Fintech

Know your crypto customer? The industry is facing down the Travel Rule.

The crypto Travel Rule group, which includes Coinbase, Anchorage Digital and Robinhood, offers a way for companies to comply with a key FinCEN rule.

Coinbase Chief Legal Officer Paul Grewal

Largely by design and to the chagrin of law enforcement, keeping track of personal information isn’t the norm in decentralized, blockchain-based transactions.

Photo: Coinbase

Sending huge amounts of money by wire anonymously violates a government rule that says information about who is sending how much to whom must “travel” with that transaction.

But the Travel Rule, as it is called, has been a headache in crypto, where pseudonyms reign (who’s Satoshi Nakamoto again?). Largely by design and to the chagrin of law enforcement, keeping track of personal information isn’t the norm in decentralized, blockchain-based transactions.

That could change with a new crypto organization that’s building a system that would enable its members to comply with Travel Rule requirements, while maintaining a degree of privacy and anonymity valued in crypto.

The Travel Rule Universal Solution Technology, or TRUST, is introducing itself Wednesday with 18 initial members, including major companies like Coinbase, Circle, Anchorage Digital, Gemini and Robinhood.

The Travel Rule requirement is challenging for crypto, since “unlike traditional financial institutions,” crypto companies use “a very decentralized infrastructure that we rely upon in order to track these different transactions,” Coinbase Chief Legal Officer Paul Grewal said. “With permissionless blockchains, there's no way to understand whether a wallet address on the other side of a transaction belongs to a financial institution or to an individual or anybody else.”

TRUST hopes to fix that with a network in which exchanges will be able to verify each other’s addresses before facilitating transactions, Grewal said. (In the United States, transactions of $3,000 or more must comply with the Travel Rule.)

The network also includes two important design features: It will not store “sensitive kinds of customer information, either on the TRUST platform itself or with any kind of third party,” Grewal said. Any information shared on the network will be encrypted, and addresses will be hashed before they are shared, he said.

“We encrypt that transmission, so that only the sender and the recipient have access to it, and then that way, we make sure that no one is interfering with that or gaining unauthorized access in some untoward way,” he said.

The network will make it possible “to first confirm the identity of that wallet address before any information is sent, and then to have the information transmitted peer-to-peer directly from one exchange to the other so that we're not pooling information in any central place that could obviously become a honeypot for nefarious actors,” Grewal said.

Michael Fasanello, director of Training and Regulatory Affairs at the Blockchain Intelligence Group, said that was a real risk.

“That kind of curated personal information is, quite literally, digital gold,” he said, which is why encrypted and decentralized data would be “a critical part of any Travel Rule implementation in digital assets.”

Grewal said the initiative has received “an extraordinarily positive reaction” from FinCEN, the Treasury Department’s financial crimes enforcement body. FinCEN could not be reached for comment ahead of the group’s announcement.

Jonah Crane, a partner at the Klaros Group, said the new organization “should provide a path to compliance for participating firms.” Christine Brown, Robinhood’s COO for crypto, said the new organization shows that “it takes a community of crypto businesses and platforms to work together to find a solution to preserve customer privacy while meeting the legal requirements of the Travel Rule.”
Fintech

Election markets are far from a sure bet

Kalshi has big-name backing for its plan to offer futures contracts tied to election results. Will that win over a long-skeptical regulator?

Whether Kalshi’s election contracts could be considered gaming or whether they serve a true risk-hedging purpose is one of the top questions the CFTC is weighing in its review.

Photo illustration: Getty Images; Protocol

Crypto isn’t the only emerging issue on the CFTC’s plate. The futures regulator is also weighing a fintech sector that has similarly tricky political implications: election bets.

The Commodity Futures Trading Commission has set Oct. 28 as a date by which it hopes to decide whether the New York-based startup Kalshi can offer a form of wagering up to $25,000 on which party will control the House of Representatives and Senate after the midterms. PredictIt, another online market for election trading, has also sued the regulator over its decision to cancel a no-action letter.

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Ryan Deffenbaugh
Ryan Deffenbaugh is a reporter at Protocol focused on fintech. Before joining Protocol, he reported on New York's technology industry for Crain's New York Business. He is based in New York and can be reached at rdeffenbaugh@protocol.com.
Sponsored Content

Great products are built on strong patents

Experts say robust intellectual property protection is essential to ensure the long-term R&D required to innovate and maintain America's technology leadership.

