Did Bitcoin prove itself to be a reliable store of value in 2020? Experts answer

Did Bitcoin prove itself to be a reliable store of value in 2020? Experts answer

Did Bitcoin prove itself to be a reliable store of value in 2020? Experts answer

Without any doubt, the year 2020 was unlike any other year in the 21st century: The ongoing COVID-19 pandemic, global governments unstoppably printing money, “lockdowns” and “social distancing” becoming the new normal, protests against racial discrimination and police brutality, and so on and so forth. It even made some claim it to be “the worst year ever.” But as they say: In every storm, each cloud has a silver lining. The most important thing is to learn from what we’ve been through and to improve our world and our future, as there are some problems that we have to solve ourselves.

It’s also true that 2020 was a significant, dramatic year not only for people all over the world but for Bitcoin (BTC) as well: the third halving, increased attention from institutional investors and global regulators, its white paper’s 12th anniversary, etc. Some even called it the “New Testament” of finance, and others suggested using it for the utopian idea of universal basic income. Bitcoin received global attention because of the Twitter hack in mid-July, which required the crypto community to defend Bitcoin’s integrity after the event placed the words “Bitcoin” and “scam” within one headline again. In October, PayPal announced it would offer crypto payments, and later in November, Bitcoin was on the homepage of the Wall Street Journal for its 80% price rally.

Related: Will PayPal’s crypto integration bring crypto to the masses? Experts answer

When 2020 started, it was hard to imagine how the world would change and how fast those changes would be. Despite all the negative impacts of the ongoing COVID-19 crisis, there have been some positive developments, at least within the crypto space. For instance, Bitcoin’s volatility has decreased since its peak in mid-March, and the pandemic has highlighted Bitcoin’s most important value: its decentralized nature. Some even argued that the pandemic has underlined the benefits of cryptocurrencies for the world. And while Europe experienced the shift to a cashless world, the United States remained more conservative and didn’t want to give up its paper money.

Related: How has the COVID-19 pandemic affected the crypto space? Experts answer

One thing became certain due to the effects of COVID-19: There are some serious problems with the currently existing financial system that might be solved by Bitcoin and by the technology behind it. And the similarities between the two recent financial crises — the first back in 2008 and now in 2020 due to the pandemic — revealed the systemic problems of centralized financial systems. While the first crisis gave birth to Bitcoin, the current one has made people turn to decentralized tech and Bitcoin on a massive scale amid the global economic recession. Some even argue that during the next decade, Bitcoin will play a crucial role in the global economy’s transformation, called “The Great Reset,” and that crypto mass adoption will be led by the millennial generation.

Central banks printed an estimated $15 trillion in stimulus by May alone as anti-pandemic measures to save global economies, throwing the U.S. dollar under the bus, as some said. And these measures turned people toward alternative financial tools, making Bitcoin a hedge against inflation and even an alternative to traditional finance entirely. Some even suggested governments make a monetary transition to Bitcoin to solve the national debt problems.

Another important 2020 milestone was the rise of institutional investors’ interest in Bitcoin. Although this trend seemed to be “built on nothing more than hope” earlier this year, 2020 surprised everyone here as well. Forced by the possibility of rising inflation, the hedging abilities of Bitcoin couldn’t go unnoticed by high-profile investors who saw crypto as an important part of a diversified corporate treasury holding, becoming major holders of digital assets this year.

Unsurprisingly, the crypto space has started to consider the rise of Bitcoin mining institutions inevitable. Also, China’s dominance over the world’s Bitcoin mining operations seemed to be challenged. And most importantly, the future of crypto mining will become more sustainable.

With the 2020 shift in public discourse around Bitcoin, it’s becoming more and more important to create a regulatory framework for the crypto space, without which it will have no future. The regulation, some argue, has to be evolutionary rather than revolutionary, and most importantly, it requires dialogue and close collaboration between regulators and crypto businesses.

All in all, it is hard to predict the crypto’s future in the post-COVID-19 world, as the pandemic has not yet come to an end. Meanwhile, it is impossible to neglect the impact it has had on the crypto space this year. The new Bitcoin era, after everything that happened this year, is forming the new financial order. And if fiat money might lose up to 90% in 100 years, Bitcoin’s future seems to be much brighter than it is now, considering that Bitcoin just reached $27,000 for the first time in history and is now targeting $100,000 within the next 12 months and $500,000 within the decade. And with 2020 coming to its end, Cointelegraph reached out to experts in the blockchain and crypto space for their opinions on Bitcoin’s path this year.

Did Bitcoin mature enough this year to become a reliable store of value? Why or why not?

Brian Brooks, acting comptroller of the currency of the U.S. Treasury Department’s Office of the Comptroller of the Currency:

“We hope that our July 2020 letter regarding crypto custody will make Bitcoin safer for institutional and retail holders. Bitcoin was the innovation that opened the door to decentralizing financial services, and the growth of it and other tokens in 2020 shows the beginning of a transformation of cryptocurrencies from an exotic concept to a more familiar and comfortable means of engaging in financial services.”

Da Hongfei, founder of Neo, founder and CEO of Onchain:

“Since its inception, Bitcoin has witnessed and survived various ups and downs, and it now appears that investors, on the whole, are increasingly more confident in its value. More significantly, I believe that this signals how quickly we are moving toward mainstream adoption.

Throughout 2020, the blockchain space experienced an explosion in terms of interest and creativity, and we’re seeing the results now: More and more people are recognizing that blockchain is here, and it is here to say.

Moving forward, I believe we’re on the cusp of mainstream adoption, and I’m very excited for what 2021 will bring.”

Denelle Dixon, CEO and executive director of the Stellar Development Foundation:

“I think that the institutional focus on Bitcoin has created positive momentum for the entire blockchain space. Personally, I think it is a reliable store of value. As is much debated throughout crypto circles and beyond, engagement with the network in the long term may present challenges and affect Bitcoin’s ability to translate to certain business applications and use cases, but I believe that storing value and holding value are irrefutably its strengths.”

Emin Gün Sirer, CEO of AvaLabs, professor at Cornell University, co-director of IC3:

“We’ve seen over time how narratives around cryptocurrencies can shift and evolve to fit market demand or a network’s capabilities. The Bitcoin narrative around store of value and hedge against currency inflation has hardened this year, and I believe it’s now the dominant positioning for BTC, as its most vocal supporters and institutional adopters have rallied around it.

That’s a perfectly fine position for Bitcoin to occupy.

Personally, I’m most excited about currencies that have both a scarce, hard-capped supply like Bitcoin but also push for more sophisticated utility with functionalities like smart contracts, DeFi applications and asset issuance.”

Heath Tarbert, chairman and chief executive of the U.S. Commodity Futures Trading Commission:

“We have definitely seen an increase in digital assets overall. Bitcoin is among that market, but let us not forget about Ether, which I declared a commodity last year. The two of these together represent a large portion of the crypto market. And it has been an interesting year in this market — not just with the halving but also the move to Ethereum 2.0 and both Bitcoin and Ether forking.

Despite this, however, we must still recognize that this market is small compared with other assets we regulate. I think over time, this market will be comparable. Until then, however, there will need to be more regulatory clarity around these digital assets for these markets to grow.”

James Butterfill, investment strategist at CoinShares:

“Bitcoin remains a volatile asset. Many expect a store of value to have much lower volatility, but as gold was developing into an investment store of value in the 1970s, it too had extremely high volatility. As it has matured as a store of value, so too has its volatility declined. We expect the same to happen to Bitcoin, and early evidence alludes to this.

2020 has been crucial for Bitcoin. We see it as the year of legitimization for the broader public and investors, fortuitously aided/accelerated by the COVID-19 crisis and the consequent rapid escalation of quantitative easing and fall in use of cash. Our conversations with institutional clients have changed considerably over the course of 2020. What was typically a desire to speculatively invest has now become one of being fearful of extreme loose monetary policy and negative interest rates, with clients looking for an anchor for their investments. As their understanding of Bitcoin improves, clients have grasped that Bitcoin has a limited supply and fulfills this role as an anchor for their assets while fiat is being debased.

This year, we have seen cumulative flows (stripping out the price effect) into investment products rise from $1.35 billion at the start of the year to $6.1 billion today, with only 24 days of outflows for a total of 241 trading days this year. Investors are buying and holding — a good indicator that it is slowly developing into a store of value.”

Jimmy Song, instructor at Programming Blockchain:

“It’s not that Bitcoin has matured, it’s that we have. The mainstream investors are starting to take notice of Bitcoin’s 12-year history and starting to recognize how valuable it really is in a world of near-infinite quantitative easing. Bitcoin gives us true scarcity, and that’s why it’s useful as a store of value. Literally, nothing like this has existed in human history.”

Joseph Lubin, co-founder of Ethereum, founder of ConsenSys:

“Despite this very difficult year, I think that the broader decentralized protocol ecosystem demonstrated poignantly that we, like our Web 3.0 technology, are anti-fragile and that this technology will prove a worthy evolutionary successor to Web 2.0 systems. We continue to demonstrate that this technology will serve as a new trust foundation for next-generation, increasingly decentralized, financial, economic, social and political systems.”

Michael Terpin, founder of Transform Group and BitAngels:

“Store of value is an interesting concept. It doesn’t mean nonvolatile; after all, both gold and real estate have had their cycles, booms and busts, but to date, they have returned to a reliable mean so that there are very few instances where a 20-year investment in either did not perform as a reliable way of keeping ahead of inflation with very low risk of losing one’s principal.

To skeptics, Bitcoin was seen as the equivalent of investing in a single high-risk stock that could easily crash to zero — and in its early days, this certainly was possible. But no asset in history has ever gone from under one cent, as it was during the first P2P transactions, to this month’s high-water mark of $28,300. As each year has passed, the fluctuations have gotten more manageable — there will be no more 100-times gains in one year, as happened in 2013. This plus the clear signals from the United States, the European Union, China and Japan that they’re happy to cope with both the ongoing COVID-19 pandemic and economic depression through massive money printing means that these currencies will vastly underperform hard assets in the next two to three years as the money supply in these nations expands at annual rates of above 20% instead of the historic 4% to 5%, which is near the true rate of inflation.

