airBux launches digital currency for small businesses

The danger with following people in a certain industry on social media i.e. fintech, is you end up with a very warped view of the world.

If I just went by what my Twitter feed algorithmically displayed to me, it would seem the current flavor of the month is all things ICO. Is everyone just going slightly nuts for these right now? Speaking of ICO, whenever I see that acronym, I can’t help but think of Frank Underwood’s version of ISIS from House of Cards…

Yesterday someone even joked on my Twitter feed that ICO was also the new ‘we’ll be in touch’ from VCs. While we may not have we reached ‘peak ICO’, my gut tells me we are somewhere on the spectrum.

But ICOs aside, digital currencies are certainly here to stay. And one startup in Australia looks to be finding a hybrid payment/loyalty application for them in the small business space.

airBux went to press this week with news they had started a pilot of their non-blockchain digital currency platform with a pilot group of businesses in Cairns, a city most famous for it’s proximity to Australia’s Great Barrier Reef.

More than 35 business owners are taking part, allowing shoppers to pay for goods and services entirely with airBux , or a combination of cash and/or card and airBux.

The platform even looks to be integrated with a few point-of-sale systems, meaning there isn’t some annoying ipad next to the till that the cashier has to separately input the order into, or the customer has to tap or scan a QR code. airBux are also generated per transaction, similar to a traditional loyalty program.

There is serious merit to the concept of being able to use your reward points across various businesses, especially offline. And unlocking liquidity, a central premise of ICOs in particular, is long overdue for the loyalty space. I have so many points languishing in various rewards programs that I would love to be able to make them cross-purpose and actually get some real benefit. Of course, to get a big brand to agree to do this is near impossible (no chance those Emirates points are going to become Virgin points anytime soon). But in the small business space – where loyalty programs today amount to not much more than a punch card or software slightly more sophisticated than Excel – well, that is possible.

But scale is of course key, as is getting the pricing right. Today airBux looks to put the cost burden on the small business owner, which is always a tough one to sell (especially around payments). However if the utility is there and the value can be articulated, then instead of my local café putting up a sign telling me they’re surcharging my $8.50 purchase, maybe soon they’ll be asking me to airBux it – and for less.

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.

Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 14th August 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: Bitcoin Falls 3.5% Post SegWit Victory, Community Figures Continue Arguing

Decrypted: On August 9, the highly-anticipated Segregated Witness (SegWit), a solution to Bitcoin’s scaling issue, was officially locked in on block 479,707. The prolonged debate between different miners and developers resulted in the adoption of Bitcoin improvement proposal BIP 91.

SegWit, the brainchild of developer Peter Wuille, isn’t expected to activate until August 21. It paves the way to solve Bitcoin’s scaling issue. Right now the Bitcoin network can only manage a few transactions per second. SegWit essentially increases transaction capacity and makes it even harder to manipulate unconfirmed transactions.

Our take: Not everybody agrees on Bitcoin’s future. Governance is a huge issue in the Blockchain community, yet its amazing to see Bitcoin developers coming together to create SegWit and offer a possible solution to Bitcoin’s scaling issue.

But the continued debate has cast a shadow of uncertainty, especially when on August 1 a group of developers and miners split the blockchain and created a new digital currency called Bitcoin Cash (BCH).

So far, Bitcoin survived the fork without a major price catastrophe. Bitcoin’s price is maintaining an upward trend, despite the appearance of Bitcoin Cash. The market capitalization of Bitcoin Cash is under one tenth of Bitcoin. After Bitcoin’s (BTC) price bottomed out at $2,643 on August 1st, Bitcoin rallied more than 30% before reaching a record high near $3,500, as a result to Tuesday’s BIP 91 upgrade. The record marked an increase of 264 percent year-to-date, after months of community dispute in the world of cryptocurrency.

The activation of SegWit represents the first major milestone for scaling Bitcoin and it looks like its clearing the way for higher prices in the future. Another factor driving Bitcoin’s price is rising demand from institutional investors. This week, CBOE, the largest options exchange in the US, announced that it will integrate Bitcoin futures contracts and options on its trading platform by partnering with regulated Bitcoin exchange Gemini.

