IRS Subpoena to Coinbase and the broken US Fintech regulatory regime


Image Source

There is nothing certain in life except death and taxes! In March 2004 the IRS issued guidance on taxation of crypto-currencies. The gist of the message to consumers and corporates were the following:

  • Digital currency payments must be reported to IRS.
  • Gains from the sale of digital currencies are treated like those from a real estate investment.
  • Wages paid to employees in digital currencies are taxable and must be reported.

In November 2016, the IRS sent a “John Doe” Summons to Coinbase, asking for a complete dump of all transactions that happened on the platform from 2013 to 2015. Now, this sets a bad precedent when governing agencies demand such data that hurts data privacy of consumers. This could be because, the IRS has no clue what the taxation on crypto-currencies should be. And the intention behind the blanket data request is perhaps to understand what the thresholds for taxation should be.

Fintechs in the US have generally struggled with the regulatory landscape, primarily because of structural challenges and overlapping regulations. Unlike the UK where the regulations are pretty centralised, the US has state and federal agencies coming up with regulations that can be painful for startups to navigate through. There is little coordination between these regulatory bodies. Also, the regulations are very rules based and not considered as principles, which means they are inflexible.

'We heard that laughter is the best medicine, so beginning Monday we'll be regulating it.'

Moreover serious criminal penalties may be imposed on an entrepreneur who chooses to take a liberal interpretation of when an activity is a money transmission. There can also be serious implications under the Bank Secrecy Act if an entrepreneur naively chooses to seek forgiveness rather than permission. This liability regime also extends to investors, managers and employees in some cases.

At the moment, crypto-currency transactions are treated like property transactions, irrespective of the size of the transaction. The taxation policy on foreign exchange is slightly better where there is a threshold on gains(of $200) above which one needs to report the transaction. However, if I bought a cup of coffee using bitcoins it is a taxable event. And if I managed a gain between the time I acquired a Satoshi and spent it, I must report it to the IRS irrespective of the size of the gain.

The coinbase summon from IRS has triggered some republican congressmen to lobby for better tax laws around crypto-currencies. Coincenter, a non-profit is leading the efforts on getting better clarity on taxation of crypto-currency transactions and has seen positive responses from some members of the congress. With bitcoins starting to get recognised across various government bodies in developed economies, some clarity from Washington DC would be more than welcome.

While taxation on crypto-currencies seem to be one area where the rules are still unclear, Fintech/Payments regulations in the US need ground up thinking too. Earlier this week, Coincenter sent out a letter to the “Office of the Comptroller of the Currency” (OCC) asking for an innovation friendly regulatory regime.

In the letter they praised the UK’s Financial Conduct Authority (FCA) for making it easy and quick for innovative startups and entrepreneurs to comply with consumer protection regulations. They have recommended that the US replicate the UK regulatory regime to promote innovation.

'Well, the boss told us to launder the money, didn't he?!'

There is the other issue of governance of crypto-transactions to avoid terrorism financing. A recent assessment by the Center for a New American Security acknowledges that there is only anecdotal evidence that terrorism is being financed by crypto-currencies. This is primarily because the financial crime and money laundering controls at banks are still incomplete or insufficient to stop terrorist financing. However, congress may soon commission a study in this regard which will further influence the regulatory landscape of crypto-currencies in the US.

Arunkumar Krishnakumar is a Fintech thought-leader and an investor. 

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Polychain Capital: A hedge fund investing at the Protocol layer of Web 3.0

Today is the slowest day of the rest of our lives.

Entrepreneurs at heart move to launch new projects, new businesses as they are committed to pushing the boundaries of existing business practices. They are driven by their genuine desire to seed the unimaginable.

Brian Armstrong, founder and CEO of Coinbase, a leading app in the digital currency space, is known for his ability to form teams that create value, by hiring entrepreneurs whose CVs may not reflect their potential. Olaf Carlson-Wee, was one of his hires and part of the core team, who is now moving on to launch Polychain Capital that I am so excited to share my understanding of this endeavor with you today. I guess Brian’s intuition, while very rewarding in the first phase of building Coinbase as a scalable business, comes with the demise that Olaf had to move to something more avant-garde. Polychain Capital clearly qualifies for avant-garde currently and most probably will need 2 years to move to the next phase.

