“Tax Private Stablecoins Out Of Existence,” Proposes Latest Fed Paper Ahead Of Treasury Secretary Meeting

“Tax Private Stablecoins Out Of Existence,” Proposes Latest Fed Paper Ahead Of Treasury Secretary Meeting

Written by a Professor of Finance from Yale School of Management and an attorney at the Federal Reserve System, wants regulators to take a lesson from history, the Free Banking Era because the central bank must have a “monopoly on money issuance.”

Before the Treasury Secretary Janet Yellen met with SEC, OCC, and FDIC officials on Monday to discuss stablecoins, a paper called “Taming Wildcat Stablecoins” was released by the Federal Reserve and Yale over the weekend.

Written by Gary Gorton, Professor of Finance at the Yale School of Management, and Jeffery Zhang, an attorney at the Board of Governors of the Federal Reserve System, the paper laid out the regulatory options for US dollar stablecoins and footnote references to Yellen’s upcoming meeting.

According to these authors, while crypto is all the rage, there is “nothing new” about privately produced money, but the difference is its goal to be accepted at par with no questions asked.

They point to history, the Free Banking Era when private money made it hard to track due to fluctuating prices, which were then curtailed by the National Bank Act of 1863. “Subsequent legislation taxed the state-chartered banks’ paper currencies out of existence in favor of a single sovereign currency,” they noted.

Now, Gorton and Zhang propose regulating the issuers of stablecoins like Tether and Facebook’s Diem as banks and the central bank to issue its digital currency (CBDC).

With regulation outpaced by innovation, an uneven playing field has been created that needs to be corrected.

While stablecoins do not appear to be used as money currently, as they evolve further, “the stablecoin world will look increasingly like an unregulated version of the Free Banking Era—a world of wildcat banking,” it adds.

The paper proposed a couple of ways to address this development and wants regulators to “better get going.”

These options include transforming stablecoins into public money by passing new legislation requiring issuers to become FDIC-insured banks or require stablecoins to be backed one-for-one with Treasuries or reserves at the central bank.

CBDC is also proposed as a substitute to privately produced digital money like stablecoin, mainly because the central bank must have a “monopoly on money issuance,” and paper and metal coins won’t be used forever.

With the introduction of a central bank digital currency, the purpose is to have digital fiat and “tax private stablecoins out of existence.”

“Free banking in the US was a failure DUE to state regulation, not despite it,” argued Nic Carter of Castle Island Ventures and co-founder of CoinMetrics.

“The difference between now and then is that blockchain-based assets are more resistant to state capture, being natively digital (compare with gold specie), are more global in nature (compare binance with say, the royal bank of Scotland), and enable a more egalitarian relationship between depositors and depository institutions as the cost of verification is low, and thus the ease of taking ‘physical’ delivery is high. So easier to hold custodians accountable, and the threat of a ‘run’ is higher.”

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Author: AnTy

Israel Releases Working Paper on Possible Digital Shekel Program

Israel Releases Working Paper on Possible Digital Shekel Program

Israel is continuing with its exploration of the likely issuance of its central bank digital currency (CBDC), the digital shekel, per an official statement,

Bank of Israel Accelerates CBDC Research Efforts

This follows the release of a working paper that requires feedback. Despite its reluctance to commit to a CBDC plan, the Bank of Israel said it was only preparing an action plan, which will ensure its preparedness to launch a CBDC if the situation arrives.

The action plan would prepare it to launch the digital fiat should the benefits outweigh the costs and potential risk. Its impact could be enormous on the existing monetary system.

The working paper details a draft model for a potential CBDC and how it would operate. It details the role of the apex bank and how it would handle issuance. Local payment service providers will be tasked with distributing the CBDC. Payment providers will also be tasked with offering enhanced functionality for the CBDC, including building the technology.

The bank believes a CBDC would allow a payment system that could adapt to a digital economy and create an efficient and inexpensive infrastructure for cross-border payments. It also thinks the digital shekel can usher in a cashless society.

