Cryptocurrencies
Written by AngusMarch 16, 2021

Should you buy Cryptocurrencies?

Everyone has a view on cryptocurrency. Some think it’s a scam, some are cautiously interested, and some are ardent advocates. The internet will tell you you can get rich overnight from crypto. There are also some very well-known investors who have publicly denounced cryptocurrencies. So what’s the reality? And what should you do?

The reality is that some people have indeed made profits from buying and trading cryptocurrency. If you look at the graph of the price of the most common cryptocurrencies it is clear that the price has risen several-fold over several years. Of course for every buyer there is a seller, and some of those sellers have regretted selling when the price rose later. Some of those buyers have also bought at price peaks, and regretted it when the price of their shiny new cryptocurrency dropped. What is also clear from these charts is that the price is volatile, sometimes moving more than 20% in a short period of time.

Bitcoin as Cash

Doing some research into the origins of cryptocurrency is illuminating, as the Bitcoin White Paper (the document outlining the objectives and mechanisms of the first cryptocurrency) clearly stated that Bitcoin is intended as ‘electronic cash’. The explicit objective was to design a system that would make it easy for people to pay for things digitally. In other words Bitcoin was intended to be a tool to facilitate real commerce. The cryptocurrency ‘coin’ itself was originally designed as a mechanism to reward the computers that process transactions for maintaining the network.

So do cryptocurrencies have intrinsic value, and are they backed by anything? The simple answer is there is no guarantee or ultimate backing asset. In itself that is not unusual, as most assets are similarly not backed by a guarantee. The true value (not price) of something is the degree to which it is useful, and Bitcoin was designed as a system to enable digital transactions. The price of the shares of a major company are not guaranteed in any way, and only tenuously ‘backed’ by the revenues that company earns, and these companies can also collapse. Even ‘hard’ assets like gold and silver have very limited actual physical use. Governments promise us they guarantee the value of their notes and coins, but these guarantees are backed by their ability to raise taxes and to manage the economy successfully. Inflation erodes the real value of such fiat money every year. The prices of all assets are actually determined by our collective belief at any point in time that they are valuable.

Centbee and Bitcoin SV

The startup that Lorien Gamaroff and I started in 2016, Centbee, provides customers around the world with a place to keep their BitcoinSV. We built a user-friendly, intuitive app that allows them to view their BitcoinSV balance, receive BitcoinSV from other people, and send BitcoinSV to other people. In some countries we also enable customers to top-up (i.e. buy) BitcoinSV, and also enabled ways to spend their BitcoinSV on necessities like electricity, airtime, data, food, home appliances and entertainment like streaming TV and gaming credits. Centbee does not provide advice as to whether customers should buy or sell BitcoinSV, we provide an app that makes BitcoinSV useful.

Owning Crypto

So — should you buy (or sell) cryptocurrency? The simple answer is that people should be saving for their retirement and for unforeseen emergencies. Some people have enough disposable income and the risk appetite to invest in growth assets. Each person’s circumstances are different, and it is wise to do research into what is appropriate for you, and to get professional advice for higher-risk assets or larger amounts. Centbee is focused on the use of BitcoinSV as ‘cash’, and not as a speculative investment.

We do advise people to be very careful of hype and promises of instant wealth. There are businesses and people who exploit the excitement about cryptocurrency to operate investment scams. We advise customers to be wary of such people, regardless of the asset or technology. Cryptocurrencies are not currently defined as a ‘financial security’ in South Africa. There are many other assets that do not require registration as financial products, including art, vehicles and houses. Even though BitcoinSV is not registered as a financial security, it is still legal to own and use. The current regulatory stance in South Africa is that citizens may buy any cryptocurrencies, store them, and pay for goods and services with them. Regulators are busy developing guidelines and policies that will help people distinguish between scams and well-run businesses that are licensed and operate with integrity. We look forward to these steps, where ordinary people can feel safe using BitcoinSV.

Angus Brown

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Written by AngusAugust 21, 2020

Regulating cryptocurrency — global lessons from South Africa

“Cryptocurrency is the perfect way to launder money”. This has been the view of many hackers, fraudsters and even regulators. The creation of a distributed network of servers allowing anonymous accounts and the instant transfer of value anywhere in the world was initially seen as an opportunity to launder illicit funds. ‘Money Laundering’ is the process of disguising the origin and nature of funds that come from an illicit or illegal transaction. The intention is to convert ‘hot money’ into regular assets and to break the financial trail that would expose criminals. Money Laundering is essential to the survival of criminals active in human trafficking and exploitation, illegal narcotics, and the funding of terrorism.

The Financial Action Task Force (‘FATF’) is a global coordination body whose aim is to identify and prevent money laundering and terrorism. They research the financial mechanisms used to move illicit funds, and then provide recommendations to governments. More than 200 countries have signed treaties committing themselves to implementing FATF’s Anti-Money Laundering (‘AML’) recommendations. Each country applies FATF’s recommendation to local laws that are usually enforced by a dedicated financial crime office, resulting in serious criminal convictions. FATF reviews the quality of the enforcement of these recommendations, and poor implementation results in countries being excluded from the global financial system.

Bitcoin and other cryptocurrencies / digital assets have also been gleefully adopted by investment scams and Ponzi schemes. The gains made by early owners of Bitcoin and the large amount of money raised through Initial Coin Offerings (‘ICO’) made headlines for years. Scammers exploit human greed, and sadly we have seen too many fraudulent investment schemes successfully defraud the unsuspecting general public. When these scams do get exposed, the legitimate cryptocurrency industry is often unfairly tarnished. Regulators are required to protect the public against such scams, but face challenges in doing so because cryptocurrency does not fit their existing model of an ‘issued’ financial security.

Regulators around the globe have grappled to understand and develop policies on digital assets. The ‘self-sovereign’ nature of many public blockchains may pose an existential challenge to central banks. Incumbent payment firms (both global and national) use legacy clearing and settlement infrastructure that has only recently been digitized and never properly overhauled. In contrast, the way a cryptocurrency transaction clears and settles simultaneously, in a decentralized and immutable manner, is a radical new technical and business paradigm. The regulators governing payment systems are intrigued by the potential of blockchain technology and want to see how it could be integrated into national and global payment systems.

South Africa’s Intergovernmental FinTech Working Group (‘IFWG’) was created in 2016 to coordinate a policy response to the FinTech industry. A specific Crypto Asset Working Group was created for policy and regulation relating to cryptocurrency, bringing together all South African regulators impacted by blockchain technology and cryptocurrencies. The IFWG have identified money laundering or criminal activity, unmonitored cross-border flow, tax evasion, and the financing of terrorism as the main problems facing regulators in South Africa. Extensive consultations have taken place with the local blockchain industry, culminating in a public Consultation Paper issued earlier this year.

Our company Centbee is a digital currency mobile wallet and payment ecosystem using BitcoinSV. Unlike many other cryptocurrency camps, the BitcoinSV ecosystem fully supports creating a regulation-friendly environment so that governments, businesses and consumers all have confidence in the digital currency and supports its growth to global usage. That’s why Centbee has proactively engaged with regulators and submitted several recommendations to the IFWG; we expect the final regulations to be issued largely as outlined in the Consultation Paper, although they will be promulgated at different times by the different regulatory authorities over the next 6 to 12 months.

