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Digital currencies new technology new business model


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Digital currencies new technology new business model

  1. 1. New Technology New Business Models: Digital Currencies Shiva Bissessar, BSc (Hons), MBA, MSc Managing & Technical Director Pinaka Technology Solutions +868 678 5078
  2. 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. 3. “Internet innovation and evolution” (at stake) John Curran, ARIN “Bitcoin is a challenge” Robert Flaim, FBI SSIG 2014 Quotes
  4. 4. Challenge or Solution?
  5. 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. 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. 7. Remittances: Solution for Kenya
  8. 8. What Is It?
  9. 9. =Um63OQz3bjo
  10. 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. 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. 12. Mining The Blockchain
  13. 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. 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. 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. 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
  17. 17. The Innovation
  18. 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. 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. 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. 21. Block Chain Based Businesses
  22. 22. Risk
  23. 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.
  24. 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. 25. Increasing Regulatory Attention
  26. 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. 27. Global Landscape 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. 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. 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. 30. What’s Next?
  31. 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” • “ is the first cryptocurrency forex and commodity trading platform serving the Caribbean region”
  32. 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