Israel Remains Wishy-washy on CBDC

The Bank of Israel first started examining the possibilities of a digital currency in 2017. At the time, the governor set up a group to explore the issue. Still, a year later, the central bank announced that it was not issuing one because no advanced economy had issued a digital currency.

While countries like Israel continue to slowly research and tread carefully to issue a CBDC, numerous central banks worldwide actively explore the project with increased zeal.

China has long started piloting its digital yuan project in major cities across the country. Banks in cities like Shanghai have been active in promoting the digital yuan, persuading merchants and retail clients to download digital wallets and use the digital currency.

Norway is also another country exploring CBDCs. It recently disclosed that it would start testing technical CDBC solutions. Other countries like South Korea, Japan, and the United Kingdom are positioning themselves for a potential CBDC.

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Author: Jimmy Aki

NFT’s Are All the Rage; Charmin to Release First-Ever Non-Fungible Token by a Toilet Paper Brand

NFT’s Are All the Rage; Charmin to Release First-Ever Non-Fungible Token by a Toilet Paper Brand

After Taco Bell, Pizza Hut, and Quartz, the toilet paper brand Charmin has joined the hot trend of launching NFTs as well.

Manufactured by Procter & Gamble, Charmin announced last week that they are rolling out their first-ever non-fungible token by a toilet paper brand because “Sometimes a better bathroom experience goes beyond the seat.”

Currently, there are six digital collectibles on sale on the NFT marketplace Rarible, with the bids on them ranging between 0.3 WETH to 1.25 WETH. As of writing, 1 WETH is worth $1,790.

Each of the virtual rolls comes with a physical display whose proceeds will be donated to Direct Relief.

Charmin is no stranger to joining the up-and-coming trends, as just last year, it released a Bluetooth-enabled robot that delivers toilet paper to the bathroom when users run out.

NFTs are all the rage right now, exploding in popularity this year as people spend millions of dollars on digital collectibles. Interest in NFTs, as per Google Trends, is now outpacing decentralized finance (DeFi) by a wide margin.

Just last week, Kansas City Chiefs Patrick Mahomes also jumped in by announcing a selection of NFT artworks and collectibles, which raked in $3.4 Million in a matter of 30 minutes. All of this NFT mania has the shares of the companies hopping on the NFT trend also enjoying an explosive performance.

Prices of shipping and logistics company Sino-Global Shipping America have risen over 300% this year. In recent weeks, the $123 million market cap company said it would accept BTC as payment and that it will launch an exchange for NFTs with e-commerce public chain CyberMiles.

Another company, pipe maker ZK International Group, said its subsidiary xSigma Corp would develop an NFT marketplace, resulting in its stocks surging, up 240% YTD.

One of the world’s largest brokers of fine and decorative art, collectibles, and others, auction company Sotheby’s is also working with anonymous digital artist PAK. “It’s still very early with crypto art in general,” said CEO Charles Stewart on NFTs. “This has the potential to bypass a lot of the traditional gatekeepers.

According to the crypto market, NFTs are just the beginning “as a new form of value storage and transmission.”

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Author: AnTy

This Self-Proclaimed Bitcoin Maximalist has Paper Hands

This Self-Proclaimed Bitcoin Maximalist has Paper Hands

Nick Maggiulli, who sold half of his BTC holdings i.e 0.5 BTC, is planning to buy when the price “drops significantly.” Earlier this year, he recommended a 2% portfolio in BTC so that “you’re unlikely to get rich, but you’re unlikely to go bankrupt either.”

Nick Maggiulli, the creator of ‘Of Dollars And Data’ took to Twitter to share that he has sold half of his Bitcoin holdings at a price of $52,000.

Today, Bitcoin nearly breached $53,000, up 77% YTD.

The COO at Ritholtz Wealth Management which has nearly $2 billion in assets under management further shared that half of his Bitcoin holdings were sold for US dollars, which he called some “rebalancing.” He shared his reasoning behind the decision saying,

“And for the record, my “paper hands” smell like USD. You know that thing you use to pay your mortgage, buy food, and for just about everything else.”

