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This episode of Truth In Data provided by Mercator Advisory Group’s report – How Banks Can Safely Do Cryptocurrency
- Mercator dubs initial coin offerings, ICOs, “the worst Cryptocurrency idea”
- According to Boston College research, of 4000 ICO projects monitored 50% failed within 4 months
- Defining Digital Currency:
any money in digital format issued by a central entity; like eBay Bucks or other loyalty points - Cryptocurrency: utilizes public key cryptography to protect a digital asset, and typically a blockchain & wallet combo
- Private Cryptocurrency has been developed to satisfy a specific regulatory constraint and typically restricted to a single issuer. Amex Points as crypto is an example
- Stablecoins are typically pegged to USD and value controlled by supply/demand; JPM Coin is a good example
- 60 new stablecoins have entered the market recently with more on the way
About The Report
Two large banks, Signature Bank and J.P. Morgan, have officially announced they are supporting cryptocurrencies and each has implemented a closed-loop solution. A new research report from Mercator Advisory Group titled How Banks Can Safely Do Cryptocurrency evaluates the state of cryptocurrencies and considers multiple solution types based on how they fit the existing regulatory structures and evaluates where each solution will push the boundaries of institutional risk.
The report defines and delineates between virtual currencies, digital currencies, cryptocurrencies, private cryptocurrencies, “stablecoins,” and initial coin offerings (ICOs). It explains the risks associated with different cryptocurrency implementations and provides a graphic that makes it easy to comprehend how cryptocurrencies can be called, on the one hand, as the most secure currency in the world while, on the other hand, the news almost weekly reports new criminal acts in which people’s cryptocurrency has been stolen.
With that background information, the report evaluates different approaches a bank might take to deliver a cryptocurrency-based product to its customers while remaining compliant to all existing banking regulations.
“Although I have confidence in the server technology that creates and manages Bitcoin, I remain very skeptical of the industry that has sprung up around it that has enabled so many poorly secured products to be released to consumers. Too many of these were scams to begin with. These are well documented in this report and the risk vectors are exposed,” comments the author of the report, Tim Sloane, VP, Payments Innovation, and Director, Emerging Technologies Advisory Service at Mercator Advisory Group. “However, this report also identifies several implementations that remain well within the banking regulatory framework and would deliver meaningful products to market should the institution feel its customers could benefit from such a contribution.”
