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Will The ECASH Act be the Answer to Privacy and Virtual Currency in the U.S.?

Elliptic | Apr 4, 2022

cash goes digital - Will The ECASH Act be the Answer to Privacy and Virtual Currency in the U.S.?Some lawmakers are calling for a new form of money, one with all the technical outfittings of cryptoassets alongside the impenetrable privacy of paper cash. But can we really have our cake and eat it too? Responding to this call for more opaque digital payments, Representatives Jesús G Garcia and Stephen Lynch – both members of the House Financial Services Committee – have introduced the Electronic Currency and Secure Hardware (ECASH) Act.

While efforts towards establishing a US central bank digital currency (CBDC) are ramping up following President Joe Biden’s recent executive order, the proposed e-cash seeks to complement ​​– rather than compete – with any US digital dollar. The ECASH Act will distinguish itself from any CBDC firstly, because it would be issued by the Treasury instead of the Federal Reserve. Additionally, it would not be underpinned by blockchain or any other distributed ledger technologies. The proposed e-cash also separates itself from privately issued cryptoassets because it will be considered legal tender. Currently, no digital assets are deemed legal tender in the US.  

See:  Cashless society: We need to take digital jail seriously

The proposed e-cash would allow users to transact with one another quickly and with fewer fees compared to most financial intermediaries. E-cash also aims to prevent any financial monitoring through its locally-secured cryptographic encryption. Finally, it will be “capable of instantaneous, final, direct, peer-to-peer, offline transactions that do not involve or require subsequent or final settlement on or via a common or distributed ledger, or any other additional approval or validation by the United States government or any other third-party payments processing intermediary,” according to the e-cash website

Most notably, the proposal would not require users to provide any personally identifiable information to use the currency. The philosophy here is that if cash does not require an ID, neither should e-cash. Of course, there will still be regulatory mandates put in place as it is "classified and regulated in a manner similar to physical currency for the purposes of anti-money laundering, know-your-customer, counter-terrorism, and transaction reporting laws, and accordingly not subject to the third-party exemption to an otherwise presumptive expectation of privacy."

EU Tightens Rules on Crypto Anonymity 

While certain policymakers and stakeholders in the US are working hard to preserve the anonymity and privacy of cryptocurrencies, lawmakers in the European Union (EU) are moving in the opposite direction. On Thursday, the EU voted overwhelmingly in favor of draft legislation that would impose major restrictions on the overall anonymity of cryptoasset transactions by obligating total counterparty transparency for payments. This is a broadly unpopular position taken by EU regulators given the industry calls for anti-surveillance protections.

See:  Designing a Central Bank Digital Currency with Support for Cash-Like Privacy

Under the new ruling, after a minimum payment threshold of 1,000 euros is met, exchanges will be obligated to collect and store information related to the transaction and its counterparties. These intermediaries would be required to obtain, hold and submit information on every single transaction. Additionally, there are ongoing discussions of incorporating any unhosted wallets under the new reporting obligations, which would effectively outlaw these unhosted wallets.

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Wired | Mar 28, 2022

The Future of Digital Cash Is Not on the Blockchain

If you want the privacy of paper money, you need something that leaves no paper trail.

When you hear the phrase “digital cash,” what comes to mind? Perhaps a payment app, like Venmo, that you use in situations that used to call for paper bills, like paying back a friend for dinner. Or maybe you think of cryptocurrencies. After all, the original Bitcoin white paper is titled “Bitcoin: A Peer-to-Peer Electronic Cash System.”

Research:   Study on New Digital Payment Methods (report commissioned by ECB)

But none of these digital payment options are really like cash. Unlike paper money, they require both an internet connection and a bank account to use. Above all, they lack what has long made cash the preferred medium of civil libertarians, dissidents, and criminals alike: privacy. The only kind of money that leaves no paper trail is paper.

A bill introduced in Congress on Monday seeks to re-create the virtues of cash, privacy and all, in digital form. The ECASH Act would direct the US government to experiment with issuing digital dollars that are stored on hardware, not in bank accounts, and can be used without an internet connection. The idea of new, surveillance-proof currency will surely face skepticism within government. But with paper money on a slow path to extinction, the case for a real digital alternative will only grow stronger.

“In the grand scheme of things, distributed ledger versus regular ledger is almost irrelevant on the question of cash-like privacy,” says Rohan Grey, a law professor at Willamette University.

See:  Interac and many of Canada’s leading financial institutions enhance Interac e-Transfer to introduce instant digital payments for businesses

The more meaningful distinction, he explains, is between two different currency models: tokens and accounts. When you pay for something with cash, you’re handing over a physical token. Whoever holds the token has the money, and there is no third party to the transaction. When you send a payment using Venmo, or a bank, on the other hand, you’re just directing them to update your account by moving some numbers around in their books. The same thing is true of cryptocurrencies; the only meaningful difference is that the network as a whole, rather than a financial institution, approves the transactions.

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NCFA Jan 2018 resize - Will The ECASH Act be the Answer to Privacy and Virtual Currency in the U.S.?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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