This document discusses digital currencies like Bitcoin and their potential applications and regulatory issues. It provides an overview of Bitcoin and how it works as a decentralized digital currency. It then discusses opportunities for Bitcoin in facilitating low-cost remittances and challenges around volatility, anonymity, and risks of financial crimes. The document advocates for multi-stakeholder engagement to better understand digital currencies and establish appropriate policies and regulations.

1. New Technology New Business
Models: Digital Currencies
Shiva Bissessar, BSc (Hons), MBA, MSc
Managing & Technical Director
Pinaka Technology Solutions
+868 678 5078
spbisses@gmail.com

2. • 17 years ICT experience, 5 of which in Senior
Professional roles delivering major
Telecommunications and Information Security
projects
• M.Sc. Information Security comes from University
College London. Thesis was on transaction analysis
of Bitcoin to reveal usage and geographic patterns.
• Information Security Advisory & ICT Programme
Management
In Brief

3. “Internet innovation and evolution” (at stake)
John Curran, ARIN
“Bitcoin is a challenge”
Robert Flaim, FBI
SSIG 2014 Quotes

4. Challenge or Solution?

5. Remittances: Latin America,
Caribbean
• Latin American and the Caribbean (LAC) is the
least costly region to send money to, with an
average cost of 6.21%
World Bank, Remittance Prices Worldwide, Mar 2014
Country Value $M
Dom Rep 3158
Haiti 1988
Jamaica 2038
Trinidad & Tobago 129
Multilateral Investment Fund, Member of IDB Group, (2013 report)

6. Remittance: SuperTax in Africa
• Banks charge as much as 19.2% for transfers
WorldBank, Send Money to Africa, Jan ’14
• Transfer times can vary from an hour to 5 days

7. Remittances: Solution for Kenya

8. What Is It?

9. http://www.youtube.com/watch?v
=Um63OQz3bjo
https://www.weusecoins.com/en/

10. Digital Currency Pioneer: Bitcoin
• Bitcoin is a decentralized digital currency that enables
direct payment over the internet
• “Bitcoin is a dollar bill, with a teleporter built in”
• Dan Kaminsky, Security Researcher
• Created by computers solving difficult problems
• Traded for real money by money exchangers
• Minimal fees in payment transactions
• Disruptive technology to e-payment, remittances,
financial/monetary systems

11. Transactions
• Users have digital wallets.
• Wallets may contain many addresses. Addresses are associated
with stores of Bitcoin
1FfmbHfnpaZjKFvyi1okTjJJusN455paPH 144,341.53264935 BTC
• You digitally sign over Bitcoins to another party’s address
• The change is retuned to you via another address
• The transaction is verified by “miners” on the network
• The transaction is included in the “blockchain”

12. Mining
The Blockchain
http://www.getelastic.com/wp-content/uploads/how-bitcoing-works-large.jpg

13. Traditional Payment vs. Digital
Currency
• Solves problems of earlier proposed electronic cash
such as double spend
• Decentralized
• Bitcoin is both a payment platform & currency
• Limited supply akin to Gold standard
• Uses simple but effective cryptographic techniques
for security
Financial Institutions: Wire Transfer
Euro MasterCard Visa (EMV): Credit Cards
Money Transmittal: MoneyGram
Payment Platform: PayPal

14. STRENGTH
• Decentralized
• Cryptographically Secure
• Anonymous?
• No Double Spend?
• No Reversals
• Minimal Transaction Fees
WEAKNESS
• Consumer Protection
• Perception of Usage for
Illicit/Illegal Gains
•Money Laundering
•Tax Evasion
•Ponzi Schemes
•Dark Net
• Volatility
OPPORTUNITY
• Electronic Payment System
• Low Electricity costs
• Regulatory Framework
•Central Bank Customs
•AML/KYC Taxation
•Investment
• Investigative Capabilities
• New Business Models
THREAT
• Misunderstanding
• New Dimension to Financial
Crimes
• Stifling of Innovation
S
W
O
T

15. Anonymous?
• Analysed the public record of transactions
• Uncovered patterns of usage which included apparent attempts to
mask transactions
• Ability to associate addresses with ‘entities’

16. Price Volatility
Mar – Apr 2013
Cyprus instability
Oct 2nd 2013
SilkRoad Shutdown
Nov 2013
US Senate Hearings
Dec 2013
Chinese fears
Nov 2013
Crosses $1000
Feb 2014
Mt Gox,
Transaction
Malleability
Apr 11th 2014
China PBOC
won’t ban
Bitcoin
http://blockchain.info/charts/market-price

17. The Innovation

18. Payment Innovation
• Apr 2014: mPOS innovator Square begins
accepting Bitcoin in their online marketplace
"Sellers should never miss a sale. We're building
tools so sellers can accept any form of payment
their customers want to use.