SegWit lays the foundation to establish the necessary infrastructure for solutions like the Lightning Network. The implementation of the Lightning Network will further scale the Bitcoin network by enabling micro-payments and applications. Lightning adds a layer on top of Blockchain and allows instant clearing, letting users instantly withdraw, deposit, send Bitcoin to someone and build apps. One of the most important features the Lightning Network offers is the ability to transfer value between blockchain networks without the need for an exchange or a trusted central party.

It’s possible that we are in one of Bitcoin’s last bubble cycles before mass adoption. According to analysis by Dennis Porto, a Bitcoin investor and Harvard academic, Bitcoin’s price could hit $100,000 by February 2021, if it continues to follow one of tech’s golden rules, Moore’s law.

Bitcoin is rapidly coming into its own. Leading economies around the world are seeing a major increase in Bitcoin’s adoption and most importantly, the market is demonstrating confidence in Bitcoin.

News Item 2: Medical Society of Delaware to Pilot Blockchain Technology for Better Healthcare Access

Decrypted: The volume of patient data managed by hospitals, doctors, and insurance companies increases each year. How can organizations securely and quickly share information and allow each party verify the data is correct?

The Medical Society of Delaware teamed up with healthcare services company Medscient to develop a solution to address the challenges that authorization requirements pose to patients and healthcare providers.

But Delaware is not the only state experimenting with blockchain to tackle some the challenges in the healthcare industry.

The State of Illinois will use blockchain to improve the efficiency and accuracy of the state’s medical credentialing process, potentially making it easier to verify medical licenses are valid across state lines. The Illinois Blockchain Initiative’s new pilot program, in collaboration with Hashed Health, will leverage blockchain and distributed ledger technologies to streamline the sharing of medical credential data and smart contracts.

Arizona has passed a law in March that would expand the definition of an electronic record to include those hashed or stored on a blockchain system.

Our take: The healthcare industry, especially in the United States, is a complex system of interconnected entities. As 54% of Americans are dissatisfied with a healthcare industry, the U.S. healthcare system is at a crossroads. Since Obamacare was passed in 2009, the US healthcare system has continued to struggle with the increased spending, inefficiencies and antiquated systems.

President Trump and the Republican party struggle with rejection to repeal Obamacare, while massive issues continue to challenge the U.S. healthcare system: fraud, waste and abuse.

According to a report from the Department of Health and Human Services and the Department of Justice’s Health Care Fraud and Abuse Program (HCFAP), the federal government recaptured over $3.3 billion in healthcare fraud judgments and settlements, along with administrative actions, in the fiscal year of 2016. Since this initiative was established in 1997, HCFAP has recovered over $31 billion, with over $18 billion of that recovered since 2009.

Lack of interoperability between healthcare providers costs 150,000 lives and $18.6 billion per year, according to the Premier Healthcare Alliance.

Conceptually, blockchain applications can benefit the healthcare ecosystem as a whole. Blockchain technology has the potential to transform health care, especially when it comes to medical records, sharing patient information, security, privacy and making data more interoperable. The elimination of third-party entities and middlemen would reduce administrative costs and increase efficiencies in claims processing. The distributed ledger and built-in authentication controls lower the risk of data theft and fraud.

The federal government and the Department of Health and Human Services (HHS) is already doing something about it. The HHS Blockchain Challenge gathered more than 70 submissions of academic papers on blockchain usage in health IT and health-related research, announcing 15 winners, spanning organizations including Deloitte, IBM, MIT (MedRec was one of the winners), and The Mayo Clinic. The winners, who presented to the HHS for possible development and implementation, proposed blockchain solutions for everything from health insurance claims and payments to data interoperability and Medicaid applications.

MedRec is a solution developed by graduate students at MIT, using the Ethereum blockchain, to serve a digital family history of medical records.. It acts as an interface between multiple institutions’ health records. It allows the patient to grant access to their medical records securely to their healthcare provider. Think about sitting down in a doctor’s office and being asked your family medical history for a certain illness. You might have no idea of the answer. But with MedRec blockchain, families and medical providers can create a shared medical history that can be passed from generation to generation. All the real-time health data collected by wearables and fitness trackers and even apps like Apple Health. MedRec is also exploring the possibility of using blockchain to give doctors and hospitals access to that data, at the patient’s consent.

As the cost of healthcare delivery continues to increase rapidly, blockchain has a huge potential to become the next big innovation engine and provide answers to challenges facing this medical industry.

