Bill Barhydt, a former cryptographer at the Central Intelligence Agency and the founder of cryptocurrency investment platform Abra, is mapping out how cryptocurrency can operate outside of the current regulatory environment to power a crypto bank.
In a new Off the Chain interview with host Anthony Pompliano of Morgan Creek Digital, Barhydt notes that his collective experience in various industries – from intelligence to the internet to finance – has all come together, allowing him and his team to lay the groundwork for a radically different banking model for everyday people.
In addition to the CIA, Barhydt worked as a quantitative analyst in fixed income research at Goldman Sachs and as the former technical director at Netscape where he focused on e-commerce and banking projects.
Barhydt says he’s well-versed in money service business rules because of his work on Dodd-Frank where he joined a group of tech leaders to address and refine the policy language regarding remittance rules.
His extensive knowledge base led him to strategize and figure out the best way to leverage cryptocurrencies to reinvent modern banking. The key to a new model is recognizing the capabilities and the power of Bitcoin, a worldwide currency with a global user base, as programmable money.
“When you’re putting fiat into your Abra wallet, the experience looks like Venmo, like a Venmo deposit, but what you’re really doing is you’re depositing money at an exchange which then automatically buys Bitcoin for you, and then, in the case of Ripple, enters into that multi-sig contract where you effectively short Bitcoin versus Ripple. And Abra takes the long position on that contract versus Ripple. All of that happened in the background without you having to know.”
The end game is to use cryptocurrency in a new paradigm – beyond the regulators.
“The long play for Abra is to develop a crypto bank. What does a crypto bank mean? From my perspective, it reverses the model of a central bank-based custodianship model to one where the consumer is in control of their own funds – whether it’s for investing, which there are lots of examples beyond just investing in crypto, credit or person-to-person money transfer and remittances, which is one of the big reasons I started Abra in the first place.
You can actually do all of those transaction types in a model where you’re in control of your own money for the first time, without having to understand the nuances of how the crypto works, or Abra having to be licensed in 175 countries to execute those transactions.
We’ve developed a model which is free of, effectively, SEC, CFTC or European e-money style regulation because of the fact that we’re not a custodian of consumer funds. We’re not developing swap execution facilities or other security-based products doing this. We’re entering into very simple crypto contracts which are effectively able to roll over either daily, weekly, monthly, whatever system we set up.
And that also gets around a lot of the nuances of CFTC regulation as well. For people who say these look a lot like CFDs which are illegal in the US, that’s true, but we’re not actually implementing them the same way that a leveraged European-style CFD is implemented. These are zero-leverage, instant capability for roll over. Abra is always the counterparty, which, again, gets around a lot of those regulations.
So the point is, I can effectively develop a legal, crypto-based bank in every country in the world, minus the OFAC-sanctioned countries, with zero licensing that puts the consumer in control of their own money – that’s not hackable from Abra’s perspective, because if you hack me, yes, you might be able to steal my crypto, but you can’t steal the consumer’s crypto.”
How might regulators react to this model?
Barhydt says that if you give consumers 1s and 0s to hold on their own on a hard disk, that’s not something that’s regulated – because it’s not contraband material, like child pornography.
“Even in China, it’s not illegal to hold your own private keys on a hard disk or a smart phone.”
According to Barhydt, a greater understanding of Bitcoin and its power as programmable money will eventually lead to a new competitor to the existing banking system.
“I see an entire shadow banking system. And I don’t say ‘shadow’ in the negative ‘this-is-bad’ sense. I say ‘shadow’ in terms of finally being competition to The Man.”