In addition to developing policy guidance for the various regulators, the IFWG has also created a Regulatory Guidance Unit. This team provides a single contact point for FinTech firms to obtain expert advice on regulatory interpretations. Following the model of many regulators, notably Singapore and the UK, the South African regulators have also created a ‘sandbox’, where FinTech firms can test new business models. The first cohort in the sandbox is expected to be announced soon, and the participants will be given specific exemptions from regulatory constraints. The regulators will be able to closely observe the participants in the sandbox, learning how they implement new business models in the traditional regulatory context. We expect this will help regulators with relaxing certain constraining regulations and provide guidance to the industry to ensure customers are properly protected.

The work of the IFWG in South Africa can be instructive on how FATF recommendations will be implemented across the world as more countries introduce cryptocurrency regulations in the coming months and years. We can expect most countries to follow these broad themes:

Anti-Money Laundering (AML) / Combatting the Financing of Terrorism (‘CFT’)

Financial transactions are at the core of blockchain technology, so it is exposed to money laundering risk. All financial technologies have some level of intrinsic risk of being abused. Businesses that offer cryptocurrency-related services are defined as ‘Virtual Asset Service Providers’ (‘VASP’s) and will be required to register with the local financial crimes authority. VASP’s must collect KYC data from customers, verify this data, and perform regular AML and CFT analysis and transaction monitoring. Suspicious transactions must be reported as they occur to the authorities and funds must be frozen. Each VASP must formally assess and document all risks and management controls in a Risk Management and Compliance Programme (‘RMCP’). This comprehensive RMCP document must specify the risk appetite, evaluate risks faced and document the controls the VASP will apply in order to mitigate financial crime risk. A very significant investment of time and resources will be required of all blockchain firms.

Customers will be required to provide KYC data and VASP’s must be satisfied as to the source of funds and identity validity. It is clear that the days of anonymous accounts are numbered. Cryptocurrency exchanges that fail to comply are likely to be shut down, and their management teams held accountable for non-compliance. Support for so-called ‘privacy’ coins and services is likely to dwindle (and in fact, the U.S. Internal Revenue Service has even published a Request for Information, seeking proposals for technology tools to help it better trace transactions with ‘privacy’ coins, features or Layer 2 solutions — such as the Lightning Network on BTC — that are intended to obscure information). As each regulator operates at its own pace, implementation and enforcement will occur at different times across the different jurisdictions. However, 2020 will be a watershed year and I expect that by the end of the year there will be large-scale implementation of this approach across the world’s largest markets.

There are some cryptocurrency services such as non-custodial wallet services (where the customer controls the ‘private keys’) that are typically excluded from these compliance requirements. This is due to the technical challenges in regulating such a service, such as the inability to freeze customer funds. This service is seen as more of a software service as opposed to a regulated financial service.

Digital asset and cryptocurrency firms face a significant challenge in the FATF requirement (Recommendation 16) that addresses cross-border funds transfers. This is known colloquially as the ‘Travel Rule’ and has been applicable for many years to conventional cross-border bank transactions. FATF requires that the KYC details of both the sender and the receiver of cross-border transfers must be established before the transaction can proceed. It has been recommended that VASP’s exchange KYC data with each other before settling a cryptocurrency transaction. This is a significant development, as cryptocurrency exchanges will likely be restricted from sending funds to an address unless they have the KYC details of the receiver.

In the absence of a way to enforce Travel Rule regulations in the short term, it is still possible to send cryptocurrencies to an address that is not managed by a VASP (i.e. a non-custodial wallet). In these cases the sender VASP would not be able to receive any assurances as to whether the receiving entity is compliant with the Travel Rule or not.

The cryptocurrency industry is not well known for collaboration and interoperability between exchanges and amongst digital assets, and although its intent is understandable, practical implementation is problematic for VASP’s. There are some tentative standards that are being proposed for the interchange of KYC data, however they might be constrained by privacy laws like POPI and GDPR, and the risk of extremely sensitive customer data being exposed.

Cryptocurrencies as a ‘Financial services product’

Some regulators view cryptocurrencies as an alternative asset class and attempt to regulate the sale of crypto assets under their financial services products or financial exchange regulatory frameworks. Of course, in most cases there is no ‘product issuer’, so the licensing requirements would tend to follow the same approach as that of a financial intermediary or broker. Regulators expect formal registration, good product disclosure, transparency of fees and charges, avoidance of hype, and the fair treatment of customers.

In South Africa, the proposed regulations are that entities selling, promoting or facilitating the purchase of cryptocurrencies and digital assets require a license from the Financial Services Conduct Authority, and will be considered providers of a regulated ‘financial service’. In many other countries, cryptocurrency exchanges will be required to register under the securities exchange frameworks or similar frameworks being enacted expressly for digital asset exchanges. For example, the island country of Antigua & Barbuda recently enacted a comprehensive Digital Asset Businesses Act that requires (among other things) approval and registration of any exchange and other digital asset businesses. Such regulations expect highly sophisticated and diligent segregation of interests, protecting market participants from a variety of operational and legal risks. I expect the standards to be promulgated by many countries will be significantly higher than that which most cryptocurrency exchanges have experience with to date, and this will lead to a consolidation of participants.

Security Token Offerings and Licensed Custodians

Blockchain technologies typically involve a ‘token’ (crypto coin) used to reward those that power the network (miners) for processing transactions. While the Bitcoin token has been generally recognized as a commodity rather than a security, many other types of digital tokens raise significant questions about whether they are considered ‘securities’ subject to registration under financial securities laws, similar to other financial instruments such as shares and bonds. This is especially problematic if the issuer and its founders have retained ‘free’ coins from the total circulation for themselves and thus easily profit from merely promoting the token’s sale in the market. Given that the process around issuing and exchanging publicly traded financial instruments is heavily regulated, the same regulation will be applied to tokens that fall into a country’s definition of covered securities. The issuer of a token will have to, amongst other things, prepare a prospectus. The offering to the public of these instruments (usually known as an ICO) must be done through a licensed broker-dealer.

The trading of securities-classified crypto tokens will be regulated under current securities legislation. This includes the requirement to have traded tokens segregated from the assets of the licensed exchange and placed for safekeeping with a licensed crypto asset custodian (the equivalent of a Central Securities Depository). These rules will benefit the broader digital asset community and pave the way for sophisticated institutional investors to enter the space and offer the opportunity for blockchain to disrupt capital markets in a meaningful way.

Foreign exchange and capital controls

Many emerging economies (and a few of the G20) have some form of capital control, regulating the processes for exporting financial capital from the country. South Africa has quite stringent exchange control legislation and all entities dealing with foreign currency have to be licensed by the South African Reserve Bank (‘SARB’). Essentially the proposed regulations in South Africa treat cryptocurrency as ‘foreign currency’, and expand upon existing licensing requirements for Money Transfer Operators. Entities that facilitate the exchange between cryptocurrencies and South African Rands would have to apply to be licensed by the SARB.

