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Do We Need Banks?

“Banking is necessary; banks are not.” – Bill Gates

Australian banks are under more pressure than ever before. The regulatory environment is changing, startups are proliferating at a prodigious pace, it’s easier than ever before to start a company and most importantly consumers are eager to try new solutions to their everyday finance needs. This begs the question: “Are banks Necessary?”

This is what we discussed at ANZ during the first ever BlueNotes Debate. See the video below for comments from those who debated the topic of whether “banks are still relevant”.

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‘Double GST’ No More

Many in the Australian digital currency ecosystem were pleasantly surprised when in this year’s Budget the Australian Treasurer announced an effective date for the removal of ‘double GST’ on digital currency transactions. Effective 1 July 2017, the purchase of digital currency will no longer be subject to Australian GST. In effect, this will result in digital currency being given the same GST treatment as money.

However, more importantly, this would make Australia only the second country (the first being Japan) in the world to make actual amendments to their tax laws to accommodate digital currencies.

But What’s The Big Deal?

As it currently stands, when a consumer purchases an item using digital currencies they bear GST twice – once when they purchase a digital currency and secondly when they purchase the good or service which is subject to GST using a digital currency. On this basis, digital currencies are at a disadvantage as compared to fiat currency when it comes to using them for transactional purposes.

Although, much of the initial debate surrounding the GST treatment of digital currencies revolved around bitcoin, the provisions are broader and will likely include other similar digital currencies (Etc, Zcash etc). This is especially important to note given the recent and persistent rise of ICOs (initial coin offerings). In effect, these changes allow for innovation in the digital currency space without the unintended application of GST to transactions involving them.

A Long Time Coming – But Likely Worth The Wait

In the Government’s ‘Backing Australian FinTech’ statement made on 21 March 2016, they committed to fixing this impediment to the growth of the Australian digital currency ecosystem. After this, a discussion paper was released in May 2016 regarding the possible amendments that could be made to the GST Act to remove ‘double GST’ on digital currencies. This paper called for submissions from industry participants on a number of technical implementation issues. After submission closed much of the digital currency community has eagerly awaited the implementation date.

As someone who’s been involved with petitioning government for these changes, it is positive to see them finally commit to an effective date for the amendments. This again highlights the progressive thinking the Australian Government is showing in the fintech space to ensure that regulatory impediments to industry growth are removed.

So That’s It?

What has been released so far by Treasury is an effective date for the amendments. However, the draft legislation has not yet been released. This means that there are a number of important tax technical questions that still need to be answered. Specifically, how will digital currency be defined? How has treasury chosen to actually make the amendments to the Act (the so called input tax vs money treatment)? These are still unknown.

Having said this, these are all things that will likely be resolved in the next few months. The important thing to remember is that effective 1 July 2017 Australians will not subject to ‘double GST’ on digital currency transactions in Australia – which is great news for the future of the industry.

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Being On The Right Side Of History

If you’ve been reading the 2016 pundit predictions in the digital currency and blockchain space you’ll notice a strong trend. Bitcoin is back! A number of articles (I’ve included some below) are calling this the comeback year for Bitcoin.

So what has changed? Bitcoin still is… well bitcoin. We’ve seen an uptick in the price, which might in part be fueling the bullish predictions. However, fundamentally nothing has changed. In fact, one might argue that Bitcoin has even more problems it needs to solve in 2016 – for example, the unresolved blocksize debate.

However, what many are starting to see is that the 2015 battle cry of ‘Bitcoin v Blockchain’ was really a red-herring. In 2015, the financial industry clamoured around permissioned blockchain and distributed ledger technology, but to date has been more busy forming consortiums and creating labs rather than actually pushing product. The question of which is more valuable, permissionless or permissioned blockchains, is proving less relevant and which will actually push a ‘killer app’ first is proving to be more relevant.

It’s easy to find Bitcoin’s flaws, but it’s hard to deny that it’s on the right side of history. The movement towards truely open and extensible software that has transparency as a default is hard to ignore. I think many are starting to realise this is what the main attraction is – not another database technology. So bring on 2016, the year bitcoin is resurrected for the 87th time.

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So This Is What Creative Destruction Looks Like

This week two Spanish-born residents of London, Edurne and Mayel, sealed their union on a blockchain. What makes this interesting is that they were the first to use the recently announced public notary service being offered to Estonia e-residents via Bitnation’s platform.

You may have heard of Bitnation before. Recently, they offered victims of the European refugee crisis a digital ID and a bitcoin visa card so that the displaced could more easily receive money from abroad and spend it. Interestingly, Bitnation is a DAO (Decentralised Autonomous Organisation) that is building a platform to provide government services that aren’t necessarily provided by a specific government. Under the partnership with the Estonian government, they’ll be offering notary services (including registration of marriages) on a blockchain.

