CBDC’s Offer Better Privacy Propositions Than Big Tech Digital Currencies: New York Fed

  • Fed research concludes that government-issued digital currencies offer better user data privacy than private companies’ digital assets.
  • However, CBDCs are not the answer to all problems relating to the privacy of payment data.

The research paper titled, “Monetizing Privacy,” by Rodney Garratt Professor of Economics at the University of California, Santa Barbara (UCSB) and Michael Lee, an economist at Federal Reserve Banks – Federal Reserve Bank of New York, states that central bank digital currency (CBDCs) will outperform the private company-based stablecoins such as Libra in protecting the privacy of user payment transaction data.

According to the research, the big tech firms are susceptible to selling users’ payment data to firms searching for an extra buck to boost their profits. It further states that a digital currency offered by these big tech firms such as Libra, led by Facebook and VISA’s digital currency, could lead to troubling cases of data privacy.

A follow-up post on the NY Fed blog by Lee and Garratt states some of these companies could become monopolies as more users join their platform and give them their data. Transactions using digital currencies will enable big tech firms with a competitive advantage to stack up on transaction data, further killing competition across the market. The post reads,

“This gap in product quality enables the [monopoly] firm to set discriminatory prices between payment types, taking into account the profit-maximizing quantity of data it would like to extract from consumers.”

“As a consequence, consumers obtain only a small share of the surplus generated from their data.”

The paper further states that public digital cash such as Bitcoin (BTC) could mitigate data monopoly by big tech firms. However, volatility in prices, fluctuating blockchain fees, and the rising costs of energy by BTC mining raise adoption issues.

A case for central bank digital currencies

The financial payment system is turning digital as the world battles with social distancing due to the global Corona Virus pandemic. With private big tech–owned digital currencies failing in offering users privacy on their transaction data, the research paper focused on government-issued CBDCs as the solution to privacy concerns.

The paper further states that a CBDC could also function as a measure against big tech data monopolies. CBDCs, however, not only offer increased privacy to users but also reduces the overall cost of fees and are environmentally friendly. The post reads,

“Nevertheless, the possibility that a privacy-preserving digital payment method may improve consumer welfare represents a relevant consideration for central banks to take into account.”

Regulators and authorities are urged to create policies around the privacy-enabled digital cash to ensure users are protected. Moreover, Garratt and Lee further claim that the privacy digital currency’s design should ensure that “the ability for consumers to purchase products without revealing their private data to vendors” is factored during development.

‘CBDCs not the answer to all privacy problems’

Despite the benefits CBDCs offer over big tech-built digital currencies, the paper notes that they also pose their own challenges in transactions. A “reliable and robust system” must be built to ensure that the privacy-preserving platform is secure at all times.

Notwithstanding, looking at “the commitment to privacy, regulators and lawmakers would have to rethink how to adapt current anti-money laundering practices.” Finally, a privacy-enabled CBDC could also affect the banking industry and financial systems, the report noted.

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Author: Lujan Odera

China’s Digital Currency to Roll-Out In A Second City After Successful Trials In Shenzhen

  • The second city in China is launching a lottery to test its digital currency/electronic payment (DC/EP) project, a local report states.

On Monday, local Chinese media The Paper reported that the district of Suzhou in Xiangcheng would launch a lottery to give away the country’s central bank digital currency (CBDC) in a bid to test the real-use cases of the digital currency. The ‘red envelop’ lottery is set to launch on December 12th across the city, a date known as Double 12 across China, and an end-year shopping festival.

The report said the lottery would be released similar to the one carried out in the city of Shenzhen in mid-October. In Shenzhen, the endeavor was a highly successful one, with over 50,000 participants winning 200 digital yuan each – totaling approximately $1.5 million. A later report confirms that over 95% of the digital yuan distributed were used in two weeks, stretching to over 3000 stores that accept the digital currency.

The city was chosen given the large prevalence of installed near-field communication (NFC) and QR code point-of-sales across merchant stores. Suzhou’s DC/EP trial is also set to introduce several new features not used in Shenzhen’s trial phase, such as the offline payment feature and the smartphone touch functions.

China’s DC/EP project will also launch a trial in Chengdu, which is preparing in anticipation by installing the NFC and QR codes point-of-sales. The People’s Bank of China (PBoC) also announced plans to launch the DC/EP project in the Winter Olympics venue in 2022.

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Author: Lujan Odera

Bitcoin Has Only Traded Above the 2020 High for Just Over 30 Hours, In Its Entire History

Bitcoin is aiming for a new all-time high this weekend.

On Friday, the digital asset went as high as $18,980, making a new 2020 high. Now, we are less than 7.5% away from $20k as we currently trade around $18,680.

