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This Regtech Entrepreneur Aims To Professionalize Blockchain And Crypto

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Coinfirm

In January, the crypto market passed $700bn – a new record. There are now thousands of blockchain-based businesses across the world, and a new report almost daily espousing how the technology will revolutionize a certain industry. Recently, for example, tech firm Calastone estimated that asset managers could save over $2.7bn a year if they replaced laborious manual fund purchasing processes with a distributed ledger technology. And this spans far beyond finance, with blockchain land registration services, aid distribution mechanisms and food provenance records.

Yet this still-nascent sector, with its volatile currencies, novel but frenzied initial coin offerings (ICOs), and dearth of established use cases, is still far from being mainstream. In some areas it is plagued by criticism and regulatory crackdowns. China, South Korea, New Jersey are all clamping down on cryptocurrencies this month. On the other hand, other jurisdictions are taking a more proactive approach – Switzerland has published guidelines for ICOs, while Japan is enforcing stronger regulations for exchanges trading cryptocurrencies.

The sector desperately needs professionalization and mechanisms for legitimization, and this is where Coinfirm comes in. The two-year-old regtech company is setting the benchmark for blockchain compliance, providing anti-money laundering (AML) technologies for cryptocurrencies. Working with companies across the market, Coinfirm is the architect behind a set of global standards for crypto and blockchain firms, as well as leading an industry working group on standard-setting and guidance. I caught up with co-founder and CEO Pawel Kuskowski to find out more.

Philip Salter: What motivated you to set up Coinfirm?

Pawel Kuskowski: My background is compliance for large financial institutions. My last role was the Global Head of Anti-Money Laundering for RBS. In February 2016, I’d left and was setting up Coinfirm with four likeminded co-founders. People assume that if you’re in the crypto space, you must be someone who was mining bitcoin in 2009, who buys loads of cryptocurrencies. I’m not. I just think blockchain technology offers extreme efficiencies and exciting capabilities to existing markets, in addition to opening up new ones. If you work in compliance, you know how inefficient and ineffective processes in the current financial system are. You’re also incredibly risk-averse. Most compliance people would never go near any sort of business, let alone in blockchain!

When I looked at the emerging market for cryptocurrencies, I knew that, if the market grew in the right direction, solving some of those inefficiencies, it would then itself face the same challenges that any financial market has. A mistake the financial sector has made historically is doing a lot of their AML in-house, and not in a centralized fashion. We can avoid that with blockchain technologies: Coinfirm is the central, impartial compliance firm for blockchain and crypto.

In order for this sector to really bed itself into the mainstream, and for incumbent financial services firms to take it seriously, we need to professionalize it. The sheer size of the market proves we cannot wait any longer – it equates to around 10 percent of the $5 trillion of money in circulation across the globe. The commonly-peddled view that there is more laundering in crypto than there is in cash is nonsense. New data from Japan, for instance, shows that just 0.16 percent of all money laundering reports made there last year came from crypto exchanges. Our focus is on providing the companies shaping this sector with the tools they need to prove they’re doing it in the right way.

Salter: How does Coinfirm work?

Kuskowski: We bridge the world of financial services with that of blockchain and crypto. Coinfirm is a full auditing service; exactly as you’d find on offer for any financial product or service. A client can upload their blockchain, and we can check the provenance of every transaction. We provide our clients with complete, comprehensive information relating to all their transactions. If it’s no-to-low risk, a transaction goes straight through; if it’s high-risk, we press pause and alert the client. Anything that falls in the grey area is individually assessed by our teams, and a report is produced. Essentially, we want to bring bank grade compliance to cryptocurrency transactions.

Salter: What are your ambitions for the company?

Kuskowski: The plan for 2018 is to become the gold standard for AML in the blockchain space, then we want to become the firm behind the regulatory technology for the entire sector. We’re using big data and machine learning every day to enhance what blockchains offer.

We’re already working with numerous companies across the industry – both some of the most reputable global banks and growing tech businesses and startups. Now, we want to work with regulators and central banks and demonstrate that we already have a solution ready and working that addresses the risks that they’re worried about. We don’t need to reinvent the wheel when it comes to regulating this sector; successful solutions just need recognition.

From 2019, we’ll see lots of new kinds of assets transferred via blockchain. That means we’ll be working with banks, asset managers, insurers – and covering the regulations and standards relevant to those sectors.

Salter: What’s your biggest challenge as a business?

Kuskowski: Keeping pace with our clients. They’re moving very fast and implementing new blockchains, building new tech. It’s exciting: we were first to market with Ethereum, now we’re working on new protocols like Neo or RSK. Hyperledger is on the way, which means corporate adoption, so we need to be ready for that. When we started in spring of 2016, we were five people. Now we’re 60, and we’ve got 40 people coming in over the next couple of months. So we’re working hard on building and growing our company culture, too.

Salter: What will the blockchain sector look like in ten years’ time?

Kuskowski: The majority of all transactions will be conducted on the blockchain. Wherever you have more than one participant in a transaction, or the exchanging of data, blockchain will be underneath it. Underneath that, there will be a layer of analytics, which needs to be affordable, effective, and bespoke. By that point, we’ll have off-the-shelf big data analytics tools that can be redesigned for each application.

The blockchain will outlive bitcoin – or, at the very least, prove itself to be the more important invention. I want to see a world where corporate giants – the likes of HSBC, Citi, KPMG – feel confident enough in the regulatory and legal fabric behind the technology that they can release cryptocoins. And actually, even if they don’t, there will be the demand for them to do so.

We’ll also see regulation becoming less reactive. If we can offer clients the opportunity to run checks across a blockchain, we can offer the same to regulators. We are getting to the point where rules are preventing innovation. In a blockchain context, PSD2 becomes irrelevant – if you have an open, immutable record, you don’t need to compel banks to share information. We should expect to live in a far less regulated world in the future.

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