Screen Shot 2017-03-23 at 10.48.31

This is all the info that is on the website of the business that Andreessen Horowitz and Union Square Ventures recently funded with $10million. In this post, I explore this hedge fund, its investment strategy, and how its positioning in the ecosystem of innovation in Wealth Management. I will discuss the kind of assets Polychain will invest in, and why it has chosen to do so.

The story started in 2014 while at Coinbase, Olaf found himself exploring the potential of Protocol 2.0 ventures, like Mastercoin or Counterparty. This is different than researching companies, simply because they are entities that are not owned by shareholders but rather from birth are decentralized and therefore, the users are essentially the equity owners. The next trigger towards coming up with the Polychain Capital idea, was when Coinbase included Ethereum in the summer of 2016.

Polychain Capital wants to invest in Digital assets at the Protocol Layer, not at the App layer. They are interested in investing and creating value for their institutional investors, at the Protocol Layer.

So the kinds of ventures that they have on their watch list, are

  • Ethereum – a more knowing decentralized protocol that can enable innovation to be built on it, that can attract developers, and that can enable all sorts of applications from digital IDs, file storage, messaging, wallets, supply-chain finance etc.
  • IPFS ecosystem
  • Tezos
  • Rchain
  • PolkaDot
  • Difinity
  • Cosmos

Most of these are early in their life and the million dollar question is which of them will be the enabler for a full stack app creation, or in other words which one will power off Web 3.0. Will proof of stake and proof of work, be replaced by another combo? What is the unimaginable decentralized web going to look like?

What is clear is that Polychain Capital is NOT looking to invest in ventures at the App layer. So, for example, they are not including in their portfolio Melonport, an asset management platform built on the Ethereum protocol, or Augur, a trader’s forecasting tool also built on the Ethereum blockchain.

Polychain Capital is based on the belief that the Bitcoin Blockchain protocol will continue to lose market share (in the digital assets space it has dropped from 97% to roughly 85%). Bitcoin is actually suffering from the innovator’s dilemma and Polychain Capital doesn’t see any killer app built on the Bitcoin Blockchain (these are views of Polychain Capital from the Ether Review #59 interview with founders Olaf Carlson-Wee and Ryan Zurrer).

Therefore, Polychain Capital wants to capture the growth of other protocols that will outperform the Bitcoin protocol (stuck in Innovator’s dilemma land).

Polychain Capital is positioned as a hedge fund because not only it is suitable for institutional investors but it’s investment strategy approach has taken elements for the VC approach and combined them with active trading from the hedge fund world. The way that they will be dynamically managing the portfolio holdings isn’t clear yet (at least to me) but the principle of how they will go about capturing this next wave of compelling innovation, is laser clear.

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.


Time for the SEC to adopt an Open Research approach

As Bernard Lunn reiterated in yesterday’s post Blockchain needs to become technically boring, much like TCP/IP in depth knowledge has become for internet users.

In wealth management, ETF structures have become technically boring long time ago.

Nobody cares and often most users don’t understand the magic redemption/creation process. Most users don’t even know the instrumental role of Authorized Participants (APs) in the smooth functioning of ETF markets. For those wanting to know more around this topic, we outlined the main risks in Are ETFs Trackers that Fintech can turn into Trucks with No Brakes?

Naturally, the media highlights malfunctions in the ETF market during flash crashes. As robo-advisors have accelerated the growth of low-cost passive investing, mainly through ETFs, we have been following such events which showcase incidents of illiquidity and mispricing. Check last summer’s mis-communication debacle in The Betterment/Brexit incident – What the Fintech Genome community spotted.

At the same time, we don’t get excited anymore by the fact that we can invest in the Japanese stock market (and many other country trackers) while they are even asleep and from almost any location.

ETFs are boring!

Except for the recent disapproval by the SEC of the Bitcoin ETF filed by the Winklevoss Bitcoin ETF, $COIN. We covered the “boring” part of it (i.e. the amendments) last week Wedding announcements pending between Old & New Finance Tribes: Bitcoin in an ETF gown!

