Bankers Debate Bitcoin at Sibos 2014
The Boston Convention and Exhibition Center, located in the rapidly growing Boston Seaport district, proved a fitting location for Innotribe’s series of digital currency seminars and talks at the Sibos 2014 technology and innovation trade show.
Innotribe’s bitcoin series included talks on regulation, disruption and the future of investment in the space. The crowd, comprised of a mix of digital currency veterans and novices alike, displayed an enthusiasm and critical eye that largely defined the day’s events.
Innotribe is a startup and innovation project started by financial network operator Society for Worldwide Interbank Financial Telecommunication (SWIFT).
Amidst the backdrop of a broader banking trade show and exhibition composed of the banking industry’s biggest players, the Innotribe talks pointed to the next generation of financial technology that, for now, remains just outside the broader financial space.
Opening talk casts wide net
The first seminar offered a broad overview of digital currency development and the issues shaping the industry today, looking at whether the technology represents what panel experts frequently dubbed “the future of money”. The session was co-hosted by Anthemis Group founder Udayan Goyal and banking expert and author Chris Skinner.
Speakers such as Bitcoin Foundation executive chairman Jon Matonis, bitcoin entrepreneur and SecondMarket founder Barry Silbert and Circle co-founder and CEO Jeremy Allaire weighed in on what’s driving regulation development, consumer adoption and technological advancement in the space.
During the wide-ranging session, the panel – which also included Ripple Labs co-founder and CEO Chris Larsen, colored coins inventor Yoni Assia and SWIFT CEO Gottfried Leibbrandt – ultimately agreed that almost all areas of technology have the potential to be reshaped by digital currency.
Larsen said during the panel that behind the growing optimism for bitcoin’s use as a globalized currency, many companies are beginning to recognize the benefits that the block chain offers.
When asked where digital currency technology is heading, Assia pointed to projects like his colored coins concept and platforms like Ethereum, Counterparty and ClearingHouse as protocols that can move block chain applications away from currency usage to broader use cases.
“You can use this technology to actually transfer any type of value," he added.
Entrepreneurs meet regulators
With regulation no doubt on the mind of most bitcoin business owners and entrepreneurs, Innotribe brought together a diverse mix of leaders and regulators to discuss how, if at all, the technology should be subject to governmental oversight.
Moderated by Promontory Financial Group director Adam Shapiro, the panel touched on regulatory topics such as consumer protection, anti-money laundering (AML) and know-your-customer (NYC) standards and the concept of self-regulation as they relate to digital currency.
Matonis remarked during the opening of the session that a recent publication by the US Consumer Financial Protection Bureau (CFPB) reflected broader problems with the approach that American regulators are taking.
“It was a little bit disingenuous because it failed to recognize all the other consumer benefits, which you think the CFPB would have an interest in.”
Calling bitcoin a hedge against “monetary aggression”, Matonis added that consumers benefit greatly from using a transaction and value system independent from some of the geopolitical pressures that can harm economies, as demonstrated in recent years by some Latin American currencies.
During the session, the regulatory body was represented by Dirk Haubrich, head of consumer protection and financial innovation for the European Banking Authority, and Anne Shere Wallwork, senior counselor for strategic policy for the US Department Of the Treasury’s Office for Terrorist Financing and Financial Crimes.
Both regulators stressed repeatedly that their respective agencies are interested in providing an avenue for future development, but not at the cost of putting consumers and business at risk.
As Wallwork explained during the session:
“[The US government is] taking a very holistic approach, we see the benefits of the technology, especially as it relates to financial inclusion. But, my office is charged with identifying systemic vulnerabilities both within the US and global financial systems, and so new payment mechanisms, products and services are things that we’re always looking at.”
At the same time, Wallwork said that there could be applications of digital currency technology to her agency’s broader regulatory efforts. She opened the door to potential usage in the future, adding:
“The possibilities are very much on our radar.”
However, Haubrick voiced concern with the possibility that coin developers can anonymously submit or change code. Most financial institutions must follow strict guidelines on when and how financial software can be updated and deployed.
Haubrick queried aloud that there isn’t a clear answer, saying:
“I wonder how this risk ought to be addressed. As a regulator, it’s not a comfortable position to be in to see a payment scheme where the core functionality can be changed.”
Though the content of the discussion suggested a divide between regulators and digital currency entrepreneurs, the event included a notable show of cooperation between the two groups when Silbert and Wallwork shook hands before the assembled crowd.
Silbert remarked that the rapid evolution of the bitcoin industry has seen a changing of the guard from companies that operated largely in the regulatory shadows to businesses that want to actively engage with regulators.
Silbert told the crowd:
“A lot of [early bitcoin companies] were started by people who had no intention of breaking the law, [but] had no appreciation for any of the rules and regulations for handling money. And a lot of those business went away.”
Silbert added that regulators need to be mindful of the fact that bitcoin’s technological infancy and distributed nature makes it particularly susceptible to stifling rule-making, particularly across national jurisdictions.
The last segment of the panel looked at the issue of self-regulation. Stan Stalnaker, founding board member and treasurer for the Digital Asset Transfer Authority (DATA), discussed how the industry can work harder to interface with governments worldwide to find agreeable solutions.
“It’s more than just setting standards. It’s about having conversations with regulators and world leaders to find that common ground.”
