Mastercard’s acquisition of CipherTrace will boost crypto capabilities

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The News: Mastercard’s acquisition of CipherTrace, a leading cryptocurrency intelligence company with an overview of over 900 cryptocurrencies, will expand its capabilities in the digital asset arena. CipherTrace is. Read Mastercard’s press release here.

Mastercard’s acquisition of CipherTrace will boost crypto capabilities

Analyst Opinion: Mastercard’s acquisition of CipherTrace is proof that the worlds of mainstream finance, DeFI and cryptocurrencies are starting to collide. As nation states begin to embrace Bitcoin, the world of legacy financial services faces the task of how to process, administer, and provide custodial services for cryptocurrencies. When you couple this trend with well-funded startups having their eyes on the TAM for financial services, disruption is inevitable.

Legacy credit card space ripe for disruption

The legacy credit card space is ripe for a disruption in the legacy financial services industry. Four major players in Visa, Mastercard, American Express and Diners Club dominate the global credit and fees industry and merchants pay high fees to process transactions. For a detailed description of how the old system now works, Jared of Fat Tailed Thoughts wrote a very comprehensive overview here: Fat Tailed Thoughts: Credit Card Payments.

It is of course no surprise that the wider Bitcoin, Ethereum and DeFi community see the centralized nature of credit / payment card processors as a hangover from a bygone era and focus on disrupting the status quo. quo that really needs to be pushed around.

How do traditional players react? In what is sure to be a future Harvard Business School case study, mainstream financial services face the big-written innovator’s dilemma. Are they doubling down on the traditional model and largely ignoring the DeFi and crypto space or are they trying to participate in the action and actively participate in the disruption? Mastercard’s announcement of the proposed acquisition of CipherTrace makes it clear that they intend to take the latter approach.

Nation States Embracing Bitcoin Stimulate Need for Quick Pivots for Retailers

The corollary of nation states embracing bitcoin as legal tender is that retailers and chain stores are drawn into the world of crypto and need ways to manage these still nascent payment methods. Since El Salvador adopted bitcoin as legal tender earlier this week, crypto Twitter has been inundated with images showing how Starbucks, Pizza Hut, and McDonalds are now accepting cryptocurrency in El Salvador for daily transactions. While El Salvador is a country of only three million people, transaction volumes are not unimportant for these multinational organizations, they still have to implement front-end and back-end systems to accept a new digital currency only. . These multinational chains are partnering with specialist crypto providers to integrate bitcoin payments. For example, McDonalds is partnering with OpenNode to facilitate the use of bitcoin in its 19 restaurants in El Salvador. However, as Panama and other countries begin to hint that they will seek to become a more cryptic nation, and many more countries explore central bank digital currencies, who are the historical players on both the side? retail and financial services?

For the financial services industry, security and traceability are essential

In the highly regulated space of financial services, security and traceability are essential. Knowing Your Customer (KYC) and Combating Money Laundering (AML) are fundamental parts of how the overall system works. As anyone who has recently opened a bank account can attest, the bank naturally wants to know who you are before providing services to you. A major concern with bitcoin and other cryptocurrencies is that the people who process them are anonymous or at least pseudonymous. This lack of KYC transparency has made digital assets the currency of choice in recent high-profile ransomware and other hacking incidents. However, the blockchain is a public ledger of all digital currency transactions, and services like CipherTraces analyze the movement of funds and increasingly, the sophistication of these on-chain analysis tools is filling this gap, as has been the case. case in the recent Poly Network hack where the stolen funds were eventually returned.

As the world of digital assets, cryptocurrencies, tokens, smart contracts, and non-fungible tokens (NFTs) become more and more interconnected with day-to-day operations, the challenges for existing financial services players become evident. The fundamental basis of how people pay and get paid and how they invest is changing. As a result, trust and security will either become essential enablers or a barrier to large-scale adoption and large-scale use. It is very clear that the DeFi and cryptocurrency space requires new technologies and solutions and those that provide more powerful intelligence to ensure that the crypto economy is instilled with the same confidence and peace of mind. spirit that consumers and retailers are familiar with today with traditional payment methods.

