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Q&A: Why big tech needs to tread carefully with cryptocurrency (Includes interview)

Several traditional tech and finance companies have begun to investigate crypto markets, ten years after the emergence of Bitcoin. Facebook, for example, has announced the launch of their own cryptocurrency, Libra, and an accompanying crypto wallet, called Calibra. Mastercard also appears poised to enter the crypto markets on its own mission. There is also the messaging app giant Kakao, which has similarly announced it is to enter the wallet game.

While institutional support is needed for global mainstream adoption of cryptocurrency and blockchain technologies, their participation does not equal universal success, according to Daniel Popa, CEO of Anchor. Large companies do not necessarily have the current infrastructure, nor the history of dealing with the ever evolving nature of crypto security. What they do have is customer loyalty, and brand recognition, which could expedite the crypto revolution more quickly.

Digital Journal spoke with Daniel Popa, CEO of Anchor to understand more about the future evolution of cryptocurrencies.

Digital Journal: How are crypto wallets evolving?

Daniel Popa: What we have been seeing over the last two years in the evolution of crypto wallets is their diversification for activities beyond allowing access to cryptocurrencies. Private keys are being used to perform various blockchain transactions such as selling stocks, tracking supply chain assets, and executing smart contracts for a variety of purposes.

A crypto wallet is a type of software which maintains the private keys that are used to verify and digitally sign for different crypto and blockchain transactions.

Another avenue that crypto wallets are evolving into is something we are calling ‘smart wallets’. This is in essence a merging of the traditional hot and cold wallet, as it is a physical device that would act in the same manner as Apple pay does. The smart wallet would take the appearance of a traditional credit card, but would have a screen, house all of your various credit and bank cards, loyalty cards, and cryptocurrency private keys.

DJ: What are differences between hot and cold storage?

Popa: Hot storage are the most ubiquitous form of crypto wallets available to the public today. They are the digital, invisible wallets that exist as desktop apps, mobile apps, or on websites you can log in to. Hot storage can be accessed anywhere in the world that there is an internet connection. Cold storage for crypto wallets are the physical manifestation on a device which holds private keys. They are physical, USB-like devices which maintain the private keys offline, and have to be plugged into a network in order to function.

DJ: Why has Facebook launched its own cryptocurrency?

Popa:There is actually a lot of discussion about whether we should even be considering Facebook’s new cryptocurrency, the Libra, a cryptocurrency at all. According to Facebook, Libra will operate on a “permissioned” blockchain, unlike the dominant cryptocurrencies that the industry has grown on. Compared to bitcoin and ethereum, which operate on a peer-to-peer basis, Libra will validate its transactions through the Libra Association, which is made up of corporations with their own self interest to monetize the process. This is hardly the path of the most popular cryptocurrencies, which are initially mined and then traded across crypto exchanges.

We believe – as well as many in the crypto community – that Facebook has launched its own cryptocurrency because it sees the business potential for creating its own stablecoin to use across its many platforms – existing and planned. From their perspective, they are offering a solution to the problems associated with remittances in a globalized economy, and in their own words “offering to be the currency of choice for the 1.7 billion unbanked globally.” While these intentions are well meaning, it appears to be an avenue for further centralization of data, and therefore power and control.

DJ: What will be the technical and functional differences between Calibra and other crypto wallets?

Popa: Calibra will function on a “permissioned” blockchain, meaning that a cohort of companies will regulate and maintain transactions on the blockchain. This is hardly the stuff of publicly visible, permissionless blockchains that have come to define the sector.

DJ: What will be the impact of Facebook’s entrance on crypto financial markets?

Popa:Facebook has already caused quite a stir, and they haven’t even commercially released the Libra or Calibra yet. The U.S. Congress has already thrown up a series of roadblocks for them, even going so far as requesting that they hold off on the launch, as they are worried about the potential negative effects (and uncontrollable effects) it could have on the US Dollar.

On the other side of the equation, Facebook’s entrance into crypto is a validation of the underlying blockchain technology, and its near ascendance to mainstream popularity. It is in this sense having an enormous impact on the reputation of crypto financial markets, and solidifying the legitimacy of crypto as a reputable corner of the global financial system.

DJ: What impact with Kakao’s entry have?

Any existing social media companies and internet companies that enter the crypto markets will have an effect on the adoption of blockchain and crypto technologies, full stop. However, some will have a larger impact than others. Kakao is a popular app, but mainly in South Korea, as it hovers around 49 million monthly active users. Compare this to Facebook’s 500 million monthly active users globally. South Korea already has a high penetration of crypto users, so it remains to be seen how much this will move the needle in terms of having an effect on crypto globally.

DJ: What is the current state of the crypto regulatory proposals in the U.S. and globally?

Popa:The current state of crypto is in flux globally, and rather chaotically. In the US, crypto regulation is at a standstill after the announcement of Libra by Facebook. Regulators are concerned about privacy rights, destabilization of USD, and the potential for money laundering for terrorism and drug cartels. Currently, US agencies classify crypto different across agencies, which can lead to a patchwork of regulations: IRS views it as property, Commodities Future Trading Commission views them as commodities, and SEC views them as securities.

However, countries like New Zealand and the U.K. are tepidly advancing the regulatory apparatus around crypto. New Zealand recently ruled that receiving income in bitcoin is legal and therefore taxable. The U.K. hasn’t outright banned it, nor has it produced any crypto specific legislation like Malta or Bermuda, mostly because they do not deem it a threat to the British Pound or the stability of the U.K. economy.

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Written By

Dr. Tim Sandle is Digital Journal's Editor-at-Large for science news. Tim specializes in science, technology, environmental, business, and health journalism. He is additionally a practising microbiologist; and an author. He is also interested in history, politics and current affairs.

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