Expect a Rough Ride for Cryptocurrencies in 2020: 4 Key Challenges
January 28, 2020
The bull market for cryptocurrencies cooled off last year, as the technology ran into major roadblocks, includingregulatory constraints, fallout overillegal ICOs (Initial Coin Offerings) andcriminal indictments for crypto mining fraud. After a turbulent 2019, my level of skepticism about whether cryptocurrency will be widely adopted in 2020 has increased significantly.
In talking with my company’s prospects, customers, advisors and investors, including financial institutions and banks, I have heard growing doubt regarding the underlying technological foundation of cryptocurrencies – blockchain – with financial experts regarding it as a “technology in search of an application.”
In 2020, I expect cryptocurrencies to run headfirst into four key challenges that could threaten the very viability of blockchain-based cryptocurrencies:
Consumer privacy laws vs. blockchain’s core value proposition
A new wave of regulations that protect consumers’ private data run counter to blockchain’s core concept: its immutable, distributed ledger. The problem is that the blockchain ledger tracks not only transactions, but also user activity. New consumer privacy regulations, such as the GDPR in Europe, emphasize a consumer’s “right to be forgotten,” which is at odds with blockchain’s design.
In the U.S., California’s consumer privacy law, CCPA, which takes effect this month, offers a similar set of protections as GDPR. While the “right to be forgotten” isn’t as far reaching as with GDPR, CCPA guarantees a consumer’s right to delete data, which isn’t possible with blockchain-based financial solutions.
Another major regulatory roadblock is the EU’sFifth Anti-Money Laundering Directive (AMLD5), which went into effect on January 10, 2020. Following a string of terrorist attacks in Europe and the publication of the Panama Papers, the European Parliament (EP) passed AMLD5 to stop terrorists and transnational organized crime syndicates from laundering money through legitimate financial institutions.
AMLD5, which builds on four previous anti-money laundering (AML) directives, requires cryptocurrency exchanges and various service providers to register with local regulators and prove that they know who their customers really are. Crypto service providers must also prove they have faithfully followed thorough AML procedures in order to maintain compliance.
Fiat “stablecoins” threaten existing crypto exchanges
Later in 2020, there’s a good chance the U.S. Federal Reserve will move forward with a federal USD digital currency, or “stablecoin,” backed by the full faith and credit of the United States.
This would place competing digital currencies at a distinct disadvantage, but I nonetheless expect that adoption of the stablecoin will be slow. U.S. consumers have not yet expressed any significant demand for digital currencies to date.
The European Union is also expected to publish its plans for a Euro-backed stablecoin, which will be managed by the European Central Bank. Unlike in the U.S., where consumers have been laggards with regards to new payment methods,such as m-payments, EU consumers may well adopt the Euro-Coin in higher numbers than the U.S.-backed stablecoin, but complying with its own stringent AML directives will be a non-trivial challenge for the Euro-Coin.
Does anyone trust Facebook with crypto?
A wildcard in the adoption cycle of cryptocurrency is Facebook. Despite its numerous missteps handlingprivate consumer data, Facebook leads and governs the Libra Association, a nonprofit cryptocurrency organization.
Libra received a boost in late 2019 when the Swiss Financial Market Supervisory Authority (FINMA) indicated that it would not impede the development and rollout of Libra. This means that despite astring of stinging setbacks in 2019, Libra Association’s investment tokens and its Libra stablecoin, a digital currency pegged to a basket of underlying assets, will have a big role in determining the future viability of cryptocurrencies.
Initially, the Libra Association will attempt to exclude U.S. persons from directly purchasing Libra currency, in furtherance of Facebook CEO Mark Zuckerberg’s commitment to U.S. officials in 2019 toforego the launch pending U.S. regulatory approval. However, considering Facebook’s and Zuckerberg’s track record ofcovering up inconvenient facts, and possibly evenlying to Congress, I recommend taking this pledge with a grain of salt.
In fact, after proving impracticable or undesirable from the perspective of the Libra Association, I expect that the exclusion will be dropped, notwithstanding the lack of approval by U.S. regulators. The public and political reaction to Facebook’s ask-for-forgiveness-not-permission tactics is a key crypto trend to watch in 2020.
Dark-horse threat on the horizon
Finally, there is a dark-horse threat that could eventually trample the viability of blockchain-based cryptocurrencies as early as late 2020: quantum computing.
In late 2019, Google announced that it had achieved quantum supremacy with its Sycamore 54-qubit superconducting chip. This ledJohn Mayo-Smith, former EVP and CTO of R/GA, to write a Medium column in which he calculated that Google’s Sycamore quantum computer could mine all 3 million remaining Bitcoins – which with current chip technology is expected to take at least 120 years – in less than 2 seconds.
Mayo-Smith has since deleted his post after his back-of-the-envelope calculations wereshown to be faulty in several key ways, but Google’s quantum boasts, Mayo-Smith’s post, andIBM’s announcement at CES 2020 that it has achieved several quantum milestones of its own have triggered a flurry of hand wringing about the viability of crypto in the not-too-distant quantum era.