News Item 3Ukraine’s Central Bank Moves Closer to Cryptocurrency Regulation

Decrypted: In a recent announcement the National Bank of Ukraine indicated that its set to soon discuss how it should regulate cryptocurrencies. The decision comes at a time when Ukraine has seen increased Bitcoin activity. Today Bitcoin does not have concrete legal status in Ukraine. Due to regulatory uncertainty, recently local law enforcement arrested several suspects that allegedly set up 200 computers to mine Bitcoins within a state institute in Kiev.

While in different countries Bitcoin is classified in differently, ranging from virtual currency, money substitute, intangible value, virtual commodity and other things, the NBU has not taken a official position up to now.

Our take: Ukrainians have been passionate about cryptocurrencies. The Ukrainian national economy and its currency have suffered greatly from the armed conflict with ethnic Russian separatists. which would explain the high interest in alternative ways to protect wealth. Many of the country’s citizens use Bitcoin as a hedge against extreme inflation and an unstable Ukrainian hryvnia, which has lost 80% of its value because of continued instability.

Since 2014, nearly 5,000 BNK-24 ATM terminals nationwide began offering the option to buy Bitcoins for cash as effortlessly as one would conduct any other automated banking transaction. The Kuna Cryptocurrency Exchange announced that they have plans to install 150 Bitcoin automated teller machines (BTM) in 2017.

Earlier this year, Ukraine partnered with the Bitfury to put a sweeping range of government data on a blockchain platform. The government is working with Bitfury to create an eGovernance solution on the Blockchain. The main areas of partnership include the use of Blockchain in state registers, public services, social security, public health and the energy sector.

For quite some time, the National Bank of Ukraine has been considering using blockchain for the implementation of cashless economy. In 2016, it unveiled a roadmap to use blockchain or distributed ledger technology in the country to facilitate a cashless economy. According to the roadmap, the central bank would issue e-money which would serve as the cashless payment instrument and to create an alternative to card payments.

During 2016, the average investment volume reached US$92,000 per week. Even though the volume is small when compared to other countries, its especially promising when compared to previous all-time high of US$18,400.

But, one of the biggest contributing factors to Bitcoin’s success in the country, is the initiative taken by the Ukrainian Exchange. Ukraine is the first regulated market in the world to offer futures on Bitcoin contracts.

Undoubtedly, Ukraine’s blockchain initiatives underscore a growing trend among governments that have adopted the technology to increase efficiencies and improve transparency.

OpinionBitcoin “Has No Intrinsic Value” But Neither Does Fiat

The question of intrinsic value has haunted Bitcoin since its inception. Recent developments, have brought the question to the forefront again. When Bitcoin forked last week into two distinct cryptocurrencies, Bitcoin (BTC) and Bitcoin Cash (BCH), uncertainty flooded the market. Yet, over the weekend, Bitcoin’s price climbed to over $4,000, for the first time since the cryptocurrency was created in January 2009.

Despite the rising demand for Bitcoin, economists like Howard Marks, who manages $90 billion at Oaktree Capital, believe that cryptocurrencies don’t have a value and he’s gone so far as to say that its just a fad.

“Digital currencies are nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it.”

But, why do people value Bitcoin?

The answer to this question lies in basic economics: scarcity, utility, supply and demand. The financial value of an asset is a reflection of supply and demand. The demand for a currency is fueled by its utility. Assuming there is some demand, the price, in other words the value, of a currency is determined by its supply. The more scarce a currency is, the more valuable it is.

Like gold, Bitcoin is scarce. Its supply is limited. Currently just over 16.5 million Bitcoin are in circulation and the maximum is at 21 million Bitcoins. This set cap is well known, making its scarcity transparent.

However, to have value, Bitcoin must also be useful. Bitcoin is fast, borderless and decentralized.  Not only does it have value as a payment system, but also a store of wealth. It’s built on open protocols, that allow anyone to innovate on top of Bitcoin and improve it.

The argument that Bitcoin doesn’t have any intrinsic value, is a weak argument. Figuring out value is a complex task. Most modern paper currencies, fiat currencies, have no intrinsic value. The value of fiat money is no longer linked to physical commodities such as gold or silver.

The intrinsic value fiat money is based solely on the faith and credit of the economy. Fiat money derives its value from the faith people put in them.