Of course, Crypto Twitter (CT) jumped in because weak hands aren’t really praised here. Anthony Pompliano who recently said BTC could hit $500,000 by the end of this decade and ultimately a million dollars commented,

“You sold an appreciating asset for a depreciating asset while taking a tax hit along the way. Bitcoin isn’t an investment. It is the reserve currency.”

What’s the Plan?

While answering the questions regarding his move on Twitter, Maggiuilli revealed that he had 1 BTC and after selling, is only left with 0.5 BTC.

As for his entry-level, it was $8k. The last time the price of Bitcoin was at this level was in early May. Since then, the leading cryptocurrency has appreciated more than 550% in value.

It was earlier this year when Maggiulli admitted being “wrong” about Bitcoin in his blog post on ‘Of Dollars And Data.’

At the time he said, he came to the realization that he is wrong about Bitcoin and that it can’t be a legitimate asset class when it crossed the previous ATH $20k. He then recommended investing only 2% of your portfolio in Bitcoin, so that “you’re unlikely to get rich, but you’re unlikely to go bankrupt either.”

This time as well, his strategy is not to sell his other half of holdings and keep at least 2% in the portfolio on a go-forward basis. “Was too much of my portfolio (outside tolerance band). Not bullish or bearish,” he added.

He is also planning to buy more if the price of the Bitcoin “drops significantly.”

“Lol = The idea that you can “time the dip” or that $50k is “taking profits” in the early stages of a bull run,” commented Dan Held, director of business development at crypto exchange Kraken.

As for investing in other cryptocurrencies like Ether, which continues to outperform Bitcoin, like always, “Nope. I am a BTC maximalist,” is Maggiulli’s response.

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Author: AnTy

Russia’s Central Bank Joins the CBDC Bandwagon; Issues Consultative Paper on Digital Ruble Consideration

Russia’s Central Bank is the latest monetary authority to issue a CBDC consultative paper amidst the ongoing craze; the bank confirmed its interest in issuing a digital ruble, noting that it can operate alongside cash or non-cash forms of money that already exist in the country. This development comes barely a week since the BIS and 7 major central banks published a report highlighting the key principles that should guide CBDCs at least for now.

According to the consultative paper released on Oct 3, a digital ruble will require Russia’s central bank to develop advanced payment ecosystems. Consequently, the bank intends this digital asset to carry along the properties of money, given its prospective fundamentals as part of the state-backed legal tender in circulation. The paper further notes that the digital ruble will be instrumental in making payments seamless based on its underlying architecture.

In terms of a macroeconomic and political outlook, the bank also plans to curb capital outflow with its prospectus digital ruble,

“The national digital currency will also limit the risk of reallocation of funds into foreign digital currencies, contributing to macroeconomic and financial stability.”

Notably, the digital ruble will be accessible to all Russian economy agents, including government agencies, businesses, financial market stakeholders, and private citizens. These digital assets will be storable on mobile devices and e-wallets, with the holders having an option to use their CBDC tokens both online and offline. The digital ruble’s main functions, as per the paper, will include a medium of exchange, a unit of account, and a store of value.

Given the ongoing CBDC momentum, Russia’s debut at the party further suggests that monetary authorities are taking more interest in the evolving digital currency space. China is currently the most progressive jurisdiction; the digital yuan pilot has been ongoing for some months with scaling recently done to prominent cities. The EU also filed for a ‘digital euro’ trademark as it gears up to join the CBDC bandwagon in preparation for the paradigm shift to digital ecosystems.

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Author: Edwin Munyui

Australia’s NSW Treasury Department Pushes for Advanced Blockchain Regulatory Framework

Australia’s New South Wales Treasury Department has released a research paper looking into the regulation of blockchain and another emerging tech. According to the city’s authorities, catching up with the rapid technological progress could save New South Wales a significant amount of money in compliance costs. The paper reads,

“Even small improvements to our regulatory framework have the potential to drive significant economic benefits. A saving of just 5 percent of compliance costs in New South Wales could result in a net benefit between $0.6 billion and $4 billion.”

