We're seeing a rapid acceleration of digital payments and digital currencies, or cryptocurrencies, including Bitcoin, due, in part, to the pandemic. So, when Lynne Marlor, Chair of the Boston Blockchain Association and Executive in Residence, Global Blockchain Business Council (GBBC), agreed to speak on blockchain and cryptocurrencies at the January meeting of NEACH's New Role of Operations Work Group, we jumped at the chance.
"Central banks want a piece of this digital world," Marlor observed. "What we learned with COVID is that I'm afraid to take your dollars because they have germs on them, and I might get sick."
Her words hit their mark. On March 9, President Biden signed an Executive Order on Ensuring Responsible Development of Digital Assets, which calls for measures to explore a U.S. Central Bank Digital Currency (CBDC) and policy recommendations to identify and address regulatory gaps. (Watch for future posts diving into the details.)
With cryptocurrencies brought squarely into focus with President Biden's Executive Order, financial institutions are seeking ways to learn more about cryptocurrencies, which makes Marlor's presentation especially timely.
What follows are highlights from the interactive discussion.
Joe Casali, Executive Vice President of NEACH, opened the discussion, asking about recent happenings in the cryptocurrency space.
According to Marlor, top of mind is whether or not we are in a "crypto winter."
"If you follow crypto at all, like Bitcoin, you'll see they've lost half their value in a couple of months," Marlor explained. "So I would say what many traditional investment managers are saying. If you look at someone like Amazon, and you invested $10,000 in the company early on, it would be worth multiple millions today."
Amazon had a similar trajectory. She pointed out that they started in one place, dropped 50 percent of their price, then went back up again, and then dropped another 50 percent.
"The takeaway is we may be in a crypto winter," she concluded, "But it's also going to be a rough year."
There are also a lot of regulations coming down. The crypto buyer, whether they are an institution or an individual, is not protected. Most consumers don't realize that not all Internet banks follow the same rules and regulations as traditional banks. For example, if you send Joe $1,000 and he's going to put that in an exchange and buy a percent of Bitcoin on your behalf, and he doesn't do that or makes a mistake, you have no recourse. It's the finality of payments.
"All I'm going to say is buyer beware," Marlor said. "Even with some of the exchanges…they may be a legal structure or a money service or transmitter business, but they are not a bank. That means they are not FDIC insured. Their rules are very different."
Can Blockchain Democratize Everything?
Blockchain, the infrastructure that the digital currency rides on, has the ability to democratize everything, and it's going to make us more aware, Marlor says. So you can go out and lend your currency and earn interest.
For example, suppose you want to buy an apartment building and rent out six apartments. In traditional finance, you would go to your bank and say, "I want to buy this building, and I'm going to rent out six apartments," so there's cash flow. Your financial institution may give you the loan or they may not.
But in this new world, you would put that same plan out on social media; for example, you're going to buy an apartment building and tokenize it, allowing others to purchase a piece of the action. Say one person gives you $5,000, maybe someone else gives you $500, and someone else still gives you $50,000. So, if you later sell the property two times what you paid for it, the individuals named in the contract would get twice their initial investment.
"I think what's going to happen is that cryptocurrency is going to restructure our financial systems as we know them," said Marlor. "A lot of what we grew up with is eroding, and the laws will have to be much more about the transaction."
Her best advice is to educate yourself about the technology. Things are moving so quickly that it's essential to keep up, especially when it comes to fraud.
The Potential for Fraud
An unusual case of fraud hit the dockets during the summer of 2021. According to an article published in Wired:
Playboy Enterprises sued the operators of a counterfeit website designed to mimic the site Playboy created to sell its "Rabbitar" NFTs. According to Playboy, the scam worked-over a thousand people mistook the fake website for the real one and collectively shelled out more than a million dollars for Rabbitars they never received.
"That's why I say buyer beware," reminded Marlor. "Yes, there's fraud. Do your homework."
However, in this case, the blockchain rails were not compromised. Their website, which was spoofed, became the vehicle for the fraud.
According to Marlor, Playboy went to the SEC and said we're shutting down our website. We're going to use a platform that's not on our website because it's too hard to control.
Blockchain, Bitcoin, and Altcoins
When talking blockchain, Bitcoin, or other digital assets, terminology matters, said Marlor.
"Blockchain is the highway, and Bitcoin-digital assets is a better word-is one digital asset or type of cryptocurrency," she said. "All the other coins are alternative coins or altcoins."
Marlor explained that Bitcoin is a scarcity asset, with about $21 million initially in circulation. Bitcoin is an asset class like a piece of property or a long-term investment, with the understanding that because it is a scarce asset, the hope is that it's going to increase in value over time. That's not true of other altcoins. They don't have a scarce amount.
Marlor concluded the discussion, saying, "It's a whole new world out there with various platforms and digital assets. Start learning about it now."
NEACH will be staying abreast of developments in cryptocurrency as they arise, and will offer more information through posts, conferences, and other forums. In the meantime, feel free to contact us with questions or for additional discussion.
AUTHOR: Joe Casali, AAP, NCP
Executive Vice President
As the EVP of Payments Innovation for NEACH, Joe focuses on exploring innovative solutions and technologies that will help position members for success, both now and in the future. Connect with Joe to read more of his blogs, articles, and posts.