Barry Silbert primed the pump with Grayscale, allowing accredited investors an easy way to invest in Bitcoin that then makes its way into a publicly traded vehicle. Paul Tudor Jones, who made a fortune calling the gold boom in the 1980s, awoke the multitrillion-dollar institutional fund world by having his funds invest in Bitcoin, calling it ‘the fastest horse’ in the race.

Michael Saylor, CEO and founder of multibillion-dollar public firm MicroStrategy, then lit the fuse on corporate fear and greed by using 80% of its $500 million in cash earlier this year to invest in Bitcoin, which has now more than doubled. More recently, he went even further and issued debt to buy even more Bitcoin.

Bitcoin has never been great at microtransactions — dozens of low-fee, faster-settling cryptos are far better at this — but it needed to go through this use case in its infancy. Its true value now is in sending large transactions instantly and safely, and as a store of value for the next century and beyond.”

Mike Belshe, CEO of BitGo:

“The 2020 bull run of Bitcoin is very different from anything we’ve seen before. Unlike the previous rapid rise of 2017, this year saw the influx of new large institutional players. New entrants like PayPal, Square, JPMorgan and others are bringing a new level of credibility, liquidity and stability to the crypto markets.

Institutions and retail investors are recognizing the importance of the principle of scarcity, which is the basic economic principle of Bitcoin. With governments overprinting money across the globe, Bitcoin is the most reliable store of value at this time and a hedge against inflation. Those who understand this will be in a stronger economic position than those who don’t.

I agree with Paul Tudor Jones’ recommendation that individuals who have investable assets put a small amount, perhaps 2%, into Bitcoin. And I’d go a step further and say that institutions should invest 5% of their corporate treasuries in order to stay competitive. Investing small amounts can produce tremendous upside with minimal downside risk.”

Paul Brody, principal and global innovation leader of blockchain technology at Ernst & Young:

“Bitcoin has reached that mature, stable store-of-value stage, but I fear it will never be without some controversy. While the Ethereum ecosystem is becoming a vibrant economic entity — with DeFi, smart contracts and infrastructure services being built atop the system — Bitcoin remains very focused on taking a role as a store of value. This will make it hard for some people to grasp, in the same way that many people still don’t quite realize that there is no gold or other asset that backs any other modern currency either. ”

Roger Ver, executive chairman of Bitcoin.com:

“Clearly not. Anything that can fluctuate from $4,000 to $20,000 in a single year is anything but a store of value. It is still just a speculative investment at this point.”

Samson Mow, chief strategy officer of Blockstream:

“Bitcoin was always a reliable store of value. The only people that say otherwise are the ones looking at it on very short time horizons. As public market companies like MicroStrategy have recently realized, Bitcoin is the only safe haven to store value — cash will just melt away from inflation and quantitative easing, gold is stagnant, and tech stocks are overextended. Now, we’re seeing giants like Guggenheim Partners and Ruffer pile in as they come to that same realization as well. Hyperbitcoinization is inevitable.”

Serguei Popov, co-founder of the Iota Foundation:

“Bitcoin and other popular cryptocurrencies have been a store of value for many people for quite some time already. The considerable capitalization of the crypto market corroborates this, and it’s likely that quite a few readers of this article are using cryptos in this way already. Whether it is ‘reliable’ or not depends on the definition of reliability. Of course, it is true that Bitcoin’s — let alone other cryptos’ — price is quite volatile and will probably remain so, meaning anyone who uses it for a store of value might experience some strong emotions. On the other hand, it is very reliable in the sense that nobody can take your Bitcoin away, as long as you keep your private keys secret and store them safely. This constitutes a unique advantage of cryptocurrencies in the store-of-value context.”

Todd Morakis, co-founder and partner of JST Capital:

“The institutions are here. This year, we’ve seen a number of large traditional firms either announce or begin to explore Bitcoin. While custody is still challenging for institutions, the Paul Tudor Jones announcement earlier in the year as well as the improvement of institutional Bitcoin solutions have led to much broader acceptance of Bitcoin within the traditional financial community. Bitcoin is no longer a bad word on the street.”

Vinny Lingham, CEO of Civic:

“Bitcoin is a speculative investment. Even if we see the price goes up, we have to remember that it’s still speculative. When will it become a reliable store of value? As I’ve been saying for years, Bitcoin may eventually evolve into a reliable store of value, but this growth process will take at least five to 10 years. We’ll know that we’ve reached the goal when Bitcoin becomes far more stable and far less volatile — in a word, boring.”

These quotes have been edited and condensed.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Title: Did Bitcoin prove itself to be a reliable store of value in 2020? Experts answer
Sourced From: cointelegraph.com/news/did-bitcoin-prove-itself-to-be-a-reliable-store-of-value-in-2020-experts-answer
Published Date: Thu, 31 Dec 2020 18:47:00 +0000

Did Bitcoin prove itself to be a reliable store of value in 2020? Experts answer

Did Bitcoin prove itself to be a reliable store of value in 2020? Experts answer was originally published here https://newsgrowing.wordpress.com/2021/01/01/did-bitcoin-prove-itself-to-be-a-reliable-store-of-value-in-2020-experts-answer/

Heavy hitters of crypto call for users to comment on proposed FinCEN wallet rule

Heavy hitters of crypto call for users to comment on proposed FinCEN wallet rule

Heavy hitters of crypto call for users to comment on proposed FinCEN wallet rule

A number of players are encouraging individuals to speak out against FinCEN’s new crypto rules before comments close next week.

Crypto exchange Coinbase and the foundation behind Monero are the latest firms to join in calling for crypto users to share their thoughts on the U.S. Treasury’s Financial Crimes Enforcement Network’s new rules. In a blog post today, Coinbase CEO Brian Armstrong said the proposal would represent “too big of an intrusion” on users’ privacy, stating that crypto exchanges would need to collect and share names and addresses for anyone sending or receiving more than $3,000 in crypto in a single transaction. The CEO called on users to submit their thoughts to FinCEN before Jan. 4 when comments would be closed.

Source: Twitter

Monero Outreach issued a similar plea on Monday with seemingly more assertive language, specially requesting crypto users “voice their opposition” to the “dangerous new rules.” The group claimed that once FinCEN had the necessary customer information, regulators would be able to track all user transactions without a warrant, data that could be potentially compromised.

“This [rule] not been required before, and it will not only threaten the privacy of every cryptocurrency user today, but it will also impede creative future uses of cryptocurrency,” said Monero Outreach. “This is in an area that can easily go very wrong.”

FinCEN proposed the new rule on Dec. 18, giving individuals 15 days to comment with their thoughts. If implemented, the rule would require registered crypto exchanges to verify the identity of their customers under certain conditions, including using “an unhosted or otherwise covered wallet” and if the transaction exceeds $3,000.

Coinbase chief legal officer Paul Grewal later responded that the deadline to provide feedback was inadequate given the holidays and the ongoing pandemic. He requested the regulator provide a 60-day period for comments on the proposed rules. At the time of publication, the Jan. 4 deadline is still firm.

Meanwhile, non-profit crypto advocacy group Coin Center is encouraging “everyone in the cryptocurrency ecosystem” to file a comment on the FinCEN proposal. More than 920 parties have already submitted their thoughts to FinCEN, including Blockchain.com CEO Peter Smith and Compound General Counsel Jake Chervinsky. In a Twitter thread, Chervinsky claimed the rule would not “stop the flow of funds to bad actors or help law enforcement do its job.” 

Smith, on the other hand, sent his comment directly to Treasury Secretary Steve Mnuchin. In a blog post last week, the Blockchain.com CEO said he believes the rule needs additional consultation and review before being considered, given the potential impact:

“Crypto is a nascent and growing industry. We have talented teams and entrepreneurs across the United States who are innovating yet would buckle under the weight of this regulation.”Title: Heavy hitters of crypto call for users to comment on proposed FinCEN wallet rule
Sourced From: cointelegraph.com/news/heavy-hitters-of-crypto-call-for-users-to-comment-on-proposed-fincen-wallet-rule
Published Date: Wed, 30 Dec 2020 22:20:28 +0000

Heavy hitters of crypto call for users to comment on proposed FinCEN wallet rule

Heavy hitters of crypto call for users to comment on proposed FinCEN wallet rule was originally published here https://newsgrowing.wordpress.com/2020/12/31/heavy-hitters-of-crypto-call-for-users-to-comment-on-proposed-fincen-wallet-rule/

2020’s 5 countries friendliest to crypto and blockchain

2020’s 5 countries friendliest to crypto and blockchain

2020’s 5 countries friendliest to crypto and blockchain

As the use of cryptocurrencies continues to spread around the world, a number of countries have established themselves as leaders in adoption.

COVID-19 has dominated 2020, and the effects of the ongoing pandemic have stifled many economies. However, the cryptocurrency space has enjoyed a year of resurgence that has seen decentralized finance become a major trend, while Bitcoin (BTC) has finally surpassed its former all-time high of 2017.

It is worth noting that governments, policymakers and financial regulators have become far more clued-in on cryptocurrencies and blockchain technology over the past two years. This has lent a hand to the ongoing development of the space.

There are, however, a few standout countries that continue to lead the way in creating environments that foster the development and use of cryptocurrencies. Let’s take a look at the top five friendliest countries to crypto and blockchain of 2020.

Switzerland (canton of Zug)

Zug, the small administrative area that has become known as the “Crypto Valley” of Switzerland, is certainly living up to that moniker. Home to around 120,000 people, the canton is also regarded as a stronghold for businesses due to its status as a tax haven, with one of the lowest tax rates in Switzerland. The area is a technology hub, specializing in medical development and the production of electronic components.

The Swiss Community website also notes that wholesale trade is another major industry in the canton of Zug, with a heavy focus on commodities. As a result, the area has attracted big corporations, financial service providers, as well as IT, architectural and engineering firms.

Zug’s moniker as the “Crypto Valley” of Switzerland is primarily due to the Crypto Valley Association’s formal establishment in the region in 2017. The organization has played its part in driving the adoption of cryptocurrencies and blockchain technology in Switzerland.

