In January 2016, major banks and technology companies began publicly experimenting with ways in which blockchain related technologies could revolutionize the way they do business. Instead of overthrowing the status quo, as Bitcoiners famously would like, the nascent blockchain industry wants to make the work of government and corporations more efficient.
Whereas Bitcoin was initially comprised largely of anarcho-capitalists and other anti-establishment individuals, those individuals and organizations increasingly championing the blockchain today are those oft associated with “the establishment” itself.
Early Bitcoin proponents often engaged highfalutin’ rhetoric about how Bitcoin would bring about a collapse of the modern financial system and the nation-state governments which maintained them, draining governments of tax revenue and banks of wire transfer fees.
Blockchain participants are much less interested in undermining existing power structures, and more interested in fine-tuning them.
Chris Kitze, CEO at Safe Cash Payment Technologies, believes he’s simply being realistic by investigating how blockchain technologies can help regulators and the legacy financial industry. He doesn’t believe Bitcoin is even legal.
“While Bitcoin is an amazingly cool technology, it’s probably not a legal model because there is no KYC and AML,” he said at a recent Blockchain Conference on March 7 in San Francisco.
KYC and AML refer to “know your customer” and “anti-money laundering,” respectively. It’s a requirement for banks or financial institutions who move money. If you’re a Money Services Business (MSB) or a Money Transmitter (MT), you have certain legal requirements to identify the person with whom you deal in business.
What’s generally required is a government issued identification, proof of address such as a power bill, social security, mother’s maiden name, and sometimes other information – steps bitcoiners routinely mock. In the US, the requirements are similar to the European Union’s. Financial transactions must even be reported to government agencies in some instances.
“It’s been implemented all around the world,” Kitze said of the requirements. “KYC is about to start being used for a lot of other things; for example, if you want strong encryptions, you’ll need KYC, that’s what we’re thinking.” The Safe Cash CEO imparted the story of one of his clients looking into adopting the blockchain.
“A small mid-sized bank was talking to us about implementing blockchain,” he imparted. “The reason they’re going to use to justify it is they’re going to save on KYC. They’re gonna automate the KYC process. KYC is gonna go on the blockchain because it makes things very simple for consumers. You need to have that.”
Former Mechanics Bank CEO Christa Steele, Boardroom Consulting LLC, Founder & Managing Member, sees uses in the criminal system for blockchain technology.
“Why don’t we just overhaul the whole criminal justice system?” she rhetorically asked the audience at the Blockchain Conference. She told a personal use-case about her husband, a member of law enforcement.
“So he goes pulls to someone over right now and they have a felony, there’s no way to figure out what type of felony,” she lamented. “I’d want to know that if I pull someone over. He pulls someone over there’s no way, so they have to check into five or six different systems to access the information. What if we were to tie all that information together? What would the worth in the scheme of things? Because then you [must] incorporate the whole criminal justice system as far as prosecution, going to jail and a whole slew of steps along the way.”
John Wolpert, who is the product lead on IBM’s efforts in blockchain technology, shares the vision of consolidating the way things are in real life on the blockchain.
“Compliance is a big issue we talk about on our team,” he said. “A lot of people talk about regulation of blockchain. Most of the time they’re really thinking about [the regulation of something in banking we’re building on the blockchain].” Like Kitze and Steele, Wolpert believes blockchain technology could revolutionize regulations.
“You can instrument Dodd Frank on the blockchain,” IBM’s Global Blockchain Offering Director says. “[And] you could instrument the tax code. I would love to never have to file taxes, any transaction is just ‘hashtag taxes,’ and it just [automates the process], and all the rules get written to the chain.” Wolpert mentioned if he had to be anywhere other than San Francisco, he’d choose Washington, D.C.
“Not to convince regulators to regulate nicely about banking, but, rather, because I think blockchain is going to be a regulator’s dream.”
Featured image from Shutterstock.
Last modified: May 21, 2020 10:29 AM UTC