A UK Crypto-task Force report has found a deep misunderstanding of the industry.

The UK Crypto-task Force has published a ‘unanimously’ agreed report on crypto-assets for its digital currencies inquiry. Its findings demonstrate a deep misunderstanding of the industry. Kate Rhodes, Director of Regulatory Affairs for Coinweb and Industry expert, discusses below.

The UK Crypto-task Force report, unexpectedly released today, demonstrates a deep misunderstanding of both crypto-assets and their underlying blockchain technology, and is extremely damning of this already evolving financial sphere.

The Crypto-task Force recommendation for industry regulation is welcomed by Coinweb, however, at their current level of understanding we would be hugely concerned about the composition of any future regulatory framework unless an enhanced dialogue is developed between industry and Government.

Conclusions from the report include:

• Crypto-asset investors are currently afforded very little protection from risks that investment involves.
  

  Comment: These instruments are not for everyone, and there are many financial services products that are high risk.

• Self-regulating bodies in the crypto-asset industry, which set out codes of conduct and best practice for the industry, are wholly voluntary. Inevitably, there are firms that will ignore them.
  

  Comment: The UK Corporate Governance Code was voluntary until recent reforms. Does this infer that all voluntary codes are ineffective, because there are many of them in the UK? Coinweb welcomes well-thought out regulation that understands the nuances of the industry that it regulates — the contents of this report do not reflect this.

• Government and regulators should evaluate the risks of crypto-assets, and assess whether their growth should be encouraged. If growth is favoured, regulation could lead to positive outcomes for the crypto-asset market, including the move toward a more mature business model and increased liquidity. If the UK develops a proportionate regulatory environment for crypto-assets, the UK could be well placed to become a global centre for this activity.
  

  Comment: Coinweb encourages an outcomes-based and harmonized approach to industry regulation that encourages growth and leads to the best outcomes for consumers, without stifling innovation in the market. We see many positive developments in the space and feel that ICOs attached to strong tech projects are a great way for investors, tech community advocates and customers alike to support solutions they value and want to see in the market.

• Currencies act as a medium of exchange, a store of value, or a unit of account. There are currently no cryptocurrencies that perform these functions. As cryptocurrencies are being used widely for speculation, well-functioning cryptocurrencies exist only as a theoretical concept. Accordingly, this Report uses the term ‘crypto-assets’ as it’s more helpful and meaningful in describing Bitcoin and many other ‘altcoins’.
  

  Comment: Whereas there are merits to this finding, the overall conclusion demonstrates a lack of understanding of crypto-currencies. Many crypto users are running much of their daily lives by means of crypto, paying rents, flights and accommodations in BTC, with both large and small business accepting payments in crypto e.g. Expedia, Bloomberg, Etsy…

• A prominent feature of crypto-assets is the volatility of their prices. For example, the price of a Bitcoin increased from $6,472 in November 2017 to $17,629 in December 2017, and fell to $7,208 in February 2018. Investors are exposed to large potential gains, but correspondingly a greater risk of loss. Accordingly, investors should be prepared to lose all their money.
  

  Comment: Most investments carry some degree of risk however depending on the nature of token (e.g. security or utility) value can either fluctuate or be stable. Just like the effects of inflation or deflation and fiat (government currency). Crypto-assets have created a huge amount of value in the past decade and the overall trend continues up, though just like for any other market, prices can vary. As the market grows and scale increases, it will become even more stable and resilient. In fact, this is a key part of the Coinweb mission: Blockchain technology is already secure, Coinweb makes it usable and compatible and will help make it become mainstream.

• There is no collective deposit insurance scheme to compensate investors in the event of a hack, the risk of hacking associated with crypto-assets may not be something that investors in conventional assets have experience of. Crypto-assets are particularly ill-suited to retail investors.
  

   Comment: Any system can be hacked — look at the recent BA data breach. Blockchain is harder to hack into than equivalent common systems.The biggest security risk today is user error, and hash addressing makes error even more likely. Coinweb’s CNS addresses make it easy to use crypto, and to use it safely.

• An additional risk that consumers may not be aware of is that some customers who have lost their passwords to a crypto-asset platform have been told by the firm that runs their account that their password cannot be restored.
  

  Comment: There are custodial services that handle passwords for users that make security management easier.

• The advertisements of both ICO issuers and crypto-asset exchanges are not regulated by the FCA.
  

  Comment: Many industries in their infancy moved from de-regulated to regulated within a short period of time, for instance, the online gaming industry. As such there were elements of these industries that were not initially regulated. Once the essence of the industry is understood, there is no reason why advertising should not be regulated.

• Crypto-asset exchanges are not currently included in AML regulations.
  

  Comment: We encourage AML regulation of crypto-assets exchanges so they are used more widely. Nothing is easier to launder than cash — it is anonymous, offline, forgeable, and completely fungible. Crypto-assets provide the highest standard of auditability for literally every transaction in the system.

• A fundamental drawback of decentralised blockchains is the slow, costly and energy-intensive verification process for transactions. This may ultimately limit the extent to which crypto-assets and blockchain can replace conventional money and payment systems. But the Committee does recognise that blockchain technology may have the potential to be a more efficient method of managing certain types of data in the long-term.
  