In September 2020, it was announced that residents of Zug would be able to pay taxes using cryptocurrencies, starting in February 2021. Companies and individuals will be able to pay up to 100,000 Swiss francs ($111,258) of their tax liability in cryptocurrency, with local cryptocurrency exchange Bitcoin Suisse AG facilitating the exchange to fiat currency and its transfer to the government.

On a macro level, Switzerland’s parliament adopted important financial and corporate law reforms in September 2020 that incorporated new legal frameworks for the cryptocurrency and blockchain space.

The laws included guidelines for the exchange of digital securities as well as legal processes for reclaiming digital assets from companies that file for bankruptcy. Legal requirements for cryptocurrency exchanges were also outlined — primarily focusing on introducing AML and KYC rules in an effort to reduce money laundering using cryptocurrencies.

Following that, the Swiss Federal Department of Finance began a public consultation on a proposed blanket ordinance that will take these legislative amendments into law on a federal level. Various Swiss cantons, businesses and parties involved in the blockchain space will be consulted up until February 2021. It’s envisaged that these amendments will then be enforced on a federal level in August 2021.

All of this work in 2020 has laid a strong foundation for the cryptocurrency and blockchain space to continue to thrive in Switzerland for years to come. According to Swiss Info, there are over 900 blockchains and cryptocurrencies operating in Switzerland, supporting around 4,700 jobs.

Singapore

Singapore has established itself as a hub for cryptocurrency exchanges, firms and blockchain enterprises in the Asia–Pacific region.

In an in-depth article published in the Asia Times, Wirex communications manager Lottie Wells provides a comprehensive breakdown of how the country has approached the burgeoning sector, starting with its proactive regulatory stance led by the Monetary Authority of Singapore.

The regulatory body’s Payment Services Act came into effect in January 2020, which provides clear-cut rules and regulations for cryptocurrency exchanges and service providers to operate in the country. Wells described the act as an important factor for the industry’s foothold in the country:

“The regulation and corresponding licence provides a progressive framework that regulates payments systems and digital payment token services in Singapore, allowing certain cryptocurrency businesses to continue operating in the country.”

The MAS also launched its blockchain payments platform called Project Ubin in July for commercial integration. The project took place over five years and explored and developed a blockchain-powered system for clearing and settlement of payments and securities. The MAS indicated that it will continue to use the prototype as a test network for future collaboration with other sovereign central banks as well as the financial industry.

A number of industry participants in Singapore told Cointelegraph earlier this year that the completion of the project and its availability for public use could play a role in the ongoing development of cross-border, interoperable blockchain systems.

Data also backs up the assertion that Singapore is becoming an increasingly attractive home for blockchain and fintech companies. According to the FinTech Times Blockchain Map, 234 blockchain companies are now operating in the country, having added 91 newcomers in 2020.

Singapore also plays host to a number of major events and conferences including, Singapore Blockchain Week and the Singapore FinTech Festival. The latter attracts major participants from the world of finance, IT and banking — and some of the world’s brightest minds in the blockchain and crypto space.

Last but not least, Singapore is one of a handful of countries that has zero capital gains tax on cryptocurrency income. All of this makes Singapore a crypto-friendly country that is attracting top firms to a location that has long been known as a financial and economic center of the Asia–Pacific region.

Japan

Harkening back to the days of the now-defunct Mt. Gox exchange, Japan has been home to a healthy cryptocurrency trading community. This seemingly spurred on Japan’s Financial Services Agency, or FSA, to draw up regulations that were intended to provide stability and security for traders in the country, while snuffing out illegal operators and nefarious actors. The use of cryptocurrencies as a means of payment is legal, although “crypto assets” are not considered legal tender.

As a result, Japan has enforced strong regulatory parameters for the cryptocurrency industry, which the majority of exchanges and other crypto-related companies have welcomed. The latest of these regulations came into effect in April 2020, which require cryptocurrency exchanges to obtain licenses to operate in the country. Some major hacks have also led to the creation of policies that require exchanges to protect their customers’ cryptocurrency holdings in cold wallets.

These amendments to the Payment Services Act and the Financial Instruments and Exchange Act were largely welcomed by a number of exchanges that were contacted by Cointelegraph Japan. There was an over-arching belief that clear-cut rules and regulations would benefit the space and potentially drive institutional investment into cryptocurrencies.

A number of the country’s biggest cryptocurrency exchanges also formed a self-regulatory body called the Japan Virtual and Crypto Assets Exchange Association, which essentially sees the industry governing itself. According to the organization, 24 exchanges are currently licensed in Japan.

The Japanese FSA also launched its global Blockchain Governance Initiative Network in March 2020, which is aimed at driving development of the blockchain sector through open-source information sharing among a wide variety of stakeholders in the space.

With a highly regulated but crypto-friendly environment, Japan now has 430 crypto and blockchain-related companies operating in the country, which was a reported 30% increase from the amount of companies registered in 2019.

South Korea

South Korea is another Asian nation that has developed a thriving cryptocurrency community. Its traders’ appetite for Bitcoin in years past that has led to the famous “kimchi premium,” but this has since waned after the country began imposing strict regulatory measures on the cryptocurrency space.

The South Korean National Assembly passed new legislation in March 2020 that finalized the framework for the regulation and legalization of cryptocurrencies and exchanges. While the new law will only have been fully implemented by March 2021, blockchain and cryptocurrency companies will have a six-month period to meet the stipulations set out in the new legislation.

Cryptocurrency exchanges, funds, wallet service providers, companies conducting initial coin offerings and other industry participants will need to meet some fairly strict financial reporting requirements. This includes the mandatory use of real name bank accounts, enforcing AML/KYC requirements for customers, and the use of certified information security management systems.

The result of these initial regulations has ended up creating a progressive attitude to promote the development and usage of blockchain technology and cryptocurrency in the country. In August 2020, the office of the president released a statement on its efforts to combat the ongoing economic effects of the COVID-19 pandemic. Part of its scheme to reinvigorate its local economy is to foster blockchain technology and the use of cryptocurrencies — with plans to invest over $48.2 billion in blockchain and other Industry 4.0 technologies by 2025.

The country also instituted special regulation-free zones in various cities across the country in 2019, with Busan becoming a blockchain sandbox for the country. This laid the foundation for some ambitious plans this year, including giving citizens access to government services using a blockchain-based identification app. The city also rolled out cryptocurrency-payment support for various services at its most popular beaches. A private consortium of companies in Busan also indicated that it will turn to blockchain technology to power a planned platform for medical tourism.

More than 1 million South Koreans have also shifted from holding physical driver’s licenses to a digital, blockchain-based alternative in a government-sanctioned project that only launched in May 2020. South Korean drivers could also be passing through blockchain-powered toll gates in the next few months, with a local bank and the Korean expressway corporation launching the project in August. Four of South Korea’s biggest banks are also planning to offer cryptocurrency custody services, as reported by Cointelegraph earlier this year.

Cryptocurrency exchanges and individual users also breathed a sigh of relief in December, as the government decided to postpone a new tax regime for the industry until 2022. South Korean legislators had finalized new tax rates for cryptocurrency trading in July, which will see investors in the country pay a 20% tax rate on income from crypto trading worth more than 2.5 million won ($2,260) a year. Various local industry participants played a role in the postponement after lobbying against the new tax regime being implemented this year.

The sheer amount of progress made in the blockchain and cryptocurrency space in South Korea has reaffirmed the country’s spot as a global leader in 2020.

United States

The United States makes this list not for its regulatory measures but for the role that the traditional financial sector has unwittingly played in the promotion of cryptocurrency use this year.

Earlier this year, the U.S. Commodity Futures Trading Commission made it clear that Bitcoin and Ether (ETH) are classified as commodities in the eyes of the state. With regulatory parameters pretty clear, both have been actively traded and accumulated, and healthy futures markets and other products have been developed as a result.

On the flip side, the U.S. Securities and Exchange Commission dropped a bombshell on Ripple and its XRP token in December, filing a lawsuit against the company for allegedly carrying out an unregistered securities offering over the past few years. Ripple CEO Brad Garlinghouse has vowed to fight the SEC in court and went as far as labelling the allegations against Ripple and XRP as an attack on the entire cryptocurrency industry.

The situation is a stark reminder to the blockchain and cryptocurrency space that regulators in America are keeping a keen eye on initial coin offerings and fundraising initiatives that could fall under the jurisdiction of commodities and securities laws.

Brushing aside regulatory concerns, 2020 has been a massive year for Bitcoin and Ether in particular in the U.S., as a number of industry participants and big players from the traditional business and finance sphere have aggressively entered the crypto markets.

Business intelligence firm MicroStrategy grabbed headlines for its decision to make Bitcoin its primary treasury reserve asset this year. Its CEO, Michael Saylor, has been especially bullish about the cryptocurrency’s role in offsetting potential fiat currency devaluation due to ongoing fiscal stimulus measures by the U.S. Federal Reserve.

MicroStrategy has bet big on Bitcoin, having bought over $1 billion worth of the cryptocurrency in the past five months, which was facilitated by American exchange Coinbase. The firm also completed a $650-million private bond sale in December that will be used to buy more Bitcoin. The firm now holds 70,470 Bitcoin, according to Saylor.

A number of major asset management firms has also climbed into the cryptocurrency markets. The Grayscale Bitcoin Trust had its biggest year to date and now holds over $10 billion worth of BTC; One River Digital is aiming to own over $1 billion worth of Bitcoin and Ether in 2021; and life insurance provider MassMutual purchased $100 million of Bitcoin to achieve “meaningful exposure to a growing economic aspect of our increasingly digital world.”

Global payments giant PayPal also played a role in the resurgence of Bitcoin in 2020 as it announced that it would offer cryptocurrency custody and payment support through select vendors that use the platform. The move essentially takes cryptocurrency toward real mainstream use — considering that the platform has over 340 million users worldwide.

Coinbase also revealed in December that it is planning an initial public offering that will take the company public after the SEC completes its review process of the filing. The move is a major one, considering that the world is yet to see one of its major cryptocurrency exchanges publicly traded.

