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Cryptoassets as National Currency? A Step Too Far

IMF Blog | Tobias Adrian and Rhoda Weeks-Brown | Jul 26, 2021

cryptoassets - Cryptoassets as National Currency? A Step Too FarNew digital forms of money have the potential to provide cheaper and faster payments, enhance financial inclusion, improve resilience and competition among payment providers, and facilitate cross-border transfers.

But doing so is not straightforward. It requires significant investment as well as difficult policy choices, such as clarifying the role of the public and private sectors in providing and regulating digital forms of money.

Some countries may be tempted by a shortcut: adopting cryptoassets as national currencies. Many are indeed secure, easy to access, and cheap to transact. We believe, however, that in most cases risks and costs outweigh potential benefits.

Cryptoassets are privately issued tokens based on cryptographic techniques and denominated in their own unit of account. Their value can be extremely volatile. Bitcoin, for instance, reached a peak of $65,000 in April and crashed to less than half that value two months later.

See:  Ripple Pilots a Private Ledger for Central Banks Launching CBDCs

And yet, Bitcoin lives on. For some, it is an opportunity to transact anonymously—for good or bad. For others, it is a means to diversify portfolios and hold a speculative asset that can bring riches but also significant losses.

Cryptoassets are thus fundamentally different from other kinds of digital money. Central banks, for instance, are considering issuing digital currencies—digital money issued in the form of a liability of the central bank. Private companies are also pushing the frontier, with money that can be sent over mobile phones, popular in East Africa and China, and with stablecoins, whose value depends on the safety and liquidity of backing assets.

Cryptoassets as legal tender?

Bitcoin and its peers have mostly remained on the fringes of finance and payments, yet some countries are actively considering granting cryptoassets legal tender status, and even making these a second (or potentially only) national currency.

If a cryptoasset were granted legal tender status, it would have to be accepted by creditors in payment of monetary obligations, including taxes, similar to notes and coins (currency) issued by the central bank.
Countries can even go further by passing laws to encourage the use of cryptoassets as a national currency, that is, as an official monetary unit (in which monetary obligations can be expressed), and a mandatory means of payment for everyday purchases.

See:  Moody’s says Crypto regulation a plus for banks, fintechs

Cryptoassets are unlikely to catch on in countries with stable inflation and exchange rates, and credible institutions. Households and businesses would have very little incentive to price or save in a parallel cryptoasset such as Bitcoin, even if it were given legal tender or currency status. Their value is just too volatile and unrelated to the real economy.

Even in relatively less stable economies, the use of a globally recognized reserve currency such as the dollar or euro would likely be more alluring than adopting a cryptoasset.

A cryptoasset might catch on as a vehicle for unbanked people to make payments, but not to store value. It would be immediately exchanged into real currency upon receipt.

Then again, real currency may not always be readily available, nor easily transferable. Moreover, in some countries, laws forbid or restrict payments in other forms of money. These could tip the balance towards widespread use of cryptoassets.

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NCFA Jan 2018 resize - Cryptoassets as National Currency? A Step Too Far The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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The London Hard Fork is a big step towards Ethereum 2.0’s major upgrade

Financial Post | Amy ter Haar | Jul 29, 2021

Aug 3 Ethereum London hard fork - The London Hard Fork is a big step towards Ethereum 2.0's major upgradeThe London Hard Fork represents a big step toward an overarching upgrade of the network known as Ethereum 2.0

The Ethereum network is one of the most established and probably the most used blockchains today. Its toolkit of functions has enabled it to become the home for multiple stablecoins, countless NFTs (non-fungible tokens), dapps (decentralized applications) and DeFi projects (decentralized finance projects). Moreover, its native digital asset, ETH (Ether), holds the position of second-largest cryptocurrency value by market cap. However, Ethereum’s explosive growth over the past six years has resulted in an energy intensive, expensive and inefficient blockchain that must now overcome some of these pain points. Enter, the London Hard Fork.

On Aug. 4 at block 12,965,000, the London Hard Fork will go live on the Ethereum main network when a series of five protocol updates called EIPs (Ethereum Improvement Proposals) are deployed.

See:  Ethereum cryptocurrency to slash carbon emissions

The series of EIP upgrades require miners and nodes to update their software in order to keep interacting with Ethereum’s blockchain.

Since the upgrade is not backward-compatible, it is known as a ‘hard fork’ — if a node doesn’t upgrade its blockchain, it can no longer be a part of the network.

Collectively, the EIPs are designed to improve the network but the reason talk of the London Hard Fork is bubbling over from Ethereum circles into mainstream media is because it represents a big step toward an overarching upgrade of the network known as Ethereum 2.0, which will see Ethereum’s current PoW (proof-of-work) protocol replaced with a PoS (proof-of-stake) protocol.

