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PwC’s Pierre-Edouard Wahl: Blockchain Can Bring Positive Competition to Swiss Banking Space

Cointelegraph recently had the chance to speak with Pierre-Edouard Wahl, the head of blockchain digital services at PwC Switzerland, about the future potential of blockchain in the country.

Wahl, who noted that PwC Switzerland worked closely with main Swiss stock exchange SIX on their announcement of a future distributed ledger-based digital asset exchange, elaborated on his beliefs that crypto must be used in order to go mainstream enough to give people back control of their digital footprints.

This interview has been edited and condensed.

Molly Jane: Could you tell us how you got interested in the blockchain and cryptocurrency space?

Pierre-Edouard Wahl: I’m an engineer by schooling. I’ve been in the blockchain space for several years now, and I discovered a Bitcoin community that was very ideologically driven. The community drove me to the technology, not the other way around.

And so I decided to start a B2B Bitcoin exchange and got into some trouble, because at that time, it was very difficult. There was no clear regulation around exchange operations, and I looked for a big banking partner. Unfortunately, at the time, every time you mentioned Bitcoin, there were closed doors — so that did not work out.

But Credit Suisse asked me if I was willing to jumpstart their blockchain department, so I happily did. I spent three years at Credit Suisse and after that left, thought I was going to get back to the startup world, but really thought I had an opportunity at PwC to make an even bigger difference than in the startup world. Because we have a reach that is pretty amazing — a very high level of established business, executive suite. So, yeah, that was the exciting part.

MJ: When did you first hear about cryptocurrencies?

PW: The first time I heard about Bitcoin was in 2010. I dabbled with Bitcoin really for the first time in 2011, and got into the space full-time in 2012.

I feel like it is an industry that has such a huge potential, and I wish I could have spent more time there. But yes, relative to the existence of this industry, I have been there for a while.

MJ: Do you actually invest in the industry, do you own Bitcoin?

PW:  I am fully invested. I’ve asked my employers to pay me in crypto, but it hasn’t really worked yet.

I don’t only talk the walk, I try to walk the talk.

MJ: Since you say you have been investing in the market for a while, have you ever bought anything with Bitcoin? Like a pizza?

PW: I try to spend Bitcoin wherever I can. I see it as a way to spread the cost. So, yes, I have spent Bitcoin.

In the meetup in San Francisco — the SF Bitcoin-dev meetup — we used to organize what we call “Bitcoin bombs.” All of the participants go to a bar and ask if we can pay in crypto, in Bitcoin — and if we couldn’t, we could go to the next bar, until we found the first one that would accept it.

MJ: So how long did it take you to find a bar that would accept Bitcoin?

PW: San Francisco is pretty open, so generally it went pretty quickly. And we were a crowd, so they had a good incentive. And at that time, there was already BitPay, so if they wanted to receive dollars, they could easily get their dollars rather than Bitcoin.  

MJ: Do you have any fear that in the next 10 years Bitcoin will go to a million, and you’ll be that guy that spent his Bitcoin on a cocktail?

PW: Well, it will only go to a million if it gets used. So, it’s cool if the price goes up to a million, but it is not my priority. My priority, really, is to try to support a world where people have more sovereignty over their digital footprints, have more sovereignty in terms of freedom of speech, freedom of movement.

And public blockchains need a token for incentivizing various parties, and if one of those tokens goes to a million of dollars, it’s great for the investors and those tokens. But the million dollars is not the end goal — the million dollars is just the means to an end.

You can watch the interview here:

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MJ: Switzerland’s main stock exchange, SIX, recently announced that they would be launching a “fully regulated” cryptocurrency exchange next year. Could you talk about PwC Switzerland’s role in the announcement?

PW: We’ve been involved in that project and are very proud to be a partner in this new adventure for SIX. We hope that it is going to have impact not only on the Swiss financial place, but really on the global level.

I hope other jurisdictions will follow, if they do not precede us — it is possible that a few jurisdictions will launch on their own, I’d say, major exchanges, before we actually launch ours. But we are really excited about it. We think that it will definitely provide much easier access to the institutional investors. And we can’t — I can’t — wait to see it happen.

MJ: Are you expecting a lot of enthusiasm and energy from the Swiss community for SIX’s digital asset exchange?

PW: This project grew from demand from the industry. There was a lack of infrastructure in our financial service industry — like big banks, small banks — and a lot of demand from their clients. So it really came from the clients themselves who wanted to get into the space.

SIX basically belongs to the banks here in Switzerland, so it wouldn’t have happened without their approval — or the announcement wouldn’t have happened — without the approval of the major stakeholders and the major banks in Switzerland.

