The difference is the absence of a curtain behind which users of previous cryptocurrencies - most notably the notorious bitcoin - have hidden. Enter GreenCoinX, which claims to be the world's first cryptocurrency to require user identification.
The idea behind cryptocurrencies was to create a fast and inexpensive means of transferring funds around the world, without the intervention of banks or governments. Not surprisingly, it found immediate favor among parties that craved secrecy – some for less than legitimate reasons. The Silk Road website was shut down by the FBI in 2013, charged with acting as a marketplace for the sale of illegal drugs funded by bitcoin. Soon after, the Tokyo-based bitcoin exchange known as Mt. Gox suspended trading and filed for bankruptcy, with some $450m worth of bitcoins having apparently vanished. Even the origin of bitcoin was shrouded in mystery, attributed to the pseudonymous Satoshi Nakamoto. You might say those early days of cryptocurrencies were the concept’s version of the wild west.
Now, GreenCoinX is seeking to rehabilitate the reputation of cryptocurrencies. Its creator is GreenCoinX Inc., a subsidiary of Canada’s GreenBank Capital Inc.
Earlier this year, GreenCoinX upgraded its identification rules to meet full Know Your Client (KYC) standards. KYC verification is used by the investment industry to confirm companies’ financial stability, sophistication and tolerance for risk. Users of GreenCoinX are required to open an online wallet that includes a brief verification process, whereby they upload copies of their passports and other relevant documents, then receive a unique KYC identification number. No more users hiding in the shadows.
The hundreds of cryptocurrencies that preceded GreenCoinX have all been predicated on the concept of anonymity, notes Danny Wettreich, chief executive officer of GreenCoinX Inc. As a result, they’ve been a magnet for any number of illegal activities, even terrorism. “No anonymous currency will ever be accepted on a worldwide basis as a medium of exchange,” he says.
With a background in merchant banking, Wettreich set forth to create an alternative digital currency that would be acceptable to governments. User verification was key. The requirements for creating a GreenCoinX online wallet, he says, are akin to opening a bank account. “At that point, all users in the ecosystem are identified. Crooks and bad guys won’t use it.”
Which raises a delicate question: What, then, is the point of a so-called cryptocurrency? Wettreich says it still makes eminent sense, especially for the transfer of relatively small amounts of money.
Say you want to send $1,000 from New York to Beijing. A standard wire transfer can take eight to 10 days, go through four or five banking hands, and accrue multiple charges along the way. By the time it reaches the recipient, the payment might be $200 lighter.
“With GreenCoinX, it costs you nothing, and takes 10 minutes,” says Wettreich. The method is especially valuable for the handling of micropayments, to parts of the world that lack access to traditional banking services. An estimated 1.5 billion people are currently “unbanked,” he says. (Last year, the World Bank put that number at 2 billion.)
The creation, or “mining,” of GreenCoinX is the same as that for other cryptocurrencies. The sending of a coin from one wallet to another involves the solving of an algorithmic equation. Competitive solvers use specialized computers for that purpose, and are rewarded for their success with newly minted “coins.”
The collapse of Mt. Gox highlighted a major concern about the stability and longevity of cryptocurrencies. What are the odds, after all, that these digital coins will still be worth something in the years ahead? GreenCoinX has addressed the issue through creation of a non-profit Digital Foundation, which guarantees miner rewards over the next 145 years. It currently owns 42 million coins, with another 60 million held by a software subsidiary of GreenBank Capital. Wettreich says his company pre-mined 20 percent of the coins to get the currency into circulation. The ratio of existing to unmined coins is roughly the same as that for bitcoin, he adds.
Like most traditional currencies, GreenCoinX can be freely traded, bought and sold. Its value at any given moment is a function of supply and demand. (When the currency was launched in May of 2015, a single GreenCoinX was valued at less than a U.S. penny, Wettreich says. As of February of this year, it was hovering in the $1.15 range.) Unlike paper currencies, the purchasing power of GreenCoinX doesn’t decline over time, because the number of coins in existence is finite.
GreenCoinX is fully convertible, based on current exchange rates. Here again, Wettreich’s initiative seeks to correct a major drawback of previous cryptocurrencies, which functioned in an unregulated environment. Owners of the various exchanges could abscond with clients’ funds, or use them to conduct unauthorized financial transactions.
To prevent that from happening with GreenCoinX, its creators have launched an affiliated currency exchange known as SiiCrypto. Charging no commission on trades, it places clients’ fiat funds – those in government-backed currencies – with an independent third party, ILS Fiduciaries (Switzerland) Sarl, the Swiss branch of ILS World. Cryptocurrency held by SiiCrypto cannot be accessed without client approval. And all SiiCrypto users are subject to the KYC identification standards. Wettreich calls SiiCrypto “the last piece of our ecosystem” that ensures the safety of funds for clients.
Other exchanges might pop up to handle GreenCoinX, but Wettreich believes SiiCrypto will dominate the market. “A lot will struggle to comply with our KYC requirement,” he says. “We won’t allow a transaction to occur without being fully identified. Some exchanges won’t want to go through the process of making that happen.”
GreenCoinX remains in the earliest stage of development, its ultimate fate uncertain. Wettreich says the company will be working hard to convince street retailers, consumers and unbanked individuals to accept the coin. The effort could take several years, he adds, before adoption begins to “snowball.” By then, perhaps, the idea of cryptocurrencies will have shed its aura of illegitimacy, and taken its place as an everyday means of payment.