, so users transfer money from one bank account (connected to their Tez app) to another, without storing money within Tez.

Tez supports a “Cash” mode that allows money to be transferred from one Tez user to another using Audio QR technology (AQR), which is supposedly more user friendly and secure. This is what one would need to pay the shop keepers in the local market.

Apart from this Tez supports several Indian Regional languages, has a fraud prevention feature called Tez Shield, and also provides a chat like interface.

Are they late?

Why would Sundar Pichai, someone who understands the Indian market come to the party so late? And is there hope?PaymentsTrend

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I believe, Google has the following advantages,

  • They have positioned themselves cleverly in the UPI space which is not the strategy that PayTM are currently taking.
  • As a feature within Google Tez, they support “Cash Mode“- which allows users to transfer money to nearby Tez users through a QR Code. India loves cash and this approach differentiates Google from the rest of the UPI lot.
  • As a further advantage, google has better data about every smart phone user than the Government of India or PayTM. If they put that to good use, they would be able to provide more contextual customer journeys.
  • Sundar Pichai’s understanding of the market, and Google’s might is a definite advantage on top of these.

It remains to be seen if they can accelerate from here, to conquer the UPI segment first, and eventually the smart phone payments segment in India.

The Next Billion

There are ONLY 300 million smart phone users in India. There are close to 650 Million mobile users (including smart phone users) and about a Billion who don’t have a smart-phone in India.

That is one mammoth market that Google would not want to miss out on.  But the advantages Google have with smart phone users (consumer data), is not something they can extend into the next Billion. So, one way to do it is through acquiring a key player in that market.

There are a few trying to conquer this space that shouts out for M-Pesa like innovation, and MoneyOnMobile is one key player. When I met the CEO of MoneyonMobile earlier this week, I was surprised to learn (inspite of knowing the Indian market) about the amount of efforts and capital it took to get the Next Billion on board. However, as Bernard describes in his article on MoneyOnMobile, the winner will make it big. And to me, Google might have to conquer that market through acquisition.

Google are not the first movers, so they are always going to play catch up. But they could do it right first time. Watch this space.

Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

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Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 25th September 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: YC wants to let people invest in its startups through the blockchain

Decrypted: Sam Altman, the president of Y Combinator, expressed his interest in adopting blockchain for investment purposes, while speaking at the recent TechCrunch Disrupt conference. Altman said that he wants to democratize the process: “We are interested in how companies like Y Combinator can use the blockchain to democratize access to investing”.

Y Combinator wants to give people another way to invest in startups that it works with, using the blockchain and cryptocurrency to offer wider access.

Our take: Y Combinator has helped numerous Silicon Valley giants get started. In recent years it has also invested in several startups in the crypto space: Coinbase, Blockstack, Serica, Bitaccess, Shift Payments, Buttercoin, TradeBlock, SFOX, Filecoin, Zenbox.

Now, Y Combinator is looking at ways they can leverage the power of cryptocurrency and blockchain, to get investors to back their startups and broaden the investment pool. The accelerator has shown interest in adopting blockchain and is currently working out legal factors that need to be taken into consideration before such a system can be put in place.

While Y Combinator showed interest in blockchain, when Alman talked about ICOs, he expressed reservations: “Do I think ICOs are silly, bordering on scams? Yes, they are, but, there are a few that are important, and the blockchain is more important than not… ICOs need to be regulated.

Y Combinator is not the only one looking at blockchain for investments. Sequoia and Andreessen Horowitz and other large VCs have backed Polychain and MetaStable.

In recent weeks ICOs have been in the eye of the storm, with China’s ban on ICO funding in early September. Several regulators around the world have commented and issued warnings and are looking at ways to control ICOs: Japan, Singapore, Canada, South Korea, Hong Kong, Russia, England, and the United States,.

Everyone is taking a closer look at ICOs. Canada wants to create a middle ground that allows ICOs to exist within current regulatory structures, while countries like the Isle of Man and Gibraltar want to create frameworks that allow ICOs to be legally compliant.

In May of 2017, Gibraltar’s Digital Currency Summit explored ideas to grant legal status to companies with a focus on blockchain, as well as to companies conducting ICO’s. In early September, the Isle of Man opened up its doors to entrepreneurs looking to launch Initial Coin Offerings. In 2014 and 2015, it outlined rules and legislation for businesses that handle or exchange digital currencies and continued to develop a regulatory framework which will allow token sales to be compliant with anti-money laundering (AML) and know-your-customer (KYC) regulations. Having completed an ICO test case launched by Adel, a fintech incubator which incorporated on the island, the Financial Services Commission has put their principles of regulation into action.

