Category Archives: Fintech

Banking, Bermuda, Cryptocurrency, Digital Transformation, Disruption, Fintech, Technology

“Do you take credit cards?”

When did you last hear someone say that? If I had to guess, for most people, perhaps 2 or 3 years ago. Perhaps at a cafe, in a taxi?

But it is unbelievably rare now.

Taking Bermuda, where I live, as an example. Bermuda’s oldest bank, The Bank of N.T. Butterfield & Son Limited, announced a little while back that it had to take the unfortunate action of allowing 30 employees to take early retirement, making 11 employees redundant and closing retail banking services (“walk-in’s”) and drive-thru teller services at one of its branches.

Fintech is the overriding catalyst behind the job cuts. “Walk-up and drive-thru ATMs will remain in place” according to the press release, which also emphasized the Bank adopting a “more automated back office environment.”

First, the “tech” part: technology. People still bank using ATMs (a technology which will celebrate its 50th year anniversary this year) but have increasingly moved online. The growth of online banking is leading to the death of [physical] retail banking. People generally don’t use traditional retail banking services, let alone drive-thru banking any more. Those services that might, you know, involve people.

I just haven’t used a bank teller for… I can’t remember how long.

 

And the “Fin” part — a bank is like any company, and although there are examples of socially responsible companies, most simply are firmly focused on one thing: return to shareholders. As painful as it may be for staff, closures of branches and employee cuts are required to make them leaner and more profitable. In order to compete with other banks and financial institutions, their focus has shifted to creating easier, more flexible online banking services for their consumers.

The Debate

There has been a lot of debate over what can or should be done regarding those individuals who have lost their jobs or taken early retirement. One of the frequent questions: “who will be next”?

The initial statement from Bermuda’s Premier Burt: “the Government will increase our efforts to diversify our banking sector as a matter of national priority.” Diversification must in part allude to Bermuda’s development of crypto banking and digital asset businesses.

Both the Island’s new Digital Asset Business Act 2018 and the amendments to The Banks and Deposit Companies Act 1999 (which accommodates crypto banks to form on the Island) will result in the formation of new licensed entities which will have to have a physical presence in Bermuda and should provide some employment opportunities. Crypto banking and digital asset financing will also develop in Bermuda over time.

1_9mFgmLFaq0KKNMtcz6Kj-Q@2xThe Potential

It is up to the companies themselves within financial sectors to adapt to the new technological pressures that a disruptive, Fintech driven environment creates.

New skill sets can be developed. Retooling and transitioning from traditional banking to Fintech technology can happen but it won’t be easy.

Employees within the existing banks and financial institutions may be able to take advantage of the new opportunities to work in Fintech related areas which are new and exciting, so long as there is a willingness to learn and adapt. These companies can try to re-skill their existing employees, or at least give them the opportunity to work in other, more viable areas within the organization itself.

Potential jobs with “cyber”, “tech” or “data” in their titles may be attractive to those for looking for future employment opportunities, particularly in the cybersecurity sector.

Of course, in addition to the pure financial aspects of Fintech, the increase of automation, artificial intelligence and machine learning are also becoming bigger factors. So is the use of chatbots. As machine learning increases in sophistication, human financial advisors are also being replaced by robo-advisors.

 

1_uCqnn2y2q_Sb5wTiBQp47w@2xThe Reality

So what, realistically, can Bermuda’s Government do to help protect jobs in the financial sector?

Bermuda’s digital asset businesses and crypto banking are being encouraged. The amendments to Bermuda’s Insurance Act to attract new Insurtech companies forming is also helpful, as many new Fintech companies, outside of finance, are in the Insurtech sector.

So, “diversification” will occur. Everything can and will be done to speed up that process. From Bermuda’s perspective, being a leader in the digital asset business sector and a creative force in the crypto banking sector will not just create jobs; the hope is that it will make the Island an innovative, global jurisdiction.

But the reality is: when looking at the disruption Fintech may cause at this current time …. it is really just an impossible question to answer in the short term. It is an impossible question to ask anywhere.

We have an uncertain future full of disruption but one also full of technological efficiency, advancement and promise…. advancement and promise for those who are willing to embrace the possibilities which Fintech may bring.

But those within the traditional financial sector will be under the most pressure to adapt because this kind of disruptive change will hurt. It will hurt those entities who are slow to move and regrettably it will hurt a number of people as a result, no matter what.

