Digital gold, decentralized ledger, global currency – it's not easy to explain bitcoin in any setting, let alone to regulators or law enforcement officials.
If the task is any easier today, imagine attempting it in 2013. That was the challenge facing Coinbase's inaugural chief compliance officer (CCO) Martine Niejadlik. A former senior director at eBay and PayPal and senior manager of fraud prevention at Amazon, Niejadlik admits even she had trouble coming to terms with the tech.
"Frankly, the first time [CEO] Brian Armstrong called me to tell me about Coinbase and bitcoin I thought he was nuts," she recalls. "It took me some time, quite a bit of it, to understand why the technology could be very disruptive."
Niejadlik ultimately took the role, overseeing Coinbase's compliance during a period of rapid expansion that saw the company's user base grow from 650,000 users in December 2013 to 2 million in January 2015. She left the company in February to take the "greatest job in the world" as a full-time parent.
During her time at Coinbase, she oversaw the company's implementation and management of compliance procedures, ensuring that the firm and its employees operated in accordance with internal and external policies.
One of the biggest challenges of overseeing compliance in this setting, she believes, is the difficulty that comes with fitting bitcoin into existing regulations.
Niejadlik told CoinDesk:
"Basic questions such as 'What is bitcoin?', 'Is it money?', 'Is it currency?', 'Is it an investment tool?', 'Is it property?' don't have straightforward answers, and different state and federal regulations contain different terms and definitions."
Niejadlik explained that this confusion is evidenced in how different US agencies have approached the subject, with the IRS treating it as property and FinCEN labeling it a currency. She went on to argue that there's a risk the compliance process will become more complicated should other global regulatory bodies follow a similarly diverse approach.
"More clarity and solutions are on the way, but the main question is whether there will be consistent answers – it'll be tough for bitcoin companies if, for example, states, or even countries, take a different stance and there is a real possibility that could happen," she said.
Compliance pain points
While bitcoin companies face many of the same compliance issues as traditional financial services businesses, she said others are unique, including the relative difficulty companies have securing banking partnerships and the high cost of licensing.
Niejadlik noted that simply working with other financial institutions like insurance companies to obtain surety bonds or audited financials that need to be supplied was part of the company's recurring responsibilities.
"The 'big four' are hesitant to sign off on things like whether a company is actually holding the bitcoin they say they are, think Mt. Gox, and for that matter, how to even properly account for such items on financial statements," she continued.
Elsewhere, burdens are placed on companies through mandates passed in the wake of the 9/11 terrorist attacks that aim to address money laundering and terrorist financing concerns.
"It's not easy to build technology that can figure out who is a good guy and who is doing something illicit, or how to figure out if your user is the real person on the Office of Foreign Assets Control [OFAC] list or if he just happens to be an unlucky individual with the same name as someone on the list," she said.
Such systems, Niejadlik says, are expected to be in place from the time a company begins interacting with customers, necessitating that startups "move quickly to implement solutions while working in parallel on their products".
Creating additional difficulty is the state of conversation about the technology among the general public, which Niejadlik framed as overly focused on negative incidents.
"There has been extensive media coverage of negative events such as Silk Road, Mt. Gox and other notable arrests and illegal activities," she said, arguing that this is state of affairs is "uncomfortable" to regulators, law enforcement and those seeking to work with the industry.
Niejadlik suggested that such negative press reinforces the heightened concerns of these parties, thus causing difficulties with what should be basic relationships for financial entities, though the coverage has not been without usefulness.
"I think media attention to some of the negative events is important as it helps the public understand things such as why to not store private keys with a company developed to facilitate Magic The Gathering transactions," said Niejadlik. "However, I do think proportionally there has not been enough attention to the benefits of the system and the good things happening in the bitcoin space."
Other issues, she suggested, have arisen regarding how media outlets portray a company's statements, such as when Coinbase formally launched its exchange product.
Striking a balance
A more delicate balancing act, she said, is ensuring that companies are succeeding on both compliance and usability, a task that is not always easy as evidenced by the sometimes public outcry over the actions of industry companies.
For example, Coinbase came under fire following Niejadlik's tenure for what was denounced as invasive information collecting on firms that process bitcoin transactions.
Niejadlik said that privacy requires "ongoing internal conversations" over what's best for the company from a regulatory and product standpoint, especially in light of the push by regulators to be more demanding of the compliance efforts of companies like Coinbase.
"There is pressure coming from both new regulations [like the] NY BitLicense and from banks and their regulators to collect more data upfront, and that can unfortunately push users who are very concerned about privacy to services which are not regulated and may be less secure," she said.
Overall, she suggested that other professionals who fill a similar role in the industry would be wise to involve team members on both the compliance and product side in decision-making.
Still, Niejadlik said that such challenges, while unique to the industry, are not dissimilar from those overcome by other the Internet's early success stories.
"Every company has it's challenges and set of problems to work through. In the early days at Amazon we were battling things like fraudulent credit card purchases and account takeovers. At eBay it was a whole host of policy violations such as listing banned items and leaving feedback on your own listings," she recalls, adding:
"Companies in the bitcoin space grapple with many of the same questions that PayPal did, and does, such as how to best balance consumer experience with mitigating compliance and fraud risks."
Niejadlik said that bitcoin companies are now able to rely on services provided by large online e-commerce websites such as analytical, account takeover mitigation and spam email solutions.
Overall, she expressed optimism that the abilities of the technology would be highlighted as similar solutions for the industry are developed, concluding:
"The challenge is that the systems to mitigate these risks are in various stages of development."
Niejadlik declined to answer questions specific to her work at Coinbase.
Martine Niejadlik is speaking at Consensus 2015 in New York. Join her at the Times Center on 10th September.
If the task is any easier today, imagine attempting it in 2013. That was the challenge facing Coinbase ‘s inaugural chief compliance officer (CCO) Martine Niejadlik. A former senior director at eBay and PayPal and senior manager of fraud prevention at Amazon, Niejadlik admits even she had trouble coming to terms […]