MJ: Do you think that SIX opening a digital asset exchange in Switzerland will help the country embrace more blockchain companies?

PW: Oh, we definitely hope so. Whether it will or not, I do not know. But hopefully banks will be more enabled with more infrastructure to actually start handling those new asset types. I do expect so, but I do not know for sure.

Right now, I think there is still more clarity needed from the regulators in order for banks to start jumping into it. Banks don’t necessarily have the right incentives to jump into space. Some obviously will find the right incentives, but I think banks have to start — rather than thinking in terms of efficiency gains — thinking in terms of new business models with this technology.

MJ: A Moody’s report from this spring found that Switzerland’s banking industry could be hurt by blockchain, due to the technology’s ability to make cross-border transactions faster and cheaper. Do you see a dichotomy in Switzerland embracing this new technology that has the potential to hurt its banking industry?

PW: I think that, on the contrary, it can boost up business. Then, the fees can be whatever the fees they decide to apply, as long as they are fair. And there is going to be competition amongst various parties who want to provide those kinds of services.

I actually think it will be an enabler. Yes, it might hurt their existing business, but that is often the case with the new technologies: It’s either you adopt them and you think differently about how those technologies are going to actually offer new solutions — as well as improve the existing solutions — or then you just look at the improvements, and we are all racing to the bottom, because there are less and less margins for everyone.

MJ: Could you tell me about what PwC Switzerland does with blockchain?

PW: We have a pretty broad service offering. We work with startups, we work with established companies. We offer — I wouldn’t say full loaded, yet, because there’s still, once again, a lack of clarity — but we do offer first inspections to ensure that things have been done correctly. And hopefully that will enable us to do audits, if the regulators allow us to do that by the end of the year.

We also work on the infrastructure level, we work with a lot of ICOs globally that want to come to Switzerland, from clients that are all around the world. I think we have a pretty broad offering: We offer legal tax services, insuring services, engineering services, some kind of review for code — I do not like the word audit there, because audit it makes that sound like it is bulletproof, which it isn’t. It’s just reviewed by another pair of eyes. And we are trying to grow our services.

MJ: I’ve heard that Switzerland has been increasing regulation for ICOs to make it harder to hold one in Switzerland. What do you think are the benefits that ICOs bring to the blockchain space?

PW: So, you are definitely right. Increasing, yes.

When it starts from nothing, it will increase.

I think there is very little regulation here in Switzerland, but there are guidelines that are good — I think they are not great yet, personally. I think there is a lot of confusion between utility tokens and payment tokens.

For me, the difference is that utility tokens with enough liquidity can became payment tokens. But there is clarity between asset-backed tokens and the other type of tokens, and I think there is going to be more and more ICOs that use the asset-backed classification.

I think that is excellent for industry — the blockchain industry — but also for the existing industry. It’s much more efficient to do an ICO with a security token instead of an IPO — or as a way to raise funding in a VC round or seed round. 

Unfortunately, there has been a lot of hype. The space is definitely not mature yet, and it needs a lot more cooperation between the various developers to establish standards in order to have new experimentations in the ICO space.

I think a lot of the fund distribution should not happen immediately after the ICO, but there should be some kind of the smart-contract thing or possibility to enable some kind of cliff for the delivery of the funds, based on accomplishments. Vitalik [Buterin] proposed the DAICO — I think that goes in the right direction — it’s definitely not perfect, but I think it’s in the right direction, for sure. I think there’s a lot more to do in the ICO space for it to be right.  

MJ: Could you expand more on how the DAICO works?

PW: The DAICO concept is — on a very, very basic level — enabling the token holders to vote on the release of funds in order to get back some control to the investors. And if they are not happy, they can vote against the release of funds and recover whatever Ether has been locked into the smart contract.

MJ: Zug recently held a trial municipal vote on the blockchain. Do you think that blockchain voting will become more widespread in the future?

PW: I think, conceptually, it is an interesting experiment. I am still not convinced that blockchains are the right platforms for voting. I think there is something really interesting about voting on blockchains, but I think the exciting parts are really the cryptography, the kind of pseudo-anonymity that you have.

But I think you need to be able to analyze your constituents’ votes. So I see voting on the blockchain more as a small-scale, board meeting kind of vote, rather than a national way of voting. I would expect more temper-proof, black boxes that record the votes, leveraging some kind of cryptography from all the participants and, at least, you can do a lot of querying on the data — because you want to know who’s happy, who’s unhappy and categorize your voters in order to better categorize how to respond.