People believe in Bitcoin because it transcends nations, politics, religions, cultures and regulations. It requires no trust, it can’t be counterfeit. It allows movement across borders. It can be spent without a bank account, credit report, identification, and other permissions. It provides a global and universal wallet. It represents economic freedom.

Bitcoin has intrinsic value, because people believe in Bitcoin.

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.

Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 31st 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: Russian held over bitcoin laundering linked to BTC-e exchange

Decrypted: Earlier this week the Greek police arrested the main figure behind the Bitcoin exchange BTC-e, on suspicion of money laundering. Identified as Alexander Vinnik, he was the key person responsible for running a large-scale money laundering operation. Its estimated that over $4 billion worth in Bitcoin were trafficked through the BTC-e since 2011.

BTC-e is allegedly involved in a wide range of crimes that go far beyond the lack of regulation of the Bitcoin exchange, and include identity theft, drug trafficking, numerous ransomware attacks, facilitating money laundering from criminal actions of organized crime around the world and other cyber-criminal activity.

The indictment also alleges that Vinnik was involved in the infamous Mt. Gox theft, another Bitcoin exchange that was hacked in 2014 losing $450 million and eventually failing, partly due to losses from the theft.

Our take: Cryptocurrencies such as Bitcoin provide people around the world new and innovative ways of engaging in legitimate commerce. Just as new computer technologies continue to change the way we engage each other, so will criminals that use these new technologies to serve their own nefarious purposes.

As the various governments and organizations are scrambling to limit money laundering, new methods emerge. The development of electronic payment systems and virtual currencies like Bitcoins provide another way for funds to move across borders. Virtual currencies offer anonymity, which is invaluable when illegal transactions are involved.

Bitcoin is an untraceable currency, that is is not centrally controlled by any one government. Yet, Bitcoin’s transactions aren’t truly untraceable. Because of blockchain, the underlying technology behind Bitcoin, it’s possible to see the sequence of exchanges involving Bitcoin. One of the main characteristics of Bitcoin’s is that every transaction is public and anyone can follow the coins as they move between addresses. This makes it difficult to launder stolen bitcoins, but not impossible.

Bitcoin used together with the anonymity provided by the TOR network, allows anyone to order and pay anonymously for digital goods and criminal activities. In addition to the anonymity that Tor provides, anyone can get additional protection and encryption, using Tails, Bitcoin tumblers, and mixers. Bitcoin tumblers, can break up your Bitcoins, move them around and reassemble them. Repeat that process a few times and it becomes nearly impossible to track the original coins. All the pieces are there, but its hard to put them back together.

Also, technologies like Dark Wallet go even further, integrating laundering by default into every payment its users make. Its uses a technique called CoinJoin: Every time a user spends bitcoins, his or her transaction is combined with that of another user chosen at random who’s making a payment around the same time. Say, if Alice is buying socks from an online sock seller and Bob is buying cocaine on the Deep Web, Dark Wallet will combine their transactions so that the blockchain records only a single movement of funds. The bitcoins simultaneously leave Alice’s and Bob’s addresses and are paid to the sock seller and the Deep Web. The negotiation of that multi-party transaction is encrypted, so no eavesdropper on the network can easily determine whose coins went where. To mix their coins further, users can also run CoinJoin on their bitcoins when they’re not making a real payment, instead sending them to another address they own.

Cash has alway been king for criminals. For years, criminals moved suitcases full of dollar bills to trade illegal goods and services.  The FBI in 2012, published an Intelligence Assessment about Bitcoin that indicated that because of Bitcoin’s small user base, the probability of it being used for illegal activities was low. Also, according a recent report from the European Commission, virtual currencies are rarely used by criminal organizations because of the high technology required.

The landscape is changing. Cryptocurrencies are growing exponentially, so if criminals up to now didn’t have the interest or technical chops, there is no question they find them and experiment how they can move money with Bitcoin and other cryptocurrencies. Even though everything you do online leaves a digital footprint, one of the greatest dangers is greed and corruption that can enable organized crime to get a foothold and propagate their criminal activities using cryptocurrencies.

News Item 2: SEC Issues Investigative Report Concluding DAO Tokens, a Digital Asset, Were Securities

Decrypted: Since the inception of Bitcoin and blockchain, government organizations around the world have had difficulties understanding this technology. Until recently many were hostile, and hoped that it would go away or that somehow they could turn it off. Well, those days are over.