Money Transfer Operators must comply with AML and CFT requirements, and operate under restrictions on the type of customer they may serve (i.e. typically not businesses or banks), the value of transactions they may handle, and the nature of these transactions (i.e. restricted to Person-to-Person transfers, bill payments etc). Money Transfer Operators are typically required to collect certain data like the source of funds and purpose of transaction from customers and report these details to the regulator on a daily basis. The regulator aggregates this information to inform monetary policy, and to prepare balance-of-payments and trade statistics. In some countries the regulators may be concerned about the risk of capital flight and may impose limits on customers. We’re seeing this in South Africa, and other countries should expect to see the same.

Payment services

Although FATF recommends regulating VASP’s that perform payment services, it appears that most regulators do not consider retail payments using cryptocurrencies as a material money-laundering risk. It is important to note that the merchant accepting BitcoinSV as payment for goods and services is not classified as a VASP themselves, and customer KYC is not required.

South African merchants are currently permitted to accept foreign currency as tender. As cryptocurrencies become formally designated as ‘foreign currency’, we anticipate that South African merchants who have received cryptocurrency payments for goods and services, are compelled to convert that to Rands via a VASP. The cryptocurrency Payment Processor (VASP) providing services to the merchant will have a reporting obligation to the Central Bank.

Advantages of a Public Blockchain like BitcoinSV

The immutability and transparency of public blockchains — like BitcoinSV — actually make them of lower intrinsic risk than existing financial systems. A public ledger is transparent, auditable and verifiable — making it possible for governments and businesses to trace illicit activity on the chain. Banks apply strict KYC procedures in order to reduce intrinsic risk. Applying similar controls to cryptocurrencies will address the pseudonymity of cryptocurrencies and reduce the risk of money laundering and terrorist financing. And technology tools are increasingly being developed to help financial institutions detect problematic coins, addresses and transactions on a blockchain

Because the BitcoinSV blockchain is a public ledger, it means transaction systems can also enable audit and regulatory compliance benefits in the future. The use of a public (meaning transparent, verifiable and auditable) blockchain to power transactions means it will be easier for businesses to comply with audit requirements, and even satisfy reporting requirements to their governing regulators. In fact, analytics solutions can be built that allow auditors and regulators to monitor transaction activity on the blockchain in real-time, and more quickly verify the accuracy of transaction and revenue reported by businesses in order to satisfy regulatory compliance requirements. If all transaction activity happens on a public ledger that everyone can access, at any time, compliance reporting becomes easier for everyone. This is among the many reasons we support BitcoinSV as the blockchain for business and regulatory compliance.

In conclusion, we expect that 2020 will be a momentous year for cryptocurrency regulation. Although financial authorities will publish their regulations at different times across the world, increased scrutiny will force changes to the entire industry. The intended outcome is better protection for customers and reduced opportunity for criminal activity. This may create some friction for customers and will also likely consolidate the number of VASP’s who can sustain operations. In South Africa, we have been engaging with regulators to help guide a responsible approach, which seeks to curb abuses while also encouraging innovation. We hope experiences from South Africa’s regulatory sandbox and cryptocurrency legal regime can provide lessons for the rest of the world.

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Written by AngusDecember 10, 2019

Cryptocurrency industry needs to play by the rules — even if there aren’t any

Despite crypto being unregulated in South Africa, the current regulatory stance is that South Africans may buy any cryptocurrency assets, store them and pay for goods and services. Like art and jewellery, even though cryptocurrencies are not registered as a financial security, it is still legal to own and use them. At Centbee, we’ve provided detailed commentary and recommendations to the Intergovernmental FinTech Working Group (IFWG), which has been well-received by the regulators. We strongly believe that regulation supporting cryptocurrencies is necessary to protect customers. We have been a prominent voice in the South African and global media over the past few years encouraging regulators to develop considered regulation and provide guidelines. Corruption and money-laundering have been discussed a lot this year in South Africa, and exposés into illegal activity have led to the fall of presidents and governments globally. Nobody wants to see criminals get away with their ill-gotten gains and the public supports efforts to detect and prosecute them. As individuals, we begrudgingly put up with know your customer (KYC) procedures at banks and other financial institutions. Fintech firms like InterGreatMe and Tulioo are making these procedures far simpler and convenient allowing customers to complete the FICA or RICA process from home within minutes. There are global guidelines as to how anti-money laundering (AML) procedures should be designed, and these will very soon apply to the cryptocurrency industry. Reputable and forward-thinking cryptocurrency exchanges and wallets already implement their own procedures based on these principles. The Intergovernmental FinTech Working Group (IFWG) which is made up of members of the South African Reserve Bank, SARS, the Financial Intelligence Centre, National Treasury, National Credit Regulator and the Financial Sector Conduct Authority has indicated that they intend to provide an improved regulatory framework for cryptocurrency assets. BitcoinSV committed to regulation compliance Centbee’s core business is to build a payments ecosystem on top of the BitcoinSV blockchain. The BitcoinSV community and developer ecosystem is committed to compliance with laws and regulations. This BSV community and Centbee are very focused on creating a legally sustainable system to the satisfaction of global regulators. We believe that pure anonymity in financial transactions will only serve criminals, and we agree with Satoshi’s vision of a crypto asset that is ‘pseudonymous’. This means that your transactions are private, but not anonymous. A properly authorised investigating party, such as a forensic team, can trace funds. Contrary to the anarchist belief that pseudonymity is an infringement on your rights to privacy, Centbee believes that a pseudonymous system, such as BitcoinSV, will increase freedom in the world by enabling citizens to hold institutions such as government and state-owned entities accountable by increasing transparency in all transactions thereby reducing crime and corruption. Centbee will only ever support a cryptocurrency that is regulation-friendly, and will actively support regulators in creating policy and rules that make cryptocurrency safe for customers to use every day.
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Written by AngusOctober 3, 2019

Why Bitcoin SV?

Why Bitcoin SV?

Centbee and its management team is committed to acting with the highest ethical standards and in the best interest of its current and prospective customers.

Background and context

It is important to give context to Centbee and its team. Centbee is a well-respected and prestigious business in the blockchain community, managed by industry leading FinTech entrepreneurs Mr. Angus Brown (CEO) and Mr. Lorien Gamaroff (CEO), both of whom are very well respected in the broader South African financial markets as evidenced by their career histories and advisory interactions with regulators such as the South African Reserve Bank (“SARB”) and Financial Intelligence Centre (“FIC”).

Centbee has provided significant advice to the Intergovernmental FinTech Working Group (“IFWG”) which is constituted of the SARB, FIC, National Treasury and Financial Sector Conduct Authority. Mr. Brown and Mr. Gamaroff have been providing education and advice to these government agencies over many years and actively participate in setting the direction of new regulatory policy development with regard to crypto assets in South Africa.