This is a disruptive digital revolution which you cannot stop. But you can prepare for it.

 

1_R-oh4wA6CnjWF_et9IhkFw@2x

Banking, Bermuda, Blockchain, Cryptocurrency, Digital Transformation, Fintech, Internet, Technology

Bermuda’s Digital Asset Revolution

It’s called The Digital Asset Business Act 2018, which doesn’t really sound that interesting, I suppose.

But, yes, it is.

The Act introduced the concept of digital asset businesses setting up and being regulated in Bermuda. Creating a new regulatory approach, while also one which is very much founded on the Island’s existing, successful (re)insurance industry.

Basically, the Act is trying to achieve what the Island’s Insurance Act did in 1978: the establishment of an entirely new sector of Bermuda’s economy. One which is regulated by the Island’s prime regulator, the Bermuda Monetary Authority.

An industry which over time will become a new “economic pillar” for the Island. A fledgling digital asset industry which may also turn out to be an innovative example for other jurisdictions to follow.

Digital Assets and Digital Business

As a basic summary, digital assets are just assets which are digital. They cannot be used as legal tender; they are meant to be the assets of the person issuing them and they are accessible using virtual ledger technology (i.e. blockchain).

As set out in the Act, “digital asset businesses” will do the following:

  • issue, sell or redeem any kind of digital asset (anyone issuing digital assets or allow customers to redeem their digital assets into cash);
  • be a payment service provider including using digital assets to transfer funds;
  • operate an electronic exchange (Coinbase, Krakken, Bittrex, Binance are examples);
  • provide “custodial wallet services” (basically a service provider where they store and maintain “keys” for controlling your digital assets, which is then kept on servers of third party service companies who can then allow you to send, receive and otherwise monitor your digital assets); and
  • be a digital asset service vendors, i.e. someone carrying digital asset transactions for another person or those who are essentially “market makers” — traders of digital assets.

Licensing

Like insurance companies, digital asset businesses are subject to regulation. From an insurance perspective, the Bermuda Monetary Authority (BMA) will always view policyholder protection as being the most important factor when regulating insurance vehicles.

When it comes to digital asset businesses, they look at consumer protection.

This is a whole new ballgame as we are now dealing with digital assets. An entirely new industry. The BMA, like many other global regulators, issued a warning to the public generally about initial coin offerings (ICOs) and the fact that they are not subject to regulation. Bermuda’s own Initial Coin Offering legislation came into effect in May 2018, requiring ICOs to apply for their offerings to be approved by the Island’s Ministry of Finance.

The Digital Asset Business Act, which came into force in June 2018, is focused entirely on actual digital asset businesses and not ICOs. These businesses which operate in or from within Bermuda absolutely must be regulated.

There are two separate classes of license which the BMA can issue:

  • a Class M license: one which can carry on activities for a defined period. To date, one company, Omega One Bermuda Ltd., has been issued a six month Class M license to act as an exchange and a custodial wallet service provider; and
  • a Class F license: one which can carry on all of the activities as described above. To date, none have been issued such a license.

The BMA has to be cautious. Rightly so. The Act was drafted based on a mix of the Insurance Act provisions as well as existing FATF recommendations. Similar to the Insurance Act, there are head office requirements, broad intervention and disciplinary measures given to the BMA, and also provisions to notify the BMA regarding matters such as license breaches, material changes of business, etc.

The application process is also quite similar. A business plan needs to be filed with the BMA which focuses on how consumers will ultimately be protected — e.g. cyber security details, risk management functions, insolvency mitigation and more than anything else, an overview of how the applicant’s Anti-Money Laundering and Anti-Terrorism Financing policies will be implemented. AML and Know-Your-Customer requirements are absolutely key in this very nascent digital asset business world.

The BMA has drafted a proposed Code of Practice which the regulator will expect digital asset businesses to follow (similar to the Code of Conduct which insurance companies also must meet). The requirements are detailed and include matters such as requiring all digital businesses to have IT security awareness training, monitoring key storage, data sanitation requirements…. the list is lengthy.

In short, Bermuda’s licensing requirements show that it is not moving lightly into the world of digital asset business. Bermuda wants to be at the forefront of a new industry, but it wants to do so in such a way to ensure its reputation remains intact.

Looking Forward

So what next?