Interestingly, there have been only 31 hours that BTC traded above $18,900 in its entire history, at the peak of the 2017 bull run, of course, and at $19k for a mere 24 hours. Also, at that time, BTC has been above $19,800 for less than an hour.

“There is little to suggest this rally has run out of steam, and all signs point to a run at the all-time high in the near future,” said Denis Vinokourov, head of research at Bequant in London.

For Su Zhu, the CEO of 3 Arrows Capital, “the next key price to watch will be $36k,” because “this is the strike with the largest BTC Open Interest on Debit Exchange, the dominant market leader in Bitcoin and Ether-settled options trading.”

For now, it would be interesting to see if breaking the much-coveted $20,000 will trigger a pullback for the prices of the Bitcoin, for which the crypto community has been waiting for a long time. A break above ATH is also expected to capture more of the mainstream attention.

Already it has been pacing in 2020, what with the likes of BlackRock, JPMorgan, Ray Dalio, Maisie Williams, Rapper Logic, who went YOLO, and so many more.

Wider institutional acceptance has been particularly seen after PayPal announced its decision to allow its customers to access cryptos.

“When we think about who we see getting involved in the space and seeing how many more access points are being opened, that can further expand the base of investors participating in this asset class,” said Michael Sonnenshein, managing director at Grayscale Investments. “We’re very, very encouraged by the prospects for this space overall.”

Alex Mashinsky, chief executive officer at Celsius Network, a crypto lending platform, also said that today the flagship cryptocurrency had reached a place where institutional investors, banks, and family offices are “legitimately pondering involvement as a defense against currency devaluation.”

With these latest gains, 17% in just last week and over 150% YTD, Bitcoin has become the 15th largest digital asset by the market capitalization of $347 billion.

Beating Mastercard and Walt Disney, the leading digital asset, is ready to take over JPMorgan at $349 billion, just one step above, which it already did, albeit briefly.

As BTC continues to climb the rank up among the biggest assets by market cap, it has Visa at 12th spot with $397 billion market cap, Tesla at 10th spot with $464 billion, and Warren Buffet’s Berkshire Hathaway at 8th spot with $532 billion market cap in its vicinity to take over.

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Author: AnTy

US Tax Authorities Discusses Taxing Digital Currencies; Each Standard Method Has Trade-Offs

  • Tax regulators across the U.S. are debating on the trade-offs in taxing digital assets, Bloomberg Law states.
  • Erika Nijenhuis, a senior counsel at the department’s tax policy office, said at a virtual conference on Thursday.

The world’s largest economy is looking for ways to increase revenues, including taxation of digital assets and cryptocurrencies. During a virtual interview at the OECD’s 2020 Global Blockchain Policy Forum, senior counsel at the Treasury Department, Erika Nijenhuis, stated the U.S is developing domestic reporting rules on taxing cryptocurrencies.

In their quest to find the best models, the tax regulators are debating different tradeoffs that proposed tax models offer, including the risk factor approach and the direct reporting of tax from crypto transactions.

The authorities are looking for a balance that will be efficient in collecting the tax proceeds. This ranges from checking the burden placed on the crypto-taxable parties such as crypto money transmitters and exchanges and how to enhance compliance across these firms. Nijenhuis said,

“There are trade-offs among all of them, and we are hard at work thinking about all of those issues.”

“None of those are easy questions.”

The U.S. Internal Revenue Service (IRS) has been at the forefront of taxing crypto assets in calling for clarity on taxing these assets.

Earlier in the month, David W. Klasing, a boutique Californian tax firm, reported that the IRS looked into Coinbase accounts to catch offenders who do not comply with the platform’s reporting tax standards.

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Author: Lujan Odera

Japan Joins the CBDC Race With A ‘Digital Yen’ Trial; 30 Major Firms Will Start Experiments In 2021

While China has already successfully run the pilot test of its digital yuan, now Japan is getting ready to do the same.

In its attempt to catch up, Japan’s 30 major firms will begin experiments of issuing a private digital currency next year, said the group’s organizing body on Thursday, reported Reuters.

The group consists of the three largest banks in the country, along with retailers, utilities, brokerages, and telecommunication firms. Using a common settlement platform, the group will conduct the experiments for issuing a digital currency. Hiromi Yamaoka, a former BOJ executive in an online briefing, said,

“Japan has many digital platforms, none of which are big enough to beat cash payments.”

“We don’t want to create another silo-type platform. What we want to do is to create a framework that can make various platforms mutually compatible.”

Recently, the Bank of Japan announced its plan to experiment with issuing a digital yen in a country where cashless payments make up only 20% of total settlement than China’s 70% and the United States’ 45%.

Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group — the megabanks of Japan have already rolled out their own digital payment systems.

Yamaoka said while private banks will be in charge of issuing the digital currency in the experiments, other entities’ prospects also issuing a digital yen won’t be ruled out.