Add it all up, and these four challenges should keep legitimate financial institutions and retailers on the crypto sidelines, as cryptocurrencies either struggle through growing pains in 2020 before reaching maturity, or they crash and burn, becoming just another failed attempt to challenge fiat currencies.
This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
Kayvan Alikhani
Co-Founder & CEO
With more than 25 years of experience in hi-tech, Kayvan leads operations, strategy, sales, and marketing for Compliance.ai. Most recently, Kayvan led the identity strategy at RSA, and represented EMC on various industry alliances such as the FIDO board. He is Co-Founder and CEO of PassBan (acquired by RSA), a company focused on mobile identity assurance. Kayvan also led strategy at LiteScape (as CTO and later as CEO), creating security and mobile identity solutions for VOIP based networks. He was Co-Founder and CTO at BeNotified, a cloud mobile communication service provider. Prior to that, Kayvan co-founded AVIRNEX, a cloud-based enhanced fixed and mobile communication service provider.
Pete Williams
Board Member
Pete Williams is a Partner and the Chief Operating Officer of Cota Capital, an investment firm focused on public and private modern software technology companies. Pete has over 30 years of experience working with public and private technology companies in operating, finance and legal roles. Pete has served in a number of publicly-traded software company executive positions, including Chief Financial Officer, EVP of Corporate Development and General Counsel. Previously, Pete was also a partner in the Silicon Valley office of a multi-national law firm where he specialized in corporate finance and intellectual property transactions.
Bobby Yazdani
Co-Founder & Board Member
Bobby Yazdani is Founder and Managing Partner of Cota Capital, a firm investing in private and public technology companies. Bobby has successfully mentored entrepreneurs and invested in over 100 early-stage startups. In 2014, Bobby was ranked #1 out of 2000 angel investors for successful follow-on funding by CB Insights. In 2015, Bobby endowed the Signatures Innovation Fellowship at University of California, Berkeley to support data science projects with commercial promise.
Richard Dupree has held multiple Risk, Compliance and Operations positions at regional, national, and global financial services firms including Wells Fargo, Silicon Valley Bank, Bank of the West and BNP Paribas. Rick currently advises FinTechs and RegTechs and sits on industry panels, contributes to industry whitepapers, thought leadership efforts, and speaks at industry seminars on Risk and Compliance challenges faced by banks and FinTechs.
John McCarthy has been directly involved in national security, law enforcement, and compliance fields for more than two decades. John is currently SVP, BSA/OFAC Officer at Bank of Hope. Prior to his current position, he was SVP and Deputy BSA Officer, Operations at Bank of the West, Chief Compliance Officer at Airbnb Payments and launched the company’s compliance programs across the enterprise.
Mariam is an Operating Principal at Cota Capital. Mariam has experience providing guidance on strategic and operational planning to Venture and Growth stage companies. Prior to Cota Capital, Mariam spent her career in management consulting as a Director at KPMG. She has experience leading global transformation programs and developing innovative service offerings for Fortune 500 companies in the Technology sector. Mariam has an MBA from UCLA’s Anderson school of management with an emphasis in Finance and Entrepreneurship. She has a Bachelors in Science in Finance and a Bachelors in Science in Economics from Santa Clara University.
Drake Ross is a former bank regulator who specialized in compliance with consumer protection regulations while at the OCC, FDIC, and OTS. While at these agencies, he provided extensive training and guidance and developed materials to ensure full comprehension and proper application of rules, laws, policies, and guidance, and served as a Subject Matter Expert in numerous areas. Because of his expertise, he often presented at agency and industry events. He also played a significant role in successful windup of the 2008 IndyMac Bank failure, where because of his extensive knowledge of the FDIC deposit insurance regulations, he was called upon to administer highly-complex insurance determinations.
Chris Callison-Burch is an Associate Professor in Computer and Information Science Department at the University of Pennsylvania. His research interests include natural language understanding and crowdsourcing. He has served the Association for Computational Linguistics as the General Chair for the ACL 2017 conference, as an action editor for the Transactions of the ACL, as an editorial board member for the Computational Linguistics journal, and an officer for NAACL (the North American chapter of the ACL) and for SIGDAT (the special interest group for linguistic data and corpus-based approaches to natural language processing)
Tom Ladt is an experienced executive and investor. Tom has lead and served on the boards of several public and private companies serving highly regulated industries such as technology, healthcare, real estate, and food processing. Tom has also served in key governmental roles and on numerous community boards.
Jeroen Plink is a global executive with a proven track record of developing and growing businesses, teams, and technologies with innovation and passion. Jeroen was CEO of Practical Law US during its acquisition by Thomson Reuters. He now serves on numerous boards and acts as a strategic consultants for start-ups.