MJ: As someone who has been in the space for almost 10 years, you mentioned that going from no regulation to some guidelines is already a step. How else have you seen regulation change in general?

PW: I may have a very biased version of things, because I was in San Francisco in the earlier days, but I feel like a lot of people have been waiting for New York to come out with some guidelines because they are such a big weight on the international markets. And I think it was Ben Lawsky who came out with BitLicense and things just trickled after that. There were jurisdictions that were more open about blockchain-based tokens, but they were kind of shy — I would say, not really very clear in public about their stance. So, I would say the BitLicense was probably the beginning of the dominos falling, or the beginning of the chain effect.

MJ: Do you think other countries are going to take the cue from the BitLicense?

PW: Well, I think countries that are afraid can always use BitLicense as a reference, and countries that are more embracing can do better. But I definitely think it can serve as a benchmark, unfortunately. New York has such a big weight in the financial industry globally that people have to take that into account what is the U.S. says.

MJ: What would be your example of the right kind of regulations for cryptocurrencies?

PW: The right kind of regulation? I think that it is early to say what’s right and what’s wrong. I think the right approach, rather than the right regulation, would be to embrace the community.

I really admire the Swiss regulators, which went on a road show — I had never seen that before. And I’d encourage many other regulators around the world to really go on a road show, talk to the community members, try to understand as much as possible, what is happening with not only tokens, but with the smart contracts — because most of the regulation right now is around tokens.

The real novelty, I think, is more the smart contracts, the immutability — tokens have existed forever: The gold-backed dollar was not gold, it was backed by gold. Shares are backed by the companies. So these are all some form of tokens, so tokens are not new. The novelty is that with blockchains: They’re easy to issue and they’re very divisible, very transparent and they have a lot of new properties.

So I would urge regulators to look a little bit more closely at the actual code, because we are building a jurisdiction where code is law, and these jurisdictions in cyberspace will live and will survive in any physical jurisdiction. And the regulators will have to regulate the interactions of those cyber-incorporated entities within their jurisdiction. And I think we are still very far from that mindset, when it comes to regulators — where we are just looking at what is in front of us —  i.e., the tokens.

MJ: A lot of people think that cryptocurrency mining has a negative environmental impact because of how much energy it uses. Does PwC Switzerland need to think about the energy aspect of promoting blockchain?

PW: At PwC, we are blockchain agnostic. A consensus mechanism is a consensus mechanism — and we don’t really care, we just care for it to be secure. And so I would agree that there is an impact on the environment, and that is an undeniable fact.

Now, I really don’t think it is a waste of energy. I think this energy is put to guarantee immutability. I’m eager to see better consensus mechanisms. The one thing I like with proof-of-work is it that it uses energy as a part of the consensus mechanism and, therefore, you can participate in the consensus mechanism wherever you are. It is independent of your stake, you can go to the North Pole and you have access to energy, and you can go to the Sahara Desert and you still have access to energy. I think that it is an interesting approach to keep it as decentralized as it can be.

MJ: Thank you!

PW: Thank you.

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Ripple Exec: ‘Thrilled’ With Regulators Taking Interest in Cryptocurrency

Ripple (XRP)–Executives at Ripple are giving the impression that they welcome the introduction of regulators and increased scrutiny in the space of cryptocurrency.

While some community members and investors are skeptical of increased regulation, seeing it as an attempt to stifle the growth of cryptocurrency and introduce the centralization that the industry has been designed to move away from, others view the presence of regulators as a natural step in the maturation process of the industry.

Ripple, the parent company behind the cryptocurrency XRP, has been dealing with the possibility of regulation for some time as a startup targeting banking and financial services. While the currency XRP is embroiled in a battle over whether the coin constitutes a security, Ripple is moving forward in preparation of working with regulators and using the increased scrutiny to further their brand and business. Speaking in an interview with Fox Business, Ripple’s chief marketing strategist Cory Johnson has expanded upon the company’s view towards regulation, stating that he believes it can work to the benefit of Ripple and that they are “thrilled” with regulators finally getting more involved in cryptocurrency. In addition, he outlined how regulators would help protect both crypto businesses and customers, filling in some of the legal gray space and lack of accountability that most of the industry operates under,

“One person’s regulation is another person’s protection. I believe it’s really important for investors to be protected…We’ve seen what happens when there aren’t investor protections. We’ve seen investors lose so much money, and we’ve seen it in the world of crypto. We’ve seen some real bad actors involved, so we’re thrilled that regulators are getting involved.”