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Author: AnTy

Ethereum Has “Little Resistance Ahead,” Over 100,000 ETH Now Staked

Bitcoin is not the only protagonist of the ongoing bullish crypto market.

While the leading digital asset popped above $18,000, ready for a new all-time high, the price of Ether also surged to nearly $500, last seen in June 2018.

Both Bitcoin (BTC) and Ethereum (ETH) are enjoying a hot streak this week. While BTC’s realized cap topped at $130 billion on Nov. 17, ETH’s realized cap grew 3.9% week-over-week and is at its highest level since Sept. 2018 at over $36 billion.

According to In/Out of the Money Around Price (IOMAP) indicator of IntoTheBlock, “there is little resistance ahead until $581, with strong support around the $460 mark.”

At $460, 80% of the addresses currently holding ETH are experiencing profit.

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Another encouraging pattern is the percentage of ETH supply on cryptocurrency exchanges, which continues to decrease steadily. About 3 million ETH has moved off centralized exchanges since September, which according to quant trader Qiao Wang could be “a result of “productive” activities like Uniswap yield farming.”

Wang further believes “ETH could outperform BTC in the next bull run. Perhaps not on a risk-adjusted return basis, but likely on an absolute return basis.”

Another reason for this movement could be ETH holders depositing their ETH for staking for the first stage of ETH 2.0 – the “Beacon Chain.”

The progress of Eth 2.0 staking is behind schedule, with another 13,424 staking validators are required in the next 2 weeks to trigger the launch of ETH 2.0.

With about 80% of the required validators still missing, the current rate is not enough, but it is expected to ramp up towards the end of the deadline.

Still, when Phase 0 launches, it doesn’t change anything about Ethereum as the Beacon Chain doesn’t have accounts, and it can’t handle smart contracts either. It is simply the first stage in the transition of the second-largest network from a proof-of-work to a proof-of-stake consensus model.

The Beacon Chain will undergo testing in a live environment, and in the future, when Ethereum shard chains (Phase 1) are launched, the two blockchains will eventually be merged, at which PoS mining will be enabled, bringing faster processing times and cheaper transactions.

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Author: AnTy

Fidelity Digital Assets Addresses Common Criticisms And Misconceptions On Bitcoin (BTC)

  • Fidelity Digital Assets responds to common criticisms and misconceptions about BTC.
  • “Bitcoin chose scarcity and decentralization over its payment features.”
  • The top cryptocurrency will not be replaced easily.

Cryptocurrency critics calling out about the market being in a bubble and oncoming failure for most of these tokens. As the top cryptocurrency, Bitcoin (BTC) has faced multiple criticisms, including its high volatility, environmental concerns, failure as a means of payment, and use in illicit activities. Fidelity Digital Assets, a subsidiary of Fidelity Investments, released responses on six of BTC’s common misconceptions and criticisms.

First, Bitcoin has been criticized as a store of value due to its volatility. The report, compiled by Fidelity’s Director of Research, Ria Bhutoria, however, states Bitcoin’s volatility “is a trade-off it makes for perfect supply inelasticity and an intervention-free market.”

As BTC gets to the mainstream economy, Ria believes the volatility will continue to slow down, as seen in previous years. Moreover, day-to-day volatility is expected to go down with “increasing spot and derivative market liquidity and the development of products that allow investors to express interest” in the cryptocurrency.

The argument about Bitcoin failing in its role as a payment system is also disputed in the blog post. The author argues that the blockchain makes a deliberate trade-off to offer users decentralization and settlement immutability. According to Bhutoria, Bitcoin offers a more efficient payment system in some instances, such as international payments. In contrast, incumbent digital payment systems such as VISA, MasterCard are more suitable for day-to-day payments. The statement reads,

“Given its high settlement assurances, Bitcoin optimizes its limited capacity for settling transactions that aren’t well-served by traditional rails.”

The post also responded to the argument that Bitcoin mining wastes energy, making it environmentally unfriendly. Bhutoria argues that Bitcoin mining “is powered by renewable energy or energy that would otherwise be wasted.” While it is undeniable that Bitcoin uses vast amounts of energy, the post states that the crypto benefits make the energy consumed “a valid and important use of resources.”

The biggest criticisms from regulators, authorities, and governments have been that Bitcoin is used in enhancing illicit activities (when in reality it should be compared to corrupt banks). Cases such as the Silk Road saga has further escalated the narrative that BTC pushes further illicit activities. However, the post responds to these criticisms stating,

“Bitcoin, like cash or the internet, is neutral and has properties that may be valuable to good actors and bad actors.”

Additionally, the share of Bitcoins used in illicit activities compared to the non-illicit trades is very small.

The post also targets BTC’s comments being replaced by a competitor in the future and crushing qualms on criticisms on the coin being backed by nothing.