Crypto banking. The gates have been opened and the Bermuda Government has also amended the Island’s banking legislation to allow both digital asset businesses as well as digital asset or security token issuers to do business in the Island, with the prospect of potential “crypto friendly” banks to form at some point in the future.

Digitised Banking / E-IDs. Although nothing has been formally implemented, there has been much talk regarding the introduction of a national electronic ID platform or e-ED. It would be hard to imagine that prior to the end of 2019, the Bermuda Government in co-operation with other private industry players does not implement such a service.

Cyber-insurance. Bearing in mind Bermuda being an existing insurance and reinsurance market leader and also taking into account the increasing threats represented by cyber criminals which must be handled by insurers, it feels inevitable that heading further into 2019 Bermuda will be at the forefront leading the way to address these concerns.

Looking Back?

A year and a half ago, in November 2017, the Bermuda Government, the Bermuda Business Development Agency, certain OECD experts and various sectors of Bermuda’s private industry came together, as stated by Premier Burt: to create a “bring new business to the Island, help boost GDP and create meaningful jobs, while helping to prepare our financial system and economy for the future.”

A lot has happened since then, with much more on the horizon. Bermuda appears certainly to be looking forward and not back.

Chris Garrod, April 2019

Banking, Bermuda, Blockchain, Cryptocurrency, Digital Transformation, Fintech, Internet of Things, Technology

The final pieces of Bermuda’s puzzle: crypto banks and digital transformation

pig

(C) CryptoVest

Bermuda’s Banks and Deposit Companies Act was amended in August 2018.

While the amendment legislation is less than three pages long, the amendments should be far-reaching. Its provisions permit the creation and/or licensing of a new category of Bermuda bank to be regulated by the Island’s primary regulator, the Bermuda Monetary Authority (BMA). The new bank’s target customers should be either:

(a) digital asset (token) issuers approved by its Minister of Finance pursuant to the Island’s recent legislative amendments to its companies legislation (commonly referred to as Bermuda’s new “ICO legislation”); or

(b) companies which have been issued a digital asset business license under a new regime created by the Digital Asset Business Act and therefore regulated by the BMA.

Already an established and well known offshore financial center and having recently branded itself as being “Fintech-friendly”, the purpose behind the banking amendments is the creation of crypto banking in Bermuda, allowing Fintech clients to deal with crypto; buying and selling cryptocurrencies, whether using fiat (i.e. real money) or other forms of crypto.

The Crypto Banking Sector

Several onshore financial institutions have embraced the use of distributed ledger technology in order to clear and settle cross border – but fiat – payments using that particular technology (blockchain). But the development of crypto banking has been scarce. On a worldwide basis, there are very few banks, let alone jurisdictions, which are genuinely crypto friendly.

The existing banking situation in Bermuda is no different. In October 2018, Bermuda’s Premier Burt stated that the Island was heading into the Fintech banking sector whether the existing Bermuda local banks “liked it or not”. The ambition was made very clear that this was just the beginning of a long-term project when he stated: “We understand the future we are trying to build.”

Crypto banking requires banks to venture into a nascent, volatile and perhaps, from a security standpoint, risky new territory. Cryptocurrencies have an uncertain edge to them, and banks are, by their very nature, cautious.

Bermuda’s “Fintech-friendly” position

Looking back to early July 2018, while the new “Fintech-friendly” banking legislation was being debated and then approved by the Island’s legislature, the Premier announced that “Bermuda must be nimble or we will be left behind”.

The ICO legislation quickly came into force later that same month, allowing Bermuda vehicles to offer and issue tokens to the public (similar to a company issuing shares in an initial public offering). In addition to a filing requirement with the Registrar of Companies in Bermuda, an offering document related to the offering must be vetted and approved by the Bermuda Minister of Finance prior to the commencement of the offering, but there is otherwise no ongoing regulation.

The Digital Asset Business Act came into effect in September 2018 to allow digital asset platforms, exchanges, digital wallet providers and vendors to operate in Bermuda under the supervision of the BMA. As regulated entities, there is a physical presence requirement, and therefore the Government’s hope is that these businesses will inevitably lead to new jobs being created.