With a healthy cryptocurrency trading environment and a variety of cryptocurrency-focused financial products such as futures available to the public, the U.S. has been a driving force for cryptocurrency adoption and use in 2020.

Title: 2020’s 5 countries friendliest to crypto and blockchain
Sourced From: cointelegraph.com/news/2020-s-5-countries-friendliest-to-crypto-and-blockchain
Published Date: Wed, 30 Dec 2020 19:50:21 +0000

2020’s 5 countries friendliest to crypto and blockchain

2020’s 5 countries friendliest to crypto and blockchain was originally published here https://newsgrowing.wordpress.com/2020/12/31/2020s-5-countries-friendliest-to-crypto-and-blockchain/

SEC lawsuit against Ripple set for virtual pretrial conference in February

SEC lawsuit against Ripple set for virtual pretrial conference in February

SEC lawsuit against Ripple set for virtual pretrial conference in February

The United States District Court of the Southern District of New York has fixed Feb. 22, 2021 as the date for the pretrial of the lawsuit filed by the Securities and Exchange Commission against Ripple Labs and its principal actors.

According to a court document filed on Tuesday, counsel representing all parties on the matter will hold a telephone pretrial conference. As part of preparations for the preliminary hearing, the parties in the case will submit a joint letter a week before the pretrial date addressing:

“(1) a brief description of the case, including the factual and legal basis for the claim(s) and defense(s), (2) any contemplated motions and (3) the prospect for settlement.”

Earlier in December, the SEC filed a lawsuit against Ripple, accusing the blockchain firm of selling XRP tokens in violation of securities law. The legal status of XRP as a commodity or a security has long been the subject of debate within and outside the crypto space.

Several cryptocurrency exchanges have reacted to the lawsuit by either suspending XRP trading or delisting the token from their platforms altogether. Investment firms like Bitwise Asset Management have also liquidated their XRP holdings in the wake of the SEC enforcement action.

As previously reported by Cointelegraph, Ripple partner MoneyGram distanced itself from the company, asserting that it does not utilize RippleNet. The XRP price has also declined significantly, down over 65% in December.

In a statement issued earlier in the week, Ripple accused the SEC of harming XRP token holders. Ripple also declared its intention to respond to the Commission’s claims against the company.

Title: SEC lawsuit against Ripple set for virtual pretrial conference in February
Sourced From: cointelegraph.com/news/sec-lawsuit-against-ripple-set-for-virtual-pretrial-conference-in-february
Published Date: Wed, 30 Dec 2020 12:59:48 +0000

SEC lawsuit against Ripple set for virtual pretrial conference in February

SEC lawsuit against Ripple set for virtual pretrial conference in February was originally published here https://newsgrowing.wordpress.com/2020/12/30/sec-lawsuit-against-ripple-set-for-virtual-pretrial-conference-in-february/

File comments against new crypto FinCEN rule, Coin Center leader urges

File comments against new crypto FinCEN rule, Coin Center leader urges

File comments against new crypto FinCEN rule, Coin Center leader urges

With the two-week commentary period winding down, Jerry Brito, executive director of non-profit crypto policy advocate group Coin Center, says comments could make a difference in the ultimate outcome of the self-custodied wallet ruling recently proposed by the U.S. Treasury. 

“Coin Center is working with folks in Congress to get some letters sent to Secretary Mnuchin requesting an extension to the rushed comment period,” Brito said in a Dec. 28 tweet, adding:

“Everyone in the cryptocurrency ecosystem should file a comment with FinCEN explaining how this rule would affect them and pointing out the unintended consequences. Filing a comment really does help.”

With his likely exit from office looming next month, U.S. Treasury Secretary Steven Mnuchin dropped a regulatory proposal on the crypto space on Dec. 18. If passed, the new law would essentially mandate that U.S.-based crypto services must check users’ identities and their respective wallets whenever they withdraw over $3,000 to a self-custodied wallet, or if they move more than $10,000 to another platform.

Rather than the normal 60-day period, the regulatory body only left the crypto industry with a 15-day window for feedback on the proposal. Brito posited feedback from the crypto industry could help the situation by pushing back the deadline.

“Mnuchin wants to get this rule finalized before he leaves office on Jan 20,” Brito tweeted. “But FinCEN is required by law to consider every comment before finalizing the rule,” he added. “If there are a lot of substantive comments filed, they won’t be able to finalize the rule before Jan 20.”

Pushing the proposal’s decision date past Jan. 20 would leave the law undecided until after government leaders change seats. Delaying the proposal through that date would likely lead to a more thought-out legislation, according to Brito.

“Ideally you should write a unique, substantive letter that describes how the rule will affect you or your firm,” he added, pointing toward an example proposed on Twitter by Jake Chervinsky, general counsel for crypto project Compound. Comments need to be in to the Treasury by Jan. 4. Industry folks can also send in shorter remarks via a digital rights entity called Fight for the Future.

U.S. regulatory bodies have ramped up their engagement in the crypto space in 2020, evident in a number of headlines throughout the year.

Title: File comments against new crypto FinCEN rule, Coin Center leader urges
Sourced From: cointelegraph.com/news/file-comments-against-new-crypto-fincen-rule-coin-center-leader-urges
Published Date: Tue, 29 Dec 2020 20:48:57 +0000

File comments against new crypto FinCEN rule, Coin Center leader urges

File comments against new crypto FinCEN rule, Coin Center leader urges was originally published here https://newsgrowing.wordpress.com/2020/12/30/file-comments-against-new-crypto-fincen-rule-coin-center-leader-urges/

New York authorizes first Yen stablecoin operator in the US

New York authorizes first Yen stablecoin operator in the US

New York authorizes first Yen stablecoin operator in the US

New York has given the first authorization to a stablecoin backed by the Japanese Yen to operate in the U.S.

Per a Dec. 29 announcement, the New York Department of Financial Services has granted Japanese firm GMO-Z.com a charter to handle U.S.D. and Yen-backed stablecoins in New York. 

Given New York’s status as a global center, the NYDFS is the most prominent state financial regulator in the U.S. It is also one of the most aggressive. A pass to operate in New York often opens up the rest of the country. 

GMO’s charter is as a limited liability trust company rather than a full bank, the principle difference being in authorization to handle deposits. While a stablecoin operator typically needs the ability to hold reserves of the pegged asset, GMO’s charter limits its rights to hold other kinds of deposits not central to its ability “to issue, administer, and redeem” its stablecoins. 

The right to issue such non-depository charters has been a bone of contention between state regulators like the NYDFS and national banking regulators in the U.S. 

GMO president and CEO Ken Nakamura said: “We’re breaking ground with our move to issue the first regulated JPY-pegged stablecoin, which many see as a safe haven asset.” 

The NYDFS recently made changes to its famous BitLicense, including a conditional format that buddies up newly licensed firms with existing licensees. The first conditional BitLicense went to PayPal, facilitating the launch of its new crypto services earlier this fall with the help of longstanding licensee Paxos. 

Title: New York authorizes first Yen stablecoin operator in the US
Sourced From: cointelegraph.com/news/new-york-authorizes-first-yen-stablecoin-operator-in-the-us
Published Date: Tue, 29 Dec 2020 15:39:07 +0000

New York authorizes first Yen stablecoin operator in the US

New York authorizes first Yen stablecoin operator in the US was originally published here https://newsgrowing.wordpress.com/2020/12/30/new-york-authorizes-first-yen-stablecoin-operator-in-the-us/

India ponders Bitcoin tax law to target $5B market

India ponders Bitcoin tax law to target $5B market

India ponders Bitcoin tax law to target $5B market

India’s finance ministry has called for the enactment of Bitcoin (BTC) tax laws in the country. According to the Times of India, the ministry’s Central Economic Intelligence Bureau, or CEIB, recently submitted a draft document that proposes levying an 18% goods and services tax on Bitcoin trading.

CEIB figures put the estimated Bitcoin transaction volume in India at over $5.4 billion. Thus, the proposed 18% tax could see the government earning about $970 million from crypto taxation.

As part of the proposed plan, the CEIB is pushing for virtual currencies to be classified as “intangible assets” to fall under the purview of GST with taxes levied on the profits made from trading.

Reacting to the news, Tanvi Ratna, CEO of Indian crypto policy advisory firm Policy 4.0, tweeted:

“Sadly, this does not necessarily imply that crypto will be legal. Under Indian law, illegal income is also taxable & evading its tax counts as criminal activity.”

Indeed, in 2011, India’s finance ministry provided clarification that tax evasion on illegal sources of income was a criminal offense. At the time, the government was reportedly moving toward reclassifying all forms of tax evasion as criminal offenses.

Apart from the Supreme Court reversing the Reserve Bank of India’s ban against banks servicing crypto exchanges back in March, not much has happened by way of cryptocurrency regulations in the country.

The lack of regulatory clarity is reportedly preventing greater investor involvement in the industry. However, India’s crypto peer-to-peer trading market continued to grow in 2020.

Title: India ponders Bitcoin tax law to target $5B market
Sourced From: cointelegraph.com/news/india-ponders-bitcoin-tax-law-to-target-5b-market
Published Date: Tue, 29 Dec 2020 10:59:30 +0000

India ponders Bitcoin tax law to target $5B market

India ponders Bitcoin tax law to target $5B market was originally published here https://newsgrowing.wordpress.com/2020/12/29/india-ponders-bitcoin-tax-law-to-target-5b-market/

XRP price faces a rocky road to recovery ahead of SEC’s Ripple lawsuit

XRP price faces a rocky road to recovery ahead of SEC’s Ripple lawsuit

XRP price faces a rocky road to recovery ahead of SEC’s Ripple lawsuit

Just over a month ago on Nov. 24, XRP’s value surged to above the $0.90 mark on U.S. cryptocurrency exchange Coinbase, albeit momentarily, leading many backers to believe that the digital currency was all set to skyrocket once again, possibly even retesting its January 2018 all-time high of over $3.