Industry leaders detail distruption
One of the major focuses at this year’s Sibos gathering in Boston was the role of disruption in financial technology. As one can imagine, this buzzword was on the lips of nearly every panelist, including the session led by a group of bitcoin industry CEOs.
Circle CEO Allaire led a demonstration of his company’s bitcoin banking platform, which formally launched today. He walked through basic functionality, including actually sending transactions, showing the process for attendees.
Explaining that Circle is “taking something that took days or weeks to do and simplified it down to minutes”, Allaire remarked that instant access to deposits through trusted intermediaries will eventually become the norm in the bitcoin space. He also showed off the company’s upcoming mobile apps, which will be available for both iOS and Android phones.
He explained that BitX sees the potential opportunity in working with merchants in markets that do not have much bitcoin saturation.
Swanepoel said that this outlook is buoyed by the fact that banks in these environments are more receptive to block chain integration than institutions in developed economies, saying:
“Some of the big banks are slightly more cautious but are looking at more advanced applications of the block chain protocol. Some smaller banks see it as a way to get a leg-up on larger players in the space.”
Swanepoel also shared details of BitX’s secretive Falcon project, which is a new protocol for fiat-to-fiat transactions that uses the bitcoin block chain as a clearing mechanism. He said that the company has tested the durability of the system with promising results, but argued that conditions in emerging markets aren’t quite ready for broader bitcoin saturation.
Scott Millar, founder and CEO of digital currency exchange CRYEX, said that the ecosystem in which people buy, sell and trade bitcoins was forever altered by the collapse of the now-defunct Mt Gox bitcoin exchange.
Millar said of aftermath:
“What happened to the ecosystem is that developed into many small marketplaces with small pools of liquidity. It made them reliant on buyers in those ecosystems, making it very expensive and difficult to get out of the ecosystem.”
The goal of CRYEX, he said, is “to pool as much liquidity into one exchange as possible so you can provide order depth” and improve overall confidence in the system.
Ripple Labs’ Larsen also gave a presentation, detailing how his company hopes to disrupt existing models for transaction clearance by bringing real-time settlement to the industry. US banks have already begun using the Ripple protocol, citing its cost-reduction and efficiency-boosting benefits.
He was preceded by Yoni Assia, who detailed the colored coins concept and its potential to push smart contracting into the mainstream.
Can digital currency disrupt – or help – the banks?
Moderated by Dan Marovitz, CEO of Faculty of 1000 Ltd and former Deutsche Bank managing director for global transaction banking, the last session of the day looked at a “post-bitcoin” space in which next-generation protocols and services facilitate new kinds of transactions.
The session, entitled “Disruption, Big Banks & VCs”, featured Richard Ni, Dan Elitzer and Jeremy Rubin, the leadership team behind the MIT Bitcoin Project, and Ethereum creator Vitalik Buterin, as well as a group of developers that included some of those involved with the MIT Bitcoin Project’s recently summer-ling app contest, MIT BitComp.
Rubin told the crowd that, fundamentally, the purpose of the initiative is to give bitcoin a place in which use cases can be created based on demand, stating:
“It’s not about giving bitcoin to every MIT undergrad. It’s about seeing what kind of community develops in a real-life environment.”
Ethereum’s Buterin suggested that from the perspective of banking, next-generation block chains can help connect the underbanked or unbanked to financial pipelines worldwide. Buterin discussed the use of block chain technology as part of a broader network of physical assets.
Further, Buterin provided a walkthrough of the code for a sample smart contract on Ethereum, adding that new intiatives are in the works that will make the protocol even faster – a key factor in whether banks ultimately embrace the block chain as a data mechanism.
“We’re also working on a protocol called Whisper in which you can send messages off the block chain.”
Questions and answers
Following the presentations, a panel of banking and venture capital experts answered questions and comments from the assembled crowd. Standard Chartered Bank managing director Gautam Jain and Citi managing director Ebru Pakcan were among those who shared enthusiasm from within their own industry toward bitcoin, but stopped short of endorsing it.
As Jain expalined:
“The whole block chain is extremely interesting. Everyone, traditionally, has struggled with the concept of information exchange in a centralized way. What is being demonstrated here is quite eye-opening and something to watch out for.”
While noting that “there are lots of Vitaliks out there looking for ways to put people of the job”, Silbert said that banks and bitcoin fit well together and can actually significantly reduce the infrastructure costs incurred by banks.
Mircea Mihaescu, managing director for Sberbank Digital Ventures and SBT Venture Capital, told attendees that the level of investment in bitcoin companies needs to rise significantly before banks begin to even consider getting involved.
“We have 40, 50 bit coin startups with funding – we need 500, 2000,” he said. “Then, we will begin to see real change.”
Citi’s Pakcan said that the bitcoin industry needs to understand as a whole that it’s too easy to assume that digital currency can reshape banking for the better. She argued that, to the contrary, many of those who point to specific problems don’t understand the full picutre, saying:
“When someone doesn’t know the complexities here, it’s very easy to say that the solution is in a new technology.”
Mark Buitenhek, global head of transaction services for Dutch banking group ING, said that there is no timeline among banks for when, if ever, an integration may occur. However, he acknowledged that the industry as a whole isn’t ignoring digital currency.
“We’re certainly interested. We’re not in wait-and-see, but maybe a wait-and-act mode,” he offered.
Images via Innotribe, Shutterstock
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