But competition may also come into play between regulators. We already saw an example of cantonal competition in Switzerland, where the municipality of Chiasso recently announced it would be accepting Bitcoin for some tax bills, as the mayor hinted at competition with the nearby Swiss canton of Zug. Another example are the statements made by the Isle of Man’s Department of Economic Development, where one official was quoted as saying “Our understanding and analysis of the ICO market is that it represents a massive vertical market for us”.

Its clear that cryptocurrencies, blockchain and ICOs have tremendous potential and can drive economic development. We can expect to see further regulatory development and competition between nations, regions, and municipalities, as everyone tries to get a better grasp of things.

News Item 2: Raiden Release: Simpler Micropayments Go Live on Ethereum’s Testnet

Decrypted: The Raiden Network has now entered live testing, the final stage before it’s deployed into production. The Raiden Network is an essential part of the Ethereum ecosystem and one of the most important scaling solutions.

The Raiden Network is similar to the Lightning Network. It’s an off-chain scaling solution, enabling near-instant, low-fee and scalable payments. It’s complementary to the Ethereum blockchain and works with any ERC20 compatible token.

Also, its been posted that the Raiden Network plans to launch an Initial Coin Offering (ICO) this October, to further fund the development of the payments protocol.

Our take: As the market cap for blockchain assets is around $130 billion, blockchain platforms have been plagued with scaling problems.

Blockchains don’t scale well because they need a global consensus on the order and outcome of all transfers. Every participant needs to know about all the updates to the shared ledger. Hardware and bandwidth constraints set a limit on the number of updates per second, that can be shared in a decentralized network. The basic idea of the Raiden Network is to avoid the blockchain consensus bottleneck. This is done by leveraging a network of payment channels which allow to securely transfer value off-chain, without involving the blockchain for every transfer.

The Raiden Network has been in development for almost two years. Along with the Raiden Network, there have been a few other innovative projects attempting to ensure that decentralized applications can run as easily and at scale, as centralized apps run today. Truebit and Plasma have emerged as innovative ways to solve Ethereum’s scaling problems.

Plasma, which is the brainchild of Joseph Poon (co-author of Bitcoin’s Lightening Network) and Vitalik Buterin (founder of Ethereum), is trying to solve the scaling problem, using “baby” blockchains”. The system connects child blockchains to the main blockchain, with something called fraud proofs. This concept is similar to the Lightning Network, an idea Poon described a couple years ago for Bitcoin.

While Raiden’s ICO hasn’t been officially announced yet, a couple of days ago on their blog, Raiden Network developers announced that they decided to create a special token (RDN), that will be used for fees paid on the Raiden Network. The existence of this Raiden Network Token means that for most users, every transaction on the Raiden network will require the users to pay a fee that that can only be paid using these special tokens.

The Coindesk article says that the funds raised by the ICO in October, will be used to further develop the network. The ICO will be performed in a dutch auction manner, similar to Gnosis, meaning the price of the tokens would decline in cost over the course of the token sale.

Scalability remains the holy grail of blockchain technology and one of the main challenges faced by distributed ledger technology. The transaction throughput of blockchain technologies is still orders of magnitude behind that of mainstream financial networks. This hinders their widespread adoption. In order to challenge traditional payment networks and assume a key role in the decentralized future, blockchains must find ways to radically improve their throughput, measured in number of transactions per second.

We need to be working more on protocol layers for both scaling transactions and also scaling security protocols. Technologies like Raiden and Lightning can help change that.

News Item 3: Russian Prosecutor’s Office Summons Burger King for Issuing Cryptocurrency

Decrypted: The prosecutor’s office in Russia summoned Burger King to explain the issuance of its cryptocurrency, the Whoppercoin. A month ago, the fast food giant launched its blockchain token with a supply of 1 billion Whoppercoins. Customers receive one Whoppercoin for every ruble they spend. With 1,700 Whoppercoins, they can buy a Whopper burger.

While the Whopper cryptocurrency is a bit of a gimmick, customers can still trade and transfer the coins, just like any other cryptocurrency.

