We’re seeing regulators all across the world start to step in with cryptocurrencies, which is causing uncertainty in the entire blockchain ecosystem. After all, if cryptocurrencies aren’t seen as legitimate, and many blockchain startups rely on coins and tokens in order to function, then a lot of blockchain startups will run into problems gaining traction.
Here in New Zealand, banks are actively shutting down the bank accounts of our leading exchanges. This week Cryptopia (an exchange also popular overseas) and Token Room had their accounts shut down. NZBCX, another leading Bitcoin exchange, had their bank account shut down in late November. All this means that kiwis wanting to trade cryptocurrencies will have to use an overseas exchange, and there are no guarantees the banks will allow funds to be sent to those exchanges either.
There’s no doubt cryptocurrency – and by extension blockchain projects – need to be legitimised more, because there are a lot of bad actors out there. Especially in the ICO space, but exchanges are also risky too (ref: Bitfinex). So I welcome regulation, in order to weed out the dodgy operators.
As for banks, I think they have a role to play going forward in this market – particularly in keeping consumers safe.
Earlier this week I wrote about Monero, a so-called “privacy coin” which is mainly used on the Dark Web. However Monero is trying to position itself as a legitimate coin for everyday exchange – for example buying merchandise from your favourite band. My post asked what chance Monero has to become a legit currency.
I got a very interesting comment on that post from Peter Fletcher-Dobson, who works for one of New Zealand’s leading banks. Peter is Digital Advisor at Kiwibank, so he doesn’t work in the regulation area. But I’ve interacted with him in the recent past on blockchain and crypto stories, so I know he thinks deeply about these products.
Peter’s first point was that cryptocurrency is currently very risky, in terms of safekeeping your money. “The stuff I’m most worried about losing,” Peter said, “is my private keys, internet banking password, credit card details – stuff that can allow criminals to steal my money.”
It’s true, the main problem with crypto is that if you lose your private keys, or someone hacks into your digital wallet, your money is gone entirely – you won’t get it back. Which is why banks should play a key role going forward.
“When something bad does happen such as a fraudulent payment or theft,” Peter continued, “I want someone to ride to my rescue and make things better. And that generally happens [with banks].”
He concluded:
I, and I think most consumers, will accept a fair trade off of sharing their financial data to ease the burden of financial management and also absolutely for protection. There will always be caveats on how the data is used and who can see it, but sharing it can add value.
So in terms of Monero, Peter thinks its privacy features mean that nobody can protect you should things go wrong. Certainly a bank would not be able to support a currency like Monero, given Anti Money Laundering regulations.
Of course the people behind Monero aren’t interested in dealing with banks anyway – the words “you are your own bank” are front and centre on its homepage. But from a consumer point of view, if you go that route then you’re giving up protection and probably ease of use (once banks figure out how to support cryptocurrencies).
In summary, as we continue to build up the blockchain ecosystem and legitimise cryptocurrencies, the ultimate aim of all this should be to support everyday people – and protect them when necessary. This is the Wild West and in order for it to grow, we do need sheriffs (governments, banks). I know the anarchists and some libertarians may disagree, but I think most of us want safeguards when dealing with money.
What we don’t need is bank crackdowns and lack of communication. So thanks Peter for commenting and opening an unofficial dialogue, with this blockchain blog at least. I hope your colleagues in the regulation era similarly reach out to the cryptocurrency and blockchain community. Let’s work together on this.
I am a New Zealander based in the US. I hold BTC, ETH, and a few other (sigh) alt-coins!
Correct me if I am wrong but are banks not supposed to be there to hold OUR money and facilitate trade for us? Are they now assuming the position of my money conscience as well? (at a fee of course!)
To me, they are trying to stifle the whole cryptocurrency movement as much as possible, and the conspiracy theorists amongst us would say that this is a concerted and worldwide effort on the part of banks and Government. That won’t work.
Crypto is real (in a digital sense!) and can’t be stopped – if not in this form, in the next one. Banks need to get on board and try and be part of the story rather than trying to write it their way. I am afraid (for them) and pleased that those days are gone!
Hi Stephen,
Thanks for commenting. I agree that banks should be there to serve us, not dictate what we spend our money on.
My understanding of the bank/crypto issue, in NZ at least, is that banks want to “identify the senders and recipients of funds, and the source of those funds” (ref: https://www.stuff.co.nz/business/101038176/bank-pulls-support-for-cryptocurrency-platform-cryptopia). So they’ve shut down Cryptopia (and other exchanges) bank a/cs maybe because they can’t tell if there is money laundering happening on those exchanges. Or maybe it’s more to do with Cryptopia and the others needing to provide more documentation etc to show they’re complying with the AML regulations. It’s unclear what precisely is the problem, because so far the banks aren’t telling us.
In any case, I hope banks will get on board soon rather than just impose bans on exchanges.
Richard, you pointed to one of the central issue of the industry that no one has cracked, the management of the private key. I wrote about it here yesterday on Techcrunch, interested to hear your thoughts
https://techcrunch.com/2018/02/01/the-sad-state-of-crypto-custody/
Thanks Ouriel, great post. This part is relevant to what I wrote about here:
“Maybe banks will at some point jump in the space and bring their own solution, although I really don’t see that happening anytime soon. For this to become reality, a new regulation framework needs to be created.”
I expect we’ll see more innovation in digital wallets to make them more user friendly and (hopefully) even more safer. The banks will eventually offer such services themselves, but you’re right there will be a period of regulatory faffing around first.