August 19, 2016
Who Speaks for Bitcoin?
By Joe Bush
The rise of bitcoin and other digital assets is nothing if not compelling, its origins as worthy of a feature film as Facebook’s. But will the ending of worldwide success be the same?
Early adopters of Bitcoin and other alternative currencies based in technology, like Ven and Ripple, have high aspirations. They see the potential of a decentralized currency to help the globe’s under-developed economies. They also see the potential of nearly fee-free online payment transactions as have investors and forward-thinking brands like DISH Network and Overstock.com . There has, however, been scandal; and suspicion from government regulators around the world has followed each scandal.
These digital assets have at the least a perception problem, and before they can turn the payments world upside down, they need to show very important people in governments and business that they are on the level.
To tout the benefits of bitcoin in Washington and other world and economic capitols, they need lobbyists, and today, there are two associations to choose from to do the job. The Bitcoin Foundation is the most well-known, but it boasts as much infamy as fame: members have been associated with the controversies involving Mt. Gox, Silk Road, and others. The bitcoin technology is sound and improving, tainted by association with some bad apples, and industry observers say the foundation’s mission is more focused on the development and maintenance of bitcoin’s open-source protocol than digital assets in general.
The second group could be a more likely candidate. Formed in 2012, the Digital Assets Transfer Authority (DATA) is concerned with—as the name implies— all digital assets. Stan Stalnaker, head of communications for DATA as well as the strategic director for Ven, says the two bodies are very different. DATA aims to educate, he says, and was formed after an informal request from the U.S. Treasury “to create infrastructure around these assets so they could be responsibly managed.”
“There needed to be an organization that could address the needs and concerns of this industry and educate the regulators in a responsible way,” says Stalnaker. “That’s really the mission of DATA, to inform and educate and to hopefully guide the development of responsible public policy towards digital assets.”
But Stalnaker also insists, “Just to be clear, DATA is not lobbying.” Hmmmm….
“What DATA is trying to do is be the regulatory group that’s spreading the standards and getting the word out about guidelines,” he says. “Influencing but not lobbying. There to help educate.
“Lobbying is crucial, but there are different groups working individually with various companies. Regulatory groups really shouldn’t be lobbying, what they should be doing is setting the standards and holding the industry to task and holding their members to task and that’s what DATA’s focused on right now, creating the right infrastructure for responsibility.”
So, the search for an industry lobbying group continues, and good thing, because legislative bodies from countries around the world and states around the nation have weighed in. There has been talk of an outright ban on bitcoin not only in countries like China and Russia, but from a U.S. Senator . There is a continent supporting it with acts of parliament (Europe).
DATA already has moves like a lobbyist, hosting a dinner in Washington D.C. in April on the occasion of its first meeting. In attendance were officials from Treasury, FinCEN, the Fed, the IRS, the SEC and state regulators. There was a charity portion of the event, partly to emphasize the benefits of digital assets to charitable giving (low cost of moving value, transparency). If nothing else, says Gil Luria, a managing director covering financial technology stocks at Wedbush Securities, DATA is “laying the groundwork,” and straddling the fine line between lobbying and educating regulators.
Luria wonders if digital assets have advanced enough to need a voice in the halls of power. He describes the industry as just past the experimental stage, with bitcoin “in version 0.9.” He thinks DATA is the likely industry spokesperson, regardless of terminology.
“At this point in time they’re clearly on this side of the line because there’s nothing really for them to lobby or request,” he says. “Their goal right now is to help everybody ramp up so there can be a coordinated effort. There’s no legislative agenda they need to address.
“(Digital assets) are going to very much grow in prominence and over the medium-to-long term could have a lot of impact on how financial services are delivered. These technologies around the distributive asset ledger, the Bitcoin protocol that allows the transfer of digital assets securely, are very profound developments in technology that may end up having a profound effect.”
Luria says because bitcoin in particular diverges from the hub-and-spoke framework of major players like Visa or Western Union, it eliminates the need for high transaction fees and bank fees. Thus, if its evolution proceeds smoothly it will become a more attractive alternative for consumers and merchants on and offline. When digital assets threaten the established lobby titans, then digital assets will need to be ready to lobby.
“(Bitcoin) offers a significant change in the landscape that large industry players would have to react to or adapt to,” says Luria. “Whether the established industry players lobby against it or not time will tell, but to the extent that they feel pressured or they feel like this type of activity is regulated as stringently as they are, I imagine they will let themselves be heard.”
John McDonnell, CEO of Bitnet Technologies, says the one person who is a board member for both DATA and Bitcoin Foundation, Patrick Murck, is in favor of DATA taking the lobby lead. McDonnell says the role is crucial.
“We and probably most bitcoin companies, be they exchanges or processors, on our own are simply not in a position to have a dedicated government relations function in house,” says McDonnell. “It’s going to be a function of the industry collectively to come up with the funding to get a seat at the table.”
McDonnell says the anxiety felt by digital-assets players stems from banks’ hesitance to understand digital assets and their manageable risks, and that hesitance is a result of the lurid details of the 2013 scandal. He says he has had a banker tell him that banks are “locking arms to prevent services to bitcoin companies.”
“I think the frustration level is the reluctance by financial institutions to provide services to bitcoin-industry companies based on reputational risk, and that’s completely understandable,” says McDonnell. “In the rearview mirror there’s a long trail of wrecks. It’s understandable because unfortunately there have been some bad actors, but at the same time there’s a clearly a second wave of seasoned, well-financed operators that have entered the market. The board of DATA is populated by companies of that sort.”
DATA’s Stalnaker is optimistic, especially after the establishment’s attendance at the DATA meeting.
“The really important and valuable lesson is that Washington in particular isn’t necessarily hostile to new technology,” he says. “They just want to see responsible action and responsible activity around the development of the technologies and see everybody play by the rules. Hopefully, DATA can help provide some guidance for these new companies to be able to be responsible.”
The digital-assets industry needs financial institutions to show the same enthusiasm for it as merchants worldwide have, says McDonnell.
“They’re the on-ramp for the bitcoin world,” he says. “Without banks, stored value can’t be transferred into bitcoin. The dialogue needs to focus on how banks can participate in this ecosystem. Currently the dialogue has a somewhat adversarial tone to it. Maybe the banks see bitcoin as a threat.”
McDonnell says it doesn’t help that the bitcoin industry is perplexed by the actions of government financial bodies.
“Government has its place and that’s protecting the financial system, protecting consumers,” says McDonnell. “FinCEN seems to be going about this pretty methodically. The Fed has backed off. And contrary to FinCEN’s treatment of bitcoin as a currency, the IRS wants to see it as property.
“They’re both parts of the Treasury. The bitcoin industry looks at that and says, ‘What’s going on? Is one hand talking to the other?’ We can adapt, but it’s clear there needs to be a seat at the table. What is this industry going to do on the government relations front?”