Our take: The WhopperCoin concept is an out-of-the-box approach to a rewards program but not without some risk. A proposed Russian legislation last year included possible jail time for Bitcoin users. Within the territory of the Russian Federation the turnover of any currency other than Russian rubles is banned.

Burger King in Russia issued a cryptocurrency called Whoppercoin in August, entering crypto market with a blockchain loyalty program, that allows customers in Russia to earn a coin for every ruble spent at BK. The cryptocurrency is hosted on the Waves blockchain platform and lets users trade the token with other users on a peer-to-peer exchange, for other cryptocurrencies as well as fiat currencies.

A study by Colloquy suggests, US consumers alone held 3.8 billion memberships in customer loyalty programs. More than 75% of adults in the United States participate in customer loyalty programs, like those offered by credit card companies, hotel chains and retailers and more than $50 billion in reward points and miles are issued by businesses annually. Loyalty programs are one of the most effective ways for merchants to boost customer retention.

While part of the WhopperCoin initiative seems like a fun and clever marketing ploy, cryptocurrency offers the perfect use case for reward tokens. It has the potential to be truly disruptive and reshape the way brands interact with consumers and consumers interact with each other. These tokens can effectively become private currencies issued by businesses or non-profit organizations, that would reward people’s loyalty.

Building a loyalty program on blockchain means anyone can send to someone else, the tokens they have received from the brand, potentially opening up a secondary market. You could trade on an exchange the tokens you’ve received from Brand A, with anyone willing to buy them, for tokens from Brand B or for fiat currency. In a sense exchanging your Burger King tokens, for Starbucks tokens, BTC, altcoins or US. dollars.

Applications like this present serious potential for building long-term loyalty, as these token can then be easily exchanged with other customers, creating repeat purchases of products. Blockchain can streamline the execution and administration of loyalty rewards programs, giving all participants near-real-time transparency, within the permissioned constraints set by the program provider. And besides integrating with, and enhancing, legacy systems that currently operate loyalty rewards programs, loyalty rewards providers can control exactly how they and their customers interact in the interlinked network to which blockchain provides them access.

There are several platforms out there that anyone can use to create their own coins on top of their existing blockchain, saving all the trouble from building your own. These include platforms like NXTCounterparty or Waves.

Burger King Russia is calling their coin a cryptocurrency: “Now Whopper is not only burger that people in 90 different countries love – it’s an investment tool as well. According to the forecasts, cryptocurrency will increase exponentially in value. Eating Whoppers now is a strategy for financial prosperity tomorrow“.

I’d probably end up dead long before, if I had to eat my way through all these whoppers to ensure financial prosperity with WhopperCoins. However, crypto loyalty programs can certainly offer unique opportunities, not just to incentivize customers to spend more money with a brand, but to also give them genuine rewards.

OpinionHere’s why the crackdown on bitcoin in China is ‘not a real problem’ for the digital currency

China’s actions reflect views that cryptocurrencies have no intrinsic value backing them, operate without any kind of government control and pose a risk of destabilizing the entire financial sector.

Jamie Dimon’s recent prose could have been written in China. His beef is with Bitcoin, not blockchain. He believes that Bitcoin and other cryptocurrencies are a fraud that will potentially hurt trusting investors. A couple of days ago, in another statement while in New Delhi, Dimon was quoted saying about cryptocurrencies: “It’s creating something out of nothing that to me is worth nothing“.

He’s not alone in this rhetoric. In the UK, Schroders, an investment company, backed China’s decision days after the ban was announced. Its strategist Huw van Steenis wrote “Why central banks should clamp down on cryptocurrencies“: “We should expect more central bankers to look to outlaw or crimp their use. This will be most acute in markets which are worried about capital flight and organized crime“.

China is a key center for cryptocurrencies and the home to the vast and lucrative cryptocurrency mining operations for Bitcoin, Ethereum and other altcoins. Chinese exchanges, Bitfinex, OkCoin, and BTCC, made up over 45% of the global market share over the last 30 days. Also, Bitmain, the largest manufacturer of Bitcoin mining equipment, is a Chinese company.

China is important. The extreme decisions by Chinese regulators are not a real problem for Bitcoin and other crypto in the long run.