Global Legal and Compliance executive with 15+ years of success in the SaaS technology and financial services industries. Partner to the CEO and executive team in corporate transactions, business development, product expansion, and regulatory navigation during periods of intense growth and organizational change. An advocate of effective risk management that starts with sound business practices and putting the customer first.
Brian advises clients on legal and regulatory compliance in the financial, tech, and procurement sectors. His passion is helping businesses succeed in heavily regulated environments. As counsel and trusted advisor to businesses of all sizes, and as a former regulator, policymaker, and federal official, Brian acutely understands the unintended burdens that even well-intentioned government requirements can put on innovation and business growth, as well as how to create policies that strike the right balance.
Brian served as National Ombudsman in the Obama Administration, leading the federal Office of Regulatory Enforcement Fairness in assisting hundreds of startups, entrepreneurs, and small business owners in every industry and every state.
Dr. Marsha Ershaghi Hames is Managing Director of Strategy & Development at LRN, a leader in advising and educating organizations about ethics and regulatory compliance, as well as corporate culture, governance and leadership. With the focus of inspired behavior versus required behavior, LRN is a leading voice in the industry for companies to build ethical cultures instead of “check-the-box” compliance approaches. She’s advised Department of Justice corporate monitors on successful program transformation under CIAs (Corporate Integrity Agreements. With over 20 years of experience in leading multinational ethics and compliance strategies, Marsha has become a highly sought-after thought leader on leading Corporate Compliance and Ethics practices.
Carla Carriveau is currently the Senior Managing Counsel at Wealthfront, an automatic investment service firm in Redwood City, California. Carla was previously Senior Counsel, Division of Trading and Markets, at the United States Securities and Exchange Commission. As a former regulator with over 15 years of experience in helping small businesses navigate legal and regulatory needs in the financial services sector, Carla advises Compliance.ai on financial services regulation, the regulatory landscape and industry practices.
Reza Sadeghian is an innovative Senior Executive and Consultant with more than 40 years of success spanning technology and IT, software and SAAS, and startups. Reza has held leadership positions with SAP America and SAP AG, Synopsys Inc., Veritas Software, Applied Materials, and Nestle USA. He served as a Board Advisor and Angel Investor to numerous companies, including Clever Sense, PassBan Intelligence Security, BINA Technology, Genome Analytics, and currently works with exciting startups such as Compliance.ai, VMDOC, BaseHealth, Atheer Labs, PuraCath, and Trayt.
Carliss Chatman is an Assistant Professor of Law teaching Contracts, Agency and Unincorporated Entities, Corporations, and Transactional Skills. Her work is influenced by over two decades of service on non-profit boards and involvement with community organizations. Through leadership positions, she has developed expertise in corporate governance and non-profit regulation. She has also been instrumental in strategic planning and fundraising efforts. Prior to law teaching, Professor Chatman was a commercial litigation attorney in Houston, Texas. In practice, she focused on trial law, appeals and arbitration in pharmaceutical, health care, mass torts, product liability, as well as oil, gas, and mineral law. In addition to negotiating settlements and obtaining successful verdicts, Professor Chatman has also analyzed and drafted position statements regarding the constitutionality of statutes and the impact of statutory revisions for presentation to the Texas Legislature.
Hugh Cadden is a recognized expert in derivative financial and trading markets including futures, options, and swaps. Hugh is currently a senior consultant and expert with OnPoint Analytics, Inc. an economic, finance and statistical consultancy specializing in expert testimony for complex litigation. He has been specializing in the organization, operation, and regulation of financial and trading markets for over 40 years. Hugh’s experience includes both the public and private sectors and he has held senior level positions with the U.S. Commodity Futures Trading Commission including serving as Director of the Division of Trading and Markets and Deputy Director of Enforcement. He has been qualified as an expert on financial and trading market matters before the Commodity Futures Trading Commission, the Securities and Exchange Commission, the U.S. Tax Court, Financial Industry Regulatory Authority, National Futures Association, American Arbitration Association and federal courts.
Maria Devassy is a RegTech, Content, and Technology leader with over 20 years of experience helping companies bridge the gap between technology, product, and business. Maria has held leadership positions with MetricStream, KPMG, Oracle Corporation, and other technology companies. She has launched several successful RegTech products, business partnerships, and advised Fortune 100 clients on risk management, audit, advisory, and compliance business across Industries.
Cesar Lee is a Principal at WRV, a venture capital fund focused on early-stage investments in hardware, semiconductor, and other technology-related companies. Previously, he was an investment professional at Riverwood Capital, a technology-focused, late-stage venture capital, and private equity fund. He began his career at RBC Capital Markets, where he was part of the Mergers & Acquisitions group for two years and the Equity-linked & Derivatives group for one year. While at RBC, Cesar spent a majority of his time working on M&A advisory transactions for technology companies.
Cesar’s investment experience includes buyouts, later stage, early stage and seed rounds. Cesar has completed transaction in the U.S., Latin America, and Asia, and in technology sectors including data centers, software, semiconductors, consumer electronics, robotics, big data, and internet.