Chris Larsen has spent several decades in the financial services industry, playing a key leadership role at disruptive companies E-Loan and Prosper, where he had to navigate a tricky and fast-evolving regulatory obstacle course. He will likely draw upon these skills again in his latest role as CEO of OpenCoin.
Before joining OpenCoin, a virtual-currency venture in the same realm as Bitcoin, Larsen headed Prosper, an eBay-style marketplace for peer-to-peer loans. Prosper launched in 2006, and by 2008, the Securities and Exchange Commission took notice of the company and determined it was offering unregistered securities. Prosper went quiet for nine months to retool the business a "good learning experience," Larsen says.
With OpenCoin, "I feel good about where we are," he says. "We got into it with the idea that this was going to someday be a mainstream product and for that you need a good regulatory relationship."
OpenCoin's main function is maintaining Ripple, an online system to facilitate peer-to-peer payments and loans in digital currencies. Similar virtual-money startups expressed some concern about the potentially costly and time-consuming compliance ordeal of meeting regulators' requirements.
"All these processes are hard and the rules are complex," Larsen says. Plus, registering with the proper regulator "can be a lengthy process and can be expensive, there's no question there."
Larsen founded E-Loan in 1997 and sold it in 2005. A year later, when Prosper Marketplace launched, the new company presented itself as a welcoming venue for borrowers who had been turned away by the mainstream financial system. To lenders, Prosper offered bank-like profits to anyone willing to trust a fellow consumer with a personal loan.
In many ways, Prosper represented the lending equivalent of the Wild West that the current Bitcoin payment system represents today. It was largely based on trust, and appealed to people who were fed up with the state of the mainstream financial system.
Prosper underwent many changes to its business model over the years, and its most abrupt change when it stopped facilitating new loans for an extended stretch to work with regulators. When Prosper reopened, the people who funded loans were recast as investors and were treated as such under the Securities and Exchange Commission's rules.
The long transformation paid off, Larsen says, and the process of working with regulators will also be worth the effort for virtual currency companies seeking legitimacy.
"If the [virtual currency] industry is getting to the potential that everyone hopes it will, then [regulatory compliance] is well worth it for all the players to engage constructively," Larsen says. "The whole category is heating up on every level; the macro is it's really good because the industry is being recognized and of course the industry will have to work with regulators."
FinCEN's recently issued guidance on virtual currency companies affects OpenCoin, but it doesn't establish new regulation. The guidance clarifies that companies involved in virtual currencies must be regulated as money services businesses.
Other companies with limited-use virtual currencies, such as Facebook with Facebook Credits and Amazon.com with its planned Amazon Coins, may also have to consider the FinCEN guidance. These companies developed virtual currencies for use on their own websites, whereas OpenCoin and Bitcoin are meant for general commerce.
Plus now that FinCEN has provided clarity on virtual currencies' legality, the community could see increased investment and merchant partnerships.
"If merchants and mainstream users are going to adopt [virtual currencies], they're going to have to feel there's a legal place for it," Larsen says.
Since the Ripple system is still in beta, Larsen is guarded about going into detail about the project. Ripple was conceived by software developer Ryan Fugger, who has since moved on from the project and doesn't speak for Ripple or OpenCoin.
"Ripple is fundamentally open," its website says. "Anyone can build on top of it anyone can use it."
In this way, ripple is designed to be self-policing, Fugger says.
"Since, like in Bitcoin, all transactions on the new ripple.com system are visible to all servers, authorities won't need to enforce registration of ripple service providers in order to obtain transaction information for example, date, amount, source, destination and intermediary addresses," he says. But like Bitcoin, the names of individual users would be masked.