Startup Targets Cryptocurrency Crime – But Will The Big Banks Come On Board? – Forbes

Will cryptocurrencies ever be considered mainstream? Millions of people around the world are invested in Bitcoin and its rivals, of course, but from the point of view of governments, regulators and financial institutions, virtual coins and tokens are still viewed with a considerable degree of suspicion.

Witness the stormy weather that is currently being encountered by Facebook as it presses ahead with plans for its Libra project. Earlier this month, Visa, Mastercard and eBay announced their intention to walk away from the association of companies and institutions that originally agreed to develop and support the new virtual currency. A few days later, ING chief executive, Ralph Hamers told the Financial Times that an ongoing commitment to Libra might prompt banks to cut ties with the social media giant unless it addressed the money laundering concerns expressed by regulators.

And as Dr. Tom Robinson sees it, financial institutions remain extremely wary of exposing themselves - and by extension their clients - to the risks they perceive in the cryptocurrency market. Indeed, hes witnessed that wariness at first hand. Having read about Bitcoin in 2012, he and university friends, Dr. James Smith and Dr. Adam Joyce quit their jobs to set up a company - Elliptic - providing cryptocurrency security solutions. We tried to get institutions interested, he recalls. But they were very concerned about the associations between virtual currency and criminal activity.

Creating A Safe Space

But the worries expressed by financial institutions also pointed to an entrepreneurial opportunity. Banks and fund managers were seeing the emergence of a new investment class that promised rich rewards for those with strong nerves. To be more precise, they were seeing their clients buying into Bitcoin and other currencies. Having initially started out by providing secure custody services for investors, Elliptic developed a solution that would enable institutions to provide cryptocurrency-related services to their customers while steering clear of any association with trading activities that might tarnish their reputations or see them falling foul of regulators and law enforcement.

The demand use case for cryptocurrencies is speculation," explains Dr. Robinson. Thats especially true after the 2017 Bitcoin bubble - even taxi drivers were talking about that. Banks wanted to give their clients access to crypto-assets.

Against that backdrop, Elliptics team developed a system to analyze blockchain trades and identify non-legitimate trading.

Essentially, Elliptics technology tracks the activity on the blockchain and - to put it simply - strips away the anonymity that has been a traditional feature of virtual currency transactions. We link transactions to known entities, says Dr. Robinson. And once these entities are visible, it is possible to assess the risk of a transaction being linked to, say, money laundering, illegal arms trading or the payment of ransomware.

Bypassing Banks

This, in turn, opens the way for financial institutions to engage more confidently with virtual currencies, says Dr. Robinson. And enhanced security, he argues, will be a key factor in opening up a new era of financial services provisions. For the first time, we have an open financial system, he says. Nowadays, you dont have to go to a bank to carry out a transaction. And if you want, you can create your own bank.

But as the high-profile withdrawals from Facebooks Libra project demonstrate, there is still a long way to go before everyone is convinced that the virtual currency marketplace is a safe environment for institutions.

To date, the company has assessed risk on around $1 trillion of transactions. However, it has had more success in providing its security solutions to organizations within the blockchain sector than to mainstream institutions. We have more than 100 customers now, says Dr. Robinson. Most are exchanges and wallet providers but we are also seeing banks, hedge funds and asset managers coming on board. The financial institutions represent a minority, but it is a growing minority.In addition the company has worked with U.S. law enforcement agencies. To

And Dr. Robinson believes more widespread uptake of virtual currencies is on the way. Even if Libra doesnt succeed, I think something similar will emerge. There is real scope to provide services around international remittances and e-commerce. And blockchain analysis will become standard.

Potentially good news for Elliptic, which just raised $23 million in Series B funding to finance its expansion into Asia and the US. The longer-term question revolves around who will dominate the blockchain security market. Entrepreneurial companies such as Elliptic or the bigger players in the digital security space.

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Startup Targets Cryptocurrency Crime - But Will The Big Banks Come On Board? - Forbes