Centbee is legally registered in South Africa with registration number 2017/014560/07. Our core business is to build a payments ecosystem on top of the BitcoinSV blockchain. Centbee has been operating since late 2016 and has raised well over £1,000,000 in funding to date. Our offices are based at Alphacode (3rd Floor, 2 Merchant Place, Fredman Drive, Sandton). Alphacode is the prestigious FinTech accelerator of Rand Merchant Bank. We have been long-standing Gold members of Alphacode for the past 3 years.

Is BitcoinSV an unregistered security?

Firstly, BitcoinSV is not defined as a ‘financial security’ in South Africa. The current regulatory stance (as re-iterated in 2019) in South Africa is that citizens may buy any crypto assets, store them, and pay for goods and services with them. There are many other assets that do not require registration as financial products, including art, vehicles and houses. Even though BitcoinSV is not registered as a financial security, it is still legal to own and use.

The IFWG has indicated that they intend to provide a stronger regulatory framework for crypto assets in due course. Centbee has reviewed the Consultation Paper and provided detailed commentary and recommendations, which have been well-received by the regulators. Centbee welcomes regulation to protect customers, and has been a prominent voice in the South African and global media over the past year encouraging regulators to make considered regulation and provide guidelines.

Regulatory stance of Bitcoinsv

The Bitcoinsv community and developer ecosystem is committed to compliance with laws and regulations. Whilst many of the crypto-asset projects like Bitcoin Core (BTC) are trying to create anonymous systems (Lightning network) to obscure the nature and source of funds flowing in cryptocurrency transactions, those projects will have a hard time staying compliant with global anti-money laundering and the combating of terrorist financing laws (“AML/CFT”). The Bitcoinsv community and Centbee are very focused on creating a legally sustainable system to the satisfaction of global regulators. We believe that anonymity in financial transactions will only serve criminals, and we agree with Satoshi’s Vision of a crypto asset that is ‘pseudonymous’. This means that your transactions are private, but not anonymous, so that an investigating party, such as a forensic team, can trace funds which will decrease fraud and corruption in the world. Contrary to the unpopular belief that pseudonymity is an infringement on your rights to privacy, we believe that a pseudonymous system will increase freedom in the world by allowing citizens to hold institutions such as government accountable by increasing transparency in all transactions thereby reducing crime and corruption.

Is BitcoinSV or Centbee a scam?

It is vital to note that Centbee is not the issuer/owner of BitcoinSV, and simply acts as the agent of the customer by purchasing BitcoinSV from a local crypto exchange and transferring it to the customer’s Centbee mobile wallet. Centbee itself does not manufacture (‘mine’) or hold material amounts of BitcoinSV. Our product is not BitcoinSV itself, but rather the software wallet (free to download) and the platform of software capabilities we are building around this.

In the crypto-asset industry, there are multiple people who each promote and support a different crypto asset. Each crypto asset serves a different purpose and uses different technology. There is often heated and vociferous debate between the supporters of various crypto assets, and this is often amplified on social media. Trolling and flame-wars are common occurrences in a competitive industry where there is a strong sense of ‘tribalism’ and animosity towards competitors. Very few crypto assets have any use other than speculation on price, and this leads to vocal ‘win-lose’ competition between holders of different assets. Centbee is on record as not supporting crypto-asset speculation, but rather believe that BitcoinSV should be used like cash – to buy goods and services.

Centbee’s founders have been involved in Bitcoin for many years. The first Centbee software wallet app was actually initially built to send, receive and store the cryptocurrency called Bitcoin Core (BTC). Due to changes made to that protocol by a group of developers, certain important technical attributes were changed. This damaged the legal certainty needed for use in contracting and payment systems. We carefully considered the implications and switched to a different protocol that we believed better suited the original objectives of Bitcoin and our customer’s needs. In late 2018, a further change was proposed by a group of developers, and after due consideration, we switched again. It can be objectively seen that that protocol (now known as BitcoinSV) most closely follows the original design in the Satoshi Nakamoto white paper in 2009, and the codebase that was released shortly thereafter.  

Centbee is a business and takes technical decisions has on careful analysis of the attributes and benefits of the underlying protocols. We do not take decisions based on ideology, nor on current popularity amongst the blockchain development community. It is Centbee’s considered opinion that the only version of ‘Bitcoin’ that will ever be used for payments (our core business) is BitcoinSV. We do not base that decision on philosophical ideology or hidden financial intent, but rather based on the facts that transactions can clear immediately and are practically free (<$0.01 fee). The cryptocurrency called Bitcoin Core (BTC) takes a minimum of 30 minutes to safely confirm, and costs anywhere between $2 and $30 per transaction depending on how congested the network is. It is Centbee’s considered and professional opinion that Bitcoin Core (BTC), has deviated from the original design of Bitcoin and as it currently stands is not viable as a payment system.

We do respect the right of other businesses and customers to have different views, and to express their views. Centbee is most certainly not committing a ‘scam’. We clearly disclose our ‘load fee’ to users, which fee is used to pay the retailers for their cash-handling costs. We use the most-current ZAR-BitcoinSV exchange rates from an independent data source, and do not make any hidden margin. Once Centbee has transferred the required BitcoinSV into the customer’s wallet, that customer has full control over that crypto asset. They can send it to any other BitcoinSV user anywhere in the world, spend it anywhere BitcoinSV is accepted, and sell it for any other asset on any exchange worldwide. We do not have any further control over that crypto asset.

Clearly there are differences of opinion amongst people on which their preferred crypto asset is; and in a free market economy, users and the market should decide which crypto asset they prefer to use when it comes to paying for goods and services, and moving money around.

Centbee obtains legal advice from top legal experts in the country, and we have gone above and beyond in ensuring that we are as proactive as possible with regard to compliance with laws and regulations, whether enacted or prospective. Centbee imposes very conservative limits on the amounts of BitcoinSV that a customer can purchase – certainly not the hallmark of a scam?

Do our shareholders influence our decision?

The majority of the shares in Centbee are owned by the co-founders (Angus and Lorien). There are several other institutional investors, some of whom are professional venture capital investors and have no specific views on crypto-assets. Two of our investors (nChain and Calvin Ayre) happen to be prominent supporters of BitcoinSV. They invested in Centbee because of the financial attractiveness of our business. We have no legal obligation towards them to support BitcoinSV. Centbee makes technical decisions based on the best fit for the customer’s needs. Centbee is committed to solving problems and using the best available tools to solve those problems.

It’s perhaps worth mentioning that nChain has registered over 600 patents on Bitcoinsv and have stated their intention to begin enforcement of those patents in the future. We see this as posing a significant risk to businesses who choose to ignore this. Although this isn’t a technical reason for Centbee supporting Bitcoinsv, we find comfort in the fact that the global leader in Bitcoin patents has publicly committed to enforcing its intellectual property rights on the Bitcoinsv network.

Can we use the word Bitcoin?

When the Satoshi White paper was published in 2009, the word ‘bitcoin’ was coined (excuse the pun). As the software was released as ‘open-source’, any competent developer could make changes to that code and release this as a new protocol – typically called a new ‘coin’ or crypto asset. The developer or the community could use any word to describe that new crypto asset – and early ones were LiteCoin, Dash, Ethereum etc. These new coins were typically distinguished from the word ‘bitcoin’ by the feature differences they had from ‘the original bitcoin’. Logically the version of the code that is closest in the form to the original design and codebase has the strongest claim on the word ‘bitcoin’. It is clearly evident from an examination of the BitcoinSV code base that it is most similar to the original design and codebase to Satoshi’s original vision and Bitcoin.

