Cryptocurrency Adoption: Recent Examples and a Common Thread

There’s a common thread running through recent examples of cryptocurrency adoption:

The growing awareness that every participant in the marketplace needs to know what’s going on behind the cryptocurrency transactions involved.

That’s a very healthy trend.

Because while it’s exciting to see the rapidly growing adoption of cryptocurrencies across so many markets, cryptocurrencies will only be sustainable and helpful if the marketplace is safe.

That’s why we not only work with the financial sector, regulators and the retail sector, but also with law enforcement investigators to bring security and accountability to cryptocurrency across all sectors.

The following examples provide a small sample of the significant inroads cryptocurrencies are making to different markets, and our thoughts on some of the implications and needs involved.

Financial Sector: Comments & Examples

The following examples of adoption involve the movement of cryptocurrencies between different parties.

As the adoption of cryptocurrencies continues to grow, so will the financial sector’s need to demonstrate that the cryptocurrency funds involved in transactions did not originate from illicit, immoral or unethical sources.

In turn, the financial sector will need tools, such as those BIG offers, to support cryptocurrency AML (Anti-Money Laundering), CTF (Counter Terrorist Financing), KYC (Know Your Customer) and OFAC efforts toward meeting traditional and anticipated regulatory and compliance requirements.

In more severe investigations where case files will be provided to law enforcement, financial institutions will also need assistance, such as is provided through BIG’s Forensic Services Division.

Cryptocurrency adoption examples:

• CEO Adena Friedman recently stated that the Nasdaq stock market would consider becoming a platform for trading cryptocurrencies over time, given the introduction of greater regulation. Nasdaq is providing its stock market technology to power the upcoming cryptocurrency exchange, DX, a one-stop-shop for wallet services, holding coins, and exchanging fiat and cryptocurrencies, with support for leading cryptocurrencies including bitcoin, Bitcoin Cash, Ethereum and Litecoin.

• Goldman Sachs recently announced they are proceeding with plans to create what would be the first bitcoin trading operation at a Wall Street bank. The plans include the bank using its own money to trade with clients in a variety of contracts linked to the price of bitcoin. The bank is also looking to secure regulatory approval from the Federal Reserve and New York authorities to trade actual bitcoin coins.

• Major banks face potential competition from cryptocurrencies. In a recent regulatory filing, the Bank of America stated their clients may choose to conduct business with market participants that engage in cryptocurrency-related offerings, and that such increased competition may negatively affect the bank’s earnings or affect their clients’ willingness to do business with the bank. One example of such competition from the cryptocurrency marketplace is new payment systems such as BitPay, Coinbase, GoCoin, CoinPayments, Coinsbank and GoByte. These platforms offer solutions for storing, paying or managing cryptocurrency, making them comparable to a cryptocurrency version of Visa, but with transaction fees three times lower than Visa’s 3%, or, in some cases, with no transaction fees at all.

• The Argentinian Bank, Banco Masventas, recently became the first financial establishment to allow customers to make cross-border payments using bitcoin on the Bitcoin network. The bank introduced the new program to enable international transfers to as many as 50 countries, with payments that can be processed in 24 hours or less, and with reduced costs due to there being no international banks serving as intermediaries. The bank’s strategic implementation partner, Bitex, provides the platform for payments and collections operations. Bitex will enforce compliance rules, including know your client (KYC) measures, and has contracted the major accounting and audit firm, Deloitte, to review and report on procedures, operations and balance funds.

• BTCC, founded in 2011, was formerly the world’s oldest bitcoin exchange. In 2017, it closed under pressure from the Chinese government. BTCC changed its focus to making cryptocurrencies accessible to everyone globally through its international pool, wallet and exchange markets. It was recently acquired by a Hong Kong-based blockchain investment firm, giving BTCC the resources needed to focus on its goal of secure and stable global cryptocurrency adoption.

Regulators & Regulatory Space: Comments & Examples

The following examples of adoption involve:

• the investigation of illicit activities involving cryptocurrencies
• the development of new and future cryptocurrency policies and regulations
• the use of cryptocurrencies to avoid fiat-based challenges

As the adoption of cryptocurrencies continues to grow, so will the need for regulators to identify nefarious actors and track their cryptocurrency activities.

Regulators will also need the ability to vet entities that are compliant with regulations, as in the case of cryptocurrency exchanges applying to be granted licenses.

In turn, regulators will need tools, such as BIG’s BitRank Verified™ and QLUE™ offerings, to support data-driven cryptocurrency AML (Anti-Money Laundering), CTF (Counter Terrorist Financing) and OFAC efforts.

Regulators will also need help from experienced investigators, such as BIG’s Forensic Services Division, to understand what is going on behind cryptocurrency transactions in order to anticipate criminal trends rather than solely responding to illicit activities in the cryptocurrency space.

Cryptocurrency adoption examples:

• US and Canadian securities regulators from across 40 jurisdictions recently opened investigations into potentially fraudulent cryptocurrency investment programs, making it the largest coordinated operation of its kind by state and provincial officials. The operation is specifically focused on suspicious cases of initial coin offerings (ICOs). Regulators have reportedly issued warnings to as many as 35 companies regarding securities law violations, with some cases resulting in cease-and-desist actions.
  

