Seminar title and slogan “Baffled by Bitcoin? Confused by Crypto? “ has attracted more than 100 people from various local businesses.

It is no wonder, as when the host asked the audience – how many people heard about Bitcoin and Cryptocurrency – all raised their hands, but when asked – who can say they know what it is and how it works? – only few admitted… Same relates to us, we have been following Bitcoin for quite a while and just before seminar we received a number of enquiries to set up bank accounts for Bitcoin related businesses. We were surprised how difficult it was to find a bank which would accept such business. So we went to the conference with expectation to find some answers and understand the Cryptocurrencies.

The event was held on December 4th, 2014, in a huge state of the art conference room of the newly anchored 5star hotel Sunborn in Gibraltar. Event was organised and hosted by KPMG Gibraltar, sponsored by International Payment Platform GOCOIN and International law firm Hassans.

The program and speakers list was impressive: (have a look at official page of seminar with copies of some presentations here: http://www.kpmg.com/gi/en/issuesandinsights/articlespublications/events/pages/cryptocurrency-seminar-2014.aspx)

  • Jon Matonis – Founding Board Director, Bitcoin Foundation
  • Tom Robinson – Co-founder, Elliptic and a board member of the UK Digital Currency Association (UKDCA)
  • Sian Jones – Founder, COINsult and Co-lead, UKDCA Regulation Working Group
  • Eric Benz – Operations Director EMEA, GoCoin and founding member of the UKDCA
  • Ben Robinson – Sales & Marketing Director, GoCoin and co-founder of RB Capital
  • Miles Paschini – Group President, Wavecrest
  • Konrad Smelkovs – Ethical Hacker, KPMG UK
  • Archie Watt, Head of eBusiness, KPMG
  • Sandra Skuszka, Head of VAT, KPMG
Seminar. Source: http://www.gbc.gi/

Seminar. Source: http://www.gbc.gi/

We were particularly impressed by presentations of Sian Jones, Miles Paschini and “Ethical Hacker” Konrad Smelkovs. Their presentations you can find here 

Event was opened and hosted by Micky Swindale, MD of KPMG Gibraltar, who mentioned:“Since their inception, Bitcoin and cryptocurrencies in general have met with a mixed response. Despite their enormous potential for good, they have a chequered reputation which we believe is largely propagated by a lack of understanding and clarity on the issues they raise. An event such as this is the perfect opportunity to provide both new initiates and experienced crypto-enthusiasts with a clear and unequivocal appraisal of the industry from those at its
forefront. We hope this will constitute a seminal event for Gibraltar and genuinely decrypt some myths.”

Financial Services Minister Albert Isola in his opening address at the seminar was quoted to say “Should Gibraltar embrace the concept of crypto, or digital, currencies? A working group considering this is expected to report back to the Government before the end of the year, whereupon its recommendations will be circulated more widely before the matter goes before Cabinet. Mr. Isola admitted the Government’s view on virtual currencies up till now had been negative, but with the concept slowly gaining credibility it’s now prepared to take a closer look. Mr Isola emphasised the importance to Gibraltar of its good reputation, though, and said the Government would be extremely careful, conservative and selective.”

Here are our notes we took from the seminar, apologies for the quality, was not easy to type on a tablet and follow interesting discussions:

Jon Matonis explained: To understand Bitcoin you need to think it is like casino chip. It solves payment problem. Current price is about 360usd per coin.

Interesting to note, that in 2010 price started at $0.07, slowly reached $113 in April 2013, then jumped to highest $979 in November of 2013, fell to $490 in April 2014, then reached $640 level in June and currently stabilised on $330 in December 2014. See graph here. Not sure how can you accept payments in a currency with such volatility…

Eric Benz from GOICOIN mentioned that in 5yrs, top 10 gaming operators will be bitcoin only. There could be Bitcoin gaming world, it could be used as a payment mechanism or gaming ccy. You can have Hot wallet – always active and online 90prc, or Cold wallet – long term holding in storage for security reasons 10prc. What % bitcoin only casino shall hold in bitcoin and what % in real ccy on their books? Solution is 6months worth of national currency to pay expenses… Important is to Hedge exposure to Bitcoin, possibly Futures and Options for Bitcoin will appear soon and Gibraltar Stock exchange shall consider this.

Issue he mentioned: When social gaming become gambling? 6sec binary options – financial service or gaming? Updown – binary options. Affiliates – shall be paid in bitcoin? Immediate payment is the main benefit as other payments take long time. What about Vat area – on acquiring bitcoin – ? Are E wallet providers validated? Shall only accept from select providers.  Unregulated operators? Content? Approvably fair gaming? At the moment operators they ignore regulators – who don’t know what to do?