The word ‘bitcoin’ is not trademarked, and hence can be freely used by any person or organization without payment of any royalty, or approval from any person or organization. Craig Wright has been legally recognized (US Patent Office) as the author and has a copyright on the Bitcoin White paper of 2009, and he has explicitly provided Centbee with permission to use the word ‘Bitcoin’. We recognize that the brand of the crypto asset BitcoinSV does not currently have as much market recognition as the generic ‘bitcoin’ brand, and we at Cenbee strive to help customers understand this difference. We recognize this may take some time.

Scalability

Economic sustainability stems from the fact that Bitcoinsv is the only version of Bitcoin that scales to thousands of transactions per second, as opposed to Bitcoin Core (BTC) which has a maximum of seven (7) transactions per second – hardly a use case for global money. In early August 2019, the Bitcoinsv network processed approximately 800k transactions in a single block, clocking a staggering circa 1300 transactions per second (“TPS”) at less than $0.01 per transaction. This is because of the massive 2 gigabyte block size of Bitcoinsv, compared to the minuscule 1 megabyte blocksize of Bitcoin Core (BTC). The blocksize debate remains the most famous debate with regard to how best to scale Bitcoin. The Bitcoinsv community is demonstrating with real word data that massive blocks are the only sustainable way to scale Bitcoin so that it competes on the global stage with Visa and MasterCard. To truly be regarded as a ‘store of value’, Bitcoin needs utility and a real world use case based on scalability, a property that only Bitcoinsv possesses.

Summary

Centbee supports Bitcoinsv because of its technical superiority as a payment system and blockchain. In the best interest of our customers and our business, we promote Bitcoinsv as the most efficient and sustainable crypto asset. It’s sustainable from both a legal and economic perspective and we anticipate the true value proposition of Bitcoinsv to become more apparent as time passes and businesses continue to create applications that solve real world customer problems on a platform that scales very cheaply.

Centbee (Pty) Ltd

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Written by AngusSeptember 2, 2019

How to play in a (regulatory) sandbox

‘Sandboxes’ are all the rage with regulators since having been initiated by the UK’s Financial Conduct Authority in 2016. South Africa’s own Reserve Bank is in the process of establishing one which is expected to be operational in late 2019. Although regulators have a conservative mandate, it is also in their interests to encourage innovation. A ‘sandbox’ provides the regulator with insight into the types of innovation being explored by FinTech entrepreneurs, and the ability to provide guidance to them at an early stage. Here are my observations:

It’s not hard to create a sandbox

  • Regulators already have the authority to relax certain regulations – they don’t need to ‘ask permission’. 
  • However, the regulator should have a good grasp of the benefits they intend to obtain in the longer-term from establishing a ‘sandbox’.
  • This should not be seen as a PR exercise by the regulator, but as an important investment with a longer-term return to the regulator.
  • This return can be seen as deeper insight into the activities of disruptive innovators (as the regulator will typically not see the data from entities outside of their purview). This data can form the basis of policy decisions and changes to regulatory parameters. 
  • Writing new legislation is very challenging — takes years to develop the white paper and it reams of lawyers to review for consistency with other laws and regulation. A ‘sandbox’ can be a mechanism to fast-track that process.

Make friends

  • The regulator will be building relationships at a key stage with the founders of FinTech entities — some of which will go on to become systemically important.
  • The intensity of activity within a sandbox will quickly expose people’s true value systems and drivers. Malicious and selfish intent will become obvious, as will goodwill and generous behaviour.
  • The shared experiences will build bonds between the participants in the sandbox. These relationships will foster respectful interaction between them over the remaining course of their careers, which in many cases will be in large regulated financial institutions. 

Encourage diversity in your sandbox

  • Regulators must also invite the incumbents (large banks, insurers) into the sandbox — so that their own internal innovation units can also experiment.
  • FinTech entrepreneurs from neighbouring countries should be encouraged to participate. They are typically solving similar problems for a similar customer base.

Kids have differences

  • A ‘sandbox’ is intrinsically discriminatory against the incumbents. Relaxing a regulation for a set of participants inside the sandbox gives them an advantage against the incumbents using the existing regulatory ‘straightjacket’. 
  • However, this is a necessary action to ‘level the playing-field’ for new entrants, as they do not have the array of market advantages that the incumbents enjoy (balance-sheet, credibility, customer base, tech capability, low marginal costs, etc).

Not everyone can play

  • Both entry and exit criteria for access to the sandbox need to be established. Entry criteria must be relevant to a start-up (i.e. no financials, limited corporate documents), but it is fair to ask that they are domiciled in the regulators’ jurisdiction. 
  • Exit criteria are very important — at what scale must the sandbox participant now be forced to comply with regulations, and how is that process enforced?

Play must be supervised

  • A sandbox does not provide freedom from rules, just a (temporary) relaxation of some regulations. Participants in a sandbox must still adhere to basic corporate governance and general law.
  • Customers will be used as ‘guinea pigs’ and the regulator must still ensure that they are not exploited or harmed by the activities of ‘sandbox’ participants. 
  • It is essential that the regulator dedicate a team of people to manage the sandbox. They need to have this as their primary responsibility and they need to understand that this is not a short-term assignment, but effectively a new division of the regulator. This team must consist of a variety of skills and experience-sets.
  • A sandbox intrinsically cuts across the organisational boundaries of the regulator. Therefore it needs sponsorship and executive support from the very top of the regulator, to resolve these organisational politics.

Sharing is caring

  • The regulator can also play a role in sharing practices identified from within the sandbox, to the incumbents it oversees. These practices can improve the technical competence of these incumbents — thereby minimising systemic risk to the regulator.
  • Entrepreneurs often copy innovative solutions from the international market into the local environment. By observing solutions being built in the sandbox the regulator can gain insight into these international best-practices and offerings.
  • A valuable benefit the regulator can provide to ventures in the ‘sandbox’, is direct access to knowledgeable people inside the regulator. These people often have many years of experience in the industry and would provide a very valuable resource to entrepreneurs. Access to these resources is actually a unique selling proposition of a ‘sandbox’ to entrepreneurs…

Be messy

  • Entrepreneurs don’t play by the rules, and the regulators must expect that activity in the sandbox will not be linear and predictable, but organic and chaotic. Do not expect monthly progress reports or even project plans.
  • A sandbox may also include an ‘incubator’ capability, which could be an office environment for entrepreneurs to work from. My own view is that there is a surplus of incubators, and the regulator often does not have the most attractive premises for start-ups.