We need to revisit the topic after the rejection this weekend, to cover two areas:

1.    What did we learn about Bitcoin trading, during this event

2.    What did we learn about the state of capital markets, following this event.

Mid March Bitcoin trading

Lots of worthwhile observations from the market reaction to this event.

Bitcoin is trading as we speak, with a twelve hundred handle (in USD) which is not that far from where it was hovering before the decision. That shows that the bitcoin market continues to shrug off events (from 2 recent PBOC decisions, to the ETF rejection). Market capitalization is also more or less in line, having recovered from dips, to the $20bil area.

This reflects, in my opinion, the steady growth in customer adoption which is outpacing merchant adoption for the first time. Although we don’t have aggregated comparison data to justify this, we can at least point to the most recent Coinbase results that are impressive in terms of the numbers of users and digital wallets; and to the “color” we crowdsource from our network.

Screen Shot 2017-03-13 at 09.46.42

Bitcoin, behaved very much like conventional assets traded in centralized exchanges, this weekend.

Bitcoin, the P2P digital asset which is settled in a decentralized way, experienced a flash crash following the announcement of the rejection. More importantly, the bid/ask spread widened substantially ($35-$60); the volume dropped and then surged ($17bil-$20bil); the price discrepancies between exchanges were large ($50-$100); and the intraday high-low was very wide ($50-$170).

Screen Shot 2017-03-13 at 09.30.26


Source: CoinDesk BPI exchange

Disclosure: I had sold my Bitcoins before this weekend (with an 80% profit) and managed to re-open a small position at $1,100 (moved into cold storage, to be forgotten).

If you prefer a professional fund manager, making the decisions on your behalf, for your digital currency allocation, there are two alternatives that I can suggest for your review.

Hedgeable, the next gen robo, has incorporated Bitcoin in its asset allocation via a partnership with Coinbase (who provides the digital wallets and cold storage needed). Hedgeable views Bitcoin as an alternative asset, like a currency, in determining the optimal allocation for each client.

ArkInvest, the US based fintech creating thematic fully transparent ETFs, is the first fund manager to invest in bitcoin in its ETF, ARK Web x.0 ETF (NYSEARCA: ARKW). ARK has made its investment through the purchase of OTC publicly traded shares of Grayscale’s Bitcoin Investment Trust (OTCQX: GBTC).

Capital Markets processes are dysfunctional

In a nutshell, the SEC after 4yrs and 6 amendments, rejected the Bitcoin ETF on the basis that they can’t allow an unregulated asset (that is not physical), to be wrapped in an ETF wrapper. As if soybeans, and pork bellies that trade through futures are regulated and cant be “hacked” by weather conditions or viruses.

I cannot but reiterate Ian Goldin’s mantra

“Today is the slowest day of the rest of your (our life)”

Over the next year, there be more digital currencies issued than in the last 4yrs (even if there are no more than half a dozen that gain significant traction). Isn’t this actually how the ETF market has emerged, i.e. a few really large ETFs?

Screen Shot 2017-03-13 at 10.11.43.png

There will be more ICOs listed (albeit small size), than in the last 4yrs. There will probably be an OTC trust publically trading, linked to a basket of digital currencies (e.g. Bitcoin, Ether, Dash, Ripple, ect) out of Europe (not the US).

Looking at the SEC’s archaic process of inviting commentary from the people, a kind of hearing process, around the Bitcoin ETF; I italicized the SEC questions below:

  1. The proposed fund, if approved, would be the first exchange-traded product available on U.S. markets to hold a digital asset such as bitcoins, which have neither a physical form (unlike commodities) nor an issuer that is currently registered with any regulatory body (unlike securities, futures, or derivatives), and whose fundamental properties and ownership can, by coordination among a majority of its network processing power, be changed (unlike any of the above). Moreover, as the Exchange acknowledges in its proposal, less than three years ago, the bitcoin exchange then responsible for nearly three-quarters of worldwide bitcoin trading lost a substantial amount of its bitcoin holdings through computer hacking or fraud and failed.57 What are commenters’ views about the current stability, resilience, fairness, and efficiency of the markets on which bitcoina are traded? What are commenters’ views on whether an asset with the novel and unique properties of a bitcoin is an appropriate underlying asset for a product that will be traded on a national securities exchange? What are commenters’ views on the risk of loss via 56 57 See supra note 3. See Notice, supra note 3, at 25 n.19. 12 computer hacking posed by such an asset? What are commenters’ views on whether an ETP based on such an asset would be susceptible to manipulation?
  2. According to the Exchange, the Gemini Exchange Spot Price is representative of the accurate price of a bitcoin because of the positive price-discovery attributes of the Gemini Exchange marketplace. What are commenters’ views on the manner in which the Trust proposes to value its holdings?
  3. According to the Exchange, the Gemini Exchange is a Digital Asset exchange owned and operated by the Custodian and is an affiliate of the Sponsor. What are commenters’ views regarding whether any potential conflict of interest or other issue might arise due to the relationship between entities such as the Sponsor, the Custodian, and the Gemini Exchange?
  4. According to several commenters, there is a need for the Exchange to provide additional information regarding “proof of control” auditing, multisig protocols, and insurance with respect to the bitcoins held in custody on behalf of the Trust, in the interest of adequate security and investor confidence in bitcoin control. What are commenters’ views on these recommendations regarding additional security, control, and insurance measures?
  5. A commenter notes that the Gemini Exchange has relatively low liquidity and trading volume in bitcoins and that there is a significant risk that the nominal ETP share price “will be manipulated, by relatively small trades that manipulate the bitcoin price at that exchange.”58 What are commenters’ views on the concerns expressed by this commenter? What are commenters’ views regarding the susceptibility of the price of the Shares to manipulation, considering that the NAV would be based on the spot price of a single bitcoin exchange? What 58 See Stolfi Letter, supra note 4. 13 are commenters’ views generally with respect to the liquidity and transparency of the bitcoin market, and thus the suitability of bitcoins as an underlying asset for an ETP?
  6. The Exchange asserts that the widespread availability of information regarding Bitcoin, the Trust, and the Shares, combined with the ability of Authorized Participants to create and redeem Baskets each Business Day, thereby utilizing the arbitrage mechanism, will be sufficient for market participants to value and trade the Shares in a manner that will not lead to significant deviations between intraday Best Bid/Best Ask and the Intraday Indicative Value or between the Best Bid/Best Ask and the NAV. In addition, the Exchange asserts that the numerous options for buying and selling bitcoins will both provide Authorized Participants with many options for hedging their positions and provide market participants generally with potential arbitrage opportunities, further strengthening the arbitrage mechanism as it relates to the Shares. What are commenters’ views regarding these statements? Do commenters’ agree or disagree with the assertion that Authorized Participants and other market makers will be able to make efficient and liquid markets in the Shares at prices generally in line with the NAV? What are commenters’ views on whether the relationship between the Gemini Exchange and the Trust’s Sponsor and Custodian might affect the arbitrage mechanism?Use the Commission’s Internet comment form (; or · Send an e-mail Please include File Number SR-BatsBZX- 2016-30 on the subject line. 14 Paper comments: · Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.

Who actually sent commentary to the very important and well posed issues raised by the SEC? The SEC publicizes this data with names and responses (click here). The list shows very few business affiliations and is really short given the issue at stake. It does include the Bitcoin critic, Jorge Stolfi, Full Professor/Professor Titular, Instituto de Computação/Institute of Computing, UNICAMP, university professor; the Bitcoin proponent –fund manager Chris Burniske, Blockchain Products Lead, ARK Investment Management LLC; Kyle Murray, Assistant General Counsel, Bats Global Markets (the exchange to be listed); and a few more.

Crowdsourcing information, filtering the relevant data, ranking and weighing it by “reputation”, is what should be done by the SEC.

Such Capital markets processes cannot be left anymore to forums that include ranking algorithms of their communities members, to select the “best conversations” (for example, thread on Reddit). Fintech innovation is still very scattered. Sentiment analysis fintechs (e.g. Sentifi), crowdsourced scientific research (e.g. Stanford Daemo), and applying machine learning; are floating out there and need to be incorporated in the decision making processes in capital markets.

This is the kind of micro-services that the SEC can implement in their digitization process. ArkInvest is already using an innovative process in their own research Open Research Ecosystem. The Innovation Ecosystem brings cross-industry innovation leaders together to design and invent their innovation journeys.