The new crypto banking legislation has only recently been introduced in Bermuda, so it is not surprising that no new crypto banks have yet been approved and licensed. Very few institutions have the resources to create a new Bermuda based bank which meet all of the banking and AML/KYC requirements imposed by the BMA. The same applies to any new applicants wishing to obtain a license under the Digital Asset Business Act. The standards imposed by the Bermuda authorities in order to be regulated are very high.

Bermuda’s Crypto friendly reality

A few statements have been made recently regarding the possibility of a new bank being set up in Bermuda to start accepting crypto and blockchain companies as clients.

From a general Fintech perspective, there is no doubt that the introduction of a crypto banking sector is one of “the final pieces of the puzzle” as described by Bermuda’s Premier last year.

Bermuda has certainly begun the process and it has moved rapidly. The Island’s Government passed three pieces of legislation in 2018 (not including the ‘Insurtech’ changes to its Insurance Act), all dedicated to building a new digital platform its future; a remarkable effort for any jurisdiction.

Resolving the crypto banking sector is a lofty and well overdue worldwide issue, bearing in mind the inevitability of digital assets and cryptocurrencies becoming the norm. Switzerland is a jurisdiction which has also recognized this and is developing a new crypto banking sector (having already a well-established “Crypto Valley” in Zug).

Bermuda appears to have laid a promising foundation for new entities to do business in or from within the Island, creating jobs and digitally educating its young people. The recently formed Bermuda Fintech Business Unit is a good example of where the Island should be heading, not just from a Fintech perspective, but from the perspective of digital transformation in its entirety.

The developed world is now in the midst of a Fourth Industrial Revolution (4iR), one which is changing the way we work and live: disruptive technology and trends such as robotics, artificial intelligence, the Internet of Things (IoT), 3D printing, automation, chatbots, augmented and virtual reality, etc. Most significantly, connectivity – the 4iR is connecting our physical world with an increasingly digital one.

Of course, the inevitability of a new banking sector – what may still loosely be described as “Fintech banks” – is no different.

But when one says “Fintech banks” that shouldn’t be a category of bank which merely accepts crypto payments. “Fintech” is a far broader term. Such banks are ones which have or are embracing technologies such as chatbots, artificial intelligence, IoT, all which ultimately have one thing in common – providing a far better, more efficient customer experience than they are able to provide now. The existing banks in Bermuda are already using or investigating the use of Fintech.

If the Island wants to truly evolve and embrace a digital future, the future of job creation and its youth is not crypto, it is digital transformation and riding the wave of digital disruption. The requirement is to think outside of the box, away from just crypto, and focus on what is happening on a worldwide basis. From a financial perspective, that is a Fintech world which comprises so much more than one tends to think: digital asset issuers, digital asset exchanges, financial institutions utilizing digital platforms and new technologies.

While Bermuda must be nimble moving forward, it must ensure it takes its time to build its digital future. The creation of a crypto banking sector will hinge on the establishment of a broader Fintech sector with clients for those crypto banks to service; ensuring that all of the pieces of the puzzle which the Island is trying to put into place is done so carefully and correctly is going to be essential for the future of its proposed digital transformation.

Chris Garrod, February 2019

Bermuda, Blockchain, Cryptocurrency, Digital Transformation, Fintech

Bermuda and Digital Assets: A busy 2019?

In 2018, the Bermuda Government had a very busy year passing Fintech legislation, paving the way and laying the groundwork for future jobs and digital growth. Essentially, the Island was undergoing the process of digital transformation in the financial sector.

But benefitting from the fruits of all this effort will take time. So what can we expect from Bermuda in 2019?

The Island’s current digital position?

When anticipating potential job growth, that growth was largely driven by the two main pieces of legislation which were introduced last year: the new ICO Regulations and the Digital Asset Business Act 2018 (“DABA”). They are completely different from each other and it can be easy to confuse the two.

Amendments to existing legislation to permit ICO’s and the ICO Regulations (“ICO Regulations”)

The ICO legislation was passed in July 2018 to allow Bermuda companies, whether local or exempted, to issue “digital assets” (e.g. digital tokens or coins) to the public. The requirements are fairly simple: incorporate or establish a company, fill out an ICO application form, draft an offering document setting out details of the offering for the public, and file those documents with the Bermuda Ministry of Finance and Registrar of Companies for review and approval. If approved, the Minister of Finance will grant his or her consent for the ICO to be conducted as a ‘restricted business activity’ and the ICO can then commence.