Ripple has been at the forefront of operating with the limited regulation currently in cryptocurrency, most of which has been concentrated in the state of New york. Ripple is one of just eight companies to have received a contentious BitLicense, one of the first regulatory attempts imposed on the industry and a legal structure that most crypto advocates have found repelling to growth. While the BitLicense allows Ripple to sell the subsidiary XRP II to firms and institutional investors–which reported increased sales in Q2 2018 despite the sharp drop off in total XRP sales–there is some controversy surrounding Ripple and the BitLicense ruling. Ben Lawsky, former superintendent of New York’s Department of Financial Services who oversaw the creation of the BitLicense, now sits on the board of Ripple. Some industry figures in crypto have accused Lawsky of creating a purposefully convoluted regulatory hurdle to operate in the state, thereby increasing his value to firms as a guiding hand through the process (Lawsky subsequently stepped down from his position in 2015, following the creation of the BitLicense, to found his own firm named the Lawsky Group).

However, as Ripple’s chief marketing strategist points out, the presence of regulators provides a “safer” space of institutions that are repelled by the current, Wild West-nature of cryptocurrency. It’s possible that greater government oversight will strangle the innovation of cryptocurrency, but its as much up to the industry and community members to steer clear of entities that attempt to impose centralization.

Johnson also went on to lament the level of understanding and appreciation for cryptocurrency in the U.S., stating that the country was in danger of falling behind on the next big thing in technological and financial innovation,

“A lot of other countries are moving faster than the U.S. to try to provide really clear lanes of where businesses can act — what’s right and what’s wrong.”

Johnson’s statement echoed the sentiment of CFTC Chairman J. Christopher Giancarlo, who said at a Congressional subcommittee hearing this week that he believes the U.S. to be four years behind on handling the application of cryptocurrency.

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Bitcoin Trading: Square Obtains New York BitLicense for its Cash App

Square Obtains BitLicense for Bitcoin Trading in New York

Square has achieved yet another milestone. The payment company recently became the seventh firm to obtain a cryptocurrency trading license in the state of New York. The news was announced via a press release from the New York Department of Financial Services (NYDFS) on June 18, 2018.

Square Cash App Gets BitLicense

Commonly known as a BitLicense, it grants a firm the approval to offer cryptocurrency trading services in New York. Commenting on the development, the head of Square Cash App, Brian Grassadonia said:

We are thrilled to now provide New Yorkers with Cash App’s quick and simple way to buy and sell bitcoin. Square and the New York State DFS share a vision of empowering people with greater access to the financial system and today’s news is an important step in realizing that goal.

Square began offering Bitcoin trading on its Cash App at the beginning of 2018. However, residents in New York weren’t able to use the platform due to the strict nature of the cryptocurrency regulations in the state. BitLicenses are notoriously difficult to obtain. Speaking about its latest approval, Maria Vullo, the superintendent of the NYDFS said:

DFS is pleased to approve Square’s application and welcomes them to New York’s expanding and well-regulated virtual currency market. DFS continues to work in support of a vibrant and competitive virtual currency market that connects and empowers New Yorkers in a global marketplace while ensuring strong state-regulatory oversight is in place.

Square previously obtained a money-transmitter license from the DFS.

Square Shares Up By 82 Percent in 2018

In the aftermath of the announcement, the shares of the company increased by about 1.3 percent. 2018 continues to be an excellent year for Square as its YTD share performance stands at 82 percent increase. The firm’s growth isn’t restricted to its financial performance as its legacy trading platform has also posted positive numbers.

The Square Cash App was launched in 2015. According to Nomura Instinet, the increase in the number of user downloads for the app has surpassed that of PayPal’s Venmo. Since 2016, Cash App’s user downloads have increased by 128 percent while Venmo has risen by 74 percent.

Dan Dolev, an analyst at Nomura Instinet, believes this latest BitLicense approval will catapult the company to even greater heights. Speaking to CNBC, he said:

That was one of the missing pieces in their puzzle. They had approval in most states, but New York was by far the biggest one where you couldn’t trade bitcoin. This announcement gives people another excuse to download the app. It might not move the bottom line right away, but it definitely helps from a marketing perspective.

Twitter CEO, Jack Dorsey, founded Square in 2009. According to a recent shareholders report, there were 7 million active users on the Cash App as at December 2017.

Will the recent BitLicense approval increase the number of downloads for the Square Cash App? Keep the conversation going in the comment section below.

Image courtesy of Twitter (@CashApp) and Business Insider.