The SEC issued an investigative report that concludes that ICO tokens may be indeed securities. With this recent initial report, the SEC layed out the groundwork of what’s going to follow. The SEC concluded federal US securities laws may apply to anyone that offers and sells securities in the United States whether or not the issuing entity is a decentralized autonomous organization and regardless of whether those securities are purchased using US dollars or virtual currency.

Our take: Its about time they made their opinion public. Overall, I would say that the SEC report is positive, not negative. Let me address some of the key points:

    • ICOs are not illegal
    • “The Report confirms that issuers of distributed ledger or blockchain technology-based securities must register offers and sales of such securities unless a valid exemption applies.”
    • Laws may apply
    • “As discussed in the Report, virtual coins or tokens may be securities and subject to the federal securities laws.”
    • Encouraging innovation
    • “The SEC is studying the effects of distributed ledger and other innovative technologies and encourages market participants to engage with us. We seek to foster innovative and beneficial ways to raise capital, while ensuring – first and foremost – that investors and our markets are protected.”
    • Cryptocurrencies are money
    • “Investors in The DAO Invested Money. It is well established that cash is not the only form of contribution or investment that will create an investment contract.” 

When it comes to what happened with DAO, even though the SEC considered it unlawful, it decided not to pursue criminal charges, and only suggested caution. “Laws may apply” leaves this wide open and very ambiguous of what might happen in the future.  It sounds to me that from this point forward, no one is going to get a free pass. 

In the US., the Howey Test is the leading definition of an investment contract and what will be used used to determine what tokens are securities. Marco Santori, posted an excellent tweetstorm about the SEC report, and what tokens would be considered securities. To give an example,  if you make in investment in a gym and want to make money from the operation of the business, then its a security. If you join the gym to get in shape, then its not a security.

In an open letter to the SEC via Facebook, Tim Draper spoke about the recent SEC decision regarding DAO tokens as securities. He thanked the SEC for their decision and added his own three executive recommendations for their consideration:

1. If the purpose of a token is for investment, it must register with the SEC.

2. If the purpose of a token is for societal transformation, and all proceeds go to the support and development of the token, it need not register.

3. If the purpose of a token is to raise money for a company, and the money is used to support the company, it must register with the SEC.

Until ICOs came along, only wealthy accredited investors that met strict requirements issued by regulators could invest in private companies. With ICOs anyone can invest. The real innovation that ICOs bring to the table, is their openness, that allows anyone, anywhere, not only accredited investors, to invest in interesting companies and projects, With cryptocurrency it’s hard to track who is an accredited investor and who is not, making it difficult for any organization that wants to launch an ICO, to produce the documentation that proves only accredited investors put up money in their ICO.

The SEC wants to regulate companies that offer and sell securities in the US., but enforcing these regulations on organizations outside of the United States, might be difficult, even if the SEC has a long arm. Also, we need to keep in mind that the US Securities and Exchange Commission laws, only apply to US. companies or organizations that are doing ICOs or to individuals from the United States that want to invest in an ICO.

This report is a big deal in light of a recent ICO-mania with dozens of companies raising  millions and in some cases hundreds of millions of dollars, from small investors. It remains to be seen if the SEC ruling will have a chilling effect for the overall ICO market, drive US. companies to incorporate in other countries or if it will completely limit token sales to investors outside of the U.S.

The SEC announcement may have also caused some ripple effects to the price of Ether. After the announcement, Ether dropped 10%, but its not clear how much can be attributed to the SEC report or to the currency’s intrinsic volatility

SEC ruling may be just the beginning of more regulations to come. I wouldn’t be surprised to see other countries and regulators follow in the footsteps of the SEC. So if you’re considering an ICO be cautious, because you will need to factor in the US. securities laws and register, produce the proper investor documentation or exclude US. based investors to avoid problems in the future. The best way to move forward, is to disregard any assumptions you may have and make sure to get legal advice.

News Item 3Abra Users Can Now Buy Bitcoin With American Express Card

Decrypted: American Express integrated the American Express card with the Bitcoin wallet Abra for instant funding and remittance, for peer-to-peer transfers across the world. American Express’s integration is essentially acting like an exchange, that lets Amex users purchase Bitcoin with a credit or prepaid card and send funds immediately to any other Abra user worldwide. Funds sent are accessible within minutes. Amex customers may purchase Bitcoin in increments of up to $200 a day and $1,000 a month for a fee of 4% of the transaction.