With acquisition of CryptoTrace, Mastercard signals that crypto will become an important part of future operations

In this context, the acquisition of CipherTrace by Mastercards makes perfect sense. With the acquisition, Mastercard recognizes both that crypto will become an increasingly important part of their future operations, but also that it is better to buy rather than build in this still nascent space. CipherTrace has firmly established itself as one of the top three players in the chain analytics space, and the firm’s competitors include New York-based Chainalysis and London-based startup Elliptic. The CipherTrace platform helps customers improve their security and fraud monitoring activities for crypto-related programs and recently participated in the search for stolen cryptocurrencies in the Poly Network hack. CipherTraces provides solutions to some of the world’s largest banks, exchanges and other financial institutions due to their focus on data analytics and algorithms to help clients of over 7,000 cryptocurrency entities.

With the acquisition of CipherTrace by Mastercard, I imagine that Mastercard will look to build on the CipherTraces suite of digital asset tracking and analysis tools and combine it with its own cybersecurity solutions to provide businesses with a greater transparency to help them identify and understand their risks, as well as help manage their regulatory and compliance obligations for digital assets. According to the press release, the deal allows Mastercard to combine the technology, AI and cyber capabilities of the two companies to differentiate its real-time cards and payments infrastructure, allowing customers and stakeholders around the world to rely on and benefit from solutions to protect their consumers and comply with regulations as they create their own virtual asset offerings.

While the details of how this integration will play out in real life and what new services Mastercard plans to offer as a result of the acquisition are not yet clear, I will be following this space closely in the months to come. and I have already contacted Mastercard for further briefing on their plans. Net net, watch this space.

Bring transparency and trust to digital assets

As a recent buyer of two NFTs through Nifty Gateway using my Mastercard, I am personally interested and encouraged that major players with decades of credibility are starting to enter the crypto and DeFi space. The crypto and DeFi space needs the guiding presence of large, established players who have a strong heritage of working with regulatory guidelines. I’m a big fan of new entrants disrupting and innovating to drive new business models, but that needs to be tempered with an emphasis on trust and traceability when people’s hard earned money is involved.

Regardless of what happens in El Salvador, we are poised to embrace the mainstream for digital assets and Mastercard’s acquisition of CipherTrace is another positive step on that journey. I see the acquisition of CipherTrace by Mastercard as part of Mastercard’s strategy in the digital asset space to help provide their customers, merchants and businesses with more choice in how they ultimately deploy new cases of use and digital assets. The acquisition follows a number of investments made by the company, including partnerships with Uphold, Gemini and BitPay to create crypto cards, the creation of new platforms to test and support the digital currencies of the central bank, programs to support the wider use of blockchain and NFT technology and the ability to support certain stablecoins directly on its network.

I firmly believe that this will not be the last acquisition of a crypto startup by a historical player in the financial services market. As these historical players seek to reorganize their operations and manage these new asset classes and currencies, it will often be faster to acquire the solution than to build it themselves. In addition, they will have access to the right skills and talent through these acquisitions that would be difficult to acquire through traditional recruitment practices.

Disclosure: Futurum Research is a research and consulting firm that engages or has engaged in research, analysis, and consulting services with many technology companies, including those mentioned in this article. The author does not own any stake in the companies mentioned in this article.

Other ideas from Futurum Research:

Bitcoin becomes legal tender in El Salvador and what it means for FinTechs

What does Poly Network hack mean for DeFi

Square Announces Acquisition of Afterpay, Potentially Disturbing Everyone

Image Credit: Crypto Daily

Steven Dickens is Vice President of Sales and Business Development and Senior Analyst at Futurum Research. Operating at the crossroads of technology and disruption, Steven engages with the world’s leading technology brands by exploring new operating models and how they drive innovation and competitive advantage for the business. Read the full biography.

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