Cryptocurrency and fintech integral to the human economic condition: Jarrod Luo

Physical bitcoins. Credit: Flickr/Antana

With the recent pivot of former Bitcoin ATM manufacturer Tembusu Systems into the cryptocurrency space, and the unveiling of its newest product, the TRUST platform, Jarrod Luo, the COO and co-founder of Tembusu Systems says that Singapore offers the most liberal and transparent treatment for the industry in the wider region.

Luo, who also has a larger industry role as the Secretary-General of the Association of Cryptocurrency Enterprises and Startups Singapore (ACCESS), also said that as an industry, cryptocurrency was less than five years old. This relative youth offers plenty of opportunity for entrepreneurs to explore opportunities in the sector, he added.

Edited excerpts from the interaction:

What led you into the Bitcoin and cryptocurrency space initially?

I first got wind of Bitcoin as a ‘thing’ around a year before we launched Tembusu Terminals (now Tembusu Systems). It was a novelty and curiosity that drew me, as well as an interest in learning about the problems that Satoshi Nakamoto purported to solve.

Honestly, it was a matter of intellectual curiosity at first that propelled me into the cryptocurrency sector. At the time, it was an interesting development and I was eager to learn what the hype was about.

What led you to pivot from Bitcoin ATMs to a more cloud-based cryptocurrency platform solution?

When we worked with the Bitcoin protocol directly when developing the ATMs, what happened was that we performed a crucial exercise in the implementation of the technology, as well as understanding the technical basis of Bitcoin and how its properties can interact with the world.

This led to us clearly identifying its strengths and weaknesses as a proof-of-concept and as a first mover in the cryptocurrency industry. Bitcoin in and of itself is too anonymous for governments and regulators yet too open and transparent for end-users. This can prove to be a problem.

For example, when we engaged in commercial activities, our actual experience with it was that as the first Bitcoin ATM in Singapore and Asia, we saw competitors swiftly springing up. By simply buying a small amount of Bitcoin from their wallet addresses, we could figure out how much our competitors had in terms of sales.

From a business owners perspective, this can be too open and transparent for a business, unless you put on additional scrambling protocols, which add additional complexity and costs on a business owner to maintain privacy. Though even with normal enterprise activities, if you follow the money trail, you can still pinpoint and identify the figures.

This led us to thinking about the main strengths of the Bitcoin technology and figuring out how to create a business model around the technology. We wanted to leverage on strengths while accounting for weaknesses and addressing them, finding applications and use cases that we could apply ourselves towards. That led us to incept the TRUST concept.

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In the Asia Pacific, Hong Kong, Singapore and Tokyo are often noted as the emerging hubs for Bitcoin and cryptocurrency. Which city would you say has the best prospects in terms of emerging as a leading, active destination?

For this industry, Singapore currently has the most liberal and transparent treatment of the industry in the wider region.

Whereas my counterparts in Hong Kong and Tokyo have seen regulators act in a heavy-handed manner that has stifled further development of the industry in their jurisdictions. Tokyo’s reaction to Mt. Gox and Hong Kong’s clampdown on Bitcoin (I.e. leading to a police raid on cryptocurrency offices).  My ACCESS chairman, Anson Zeall, can explain the situation in HK more clearly.

Singapore has not seen similar levels of regulatory interference into the industry as of yet, so it currently maintains the best prospects amongst the three. MAS involvement would be helpful, particularly in the sense of defining the contours and boundaries where public interest meets commercial interests. So MAS has to formulate regulations that account for both sets of interests.

From prior informal conversations with people affiliated to MAS, the main concern lies in addressing the possible use of tech for money laundering and funding terrorism, so they tend to concentrate more on individual business processes towards KYC records and AML protocols.

That’s what they’re most concerned about and where they can provide support for the nascent industry, by having more communications and exchanges of information to have enable interaction between the industry and government. This will allow a convergence in safeguarding public and industry interests

The industry holds a lot of potential to improve Singapore’s position in the region, especially if it turns out that it can be a crypto-currency/fintech hub in the region. This would be beneficial to Singapore’s geopolitical status.

What’s your view on the latest BitLicense issued in New York state, and the the regulatory landscape that currently exists in Asia with reference to Bitcoin?

BitLicense is prematurely heavy-handed and would only serve to entrench the current, old financials interests as only they have the resources to comply with BitLicense regulations in their entirety. It stifles the development of cryptocurrency enterprises and the ecosystem as a whole.

Upcoming ventures would be stifled or forced to relocate out of BitLicense jurisdictions. It cannot be good for an ecosystem where BitLicense regulations are applied, as this could force a Bitcoin-based firms and other associated cryptocurrency business to migrate elsewhere.