The difference between PoW and PoS is relatively straightforward. PoW is based on mining verification and income is derived mainly from the power of the machines involved. This is the same kind of protocol used to secure the Bitcoin blockchain. In contrast, PoS is based on users “staking” a cryptocurrency by depositing it in order to become a validator and thereafter deriving income by getting rewarded for being a good validator.

Of the five EIPs that comprise the London Hard Fork, EIP-1559 is getting the most attention because it is the core improvement in Ethereum’s attempt to generate greater bandwidth in its path migrating away from PoW toward PoS. It is anticipated that PoS will help Ethereum unlock its full potential and make it more scalable, secure and sustainable.

See:  Amazon Responds To Rumors That It Is Integrating Bitcoin Payments On Its Platform

EIP-1559 replaces the existing auction-based “gas fee” model of Ethereum and creates a new fee structure that splits transaction fees into “base fees” and “incentive tips” It also creates a new base-fee “burn mechanism.” In a nutshell, this means that there is a big change in the way that miners will be compensated for their work and some of them are not happy about it.

Presently, Ethereum’s transaction fees are based on a simple auction mechanism in which users submit transactions offering a certain amount of “gas” — think of it like a transaction fee — and miners choose the transactions with the highest offers. This is a simple enough system to understand but it leads to a number of inefficiencies, which the EIP-1559 aims to address by creating a different fee structure.

From the moment of the EIP-1559 update, miners will receive payment only for including a transaction in a block (via the “incentive tip”). The remainder of the commission or “base fee”, which is proportional to the size of the transaction, will be sent to the network and destroyed, or “burned” through a new base-fee burn mechanism.This means that the miner who used to receive 100 per cent of the transaction fees will now only pocket the optional “incentive tip” that incentivizes the miner for faster inclusion of a transaction in the blockchain.

See:  Tokenizing Assets and Unlocking Value on the Blockchain

Since the base fees are being destroyed, the effect is that some ETH is forever removed from the circulating supply and this is what has investors bullish on it. Some claim that this will create a deflationary (or at least a less inflationary) effect on ETH and that it will enhance ETH’s chances to become a preferred store-of-value asset due to its lower supply.

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NCFA Jan 2018 resize - The London Hard Fork is a big step towards Ethereum 2.0's major upgrade The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Biden’s ‘Antitrust Revolution’ Overlooks AI—at Americans’ Peril

Wired | | Jul 27, 2021

AI - Biden’s ‘Antitrust Revolution’ Overlooks AI—at Americans’ PerilA handful of companies have outsize influence on the world’s artificial intelligence. Policymakers must act now to stem the rise of powerful monopolies.

Without intervention, AI could also help undermine democracy–through amplifying misinformation or enabling mass surveillance. The past year and a half has also underscored the impact of algorithmically powered social media, not just on the health of democracy, but on health care itself.

The overall direction and net impact of AI sits on a knife's edge, unless AI R&D and applications are appropriately channeled with wider societal and economic benefits in mind. How can we ensure that?

A handful of US tech companies, including Amazon, Alibaba, Alphabet, Facebook, and Netflix, along with Chinese mega-players such as Baidu, are responsible for $2 of every $3 spent globally on AI. They’re also among the top AI patent holders. Not only do their outsize budgets for AI dwarf others’, including the federal government’s, they also emphasize building internally rather than buying AI. Even though they buy comparatively little, they’ve still cornered the AI startup acquisition market.

See:  Nobel-winning Psychologist: ‘Clearly AI is going to win. How people are going to adjust is a fascinating problem’

Many of these are early-stage acquisitions, meaning the tech giants integrate the products from these companies into their own portfolios or take IP off the market if it doesn’t suit their strategic purposes and redeploy the talent. According to research from my Digital Planet team, US AI talent is intensely concentrated. The median number of AI employees in the field’s top five employers—Amazon, Google, Microsoft, Facebook, and Apple—is some 18,000, while the median for companies six to 24 is about 2,500—and it drops significantly from there. Moreover, these companies have near-monopolies of data on key behavioral areas. And they are setting the stage to become the primary suppliers of AI-based products and services to the rest of the world.

Biden's antitrust revolutionaries need a four-step plan to confront the AI revolution.

Antitrust authorities must first be forward-looking. They must recognize that the AI chess pieces being moved today will shape tomorrow’s endgame–particularly in a tech industry with high barriers to entry and early moves that are hard to reverse after scale. Tech antitrust action often occurs after it’s too late. Policymakers should also trace the outlines of multiple future AI scenarios, including a dystopian one. They must imagine, for example, a society that suffers from “algorithmic poverty,” in which users generate data as unpaid “labor,” which is used to train algorithms that in turn displace wage-producing labor.