19. Money Transfer Innovation
"In principle, financial institutions with existing anti-
money laundering systems in place (like banks)
could adopt a common Bitcoin-like technology to
facilitate fast and secure international transfers
between end-users…”

20. Established Means To Transfer
Value
• Pay Bloggers in countries
blocked by PayPal
• $1M in sales via Bitcoin
since Jan 2014
• In wake of Heartbleed, Open SSL
foundation accepts donations

21. Block Chain Based Businesses

22. Risk

23. US Attorney General, Apr 8th ‘14
• “More than ever before, the department’s law-enforcement
work today must contend with new and emerging technology,
including virtual currencies such as bitcoin,”
• “Virtual currencies can pose challenges for law enforcement
given the appeal they have among those seeking to conceal
illegal activity.”
• At the center of this “illegal activity” is the ever-present risk of
money laundering.
http://newsbtc.com/2014/04/08/u-s-attorney-general-eric-holder-warns-criminal-attraction-virtual-currencies/

24. Financial Crimes
Date Event Crime
C
A
S
H
Nov
2012
MoneyGram - $100M fine Money Laundering (wire fraud &
ineffective AML controls)
Dec
2012
HSBC - $2B fine
(Black Market Peso Exchange)
Money Laundering
(Lack of compliance in Mexican
operations facilitating drug cartel
laundering)
D
I
G
I
T
A
L
C
U
R
R
E
N
C
I
E
S
May
2013
DOJ shutters Liberty Reserve
(55M transactions, $6B)
Money Laundering (LRs), Unlicensed
MTB under FinCEN guidelines
Jul
2013
SEC complaint, Trendon Shavers Ponzi Scheme (Bitcoin)
Oct
2013
FBI shuts down Silk Road Illicit/Illegal Marketplace (various
digital currencies)
Jan
2014
Charlie Shrem (BitInstant CEO)
arrested
Money Laundering (Bitcoin)
Feb
2014
Florida: Espinoza and Reid Money Laundering (Bitcoin)

25. Increasing Regulatory Attention
http://jonikcartoons.blogspot.com/

26. EuropeanCentral Bank, FinCEN,
IRS
“Virtual currency that has an equivalent value in real currency,
or that acts as a substitute for real currency, is referred to as
convertible” virtual currency.”

27. Global Landscape
http://bitlegal.net
Brazilian Revenue
Service adopting tax
treatment akin to the
U.S. IRS (Apr 2014)
UK Officials indicated that
exchanges are not subject to
U.K. Money Laundering
Regulations. HMRC does
not currently tax mining or
transactions (Apr 2014)
US FinCEN issued
guidance (Mar 2013)
US Senate Hearings
(Nov 2013)
IRS treats Bitcoin as
commodity subject to
taxes (Apr 2014)
Germany declare
Bitcoin to be private
money but not
currency (Aug 2013),
currently not taxed.
Canadian Senate
Meets Bitcoin
Community in Fact-
Finding Session
(Apr 2014)

28. TT Central Bank Statement
“In Trinidad and Tobago, the concept of virtual currency is
somewhat addressed under the framework established for
electronic money by the Financial Institution’s Act, 2008.
The Act treats with the issuance of virtual currency as stored
value, issued on receipt of funds and accepted as payment by
persons other than the issuer.
This activity is defined within the context of ‘business of a
financial nature’ and requires the approval of the Central
Bank.”
Central Bank of Trinidad and Tobago, Payments Quarterly Dec’13 (adj. March
2014)

29. How Does This Differ From EU?
• The European Central Bank makes a clear distinction
between electronic money and virtual currencies:
“In electronic money schemes the link between the electronic
money and the traditional money format is preserved and has
a legal foundation, as the stored funds are expressed in the
same unit of account (e.g. US dollars, euro, etc.). In virtual
currency schemes the unit of account is changed into a virtual
one (e.g. Linden Dollars, Bitcoins).”
“This is not a minor issue…”
European Central Bank, 2012

30. What’s Next?

31. Caribbean Entrepreneurship
• “CaribHash is well positioned to
become one of the leading
cryptocurrency cloud mining pools in
the world through intrinsic
advantages, aggressive growth,
economies of scale and energy
efficiency over the next 2 years”
• “bi.tt is the first
cryptocurrency forex and
commodity trading
platform serving the
Caribbean region”

32. What Is Needed
• Multilateral vs. Multi-stakeholder engagement?
• Better understanding of what it is, what it is not, risks and
opportunities e.g. Issuance of guidance paper
• Categorization e.g. Is it property, commodity, currency, payment
platform, ‘glass beads’
• Treatment e.g. Is it taxable? What are the business types and
compliance requirements? AML/KYC. e-Legislative agenda
• Innovation e.g Should TT use its low energy cost (US$ .03 cents
per kWh) to create a Bitcoin mining competitive advantage?
• Policy/Regulation e.g Consumer protection, Security, MSB vs user