Less than two days after submitting separate applications to the US Securities and Exchange Commission (SEC) for ETH-based exchange-traded funds (ETFs), VanEck and ProShares withdrew the applications. Bloomberg Senior ETF Analyst Eric Balchunas speculated that the abrupt withdrawals could mean that the SEC spoke to both firms and told them they were unlikely to approve an ETF futures fund.
“The key lesson from disasters is not that we should keep cash but that what we should have in place is a means to P2P payments in the absence of mobile networks, electricity and clearing systems. I don’t want to labor the point about the unsuitability of blockchain-based payments for general purpose cash replacement, but this seems to me to reinforce a critical design characteristic for central bank digital currencies: they must be able to work offline.”
U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler said that while the SEC remains neutral on the innovative technology involved in Bitcoin and DeFi, he is concerned about the risks that the sector poses to investors. He argues that some decentralized platforms “actually have a lot of centralization” and that crypto projects should register their products with the regulatory agency. “This field is not going to reach any of its potential if it tries to stay outside of our laws.”
“The Poly Network hackers have returned assets worth around $427 million, but hackers accused the company of “incompetency” and are refusing to give back the remaining $141 million.”
The Bank of Thailand published the results of its retail central bank digital currency (CBDC) study that will guide the development of CBDC pilot tests. It concludes that the CBDC should be cash-like and non-interest bearing, and intermediaries such as financial institutions would distribute the CBDC to the general public. A “Foundation Track” pilot will begin in Q2 2022 and will involve using the currency to conduct cash-like activities at a limited scale. An “Innovation Track” will explore use cases for the CBDC with participation from the private sector and technology developers.
@Nikita97301494 indirectly brought to my attention a connection between CBDC (central bank digital currency) and CannaBCoin (also CBDC). According to CoinCheckup, “CannaBCoin will provide a decentralized payment network for the legal cannabis industry. CannaBCoin has already set up agreements with major companies in the Europe, forming the CannaBCoin Alliance. The CannaBCoin Alliance works with legislators to solve the current paradox in the market. By implementing supply chain management and a trust and reputation layer, CannaBCoin aides legislators in creating a healthy and transparent market.”
Japanese crypto exchange Liquid has been hacked, with about $80 million in digital assets moved off the platform. The exchange confirmed the security breach in a Thursday tweet, with Liquid revealing the wallet addresses implicated in the breach. The exchange noted that only its warm wallets were affected, adding that its assets are currently being moved into cold storage.
The Australian Border Force, Infocomm Media Development Authority of Singapore and Singapore Customs, along with other industry representations, have concluded a blockchain trial project analyzing the status of the countries’ digital verification systems in issuing and verifying trade documents. QR-codes embedded with unique proofs are inserted into digital certificates of origin, enabling immediate verification for authenticity and integrity of the document when scanned or machine-read. It was concluded that “digital verification and verifiable documents show promise as a ‘circuit-breaker’ to disrupt persistent paper-based evidence required by authorities.”
The Bank of Jamaica (BOJ) reportedly said that, although wallet providers can monitor personal information and transactions of its central bank digital currency (CBDC) users, this information cannot shared with the BOJ and any other authority without a court order. The BoJ will only capture general data for economic analysis. A total of $230 million CBDC has been minted as part of a pilot exercise which ends in December 2021. If the pilot is successful, full roll-out is expected in 2022.
Ukraine’s Ministry of Digital Transformation is reportedly planning to pay its employees with Ukraine’s e-hryvnia central bank digital currency (CBDC) as part of future pilot testing. Another e-hryvnia pilot idea being considered is to use it in the payment of social benefits and government subsidies, and to employ smart contracts that can potentially limit the use and misuse of such government grants.
Facebook’s digital wallet, Novi, could abandon the Diem stablecoin in favor of fiat money if regulators do not change their tune, says David Marcus, head of Facebook Financial and Novi. The current iteration of the project involves the issue of a single stablecoin pegged to the US dollar, versus the original plan to issue a series of stablecoins backed by individual traditional currencies, as well as a token based on the currency-pegged stablecoins. Marcus claims that US authorities’ “hostility” to Facebook’s move into payments, is “profoundly un-American” and that the firm deserve a “fair shot” while also pointing out that it is already well embedded in the sector.
I was about to say that this is one of the more accurate central bank digital currency (CBDC) explainers from outside academia and the official sector, until I got to the part that described Cambodia’s Project Bakong as CBDC. The misnomer comes from a World Economic Forum (WEF) paper that described Bakong as a quasi-form of CBDC. But here’s Chea Serey, assistant governor and director general of the National Bank of Cambodia, putting the record straight (it’s not at all a CBDC). It’s a blockchain-based central bank-run interbank payment system.
Bank Indonesia and the Bank of Thailand launched a cross-border QR code-based retail payments linkage pilot between Indonesia and Thailand. Marking a key milestone in the ASEAN Payment Connectivity initiative, the full commercial phase will be launched in the first quarter of 2022. In the future, the service will be expanded to enable users in both countries to make real-time fund transfers by referencing the recipient’s mobile phone number.
Mastercard will be phasing out the magnetic stripe on its payment cards. They will start to disappear in newly-issued cards in Europe in 2024, while U.S. banks will no longer be required to issue chip cards with a magnetic stripe starting in 2027. By 2029, no new cards will be issued with a magnetic stripe, except for prepaid cards in the United States and Canada, and Mastercard expects that none of its credit or debit cards will have a magnetic stripe by 2033.
Walmart is looking to hire an expert in “digital currencies/cryptocurrency and blockchain related technologies” to develop the firm’s ‘digital currency strategy and product roadmap’ and identify ‘crypto-related investment and partnerships’. The Senior Director position will be based in Walmart’s corporate offices in Bentonville, Arkansas.