Screen Shot 2017-03-13 at 10.38.58.png

Source: ArkInvest

The SEC needs to replace its old-fashioned invitation for comments process, to one that uses technology to make the research process meaningful (not simply procedural, a tick in the to-do-list), efficient, and value added.


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.


Wedding announcements pending between Old & New Finance Tribes: Bitcoin in an ETF gown!



In many countries weddings announcements in newspapers are still a necessity and in others they have become a tradition or have moved to social media.  Over the next month or so, in the US there are three pending wedding announcements. The two ones upcoming on March 11 and March 31st, are the more crucial ones.

If you are hoping that this post is some sort analysis of whether the wedding announcement event is already priced into Bitcoin’s price or not; then you are in the wrong place. I can however, recommend this scenario analysis Estimates on the price impact and capital inflows of a Bitcoin ETF.

In this post, I want to highlight facts around the pending weddings, because these are innovative ETFs in dynamic market conditions and there is no appropriate comparison really. Some have drawn conclusions from the approval process of the first Gold ETF (GLD) but in my opinion, it really doesn’t serve any purpose.

Also, because it so peculiar to be witnessing the potential of packaging a decentralized asset into a conventional wrapper like the ETF. We are moving towards a world that for every asset there will be an ETF, but to see Bitcoin wearing an ETF gown (wrapper) is awkward.

Dates and pending wedding announcements

March 11 – The Winklevoss Bitcoin ETF, $COIN

March 30 – The SolidX bitcoin ETF

Thereafter – An ETF wrapper of the GBTC Grayscale Bitcoin Trust, which already trades on the OTC market (like a closed-end fund)

The Winklevoss ETF journey

The Wilkenvoss brothers filed to the SEC 3.5 yrs ago for approval of an ETF linked to Bitcoin. They have also constructed an index the Winkdex to track the price of Bitcoin.

WinkDex is calculated by blending the trading prices in U.S. dollars for the top three (by volume) qualified Bitcoin Exchanges during the previous two hour period using a volume-weighted exponential moving average. This proprietary formula weights transactions proportionally by volume as well as exponentially by time to give greater weight both to higher volume transactions and more recent transactions.

The twin brothers first filed for a listing on the NASDAQ stock exchange in July 2013, this is exactly the time that M-pesa in Kenya linked with Bictoin. The filing was for 1million shares and each share would be worth about 1/5 the Bitcoin price. At the time, Bitcoin was trading around $90. Therefore, the original filing would be wrapping up in an ETF roughly 200,000 Bitcoins. The max offer was $65million.

Since then, there have been 6 amendments that have addressed various issues of concern.

Naturally, one of the first concerns were around safety and consumer protection from hacking. This financial structure has not been targeting retail investors but rather institutional investors that are subject to regulatory constraints in terms of the kind of financial structures they can hold. Right now only the XBT Tracker comes close (EUR, USD, SEK versions). It is traded on the German and Swiss exchange but is not ideal because the backing up of the shares is not one-to-one with bitcoin.

Retail investors are better off doing their own research and investing directly into Bitcoin via some service a la Coinbase, and avoiding the additional costs of an ETF financial structure of this type.

The Winklevoss Bitcoin ETF carries a kind of insurance called the Fidelity Bond, since October 2015. This is a requirement in the state of NY where the custodian of the ETF, Gemini is registered. The fidelity bond coverage includes, among other things, insurance against employee theft, computer fraud, and funds transfer fraud. Gemini is a New York State-chartered trust company that is owned by the twins and acts both as a custodian and as a bitcoin exchange.

State Street was chosen in Oct. 2016 as the administrator of the ETF that will oversee pricing and reporting.

During the 3.5 yrs journey and the six amendments, the Twin brothers decided to change the listing from NASDAQ to BATS. Just the last two months there have been two very significant amendments to the original filing that need to be understood: a) the size of the deal has been substantially increased, b) a hard fork clause has been decided.

The size of the deal is now 10 million shares (tenfold increase), $100million (instead of $65million) and the max price offer that was $65 has been lowered to $10! If approved and fully subscribed, the ETF structure would wrapping up roughly 80,000 bitcoins (much less than originally filed for).