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With the current crop of fintech accelerators emerging (i.e. InspirAsia and Startupbootcamp Fintech), how do the prospects for cryptocurrency look in the region?

It looks interesting and set to grow further. Fintech is such a widely required and integral industry, basically forming the interface between the economy and the movements of value within currencies, commodities and everything that involves value. It is an integral part of human economic condition, so if we’re going to see a big boost in intellectual and financial interest, the prospects look interesting, if not rosy.

Asia being Asia, it is a complex region with many nuances and cultural demarcations, in addition to the socioeconomic and geopolitical boundaries. It will be interesting to see how it translates in this fragmented landscape. The prospects look robust for Singapore, which is well-positioned to act as a springboard for a growth sector in the region and definitely exciting to monitor.

The banking sector and cryptocurrency technology – what are your thoughts in general about how the two are interacting, given the adoption of Ripple as an answer to Bitcoin? Most banks seem keen on blockchain technologies but not Bitcoin itself.

Recently, Ripple was fined in the US by regulators for the implementation of an exchange with inadequate AML and KYC processes and protocols in place. So that’s one of the most recent developments and shows how much that occurrence is pretty much representative of how the old centres of power perceive all these new technologies.

They have very fundamental concerns and are not just interested in what this new technology can do. There has to be a concerted effort to implement these new technologies while accounting for fundamental concerns with regards to financial security, as well as financial risk profiles. This is especially relevant, given the possibility of illicit uses of the technology to skirt existing regulations.

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ACCESS has been rather silent in recent months. Are there any upcoming industry projects, events, hackathons or partnerships that ACCESS will be looking at conducting?

We’re going to call our AGM and have been silent publicly. However, we’ve have numerous productive dialogues with IRAS and MAS. We’re also linking up with the the Association of Banks in Singapore (ABS).

So this is how ACCESS is trying to add value to the industry and membership; by fostering dialogues and information exchanges to see how we can value add to each other, as we’re existing in the same ecosystem.

It’s imperative that these conversations take place regularly, leading to a better operating environment for all involved. So far, that’s been the direction of ACCESS, rather than organising trade shows which are flashy from a PR perspective but unproductive as a whole.

We’re focusing on where the real conversation can take place – out of sight and out of mind. We’ve been observing communication discipline to keep these dialogues in confidence. For ACCESS, its not for lack of activity but rather unseen activity.

What are the basic ingredients for a fintech sector to flourish? Extending that, what are the changes needed to bring cryptocurrencies like Bitcoin into the mainstream?

First and foremost, we need regulations that are clear and unambiguous, yet leave room for negotiation by all stakeholders impacted by these set of regulations. The surety of regulatory outcomes is crucial for any business, and if we can get that it removes a huge cognitive load from an entrepreneurs mind.

Entrepreneurs already operate in a setting with uncertain business and regulatory outcomes. For the fintech sector as a whole, it certainly applies. And for business laws, friendliness is a must. Of course, you also need a supportive community, comprising users, entrepreneurs, governmental agencies or statutory boards set to support these industries.

You have to foster an environment where ideas can be encouraged to be shared and refined, where they can be developing to the point they can offer something tangible to the market. I think public education plays a big part, whether initiated by the government out of public interest concerns or by people in the industry – it needs to become a thing in every man’s mind. As its utility value becomes apparent and realised, then it will migrate into the mainstream.

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What is Bitcoin 2.0 and what are the prospects for investors and entrepreneurs?

Entrepreneurs offer a blue ocean pursuit of sectors that are largely untapped and with huge unrealised potential. There’s very little competition to contend with, given it’s a new frontier. Everyone is free to strike out on their own and carve their niche.

We want to strike out from the old world, not because we want to open another SME competing with the rest of the market. They’re self-employed, not entrepreneurs. The prospects for investors are that it opens one more option, especially for investors with an appetite for pioneering into unknown sectors, which has its own appeal.

Investors often have the resources but not the expertise to venture into this landscape. So there’s a convergence of the two, in building what is currently a very nascent industry.

What’s your advice to entrepreneurs and investors currently evaluating the crypto-currency space for venture creation and investment?

Learn about the technologies and who’s already in the space and what they’re doing. From there, figure out what’s not being done that needs to be done. It’s an industry-wide effort and there’s a niche for everyone, as long as they’re willing to look for it.

For people with an adventurous streak, its an industry less than five years old, with plenty of opportunity. There’s no lack of opportunity for everyone in this sector. Only a lack of understanding and motivation to learn will hold you back.

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