There are no requirements for vehicles which fall within the ICO Regulations to have any physical presence on the Island, or to hire Bermudians. ICO issuers are not subject to the same level of regulation by the Bermuda Monetary Authority as licensed insurance companies or investment businesses are subject to.

Some ICO vehicles may very well wish to establish a physical presence on the Island for various reasons, though for the most part, the majority will simply conduct their offerings outside of Bermuda using their Bermuda exempted vehicle.

Only one company — in October 2018 — has received an ICO approval to date. The slower than hoped-for take up of this product is down to the current poor market conditions and some inefficiencies and time lag in the approval process. To the extent market conditions improve and Bermuda can do its part to improve the efficiency of the approval process and speed to market, it should hopefully see increasing demand for this product.

The DABA

As soon as someone mentions the words “Bermuda”, “Blockchain” and “Fintech” one gets the immediate feedback: “Where are the jobs?”

The DABA requires digital asset businesses to have a physical presence and they are subject to regulation by the Bermuda Monetary Authority. Jobs will certainly be created on the Island as a result of the DABA. For instance, staffing projections must be outlined in any proposal made to the Authority for a licence. A licence cannot be issued unless staff and certain senior representatives are employed on Island.

Yes, of course, it will take time — I’d estimate roughly 5 years before any form of “economic pillar” is close to being built. By the end of 2019, I’d be very surprised if more than 2 or 3 of these vehicles were licenced and formed as fully fledged DABA licenced companies.

As Bermuda’s Minister Caines recently acknowledged: “As much as everybody wants this to happen overnight, it’s not going to happen overnight.” Some potential clients are at the preliminary stages of their due diligence on Bermuda and a few have started with the step of forming a holding company with plans to incorporate subsidiary operating companies in the future to apply for a licence under the DABA.

But to date, no company has received a DABA licence.

E-Identification

One thing which may be rolled out in 2019 as part of Bermuda’s continuing digital transformation movement is the introduction of Blockchain-based electronic identification technology (“E-ID”). The E-ID system was announced by Bermuda’s Premier Burt in October 2018 and is hoped to be introduced in the first quarter of 2019. E-ID’s are an extremely effective use of Blockchain technology with the most sophisticated already being implemented in jurisdictions like Estonia.

If Bermuda was able to follow the Estonian model it could eventually include innovations such as internet-voting (also used in other European nations such as Denmark). That would be quite a movement forward. Focus on cyber-security will be key in implementing such a system.

Other Predictions

One easy prediction: nothing will be totally clear. Potential Fintech customers often don’t know what they want. Some are not sure which jurisdiction they want to use. Some don’t know if they will even get to the stage of issuing tokens to the public, or becoming a digital asset exchange or platform. Others are looking at issuing tokens which clearly will not meet Bermuda’s high AML/KYC standards.

No matter what, the new Bermuda “economic pillar” depends on take up by quality clients of formations both under the ICO Regulations and under the DABA.

Although ICO issuers may not create jobs for Bermudians, they will bring investment into Bermuda’s economy, and the Island will need to cement that reputation in order for it to be seen as a jurisdiction proven to be ICO capable and business friendly, with high standards in place.

On the DABA front, the actual tech and other jobs should be created and provide opportunities over time for Bermudians to be educated and trained in the field of digital transformation. DABA applicants need to be of a very high standard, serious and experienced, as the regulatory environment for those vehicles is a strict one. The Authority recently released a Code of Practice which sets out those stringent standards.

The creation of new companies and jobs will indeed not happen overnight.

But the interest is there. As Minister Caines declared, there is a “buzz around Bermuda.”

If carried out successfully, there will be a favourable impact on Bermuda’s economy and perhaps a new pillar to Bermuda’s economy will be formed as a result. But patience is key.

Bermuda, Blockchain, Cryptocurrency, Digital Transformation, Fintech

Bermuda and Digital Assets – A busy 2018

The beginning

Looking at it from a Fintech perspective, 2018 was both a formative and busy year for Bermuda.

It primarily started back in January, 2018. The Premier and his Minister, Wayne Caines, along with representatives from the Bermuda Business Development Agency attended the annual World Economic Forum AGM in Davos, Switzerland. Two Blockchain working groups already had been formed in November, 2017 to encourage a distributed ledger technology industry to be created on the Island. But while at Davos, it became clear that the notion of Bermuda becoming a true “Blockchain hub” had spread based on the interest targeted towards the Island from the attendees.

