As the cryptocurrency world keeps growing, so too does the need for infrastructure and infrastructural support.
After all, something as common as a cryptocurrency exchange has a ton of moving parts that operate behind the scenes. End-users are provided with a rather simple service. However, the amount of technical infrastructure, including data feeds, cybersecurity and more, is considerable.
Therefore, as crypto keeps getting bigger, the importance of these backend features becomes all the more important.
Recently, Finance Magnates sat down with Robert Materazzi, co-CEO of blockchain data provider firm Lukka, which “turns blockchain data into easy-to-use information to support business operations.”
Robert spoke about supporting companies with various blockchain data-related needs, the changing regulatory landscape in the United States, and crypto’s big move into the mainstream institutional scene.
“Everyone Agrees That [Blockchain Is] Great, but They Don’t Really Know Why Yet.”
“It seems like just about every business in the world is trying to figure out what to do with blockchain,” Robert said. However, “everyone agrees that it’s great, but they don’t really know why yet.”
Additionally, “there’s this whole industry that’s evolved that’s had various reputations over the years,” he said, referring to “the actual cryptocurrency markets” themselves.
“It really started with the launch of the Ethereum blockchain, and then after that, a ton more assets started being created on blockchains,” he said.
“A lot of companies argue that ‘there should only be one big blockchain’ and that ‘we should figure out interoperability’, and all of these different topics which all sound great,” he said.
“At the end of the day, we appreciate all of the innovation that’s been taking place with all of these new blockchains: all of the new assets that have been created, all of the new businesses that are formed around these new assets, the accessibility of these assets, and the liquidity that it’s created around the world.”
However, “when we add multiple blockchains with very different protocols and different rules that relate to them (to put it simply), it makes the back-office aspects of interacting with all of that data more challenging, because it wasn’t what the blockchain was originally designed to do.”
And so, “when we have thousands of blockchains today,” he said, referring to the 7200+ assets that are listed on CoinMarketCap, “it creates very new data challenges.”
This is where Lukka comes in: “it’s everything from valuing these assets at specific dates and times, converting all the various formats to a consistent view so that we can create what would traditionally be considered as very simple reports.
“We are the gap between all of that more complex data and the more ‘normal’ reporting requirements that businesses need.”
“If They’re Dealing in Money and Transactions, There’s a Use [for Lukka.]”
Which companies need these kinds of services the most?
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Robert explained that “the first companies to cater to these new markets and to all of the demands that the world was making” were exchanges. “Everyone wanted to be able to exchange these assets for one another,” he said. “Just like people do in securities markets or the FX markets.”
As a result, “all of these cryptocurrency exchanges (like Coinbase, and Kraken, and so on),” are Lukka’s customers or at least potential customers.
Essentially, though, “it doesn’t really matter what their business is,” Robert said. “If they’re dealing in money and transactions, there’s a use [for Lukka.]
“It’s anyone who’s actually taken the leap [to digital assets]: either their core business is in crypto exchanges, or they’re adding crypto as a payment method to sell their products. In either case, there’s a use case for us.”
Momentum with Traditional Financial Institutions
“The big difference over the last year is the wave of regulator and government agency updates that have come out,” Robert said. “Of particular interest is the OCC announcing that nationally-chartered banks can provide custody services for digital assets, and a ton of guidance that’s come out over the last two years from the IRS, including moving up to ask every tax filer if they’ve acquired any virtual currency.
“A lot of that has caused a ton of momentum with traditional financial institutions,” he said. “We’re right on the cusp of a traditional financial services world engaging digital assets much more seriously.”
However, there is still some confusion surrounding the regulatory landscape for cryptocurrency in the United States. This is part of the reason that Lukka recently announced the launch of the Lukka Library, a “new knowledge database of technical papers that provide guidance and insight on the many open questions in the field of crypto asset taxation and law.”
Are Regulators Driving Interest in Crypto, or Is Interest in Crypto Driving Regulators?
Although the lack of regulatory clarity for crypto in the United States is still an issue, Robert said that “there is definitely a spike” happening now when it comes to new policies being formed in the cryptocurrency space.
This has created a sort of chicken-or-the-egg effect: “whether it’s the regulators that are ‘lighting the fire’ of additional interest [in cryptocurrencies], or it’s other companies that are causing the regulators to be more interested, I’m not quite sure.”
Still, “all of the above is true. It’s the regulators, the big financial institutions, even what we call ‘modern crypto enterprises’ that are doing things like filing for banking and depository licenses.” For example, US-based cryptocurrency exchange Kraken received a Wyoming banking license earlier this month.
“All of those things are causing a lot more visibility,” he said. “It’s showing the world that businesses are serious, that they’re a lot larger than most people realize, that there’s a lot of volume going on around these assets around the world, and that it’s pretty safe to say that it isn’t going away, for people who may have thought that in the past.”
“[Regulatory Efforts] Really Just Need to Continue on the Path That They’re on Right Now.”
Still, while the pace of regulation has been increasing, much of the work which has to do with developing the best standards and practices is being done by industry participants themselves.
At the same time, though, “I’ll give a lot of credit to the regulators and agencies for the IRS – the learning curve is steep, but the effort is clearly there.
“They are taking it very seriously, and they are very actively looking to make sure that they’re accounting for cryptocurrencies.”
Therefore, Robert believes that regulators are doing the right things: “[regulatory efforts] really just need to continue on the path that they’re on right now.
“The announcements that have come out this year alone are very impressive, and it’s not really the content within them; I’d say that the content within them is still very preliminary. But, just the fact that a different regulator or agency is announcing something related to cryptocurrency on a recurring basis – almost every other week right now,” he said. “That’s the ‘big sign’ for me.
“The actual regulation will mature once regulators understand all of the issues, and that’s going to take some time to develop.”
And, of course, “innovation is moving fast. So, I’m sure that once we do figure it out, it’s all going to change and that we’re going to have to figure it all out again.”