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Square Receives NY BitLicense, Cash App Now Offers BTC Trading for New York Users

Financial services provider Square has received a BitLicense from the New York Department of Financial Services (NYDFS), according to a press release published today, June 18. As a result, Bitcoin (BTC) trading is now available to New York users of Square’s Cash App, according to Cash App’s Twitter.

Cash App released a Bitcoin option at the end of January to almost all of its users, originally excluding those in New York, Georgia, and Hawaii. With Square’s Point of Sale (PoS) network, adding a Bitcoin option means that merchants using Square could potentially accept Bitcoin as a form of payment.

The Cash App support team noted on Twitter that while users can currently send Bitcoin to an external wallet, they can’t currently send it to other Cash App users on the platform.

Jack Dorsey, CEO of both Square and Twitter, tweeted about the addition of Bitcoin trading for New York users earlier today:

In mid-May Dorsey said that he remains bullish about cryptocurrency’s future, stating that while he is not sure whether it will be Bitcoin, he thinks that crypto will become the Internet’s native currency.

Barry Silbert, founder and CEO of the Digital Currency Group and Genesis Global Trading, today revealed a partnership between Genesis and Square in a congratulatory tweet to Dorsey regarding Square’s BitLicense:

Historically, the state of New York has strictly regulated crypto; the implementation of the BitLicense in 2015 drove many large crypto exchanges out of the state. However, the recent approval of crypto exchange Gemini’s BitLicense, as well as Square’s New York crypto expansion, shows New York heading in a more crypto-friendly direction.

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Payments Firm Square Receives BitLicense from New York

Digital payments firm Square has received a BitLicense from regulators in the state of New York.

The company announced Monday that the New York Department of Financial Services granted the license. Square first indicated back in March that it had submitted paperwork to receive a BitLicense, a move later confirmed by a spokesperson.

“DFS is pleased to approve Square’s application and welcomes them to New York’s expanding and well-regulated virtual currency market. DFS continues to work in support of a vibrant and competitive virtual currency market that connects and empowers New Yorkers in a global marketplace while ensuring strong state-regulatory oversight is in place,” Superintendent Maria Vullo said in a statement.

Square’s bitcoin-buying option – through its Cash app – first debuted last fall, after which the company began steadily providing access to a greater number of users. New York had, until today, remained a major U.S. market in which Square had yet to receive permission to operate.

The company’s move into the crypto space has already proven its worth, recent figures show. In May, Square reported that it had booked a small profit on $34 million in crypto-related revenue through is Cash app.

Cash App image via CoinDesk

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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BitLicense Approval Shines Fresh Light On New York-Crypto Relationship

The recent approval of Genesis Global Trading’s BitLicense application has shone fresh light on New York State’s relationship with the cryptocurrency industry.

Although New York is historically a business-friendly center and international financial hub, many industry players have criticized the regulatory requirements enforced by the New York State Department of Financial Services (DFS) through the BitLicense since its release date in 2015.

Most of these criticisms were confirmed in a round table held earlier this year by New York State senators Jesse Hamilton and David Carlucci, who invited cryptocurrency companies to raise their concerns about the BitLicense.

Stakeholders reiterated that the regulatory requirements set by the DFS are too burdensome for small companies to bear, that it’s a one-size-fits-all regulation and ultimately that it stifles innovation

Even before the initial release of BitLicense back in 2015, the Editor of MIT Media Lab Digital Currency Initiative, Brian Forde, alluded to the fact that this is what will happen, with only the largest companies possessing ample resources able to comply with the strict regulations.

“If changes to the proposed BitLicense are not made, only a handful of the most well-funded companies will survive — not because they are providing the best product or service, but because they have access to the most money.”

BitLicense explained

The BitLicense is issued by the DFS to those able to meet regulatory requirements and engaging in one of the following activities:

  • Virtual currency transmission
  • Storing, holding, or maintaining custody or control of virtual currency on behalf of others
  • Buying and selling virtual currency as a customer business
  • Performing exchange services as a customer business
  • Controlling, administering, or issuing a virtual currency.

The DFS has also indicated that cryptocurrency mining will not form part of the regulation.

Some of the regulatory requirements include:

  • Background checks performed on all employees and fingerprints submitted to the FBI.
  • Companies must invest in New York bonds.
  • Records of transactions must be kept for 10 years.
  • Quarterly financial statements must be submitted within 45 days of the close of a quarter.
  • Company earnings can only be invested in US dollar markets, including US money market funds, and federal and state bonds.

The BitLicense became effective in New York on June 24, 2015 but in the three years since then, only five crypto-related companies have been approved for a BitLicense in the state.