The research acknowledges that COVID-19 has indeed changed the outlook of businesses in New South Wales, making it necessary to review the current regulatory frameworks. Notably, one of the propositions towards changing the landscape is outcome-focused legislation. This means that legislation will be informed or follow innovation hence giving more space for ideas to thrive.

“Outcome-based regulation can provide the flexibility for businesses to innovate, adapt, and realize the potential of emerging technologies, without having to seek permission from regulators.”

Another factor that the NSW Treasury Department plans to look into is the overlapping of regulation. Currently, some of the laws in this state create quite an overlap when it comes to processes such as registration, compliance, and reporting. This has since made some businesses stall, especially those that heavily depend on a swift action by the NSW market watchdogs.

It is, therefore, not surprising that the NSW state has decided to play catch up or ‘pace the problem’ by fast-forwarding considerations on emerging tech regulatory frameworks. In doing so, the Australian city is optimistic that it will seamlessly recover from the effects of COVID-19 under proper oversight while adopting the latest tech,

“With new tools providing a roadmap for reform, the way forward for New South Wales is clear … Technology and AI can continue to play a role in assisting regulators to target opportunities for burden reduction and streamline reform moving forward.”

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Author: Edwin Munyui

Bitcoin is Money, But Not a New Type of Money; It’s An Exchange Mechanism: NY Fed Reserve

“Bitcoin Is Not a New Type of Money,” says the Federal Reserve Bank of New York in its latest paper, where it talks about bitcoin instead of being a new type of exchange mechanism that can support the transfer of monies and other things.

Bitcoin is a new type of money, is actually a “misconception,” argues the authors Michael Lee, an economist in the Bank’s Research and Statistics Group and Antoine Martin, a senior vice president of the Group. They said,

“Bitcoin may be money, but it is not a new type of money.”

There are three types of money; fiat money, asset-backed money, and claim-backed money. Fiat money — the currency is “intrinsically worthless objects that have value based on the belief that they will be accepted in exchange for valued goods and services,” states the paper.

As such, Bitcoin is just another fiat money, unlike central bank-issued currencies (CBDC) that are different from pure fiat money due to its legal tender status, the authors said.

Asset-backed monies like gold coins derive their value from the assets backing the money while claim-backed monies derive their worth from the promise of some institution to exchange the money for something of value.

Just like money, there are three types of exchange mechanisms, including physical transfer, such as currency or notes, and electronic transfer with a trusted third party that represents the vast majority of electron payments today, like the Fedwire Funds Service.

The third type is electronic transfers without a trusted third party where the validation of transactions is decentralized, as is the case for Bitcoin.

Classifying Bitcoin
Source: New York Fed- Classifying Bitcoin

According to the paper, Bitcoin is not backed by anything. It further discusses post-Bitcoin era stablecoins which are tied to assets and tokens from ICOs for which issuers offer rights, though not legally binding, to a product or service in the future.

Overall, bitcoin and other cryptocurrencies are not a new type of money as other categories of fiat money has existed for a very long time. It was the ‘electronics without third party’ that did not exist before 2009, it said.

“The real innovation of cryptocurrencies is that they offer a radically new exchange mechanism,” that can support the transfer of different kinds of monies.

While bitcoin moves fiat money, stablecoins move assets, and future services or products like CryptoKitties are moved by ICO tokens.

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Author: AnTy

Fed Reserve of Philadelphia Research: Account-Based CBDCs May Replace Commercial Banks

A research paper published on June 1, 2020, by the Federal Reserve of Philadelphia shows account-based central bank digital currency (CBDC) could potentially replace the role of commercial banks if panic runs are managed and commercial banks are given a level playing field in the money market. This however poses a huge risk, the paper says.