  Comment: This finding shows a fundamental misunderstanding. Currently the energy intensive verification process is constant no matter how many transactions occur. Therefore as the scalability technologies enable a higher number of transactions per seconds this cost will get proportionately lower.

Crypto-assets and Blockchain are undoubtedly a big part of our future. They are an innovation equal to the web itself and have the power to transform and improve many businesses and markets. Coinweb and many other industry players want to help shape that future. As such, we encourage an enhanced dialogue between UK Government and industry in order that the regulation can be put together to improve the best outcomes for all users and operators alike.

The post UK Crypto-task Force findings demonstrate lack of understanding of industry appeared first on AdviserVoice.

The rate of change is rapid and the public needs better products to navigate the next wave of transacting.

The world is split in two – between those who are passionate advocates of cryptocurrency and those who are equally strongly opposed.

The former base their belief on ease of use, flexibility and transparency. The latter say it’s dangerous, precisely because it’s easy to use, flexible and transparent. Go figure.

What the critics mean is there is no underlying regulation, and is therefore inherently risky. Lose money from your old-fashioned bank account because of fraud, and you will get it back. Lose some crypto and nobody will help, no one is underwriting your loss.

Underpinning the dissenters’ argument is the crypto experience to date. Much of that is centred on Bitcoin which has seen its value swing wildly, from up to £15,000 then crashing down to £5,000. It proves the point, they say, that cryptocurrencies are inherently unstable, not to be trusted, and therefore cannot be used for anything and are completely useless.

Until crypto is put on a proper footing that claim is inarguable. But what even many opponents acknowledge is the technology behind crypto, that the blockchain represents a transformation in how people can harness wealth, make transactions and store information. While stories swirl of crypto being the preserve of illicit dealers, established, savvy players are realising the benefits. Already, blockchain technology has used by HSBC to complete a deal on behalf of US agriculture giant, Cargill. Something that normally would take weeks, took just hours.

A recent survey found that 35% of wealthy investors will have some holding in crypto by the end of this year. In the US, one lender has issued $40m in asset-backed loans for investors in cryptocurrencies. They offer “blockchain liquidity without selling” and lend up to 60% of the market value of blockchain assets.

Francisco Hoyos, CEO of analyst Cryptalgo, the total value of world cryptocurrencies will hit $1trn by the end of the year.

Interest is focusing increasingly away from cryptocurrencies and utility tokens to security tokens – a security instrument represented in the same cryptographic form as a Bitcoin that uses the blockchain to make a smart contract.

The blockchain has been in existence for a decade, but it still remains out of the mainstream. Making the blockchain simple to use and crypto transactions easy to perform is the next step, to realise its potential by “unchaining blockchain.” A major step in that direction, in making the blockchain mainstream, comes from Coinweb, a new, heavily backed company with heavyweight credentials among its principals.

Coinweb’s Hyperlayer connects blockchains, the walled blockchain gardens bridged by Coinweb’s agnostic infrastructure layer; it makes trades more seamless and smart contracts more powerful.

Repeating the experience of PCs, internet, Smartphones – all of which went from minority usage with complex codes to ubiquitous, popular platforms that anyone can use.  Blockchain becomes simple to manage, just like the other platforms. And, let us not forget, those companies that popularised the platforms, that brought them to the masses – Microsoft, Apple, Google – grew into the biggest and most valuable corporations in the world.

The DNS (Domain Name System) of the Internet gives us readable names to send email and visit websites. Blockchain needs names too. Just as Paul Mockapetris, founder of DNS, previously created for the Internet, he returns to advise Coinweb to create the same for the blockchain.

Coinweb’s universal and easy-to-use, Coinweb name system, short form CNS, replaces the current system of unreadable wallet (hash) addresses. With CNS, Coinweb are moving blockchain wallets from number style sequences to name spaces; giving real names to wallet addresses and replacing easily forgettable and mistakable, letter and number sequences. Keeping track of 26 to 35 alpha numeric character hashes is made redundant by adopting a Coinweb name

With over 1500 different coins and tokens in circulation, hold 1% and you already have an unmanageable stash of hashes and keys. Coinweb’s innovative Hyperlayer means that for the first time everyone can have a ​single​, easy-to-use multi-currency wallet.

Their multi-wallet allows for easy management of multi-coin portfolios. Combine this with CNS technology and a decentralised exchange for trading popular tokens including BTC, ETH, LTC and user-created tokens, suddenly everyday-ease of crypto transaction becomes inevitable.

Coinweb‘s breakthrough is only tracking what took place in old-fashioned money management, traditional banking. Gradually that too evolved to the position it holds today where digital banking is the norm, and payment by mobile is proving ever more popular. It’s not so long since customers had to visit their banks in person if they wanted to do anything involving their own cash, when cheque books were the norm and ATMs did not exist. Now look.

Crypto is on the same journey towards simplicity but the pace is far quicker. Just one year in crypto is akin to three in Internet…the rate of change is rapid and the public needs better products to navigate the next wave of transacting.

The post Blockchain, unchained appeared first on AdviserVoice.