Shadows lurk

Our weekly opinion piece and overview View this email in your browser October 29th, 2017 Shed some light This Halloween you should pay heed To startups and their basic need For bank accounts – it would appear Some can't get one. What do banks fear? (Find out in THE TAKEAWAY below.) TOP TRENDS ON COINDESK Bitcoin Gold Another week, another fork… This time it's bitcoin, which forked (again) on Tuesday. The spin-off – bitcoin gold – aims to improve the technology by making the mining process less resource-intensive. No fork comes without controversy, though, and doubts remain about the distribution process and whether the tokens will eventually be delivered. What's more, shortly after the fork was executed, the bitcoin gold website was down due to a slew of denial-of-service attacks. Although bitcoin gold has not yet been distributed to users, that is not stopping the market from attempting to trade the new token. CoinDesk spoke to market insiders to get their take on its outlook. Money2020 CoinDesk was both onstage and prowling the venue at Money2020 in Vegas, which didn't disappoint in its reach and spectacle, although the tone on blockchain seemed relatively subdued compared to previous editions. Nevertheless, the event saw several intriguing blockchain-related announcements, such as the partnership between Civic and BitGo for KYC wallet services, and the lead participation of Foxconn in the financing round for bitcoin startup Abra. Kosta Peric, representing the Bill and Melinda Gates Foundation, downplayed the potential of public blockchains to broaden financial inclusion. Former regulator Brian Lawsky warned of an official initial coin offering backlash. And the much-anticipated appearance of the founders of Tezos on stage attempted to address their governance issues, but did not produce the candid discussion the audience had hoped for. Stock exchanges The upheaval in asset trading continued, with both new exchanges and traditional market infrastructure exploring blockchain's potential. tØ, the blockchain-based market subsidiary of online retailer Overstock, revealed software that will help curb naked short sales, and announced an upcoming digital token sale. And New York-based startup Templum raised $2.7 million to launch a platform for the trading of blockchain-based tokens. Meanwhile, Russia's National Securities Depository issued its first corporate bond using blockchain technology. And on a Sibos panel, the Hong Kong Stock Exchange outlined plans for a blockchain-powered private market.   See all CoinDesk stories   ⭐ COINDESK SPONSOR ⭐ Jamf Now is a device management solution for the iPad, iPhone and Mac devices at work. We make management tasks simple and affordable, so you can support your users; no IT required. Create your free account! This content is sponsored via Syndicate Ads.   QUOTE OF THE WEEK "Of course it's a bubble. Hopefully it's one in a series of increasingly larger bubbles." – Joe Lubin, co-founder of ethereum, at an event hosted by Quartz and Retro Report   THE TAKEAWAY  Life isn't easy for a startup. As anyone who has tried it knows, it's long hours, low pay, constant stress and a relentless march into the unknown. It's even harder, however, for cryptocurrency startups. Earlier this week, the UK's Financial Conduct Authority published a report highlighting the difficulty that blockchain businesses have in getting basic banking services. Many are met with blanket refusals, some are given limited access and others get banking support yanked without warning. And the problem is not unique to the UK.   This makes it difficult for cryptocurrency businesses to operate, let alone get started. Just try paying for your server space with cash. It also contradicts the UK government's pro-innovation stance. Officials have often stressed how vital fintech development is to the economy, and have expressed an explicit interest in harnessing blockchain technology. What's more, a report issued a couple of years ago by HM Treasury deemed cryptocurrencies a low risk for money laundering and terrorism financing. Even some cryptocurrency businesses accepted into the FCA's sandbox program, which exempts them from full compliance of financial regulations in order to encourage experimentation, cannot bank in the UK. The banks in question are, on the whole, reluctant to comment on this, which leaves the startup community assuming that the financial institutions are afraid of cryptocurrencies. While there may be some truth to that, the main reason is more likely to lie elsewhere. Not so scary By now, most financial institutions have a reasonable idea of what cryptocurrencies are and how they work (there has been no shortage of reporting and conferences on the subject). They see their governments probing deeper, some of their peers experimenting with coin issuance, and they know that many of their customers dabble in digital token investments. Cryptocurrencies are not the misunderstood threat they once were. And it's not as if the marginalized businesses are asking the banks to hold their cryptocurrencies for them (not yet, anyway – that business opportunity will emerge). The businesses want the banks to help them manage their fiat income and payments. It's still hard to pay electricity bills and rent with bitcoin. Furthermore, while banks don't like volatility, fluctuating cryptocurrency prices have a secondary effect at best on a startup's fiat reserves. Reluctance to lend