Interview With Blockchain Intelligence Group’s CEO Lance Morginn on The Power of Real-Time Risk Mitigation In Crypto

Tom:

Welcome Lance Morginn , the CEO and Co-Founder of Blockchain Intelligence Group (BIG). Lance tell us about yourself, and how you got involved in Crypto.

 

Lance:

I began my technology career in 1994, studying multimedia at the Vancouver Film School. I launched my first company called Webworks Multimedia, just 30 days after graduating in December of 1995. Within 90 days after launch, I had landed a $1.5 million contract to build a virtual reality world where users interacted with products to drive sales.

 

While I was with Webworks, I was also running the first B2C ISP that was fiber optically connected to the US. The VR world contract lasted nearly two years, at which point I partnered with one of my hosting clients to turn his direct marketing company into a technology incubator. Some of your readers might remember the US company CMGI. Well, we were the Canadian version of that company. We grew it from 16 people when I joined, to 120 before the dot-com crash. It was during my time at that company that I met my current partner Shone Anstey and his cousin Marty. At the time, they were building a search engine and much of what they learned has assisted us in building the search and analytics engine we have today for cryptocurrencies. I’d been watching Bitcoin after the Mt. Gox hack and was thinking of buying in around $163. So when Shone reached out to me in 2014 and said he needed help creating a company in this new emerging technology, I knew it was the right opportunity for me.

 

 

Tom:

You’ve announced a number of deals in the financial sector and with exchanges, including a full-suite agreement with Canada’s Einstein Exchange and a risk-scoring client agreement with Japan’s QUOINE crypto exchange that does $12B+ in annual transactions.

 

Can you give us an overview of Blockchain Intelligence Group?

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Lance:

Technically, BIG is a search analytics business.

At its core, BIG brings security and accountability to cryptocurrency. We’ve been growing rapidly over the last year. We were listed on the Canadian Securities Exchange in December 2017 and, as you mentioned previously, have secured partnerships with financial institutions and large cryptocurrency exchanges. The agreement with QUOINE is important because it helps establish BIG as the go-to provider on governance for Bitcoin and other cryptocurrencies. The bottom line is that investors want greater transparency and accountability within the market, and that means these exchanges and financial institutions need to know what’s going on behind the transactions. That’s where we come in.

 

Tom:

Lance, what is the most pressing issue you see in the crypto space today, and any metrics you can share would be helpful in sizing up the problem.

 

Lance:

Establishing regulations and uniform compliance standards is key for crypto to be embraced by mainstream financial institutions. Cryptocurrency still has a reputation issue as the currency of criminals, which perpetuates the misconception that using digital currencies is not safe. It’s no surprise that less than 6 percent of the population is really engaged in it. But with time, better regulations will help to educate, create clarity and build trust. Another factor that can’t be overlooked is the transparency of KYC (Know Your Customer) checks, when financial institutions and exchanges can assure their clients that they’re doing proper due diligence because they’re using tools and services like what we provide at BIG. The reality is that yesterday’s search and analytic technologies aren’t sophisticated enough to handle cryptocurrency data or spot today’s criminals; that’s what our services are designed to do.


  • Don’t miss our next crypto deep dive and valuation model:

Tom:

Is a lack of understanding around security in the cryptocurrency space preventing regulation or inflows from funds and investors in the space?

 

 

Lance:

Yes, there is definitely a lack of understanding regarding security in the space. Most people do not realize that compliance tools like ours are already available and that they solve the issue of AML (Anti-Money Laundering). However, that’s starting to change. For instance, there’s our recent client agreement with QUOINE. They’re implementing our BitRank Verified® risk-scoring service into their platform.  This is a clear example of how institutions across different sectors are looking for solutions to ensure security, which is fostering extensive interest in our services. A lack of understanding is also hindering the development a set of standard regulations, but we’re doing our best to help on that front by speaking at conferences around the world and contributing to the process of regulation development at the federal level in multiple countries, including Canada.

 

 

Tom:

What is the result of better tools being deployed? Will we see proactive regulation or more hedge fund involvement in the space?

 

Lance:

As people see the benefits of products such as ours, we believe it will foster greater confidence in cryptocurrency as an asset class. That way, cryptocurrency can complement the efforts of regulators and law enforcement agencies in tackling illegal activity in the financial space at large. And with coherent regulation, will come increased involvement from leading-edge financial agencies such as hedge funds and private equity. You really need the regulators and the financial agencies both contributing to create a sustainable cryptocurrency market, both of which need the types of tools and services we provide to make that possible.

 

Tom:

Do you have any metrics on the percentage of Bitcoin or other crypto transactions that may be illegal?

 

Lance:

A recent academic study found that the number of bitcoin transactions made for illegal purposes has been falling. There are approximately 107 million bitcoin users in the world of which around 25 percent have used bitcoin for illegal transactions. However, keep in mind that these studies have used more than one method of measuring the population size, so these are estimates. But the good news for BIG is that, regardless of the rate of illicit cryptocurrency use, financial institutions and exchanges will always need to perform KYC and AML checks to mitigate their risk associated with cryptocurrency.