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Author: Lujan Odera

Pakistan Regulators Look to Build Friendly Framework for Digital Assets

Pakistan seems to realize the potential of digital assets in the financial future as the country seems geared up for formulating a new framework to regulate cryptocurrencies such as bitcoin. This is highly bullish since Pakistan was among the very few countries that in mid-2018 blanket banned digital assets in any form. It wasn’t until April of 2019 that regulators started to change their minds.

The Securities and Exchange Commission of Pakistan (SECP), on November 6th, released a consultation paper about regulating digital assets. The paper mentioned that the finance ministry is looking to make new laws as they look at the regulatory frameworks set by other countries.

SECP believe digital assets is a “start of a new era of digital finance.” The consultation paper further noted that to propel this new digital finance era, a new set of frameworks would be required to drive its adoption.

“Digital assets also known as Virtual Assets, and Crypto Assets are the start of a new era of Digital Finance, and demand innovative regulatory measures and approaches by the regulators across the world.

This could only be possible by initiation of a new era that re-invents regulatory regime/measures as they are known to the regulators globally today.”

It is also important to note that many developed countries in the West are currently discussing launching a Central Bank-issued Digital Currency (CBDC); however, the consultation paper makes no mention of any such plans by Pakistani financial watchdog. At present, they are only focusing on regulating private digital assets such as bitcoin.

The paper made a note of two types of tokens, namely security tokens and utility tokens, where the regulatory body sees a security token as an important tool that might help in fractionalizing real-world assets and digitize them.

The paper mentions that they have 2 choices as regulators; restrict digital assets due to current rules or take a ‘let-things-happen’ approach. Which they mention that they are heavily leaning towards the do-no-harm approach.

The paper also welcomed feedback from the stakeholders of the decentralized space in developing the new framework.

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Author: James W

WEF Report Says Blockchain Is A Core Component in Sustainable Digital Finance

The World Economic Forum (WEF) recently released a new report about the future of digital finance on Wednesday. The WEF report noted that blockchain and Artificial Intelligence, the Internet of Things (IoT), and mobile platforms represent a core element of digital finance’s sustainable future.

The report noted that blockchain combines coming of age technologies with a sustainable environment-conscious business model. In the report, UBS executive Karin Oertli noted that all these nascent technologies could help organizations and governments to meet their sustainability goals. Oertli wrote,

“We believe that sustainable digital finance will play an essential role in efficiently channeling this capital to fuel innovation, growth, and job creation, at the same time supporting the transition to a sustainable, low-carbon economy.”

Currently, many European countries and top silicon tech firms’ save pledged to reduce their carbon footprint to zero in the next decade owing to the growing concern over climate change and global warming. Thus it has become even more important to bring sustainable business models to rescue the planet earth before it’s too late.

New WEF Report In Line With OECD Research

The latest sustainability report from WEF is not the first report of its kind, which has touted Blockchain as the key to sustainable future business models. It reinstates the research conducted by the Organization for Economic Cooperation and Development (OECD). The OECD report had made similar claims regarding blockchain and said,

“The core properties of blockchain and other DLT can enable deeper technological integration, standardization, and the possibility of new business models.”

Carbon dioxide emissions are growing significantly with each passing year. Some of the western countries have taken it upon themselves to make sure to cut their carbon footprint from now onwards.

The emergence of blockchain as key to a sustainable future comes just in time as crypto space has been battling the criticism over Bitcoin’s network electricity consumption and carbon emission.

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Author: Hank Klinger

Fidelity On A Hiring Spree to ‘Capitalize On Increased Market Demand’ For Digital Assets

Amidst the ongoing market frenzy, Fidelity Digital Assets is looking to hire more than twenty engineers to help them expand its capabilities and “capitalize on increased market demand,” basically to build the “future of finance.”

One of the largest asset managers in the world with $3.3 trillion in assets under management, Fidelity investments first started researching digital assets and blockchain in 2014, and then in 2018, they launched Fidelity Digital Assets. FDA was the companies,

“First step towards a long‐term vision to create a full‐service platform for storing, trading, and supporting digital assets.”

In the past two years, the digital assets market has grown “exponentially,” with more institutions adopting them as part of their portfolios.

So, in this changing landscape, Fidelity wants to improve its bitcoin custody and build new products to support the growing ecosystem. Peter Farland, Chief Technology Officer at Fidelity Digital Assets, said,

“Ultimately, we imagine a future where all types of assets are issued natively on blockchains or represented in a tokenized format.”

The company is hiring engineers with development experience with Bitcoin, Ethereum, and other digital assets for Merrimack, NH, and Boston, MA locations in the US.

The idea is to create secure, interoperable, and scalable products to offer safe and simple investment in Bitcoin and increase digital assets’ overall adoption.

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Author: AnTy