In the prospect of a network split following a software hard fork, the creation and redemption of the ETF will be suspended during the first 48hours. This maybe fine-print (maybe not) but it is important not to miss. Thereafter,

the $Coin ETF (the administrator in consultation with the custodian) will default to using the chain with the most hashing power, but will reserve the right to decide otherwise.

In other words, the ETF will choose the the chain (after a split) which enjoys “the greatest cumulative computation difficulty for the 48 hour period following a given hard fork.”

“If the Custodian, in consultation with the Sponsor, is unable to make a conclusive determination about which Bitcoin Network has the greatest cumulative computational difficulty after forty-eight (48) hours, or determines in good faith that this is not a reasonable criterion upon which to make a determination, the Custodian will support the Bitcoin Network which it deems in good faith is most likely to be supported by a greater number of users and miners.” Source

Needless to say that this recent amendment is controversial already in the crypto communities.

The differences with the rest of the ETFs

The SolidX bitcoin ETF structure is similar to the Winklevoss and mainly differs by offering classic insurance in case of theft. Another difference is that while the Winklevoss ETF relies solely on its own bitcoin exchange, the Gemini, for price discovery; the SolidX ETF uses multiple exchanges.

The third proposal outstanding, the GBTC Grayscale Bitcoin Trust, differs in that it is already trading over the counter. We have referenced ARKInvest in multiple posts since they are innovating in investment management, and are the first public managers to invest in bitcoin via GBTC.  It has been trading much like a closed-end fund and therefore (at a discount or a premium). Their ETF filing hopefully, will alleviate this discrepancy.

Related Wilderness Tips

For traders that have an itch, you can bet on the probability of approval or disapproval of the Winklevoss ETF which is now at 52% (up from 30% a month ago). Check COIN_BH17 on the Bitnex exchange.

For the Winklevoss brothers:

If BATs doesn’t get the honor to list the first Bitcoin ETF, maybe the Winklevoss brothers should consider switching to SIX and seeking approval from FINMA instead. Over the past few days, we have seen the announcement of the Crypto-Valley association headed by one of the best, Oliver Bussmann; and chalet and apartment rentals by VisionApartments accepting payments in bitcoin.

For retail investors that have missed on the bitcoin rally because they didn’t want to do the homework of opening a digital wallet, understanding cold storage, and didn’t want to invest through ARKInvest either; these ETFs when approved are not the solution to your indecision. Go get a wallet.

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.



Watch Season II of the Swiss Bitcoin Reality, with EY leading.

EY ATM.png

In the first season of the Swiss Bitcoin Reality show, we saw SBB announcing the introduction of Bitcoin ATMs by using its existing extensive network of ticket dispensing machines. We covered this in The radical change coming to Financial Services & Fintech in Switzerland and Matthias Muller, group innovation manager at SIX, used the witty analogy of The Monkey Business illusion in “Did you notice the Gorilla on stage?” as he (along with all of us) was surprised by this move.

EY 2017: from talk to walk

In the second season of the Swiss Bitcoin Reality show, which starts early 2017, we will be watching another bold move by EY in Switzerland! The plan cannot be seen as an under-the-radar screen move or lets get our feet wet, or lets be trendy.

EY Switzerland is already bold in the first phase already, of the strategic move.

  • A new Bitcoin ATM machine installed in their public office building in Zurich
  • A digital wallet app for all Swiss branch employees
  • EY clients in Switzerland, can pay for consulting services with Bitcoin

The Bitcoin ATM machines can of course, be used by all EY employees but also from any individual passing by.

Any EY employee in Switzerland will receive an “EY secure digital wallet app” that can be used to pay with Bitcoins. This is much like, receiving a corporate email address once joining a company that is secure within the corporate environment. EY is providing all its employees in Switzerland with a specially developed EY digital wallet app (I suspect in collaboration with Bitfury who is their partner on the innovation lab, but have not been able to confirm this) to load on company smartphones.

EY is leading the movement of “Bitcoin goes mainstream” in the both the advisory sector and as a large publicly traded entity that accepts crypto currency payments for its services. It is surpassing Deloitte, who has also installed a Bitcoin ATM machine in the Toronto office of the building housing the Rubix team (Rubix is the team and platform focused on blockchain solutions). Not only because EY’s ATM is in the main office building, and the welcoming – standard employee kit includes EY’s digital wallet app and EY corporate email; but also because EY is accepting compensation for advisory services from its clients in Bitcoin.