This is perhaps a testament to strict regulatory burden it imposes on companies, but also to the demanding 31-page application form that has to be completed as a very first step.

Out of the very few companies who have been granted a BitLicense, is XRP II LLC, an affiliate of Ripple, with none other than Ben Lawsky, former DFS Superintendent and chief architect of the BitLicense, on the board of directors.

Not everyone thinks the BitLicense is bad for business though. The current DFS Superintendent, Maria Vullo has stated in her Spring Meeting Remarks that “The regulatory structure that we created for virtual currency has helped our licensed companies attract greater interest from customers, investors, and potential financial services partners seeking to pursue further innovation, while protecting market integrity by stringent standards applicable to all law-abiding business enterprises.”

The Bit-exodus

Since its release, the strenuous requirements of the BitLicense have forced many crypto startups to leave New York, in a movement that’s been dubbed the Bit-exodus.

Jesse Powell, founder and CEO of Kraken, a Bitcoin exchange, explained why his company decided to leave New York.

“There were some things about it that were just untenable … having to disclose all the information about your global client base to the state of New York – we just couldn’t live with.”

CEO and Founder of ShapeShift, another cryptocurrency exchange that left New York, also cited restrictive innovation as their reason for leaving the area.

“I went from loving the city and seeing it as a symbol of progress … to seeing it as an enemy of innovation. The regulators here want to treat every financial entity like a bank … we aren’t banks, we don’t want to be banks … everything we build is to do something in opposition to what banks have done,”

Other crypto companies that followed suit in the wake of the BitLicense storm include LocalBitCoins, Rebit, Genesis Mining, BitFinex, to name a few, with others, like Eobot, having to shut down operations entirely.

How is it affecting New York’s cryptocurrency opportunities?

The Consensus 2018 panel agreed that New York is the financial capital of the world but the blockchain community is international, and ultimately that the enforcement of the BitLicense is more harmful to the state than it is for the international cryptocurrency community.

The BitLicense is in stark contrast to New York’s welcoming attitude towards cryptocurrency opportunities and blockchain as a whole in the state.

Earlier in May, the President and CEO of the New York City Economic Development Corporation (NYCEDC), stated that there’s no city in the world that’s better positioned to lead the way in blockchain innovation, as he announced a number of blockchain-related initiatives for the city, including an NYC blockchain Resource Center and a public competition for blockchain-based apps.

New York has also embraced cryptocurrency innovation in the past by being one of the first cities where property could be bought using Bitcoin, to install Bitcoin ATM’s and where diamond retailers accepted payment in Bitcoin. Support for crypto even showed up in the NY fashion week and at one point New York was named as the second most Bitcoin-friendly city in America.

In the absence of any real federal regulation dictating cryptocurrency-based operations in the US, state regulators have a real opportunity to entice these organizations to move their business into their jurisdiction.

Even the Securities and Exchange Commission (SEC) hasn’t introduced any specific crypto related governance, other than whether or not tokens launched through an initial coin offering (ICO) should be considered as a utility or a security, and as such, might be subject to regulation.

An unlikely state like Wyoming has taken advantage of this and shown that even though regulations are necessary to protect consumers, it can be done in such a way to promote cryptocurrency and blockchain operations, rather than chasing innovation away. In the space of several weeks, the state passed five separate bills for the advancement of cryptocurrency and blockchain technology.

Given New York’s reputation as a global financial hub that has attracted businesses from all over the world and supported innovation across many industries – including in the blockchain and crypto space – it is curious, to say the least, why regulators have chosen to go fundamentally against the grain with overbearing regulations. Especially if we consider that, at the moment, any cryptocurrency regulation in the US is more state driven rather than federal.

Although Genesis’s BitLicense application approval is a step in the right direction, the consensus is that the BitLicence process has all but destroyed the New York-crypto relationship and has been bad for innovation and business as a whole.

There might, however, be relief on the horizon for cryptocurrency startups in New York, including for those looking to move back into the state lines. Earlier this year, New York State Assembly legislator, Ron Kim, proposed a bill to effectively replace the BitLicense process, relaxing regulatory requirements and entice crypto investors back into the Empire State.

The current bill status is “In Committee” and still a few steps away from being passed but, if enough support is garnered, could signal the end for the BitLicense and perhaps a fresh start for cryptocurrency investors and businesses in New York.

Current Bill Status - In Assambly Committee

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First New-York Based Crypto Trading Company Receives BitLicense

Genesis Global Trading, a subsidiary of the Digital Currency Group, has been granted a BitLicense from the New York Department of Financial Services (DFS), according to a press release published on PR Newswire today, May 17.

