TFU | Feb. 26 – March 4

Leading Off

The SEC subpoenaed dozens of firms accused of engaging in illegal ICOs; Coinbase submitted to a court order requiring it to divulge to the IRS information on 13,000 customers; Equifax identified an additional 2.4 million people affected by last year’s hack; the CFSI kicked off its fourth annual fintech competition; and the AB looks at the FDIC’s stance toward ILC applications from fintech firms.

The Big Idea

Consider the increasing costs of mining for Bitcoin

Last week, we covered a story in the Wall Street Journal about Bcause, a startup with $5 million in Series A funding that rents computing time to clients engaged in Bitcoin “mining.” The story was notable because it shed light on the amount of computing effort required to mine a single Bitcoin, computing power that continues to climb as the number of available bitcoins becomes more scarce. (For an explanation of why, see here. Basically, the number of bitcoins is finite, and each new one requires relatively more effort to mine than each previous one.)

However, the story of a growing market for “mining rigs” — the computer banks needed to mine Bitcoin — implicates another story: the associated, growing demand for materials and energy. This week, the New York Times takes a critical look at the impact of Bitcoin mining on energy generation and consumption, questioning whether the activity is economically worthwhile and socially valuable. As the article states, mining “can be lucrative,” but the power required to mine each coin is increasingly substantial and “might otherwise be put to other purposes.”

For all the debates around digital currencies — how to characterize them, whether they’re a good store of value, whether they’re a fad or the wave of the future, etc. — their impact on natural resources and society is less discussed. As mining becomes both more competitive and more resource-intensive, perhaps it is worth considering how mining efforts impact communities and the environment, and the utility of diverting resources to those efforts from other possible uses.

In the News…

SEC subpoenas dozens of crypto firms over ICOs.  The U.S. Securities Exchange Commission (SEC) subpoenaed dozens of cryptocurrency firms and their advisors for their involvement in initial coin offerings (ICOs) “outside the [SEC’s] regulatory framework.” The SEC has recently “ratchet[ed] up the regulatory pressure on the . . . market for raising funds in cryptocurrencies.”

Coinbase to divulge customer data to IRS.  The popular cryptocurrency exchange announced that it will comply with a 2016 court order requiring the firm to share certain customer data with the IRS. The decision, which Coinbase “heavily resisted,” will impact anyone who bought at least $20,000 of Bitcoin on the platform between 2013-2015, which is roughly 13,000 customers.

Goldman brings Wall Street to Main Street.  The Wall Street Journal profiles the bank’s 18-month-old Marcus platform, calling it “one of the world’s most ambitious consumer-finance startups.” Long-known for catering exclusively to corporate clients and high net worth individuals, Goldman is using Marcus to offer a “suite of banking products for the middle class”

IBM Watson CTO talks AI.  TechCrunch interviewed Rob High, chief technologist for IBM’s Watson. High discussed a number of developments in AI and machine learning, as well as the approach to solving novel problems in a nascent field. High noted that the “biggest technological challenge in machine learning right now is figuring out how to train models with less data.”

U.K. contactless payments hit nearly £1 billion in 2017.  According to a Worldpay report, British consumers used contactless devices to pay for over £975 million worth of goods and services last year, “a 328% year-on-year rise.” Growing adoption of Apple Pay, Google Pay, and Samsung Pay contributed to the rise, with mobile device payments totalling 126 million.

Equifax identifies additional victims of 2017 data breach.  The credit rating agency discovered 2.4 million more people whose information was compromised in last year’s hack. The newly identified consumers “had their names and partial driver’s license information stolen but not Social Security numbers.”  The total number of people affected is now 147.9 million.

Switzerland embraces crypto.  The Economist explores Switzerland’s move toward becoming a “crypto-nation” (as described by its economy minister, Johann Schneider-Ammann). The country is “maintaining loose rules for crypto-businesses, even as other countries are tightening theirs,” while Swiss merchants some government services have begun accepting Bitcoin payments.

Revolut hits break-even point, eyes expansion.  The London-based international money transfer firm said it broke even for the first time in December, a notable milestone for the three-year-old startup. Revolut said its monthly transaction volume is now $1.5 billion, up 700% over last year. The firm plans to expand aggressively in 2018, including launching in the U.S.

FDIC may emerge as key fintech charter gatekeeper.  The American Banker discusses payments firm Square’s pending application to become an industrial loan company (ILC) supervised by the Federal Deposit Insurance Corporation (FDIC). The article also explores how the FDIC’s stance toward ILC applicants may change as a result of changes in the composition of the FDIC’s board.

CFSI kicks off fourth Financial Solutions Lab challenge.  The Center for Financial Services Innovation (CFSI) opened its annual competition to identify and support “fintech innovators and products that can help improve the financial health of underserved [U.S.] populations.” This year’s competition has a special focus on diversity, minority leadership, and inclusiveness.

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