However, in the wake of the recent lawsuit laid out by the United States Securities and Exchange Commission against Ripple, not only does a future value hike look increasingly improbable for XRP but the project’s future as a whole could be in jeopardy. The SEC’s core argument against the digital currency created by Ripple is that from the very beginning, it has been a “security” and, as such, should have been registered with the governmental body before being made available for purchase for American citizens.

Furthermore, the SEC has claimed that Ripple, CEO Brad Garlinghouse and executive chairman Chris Larsen are in the wrong because they were able to acquire over $1.38 billion from the sales of the XRP token. In the wake of these allegations, the now fourth-largest crypto by market capitalization crashed by 24% in just 24 hours.

And while XRP did experience a small window of relief on Dec 25, rising by around 40%, the SEC’s announcement has led to many major crypto exchanges delisting or freezing the token. Initially, it was only platforms such as OSL, Beaxy and CrossTower that temporarily stopped trading or removed XRP from their platforms, but more recently, the U.S.-based trading platform BitStamp announced via Twitter that it was going to prohibit customers from trading and depositing XRP starting January 2021. Ben Zhou, CEO of cryptocurrency exchange ByBit, told Cointelegraph:

“SEC and Ripple will have their day in court with due process of law, so we shall not prejudge the case in the court of public opinion. It is of course likely that the case will take up much of Ripple’s attention and resources. […] We hope a clear precedent and framework emerge from these proceedings.”

The nitty-gritty of the case

In its complaint, the SEC has laid out a fairly straightforward argument stating that XRP was never registered with the body and that Ripple’s executive brass did not make any attempts to pursue an exemption from registration. Thus, from the commission’s point of view, this amounts to a sustained practice of illegal sales of unregistered, nonexempt securities under Section 5 of the Securities Act of 1933.

However, what seems unusual to some is that the case has been brought forward in a New York federal court even though Ripple’s headquarters are in California. The simple reason for this is that Ripple has one of its offices situated in the Southern District of New York and some of the statements issued publicly by Garlinghouse regarding XRP were made within the state. Not only that, a substantial number of XRP tokens were sold to New York residents, which in legal terms makes it absolutely fine for the lawsuit to be tried in a New York court of law.

Also, the lawsuit names Larsen and Garlinghouse personally — so as to recover any money obtained by them via their various fundraising efforts — even though the initial XRP was sold by Ripple’s wholly owned subsidiary XRP II LLC. In this regard, the SEC claims that both individuals sold significant volumes of XRP illegally — 1.7 billion XRP by Larsen and 321 million XRP by Garlinghouse — even contending that they “aided and abetted” Ripple in its unethical sales practices.

Providing his thoughts on the matter, Todd Crosland, CEO of cryptocurrency exchange CoinZoom, stated that the lawsuit casts a large shadow over the price of XRP, claiming that it will be interesting to see how things play out as “Lack of institutional support will hurt liquidity,” adding: “Institutions will not bet against the SEC, and will be unloading their positions and will avoid taking new positions in XRP until the lawsuit is resolved.”

What are the implications of the lawsuit?

If the SEC succeeds in its prosecution efforts, Ripple will be framed as the primary violator, with both Larsen and Garlinghouse facing serious legal implications, as both are alleged to have participated in the pattern of XRP sales.

Technically speaking, the SEC’s issues with XRP stem from the fact that the digital currency satisfies key elements of the Howey test under federal securities laws, thus leading to the question of how exactly Garlinghouse and Larsen were able to take part in the token’s various sales efforts.

The commission is now seeking to not only obtain all of Ripple’s ill-gotten gains but is also looking to permanently ban the named defendants from ever selling unregistered XRP or participating in the sale of unregistered, nonexempt securities. Not only that, but the SEC is also seeking an unspecified civil monetary penalty, the exact amount of which has not been made public.

twist in the tale?

The ongoing XRP saga comes at a time when SEC Chairman Jay Clayton has submitted his resignation, with his duties being taken over by Elad Roisman, who has been appointed acting chairman of the U.S. financial regulator. Also, in a recent letter sent to Clayton, Joseph Grundfest — a former SEC commissioner — was allegedly quoted as saying that while the Ripple lawsuit is an “unprecedented” event, “no pressing reason compels immediate enforcement action.” He added: “Simply initiating the action will impose substantial harm on innocent holders of XRP, regardless of the ultimate resolution.”

Related: SEC vs. Ripple: A predictable but undesirable development

In the midst of all the aforementioned events, Garlinghouse has continuously reiterated that he will “aggressively fight” in court the SEC’s allegedly unwarranted actions against Ripple and will rest only after the case has been proven to be entirely untrue. Furthermore, he also emphasized that even though he had the option of settling with the SEC, he has decided to not take the easy way out.

It now remains to be seen what fate, or the American judicial system, has in store for Ripple. As of publication, XRP is trading at $0.29, with the asset showcasing a seven-day decline of nearly 50%.

Title: XRP price faces a rocky road to recovery ahead of SEC’s Ripple lawsuit
Sourced From: cointelegraph.com/news/xrp-price-faces-a-rocky-road-to-recovery-ahead-of-sec-s-ripple-lawsuit
Published Date: Mon, 28 Dec 2020 19:31:21 +0000

XRP price faces a rocky road to recovery ahead of SEC’s Ripple lawsuit

XRP price faces a rocky road to recovery ahead of SEC’s Ripple lawsuit was originally published here https://newsgrowing.wordpress.com/2020/12/29/xrp-price-faces-a-rocky-road-to-recovery-ahead-of-secs-ripple-lawsuit/

Can blockchain technology make online voting reliable?

Can blockchain technology make online voting reliable?

Can blockchain technology make online voting reliable?

The United States Presidential elections on Nov. 3 were contentious to begin with, but unfounded and inaccurate accusations of electoral fraud from the defeated President Trump cast a pall over the whole procedure. Daniel Hardman, chief architect and chief information security officer at self-sovereign identity solution Evernym, thinks blockchain might help voting in general going forward.

“Basically, blockchain can provide a way for voters to be reliably and securely registered to vote, and then when votes are cast, blockchain can be a mechanism for proving that somebody has the right to vote, based on their prior registration,” Hardman told Cointelegraph. “Blockchain can provide some features that would help with auditing a vote in an election,” he added.

Republicans have been hesitant to accept a Biden win, despite the electoral college verifying the results earlier in December. Rationale ranged from accusations of faulty or manipulated voting machines to allegations of falsified ballots appearing en masse at critical voting sites. None of these accusations, however, have stood up in court.

“The recent stuff that we’ve seen with election challenges in Pennsylvania and Arizona and so forth — there are certain features of blockchain that would have made it possible to do more robust auditing,” Hardman said. “You’d basically be able to lay to rest any concerns about tampering and things like that.”

With public blockchains, such as Bitcoin’s (BTC) for example, every transaction is recorded on an immutable public ledger, making audits more foolproof and transparent than centralized or paper-based processes. Applying such technology to voting could achieve similar results for votes.

Although the model appears transparent and unchangeable, how would authorities know if votes came from citizens who only voted one time? “What you want is what’s called end-to-end verification,” Hardman explained. “On the one side, the front side of it is the registration part,” he said, adding:

“You need to know that a person can only register one time and that means that when somebody comes in to register you do the things that you would do in a physical election mechanism today, which is — you check the driver’s license, you see if their picture matches, their signature matches, all that kind of stuff.”

Then, under the hood, the technology ensures each person only a single vote. “On the backend, you prove that for any given registration, you can cast exactly one vote,” Hardman said.

A vastly complex topic calling for varied solutions based on differing threat factors, a blockchain-involved voting system might include specific components for preventing voter fraud and malware, such as biometric-based voter identification. “If you know that, ya know, John Smith from 123 Main Street in Pennsylvania has a particular fingerprint, then it’s pretty hard for somebody else to cast a vote on his behalf,” Hardman explained.

That said, what then stops governments and companies from taking advantage of such personal information for tracking and other usages? Hardman explained China and its COVID prevention measures as an example of privacy infringement. The country has tracked its peoples’ temperatures, matched with their identities and locations, he explained.

“In the case of elections, what you’d like is to separate those two questions,” Hardman said. “The question — is the party that’s trying to cast a vote authorized to do so because they’ve been prior registered in the system — is one question,” he noted. “The question ‘who is this person,’ is a different question,” he explained, adding:

“There are parts of an election where you might want to ask both questions, but there are other parts where you don’t need to ask both, and if you separate those, then you can prevent the government from doing that — from having kind of an apocalyptic surveillance state that knows which vote you cast and when you cast it and stuff like that.”

A key to the problem? A blockchain technology called zero-knowledge proofs, according to Hardman. Zero-knowledge proofs essentially verify a person’s identity without actually revealing their private data. “You ask somebody at registration time to strongly identify, you know, who they are, where they live and so forth, but at the time they cast their vote, what you ask them is to prove that they have the privilege of casting the vote without disclosing who they are,” Hardman explained. “You further ask them to prove that their vote has not already been tracked in the system […] which guarantees that you can’t vote twice.”

Over the past few years, blockchain has gained popularity for its usefulness in a number of mainstream processes, such as supply chain activities.

Title: Can blockchain technology make online voting reliable?
Sourced From: cointelegraph.com/news/can-blockchain-technology-make-online-voting-reliable
Published Date: Mon, 28 Dec 2020 18:47:53 +0000

Can blockchain technology make online voting reliable?

Can blockchain technology make online voting reliable? was originally published here https://newsgrowing.wordpress.com/2020/12/29/can-blockchain-technology-make-online-voting-reliable/

Did CBDCs affect the crypto space in 2020, and what’s next in 2021? Experts answer

Did CBDCs affect the crypto space in 2020, and what’s next in 2021? Experts answer

Did CBDCs affect the crypto space in 2020, and what’s next in 2021? Experts answer

It is hard to imagine that just two years ago, the general discourse around central bank digital currencies, or CBDCs, was mainly focused on the potential and possibility of issuing them. Even in 2019, the question was about whether we need state-owned cryptocurrencies, with only 70% of central banks worldwide studying the potential of issuing a CBDC, according to a survey published by the Bank for International Settlements at the beginning of 2019. But this year, everything is indeed different. 