Don’t hurt others

  • As disruptive innovators often exploit process weaknesses and ‘arbitrage’ regulation, insights from the sandbox can help the regulator identify these ‘problems’. This can help them to either resolve these issues or guide the entrepreneurs towards ‘safe’ solutions.
  • FinTech entrepreneurs operate in a very stressful environment, and naturally, emotions will be high. Expect occasional jubilation and also despair as funding runs out and closely-held ideas get proven incorrect.
  • A key role for the regulator is to protect those inside the sandbox (often throwing sand) from the ‘grown-ups’ outside the sandbox. The regulator needs to persuade the incumbents of the longer-term and industry-wide value of FinTech innovation.
  • The regulator will also be called on to protect the entities within the sandbox from each other. There will often be more than one participant working on the same problem, and the protection of IP may become a challenge. A smart regulator will help these businesses to see opportunities to collaborate together.

Take personal responsibility

  • The success of participants in a sandbox is directly attributable to the skills and passion of the participant. There is no-one else to blame and ‘politics’ is pointless. 
  • The regulator will typically not have funds to provide to entrepreneurs as seed funding/acceleration and would tie themselves in red-tape trying to fairly allocate that. 
  • The provision of seed funding and acceleration capabilities (cloud computing facilities, legal and accounting services, etc) should best be provided by the existing FinTech ecosystem. 
  • The regulator could perhaps lobby the tax authorities for tax credits/benefits for small FinTech firms, or for the VC firms that supply them with capital — perhaps a tax rebate for angel investors who provide capital to VC firms or direct to FinTech firms?
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Written by AngusJuly 22, 2019

Stablecoins Will Fall Over. Here’s why:

I recently read a post by Seshree Govender on stablecoins. In case you’re new to crypto, stablecoins are crypto assets which are backed by the value of a ‘stable’ asset. For example, the cryptocurrency Tether (USDT) is linked to the US dollar and Facebook’s Libra will be backed by a basket of real-world assets including bank deposits and short-term government securities.

The classic approach to evaluating a cryptocurrency is to measure it against the three primary attributes of money: a medium of exchange, a unit of account and a store of value. Some cryptocurrencies have attracted significant attention and investment and have a market cap that indicates that they are perceived to have some permanent ‘store of value’ benefit. However, there has been significant volatility in their prices, relative to a range of fiat currencies.

Stablecoins are designed to minimize volatility. Although they do reduce the volatility experienced by many cryptocurrencies, this solution has some fatal flaws. I anticipate that these flaws will cause the stablecoin bubble to burst and that these projects will be abandoned. Although volatility in the price of cryptocurrencies will persist, I expect that this will moderate over time as regulation of cryptocurrency exchanges cools down speculative trading. Even extreme volatility is not problematic for properly-structured BitcoinSV merchant payment processing. A much more serious problem is high mining fees (such as those with BTC), which act as ‘friction’ for payments.

In my opinion, the fundamental reason that stablecoins exist is flawed. The argument is that without price stability, cryptocurrencies cannot be used as a medium of exchange or a unit of account. This argument may be based on old-school bank thinking, where the time difference between when a transaction is initiated and when the underlying funds flow could be hours or even days. A BitcoinSV transaction is ‘cleared’ and ‘settled’ (using banking terminology) simultaneously, so there is no volatility in price through the duration of the transaction.

Furthermore, simple mechanisms exist for merchants to price their goods and receive their payments in fiat currency, without having any exposure to cryptocurrency volatility. These mechanisms are inherent in the BitcoinSV ecosystem, without the need to build a complex and unnecessary stablecoin infrastructure on top of the cryptocurrency itself. The mechanism is simply that the merchant (or their processer) sells any BitcoinSV received as soon as they receive it. This function is provided by service providers (called Bitcoin Payment Processors) to merchants, analogous to the role bank card acquiring companies play in processing international transactions for bank customers.

Stablecoins also require merchants to create new tender-acceptance mechanisms for each stablecoin. As it is, merchants are very reluctant to introduce new tender mechanisms into their till-points, have barely started accepting Bitcoin, and will simply not be interested in accepting a host of new stablecoins. Without an ability to spend the stablecoin, it loses the ability to be used as a medium of exchange.

By definition, a stablecoin is not its own unit of account as it is tied to the price of another asset. It is merely a store of value. But if its value is tied to the value of another asset why not simply purchase that asset instead, without all the hassle of using a stablecoin cryptocurrency?

If owning a stablecoin is essentially the same as owning the underlying asset, then the regulations of that underlying asset will naturally accrue to that stablecoin. This means that a stablecoin will very likely be seen as deposit-taking by financial regulators, and the stablecoin issuers will quickly face the same regulatory and compliance burdens as a bank. Regulators will also require that moving that stablecoin across national borders will require ‘processors’ to validate that both the sender and receiver of those stablecoins have proven their sources of funds, have been checked against global anti-money-laundering and terrorist financing watchlists, and have their tax affairs in order.

People often see cryptocurrency as a measure to mitigate the systemic risks associated with fiat currency. Primary amongst these is inflation, as all fiat currencies lack tangible backing and are debt-based. Stablecoins are exposed to the exact same systemic and idiosyncratic risks as the underlying fiat currency, so can they really work as a store of value when compared to non-debt-based cryptocurrencies? I don’t think so.

In cryptocurrency, there is no counterparty against whom you can exercise your rights of ownership. This is an important concept. When fiat currency is created, a simultaneous sovereign debt obligation is created, exposing holders to risks such as political risk and the inadequacy of monetary policy. Under the theory of Relative Purchasing Power Parity, the difference between countries’ rates of inflation and the cost of commodities drive changes in the exchange rate between them. Why would you choose to own an inherently depreciating stablecoin when you could own negative-inflation cryptocurrency as a real store of value instead?

In my opinion, all the infrastructure required to operate a stablecoin is unnecessary and wasteful. Validation of the fiat currency resources backing the stablecoin must be transparent, be done diligently by independent auditors and be an on-going process. Currently, there are absolutely no regulations or compliance in effect and no consequences if the company behind the stablecoin isn’t actually doing that. The recent accounting concerns around the stablecoin Tether should be noted. The opportunity for fraud and scams in stablecoins is very lucrative. It doesn’t take much to manipulate the fiat treasury – an easy thing for insiders to do and hard for outsiders to detect.

This leads me to the fatal flaw of stablecoins: they are massively centralized. It is intrinsic in their design that a single organization issues the stablecoin, acquires and manages the fiat-currency reserves, and releases that back to the sellers. This also raises governance concerns, such as where the issuing company is domiciled, the strength of local regulation, who the appointed auditors are and the standards to which they adhere. Again, no-one has oversight of this and it is completely unregulated. Due to the financial risk, this function is centralized to the original management team. This requires all users of the stablecoin (holders and merchants) to place full faith in a single central point. Why even adopt a blockchain mechanism when the most efficient technical solution would be a simple database operated by the founders?

An argument is often made that stablecoins are better for cross-border remittance than ordinary cryptocurrency, as the backing asset is well-known on both sides of the remittance corridor. Although that may be true, remittance end-users (typically a poor person in an emerging economy) still convert that stablecoin to local fiat currency, as that stablecoin is not legal tender in the receiving jurisdiction. As a stablecoin is typically less liquid than the major cryptocurrencies, this increases the total cost to the receiver. It has been noted that the primary use case for stablecoins is to act as a ‘cash account’ for cryptocurrency traders closing out positions – thereby fueling speculative trading and price volatility!