EY advisory services in the most recently reported financial year (July 1, 2015-June 30, 2016) have grown 21.7% and reached 210.8 million CHF with total gross revenues were 661.2 million CHF. By inviting clients to pay for EY consulting services in Bitcoin, EY signals its commitment to the digitization underway, its strategic decision to make crypto-currencies integral part of the business offering.

This latter part makes the EY Garage-Lab, not just another safe playground for clients to experiment with blockchain but a safe platform to experiment within a company who is putting its money where its mouth is.

On cryptocurrencies, EY is putting its money where its mouth is!

On cryptocurrencies, EY is boldly moving from Talk to Walk!

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.

Briefing on Colored Coins, tokenised assets and the future of the ICO market


ICOs are al the rage. Yet Token is a better word to describe where we are moving to, which is to “tokenise” all assets so that they can be traded online. So we may hear more about ITOs rather than ICOs. Or not. A lot is invested in the ICO name, so ITO may not take off as a name. 

Regardless of name, the way an asset is tokenised matters. That is where a briefing on Colored Coins matters.

First, ignore all the noise on the line about ICOs (scammy or disruptive or both at the same time?) and focus on the problem that ICOs are fixing.

If it is broke, do fix it

A regulated Stock Market is how the market of connecting entrepreneurs and investors works today. The old saw is if it ain’t broke, don’t fix it. The corollary is if it is broke, do fix it.  Here are the 4 big flaws with these legacy Stock Markets: 

  • legacy listing and governance processes: post Enron, the SEC layered on lots of expensive process to protect investors from scams, all of which were based on manual processes (which later got automated but they were still not native digital ie they are expensive and inefficient).
  • national boundaries: it is too hard to discover stocks on exchanges in local markets, so they either suffer a valuation discount or seek a listing on one of the global exchanges (where only mega-sized companies can do an IPO). (See here for our other coverage of this issue).  
  • declining revenue line from listing fees: Stock Exchanges increasingly make their money from selling data, co-located servers for HFT and payment for order flow. This leads to misalignment of interest with the two customers who matter – issuers and long term investors.    

This post, earlier this week by Efi, describes how things went wrong at traditional regulated stock exchanges.

Why Microsoft did an IPO

They did not need to raise money – they were already profitable. They wanted liquidity and price discovery so that they could motivate employees with stock. That is the function of a public market. Any public market 2.0 initiative (such as ICO) has to bear that in mind. Investors want to buy shares of profitable business. Uber’s $66 billion valuation in private markets is being questioned because investors cannot figure out how they still lose money after having got to such scale. Then consider a bootstrapped business such as Microsoft at their IPO 25 years ago or a Mittlestand company in Germany. As an investor, which do you prefer to own? That is what the Innovation Capital business should be serving and is not.

In short, the big value in an ICO is instant liquidity. That is only one word but it is a game-changer. It is why ICOs are serving a real purpose and why they are here to stay. It is why ICOs are not simply Crowdfunding.

Colored Coins 101 for business people

Part of our mission at Daily Fintech is to demystify jargon that obfuscates. We translate Fin for Tech and Tech for Fin. In this case we are translating Tech for Fin. There is so much innovation around Blockchain that it is hard for business executives to keep up to date. Our job is to find the stuff that matters and bring it to your attention.

We think Colored Coins is an important development in the Blockchain world. We will parse the tag line on their front page to explain why: 

The Open Source Protocol for Creating Digital Assets On The Bitcoin Blockchain

  • Open Source Protocol. This is like TCP/IP or HTML. No company controls it or makes money directly from Colored Coins. You make money by adding value on top.
  • Creating Digital Assets. You don’t buy an Alt Coin. Let me repeat that. You don’t buy an Alt Coin. You “color” an existing Bitcoin ( % of a Bitcoin or number of Satoshi, which is the smallest divisible unit of a Bitcoin) to represent an asset (stock in a company, a house or car or painting or whatever). Then you can buy and sell those assets frictionlessly across borders. 
  • Bitcoin Blockchain. This is about the public Bitcoin Blockchain. You can also use Colored Coins on Ethereum (another popular public Blockchain). If you believe that all Blockchains will be private, this is not for you. Using the analogy with the development of the Internet, this is about the Internet not a collection of Intranets. Open Coin transactions are validated by a consensus network that is proven to be secure over many years and lots of transactions. 

