A brand new crypto-kid on the block, Mazacoin, is set to launch on 22 February 2014. Unlike bitcoin, litecoin and other crypto-currencies, Mazacoin is billed as the official currency of the Traditional Lakota Nation, a native American community on the Pine Ridge Reservation in South Dakota, US. The Lakota are part of the Sioux First Nation of America and Pine Ridge is reputedly the poorest of all reservations in the US. High unemployment rates bring alcoholism, high mortality rates, depression and a host of other social problems. According to sources, there are no banks within the reservation and much of the USD80m given annually in federal funding, is spent in shops and businesses just across the border in Nebraska, bringing no economic benefit to the Lakota Nation.
With the introduction of Mazacoin, the Lakota Nation will move away from dependency on fiat currency, the US dollar in this case, and begin to generate its own wealth and trade based upon Mazacoins. This is a great experiment which should bring about financial inclusion, one of the G20’s principles.
Read more about the project here
Crypto-coin use and security
Naturally, the financial services community is cautious about the operating platforms for crypto-currencies in their present state.
Mazacoin is billed as “an all new fork of the ZetaCoin project that branched from BitCoin.” Zetacoin itself is an open source crypto-currency based on the bitcoin protocol. Although the bitcoin community is working constantly to maintain security, there have been some glitches lately which have raised alarm bells for observers.
Two bitcoin related platforms were hacked recently, by a group sending mutated lines of code into the program which runs bitcoin. Although the hackers were unable to steal bitcoin, they did manage to suspend transactions – via a series of “denial of service attacks” – designed to disrupt the currency.
Bitcoin companies, as witnessed at a recent round of bitcoin conferences, are implementing compliance with financial services regulations as a pillar of their business from the outset. Compliance officers at crypto-currency firms are meeting with regulators and complying with the rules in the US and this should reassure the rest of the financial services compliance community, at least partly, about the integrity of crypto-currency operators who are trying to break into the mainstream.
Reputation and the bitcoin revolution
The recent arrest of former Bitcoin Foundation President Charlie Shrem on money laundering charges has done nothing to clean up crypto-currencies’ image in the eyes of the cautious regulated financial sector. Shrem is under house arrest in Brooklyn, NY, facing charges of conspiring to commit money laundering, and operating an unlicensed money transmitting business, failing to complete a suspicious transaction report. The charges relate to a USD1m exchange of bitcoins for use on the now defunct Silk Road on-line marketplace, used widely to buy and sell narcotics and other goods.
He has not commented on his arrest and instead is focusing attention back onto bitcoin and awareness of the currency. According to Shrem, it doesn’t matter if people understand how bitcoin works in order for it to become effective: “You don’t know how every nut and bolt works on a car, but you can still drive,” he told the press.
While some non-banking operations are carefully making enquiries into how they could integrate crypto-currency into payment systems, others are acutely aware of the pitfalls and reputational damage which could arise if, for example, a hacker breaks into a customer account and steals crypto-currency. At the moment, there is no legal recourse. As one industry insider mentioned, law enforcement is at a loss to pursue the theft of crypto-currency.
Fans of bitcoin and other crypto-currency are eagerly awaiting what new developments will happen in 2014. The planned launch of two new crypto-currencies in Iceland and in the Traditional Lakota Nation should provide observers with the opportunity to see how crypto works in a controlled environment. Although bitcoin is not intended to be used within the physical borders of one jurisdiction, the Auroracoin and Mazacoin economies could generate discussion on how bitcoin and other border-less crypto-currency can be used and monitored for AML/CTF purposes in the future. Furthermore, the New York Department of Financial Services is observing and learning from bitcoin operations and has announced plans to launch regulation in 2014.
Compliance officers – what do you think? Please comment either publicly or privately. I am interested to hear your opinions.