Abra’s regulation-resistant fintech is revolutionary
Last week we reported that financial services company Abra is offering anyone the possibility to buy fractional shares of a growing list of public stocks, such as Alibaba (BABA), Apple (AAPL), Facebook (FB), Google (GOOG), Microsoft (MSFT), and many others, from the Abra app. Those who deposit cryptocurrencies into the Abra app to make a stock investment can do so anonymously, without “Know Your Customer” (KYC) identity checks.
With this move, Abra “has the potential to have a major impact in terms of the global, permissionless availability of traditional investment opportunities,” notes Kyle Torpey in Forbes. Torpey explains that Abra is able to offer investments to anyone, without KYC, because the keys to Abra’s “crypto collateralized contracts” (C3) are not held by Abra, but stored on the users’ phones.
In a 2017 interview produced by Reason, Abra’s CEO Bill Barhydt explained that Abra’s customers hold their assets as “cash in your phone,” and there isn’t much that the regulators can (or should) do against that.
“The government can’t stop you from holding ones and zeros on a phone, right? That’s the basic idea [of] the non-custodial wallet… Now, what the government can interfere with is the means by which you got those ones and zeros on or off the phone in the first place… We go very deep with partners who provide services to our customers to get that money on and off the phones.”
“The regulatory model has to be different if you’re carrying cash in your pocket versus somebody else holding the cash for you. That’s always going to be true… We fundamentally believe that the whole idea of cash is around privacy rights. The war on cash is also a war on privacy. Now, cash doesn’t have to be paper… [Abra is] basically replacing the paper cash with digital cash. It’s not 100 percent of the protections you get with paper cash, but it’s probably as close as you can get and still interoperate with the real world.”
To me, the legal (and ethical) arguments of Abra sound crystal clear. But of course, the authorities have all the money and all the guns, and could easily make up new regulations to stop Abra.
It’s unclear “if various governments around the world will allow something like Abra to exist,” notes Torpey, emphasizing that Abra wants to “create the first global, permissionless crypto bank… a real-world version of the hypothetical Swiss bank account in everyone’s pockets former U.S. President Barack Obama warned against at SXSW 2016.”
According to an October 2018 post, Abra is a decentralized investing platform that uses cryptocurrencies as collateral to create synthetic assets.
While allowing anyone to use cryptocurrencies to invest in the stock market anonymously, without KYC, is pretty revolutionary, an even more revolutionary move would be allowing anyone to invest anonymously in private companies. Private pre-IPO companies, not yet listed in the stock market, need capital to stay alive, and represent a more risky but potentially more rewarding investment opportunity.
It seems plausible that future versions of Abra’s regulation-resistant fintech could permit anyone, anywhere, to invest anonymously in any company or project. This would be great for both entrepreneurs and small investors, but it seems likely that the regulators won’t let it happen without a fight.
But Torpey’s conclusion is:
“Either way, it may not matter what happens with Abra. Much like Napster was for permissionless file sharing, Abra could simply be the precursor to something much more resistant to regulators in the future.”
Image from Pixabay.