So very quickly, in February, meetings were convened.

The Premier’s mandate to the attendees of those meetings was to ensure Blockchain legislation was drafted which would put Bermuda on the map in the growing worldwide Fintech space. OECD advisors and Blockchain experts were imported from Davos, and private industry experts, regulators, the Bermuda Government and various service providers all worked together as one collaborative group. Discussions were held, presentations given and whiteboards utilised to their fullest extent. How did other jurisdictions treat token or coin offerings? What were the distinctions between utility tokens, equity tokens, security tokens and digital tokens? What challenges did Bermuda face? How could we make Bermuda a better place for companies to conduct their token offerings instead of competing jurisdictions such as Malta, Gibraltar, Switzerland, Singapore, etc.?

The legislation

At great speed, in approximately a month or so, the Companies and Limited Company (Initial Coin Offering) Amendment Act 2018 was created as a draft, which was soon followed by the Companies (Initial Coin Offering Regulations) 2018, which contained all of the requirements to be a Bermuda ICO or token issuer. Bermuda stood out because unlike other jurisdictions, ICO or token offerings required to be vetted by an independent Fintech Advisory Committee and a new Fintech Business Unit which formed part of the Registrar of Companies.

Conferences were attended, panels given, press releases issued. And of course the legislation and regulations were passed and became effective, eventually in July 2018.

While that was occurring the Digital Asset Business Act 2018 (“DABA”) was drafted, along with its minimum criteria for licencing, for regulated vehicles wanting to do more than just issue digital assets or tokens: electronic exchanges, platforms, digital wallet providers and vendors. Companies would be required to have a presence in Bermuda and be subject to regulation by the Bermuda Monetary Authority. The legislation not surprisingly reflected many parts of the provisions of the Insurance Act 1978: well known, tried and tested.

MOUs were signed based on the new DABA. Because of the physical presence requirement, it was natural to for the Bermuda Government to promise that jobs would be created as a result of it. The legislation was passed in September 2018.

The Insurance Act was also amended to introduce the notion of innovative insurers and intermediaries to form on the Island. A “sandbox” approach was created to promote Insurtech vehicles to test their technology, such as automation, artificial intelligence, big data or cloud computing, in a less regulated basis but more controlled environment, under the close supervision of the Bermuda Monetary Authority.

And finally, the Banks and Deposit Companies Amendment Act 2018 was passed in the late summer of 2018 to encourage banking or financial institutions to form on the Island in order to service companies carrying on token offerings or digital asset business.

In summary in 2018, the Bermuda Government passed legislation to:

· encourage token issuers to form on the Island to conduct public coin or token offerings;

· allow licensed digital asset exchanges and other digital asset vehicles to set up on the Island with a physical presence;

· attract new Insurtech vehicles to come to the Island to test their technology; and

· permit new Fintech-friendly banks to eventually set up with a presence on the Island.

It has been a very busy time for Bermuda and there is absolutely no doubt that its Government has been successful at promising its goal for the Island to become a Fintech and Blockchain hub.

A long term project

It is a formative project.

The Bermuda Government has started a process which is going to take time. Mistakes are going to be made along the way, but there is no jurisdiction which is attempting to grow in the digital transformation arena which you can point to and say they are perfect.

It is going to take time and effort. Jobs are not going to be created immediately. The seeds of digital growth and education have just been planted.

You cannot just criticise the Fintech push and the embracing of digital assets or cryptocurrency on the basis that so may ICO’s fail or many might be “scams”. The legislation which has been introduced over the last year reflect more of a digital revolution, the acceptance of Blockchain and of innovation. Cryptocurrency and digital assets are already here and more are coming: whether you like it or not.

The Fintech door has now been opened, and Bermuda has established itself as being very much welcome to let new, cutting edge digital business in. So at the very least, perhaps be cautious, yes, but let it in.

Blockchain, Cryptocurrency, Digital Transformation, Fintech, Technology

Cryptocurrency: stop cringing

Yes, cryptocurrency is part of a digital revolution. Accept it.

“Do you accept crypto?”

I work in the services industry and it was an email from a client. I immediately responded “no, sorry” as I knew my firm didn’t. But we perhaps should. Or start thinking whether we should.