2020 started with a major event within the financial world: the World Economic Forum in Davos, where the WEF released a toolkit for policymakers regarding the creation of CBDCs. And according to a recent BIS report, 80% of the world’s central banks have already been evaluating CBDC adoption. The news that central banks worldwide had started actively researching, studying, testing, etc., kept coming every month this year: Australia, Brazil, Cambodia, Estonia, Jamaica, Kazakhstan, Kenya, Lithuania, Russia, South Korea, Sweden, Thailand and the United Arab Emirates, to name a few. Even Japan, which two years ago was among the major critics of central bank digital currency, changed its mind.

Although the inevitability of central bank digital currency becoming a global phenomenon became certain this year, there is an important trend that has also become clear: Central banks in emerging market economies are moving toward issuing CBDCs more rapidly than developed countries, which are taking a more cautious stance. For example, the European Central Bank is discussing launching a consideration phase for a digital euro next year, and launching a digital euro is at least a five-year plan. Canada is also developing a CBDC at “a good pace,” according to Timothy Lane, deputy governor of the Bank of Canada. Japan’s digital yen will take years to issue, according to a former Bank of Japan official, while this fall, the Bahamas became one of the first countries in the world to officially launch a CBDC. Russia is expected to launch the first pilots for its digital ruble next year.

The situation is quite different for the world’s major economies, the United States and China, whose technological competition has resulted in a “digital cold war.” The Chinese digital yuan project — referred to as the Digital Currency Electronic Payment, or DCEP — already has years of history, and this year, the project made a lot of progress, although many details remain limited. Concerns about issuing a digital dollar ahead of the digital yuan opened the year and soon enough were followed by the Digital Dollar Project’s white paper release. The conversation of this tech competition between the two countries was even brought to the U.S Senate. Some even controversially argued that the 2020 U.S. election sealed China’s victory in CBDC leadership. Though, the question of whether being the first in launching a CBDC will be enough to win global reserve currency status remains open. Most importantly, China does not intend to replace the U.S. dollar with the digital yuan, and collaborative efforts between the two great powers on developing CBDCs might be indeed the best option for the world.

There may be many reasons for such rapid CBDC development all over the world, but the major reason is the COVID-19 pandemic, which was highlighted by the European Central Bank, the Bank for International Settlements and many other experts. The coronavirus pandemic, which has driven humanity’s technology development at least 20 years forward, has become a serious challenge for global economies, and CBDCs have started to be seen as an appropriate tool to fix the financial system.

Related: How has the COVID-19 pandemic affected the crypto space? Experts answer

And while some are raising serious privacy concerns in regard to CBDCs and emphasizing that they would be a step toward a more centralized system, the potential of national digital currencies is surely becoming our present reality, not just the financial system of the future. CBDCs are a serious step in financial system development, as they can improve bank accounts, alter traditional finance entirely, reshape world economies, change our conceptions of money and how we use it by replacing cash, and even become a part of a “new monetary order.” And as 2020 will be ending soon, Cointelegraph reached out to experts in the blockchain and crypto space for their opinions on the impact of CBDCs on the crypto space and beyond.

How did CBDC development affect the crypto space this year, and what can we expect in 2021?

Brian Behlendorf, executive director of Hyperledger:

“The level of competency within the technical teams at central banks, particularly in regard to CBDCs and their potential and limitations, would astound many in the crypto community who would assume otherwise. This year, we have seen not just hints dropped and research projects engaged, we’ve seen pilots and even some production systems and complementary institutions like the BIS and OECD tackling the regulatory issues head-on. A key question is whether these networks will be accounts-based or bearer-based — the latter being what most in the crypto community intuitively understand as ‘Not your keys, not your coins.’

There’s a substantial risk that the regulatory imperatives to fight crime and fraud clash with the freedom to run the software of one’s choice, echoing the long battles to be able to run the cryptography of one’s choice as a first principle, and we may find regulators hurtling toward banning noncustodial wallets. That would be a bad thing for everyone, from the crypto community to CBDCs and all other sorts of digital assets.

My belief is that regulators and central banks will be satisfied by KYC/AML implemented using digital identity systems — probably of the self-sovereign variety, often running on these same networks — to make those kinds of regulatory decisions ‘late binding’ at the time of transaction, no matter where keys are stored, for matters of sheer practicality. Banks in countries whose regulators understand that better than others will have a competitive advantage, and that might not be the countries we think of today as being furthest along in CBDC deployment.”

Brian Brooks, acting comptroller of the currency of the U.S. Treasury Department’s Office of the Comptroller of the Currency:

“Central bank digital currencies are among the most important topics being discussed right now. The question at this point is not whether but how to accomplish the digitization of the dollar and other fiat currencies.

The United States usually wins when we unleash the power of our innovative, dynamic private sector, with the government setting the rules rather than building the products. But either way, given the intense focus of other countries in this area, let me say that because of the important role of the U.S. dollar, we need the United States to step forward on this field.”

Da Hongfei, founder of Neo, founder and CEO of Onchain:

“It will certainly be a boon to the blockchain space as the rapid development of CBDCs further affirms the integral role blockchain will play in building the world of tomorrow. As blockchain innovation accelerates, I believe countries around the world are increasingly recognizing the need to build a truly digital future that will resolve the current inefficiencies and shortcomings of today’s global order. As asset digitization picks up steam, I am confident that we will move toward the smart economy of the future.”

Denelle Dixon, CEO and executive director of the Stellar Development Foundation:

“CBDCs can and will be a huge innovation in our lifetimes, particularly as a tool for financial inclusion. This year, the COVID-19 pandemic highlighted how impactful CBDCs could be. Policymakers, governments and central banks increasingly are recognizing there are ways to better serve citizens and create more equitable access to the financial system in a way that’s faster, cheaper and more efficient.

From our discussions with governments around the world exploring this technology, I think 2021 will see central banks take the learnings from this year and start putting CBDCs into practice.

As for which countries will take the lead, China seems to have a head start, but development will likely be slower and more complicated in less restrictive societies. There are so many countries exploring the possibilities of CBDCs at the moment that it is hard to pick a front-runner, but the increased focus around the globe makes that an exciting race to follow.”

Dominik Schiener, co-founder of the Iota Foundation:

“CBDCs will be developed in parallel to advancements in the crypto space. While CBDCs are very interesting, they tackle a very different use case than familiar crypto assets like Bitcoin or Iota. They are issued and backed by a central bank with the authority to print new capital at will. They are also not necessarily intended for consumers or everyday people. Crypto assets, by contrast, are generally controlled by a public algorithm that manages their supply and distribution.

In 2021, we will see central banks piloting internal tests of CBDCs. However, they will probably be doing so on private or even non-blockchain networks. They may even decide to launch their own networks. CBDCs will not be hampered by technical hurdles but regulatory uncertainty. This will drag out the deployment of CBDCs in the real world past 2021 and into 2022, or even 2024 and beyond.

China is clearly the leader when it comes to CBDCs. They are taking the technology way more seriously than other countries and seem to have less regulatory controls blocking innovation of blockchain and digital-asset technology.”

Emin Gün Sirer, CEO of AvaLabs, professor at Cornell University, co-director of IC3:

“Libra really kicked monetary authorities and central banks into gear, as the existential threat of Facebook’s network triggered a ‘fight or flight’ response. Regardless of the catalyst for their efforts, it is indisputably positive to see the gatekeepers of the traditional financial system realize the importance of crypto.

China has been the clear leader thus far in activating public and private organizations to try and seize the first-mover advantage. By public accounts and information, it has made significant strides.

I can think of few clearer motivations for U.S. politicians and regulators to accelerate their own efforts and fend off the first real threat to the hegemony of the U.S. dollar in decades.”

Heath Tarbert, chairman and chief executive of the U.S. Commodity Futures Trading Commission:

“We have seen a lot of countries touch CBDCs in 2020. An impetus for a lot of work was the COVID-19 pandemic. We saw how a CBDC helped with government payments to individuals that could not access them otherwise due to the pandemic. I could imagine a lot of other countries are going to be looking at what has been learned during this pandemic and identify how to move forward with their own CBDC.

Here in the United States, U.S. dollar CBDCs are principally a matter for the Federal Reserve. We are tracking the work of the Boston Fed and MIT on exploring CBDC design and technology. We are also encouraged by the work of the BIS’s Innovation Hub on CBDCs.

My personal belief is that America must lead here. However, we must not just look to our government for the solution. The private sector moves faster; partnering with it while we determine a regulatory solution is probably the best path to move things forward.”

James Butterfill, investment strategist at CoinShares:

“We believe CBDCs are highly unlikely to replace crypto assets such as Bitcoin due to their inherent differences, primarily with the latter being distributed ledger, peer-to-peer systems. Bitcoin, in particular, has a predetermined monetary policy where the supply cannot be altered, making it far more attractive as a non-sovereign store of value compared with a CBDC, which will be designed to replicate its respective central bank’s fiat currency.

The concept of central bank digital currencies has garnered considerable attention from central banks in the second half of 2020. We expect there to be increased hype and confusion in 2021 as the details on how they are structured are revealed. There are considerable challenges to overcome.

A central bank issuing a CBDC would have to ensure the fulfillment of Anti-Money Laundering and Counter Terrorist Financing as well as satisfy the public policy requirements of other supervisory and tax regimes.

Some proposals have suggested the central banks administer the core ledger with an interface for regulated entities such as banks to connect to, but this hardly achieves the promised efficiency gains that a peer-to-peer ledger system should have.

If a central bank becomes a wallet provider, it runs the risk of hollowing out commercial banks, depriving them of a cheap, stable source of funding like retail deposits. In crisis periods, this could lead to a run on weaker banks as clients prefer the safety of a central-bank-backed wallet.

As the ledger will be central rather than distributed, can they ever be as secure and trustworthy?

Many of these issues will be difficult and time-consuming to resolve, and therefore, CBDCs aren’t coming anytime soon. Furthermore, while they are likely to come with efficiency gains that digital currencies offer, they are much closer to their underlying fiat currencies, not offering the diversification benefits and store-of-value features that digital assets such as Bitcoin offer.”