While many other players in the payments space, like Visa and Mastercard, are also exploring blockchain, it appears that the industry is still in its early stages.

In 2015, American Express’ venture capital arm invested in Abra, as part of its $12m Series A round. Also this past January, American Express joined blockchain consortium Hyperledger, which is exploring ways to capitalize on the technology without cryptocurrency at all.

Our take: Payments companies can see the threat from distributed ledger technology and have been making Bitcoin and blockchain part of their overall strategy. A permissionless public ledger could remove the need for a central clearing house in the form of Visa and MasterCard. Blockchain could disrupt the processing ecosystem and one day change how consumer card payments are verified.

Over the last couple of years, payment giants have understood the importance of blockchain and have been looking closely at the technology and its potential to transform the world of payments. Financial services companies are on the hunt for more growth opportunities and exploring blockchain for instant payment processing and real-time fraud prevention. From American Express to Visa and Mastercard, major firms across the financial services landscape have made investments in Bitcoin and blockchain startups.

Visa recently released Visa B2B Connect, a pilot that is the result of the partnership between Visa and Chain.com. Visa B2B Connect offers financial institutions a simple, fast and secure way to process B2B payments globally, through Visa’s standard practices. Back in 2015, Visa, Citi, Nasdaq and other large financial institutions invested in Chain.com, an enterprise blockchain services provider.

In late 2015, Visa revealed a proof-of-concept that leveraged Bitcoin’s blockchain for record keeping. The project set out to digitize the car rental process, using Bitcoin transactions to create a digital fingerprint for each vehicle on the blockchain.

Last November, MasterCard filed with the US Patent Office four applications related to its work with blockchain and distributed ledger technology. The proposed patents suggest that MasterCard is at least weighing the question of how blockchain-based digital currencies could be integrated into its own systems. The applications focus on methods and systems for authorizing, processing and securing blockchain-based transactions, with MasterCard arguing that a combination of blockchain and its existing payment technology could be a boon for those making digital payments. Also, MasterCard was one of 11 investors in Barry Silbert’s Digital Currency Group’s (DCG).

However, even though there’s been a steady flow of new payments innovations that are important for growth of the industry, most have not disruptive, at least not yet.

Companies everywhere who deal with global payments should feel positive to see change coming at larger scale. Blockchain represents an opportunity to improve customer experience for companies dealing with international payments.

OpinionBitcoin Should Be Regulated to Go Mainstream: Bank of America Official

Despite the increase in trading prices and volume since the beginning of the year, Bitcoin and other cryptocurrencies have found it difficult to go mainstream and the debate, whether Bitcoin is a legitimate currency or not, continues. Yet, we’ve seen a lot of news about banks supporting Bitcoin, Ethereum and blockchain, even if they are only testing and exploring things.

A recent report by Merry Lynch, stated that Bitcoin could take the next big step and become an established world currency. But, it would need to overcome three hurdles: safety, liquidity and return, as these are cornerstones for other reserve currencies like the dollar or euro. In an article by Merril Lynch’s Francisco Blanch, he noted the similarities between digital currencies and gold and went on to talk about the value of salt in the world and how salt was mined and used as money. But its durability wasn’t strong enough, so people switched to gold and copper and later on to silver and paper money.

The primary reason that Bitcoin so far has not gone mainstream, is the lack of support from well-established financial institutions. Banks are against the use of cryptocurrencies, at least right now. Banks like Morgan Stanley have expressed that they recognize Bitcoin’s use as a value-holding asset, but are hesitant to call it a true currency. Their position is understandable, given the fact that Bitcoin and cryptocurrencies could jeopardize their business today. Banks are in the process of getting all of their ducks in a row, before they join the blockchain revolution. Even though bankers are expressing that may not want Bitcoin or think it will never go fully mainstream, they clearly believe in blockchain and that is why they’ve been filing all kinds of patents over the last few years.

