digital currency, bitcoin and money-over-ip by jeremy allaire and john beccia

8/14/2019 Digital Currency, Bitcoin and Money-over-ip by Jeremy Allaire and John Beccia

1/36

Digital Currency, Bitcoin and Money-ov

Jeremy Allaire, Circle Internet Financial, Founder & CEO

John Beccia, Circle Internet Financial, General Counsel anCompliance Officer


2/36

Agenda

What is Digital Currency and why does it matter?What are the market opportunities for it?

What is Bitcoin, what is its potential, how does it

work, and answers to common questions

What are the legal and regulatory issuessurrounding Bitcoin and digital currency?


3/36

My Background

20-year Internet entrepreneur in software platforms aonline services

Built and led several leading public-company Internesoftware and online service companies (Allaire,Macromedia, Brightcove)

Founded Circle earlier this year, building products anservices on digital currency platforms


4/36

Many attempts since early Internet years

2008: A convergence of trends

- massive global adoption of the internet

- globalization of commerce, communications and c- Social networks and the birth of Global Identity- the birth of the smartphone and global mobile platf- the global financial crisis of 2008 a crisis of trust

What are Digital Currencies and Why Now?


5/36

Crypto-Currency, Math-Based Currency, Digital Cu

All the same but Digital Currency is the right meme

Crypto Roots- Built on the state-of-the-art in cryptography- Strong Libertarian idealism- But globalist in intention- Deep focus on security and privacy


6/36


7/36

Explosion in Digital Currencies

Since 2009, there have been nearly 150 different digital launched, collectively dubbed alt-coins, often based onversions of the Bitcoin open source technology.


8/36

The International Dollar Reserve System, QE and theDilemma

Post-2008, a global crisis of confidence in large bankcentral banks

Global social network platforms and the emergence

global identity

Explosive growth in mobile platforms and broadbandplatforms globally

Why is this happening now?


9/36

What role could Digital Currency play?

Free market innovation and Internet technology disrupt

Radically lowering the cost associated with retail payments anto person (around the world) money transfers

Improving the security and privacy used for payments, reducin

Lowering the cost and complexity of cross-border exchanges

consumers and businesses

Leveraging mobile infrastructure, delivering cost effective anduse financial products to the 2.5B mobile users who are unba

Changing consumers experience of using money


10/36


11/36

Bitcoin: What is it and how does it work?

Bitcoin is a set of open standards and open source pas well as a massive distributed network of computin

for issuing currency, making payments and money trand for the secure storage and accounting of digital

Bitcoin is a P2P technology that does not rely open acentralized server to function, and is built on some o

worlds most reliable cryptographic standards for secverification functions.

Bitcoin is to Money what VOIP is to Telephony and SMail --- Money-over-IP


12/36


13/36


14/36


15/36

P i t bl Offli P Bit i


16/36

Printable, Offline, Paper Bitcoin


17/36

What backs the value of Bitcoin?


18/36

Free-floating exchange with fiat currencies, with value

based on scarcity as well as trade utility

Bitcoin is backed by the real-trade happening withinite.g. the more that Bitcoin is used the more valuablebecomes

Over time, the value of Bitcoin will be backed by thetrade value of the digital economy

What backs the value of Bitcoin?

What is Bitcoin Mining?


19/36

What is Bitcoin Mining?

Incentive system for operating computers that processconfirm transactions as well as secure the network

Miners earn a bounty in newly issued bitcoin if theysuccessfully find and verify a block of transactions

Dramatic evolution in the computing and processing pothe Bitcoin network over the past 12 months


20/36


21/36


22/36


23/36


24/36


25/36

How does Bitcoin technology evolve?
http://blockchain.info/nodes-globe


26/36

How does Bitcoin technology evolve?

Open source and open standards technology projec

Thousands of developers actively working on enhanbug fixes, etc.

