It’s been another wild few weeks for crypto as Bitcoin rocketed to new highs thanks in large part to Bitcoin ETFs getting the green light from regulators. Even now, after the rally cooled off a bit, prices remain far higher than they did last month. And yet, despite the crypto market’s current upswing, major questions remain: namely, whether crypto is actually a safer alternative to fiat currency, and what effective government regulation might actually look like.
For an industry perspective on some of these lingering existential points, I chatted with Philip Martin, chief security officer at the trading exchange Coinbase and a participant at Fast Company’s recent “Regulating Tech in Real Time” panel at South by Southwest. This interview has been edited for length and clarity.
This has been another crazy week for crypto. There are also still a ton of scams for a technology that has been touted for its ability to prevent scams. Is there a way out of that puzzle?
That’s a great question. There are absolute scams in crypto just like your scams with fiat currency. I think the problem with scams is much larger than crypto, per se. The problem with scams is human, at the end of the day. It’s made worse by the rapidity of communication in the modern world. It’s made worse by the level of isolation a lot of people experience today, especially with work from home.
We do a bunch of work proactively to prevent scams from successfully reaching their conclusion, as well as reactively when we come across victims of scams. And what we found is that, number one, education is really the silver bullet when it comes to scams. I think a lot of people just don’t know what a scam looks like. And two, from a platform perspective, for us it’s about making sure that we are injecting the right moments in the right ways—in the moment, just-in-time education that’s like “Hey, you might be getting scammed, and if so here are the signs and symptoms of that.” So even if they’re not educated previously, they can at least have the chance to say, “Do I really want to send this money somewhere? Is that actually the right choice?”
How do you get that message across to people?
It’s really tough, because there are so many different versions of that. My mom would need a different message than I would. She might need a different message than someone coming from a different cultural background. It’s about making sure that you’re putting your message out in a way that people are going to get it, in different formats and forums.
And we need to be very clear about the consequences of actions: “You’re about to do this. And this is what that’s going to produce.” In our wallet app we have done a bunch of work on what we call transaction transparency. Crypto transactions can be complicated and it might not be clear exactly what you’re doing, so we want to be able to generate a readable text version.
The crypto sector as a whole has obviously had a contentious relationship with the Securities and Exchange Commission (SEC), even though the agency did just issue a green light for exchange-traded funds (EFTs). From your point of view, can that relationship be repaired?
Any government agency like the SEC is going to go through phases over time. It comes with different priorities from different administrations, and that’s fair. I think continuing to invest in our relationships with staff at every agency, continuing to educate and collaborate, is really what creates long-term sustainable engagement.
Can you give an example of that collaboration?
Look at the record on ETF applications, where there were a number of staff meetings, and not just Coinbase but the ETF issuers themselves sat down and listened to the SEC’s concerns. If you look at the record you’ll see that the ETF offerings actually mature as part of that process over time to better reflect and respond to those expressed concerns.
Bad actors have been paid in crypto to meddle in elections around the world. How can the sector crack down on such activity ahead of the upcoming U.S. presidential election?
There’s illicit activity in cryptocurrency, just like every other currency. If you read the actual reporting that they put out, it’s an extremely low percentage. There’s no dethroning the dollar in that sense. But it would, of course, also be folly to say “No, no, there’s nothing happening here.” So, number one, it’s about making sure there’s a level playing field for crypto exchanges around the world.
Look at an exchange like Coinbase. We are regulated as a U.S. company, we have the same obligations as any other bank or financial services organization would when it comes to reporting suspicious activity to organizations like FinCEN [the U.S. Treasury Department’s Financial Crimes Enforcement Network] and others. That is not true globally. When we think about where that activity is happening, my assertion will be that it’s largely happening outside the U.S. and outside the bounds of exchanges that are obligated by regulation to maintain thorough and robust [anti-money-laundering] programs.
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