Volatility is key parameter to understand the concept of safety in a reserve currency. Bitcoin’s price fluctuations are driven by many factors. Price is dependent on the intensity of supply and demand. The demand for Bitcoin, like anything is affected by what goes on around us, which can create negative sentiment and drive down demand. The whole scaling debate has been a serious thorn, causing uncertainty and lack in confidence in Bitcoin. The recent nose-dive in July was testament of the fear that Bitcoin might split into two coins. Also, in the minds of most people the absence of a central governing authority, not only makes the digital currency more vulnerable to chaos, but also susceptible to hacking, identity theft and fraud. But regulations and initiatives that have been popping up in countries around the world, are positive note and can only contribute to more widespread adoption. Also its important to note that twice last year, Bitcoin’s volatility fell below silver, which was the world’s currency for 400 years.

Cryptocurrencies have scaled rapidly and liquidity is increasing all the time. Interest in digital currencies has soared with daily trading volume jumping to $2 billion, from $400 million in 2012. Also compared to a few years ago, its a lot easier to turn your Bitcoin into a fiat currency and cryptocurrencies now are accepted as a means of payment by many companies and individuals. Now you can sell millions of dollars worth of Bitcoin over the counter, use a card like Xapo to access your Bitcoin through ATMs or pay merchants in dollars, euros and other fiat currencies.

In terms of returns, Bitcoin doesn’t have an interest rate attached to it, so it’s difficult to quantify returns. But, Bitcoin has been phenomenal in terms of absolute value, something that very few assets are able to match.

The ultimate test for Bitcoin will be when banks start accepting it as collateral. When we start seeing banks accepting Bitcoin as a collateral, so you can get a loan to start a business, buy a car or to go to school. That’s when Bitcoin will be a legitimate global asset and you will know that it has reached the tipping point.

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 #3 of 2017: Fintech trends, Australian Fintech, T-zero, UK Challengers, healthcare insurtech

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We started the week echoing loud that in 2017 everything will change. Read carefully, Fintech is entering the third wave and this will be a wild ride.

From this thought provoking piece, we switched to the second significant and symbolic move from T-zero platform in capital markets: T-Zero sings “Love me do” to the SEC with its Blockchain Series A Preferred Shares.

A look at the Australian fintech ecosystem as it heads to Hong Kong for the Next Money event: Gazing into the crystal ball of Australian fintech.

Up to the northern hemisphere to other significant island, the UK, to inquire whether Challenger Banks break the massive bank concentration in the UK?

In Insurtech we looked at 4 of the companies positioned to do well from uptrend in the healthcare consumer and pay per outcome. Check out

Prevention & pay per outcome could be the key to Healthcare InsurTech post Trumpcare

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Happy New Year with some music about money

This blog is about the business of money, so for some light relief on New Year’s Day here are my top 11 songs about money:

The Romantic view:Money can’t buy me love

The lazy view of money:

The practical view: Take the K.A.S.H

Anticipating derivatives: You never give me your money

What we all want: Money for nothing

Jaded realism: You can’t always get what you want

The yuppie anthem: Opportunities (Let’s Make Lots Of Money)’ by Pet Shop Boys

Sadly real: Private Dancer

Paycheck blues: Working for the Clampdown

Celebrating the practical:

Ask and ye shall receive Oh Lord won’t you buy me a Mercedes Benz

Wrap of Week #43: Marketplace Lending, Simplesurance, Market Data feeds, Tink, ICOs

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IPO or ICO or IEO (briefing on Colored Coins):

The last day of the week focused on Innovations in capital funding and particularly on the Initial Currency Offerings (ICOs) and demystifying the Fintech jargon around. Lots of commentary to indulge in, too.

Why did Allianz invest in Berlin InsurTech startup Simplesurance?

A post around the questions of Why did Allianz, Germany’s largest insurance group, buy a minority stake in Berlin based startup Simplesurance? And will this be a good experience for the founders of Simplesurance and the shareholders of Allianz?

Creating the virtual bank – Tink makes the Fintech 100

Picking from the Fintech 100 KPMG report, one possible candidate for becoming a virtual bank, Tink.

Stock exchanges are aggregators of market data feeds, not playing to the Fintech rhythm

When and why did stock exchanges become profits centers? And did you know that they have been increasing the price on real-time market data feeds?

Market Place Lending is simply automated Asset Liability Management and that is a big deal.

MPLs are not like banks that have an asset liability mismatch when lending out out deposits. Asset Liability Management 101 and the value in MPLs.

