By Guest Contributor
Strategic Coin offers thought leaders an opportunity to get recognized for their views and expertise in this game changing marketplace. The following article combines the latest observation’s from Caitlin Long‘s posts. It starts off by highlighting a couple takeaways froma larger post an exclusive event. It concludes with areas she believes the blockchain sector needs to see more action.
Caitlin was most recently the chairperson and president of the smart contracts company Symbiont. She is a 22-year Wall Street veteran. Inc. recognized her as one of 10 business leaders changing the world through technology in 2016.
Regulation and Auditing Discussed at Satoshi Roundtable
The Satoshi Roundtable is a small event attended by the top developers and executives in the bitcoin and crypto community. This year there was discussion about forming a FINRA-like self regulatory organization for the sector. There was also a sense that regulation is coming. There was lots of debate about how to respond to it and how much it will drive the sector out of the US. The biggest uncertainty remains around how to define custody, especially due to multi-sig and other technologies that don’t fit into an existing box.
The subject of auditors also came up. There are a number of crypto unicorns now, and they’re maturing so starting to look for auditors. Consensus was that every audit firm is flailing because they don’t understand the tech. One audit firm will figure it out, break out and dominate the audit field for the sector. On a related point, there was a “show trial” of Bitfinex/Tether, as Tether had an issue due to auditor resignation. It was so clear to me that ALL AUDITORS are struggling with the sector, not just Tether’s auditor.
Auditability means the owner of the coin, such as an exchange or investment fund, is able to prove to its auditor that it owned the coin at a particular time picked by the auditor during an audit. Not all coins meet this standard. Auditability does NOT mean the coin is not private — means the coin is replayable so an auditor can verify that its client owned the coin at that moment in time.
Takeaway: Auditors, up your game, and projects, make sure your blockchain can be audited. Unauditable coins will wither and die if they cause exchanges and investors to struggle to get an audit opinion. They will drop your coin. When asked if the Tether show-trial made the audience feel better about Tether, more than half of hands went up. Not a single hand went up when asked if the show-trial made anyone feel worse about Tether.
Areas where the blockchain sector needs work in the coming years
- Clarify ownership of securities by restoring property rights to the true owners of securities. The industry is off to a good start, but fixing the issue will take time. This remains my biggest passion in the field. No, capital markets are not fair to savers, especially mutual funds, pensions, insurers and Mom & Pop, because the system of indirect ownership is susceptible to inaccuracies and to mischief by bad actors who have identified holes in the system that enable them to skim value from regular folks (e.g., the Dole Food case). Blockchain is key to solving this problem.
- Free hundreds of billions—maybe trillions?—of capital currently trapped on corporate balance sheets due to payment system latency, which is a deadweight loss on the economy. It makes zero sense for high-cost-of-capital companies to trap their expensive capital in bank accounts as “comfort deposits” waiting for payments to clear. And that’s why we need to…
- Expand the network effects of bitcoin even more than the staggering growth of the past 9 months, to bring down bitcoin’s bid-offer spreads and ensure daily liquidity remains at institutional levels. More companies will dip their toes into using bitcoin as intermediary for cross-currency transactions, without ever touching the bitcoin directly. A lot more education and infrastructure support (especially!) are needed to bring bitcoin into widespread use for corporate payments, but it’s no longer a crazy concept.
- Bring ICOs into regulatory compliance, thereby democratizing the capital formation process. A big lesson from the ICO boom is that regular folks matter to capital formation. Small investors are largely excluded from the securities issuance process, which is clogged and too bureaucratic—especially for small businesses. And why should prepaid software licenses be considered securities, when tradeable gift cards and prepaid cell phone minutes are not? Watch for the states to step in here, and keep a special eye on my native state of Wyoming—where grassroots efforts have gathered support for a bill, which Rep. Tyler Lindholm will introduce during the February legislative session, that would exempt utility tokens from the State’s securities and money transmission laws. Wyoming has zero state income or corporate taxes and strict privacy laws governing LLCs formed there, so passage of this bill would give the blockchain sector a clear, welcoming state regulatory jurisdiction and may cause some of the industry’s businesses to re-domicile there. Hat tip to the Coin Center for its assistance here to the Wyoming Blockchain Coalition, in which I remain highly active.
- Create efficiencies by enabling “coopetitors” to share infrastructure for maintaining a single, immutable copy of the data they share, thereby de-duplicating work and obviating the need for reconciliation. This, at bottom, is the basic value of blockchain for the developed world. And it applies to financial services, health care, supply chain, governments and much more. Enterprise blockchain is slower-moving and less sexy than the cryptoasset part of the sector, and it will take time to meet its transformative potential, but its promise is very real.
- Serve the unbanked, both at home and abroad. Cryptocurrencies have brought valuable financial services to the unbanked abroad, and the undocumented at home, via their mobile phones, many of whom are skipping right over the “old world” concept of a bank account and straight to cryptocurrency wallets, just as emerging countries skipped over landlines to mobile telephony.
- Empower individuals via blockchain property titles and self-sovereign identity. I’m grateful to Medici Ventures for introducing me yesterday to legendary economist Hernando de Soto to learn about his new venture with Overstock, which aims to bring billions of people out of poverty by providing them a means to record titles to their property on a blockchain. During the Medici event, I also heard a cypherpunk motto that fits with the zeitgeist of the community: “Privacy is the ability to selectively reveal oneself to the world.”
- Bring US regulatory-compliant, tax-efficient, 100% reserved or self-custodied vehicles for wealth management and inter-generational wealth transfer to the HODLer market. Stay tuned for developments on this front.
- Reduce—or eliminate—unfair information advantages in capital markets by implementing truly decentralized blockchain. There’s an age-old power struggle between the sell-side and buy-side in securities markets over market structure decisions. The buy-side has generally been takers, not makers, of these decisions. But blockchain will change that. Watch the enterprise blockchain space, where the sell-side will endeavor to cut costs while also maintaining its information advantages by implementing versions that have back-door centralization, but the buy-side will push back and insist on a level playing field that reflects the natural decentralization of financial transactions. This is also a multi-year undertaking, and it’s only just beginning.
Featured image from Pxhere