bitcoin and crytpo currencies, presented by fiserv and acfcs

The Rise of GATCAPreparing for the new reality of global tax compliance and account reporting systems

Bitcoin and Crypto Currencies

Money 2.0 or Financial Crime Risk?

ACFCS WebinarAugust 8, 2014

Presented ByMike Urban, Fiserv

Brian KindleExecutive Director

Association of Certified Financial Crime SpecialistsMiami, FL

Certification, News, Guidance, Training, Networking

The Credential That Demonstrates Competency and Skill Across the Financial Crime Spectrum

CFCS Certification

Mike UrbanDirector, Financial Crime Risk Management

Fiserv

Bitcoin and Crypto Currencies – Money 2.0 or Financial Crime Risk?

ACFCS Training - August 8th, 2014

Mike Urban – Director, Financial Crime Risk Management

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Bitcoin Units and Network

• Peer-to-peer payment system introduced as open-source software in 2009 by developer Satoshi Nakamoto

• Payments are recorded in a public ledger (blockchain) using units of account (bitcoins)

• US Treasury calls bitcoin a decentralized virtual currency• Often referred to as a crypto or digital currency• Several others: Dogecoin, Litecoin – aka Altcoins

• Exist in a digital form tied to the alphanumeric string of numbers that represent each unique bitcoin

• Designed so production decreases geometrically over time, with total circulation eventually topping out at 21M

• Roughly 13M in circulation worth $7.8B

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End User Experience

1. Install Wallet application

4. Bitcoins credited / debited

3. Place order through exchange

2. Transfer (real) money to Wallet

5. Spend ‘em or hoard ‘em

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Ecosystem

Wallet application

Exchange

Mobile App

ATM

Merchant checkout

Miners

Debit Card

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Miner 49’er

• Called mining, individuals or companies engaged in exchange for transaction fees and newly created bitcoins

• Bitcoins created to reward miners for payment processing to verify and record payments

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Mining Operations

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Blockchains – Digital Currency 2.0

• The global public ledger is known as the blockchain• Confirms transaction across multiple miners, solves risk of

‘simultaneous’ transactions • “Decentralized trust infrastructure" could provide a means of

exchange for more than digital currency• Stock certificates• Property titles• Smart property• Smart contracts • Programmable money

• Car that turns on only for the holder of a transferable digital token• Contract that executes itself without getting lawyers or debt

collectors involved – Ethereum

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Centralized Transactions

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Decentralized Network using Blockchains

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Smart Contracts

• Ethereum – leverages block chaining to create decentralized contract ‘proof of work’ application

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Opportunities

• Remittance - Transfer value across borders – more quickly, cheaply and easily than through the banking system or traditional money transmitters

• Merchant acceptance – <1% transaction fee paid by purchaser versus 3-5% merchant interchange, no chargebacks and several payment gateways enable acceptance of digital currency and remove volatility risk – Overstock.com, DISH, 35,000 others ….

• VC investment – Lot’s of interest and investment, over $100M publically disclosed, 60% in US

• New set of payment rails! First truly new trust based, open source payment application

• Innovations like multi-signature transactions and cryptographic proof-of-reserves, will consumer protection be best accomplished by regulation or by math

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Bitcoin Price Volatility

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Bitcoin Risks

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Regulatory Environment

• US government has made clear that exchangers of digital currency are subject to know-your-customer and anti-money laundering rules

• Uncertainty about the rules as policymakers grapple with a technology that does not neatly fit into preexisting boxes

• Once US Federal and State governments began scrutinizing exchanges’ compliance and regulatory processes, traditional financial institutions started dropping their bank accounts, citing risk

• The European Banking Authority has warned that bitcoin lacks consumer protections, can be stolen and chargebacks are impossible

• IRS says bitcoin payments >= $600 will be taxed like property transactions - bitcoin payments, investment gains realized, and income derived from mining

• Illegal in China, Vietnam and Russia

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Money 2.0 or Financial Crime Risk?

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Questions

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For More Information

Visit: www.financialcrimerisk.fiserv.com

Email:

fcs-info@fiserv.com