Every great tech product that you rely on each day, from the smartphone in your pocket to your music streaming service and navigational system in the car, shares one important thing: part of its innovative design is protected by intellectual property (IP) laws.

From 5G to artificial intelligence, IP protection offers a powerful incentive for researchers to create ground-breaking products, and governmental leaders say its protection is an essential part of maintaining US technology leadership. To quote Secretary of Commerce Gina Raimondo: "intellectual property protection is vital for American innovation and entrepreneurship.”

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James Daly
James Daly has a deep knowledge of creating brand voice identity, including understanding various audiences and targeting messaging accordingly. He enjoys commissioning, editing, writing, and business development, particularly in launching new ventures and building passionate audiences. Daly has led teams large and small to multiple awards and quantifiable success through a strategy built on teamwork, passion, fact-checking, intelligence, analytics, and audience growth while meeting budget goals and production deadlines in fast-paced environments. Daly is the Editorial Director of 2030 Media and a contributor at Wired.
Enterprise

The Uber verdict shows why mandatory disclosure isn't such a bad idea

The conviction of Uber's former chief security officer, Joe Sullivan, seems likely to change some minds in the debate over proposed cyber incident reporting regulations.

Executives and boards will now be "a whole lot less likely to cover things up," said one information security veteran.

Photo: Al Drago/Bloomberg via Getty Images

If nothing else, the guilty verdict delivered Wednesday in a case involving Uber's former security head will have this effect on how breaches are handled in the future: Executives and boards, according to information security veteran Michael Hamilton, will be "a whole lot less likely to cover things up."

Following the conviction of former Uber chief security officer Joe Sullivan, "we likely will get better voluntary reporting" of cyber incidents, said Hamilton, formerly the chief information security officer of the City of Seattle, and currently the founder and CISO at cybersecurity vendor Critical Insight.

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Kyle Alspach

Kyle Alspach ( @KyleAlspach) is a senior reporter at Protocol, focused on cybersecurity. He has covered the tech industry since 2010 for outlets including VentureBeat, CRN and the Boston Globe. He lives in Portland, Oregon, and can be reached at kalspach@protocol.com.

Climate

Delta and MIT are running flight tests to fix contrails

The research team and airline are running flight tests to determine if it’s possible to avoid the climate-warming effects of contrails.

Delta and MIT just announced a partnership to test how to mitigate persistent contrails.

Photo: Gabriela Natiello/Unsplash

Contrails could be responsible for up to 2% of all global warming, and yet how they’re formed and how to mitigate them is barely understood by major airlines.

That may be changing.

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Michelle Ma

Michelle Ma (@himichellema) is a reporter at Protocol covering climate. Previously, she was a news editor of live journalism and special coverage for The Wall Street Journal. Prior to that, she worked as a staff writer at Wirecutter. She can be reached at mma@protocol.com.

Entertainment

Inside Amazon’s free video strategy

Amazon has been doubling down on original content for Freevee, its ad-supported video service, which has seen a lot of growth thanks to a deep integration with other Amazon properties.

Freevee’s investment into original programming like 'Bosch: Legacy' has increased by 70%.

Photo: Tyler Golden/Amazon Freevee

Amazon’s streaming efforts have long been all about Prime Video. So the company caught pundits by surprise when, in early 2019, it launched a stand-alone ad-supported streaming service called IMDb Freedive, with Techcrunch calling the move “a bit odd.”

Nearly four years and two rebrandings later, Amazon’s ad-supported video efforts appear to be flourishing. Viewership of the service grew by 138% from 2020 to 2021, according to Amazon. The company declined to share any updated performance data on the service, which is now called Freevee, but a spokesperson told Protocol the performance of originals in particular “exceeded expectations,” leading Amazon to increase investments into original content by 70% year-over-year.

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Janko Roettgers

Janko Roettgers (@jank0) is a senior reporter at Protocol, reporting on the shifting power dynamics between tech, media, and entertainment, including the impact of new technologies. Previously, Janko was Variety's first-ever technology writer in San Francisco, where he covered big tech and emerging technologies. He has reported for Gigaom, Frankfurter Rundschau, Berliner Zeitung, and ORF, among others. He has written three books on consumer cord-cutting and online music and co-edited an anthology on internet subcultures. He lives with his family in Oakland.

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