See:  Lawmakers Take Aim at Big Tech with Push for Sweeping Overhaul of Antitrust

Policymakers must also separate AI applications that are value-enhancing for society, like speeding up scientific research, from others that might be value-destroying, like rapidly creating misinformation echo chambers, even if such developments are valuable for the firms bringing them to market. The economic impact can be broken down into the ways in which AI augments and substitutes existing activities and where it imposes negative social costs.  Such a framework can help regulators provide guidance and guardrails to AI development. Selective taxes, tax breaks, and credits and subsidies can nudge corporate decisionmakers in their investment choices.

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NCFA Jan 2018 resize - Biden’s ‘Antitrust Revolution’ Overlooks AI—at Americans’ Peril The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Request for Comments by Oct 26, 2021: Canadian securities regulators propose streamlined capital raising option for Canadian-listed issuers

CSA | Jul 28, 2021

Raising capital burden reduction - Request for Comments by Oct 26, 2021:  Canadian securities regulators propose streamlined capital raising option for Canadian-listed issuersVancouver – The Canadian Securities Administrators (CSA) is proposing to introduce a new prospectus exemption for issuers listed on a Canadian stock exchange that is expected to provide a more efficient way for them to raise capital.

“We’ve heard from market participants that the time and cost to prepare a short form prospectus is a barrier to capital raising for many smaller issuers,” said Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers. “The proposal would reduce regulatory burden, while maintaining robust investor protection.”

The proposed Listed Issuer Financing Exemption is expected to reduce costs for issuers raising smaller amounts of capital through the public markets. It would also allow smaller issuers greater access to retail investors and provide retail investors with a broader choice of investments.

The prospectus exemption would not be available to issuers that have been a reporting issuer for less than 12 months, nor to issuers that have not filed all continuous disclosure documents required under Canadian securities legislation. Eligible issuers would file a short offering document and the securities they issue would be freely tradeable. Under the proposed exemption, issuers could raise up to the greater of $5 million or 10 per cent of the issuer’s market capitalization, to a maximum of $10 million, annually.

See:

The proposed exemption is in response to comments received from CSA Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers. It also reflects research on capital raising requirements in other countries and other stakeholder feedback about the prospectus system.

CSA Notice and Request for Comment Proposed Amendments to National Instrument 45-106 Prospectus Exemptions to introduce the Listed Issuer Financing Exemption is available on CSA members' websites. Comments should be submitted in writing by October 26, 2021.

The CSA, the council of the securities regulators of Canada’s provinces and territories, co-ordinates and harmonizes regulation for the Canadian capital markets.

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NCFA Jan 2018 resize - Request for Comments by Oct 26, 2021:  Canadian securities regulators propose streamlined capital raising option for Canadian-listed issuers The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Goldman Sachs Files Defi ETF Application

Bitcoin.com  | Sergio Goschenko | Jul 27, 2021

Goldman Sachs  - Goldman Sachs Files Defi ETF Application

Goldman Sachs, one of the biggest banking institutions in the world, has filed an application to offer an Exchange Traded Fund (ETF) linked to the performance of decentralized finance (defi) companies. The instrument, if approved, would help institutions and retail investors gain exposure to defi assets with the help of a regulated bank like Goldman Sachs.

Goldman Sachs Proposes Defi ETF

Goldman Sachs, one of leading commercial banks in the world, has introduced an application to the SEC to offer a defi-linked ETF. The defined ETF is called “Goldman Sachs Innovate Defi and Blockchain Equity ETF,” and it would seek to provide exposure to these technologies for regulated institutions. The performance of the fund would be linked to the Solactive Blockchain Technology Performance-Index.

See:  10 Highlights From Goldman Sachs’ June 2021 Digital Asset Thought Piece

This index follows a portfolio of tech industries that are invested in blockchain technologies. The index includes companies like Nokia, Alphabet, IBM, Microsoft, and Overstock. This would be the first ETF that aims to capitalize on the popularity that the defi sector has experienced this year. As Bitcoin.com News reported in June, Goldman Sachs has been courting the cryptocurrency sector recently, having partnered with Galaxy Digital to provide bitcoin futures products.

This filing is just another piece of evidence that indicates big banks are now interested in bringing their services and structures to the cryptocurrency market. While many of these disregarded cryptocurrency in the beginning, they are now focused on integrating investment products that are designed to bring traditional investors to the crypto sphere.

Goldman Sachs released a note on the state of the cryptocurrency market earlier this month when it stated that Ether could surpass Bitcoin as the most important crypto because the former has the “highest real use potential.”

This view of the crypto ecosystem could have fueled the ETF application made by the investment bank, focused on following defi and blockchain-based companies.