 

Tom:

How deep do your analytics tools go? Are you able to correlate, say, bank accounts with transactions, or do you link in off-chain data from exchanges or other sources?

 

 

Lance:

I obviously can’t reveal our proprietary techniques but let’s just say our researchers have devised a method of labeling bitcoin addresses with a flag or flags that denote a type of activity. The labeling can be on-chain through the scraping of bitcoin addresses and address clustering, in other words, association with other addresses that have a like flag. The off-chain information is more varied in that it can come from notifications on bitcoin directories, blog posts and engagement with exchanges. Without giving too much away, we can go a lot deeper than most of our clients would expect.

 

Tom:

Most are familiar with Etherscan.io to track Ethereum wallets and transactions. How do you compare to this free service?

 

 

Lance:

Etherscan.io behaves like many other block explorers in that it displays the raw data about addresses, transaction hashes and block numbers. These explorers are available for the public to use. However, it can be difficult to view relationships on these platforms since they don’t visualize their data or map it against real identities. In contrast, our products visualize the blockchain data in the form of the risk they carry. That way you can quickly and easily understand how flags represent the nature of the transactions that the addresses have been involved in, and see the entities that control those addresses. So, our service not only helps our clients map the relationships between addresses, it also saves them from a lot of frustration and wasted time along the way.

 

Tom:

How is Blockchain Intelligence Group tackling this issue and what are your main product offerings and their price points?

 

 

Lance:

Following on from my previous answer, we strive to make our digital products easy to understand for our users, and most importantly, we want to instill in our users the confidence to reach a conclusion based upon the data our tools and services can visually provide. We offer two core digital products. We have QLUETM, a data visualization suite that returns queries on the state of the Bitcoin blockchain and the association between its active entities. And we have our BitRank Verified® service, which returns risk ratings for Bitcoin addresses, either through the BitRank website or through our very fast API for clients processing larger amounts of transactions, such as a bitcoin ATM service. The price points are dependent on the needs of our clients and the size of their organization.

 

Tom:

What cryptos can you track today? Is it only Bitcoin?

 

Lance:

Currently we track Bitcoin and Ethereum. We also have plans for other digital currencies based on client demand.

 

Tom:

How do you compete with competitors like Chainalysis, Elliptic, Blockseer and Bitfury?

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Lance:

At present, this is a very small industry with a limited number of players. Actually, we know many of them on a first name basis. As the market continues to expand rapidly, each company is looking for an edge, so we keep things close to the vest. At the same time, we all know that financial institutions and exchanges in particular will always rely on multiple services to help increase their ability to demonstrate best efforts toward compliance, especially when courtroom testimony and documentation is involved.

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Tom:

A lot of interest is being driven into new privacy coins such as Zcash, and older ones such as Monero, which are hard to analyze due to their privacy features. Are you able to analyze these chains, or if not, is there a market for the product if all questionable activity moves from Bitcoin to these privacy coins?

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Lance:

We have looked into compliance tools for these coins, however, at the moment these markets are not big enough to warrant further capital expenditure. Bitcoin, for many people, represents real money, easily exchanged globally…even criminal empires have bills to pay and require some stability. Yes, these other coins have greater anonymity than Bitcoin, but at some point anonymity is a liability if you’re limited in your ability to spend your store of value. That’s why Bitcoin is number one.

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Tom:

Would it be hard for Blockchain Intelligence Group to intervene in any crypto transaction itself, or is the value you provide come from alerting clients before doing business with another party, or on-going monitoring?

 

 

Lance:

The true value of our tools is actually a combination of both. Our products are as effective for alerting our clients about nefarious addresses as they are for day-to-day monitoring. You also have to keep in mind that some clients, such as a cryptocurrency exchange, are looking to monitor transactions on a real time basis, while others might be looking to investigate specific activities that may have already occurred, such as a law enforcement investigation or a financial institution doing an SAR report (Suspicious Activity Report).

 

Tom:

Management owns a large percent (25%+) of the company. You have ~$13M in cash (above your market cap of $15M) and no debt. How have you been able to keep the corporate structure this clean for such a small company, which is very hard to do as early stage investors know?

 

 

Lance:

For the first year and a half, the money we have raised through friends and family was very carefully managed and put where it needed to go. Management didn’t take any salaries and we burned as much road as we could. By the time we went to raise subsequent rounds, we had already made significant progress, which allowed us to retain greater ownership of the company. We’re also frugal by nature, no matter where the money comes from, so we have learned to go a lot further on less than other companies at our stage of development can.

Tom:

Lance, thank you so much for taking the time to educate our members.

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Lance:

Its been a pleasure thank you Tom.

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More Information:

Blockchain Intelligence Group’s Website

 

Disclosures:

Tom Shaughnessy owns Ethereum. By reading this post you agree to 51percent Crypto Research’s Terms and Conditions. This report is solely informational and is not investment advice. 51percent was NOT compensated fr this report and does not hold shares in Blockchain Intelligence Group.

 

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