Examples: active work happening around scalabilitysecurity, payment requests and receipts, and recurri

payments support

This is similar to how virtually every Internet technolowe use daily has developed and matured

Market Opportunities for Bitcoin


27/36

Market Opportunities for Bitcoin

Reduce the costs of payments and money transfers g

Increase the ease of use of digital payments

Enhance security and privacy of financial transactionsfraud

Radically reduce the cost and friction of cross-border

Create new options for the global un/underbanked

Enable cost-effective micro-transactions and payment


28/36

Recent Events


29/36

5/15/13 Operations of largest Bitcoin exchange Mt. Gox (Japanbased) suspended by U.S. government for failing to register as a M

5/28/13 - NY U.S. Attorney charged Liberty Reserve (a large digitacurrency company) with running a $6 billion money launderingscheme (Dept. of the Treasury also named them as a financialinstitution of primary money laundering concern under Section 311PATRIOT Act)

8/7/13 SEC action against a Texas man for conducting allegedBitcoin Ponzi Scheme through a hedge fund (Federal judge ruled tBitcoin is a currency and declared that related investment funds funder U.S. securities laws)

ece e s

Recent Events


30/36

8/12/13 NY Dept. of Financial Services issued subpoenasagainst Bitcoin firms to further investigate the related risks

10/2/13 - FBI shut down the illicit website Silk Roadand seizmillions of dollars worth of Bitcoin(website founder wascharged with narcotics trafficking conspiracy, computer hackand money laundering)

10/29/13 UK based exchange Coinfloor launches service,bans U.S. customers due to regulatory concerns

What are the US Regulatory Issues for Bitcoin?


31/36

Core issues focused on KYC/AML/OFAC requirementsfor Bitcoin to be trusted and secure

Additional concerns regarding privacy/informationsecurity, consumer protection, taxation and securities

Bitcoin likely to be legal money and be regulated und

all relevant bank and non-bank laws, and taxable inco

g y

Interested Parties


32/36

Federal Banking Regulators and Department of Justice Money laundering concerns, impact of Bitcoin on payment system and central

Consumer Financial Protection Bureau

Jurisdiction over an consumer financial product or service as defined (may appwallets and exchanges)

State Banking Regulators and State Attorneys General Money transmitter and consumer protection concerns

Internal Revenue Service IRS has not issued rules regarding Bitcoin (IRS and FASB guidance needed)

Securities and Exchange Commission and CFTC Question of whether Bitcoin is a security or commodity

Congress Senate Committee on Homeland Security and Government Affairs and Senate

expressed interest in hearings

FinCEN Guidance


33/36

On 3/18/13, FinCEN issued guidance regarding the application MSregulations to virtual currencies

FinCEN defines virtual currency as a medium of exchange that olike a currency in some environments, but does not have all the attreal currency

The guidance addresses only convertible virtual currency, which an equivalent value in real currency or acts as a substitute for real

Users of virtual currency (i.e., individuals) are not MSBs, but excand administrators of virtual currency are considered MSBs

Global Regulatory Considerations


34/36

EU and UK - Bitcoin is currently unregulated See European Central Bank publication on Virtual Currency Sch

(October 2012) no regulation due to lack of widespread use

Germany adopting a progressive and welcoming posture to Bitcoin

China taking a hands-off approach (for now)

Posture unclear in currency-distressed markets (Cyprus, Argentina

Bitcoin has gained popularity in countries that have high inflatdeposits and strict exchange currency controls

Critical to establish International Standards for AML and OFAC

Future potential role for BIS and IMF

g y

Impact of Current Environment On Circle


35/36

FinCEN MSB registration along with money transmitter applicationstates (and various international locations, as needed)

Development of a robust AML and Compliance Program, which incKYC requirements, transaction monitoring and regulatory reporting

Ongoing monitoring of rapidly changing legal and regulatory enviro

Dialogue with key stakeholders (regulators, lawmakers, etc.)

Coordination with industry groups such as the Bitcoin Foundation aAsset Transfer Authority (DATA)

p


36/36

Digital Currency, Bitcoin and

Money-over-IP

Jeremy Allaire, Circle, Founder & CEO

digital currency, bitcoin and money-over-ip by jeremy allaire and john beccia

Documents