According to Bloomberg News “the U.S. Treasury Department is set to clarify that only cryptocurrency companies it considers brokers will need to comply with proposed internal revenue service (IRS) reporting requirements, aiming to quell concerns over a provision in the bipartisan infrastructure bill passed by the Senate.”
The Cardano “Alonzo” upgrade will reportedly launch on September 12, adding smart contracts via a hard fork combinator (HFC) event… The upgrade will bolster its handling of tokenization and non-fungible token ideas, and it will enable Cardano to leverage ERC20 tokens deriving from Ethereum.
“More than $600 million was stolen in a cyberattack that targeted DeFi cryptocurrency platform Poly Network. Poly Network said all of the funds bar $33 million worth of the digital coin tether has now been returned. But $268 million of assets is currently locked in an account that requires passwords from both Poly Network and the hacker… In a message embedded in a digital currency transaction, the suspected hacker said they would ‘provide the final key when _everyone_ is ready.'”
Here’s a very thorough thread from @finhstamsterdam on how the EU upfront regulation of e-money (due to a non-existing payments regulatory starting point) and the US wait/see/regulate approach to stablecoins (based on already existing competencies and law) are equally logical.
US Securities and Exchange Commission Chair Gary Gensler called for legislation focused on “crypto trading, lending and DeFi platforms,” in a letter to Senator Elizabeth Warren. “I believe we need additional authorities to prevent transactions, products, and platforms from falling between regulatory cracks. We also need more resources to protect investors in this growing and volatile sector.” He also said “the use of stablecoins on [crypto] platforms may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions, and the like.”
Research about central bank digital currency (CBDC) has been silent about consumers’ willingness to use CBDC and what triggers usage. This De Nederlandsche Bank paper reports on the results of a survey among a representative group of Dutch citizens to fill this gap. It found that about half of the Dutch population would be willing to open a current account for digital euros at the central bank. The not-for-profit nature of central banks was the most often mentioned rationale. The second was improved resilience of the electronic retail payment system, and third was its relative safety versus cash.
2020 saw the number of registered and active mobile money accounts grow to new levels globally, but Latin America and the Caribbean (LAC) had by far the fastest growth of any region. LAC now counts 39 million registered accounts, representing a 38 per cent year-on-year growth, while active accounts reached 16 million, growing by an outstanding 67 per cent – the highest rate since 2013. LAC also continues to be the region with the highest activity rate, with over 40 per cent of all accounts being active on a monthly basis.
Central banks that have made the decision to explore retail central bank digital currency (CBDC) issuance are focusing on a common set of key design choices. These include the operating model, the technology platform (centralized versus decentralized database technology, or token-based), degree of anonymity/privacy, availability/limitations, and whether to pay interest. These design decisions are driven by country-specific factors and balance the need to achieve the policy objectives that launched the exploration process and be attractive to users and merchants. (For more detail on these factors and considerations see the 2020 IMF working paper on CBDC operational considerations.)
In this blog I want to talk about the technology platform decision, broadly speaking breaking down into those with centralized or decentralized ledger architectures, and ledger-less offline peer-to-peer stored value platforms. In a traditional centralized ledger (client-server model with no distributed components) transaction processing would entail the payor connecting to the central ledger keeper and initiating a funds transfer to the recipient’s account. The ledger would be updated after the payor has been confirmed as the account holder who has enough funds to carry out the transaction.
Alternatively, the ledger could be run on a distributed ledger technology (DLT) platform, in which the ledger is replicated and shared across several participants. With a DLT platform the central bank could have a centralized, decentralized or partially-decentralized authority for verifying and/or committing transactions. DLT platforms can be “public” (accessible by anyone) or restricted to a group of selected participants (“consortium” or “private”). Ledger integrity can be managed by a selected group of users (“permissioned”) or by all network participants (“permissionless”).
So far, central banks that have reached the proof of concept (PoC) and pilot stages of CBDC explorations have opted platforms that allow for control over platform access and participants, and role-based oversight and visibility of transactions (see table). Such platforms also ensure that the central bank retains full control over money issuance and monetary policy. They include centralized ledger and DLT private permissioned platforms, and digital bearer instrument platforms. Permissionless (decentralized authority) platforms have tended to fall short on scalability, and settlement finality, and financial integrity risk management.
It has been generally believed that centralized platforms process transactions more quickly. VISA says their network can handle up to 65,000 transactions per second (TPS), while private DLT platforms have tended to be way slower (e.g., 10,000+ TPS). There is also the issue of “finality” – the point at which transferred funds become irrevocable. Some networks, like Bitcoin and R3 Corda, offer only what is called “probabilistic finality” which won’t cut it for a retail payment system.
Although all the pros and cons of DLT-based versus centralized ledger-based retail payment systems are out of scope of this post, it’s worth mentioning that DLT-based platforms may offer enhanced resiliency by reducing single points of failure. Also, potential data loss at one node can be recovered through replication of the ledger from other nodes when the network comes back online. But DLT-based platforms may experience attacks against the network layer, which includes the consensus mechanism by which database updates are approved, or smart contract exploits. (For more on such pros and cons, see Raphael Auer and Rainer Böhme’s Technology of Retail Central Bank Digital Currency article)
In the table below, I’ve listed what I believe to be the main players in the retail CBDC platform space. My main criterion for inclusion is that the platform has been used in a CBDC or sovereign digital currency pilot or proof of concept or has published something substantive to back up the claim that it offers a viable CBDC platform. I’ve tried to categorize them by whether they’re ledger- or token-based, and if they’re ledger-based, whether the ledger management is centralized or distributed. My plan is to make this a “live” table, and possibly add more columns based on your comments and suggestions. If you have platform suggestions that I’ve missed, please provide links to written material that supports the claim.