Facebook’s proposed Libra is actually a pseudo-stablecoin, in that it is not stable against any single fiat currency but pegged to a basket of major currencies. That is probably a natural response to the fact that Facebook has a global customer base but this ‘efficient’ solution will actually disappoint every customer. Ordinary people do not measure their wealth against a basket of currencies, but against a single fiat currency – that of the country where they live. The problem is that Facebook is so big (2 billion users) that they have the financial muscle and captive customer base to keep investing in and promoting this completely flawed idea. The only upside to the Facebook Libra idea is that regulators will be forced to take a more proactive stance towards regulating cryptocurrency, something that I support.

There has been some speculation about a Rand-based stablecoin. The South African Reserve Bank successfully demonstrated through Project Khokha that they are interested in innovative technology to improve payment system operations. In principle, this sounds like a good idea, but in practice a Rand-based stablecoin suffers from all the flaws I’ve pointed out in this post. In addition, a Rand-backed stablecoin would be limited to a single country. This offers no benefits to the many millions of people in South Africa who remit billions of rands annually to recipients across our borders while paying some of the highest fees in the world.

The classic characteristics of money are durability, portability, divisibility, uniformity, limited supply and acceptability. All of these characteristics are embodied in the original vision for Bitcoin as described by Satoshi Nakamoto’s whitepaper. Currently, the only cryptocurrency that is built according to the original whitepaper for Bitcoin is BitcoinSV (BSV). The multitude of variations on the original bitcoin idea, including BTC, ETH, XRP and stablecoins are an illusionary diversion. Cryptocurrencies still have a long way to go, but the focus should be about building useful services on top of the existing stable protocol.

Angus Brown

Monday 22nd July 2019

References:

@SeshreeGovender https://www.webberwentzel.com/Specialists/Pages/Seshree-Govender.aspx

Tether Accidentally Minted $5 Billion of Its Stablecoins, Then Deleted Them

Facebook Libra Risks to Financial Stability Demand ‘Highest’ Regulatory Standards, Says G7

https://www.reuters.com/article/us-crypto-currencies-explainer/explainer-stablecoins-in-the-spotlight-as-facebook-unveils-libra-cryptocurrency-idUSKCN1TJ1T6

https://en.wikipedia.org/wiki/Tether_(cryptocurrency)

https://cointelegraph.com/news/changes-to-tethers-terms-of-reserves-raises-fresh-concerns

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Written by AngusJanuary 17, 2019

Why regulation will help grow Bitcoin adoption

Money is a fundamental part of the way any society operates, and governments have controlled how it is created and used. I have spent the majority of my professional life either working for, or building, banks. They are actually quite fragile financial entities, as the 2008 global financial crash reminded us. They pose systemic risk to the fabric of society, and historical bank crashes have set entire countries back by decades. Central banks were created to try and control these risks, however, like any government-run business, they have a patchy record.

I was a founding member of a team that launched eBucks.com, the world’s first bank-backed digital currency, in 2000. We were heavily influenced by the thoughts of “The Sovereign Individual” (Davidson & Rees-Mogg), “The Future of Money” (Lietaer), “Maverick” (Semler) and the books of Neal Stephenson. Our original vision was to create an entirely new digital currency that could be used to transact freely on the internet. We had some interesting conversations with the South African Reserve Bank about that! Years later, I was fascinated by Satoshi Nakamoto’s Bitcoin whitepaper as I recognised the same spirit and intentions. Bitcoin is one of the critical financial innovations of our time.

In 2016, I took a giant leap of faith and co-founded a Bitcoin payments startup, Centbee. We provide an app that makes Bitcoin the easiest way for people to pay each other. My co-founder, Lorien Gamaroff, and I have been invited regularly to provide advice and education to central banks across the world. We’re extremely fortunate to be based in South Africa, a nation that has one of the most robust and innovative banking systems in the world. We have a healthy relationship with the South African Reserve Bank, which has a relatively open view towards cryptocurrencies.
In June 2018, I was invited to address the South African Reserve Bank (SARB) and it may have surprised some in the audience when I said, “The Reserve Bank is letting us all down by not providing enough regulation. ” Failure to regulate creates an opportunity for public abuse and deception. SARB have engaged constructively with many participants in the cryptocurrency ecosystem and recently published a Consultation Paper to which Centbee has submitted a detailed response.

People often think of regulation as meaning ‘establishing controls’, but it also means ‘to make regular’ – to bring order to a situation. Regulation helps to bring the chaotic to the mainstream. Although early adopters typically have a high risk appetite, most people shy away from disorder, especially when it is associated with illegal activity. For many, the word ‘crypto’ is largely synonymous with ‘hacking’ – and that’s not a good thing! If we truly want Bitcoin to succeed, it needs to be owned and used by hundreds of millions of people. To achieve that, Bitcoin has to be perceived as safe, easy-to-use and easily available. We must recognize that regulators, as the agents of government, are the gatekeepers.

In his book “The Great Degeneration”, historian Niall Ferguson noted that ‘highly regulated‘ is not always synonymous with a sound and safe financial system. New regulations always have some unintended consequences as the marketplace adapts. This is not to suggest that cryptocurrencies should be entirely unregulated, rather a call for regulation should be seen by policymakers as an ever-adapting process. Regulatory design should strive to have ‘anti-fragile’ outcomes (as coined by Nassim Nicholas Taleb) – where systems improve the more they are stressed.

Modern financial systems are possibly the most complex, non-deterministic creations of humankind. Governments are challenged by Bitcoin because they have a very limited ability to control the technology. They face a paradigm challenge whereby they license a specific product in a specific jurisdiction and must now deal with a technology that is borderless. Not only does this pose problems to regulators attempting to provide a harmonized national policy approach across different product types and fiscal domains, but they have to address the issue of services provided across borders. The market of cryptocurrency users is a global audience. Although some cryptocurrencies are currently viewed as alternative assets by speculators, it must be emphasized that the original vision (and likely longer-term outcome) is that Bitcoin is a protocol.

At Centbee, we believe it is more fruitful to regulate apps and use-cases than to attempt to control the cryptocurrencies themselves. When confronted with a paradigm-busting concept, it would be prudent to consider metaphors outside of financial services – perhaps to consider how digital music or photographs are created and shared? Interestingly, most customers today choose paid-for services like iTunes and Netflix over pirate sites.