Miles Paschini presentation is available here. It tries to explain how bitcoin works and solutions available. Here are main ideas we took away:

Bitcoin goes mainstream. No government can take it away now. Bitcoin as network or as a currency? Important that in bitcoin world there no chargebacks. Allows free trade between people. Currently movement of money is costly and broken, current system is not working. Money is measure of value of goods or services.

Soon wallets will be available offline and will have stronger security.

Popular payment platforms: Gocoin, Bitpay, Coinbase

Wavecrest is planning to offer Bitcoin debit card which you will be able to use to make payments just like with normal currency debit card. Bitcoin is currently in the early adopters stage. Not easy buy and sell, Not accepted everywhere. Not easy to purchase bitcoin from bank accounts, some banks restrict such operations as see bitcoin as competing business. Wallets cannot easily operate like cryptocurrency banks because access to value not yet available. Cannot provide easy way to transfer cryptocurrency to normal funds in a bank account. Wavecrest mentioned some some good solutions which can be found in their presentation.

Sian Jones had an impressive presentation “The Global Regulatory Landscape for Virtual Currencies (VCs)”

What we understood is that there are currently many bans, restrictions and in some cases there are technology specific regulations or existing payment regulations which do not fully cover Cryptocurrencies.

Then Sian went through various countries and mentioned their current attitude towards Virtual currencies:

China – shields bank involvement, restricts business use, permits individuals for owning at their own risk. Chinese exchanges dominate the markets

Russia – has drafted a  bill outlawing use of unofficial money substitutes including digital currencies.

USA – diverse approach, depending on the states: Texas : clear, no regulation, money transmission only. New York – technology specific bitlicence regulations. California: recognises Vitrual currencies

EU – no EUwide reg. There is Country specific interpretation. Promoting “Measured approach”. Pending swedish case may provide legal clarity.

EBA has issued Public warning with 70 risks for financial services worls and 20 drivers. Main highlights: VC Don’t fit regulatory framework. Long term – need technoloogy specific regulation. Short med term – make VC gateways obliged entities for AML. Discourage regulated payments industry from buy hold or sell vcs.

UK – defines favorable tax position of bitcoin –  like money.  Not regulated by FSC or HMRS, has encouragement and support by chancellor. FCA is engaging through Project Innovate. H.M. Treasury is looking for benefits, not rushing to regulate.

Isle of Man = Government policy is welcoming VCs. No regulations. To be brought in within proceeds of crime legislation
Included in proposed designated businesses bill

“Ethical Hacker” from KPMG Konrads Smelkovs had very entertaining presentation “How to be Crypto-Secure” available here.

Our notes:

Hackers can hack into anyone and anything. Vbklip 2.0 replaces bitcoin wallet address during copy paste with a hard coded one. FeodalCash – botnet that mines bitcoins. Attacking the block chain like Worldcoin. There are backdoors in mining hardware.

What will hit egaming: Users will be tempted to go to illegal providers which have better odds or service. Legitimate bitcoin gaming customers will be attacked directly. Operators will be tempted to relax KYC. Once criminals realise you have a huge amount of untracable electronic cash, threats will skyrocket.

Protection/Suggestions: Cold storage like debit cards. Protect PC. Introduce voluntary regulation. Clear up tax issues. Give people legal protection – pass laws and train lawyers and police. One of the ways to protect the e-wallet is to have an application in iPhone which is more secure.

We found very interesting the discussion panel led by Anthony Provasoli, Partner in Hassans, as it it covered the topic we were most interested in due to our involvement in assisting clients with banking solutions – Banks, what about their attitude?
There are risks and rewards for any bank. Banks are generally not good not good in managing risk. Interesting that Barclays employs over 2600 compliance officers! As to VCs, banks do not know or understand the risks. UK banks are looking into it. General consensus that there is a lack of understanding of VC business. What iss level of risk? Shall there be Dedicated bank for bitcoin or Cryptocurrencies? How to get access to clearing? These questions still remain open….

How2Agency would like to say Thank you for KPMG for kindly inviting us to this seminar which we found very interesting, thought provoking and enlightening. We have committed our company to test drive VCs and to find banks which will accept Cryptocurrency or Bitcoin businesses. We have some solutions already, and if you have any knowledge to share like which banks are loyal to bitcoin or bitcoin related businesses, please let us know! At the same time, if you need an account, please let us know as we may have found solutions already!

However please do not consider this article as a promotion of Cryptocurrencies. As Konrads mentioned, you have to take great care and evaluate all the risks. Use proven exchanges, providers and protect your e-wallets. As to us, we are still puzzled – who are these miners? Who gets eventual value and funds from currency buyers? How volatile it will remain? Will banks start to accept? Will VCs be regulated? Is bitcoin a way to take away money from black markets? How many more exchanges will close like in Japan? Still lots to learn…

We will keep posting about our experience and findings.