The research titled, “Central Bank Digital Currency: Central Banking for All?” shows that a set of allocations in the private financial intermediation (commercial banks) could easily be replaced by a CBDC. The paper however claims that competition between the account-based CBDCs and commercial banks should be allowed and depositor runs minimized.

The paper is a collaboration of the research wing of the Fed Reserve of Philadelphia, the University of Chicago, University of Pennsylvania and Ecole Polytechnique. It looks deeper on the consequences of introducing a CBDC and its effects on the current financial system.

The paper looked into the introduction of an account-based CBDC system, whereby citizens will have a direct account with the central bank, and the implications of a CBDC on financial intermediation – the role current commercial banks play in the system.

Central banks stability during bank runs

Commercial banks are the major facilitators of maturity transformation – a process that sees short term liabilities converted to long term liabilities. For example, banks take in deposits (short term loans) and transform them into longer term instruments such as mortgages and commercial bonds.

However, banks are liable to bank runs whereby customers rush to withdraw their money all at once leaving the bank strained. Sometimes the deposits cash flow also dries up leaving the bank with no money to lend.

Possible risk in central bank’s CBDC implementation

Introduction of an account-based CBDC will offer central banks similar ability to current commercial intermediaries but will have to rely on the “expert knowledge of investment banks” to successfully transform deposits to long term side assets, the paper says.

With a clear and “rigid” partnership with investment banks, central bank may turn a monopolistic as more depositors open accounts with them from the commercial banks.

However, the paper notes a possible risk involved in the implementation of a CBDC. It reads,

“If the competition from commercial banks is impaired (for example, through some fiscal subsidization of central bank deposits), the central bank has to be careful in its choices to avoid creating havoc with maturity transformation.”

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Author: Lujan Odera

Digital Dollar Foundation Releases Its First Whitepaper Urging The US Govt To Explore CBDC’s

  • Christopher Giancarlo’s Digital Dollar Foundation releases its first white paper on the digital dollar.
  • The projects aims at implementing a private-public partnership with the government and commercial banks in a “two-tiered” approach.
  • Can the U.S. challenge other global superpowers in developing their own CBDC?

The Digital Dollar Project alongside Accenture, an Irish-domiciled multinational professional services company, released its first whitepaper on Thursday, May 28, 2020. According to Giancarlo, the former chairman of the Commodity Futures Trading Commission (CFTC) called on the U.S. government to accelerate its efforts in developing its “digital dollar” or risk losing its control over values of the global financial system. Giancarlo said,

“What we’re hoping to be is a catalyst for a discussion here in the United States about what role the U.S. will play in this ongoing and accelerating global debate over the future of money in a new digital age.”

Digital Dollar Project Whitepaper Release

The 50-page reportThe Digital Dollar Project: Exploring a U.S CBDC” expounds on the project’s implementation arguing for a “two-tiered approach” in the system. The project will create a tokenized digital dollar with the same legal status as physical banknotes. The currency will then be distributed to commercial banks who then distribute it to the population similar to how cash is distributed through loans and on ATMs.

In a similar manner to the legacy financial systems, the foundation tier will be the Federal Reserve who through regulated intermediaries will distribute the digital dollar to users.

The key advantage of the two tired approaches rather than the current totally decentralized private cryptocurrencies is that it will be interoperable with current systems. Furthermore, the whitepaper aims at formulating a regulated wallet infrastructure to ensure the users’ transactions follow the KYC/AML compliance requirement.

Digital Dollar Should be Tokenized: Giancarlo

In an interview on the launch of the digital dollar white paper, Giancarlo said the current global view on money may have switched as more governments start exploring their own CBDC solutions. The current COVID-19 pandemic also has raised an alarm on the future of physical money and the question of what constitutes money given the widespread printing.

Earlier in March, the U.S House of Representatives brought forth possible plans in distributing a digital dollar token to efficiently disburse the COVID-19 CARE package Act funds to millions of Americans. The bill stated that users should be allowed to open retail accounts in the FED in order to receive the funds. However, opening an account with the Fed is the same as having a private institution such a corporate bank managing the account only that it will be a public institution doing it.