• The US Justice Department recently demonstrated a significantly increased intention to scrutinize activities within the cryptocurrency trading market by launching a criminal probe into whether traders are manipulating the price of cryptocurrencies, including bitcoin and Ether. The probe is being conducted in cooperation with the financial regulator CFTC (Commodity Futures Trading Commission). Cryptocurrency trading has proven susceptible to fraudulent activities due to several factors: a lack of regulations like those that govern stocks and other assets; trading is fragmented across dozens of platforms worldwide; many of the trading platforms are not registered with the CFTC or the Securities and Exchange Commission (SEC); likelihood that not all exchanges are actively taking measures to root out fraudulent activity. In response, some cryptocurrency exchanges are advocating self-regulation to prevent the industry’s growth from being threatened due to investors concluding that trading platforms are not engaging in risk oversight while creating a buyer-beware marketplace.

• Cryptocurrency exchanges, companies and communities have recently started the trend of creating cryptocurrency associations for the purposes of self-regulation and lobbying government regarding the development of policies and regulations. Examples include: the Crypto Valley Association created in Zug, Switzerland, where BIG has an office, and which includes members and association partners such as Thomson Reuters and KPMG; in Washington, D.C., both CoinCenter and the Chamber of Digital Commerce work to educate policymakers about cryptocurrencies and to advocate blockchain solutions; the Canada-based Blockchain Research Institute was created to research the impact of blockchain technology on business, government and society, and is financed by members from organizations such as IBM, Microsoft and Deloitte; CryptoUK is a self-regulatory trade association created to promote higher standards of conduct and to lobby the U.K. government; other cryptocurrency associations include the Russian Association of Cryptocurrency and Blockchain (RACIB), Bitcoin Association Switzerland, and Singapore-based ACCESS.

• Belarus, in an effort to become a global IT hub, recently legalized cryptocurrency-related business activities, including cryptocurrency exchange services, initial coin offerings (ICOs), mining operations and smart contracts. In addition to the country creating related tax breaks and other incentives, the central bank of Belarus implemented new rules for banks and other financial institutions to improve cybersecurity and measures related to Anti-Money Laundering (AML) and Counter Terrorist Financing (CTF).

• Venezuela’s government recently announced its own oil-backed, state-sanctioned “Petro” cryptocurrency in an effort to overcome that country’s weak economy resulting from international sanctions, and is now offering discounts to other nations that buy Venezuela’s oil in Petro coins. Other countries working on developing native cryptocurrencies to bypass economic sanctions include Iran, Crimea and Russia with its CryptoRuble.

Retailers/Consumers: Comments & Examples

The following examples of adoption involve:

• consumer attitudes becoming increasingly receptive to cryptocurrencies
• the acceptance of cryptocurrencies for payment
• the exploration of new forms of cryptocurrencies and their applications

As the adoption of cryptocurrencies continues to grow, retailers wanting to protect their brand image will be under increasing pressure from consumers to demonstrate that the cryptocurrency funds involved in transactions didn’t originate from illicit, immoral or unethical sources.

In turn, retailers will need tools, such as BIG’s cryptocurrency transaction risk-scoring BitRank Verified™ service, to support data-driven cryptocurrency validation efforts.

Cryptocurrency adoption examples:

• Millennials, the world’s largest demographic, with $200 billion in discretionary income, tend to embrace cryptocurrencies as a model aligned with their values and perspectives, which include wariness toward institutionalized corruption. By way of example, younger investors consider initial coin offerings (ICOs) to be a more accessible, democratic model for investment in new ideas or to launch their own initiatives, without being required to jump through the hoops of the established investment model.

• A recent survey found that 51.7% of Amazon shoppers welcomed the idea of an Amazon-created cryptocurrency for purchases on Amazon.com. Amazon Prime users showed 58.27% support for the idea, while around 22% were not in favor and 26.4% were “unsure”.

• Amazon recently purchased the cryptocurrency-related domains amazonethereum.com, amazoncryptocurrency.com and amazoncryptocurrencies.com. The company purchased the amazonbitcoin.com domain three years ago. In 2013, Amazon introduced Amazon Coins, which are earned when consumers purchase selected apps and in-app items, and can be used to purchase apps, games and digital in-app items from a consumer’s device and from the Appstore on the Amazon website. While Amazon refers to Amazon Coins as a virtual currency, they operate like other digital loyalty programs.

• Cryptocurrency payment gateway, CoinGate, recently announced plans to use the Lightning Network to enable its 4,000+ merchants worldwide to instantaneously accept Bitcoin Lightning Network payments at reduced transaction fees.

• Russian IT leader, Mail.Ru Group, recently enabled advertisers and the owners of advertising sites to pay and be paid with the cryptocurrencies bitcoin and Bitcoin Cash through BitPay. Similar payments can also be made on Odnoklassniki, one of the oldest social networks in Eastern Europe, and on Vkontakte, “The Russian Facebook,” which together represent over half a billion users.

• Facebook CEO, Mark Zuckerberg, recently stated his “personal challenge” for 2018 was to explore the benefits of cryptocurrency and blockchain technology. Shortly thereafter, a management reshuffle included the formation of an exploratory blockchain group to develop blockchain technology at Facebook, resulting in industry speculation over whether the social media giant is planning to create its own cryptocurrency.

• Using blockchain technology to tokenize consumer behavior is becoming more common. Recently, GATCOIN announced their platform for retailers to create and manage their own digital tokens to benefit from branded loyalty and incentive programs. The token-based cryptocurrency solution will include technology that enables merchants to target consumers using mobile devices, including features such as issuing tokens when a consumer is in proximity to a merchant’s location. The merchant-specific tokens will be redeemable for GATCOIN, cryptocurrencies, or traditional cash on the GATCOIN Exchange.

While the examples above vary from sector to sector, the tools and services that can bring security and accountability to the marketplace are the same, whether for law enforcement, the financial sector, regulators or the retail sector.

Learn more here.