It won’t be very long before the words “DO YOU ACCEPT CRYPTO?” will be so common place, they will be as common as, “Do you take credit cards?”

There are the statements from others: These are speculative investments. Cryptocurrency is dangerous and one should beware of snake oil sales salesmen when buying it. They offer significant risk of loss. Most initial coin offerings fail. It is all one big pyramid scheme and a scam.

Speculation

The chart below. The Dow Jones over the past 10 years. The Lehman Brothers scandal and the markets going into a free fall in 2008. A gradual rise over the years with various hiccups along the way since.

From MacroTrends.com

And then there is Bitcoin, the very first blockchain platform. A virtual currency which was only created in 2008 and only started trading in earnest in 2017. It is so nascent, no one can really predict or state with certainty that it is “speculative.” In fact, the crash it experienced in late 2017/early 2018 was in many ways mirrored by the stock markets.

From Bitcoincharts.com

Tulips?

There was a tulip bubble in the Netherlands in the 1630’s which is constantly used as an example of Bitcoin. Jamie Dimon of JP Morgan stating that “Bitcoin is worse than tulip bulbs”. Warren Buffet likening Bitcoin to “rat poison”.

The tulip was a new flower to Europe at the time and due to the fairly small supply being produced by the Dutch Republic at the time, the demand in the tulips led to “surge pricing” — similar to the pricing you may experience when trying to get an Uber and the traffic is busy. Basically, the price of tulips sky rocketed for a period of time. That led to people at the time investing in tulip bulbs, believing they would remain the next “big thing” across Europe. It created an investment bubble which then burst in early 1637. People lost money as a result.

Volatility

Yes, cryptocurrency is volatile. It is a new, digital virtual currency, and if you buy it, whether it is Bitcoin, some other coin or a digital token, you need to know what you are buying and the risk behind it.

Buying fiat — stocks — is also dangerous. It is subject to crashes, to ups and downs in the market, just as crypto is.

Failure

Why do more ICO’s seem to fail as reported everywhere under the sun?

This is brand new technology. People are buying it because of the hype behind it. It is cool, techie, and sexy. Millennials love it… apparently. But people also don’t understand what they are buying. And it is incredibly new. There are so many experimental ICO’s or digital token raises currently in progress, as start ups attempt to raise capital to fund their businesses. It goes without saying, the number of failures in this space is going to be high, simply because there are so many ICO’s. If in February 2018, a study by news.bitcoin.com reported that 46 per cent of ICO’s failed in 2017 despite raising over $104 million, then that is not surprising. That figure is going to increase in 2018.

But according to a PwC report, between January and May of 2018, ICO volume is twice as much as it was during the entire year of 2017. According to PwC, between January and May of 2018, ICO volume is twice as much as it was during the entire year of 2017. $6.3 Billion was raised from ICOs in 2017. By June of 2017, $13.7 had been raised. The increase is staggering.

A Pyramid Scheme?

And finally, I am tired of people likening crypto to some kind of “pyramid scheme”.

Per Wikipedia: “A pyramid scheme (commonly known as pyramid scams) is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products or services. As recruiting multiplies, recruiting becomes quickly impossible, and most members are unable to profit; as such, pyramid schemes are unsustainable and often illegal.”

To try to draw someone into the illusion that crypto is a pyramid scheme is also an illusion. Digital token issuers are raising capital to fund businesses. People who are buying Bitcoin or Ripple are investing in an something which has risk. Whenever you buy any form of investment, it has risk. The fact that ICO’s fail, some have been the subject of fraud (which fiat is also subject to), is something which people have to accept: Bitcoin, the very first cryptocurrency, has only been in existence for 9 years. Ripple, Dash, Ethereum following Bitcoin and others within a far less time span.

Are there dangers? Yes. But this isn’t a Californian gold rush. Digital transformation is turning its world on its head and the acceptance of digital currency over time will …. take time, albeit what appears to be at an increasingly rapid pace. A rush? No. Tulips? No. Dangerous and therefore speculative? Possibly, if you are naïve and invest in something you don’t take the time to research.

So is hitching a ride on the crypto bandwagon worth it? Yes, because we are at the beginning of a digital revolution, of innovation, the rise of blockchain. So long as you are willing to accept and understand the risks involved, prepare yourself for what could be an amazing ride.

[Author note: this piece was updated in June 2019]