Although in and of itself the idea is not novel, that a government would actually deploy it is. Many governments are thinking big about innovation in government services (we’re definitely seeing it here in Australia), yet for the most part innovation starts small. It usually starts at very low levels in the ‘stack’. A small change here, a small change there and all of a sudden things start to get interesting. Estonia is a glittering example of this. The e-residency initiative is a great case study in how governments can build small platforms that can have interesting ‘apps’ built on them (e.g. a blockchain based notary service).

Thinking about government services as a platform and then extending them through ‘apps’ makes sense – and maybe building the platform on a/the Blockchain makes even more sense. Regardless, governments now have another example of what ‘creative destruction’ looks like – and all from a small Baltic country.

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Chatting About All Things Bitcoin

A few weeks back I did a ‘blab’ with Suzanne Nguyen (@stringstory) about all things Bitcoin. Check it out HERE and let me know what you think.

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The Blockchain Has Friends

Last night at FinTech Melbourne we hosted Australia and New Zealand Bank’s CTO – Patrick Maes. Beyond being a fascinating discussion about the Australian FinTech landscape, one of the things that struck me about the conversation was how bullish his comments were regarding distributed ledger and blockchain technology. In fact, Maes noted that blockchain technology was one of the only true innovations in the payments space over the last 2,000 years – which is a significant comment given how nascent this technology actually is.

In recent days, with the issues the Bitcoin blockchain has faced with the introduction of BIP-66, it’s easy to forget the impact the technology has had in opening up the minds of many senior executives in the banking space as to how a new financial payment stack might actually look.

The reality is that still writing code in COBOL or FORTRAN and running your own server farms as a bank isn’t a sustainable technology model. Regardless of whether you’re a Bitcoin or a permissioned ledger maximalist, the banking world is moving rapidly towards a future where some form of distributed ledger becomes a major layer in the banking technology stack. Further, it really looks like this change may come from the upper management layers of banks – which is really exciting.

Viva la blockchain!

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Talking Bitcoin News On CryptoGoss

This week I sat down and had a chat with the team at CryptoGoss about what’s happening in the world of Bitcoin and Blockchain. Listen in and let me know what you think in the comments below.

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Some Thoughts On The ATO’s Bitcoin Guidance

Earlier today the Australian Taxation Office (ATO) released its much anticipated guidance on the taxation treatment of bitcoin. Along with the guidance paper they released a slew of draft rulings.

In their media release the ATO stated that:

“[We have] consulted extensively with bitcoin experts, businesses, industry bodies and other external stakeholders to develop this guidance and explain the obligations of bitcoin users.”

Reading the guidance (and more so the draft rulings) it is clear that they have invested a fair amount of time in understanding what bitcoin is and how it’s being used. In many ways the ATO has released a very complete picture of how they see bitcoin for tax purposes.

Although many have been quick to find fault with the guidance provided by the ATO, the truth is that they have provided a great deal of clarity to businesses and consumers. Further, the depth of analysis provided by the rulings released today gives a solid grounding to the ATO’s view – which is more than what’s been issued by other tax authorities.

Some Important Points To Note

The guidance paper that was released by the ATO contains very little ‘meat’ and should be taken for what it is – a general guidance paper. Much of the interesting content is actually contained in the draft rulings that accompanied the guidance paper. For the most part, this is where lawyers and accountants will be spending their time over the next few days.

Having said this, it should be noted that the rulings released by the ATO are all still in draft form and still under consultation. This means that those who wish to engage with ATO can still do so.

Continue reading “Some Thoughts On The ATO’s Bitcoin Guidance”

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Have Your Customers Grow Your Start-up For You

You’ve validated your idea and you have your first customers using your product (they might even be paying for it). Now it’s time to grow! This is where the real work starts.

Constantly trying to refill the top end of the funnel can, at times, be an impossibly challenging thing to do. However, as entrepreneurs this is our job. We need to be finding ways to get hoards of new customers coming in the ‘door’. It’s our never ending story – giant flying dog  and all (link provided for those too young to get the reference).

The dangerous irony of focusing too much of your efforts on the top end of the funnel is that you can start to neglect the users who are already actively engaged with your product or service. The reality is that your current users will likely be the ones who fuel the growth of your start-up in the short to medium term. In fact, if you look at many high growth companies, you’ll notice that they focused a lot of their initial efforts on getting their early adopters to spread the word for them. Think companies like Dropbox, Uber and Mailbox. They were all initially able to grow through finding ways to entice their initial users base to recruit new users for them. Although a seemingly simple tactic, it’s exceptionally hard to execute on.

Continue reading “Have Your Customers Grow Your Start-up For You”