When consulting with regulators, here are some of the points we make:

  • A cryptocurrency address is not the same as a bank account: A fundamental attribute of cryptocurrency is that the technology platform is the ledger – it is not maintained and controlled by third parties. A cryptocurrency wallet provider (such as Centbee) does not exercise control over the address to the same degree that a bank does over an account. Non-custodial wallet providers have not actually accepted funds from the public. They are merely software service providers, performing some intermediary functions. They only exist because they perform a useful function – protecting customers and providing access to services.
  • A cryptocurrency address is not the same as a bank account: A fundamental attribute of cryptocurrency is that the technology platform is the ledger – it is not maintained and controlled by third parties. A cryptocurrency wallet provider (such as Centbee) does not exercise control over the address to the same degree that a bank does over an account. Non-custodial wallet providers have not actually accepted funds from the public. They are merely software service providers, performing some intermediary functions. They only exist because they perform a useful function – protecting customers and providing access to services.
  • Countries are not closed financial ecosystems: Central banks correctly identify the threat of cryptocurrency to their right to control the money supply. However, in reality every economy is tightly integrated into the global financial system. All entities in a country have access with differing degrees of freedom to global assets, where effective monetary policy is the aggregation of all actions by all central banks.
  • The Role of the bitcoin payment processor: Merchants need assistance in accepting and processing cryptocurrency payments. These entities which I term the bitcoin payment processors are contracted to merchants and provide acceptance, settlement and reconciliation services for a fee. They remove the complexity of blockchain technology for the retail ecosystem and ensure that retailers receive fiat settlement safely and reliably. Standards (such as BIP21/70) have already been created by the cryptocurrency community to facilitate interoperability successfully and make Bitcoin payments operational. Bitcoin payment processors connect the cryptocurrency settlement mechanism to the national payment system.
  • We need exchanges: All interaction between the fiat economy and cryptocurrency relies on crypto-fiat exchanges whose function should be segregated properly from Bitcoin payment processors and wallets themselves. In time, central banks may consider setting up cryptocurrency payments clearing houses (using the archaic term), where designated and licensed exchanges may agree operating mechanisms to reduce liquidity risk. As a central part of the payment system, they pose systemic risk to a country’s economy and should be regulated like other financial exchanges and marketplaces.
  • Registration and licensing: We support the registration of cryptocurrency wallet providers, Bitcoin payment processors and exchanges with the local central bank. In recognition of this transparency we request that the central bank provide a ‘letter of no objection’ to all successfully registered entities and encourage the banking sector to not apply discriminatory practices against registered firms. The regulator should determine the most material ecosystem participants and establish a fit and proper assessment to operate as part of the national payments infrastructure. Existing regulations should be extended or clarified to encompass these entities. This would provide comfort to merchants and banks as to settlement finality.
  • Pay your taxes: It is unrealistic to expect the state to help the needy and maintain base infrastructure without all citizens contributing as they are able. Dodging taxes is not just illegal but is effectively stealing from your fellow citizens. Any technology can be exploited to hide wealth however, we do poor service to Satoshi Nakamoto’s vision by avoiding our legally-owed taxes. Centbee is registered in the country where the founders live and we pay our taxes. We have also informed our tax authority that we will assist them if requested. We would turn away customers who intended to use Centbee’s services to avoid tax.
  • Merchants are not police: Over time, a large portion of the effort in policing anti money laundering (AML) activities has been transferred to the private sector, specifically, the banks. Merchants are not directly regulated by central banks and it is not practical or feasible to expect merchants to monitor, police or report on cryptocurrency transactions.
  • Legal tender clarification: Only central banks are mandated as the sole issuer of fiat national currency and designated legal tender. In the same manner that a central bank freely acknowledges the existence of foreign currency, we suggest that each central bank consider acknowledging cryptocurrency as a form of non-governmental foreign currency. There is a perception amongst retailers that accepting Bitcoin may be illegal, and that perception will hinder innovation in the payment system. We specifically request that the central bank clarify that merchants have the right, but not the obligation, to accept Bitcoin for goods and services.
  • Know your customer (KYC): Privacy is a fundamental human right enshrined in most countries’ laws. Unfortunately, we’ve seen far too many accidental and profit-driven data leaks and the pseudonymous nature of Bitcoin provides some innate protection against that. The Financial Action Task Force (FATF), the global advisory body to combat money laundering, recommends clearly classifying any entity providing a money or value transfer service as a financial institution and imposes an obligation to combat money laundering. Each cryptocurrency provider is welcome to adopt their own approach towards customer identification. Centbee has decided that each customer will be uniquely identified via a device token, IP address, and / or a mobile phone number. This is an intrinsic part of the ability to easily send money between friends, and an appropriate, risk-based approach towards deterring money laundering. In cases where the customer simply moves cryptocurrency around between various addresses, we don’t believe that any further KYC data such as name, address or national identity document should be required. Where a cryptocurrency service provider (an exchange or wallet) facilitates the exchange of fiat currency for cryptocurrency, it is reasonable to require customers to undergo a more diligent KYC procedure. The specific KYC protocol of the jurisdiction where the customer resides should be applied. Simply purchasing or using cryptocurrency should not be considered a high-risk activity by itself.
  • Fighting money laundering and terrorist financing: Bitcoin has some potential for money laundering and we recommend that AML transaction monitoring be conducted for all cryptocurrency transactions. Suspicious transactions should be reported to the local investigative agency. All cryptocurrency enthusiasts should support efforts to stamp out money laundering and terrorist financing. However, the effort and impact on customers should be proportionate to the actual risk posed, and we should note that it is impossible to completely deter all illicit activity.
  • Fighting illicit activity: An important principle of money is that ‘taint does not transmit’, and that the consequences of an illicit act must flow to the person committing that act. We do not burn the money recovered from a theft – but return it to the bank to be lent out again. Centbee absolutely condemns illicit and illegal activity and will actively support regulators and police in prosecuting any such acts.
  • Customer protection: Unfortunately, there have been cases of people being enticed into speculative or fraudulent investments in cryptocurrencies. In these cases, the fault generally lieswith human nature rather than the technology itself. Regulators can assist by providing warnings to the public, and establishing white-lists of reputable, registered cryptocurrency firms in their jurisdiction.
  • Foreign exchange controls: As a developing nation, South Africa has a relatively fragile trade balance and the Rand is a highly liquid emerging market currency. Monitoring and control of capital movements out of the country are important to the fiscus and economic planning of the nation. Cryptocurrencies do pose a risk for illicit and unmonitored capital flows. These balances are effectively externalized the moment they are created, and as such, the effective border control mechanism is the point of conversion from fiat to cryptocurrency. Existing legislation typically empowers authorities to request detailed data from cryptocurrency firms to assist any investigation. At this time, I think it would be inappropriate to apply the conventional authorized foreign exchange dealers licensing framework and requirement on crypto exchanges.
  • Innovation follows regulation: Regulators prefer to be technology neutral and often claim that they will regulate only after the innovation spark. However, we must recognize that in the financial domain, innovation without adoption is just an experiment and adoption is largely controlled by the incumbents. I believe that regulators need to take a more proactive stance towards innovation.

I am confident that a transparent and respectful approach towards regulators will help them develop enabling legislation. Regulation can help customers and existing financial institutions gain more comfort in cryptocurrencies and drive the adoption of Bitcoin. I welcome dialogue with my cryptocurrency colleagues across the world and recognize they may have different political and social views. They may also have had different experiences with regulators in their local jurisdictions. Part of Centbee’s vision is to make Bitcoin simple and easy. We welcome constructive criticism and look forward to driving debate and development in the cryptocurrency industry.

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