James Wallis, vice president of central bank engagements at Ripple:

“National CBDCs have been a positive development for the crypto space and have served as confirmation at the highest level that digital currencies are the future. In 2021, I expect to see a world where cryptocurrencies, stablecoins and CBDCs each have their place in finance and payments, with more defined use cases. As governments continue to pilot CBDCs and test new technology in the space, I think it’s likely that more regulatory clarity in those jurisdictions will follow suit and become more defined. It’s likely this will have an impact on other countries’ regulatory bodies that have been slower to embrace cryptocurrencies and blockchain technology.

The focus of CBDCs in 2020 was primarily on domestic solutions. The true potential for CBDCs is in interoperability among CBDCs and between CBDCs and other digital currencies and cryptos. This will require collaboration between central bank networks and private blockchains and will foster innovative use cases. We’re going to see a growing demand for a neutral bridge for currencies to provide liquidity and instant settlement for cross-border transactions.

China has led the charge for retail CBDCs by tying into e-commerce platforms — expect further expansion, including cross-border into Macau, Hong Kong and more. We will certainly see others following suit in 2021 and testing solutions that have the option to interoperate with private companies. Similarly, I think we will see more CBDCs that address specific use cases, like replacing cash as we have seen in Sweden with the e-krona project or the Sand Dollar implementation in the Bahamas that aims to bring inclusive access to regulated payments and other financial services for underserved communities.

To keep up with other CBDC projects and to address the issues raised with the COVID-19 pandemic, we should expect more central banks to accelerate their CBDC initiatives, including the EU, South Africa, Brazil, the U.K. and, hopefully, the U.S., which has been lagging behind.

Due to the Chinese DC/EP initiative, we expect many more countries/regions to accelerate their CBDC efforts. China may be leading, but others will be moving quickly. Europe is actively exploring the feasibility of a digital euro, with several member states, including France, conducting experiments currently. In the United States, the Fed has an active collaboration with MIT’s Digital Currency Initiative to perform research related to CBDCs. We think these developments are positive and will lead to better designed, better functioning CBDCs.

Many developing countries are already leading the way with CBDC applications; it’s a natural next step that these governments will develop standardized digital wallets for every citizen. Whereas many developed countries — like the U.S. — are still debating the benefits of CBDCs. It’s unlikely that we will see anything of that scale deployed and adopted by its citizens in the next five or more years.”

Jimmy Song, instructor at Programming Blockchain:

“I don’t think it affects crypto that much, other than maybe bringing more people in that don’t like surveillance. CBDCs are a way for central banks to control our financial lives more than they do already.

I suspect that China will be one of the first, as it’s very authoritarian. I imagine it will cut out banks altogether and give each citizen a direct bank account with the central bank.”

Joseph Lubin, co-founder of Ethereum, founder of ConsenSys:

“When ConsenSys published its white paper ‘Central Banks and the Future of Digital Money’ at the World Economic Forum in January, the backdrop was a dramatic shift in the mechanics of money. Since then, the COVID-19 pandemic has only accelerated technological changes to how money moves. Privately issued stablecoins have nearly doubled from the beginning of the year, now with a market capitalization of $23 billion.

It’s really interesting what’s going on in that space, which has actually been ongoing for several years now. China’s DC/EP approach already had live trials in four major cities. This year, the Bahamas and Cambodia became the first nations to use digital currencies in their financial infrastructure. And in November, European Central Bank President Christine Lagarde signaled that her institution could create a digital currency within years and that policymakers intend to decide around mid-2021 whether to prepare for a possible launch. ConsenSys also announced four separate CBDC projects with the Hong Kong Monetary Authority, Societe Generale – Forge, the Bank of Thailand and the Reserve Bank of Australia in the third quarter of this year.

In this era of rapid advancements in the way that money moves is the recognition that we need systems to collaborate and trade with one another. Motivations for a CBDC around the world will be different — in some cases to provide greater control and in other countries, more efficient systems. Banks have monopolies and will compete for reserve status, and we’ll see about the regulation of stablecoins. But I firmly believe that blockchain-based systems can end up becoming the foundation for increased trustworthy collaboration.”

Mance Harmon, co-founder and CEO of Hedera Hashgraph and Swirlds Inc.:

“CBDCs are, in essence, a validation of the overall crypto space, given that they borrow many of the same concepts from cryptocurrency. In this regard, central bank digital currencies will continue to put a spotlight on the broader cryptocurrency and distributed ledger industry. However, they are likely to differ in one primary, fundamental way — and that is they will remain centralized, rather than embracing the public, transparent nature of cryptocurrencies.

In 2021, we will see small countries issue their first digital currencies — probably using private, permissioned ledgers — and we will continue to see advancement from China with regard to the digital yuan, where it seems to enjoy a first-mover advantage over other digital currencies.”

Paul Brody, principal and global innovation leader of blockchain technology at Ernst & Young:

“When it comes to central bank digital currencies, China already has the lead and is likely to stay in that position for the foreseeable future as it deploys this tokenized currency. It has a clear roadmap, it has been conducting tests, and it also has clear policy objectives bound up in the deployment of the Digital Currency Electronic Payment program.

Even though other countries are mostly just studying the concept, real-world experimentation is also going on with the use of stablecoins in smart contracts on Ethereum. This is a real-life laboratory for how CBDCs are likely to be used, if they are made accessible to the public, and I think the decision by the Bank of England to build a regulatory framework for them is a really good step to start understanding and managing the likely impact of CBDCs.”

Roger Ver, executive chairman of Bitcoin.com:

“That’s the fun part about being in this ecosystem: We don’t know where the next big thing will come from. It could be from a nation-state anywhere in the world, a Facebook or a lone wolf like Satoshi Nakamoto. The one thing we do know is that the pace of innovation is going to increase.”

Samson Mow, chief strategy officer of Blockstream:

“CBDCs don’t compete with Bitcoin; they compete with stablecoins and commercial banks.

China is definitely leading the way in CBDC development, and I would expect other nations to attempt to follow quickly. We’ve also seen the government of Bermuda experimenting with a stimulus token issued on the Liquid Network, which is very exciting.”

Sheila Warren, head of blockchain and DLT at the World Economic Forum:

“We’ve certainly seen increased attention in 2020 toward the digital currency space, especially from regulators and economists, which is slowly moving us toward normalizing crypto. In contrast, when we released our CBDC Policy-Maker Toolkit in January, these conversations were not yet as prominent in the public sphere.

This year, we’re starting to see things moving into production and the results of experiments becoming increasingly clear. Emerging economies continued to take the lead on experimentation and deployment — with interesting work out of Bermuda, the Eastern Caribbean and Cambodia — and of course, China remains the country to watch.”

Todd Morakis, co-founder and partner of JST Capital:

“There will likely be a number of CBDCs that launch in some limited form over the next year or two. We also expect continued growth in the number of banks issuing their own digitized currencies, with a particular focus in developing parts of the world.

We think that 2021 will be an interesting year for the adoption of digitized currencies and how that intersects with the evolving DeFi world.”

Vinny Lingham, CEO of Civic:

“China will take the early lead on central bank digital currencies. It has been clear that it wants to be the global unit of account. So, at some point in the future, we’ll see China and the U.S. duel to become the world leader on this front.

In terms of the effects on the crypto space, it’s important to remember that CBDCs are fundamentally different from crypto. A central promise of Bitcoin is that it’s non-political, and that’s important to many people who use Bitcoin. They do not want the currency to be open to manipulation by the state. Governments, by nature, cannot be non-political. So, CBDCs and crypto may coexist, but they will never be the same.

Further, I think there’s less than a 1% chance that any government-sanctioned fork would replace Bitcoin. And if this ever did happen, it would likely strengthen Bitcoin.”

These quotes have been edited and condensed.

Title: Did CBDCs affect the crypto space in 2020, and what’s next in 2021? Experts answer
Sourced From: cointelegraph.com/news/did-cbdcs-affect-the-crypto-space-in-2020-and-what-s-next-in-2021-experts-answer
Published Date: Sun, 27 Dec 2020 22:17:00 +0000

Did CBDCs affect the crypto space in 2020, and what’s next in 2021? Experts answer

Did CBDCs affect the crypto space in 2020, and what’s next in 2021? Experts answer was originally published here https://newsgrowing.wordpress.com/2020/12/28/did-cbdcs-affect-the-crypto-space-in-2020-and-whats-next-in-2021-experts-answer/

SEC vs. Ripple: A predictable but undesirable development

SEC vs. Ripple: A predictable but undesirable development

SEC vs. Ripple: A predictable but undesirable development

The U.S. Securities and Exchange Commission has not been kind to crypto in the past year. In March 2020, in the SEC v. Telegram case, the Commission won a worldwide injunction against the proposed issuance of Grams by Telegram, undoing years of innovative work even in the absence of any allegations of fraud. Then, on the last day of September 2020, Judge Alvin K. Hellerstein dashed the hopes of Kik Interactive by ruling in favor of the SEC’s motion for summary judgment in SEC v. Kik Interactive, halting the sale of Kin crypto tokens. Both of these actions were filed in the Southern District of New York. On Dec. 22, 2020, the SEC decided that it was time to initiate another high-profile action, filing in the same district against Ripple Labs and its initial and current CEOs, Christian Larsen and Bradly Garlinghouse, respectively, for raising more than $1.38 billion through the sale of XRP since 2013.

The initial fallout from this action has been swift and severe: 24 hours after the lawsuit was filed, the price of XRP was down almost 25%. This still left XRP ranked fourth on CoinMarketCap, with a total market capitalization of over $10.5 billion.

The complaint

In its complaint, the Commission paints a straightforward pattern of sales of XRP that were never registered with the SEC or made pursuant to any exemption from registration. From the perspective of the Commission, this amounts to a sustained practice of illegal sales of unregistered, non-exempt securities under Section 5 of the Securities Act of 1933.

For readers not familiar with legal procedure, it might seem unusual for the case to be brought in a New York federal court, especially since Ripple is headquartered in California, and both named individuals reside there. However, Ripple has an office in the Southern District of that state, some statements were made by Garlinghouse while he was present in New York, and significant sales of XRP were made to New York residents. In legal parlance, this would make venues in the Southern District of New York appropriate.

