Interview by David Berger, CEO of the Digital Currency Council, with Bob Bonomo – who provides Chief Information Officer services to the Trading Division of SecondMarket, led by Brendan O’Connor. After a distinguished career at Alliance Bernstein, Bob now serves as an outsourced Chief Information Officer to various firms across Wall Street, with a focus on those adopting Bitcoin.
David: Bob, Thank you for your time today. Could you share with us your background and how you discovered Bitcoin?
Bob: I spent my entire career on Wall Street designing, developing and managing key Marketing, Research, Portfolio Management and Trading Systems for Retail, Institutional and High Net Worth clients. In 2011, I began offering independent technology consulting services to small asset managers and hedge funds. Knowing my expertise and track record, Brendan O’Connor reached out to me in 2014 and discussed an opportunity to work with his team at SecondMarket.
Prior to our conversation, I knew close to nothing about Bitcoin!
After reading Satoshi Nakamoto’s White Paper and dozens of other related publications, I became fascinated with cryptography and the potential for Bitcoin’s Blockchain technology.
David: And could you explain how you help firms like SecondMarket’s Trading Division?
Bob: Making complex technical topics easier to understand and act upon is my forte.
As a CIO as a Service consultant, my assignments involve any combination of IT skills normally performed by a Chief Information Officer.
For example, from a technical perspective, CIO’s often document a high-level technical strategy, rationalize hardware & network configurations, and produce report cards for key cloud based vendor partners. From a Business perspective, CIO’s simplify business processes via workflow analysis, optimize staffing and manage risk by developing disaster recovery and business continuity plans.
David: What is unique about the processes and procedures for an institution dealing in Bitcoin versus traditional currencies?
Bob: With respect to most high-level inputs, outputs and investment processes, basic commonality exists between Bitcoin and Traditional Currencies.
Bitcoin processes & procedures do vary regarding degree of scrutiny, product breadth, depth and use of cryptographic technology & terminology.
- On-boarding of clients requires extra focus on due diligence regarding Know Your Customer and Anti-Money-Laundering regulations.
- Pricing: BTC is expressed in fractions out to 8 decimal places, i.e. .00000001 BTC = 1 Satoshi.
- Identifiers: Bitcoin is not yet recognized with an ISO currency code and utilizes Addresses and Wallets versus traditional Accounts.
- Connectivity: BTC utilizes Binary Protocols vs. the Text based FIX protocol used between buy and sell sides for traditional securities and currencies.
- Tools available: Traditional OMS vendors have not yet integrated Digital Currencies; Digital Currency Research publications are in early stages, etc.
- Transaction-types: Bitcoin currently offers SPOT settlement, i.e. no Hedging via FORWARDs — yet — , but they are on the horizon along with other derivative products and exchanges.
- Validation: BTC has no automated rejections via FIX DKs, instead pre-confirmation communication for BTC is via telephone, while transaction confirmation is performed independently by Miners.
- Confirmation: BTC utilizes Emails initially followed by 6 Blockchain conformations versus traditional FIX or SWIFT messages.
- Settlement date: BTC settles Trade Date+1 versus the traditional FX spot settlement of T+2
David: When you’re working with Bitcoin clients, what are the risks that you highlight to them?
Bob: The relatively young Bitcoin space has a perception of being “risky” due to its underlying complexity and the multiple headlines of fraud, theft etc. over recent months.
However, it is important to understand, segregate and categorize risk appropriately in order to focus strategy, optimize resources and deliver product in the Bitcoin space.
Bitcoin risks can be categorized as follows:
|Development & Operations||Software & Services||3rd Parties|
|Incorrect Use(Corruption)||Incorrect Use(Corruption)||Web Attacks|
|Deployment Bug(Rollout)||Deployment Bug(Rollout)||Protocol Design Flaw|
|Implementation Bug(Business Logic)||Implementation Bug(Business Logic)||Specification Limitation|
David: How important are the tax, legal, and regulatory issues to your clients? Do you work closely with attorneys and accountants on these issues?
Bob: Such non-technical issues are indeed at the forefront of every Bitcoin company executive’s mind.
So yes, as needed I work closely with other professionals regarding vendor contracts, role definitions, process definitions & interfaces and of course, regulations.
Regulations will remain the 800 pound gorilla in the room as Bitcoin gains broader acceptance. Therefore, I believe a transparent, partnership approach with Regulators is the best path to adoption and innovation going forward.
David: Where do you see the next opportunity in the blockchain technology? What is the next frontier?
Bob: Much as the Web evolved from its V1.0 static, read-only capability to the current V2.0 e-commerce, collaborative, transactional powerhouse, and continues toward V3.0 promising natural language processing, distributed databases, machine learning and autonomous agents, I believe Bitcoin’s Blockchain will deliver waves of functionality over time, many beyond the original intent of its designers.
Many Digital Currency entrepreneurs and venture capitalists see the addition of layered/alternative services, leveraging the sequence validation and security capabilities of the Blockchain, as the single most important technical innovation of Bitcoin and key to its broad adoption.
So what features and services will Bitcoin V2.0 produce to mirror the advancements that occurred with Web 2.0 such as social networking, blogs, wikis, video sharing sites, hosted services, Web applications, and mashups ? That is indeed the 21 million BTC question!
David: Some have said that 2015 will be the year that Wall Street adopts Bitcoin. Do you agree? What are the barriers to adoption on Wall Street?
Bob: Yes, but at a slow, steady pace, driven initially by the adoption of Multi Signature Wallets and ultimately by the level of demand placed on existing OMS Vendors by Asset Managers to add support for Digital Currencies.
A full Wall Street “adoption of Bitcoin “ will be a complicated dance indeed, involving many moving parts – Technical, Procedural, Educational; (both employees and clients), Product Development, Vendor Rationalization/Consolidation and Integration, Legal, Tax and Regulatory clarity, Wallet Insurance, BTC Derivatives, etc.
However, the recent launch of the first U.S. based Digital Currency Exchange by Coinbase, is a major step toward increasing Bitcoin understanding, legitimacy and adoption.
David: Most people don’t have a lot of time to spend weeding through all the information online about Bitcoin. In your opinion, what is most critical for newcomers to understand about Bitcoin?
Bob: Reading about Bitcoin on the web is much like drinking from a fire hose – theory, transaction data, projections, videos and opinions are readily available – so learning requires a thoughtful plan.
Given its complex mathematical foundation, obtuse address formats and evolving parameters over time, when studying Bitcoin, I suggest a “layered approach” that separates concepts such as security, on-boarding, fiat interaction, regulations, e-commerce, trading and future business capabilities.
On my website, I have organized links to facilitate an understanding of Bitcoin. http://bob-bonomo.com/latest-news.html
In addition, for a more in-depth and personalized understanding, I offer Single Day Training sessions, customized for VC, Technical or Business audiences.
The future is bright for this open-sourced driven technology as it gains institutional acceptance, disrupts traditional e-commerce and ultimately enables the Internet Of Everything.
I plan to remain at the heart of this movement!
David: Bob, thank you very much for your time, insight and membership in the Digital Currency Council.
Bob: My pleasure.