The reality is:

  1. Large financial hubs around the world are supporting Bitcoin and other digital currencies (Japan, South Korea, Singapore etc).
  2. A day after China announced the ban on ICOs, Bitcoin’s price dropped from $4900 to below $4200 and prices of Ethereum and other cryptocurrencies also dropped. But, the impact was short-lived. Within two days of the announcement, prices climbed above $4600, suggesting that the market had brushed off the likelihood of a regulation-triggered tumble in prices.
  3. The global Bitcoin exchange market is adjusting. The vast majority of trading volume from the Chinese market has moved to Japan and South Korea. Earlier this week, the South Korean Bitcoin exchange market officially overtook China to become the third largest bitcoin market in the world, behind Japan and the US.
  4. China isn’t shutting down exchanges, they’re forcing them to get licensed and adhere stricter guidelines.
  5. The PBOC wants to introduce a digital yuan that will serve as a CNY tether.

Charlie Shrem, an early Bitcoin entrepreneur tweeted about China’s long-term impact on the crypto market:

“This China FUD is playing on all your fear, uncertainty and doubt. China has no real effect on the future of Bitcoin. Bitcoin is about censorship free and an alternative non government controlled financial system. China’s relevancy is diminishing by the day. They overplayed their hand and there is a reason they are being ambiguous. The only power they have over Bitcoin is the power you give them. Bitcoin puts a financial system back in our control”.

The reality is that China, understands the potential of cryptocurrency. The Chinese Government wants to know how its currency flows through the market, through regulated exchanges, and make crypto work in their own market.

Yes, China is an important market and the news about exchanges shutting down and ICO funding being banned, certainly has a short-term negative effect on the prices. While Internet businesses like Google and Facebook have been banned in China, they are still doing well. Bitcoin and digital assets are a global phenomenon. We can expect Bitcoin and the entire cryptocoin market to do well, regardless of the words and actions of the small-minded, that are trying to halt change.

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

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How incumbent banks, particularly Swiss, can thrive thanks to GDPR and cybersecurity, even after PSD2, but need to embrace Bitcoin

data hackers

The usual story line goes that big old slow incumbents cannot compete with agile Neobanks with their hip UX and with their low costs that are unencumbered by branch networks.

If UX is the game, banks can at best play catch up. They can buy the hip UX ventures, only to be left in the dust as a new one emerges that is even more hip. Just when you figure out mobile apps, you have to figure out ChatBots with an AI back end. Just when you figure out ChatBots with an AI back end, you have to figure out…

Doing that with a clunky backend designed in the batch era is not just hard, it is almost impossible.

Playing catchup is a lousy game.

PSD2 made the playing field level

That was really bad news for incumbent banks. In theory, banks can win on that level playing field. In reality, if the game being played on that level playing field is how to create the best UX, banks will lose.  Agility wins that game and a Neobank is more agile than an incumbent Bank. If two teams play soccer/football on a level playing field and one has an average age 25 and one has an average age 55, I am placing my bet with confidence on who will win. If the 25 year old team has a 25 degree upward slope, the odds even up.

Consumers don’t care that much about UX

That is heresy. UX is the whole deal. That is the mantra we have all been repeating, but which I will challenge. Sure consumers care about UX. But how much do they care? How much do they care compared to things like low fees, low interest rates and that simple word – security.

Before getting onto security, look at this from the POV of those hip Neobanks. Read this post by Fred Destin of Accel, one of the best VCs, working at a top tier VC firm. The Customer Acquisition Cost (CAC) for Neobanks is a real issue. This is not like getting users to engage with a free social service. When money is at stake, people take longer to commit. Fear is part of that delay. Will the venture still be around years from now? Will they lose my money?  The fear may be irrational, but even irrational fear kills your CAC metrics.

The biggest fear is, will they lose my money? Will they lose my data? This is where banks could have an advantage – if they play their cards well.

The latest hack – Equifax – creates an inflection point in the market. It could be a disaster for banks. If they don’t take urgent and decisive action it will be. Or banks can seize the opportunity that this creates.

The Equifax inflection point

The Equifax data loss is a huge problem for institutions that live on trust from consumers. It impacts consumers in such a fundamental way, causes so much work and impacts every interaction with the banking industry. 