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Stock exchanges are aggregators of market data feeds, not playing to the Fintech rhythm

A check on stock exchanges before Halloween makes sense. We covered stock exchanges in a two part series in May, with a focus more on Fintech innovation and naturally, we found Blockchain parties and concerts all over the planet. These activities continue to spread but today I want to highlight the major source of the extended revenue growth over the past 5yrs of Stock exchanges. Lets not fool ourselves by believing that the revenue growth is due to some innovation. It is heavily due to a government created oligopoly that exploits customer transactions data!

When and why did exchanges transform into profit centers?

Exchanges before the turn of the century were serving a global service and were operating very much like utility companies or social servicers. They were scaled versions of Jonathan’s Coffee house in London (original site of LSE) and the Button wood tree in New York (agreement that started the NYSE).

It all changed in the very first few years of the 21st century, not because they were waiting to make sure that computers could overcome the Y2K problem. It was mainly due to the wide adaptation of electronic trading for stocks at least, which led to setting up clearing and settlement businesses like DTCC. These for profit businesses post trade companies led the way to raising capital by accessing the public markets. In the US, it was NYSE In 2005; and in Europe, Deutsche Börse and LSE, in 2001.

The next pivot in their business model of these publicly traded ex-social servicers happened 100% because of regulation. SIP (Securities Information Processor) resulted in an unintended consequence that many believe as a government-led oligopoly of stock exchanges. SIP was conceived to protect end-investors from being taken advantage from those operating the electronic trading circuits. It created a filter, operated by the exchanges, in order to ensure that the best quotes get fed to the broker dealers. Simply said, exchanges which act as aggregators were also crowned with another role, the filtering SIP role.

In addition, the subprime crisis resulted in reduced trading activity and shrunk the market-maker activities. The revenues from trading volume shrank and the business shifted its focus to increasing charges on Market Data feeds. This was and is a captive market – Real-time access to Market Data feeds – is absolutely necessary for brokers, and market makers etc.

Stock exchanges are the aggregators and are continuing to charge an arm and a leg for real-time access to these feeds. In fact, they are the only aggregators that have increasing these charges.

Tabb group reports that the revenues from US stock exchanges have climbed 16% over the past 5yrs, largely due to data revenue. Of course, the acquisition spree that has been happening is very much contributing to these figures too.

 

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From “Costly data battle heats up between traders and equity exchanges

 Lawsuits on Market data feeds are dragging

 There have been multiple lawsuits around this issue. However, the rulings take very long and in the meantime, the exchange sector continues to consolidate, leading to further strengthen of the oligopoly and resulting in fewer and fewer players. The most recent announcement of the BATS exchange acquisition from CBOE takes an innovator out of independent action. ICE is a huge conglomerate with a global web that makes the space very tough to disrupt.

The most significant lawsuit saga continues for more than 10yrs. SIFMA (Securities Industry and Financial Markets Association) and a coalition of Internet companies filed a lawsuit against the exchanges in 2006. In 2013, the U.S. Court of Appeals for the District of Columbia instructed the SEC to reexamine its approval of data fee increases and require the exchanges to justify the price hikes. Since then, the case was  awaiting review by the SEC’s own administrative court. This summer, the SEC judge threw out the case and SIFMA has stated that they will appeal the ruling.

The double disruption from IEX: speed bumps and free real-time data

IEX, the sole disruptive force left in the stock exchange space, got approval to operate just 3months ago.

Remember this is the only such business that isn’t heavily influenced and tied to the Sell-side; contrary to all others who came out of a Sell-side membership type of organization before becoming public. IEX is a membership held organization but from the Buy-side! It’s first positioning was-is to use a speed-bump in the way it operates the electronic circuits of the IEX exchange. The purpose is to protect the market from HFT rigging and serve the interests of the Buy side.

The second move, which is upcoming will be-is to offer free access to real-time data to its customers (Kurt Dew, an industry veteran has been covering these issues in Seeking Alpha as they unfold). This is a direct and major disruption to the other players that count on such data feeds constituting a major source of their revenues.

How soon will the data source of revenue disappear for exchanges? Will technology solutions and private markets become the areas of revenues for the exchanges?

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network.  Efi Pylarinou is a Digital Wealth Management thought leader.