to cryptocurrency businesses is a different matter. It's not unreasonable for banks to be selective in who they lend to, especially given their squeezed margins. But this is a problem for all young startups without a track record, not just blockchain ones. And while a loan or two would be nice, what the startups are most in need of is a bank account from which to make payments. A sharpened knife So what are the banks afraid of? Unclear regulation, and fines. The global regulatory clampdown on financial institutions has taken a heavy toll. Banks have paid over $320 billion in fines since the financial crisis, and with over 200 individual regulatory changes a day, it's understandable that they would rather turn down business than risk crippling charges, or possibly even license revocation. And while a bank may feel comfortable that a blockchain startup satisfies compliance rules today, they have no idea what the rules will be five years from now, and are understandably afraid of attracting retroactive sanctions. It's not so much the rules that are the problem – banks are used to adjusting processes to comply. It's the lack of clarity around the rules, both current and future, that acts as an unnecessary barrier to support. Let them in To address this, some are encouraging the UK government (and others) to insist that the banks provide services for cryptocurrency companies. However, for many, that is skirting too close to government-controlled financial services, which ironically is what most cryptocurrency enthusiasts are philosophically against. Another option – a simpler, less expensive and less invasive one – is to officially declare that it is "ok" to bank cryptocurrency startups, assuming they meet reasonable requirements. This could take the form of a sandbox-style regulation which absolves certain types of accounts from having to comply with the standard rules. Or it could be the creation of a new class of entity, with a specific operating license: a special bank for blockchain-based businesses. This could encourage the birth of a new business model, with fintech startups clamouring to sign up cryptocurrency businesses. The opportunity is significant, given the potential growth in the sector. It could also encourage banks to establish dedicated subsidiaries to attract a new type of client, to whom they could then cross-sell other services. The result would be not only a boost to cryptocurrency and blockchain businesses, giving them a safe transactional base from which to operate. It could also help banking to innovate, fintech to find a new avenue of growth, and both to narrow the chasm between fiat assets and blockchain-based ones. And, as time passes, the financial sector, the consumers and the regulators will come to realize that the boundaries between the fiat and the crypto world are getting fuzzier – which will, in itself, open up new areas of innovation and opportunity. - Noelle MORE BACKGROUND: UK Government Eyes Blockchain Trials in New Digital Strategy Push UK Financial Regulator Vows to Give Blockchain 'Space' to Grow UK Government Awards £248k for Ethereum Prototype UK Finance Watchdog Adds More Blockchain Startups to Regulatory Sandbox Share Tweet Beyond CoinDesk... OTHERS ARE TALKING ABOUT As usual, the mainstream press coverage of blockchain and cryptocurrencies gave us plenty to chew on. The FT mused on the role of credit in the crypto market. Fortune took a closer look at Ripple and showed how blockchain technology can streamline the beverage's supply chain. And Bloomberg took a stab at calculating bitcoin's p/e ratio (spoiler alert: it's high).   The South China Morning Post looked at how blockchain technology is changing one of the world's oldest professions (no, not that one – it's talking about the jewelry business). CNBC took a look at institutional funds' interest in cryptocurrencies and decided that it's not that much after all.  The Next Web reminded us that women are noticeably absent from the cryptocurrency sector. And Visual Capitalist offered a stylish infographic on smart contracts. UPCOMING EVENTS (see more in our full listing) Oct 31 – The Blockchain Summit – London, UK Oct 31-Nov 1 – Blockchain Economic Forum 2017 – New York, NY Nov 1-4 – Ethereum DevCon 3 – Cancun, Mexico Nov 2-3 – Decentralized 2017 – Limassol, Cyprus Nov 5 – Scaling Bitcoin – Stanford, CA   WHAT WE'VE BEEN UP TO So, sniff, this is the last weekly newsletter that I'll be crafting for a while – I'm moving on to do other things. I'm leaving it in the ever-so-capable hands of our Managing Editor, Marc Hochstein, who will no doubt apply his unique style while continuing to offer you insight, summaries and takeaways. It's been a fun journey, and I hope that you like what we've created here. Please continue to send us feedback – we really want this newsletter to be something that you find both useful and entertaining. I'll be sticking around for a bit to help with the handover, so this isn't goodbye. And who knows, you may even catch glimpses of me lurking at the edges further down the line. Take care.   Copyright © 2017 CoinDesk, All rights reserved. You're receiving this email because you subscribed for updates on our website. Our mailing address is: CoinDesk 636 Avenue of the Americas New York City, NY 10011 Add us to your address book Want to change how you receive these emails? You can update your preferences or unsubscribe from this list Received this from a friend? Subscribe here.