To anybody who understands a bit about cybersecurity, this was no surprise. Cybersecurity folks hold 3 truths to be self evident:

  1. Anything that is digital can be hacked. Nothing is secure. It does not matter whether you are a Fortune 500 company, Government, US Presidential candidate, mega Bank or payment network. You will get hacked. It is an arms race that the good guys are losing because every solution, no matter how clever and expensive, has a shelf life until the bad guys find a way around it (and the payoff for the bad guys is big enough and the Crime As A Service networks use the full power of digitization and Moore’s Law). Your identity can be stolen with ease and with a valid but stolen identity all the KYC & AML processes are useless.
  2. This is a Board level issue. Banks and other big companies are willing to spend whatever is needed because the cost of a breach is so high. This is an existential threat for the biggest companies on the planet. Attention is not the problem. Budget allocation is not the problem. A viable solution that does not create an awful onboarding UX is the problem.
  3. Eliminating static passwords is essential. With key loggers on mobile phones, everything you type on those phones is visible to criminal gangs. Which is a problem when we all live on our phones. If you drew a matrix with Great UX and Secure as the axes, it is obvious where Mobile phones sit.

There are only two ways out of this:

Scenario 1: everything moves to decentralised self-sovereign identity stored on a blockchain. This will make banks as we know them today irrelevant. The problem for ventures pushing in this direction is “how do we get from here to there, today?” It is a grand futuristic vision, but consumers want a solution today, not at some distant time in the future. The banks also will have trouble buying this vision. Telling a Fortune 500 board that their only hope is to move off centralised data centres to a fully decentralised Blockchain based network will get you some odd looks around the boardroom table.

Scenario 2:banks get their act together. Which brings us to the wonderful world of Cold War spy stories and the one time password.

One time password is the only answer – ask John Le Carre

If you steal the the one time password, you can steal the contents of that message/payment and only that message. And you have only a short time window to do do. This makes it theoretically possible,  but economically impossible for the thieves. That is fundamentally different from stealing data that is a key that thieves can use multiple times (such as a password, social security number, credit card number),

The one time password was extensively used during World War 2 and the Cold War. John Le Carre fans will know it as a key part of “spycraft”.

One time password uses cryptography. Don’t worry, you Bitcoin fans, we will get to that other cryptography later.

That totally messes with the frictionless UX

If you live in Switzerland, you may already use a hardware device that the banks give you (a “dongle”) that uses one time password technology. Many Banks insist upon it. But each dongle is bank specific and can be rather unfriendly to use, making onboarding harder. Once you get used to it, the dongle is fine, but the onboarding experience is lousy.

This is where the opportunity lies. The onboarding pain of a one time password dongle makes consumers reluctant to switch to a new bank if they have to adopt a totally new dongle. The incumbent bank can argue “why not keep all your accounts with us, we can do all the account aggregation and reporting that you need”.

Of course a Neobank can also use a a one time password dongle. It will make them significantly less hip and mess with the lovely UX, but it will be significantly more secure. Personally that is a trade off I am able to live with. 

So how do you find early adopters to use this secure account with a harsh onboarding UX? Up to this point, incumbent banks will be doing the nodding dog act. The takeaway will be “just protect the base by being ultra secure”. 

This is where incumbent banks will start getting uncomfortable because my recommendation is that they offer a secure service to Bitcoin investors.

The newbie Bitcoin investors pain point.

The Bitcoin veterans tell newbie Bitcoin investors to have hot wallet and a cold wallet and the cold wallet needs to be on a hardware device that you put in a  safe. They look with scorn on anybody who thinks this is a pain.

If you have a lot of Bitcoin on your hardware device, put it in a bank vault rather than relying on a home safe.

Does that remind you of the gold business?

The reason I wrote “particularly Swiss” in the headline is that Bitcoin is legal in Switzerland. Sure you have to ask investors/customers for AML/KYC checks, but that is not a problem. Just don’t accept Altcoins designed for the dark web. Dark web users don’t use Bitcoin so much any more because it is trackable. With a bit of work it it is quite feasible to define a service to store Bitcoin that passes AML/KYC checks.

However, once they have done this, banks do not need to give that information to anybody who comes knocking asking for the data, which brings us to GDPR and Switzerland.

Switzerland by law is already ahead of GDPR – customers have data privacy as a right.

Bitcoin investors is a tiny market today, maybe 1% of the gold market. Read Peter Thiel’s Zero To One to see the value of starting with a tiny market that nobody else cares about that may grow in future (for example PayPal started with power sellers on eBay).

Image Source.

Bernard Lunn is a Fintech deal-maker, author, 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.