The white paper advises for a token approach instead of the account approach, whereby the dollar can be used across the globe not only within the U.S. Giancarlo said,

“We think a true U.S. CBDC addresses that problem but then so much more, including building a new architecture for money for generations to come that will serve not just under-banked populations here in the United States during a crisis … abroad and [spur] financial inclusion globally.”

After the completion of the platform (date remains unknown), Digital Dollar Foundation will launch test pilots. These pilots will test “proposed token’s impact on the money supply, technological choices, privacy concerns from users, government control and commercial exploitation, impact or use in sanctions and compliance with AML/KYC laws.”

Once the project is off the trial board, the Foundation and Accenture will present the findings to the relevant authorities according to Giancarlo. He said,

“We’re here to get the conversation going, to provide thinking, experience and expertise, and we will leave it to the policymakers to set the pace.”

Competition from the EU, Russia, and China

The U.S. is lagging behind in the race to a sovereign digital currency after accelerated efforts by top competitor, China. The People’s Bank of China (PBoC) earlier in the year released its

Earlier this year the European Central Bank (ECB) announced its plans to develop a retail central bank digital currency (CBDC) light of the COVID-19 pandemic. South Korea, Russia and Switzerland are some of the developed countries looking to launching their CBDC in the coming future.

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Author: Lujan Odera

Facebook’s Calibra Releases ‘Twins’ A New Method For Byzantine Fault Tolerance (BFT) Testing

Facebook’s Calibra team has recently released a new research paper with a different process for Byzantine fault tolerance (BFT) testing called “Twins.” The new methodology invented by the Calibra team is believed to be a lightweight method of BFT implementation. The research paper also highlighted that despite extensive study towards BFT systems for over two decades, there aren’t any principal strategies for testing BFT implementations.

The new methodology invented by Calibra runs two instances of the same node with the same identity to mimic Byzantine behavior. The research paper also noted that its Twins methodology allows the operator to create systematic Byzantine attack scenarios, scale them under control, and then look for desired protocol properties.

What is Byzantine Fault Tolerance?

Byzantine Fault Tolerance is a concept that was derived from an academic paper from 1982 published by Leslie Lamport, Robert Shostak, and Marshall Pease. It is a metaphor derived from a scenario where a group of Byzantine Generals have surrounded a castle and are ready to attack. In order to successfully execute the attack, each one of them must carry out simultaneously, however, there is a traitor amongst them which makes it difficult for them to execute the attack in a union.

In the case of a blockchain network, the Byzantine Fault refers to a situation where all the players in the network are trying to coordinate among themselves to nullify the risk of malevolent parties trying to pass wrong info as in inaccurate data to disrupt the network. Bitcoin overcomes this issue through its POW mining consensus, where numerous miners input their computational power simultaneously to mine the next block.

Calibra’s BFT implementation Twins emulate several attacks on the BFT protocols and the research paper also claimed that the BFT attacks which took the community almost two decades would be possible to detect in a matter of few minutes using Twins. David Marcus, the co-creator of Calibra noted,

While Twins methodology is capable of finding several Byzantine seniors, at the same time some Byzantine behavior is not detectable by the new methodology including those which do not include complete divulgence of an unusual past.

Facebook’s Libra Project Make Changes to their White Paper Again

Facebook’s nascent crypto project Libra has been in hot waters ever since its announcement last year. The whitepaper and working model of the digital currency did not impress regulators who believed Libra would disrupt the financial sovereignty of the government and the idea of a stablecoin backed by multiple fiat currencies really irked them.

Since the announcement, the Libra project has made several amendments to the whitepaper, the most recent one being a couple of weeks back where instead of launching one stablecoin backed by multiple fiats, now they are planning to launch multiple stablecoins for different markets. However, despite these changes, the regulators seemed unhappy and pointed out that these changes were not enough as they did not address the faults pointed out by them in the first place.

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Author: Rebecca Asseh