The twin issues of spotty security and lack of governmental regulation have plagued cryptocurrencies practically since their inception. Headlines of millions lost to hackers and scammy, get-rich-quick schemes that left investors bankrupt have made the public leery of cryptocurrencies.
Intercontinental Exchange, which also owns the New York Stock Exchange, is striving to change all that with the launch of its company Bakkt, which aims to create the first federally regulated cryptocurrency marketplace.
With the stated goal of connecting the blockchain to existing merchants, Bakkt is one of the first cryptocurrency marketplaces to meet federal regulatory requirements.
— Bakkt (@Bakkt) August 20, 2018
Bakkt uses Microsoft’s cloud system to facilitate its network and is working with companies like Starbucks and BCG to create a network of vendors that customers can feel safe using cryptocurrencies with, according to the official press release regarding the company’s launch.
In a Medium blog post, Bakkt CEO Kelly Loeffler detailed the company’s first steps toward creating this secure network, as well as what makes Bakkt different from other companies in the blockchain ecosystem.
Building on an Existing Financial Network
In the post, Loeffler states that Bakkt will use existing financial infrastructure to create a secure delivery and storage system for Bitcoin:
“All aspects of the existing futures market, including institutional-grade onboarding and compliance will, for the first time, be part of physical delivery and warehousing of Bitcoin. This includes consistent standards for compliance, with anti-money laundering and know-your-customer rules, market surveillance, and reporting standards at the federal regulation level, subject to final review and approval by the U.S. CFTC.”
Bakkt will reportedly incorporate multiple layers of physical and technological security into its Bitcoin warehouses–including the storage of Bitcoin in offline digital warehouses. Sales of Bitcoin futures through Bakkt will be pre-funded to reduce the possibility of default.
Beefing Up Security Measures
Loeffler says the current futures market will serve as another layer of security in this new Bitcoin marketplace, adding security to the products being sold by adding physical security measures like biometrics as well as regulatory reporting requirements and participation agreements.
She also notes that Bakkt will not employ ISDA agreements used in “over-the-counter” swaps markets. Instead, the company plans to utilize physically delivered Bitcoin futures contracts as its first offerings. A customer will be able to buy a contract one day and receive Bitcoin delivered to their account the next day, using the existing security measures and backbone of the financial futures market.
In Loeffler’s closing paragraph, she said:
“While there are many aspects of Bakkt that we’ll continue to develop and share, our initial focus is supporting regulated institutions in serving customers in this emerging asset class.”
Cover Photo by Luís Eusébio on Unsplash