In addition, it might be surprising to some that both Larsen and Garlinghouse were named personally in an action that seeks primarily to recover for XRP allegedly sold illegally by Ripple, through its wholly-owned subsidiary, XRP II LLC. They are named both because they individually also sold significant volumes of XRP — 1.7 billion by Larsen and 321 million by Garlinghouse — and because the SEC contends they “aided and abetted” Ripple in its sales.

Aiding and abetting is a cause of action that depends on a primary violation by a third party, in which the aider and abettor voluntarily and knowingly participates with the goal of assisting in the venture’s success. In this case, Ripple would be the primary violator, and both Larsen and Garlinghouse are alleged to have substantially participated in the pattern of Ripple’s XRP sales, with the goal of allowing the company to raise funds without registering XRP under the federal securities laws or complying with any available exemption from registration.

The bulk of the complaint provides an overview of digital assets, details the SEC’s version of the history of Ripple and its marketing efforts with regard to XRP, illustrates how in the opinion of the Commission, XRP satisfies the elements of the Howey investment contract test under the federal securities laws, and seeks to demonstrate how Larsen and Garlinghouse participated in the on-going sales efforts.

In addition to disgorgement of all “ill-gotten gains,” the requested order would permanently ban the named defendants from ever selling unregistered XRP or participating in any way in the sale of unregistered, non-exempt securities. It would also prohibit them from participating in the offering of any digital asset securities, and it seeks unspecified civil monetary penalties.

brief history of Ripple and XRP

The idea behind the current XRP dates back to late 2011 or early 2012, before the company changed its name to Ripple. The XRP Ledger, or software code, operates as a peer-to-peer database, spread across a network of computers that records data about transactions, among other things. In order to achieve consensus, each server on the network evaluates proposed transactions from a subset of nodes it trusts not to defraud it. Those trusted nodes are known as the server’s unique node list, or UNL. Although each server defines its own trusted nodes, the XRP Ledger requires a high degree of overlap between the trusted nodes chosen by each server. To facilitate this overlap, Ripple publishes a proposed UNL.

Upon the completion of the XRP Ledger in December 2012, and as its code was being deployed to the servers that would run it, a fixed supply of 100 billion XRP was set and created at little cost. Of those XRP, 80 billion were transferred to Ripple and the remaining 20 billion XRP went to a group of founders, including Larsen. At this point in time, Ripple and its founders controlled 100% of XRP.

Note that these choices represent a compromise between the fully decentralized, peer-to-peer network that was envisioned when Bitcoin (BTC) was first announced and a fully centralized network with a single trusted intermediary such as a conventional financial institution. In addition, Bitcoin was never designed or intended to be held or controlled by a single entity. In contrast, all XRP was originally issued to the company that created it and that company’s founders. This hybrid approach to a blockchain-based digital asset and more conventional assets created and controlled by a single entity led some crypto enthusiasts to complain that XRP was not a “true” cryptocurrency at all.

According to the SEC’s complaint, from 2013 through 2014, Ripple and Larsen made efforts to create a market for XRP by having Ripple distribute approximately 12.5 billion XRP through bounty programs that paid programmers compensation for reporting problems in the XRP Ledger’s code. As part of these calculated steps, Ripple distributed small amounts of XRP — typically between 100 and 1,000 XRP per transaction — to anonymous developers and others to establish a trading market for XRP.

Ripple then began more systematic efforts to increase speculative demand and trading volume for XRP. Starting in at least 2015, Ripple decided that it would seek to make XRP a “universal [digital] asset” for banks and other financial institutions to effect money transfers. According to the SEC, this meant that Ripple needed to create an active, liquid XRP secondary trading market. It, therefore, expanded its efforts to develop a use for XRP while increasing sales of XRP into the market.

At about this time, Ripple Labs, and its subsidiary, XRP II LLC, came under investigation by the U.S. Financial Crimes Enforcement Network, or FinCEN, acting pursuant to its mandates in the Bank Secrecy Act, or BSA. Acting in conjunction with the U.S. Attorney’s Office for the Northern District of California, the two companies were charged with failing to comply with various BSA requirements, including failure to register with FinCEN and failure to implement and maintain proper Anti-Money Laundering and Know Your Customer protocols. According to FinCEN, Ripple’s failure to comply with these FinCEN requirements was facilitating the use of XRP by money launderers and terrorists.

This action did not proceed to trial, with Ripple Labs settling the charges by agreeing to pay a $700,000 fine and further agreeing to take immediate remedial steps to bring the companies into compliance with BSA requirements. The settlement was announced by FinCEN on May 5, 2015. The major contention of FinCEN throughout its investigation was that XRP was a digital currency. Ripple acceded to this position and has since worked to comply with BSA requirements.

At the same time, as noted in the SEC’s complaint, from 2014 through the third quarter of 2020, the company sold at least 8.8 billion XRP in the market and institutional sales, raising approximately $1.38 billion to fund its operations. In addition, the complaint asserts that from 2015 through at least March 2020, while Larsen was an affiliate of Ripple as its CEO and later chairman of the board, Larsen and his wife sold over 1.7 billion XRP to public investors in the market. Larsen and his wife netted at least $450 million from those sales. From April 2017 through December 2019, while an affiliate of Ripple as CEO, Garlinghouse sold over 321 million XRP he had received from Ripple to public investors in the market, generating approximately $150 million from those sales.

XRP is not like Bitcoin or Ether

The preceding description paints a picture of a digital asset that is widely held by persons scattered around the globe. In the case of both Bitcoin and Ether (ETH), this kind of decentralization was apparently enough to convince the SEC that those two digital assets should not be regulated as securities. As Director Bill Hinman of the SEC’s Division of Corporation Finance explained in June of 2018:

“If the network on which the token or coin is to function is sufficiently decentralized — where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts — the assets may not represent an investment contract. Moreover, when the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede. As a network becomes truly decentralized, the ability to identify an issuer or promoter to make the requisite disclosures becomes difficult, and less meaningful. […] The network on which Bitcoin functions is operational and appears to have been decentralized for some time, perhaps from inception. Applying the disclosure regime of the federal securities laws to the offer and resale of Bitcoin would seem to add little value.”

This kind of analysis does not really work for XRP, most of which continues to be owned by the company that created it, where the company continues to have significant influence over which nodes will serve as trusted validators for transactions, and where the company continues to play a significant role in the profitability and viability of the asset. Part of that role will now, of course, involve responding to this latest SEC initiative.

The court’s probable reaction

Unfortunately for Ripple and its former and current CEOs, the SEC has a strong case that XRP fits within the Howey investment contract test. Derived from the 1946 Supreme Court decision in SEC v. W. J. Howey, this test holds that you have bought a security if you: (1) make an investment (2) of money or something else of value, (3) in a common enterprise, (4) with the expectation of profits, (5) from the essential managerial efforts of others. Most of the purchasers of XRP, or certainly a very large number of them, would appear to fit within each of these categories.

Ripple raised more than $1.38 billion from the sale of XRP, so it is abundantly clear that purchasers were paying something of value. Moreover, as there was no effort to limit purchasers to the amount of XRP that they might reasonably “use” for anything other than investment purposes, that element appears likely to be present as well. The fact that the fortunes of all the investors rise and fall together along with the value of XRP in the marketplace should satisfy the commonality requirement.

The complaint highlights a number of things that Ripple has done to promote profitability, including statements that it has made, all of which suggest that a reason for purchasing XRP is the potential for appreciation. The limited functionality of XRP in comparison to its trading supply is another reason to believe that most purchasers were buying for investment, seeking to make a profit.

Finally, the significant on-going involvement and role of the company, especially given its huge continuing ownership interest in XRP, means that there is a strong case to be made that the profitability of XRP is highly dependent on the efforts of Ripple. All of this points to the reality that, under the Howey Test, XRP is likely to be a security.

Ripple’s response to the SEC’s action

Ripple’s response to the SEC’s enforcement action came even before the SEC’s complaint was officially filed. On Dec. 21, Garlinghouse tweeted out a condemnation of the SEC’s planned action, criticizing the agency for picking favorites and trying to “limit US innovation in the crypto industry to BTC and ETH.” Soon after, Ripple’s general counsel, Stuart Alderoty, gave a strong indication of how the company was likely to respond in the pending matter by pointing out the 2015 FinCEN issue, which he claimed was a government determination that XRP was a digital currency rather than a security under the Howey Test.

Unfortunately, classification as a digital currency does not necessarily preclude regulation as a security. As another New York district court decided in the 2018 case of CFTC v. McDonnell, in the context of the Commodity Futures Trading Commission’s authority to regulate digital assets, “Federal agencies may have concurrent or overlapping jurisdiction over a particular issue or area.”

Thus, even though FinCEN regulates crypto as a digital asset, the CFTC may treat it as a commodity; the SEC may regulate it as a security; and the Internal Revenue Service may tax it as property. All at the same time.

Conclusion

This comment should not be taken as approval of the SEC’s current approach and relative hostility to crypto offerings. As the SEC’s complaint notes, the XRP sales that are now being questioned took place over many years. The initial sales date back to 2013, which had happened considerably before the SEC first publicly announced its position that digital assets should be regulated as securities if they fit within the Howey investment contract analysis, which did not come until 2017 with The DAO Report. Moreover, since 2015, Ripple has been proceeding in accordance with the settlement reached with FinCEN. Since that time, Ripple has worked to bring its operations into compliance with BSA requirements, operating as if XRP is a currency rather than a security.

The opinions expressed are the author’s alone and do not necessarily reflect the views of the University or its affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

Title: SEC vs. Ripple: A predictable but undesirable development
Sourced From: cointelegraph.com/news/sec-vs-ripple-a-predictable-but-undesirable-development
Published Date: Sun, 27 Dec 2020 17:17:00 +0000

SEC vs. Ripple: A predictable but undesirable development

SEC vs. Ripple: A predictable but undesirable development was originally published here https://newsgrowing.wordpress.com/2020/12/28/sec-vs-ripple-a-predictable-but-undesirable-development/