The future has already arrived it is just not evenly distributed yet.
This quote explains my overall takeaway from the Money20/20 conference at Aria in Las Vegas. The packed conference halls and sessions were filled with over 7,000 attendees from numerous money services businesses, payment processors, and banks from around the world. I believe the most prevalent overall themes of the conference were Bitcoin & block chain technology, NFC & Tokenization at POS, and lastly the importance of Identity & Security.
Bitcoin had a big presence at the conference. Two years ago there was 1 bitcoin company, last year there were 6, and this year there were over 20. I participated in the Money 20/20 hackathon the weekend before the conference and over half of the projects were focused on Bitcoin built using block chain APIs. This is a great indication that Bitcoin is growing fast. The number of wallets and Github repositories have also increased substantially over the past year. In addition, in the last week the average daily transaction number has been over 90,000, also very high compared to the usual 70,000 daily. Bitcoin has turned a corner. Now it’s all about liquidity, thought out regulation and financial inclusion.
AML and KYC
One of the most important short term factors for Bitcoin payment processors and exchanges will be AML and KYC policies. If you are a Bitcoin company, AML and KYC policies need to be in place. They need to be effective. Your customers, your counterparties, and employees all must know them. There needs to be this balance between borrowing banking and payment processing controls and preserving the key advancements of block chain technology. Internally, when enforcing the policies it is is two fold. The first is at the forefront. As a payment processor or wallet, when you are on boarding a merchant or customer, you need to know who you are letting on your network. It is the companies responsibility to make sure that their portals are not being used for illicit activity. It is also their responsibility to do due diligence to ensure that the merchant is indeed in the business it says it is in. AML and KYC is going to be a big part of legitimizing Bitcoin as it is a key section of proposed regulatory legislation.
Superintendent Lawsky’s Speech
The Superintendent of the NYDFS, Ben Lawsky made a keynote speech at the beginning of the conference about Bitcoin and the proposed Virtual Currency BitLicense. It was interesting to hear him talk about the different aspects of the technology. His sentiment reflected that he believes the overall technology is very amazing. It holds the potential for much cheaper fees, frictionless transactions and no identify theft. The tech is going to continue to improve and platforms will be built upon platforms that will challenge the current payment systems. He stated that virtual currencies do matter and in fact will improve various systems dramatically. There are teams of lawyers, regulators, technologist, and businesses all looking at this technology. It is impossible to eliminate all of the risk but there needs to be some regulation and licensing required to prevent a large unregulated financial entity from collapsing like. The new BitLicense proposal will be released around the beginning of December and final regulatory legislation will be completed by January 2015. He also stated that the new rules introduced in the BitLicense would be used for future cyber security legislation for existing financial institutions. The regulations are not directed towards software development but towards financial intermediaries. He also announced a transitional BitLicense for a set period of time and that tailored examinations would be put in place for startups in the space based upon the risk file of individual firms. He closed the keynote by having a Q & A with various people from the audience. Overall I thought it was a great conversation and a step in the right direction as consumer protection is needed. It will be interesting to watch the legislation evolve as more applications are built on the block chain.
The Underlying Technology
AML, KYC, and regulation aside; the upside for block chain technology is limitless. It enables real time triple entry bookkeeping. There have been three huge advancements in the last half century: PCS, the Internet, and Bitcoin. Everyone in different sessions had the same “I remember the early 90’s” analogy to the internet and it’s true. Everyone knew the printing industry was going to be affected but wasn’t thinking about all of the other things and companies that would emerge from the internet. This is the same with Bitcoin. This is a truly revolutionizing technology. It will do to value what the Internet did for information. It really is the makings of a value storage and transfer system. It is going to be pervasive in our financial system as it is superior to the other ways we currently transact in. It is an incredible store of value and medium of exchange. If you were going to invent money today it would be done using bitcoin as the backbone. It is a completely new foundational protocol that is efficient and effective. The question to be asking is what types of things can Bitcoin enable and do that were not possible before?
Global remittance markets are going to be transferred on block chain rails to augment the ability for cross border transactions. International forex, digitized deeds, trusts, a title to your car or house, all becoming liquid digital assets and recorded into the block chain. This is the first time in history that people and things can transfer value in unchangeable networks. Previously, micropayments were impossible because the existing payment rails couldn’t support it. How many things under $1 have you bought on the internet? Not to many. Now with Bitcoin, micropayments are possible and can be used in numerous ways on the web. Pegged sidechains will allow liquid digital assets to be recorded into the block chain. These new application-specific coins will traverse parallel block chain protocols. It will enable trade between machines enabling them to allocate scare digital resources according to their needs. These autonomous agents will pay machine to machine for authentications and negotiations. Autonomous corporations and networks of these agents will be built and executed on the block chain. It is going to open up huge markets around the world. It is a completely open, distributed, and cryptographically secure system. The public keys do allow users to verify funds in an account but deterministic wallets will allow users to have their transaction history unlinked. Block chain APIs are going to do unimaginable things for money as we know it. As these application continue to be developed to do things like eliminate volatility, enable multisignature contracts, empower the unbanked, and create an easier way to transer assets; the value of the network and the overall adoption will follow. It will go from a speculative asset to a utility to be used around the world ubiquitously.
A BTC Demo
One of my favorite parts of the conference was a short demo that showed the seamless ability to transfer money using Bitcoin . This was demonstrated by Chain in under a minute and in Vegas style. They built an app that showed a QR code on screen and told the crowd of thousands to send bitcoin to the address. At the end of the minute the sum of the Bitcoin would be given to one of the sender’s bitcoin addresses. The lottery algorithm made it so that the senders chance of winning was increased the more Bitcoin they total of about $500 worth of Bitcoin was sent to one of the winners. Probably the guy who put in 1 Bitcoin, or 330 dollars worth at the last second. The crowd of payment processors, bankers, and MSBs were just shown the future of money. It was a pretty cool moment even though I lost .03 BTC in the process.
Any one in the payments industry is now aware or at least should be of the power of block chain technology. It is effectively moving data value around the world in a provable manner without an acquirer, processor or issuer. Liquidity is key. The network allows you to do something that wasn’t possible before and you need bitcoin to use the network. It’s a store of value, a transaction protocol, and a digital record. There is significant potential to these three aspects of the underlying technology. We have barely scratched the surface of what the block chain can do. Distributed storage, distributed apps, timestamping, digitized asset trading, AI paying in cryptocurrency; welcome to the future.