After the BitLicense became required for all New York crypto trading firms in August of 2015, a wave of crypto companies left the state, either unable or unwilling to comply with the stringent new regulatory requirements.

Genesis, which is the first New York-based trading firm to now operate with a BitLicense and the fifth firm overall to receive one, will be able to trade in Bitcoin (BTC), Ethereum (ETH), Ethereum Classic (ETC), Bitcoin Cash (BCH), Ripple (XRP), Litecoin (LTC), and Zcash (ZEC). The press release notes that Genesis has traded in billions of dollars worth of crypto since 2013.

Before receiving the BitLicense, Genesis had operated under a special DFS provision that still let them trade in crypto in New York state. CEO of Genesis Global Trading, Michael Moro said in the press release that “although we have operated under a safe harbor provision in recent years, today’s decision is an important step forward and reaffirms the robust compliance measures we have enacted as an established trading partner.”    

The Square Cash app, which has included a Bitcoin option since this January,  is currently working on getting a BitLicense in order to operate in New York. The app added Wyoming to its list of states allowing the crypto option in mid-March, with New York, Georgia, and Hawaii still excluded.

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NY Grants Fifth-Ever BitLicense to Crypto Exchange Genesis Global Trading

Genesis Global Trading has obtained a BitLicense from the state Department of Financial Services (DFS), making it only the fifth firm in three years to receive the controversial license.

The cryptocurrency exchange, based in New York City, and DFS announced the news in separate press releases Thursday.

In the regulator’s release, New York financial services superintendent Maria Vullo said, “New York continues to lead the nation in regulating the growing fintech industry.”

But the BitLicense has come in for intense criticism from cryptocurrency entrepreneurs. Speaking at CoinDesk’s Consensus 2018 conference Tuesday, ShapeShift CEO Erik Voorhees called the regulation an “absolute failure” that “should be removed.” He said it was “pathetic” that only a handful of firms had received BitLicenses after three years. “That’s the rate of innovation in New York.”

Several exchanges have stopped operating in the state, including ShapeShift and Kraken.

Despite lacking a BitLicense prior to this week, Genesis Trading has been operating in New York under a safe harbor provision.

The exchange caters to high net worth and institutional investors and offers round-the-clock trading in bitcoin, bitcoin cash, ether, ethereum classic, XRP, litecoin and zcash.

Separately, the DFS also authorized Paxos Trust Company, formerly known as itBit, to operate “a permissioned, blockchain-based post-trade platform settlement service” for precious metals, called Bankchain.

Paxos holds a limited-purpose trust company charter from DFS, as does Gemini Trust Company, a cryptocurrency exchange.

New York became the first state to craft a regulatory structure specifically for cryptocurrencies in 2014, and finalized the BitLicense in August 2015.

The other four firms to receive the license are Circle, in 2015; XRP II, a Ripple subsidiary that sells XRP, the following year; and Coinbase and bitFlyer in 2017.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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BitLicense Refugees: Kraken, ShapeShift CEOs Talk Escape from New York

If you wanted to hear red-meat rhetoric about New York State’s regulatory approach, a fireside chat Tuesday between two of the cryptocurrency industry’s most outspoken leaders delivered.

For example, the audience at Consensus 2018 in New York City cheered when ShapeShift CEO Erik Voorhees invoked a local icon to make the case that the state’s BitLicense was a case of regulatory overreach.

Here we are two miles from the Statue of Liberty and you cannot sell CryptoKitties in the state without that license. That’s the absurdity of what’s happened here,” he said.

And Jesse Powell, the CEO of Kraken, got some laughs at the expense of former New York Attorney General Eric Schneiderman.

When Scheniderman’s office sent a request for information to Kraken (along with several other exchanges) earlier this year – three years after his company stopped doing business in New York – it felt like “a slap in the face,” Powell said.

But then “it turns out this asshole actually slapped people in the face,” he quipped, referring to the allegations of physical abuse that forced Schneiderman to resign shortly afterward.

Yet between these zingers and applause lines about the BitLicense – which both executives blame for driving their companies out of state – there were subtler points made. The conversation highlighted the challenges facing both the industry and regulators worldwide as governments come to terms with the ramifications of cryptocurrency.

Powell, for example, pointed out the tension between anti-money-laundering regulations and customer privacy protections. In the case of the BitLicense, he said, Kraken would have had to “disclose all the information about our entire global client base to the state of New York.”

That was not only distasteful, Powell said, but “potentially illegal” under the privacy laws of other countries.

