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digital
daily

digital daily: A Wallet

A Wallet. The future of finance is a digital wallet. We can all see it; we just can’t touch it (yet). Talk to a technologist and they will focus on Uber or Apple as comparatives to this future. Uber by design, rents cars from owners without any upfront capital costs. It is ubiquitous. Apple monetizes physical and application design by renting engineering services for the app store. (Nobody uses Safari – well, almost nobody.) It, too, is ubiquitous. Financial innovation lags massively behind despite having a far more relevant market size. After all, the gross value of US financial assets is $159.7 trillion, dwarfing the $76.2 trillion in non-financial assets (here). How has financial innovation lagged so far behind? Moats. Even in the early stages of blockchain adoption, the response of the banking system was half-hearted, more focused on building dams than canals. r3 was capitalized with crumbs from bank earnings in 2014, and they just launched their “community edition” this year. Of course, the regulatory standard for the financial sector is infinitely greater than with cars or mobile data. The technologist model of pressing ahead and forcing regulators to adapt will be ineffective in finance. The stakes are too high. Warnings about unregistered entities selling unregulated securities are not lip-service to those operating in the digital arena. It is a warning for compliance. But institutions will change the landscape. Their adoption of digital assets demands a stronger regulatory foundation. Custody is an obvious one. If we are going to be evaluating our assets through digital wallets, those assets will need a “home.” They will need custodians. The base layer for technologists is a battle between Bitcoin, Ethereum, and others. The base layer for institutions is custody. US bank regulators will soon define what it means to be a digital bank. And the first order of business for digital banks is the boring business of custodial services. Only, it isn’t boring at all. We don’t think about the complexities of tools when they work, only realizing the subtleties when they don’t, like a financial crisis. This is not a footnote to the digital-adoption equation. It is the quantum leap. And that’s where Caitlin Long comes in. Ms. Long is building a strong foundation for the digital ecosystem, helping to define a clear legal framework for owners of digital assets, and working towards the creation of a digital bank. We were grateful for the opportunity to host Caitlin Long at the most recent Crypto Monday, CT edition. We should all appreciate the effort required to bring digital assets into the mainstream – at some point in the near future, it’ll all be taken for granted. And that’ll be a sign of progress.

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