Image source

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.

Reporting from Finance 2.0 #Crypto16: The Internet of Value, Suing Smart contracts, and Bitcoin use cases




“Now forget Bitcoin altogether…. What is here to stay – what we’re left with – is a platform whereby how we perceive value will increasingly become more crucial to our growth as a species, eventually creating cultural and societal shifts that defy our limited analog imaginations.” Excerpt from the “What is the Internet of Value..and why it is one of the most powerful concepts in the world right now?”

“How Cryptofinance changes the world”, by Finance 2.0

At the Kunsthaus in Zurich, on a sunny day, not far away from CryptoValley; a diverse group of speakers shared their insights on CryptoFinance. The mix of incumbents experimenting, use cases from Fintechs, and insights from the broader ecosystem (lawyers, consultants, and consortiums); was great.

Rik Willard from Agentic Group, a New York based global membership-based consortium offering education, insights, and consultations on advanced concepts in Blockchain and DigitalCurrencies, offered the keynote. His broad perspective emphasized that we are living in the era of the Internet of Value, and that we unconsciously changing values. He urged us to switch to conscious re-examination of our perceptions of value. He proposed that we are co-creating culture 24/7. He called us all, Cultural producers. We tend to be focused only on transactions, but we need to shift to the world of Internet of Value, which is more focused on value rather than only transaction.

Luka Muller, partner at MME Compact a legal practice focused on digital currencies, conveyed his excitement as a transformed lawyer who is focused on the new challenges of the Smart contracts world, which undoubtedly has potential not only in financial markets. He shed light in the areas that need New Legal concepts, before becoming functional solutions to real world problems and before Regulators are able to wrap their hands around them. Luka’s pointed out that there are more questions that beg for answers around Smart contracts, than we imagine. Here is just a sample if these:

  • Who is liable in smart contract? The developer, or the Issuer (he who makes it operational), or the infrastructure entity (he who makes it functional)?
  • Where is the “pop-up” location of a smart contract?
  • Are payments released from the escrow account tied to the smart contract, dividends or royalties for tax purposes?
  • Should the issuance of a smart contract, be treated similar to the issuance of new shares from a regulatory perspective?
  • Are Bits owned? Can bits be transferred and if yes, what are the governing laws?

New legal concepts are needed, and these will not be designed by an AI algorithm.

SIX shared how they are getting their feet wet in experimenting with blockchain technology within their equity clearing part of the business. SIX is currently, examining the potential application in designing permissioned distributed ledgers for the 120 member banks and the other European exchanges. Near real time settlement for equities being the targeted use case.

Along the same lines of a “pathfinder” project, UBS shared their developments. The UBS Keyclub program, which is a widely used royalty program with 40 merchants involved, is getting a blockchain-backed facelift. Swisscom and UBS are collaborating on this prototyping a mobile app that could lead to an ethereum based app, that for the UBS KeyClub process which currently, costly and time consuming (paper keypoint certificates are mailed, and payments to merchants are delayed).

TJ Saw of Ethcore, claiming to be the fastest and most secure way to interact with the Ethereum network, announced their partnership with the new Swiss consortium between SIX, Swisscom and Zurich KantonalBank. Ethcore is aiming to become the Decentralized web. They are currently running live $1 billion on their parity platform.

Niklas Nikolajsen, founder and CEO of Bitcoin Suisse, a 3yr old Fintech that started as a digital currency specialist, has already multiple use cases to be proud of. They run 6 Bitcoin ATM machines in Switzerland (soon to be 9); they offer trading and brokerage services; crypto currency mining. They will soon launch a bitcoin payment solution. They also offer training and consulting services. Bitcoin Suisse is not only generating revenues and paying taxes; but also is behind the capability that the City of Zug to accept payments in Bitcoin. Soon, Swiss banks will be offering a Bitcoin account capability to their clients, which will entirely be managed by Bitcoin Suisse.


Bitcoin ATMs in Switzerland (Source)

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.