“To service New York today, what we’d have to do is create a special purpose entity just to service New York and completely firewall off” all the exchange’s other users to protect their privacy, he said.

Alternative models

Widening the lens, Powell contended that the U.S. “has really failed” by leaving it up to local regulators to figure out how to deal with cryptocurrencies.

“In others parts of the world, it’s an issue that’s being taken seriously by heads of state – presidents, prime ministers. It’s not something that’s relegated to individual regulators at a state level,” he said. “It should be treated as a national economic and national security issue, maybe even an international issue.”

Powell cited Japan’s Virtual Currency Act as an example of “reasonable” regulation. Although the law is “not perfect,” he said, “we’re already seeing an explosion of business in Japan” as a result of the clarity it brought.

Voorhees, however, held up a different U.S. state as an example of how to do things right: Wyoming, which recently passed a package of five blockchain-related laws.

The two most important ones, in his view, were a law that excludes tokens from being automatically categorized as securities, and another that excludes digital asset companies from being automatically classified as money transmitters.

“That’s the model people should be looking at, they’ve done it the best,” Voorhees said.

And despite using the phrase “statist oppression” early in the conversation to describe his feelings about New York when the BitLicense was created, Voorhees later clarified that he thinks regulators generally have good intentions.

But their aims can be met today by means other than imposing bureaucratic, bank-style regulations on businesses that want to be nothing like traditional financial institutions, he argued.

“The crypto industry and regulators can find common ground in realizing that this incredible new technology can achieve many of the noble goals of the regulators such as protecting consumers,” Voorhees said.

Regulatory hopscotch

Ultimately, though, the two executives depicted cryptocurrency as a highly mobile activity that can easily relocate when any jurisdiction starts to appear heavy-handed.

Powell said Kraken’s main office is located in San Francisco only as a convenience because that’s where he lived when he started the company. Crypto businesses can basically pick up and move anywhere in the world they want to be, he said.

And users need not always move to another place, use a VPN to mask their IP address or even break the law to get around restrictions; Powell shared a tip for New York residents who feel deprived because of the way the BitLicense has limited their cryptocurrency trading options.

“If you’re here stuck in New York and you can’t trade how you want to trade, set up a Wyoming LLC and you can trade through that and have your business trade for you,” he said.

Further limiting regulators’ power, Powell said, the rise of decentralized exchanges will give users even more alternatives.

“If they can’t do what they want on Kraken they’re doing to do it on a decentralized exchange,” he said.

And Voorhees said “regulatory hopscotch” by exchanges and other businesses that move from one country to another is only a symptom of a broader phenomenon that won’t easily be resolved.

He concluded:

“Bitcoin basically broke down the borders of how value moves across humanity. There is no way that an invention like that doesn’t run straight into the jaws of regulations. And that conflict is going to be one of the great themes of my lifetime.”

Photo via Wolfie Zhao for CoinDesk. Left to right: CoinDesk research director Nolan Bauerle, Jesse Powell and Erik Voorhees. 

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Crypto Exchange Probe 'Continues' Despite New York AG's Resignation

The sudden resignation of New York Attorney General Eric Schneiderman on Monday night doesn’t appear to have impacted that office’s inquiry into more than a dozen cryptocurrency exchanges.

CoinDesk asked the Attorney General’s Office if the crypto exchange inquiry would continue in light of Schneiderman’s exit. In an email, press secretary Amy Spitalnick wrote: “Our office’s work continues.”

Last month, the New York Attorney General’s Office launched a fact-finding inquiry into 13 cryptocurrency exchanges. The exchanges were sent detailed questionnaires, which included questions about their business models, operations, funding, trading protocols, leadership and business relationships.

Schneiderman’s abrupt resignation, effective at the close of business Tuesday, came hours after the publication of an article in the New Yorker, in which four women alleged that the attorney general had “repeatedly hit them, often after drinking, frequently in bed and never with their consent.” The women, two of whom spoke on the record, were all former romantic partners of Schneiderman.

CoinDesk contacted several of these exchanges after the inquiry was first announced, the majority of which welcomed the inquiry and praised Schneiderman’s efforts to increase transparency in the industry.

Coinbase, one of the affected exchanges, published a version of its reply to the questionnaire, though the full response has not been released due to the confidential information it contains.

One exchange, however, has refused to cooperate with the AG office’s inquiry.

Jesse Powell, CEO of Kraken, told CoinDesk: “Kraken’s BitLicense-prompted exit from New York in 2015 pays another dividend today,” referring to a controversial licensure framework. Powell’s complete statement can be read here.

New York City image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.