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NCFA Jan 2018 resize - Goldman Sachs Files Defi ETF Application The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Binance CEO says he’s willing to step down as world’s biggest crypto exchange welcomes regulation

CNBC | Ryan Browne | Jul 27, 2021

changpeng zhao binance - Binance CEO says he’s willing to step down as world’s biggest crypto exchange welcomes regulation

The boss of cryptocurrency exchange Binance says he’s willing to step down from his role as the company seeks to become a regulated financial institution.

Speaking at a virtual press conference Tuesday, Changpeng “CZ” Zhao said he had no immediate plans to quit his role but that the company does have a succession plan in place.

“We’re going to pivot to be a fully regulated financial institution going forward,” Zhao told reporters, adding that, during that pivot, he would be “very open” to finding a replacement CEO with more regulatory experience.

Binance is the world’s largest digital currency exchange by trading volume. However, it has come under intense regulatory scrutiny lately as authorities around the world seek to clamp down on the fast-growing crypto industry.

See:  Bitcoin rises as UK financial watchdog bans Binance cryptocurrency exchange

In the U.K., the Financial Conduct Authority banned Binance’s British unit from undertaking any regulated activity. Binance was one of many crypto firms that withdrew their applications to the U.K.’s temporary licensing regime due to failing to meet anti-money laundering requirements, the FCA said.

Regulators in Japan, Canada and Italy have also clamped down on the firm, warning it is not authorized to operate in the countries.

Planning for the future

Binance aims to set up a number of regional headquarters around the world and will seek licenses wherever they are available, Zhao said. He has previously said Binance has no official headquarters.

Zhao insisted there were no immediate plans for his succession, adding Binance was “keeping our options open.”

“I’ll be honored to continue to run Binance as a regulated financial institution until we find somebody who may do a better job,” he said.

In May, Bloomberg reported that Binance was facing a federal investigation by the U.S. Department of Justice and Internal Revenue Service.

See:  More regulation coming: SEC Chairman signals stablecoins and other tokens could fall under its rules on security-based swaps

Binance said it couldn’t comment specifically on any ongoing discussions with regulators, whether in the U.S. or elsewhere.

On Monday, the company said it was reducing the maximum leverage — or borrowed funds — users can use to trade futures contracts, amid concerns such high-risk bets were leaving clients with hefty losses.

Earlier this month, Binance said it would no longer offer “stock tokens,” digital digital versions of shares like Tesla, Apple and Coinbase, to shift its commercial focus to other products. German regulators had warned the instruments may have violated securities laws.

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NCFA Jan 2018 resize - Binance CEO says he’s willing to step down as world’s biggest crypto exchange welcomes regulation The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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More regulation coming: SEC Chairman signals stablecoins and other tokens could fall under its rules on security-based swaps

Market Insider | Camomile Shumba | Jul 22, 2021

gary gensler  - More regulation coming:  SEC Chairman signals stablecoins and other tokens could fall under its rules on security-based swapsThe US Securities and Exchange Commission's chair, Gary Gensler has indicated stablecoins and other security-backed tokens will not be exempt from the regulator's upcoming rule changes.

Gensler told the American Bar Association Derivatives and Futures Law Committee's virtual mid-year program on Wednesday that stablecoin issuers would need to register with the regulator and ensure certain levels of transparency in how they transact.

"Make no mistake: It doesn't matter whether it's a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities," Gensler said. "These platforms - whether in the decentralized or centralized finance space - are implicated by the securities laws and must work within our securities regime," he said.

Stablecoins, which are crypto coins pegged to an asset such as the dollar, such as Tether, have come under greater scrutiny from regulators given their potential for destabilizing payments systems.

See:  Moody’s says Crypto regulation a plus for banks, fintechs

Transparency is a big topic in the crypto-space as digital tokens are popular, in part because of their decentralized nature, and the relative anonymity they afford their users.

But the US regulator has started to clamp down on some aspects of the crypto market to prevent the use of these coins in illicit activities, such as money laundering. The SEC also sued Ripple Labs late last year over sales of its network's XRP token, which the regulator said should be treated as a security and not a currency.

Gensler said greater transparency would mean that, even for over-the-counter swaps deals, the public would be able to see both the price and the volume at which these transactions took place.

He said that for a company to register a stablecoin, it would have to have solid back-office controls and adequate cushions against losses, through both its own capital reserves and customer margin.

See:  Crypto in Canada: Where are we today, and where are we heading?

On top of that, the Genlser said the SEC will require companies to have a host of new counterparty requirements for capital and margin, including internal risk management systems, supervision and chief compliance officers, trade acknowledgement and confirmation, record-keeping and reporting procedures.'

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NCFA Jan 2018 resize - More regulation coming:  SEC Chairman signals stablecoins and other tokens could fall under its rules on security-based swaps The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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