Showing posts with label cryptocurrencies. Show all posts
Showing posts with label cryptocurrencies. Show all posts

Monday, July 22, 2019

Libra Hearings on Capitol Hill. Tisa Forrest, Johns Hopkins University, Impact Investing Analyst



On June 18, Facebook released it’s white paper on the new digital currency, Libra.  The news led David Marcus, Chief Executive Officer of Calibra, to appear before the House Financial Services committee on July 17 - a day after appearing before the Senate Banking Committee.

House Financial Services Committee members questioned whether Facebook would have overwhelming control over  the Libra Association’s 27 other members and if they were to be trusted with 2.7 billion users’ financial data, given past privacy violations. 

Facebook’s trustworthiness has been in question since the 2016 Cambridge Analytica data scandal.  Most recently, charges brought in March by the Department of Housing and Development concerning Facebook's alleged violations the Fair Housing Act have not helped the firm gain favor with the public.

Last month, Facebook was removed from the S&P ESG 500 index because of privacy concerns and a lack of transparency as to why certain user information is collected and shared.  These issues earned the company a 22 and 6 in social and governance sub scores, respectively, against an 82 environmental sub score - this last score being easy for a technology company to achieve. 

Marcus pointed out that the social media platform is just one of 28 current Libra Association members - they hope to grow to 100 members - and lists Mercy Corp and Women’s World Banking as groups capable of combating any use of the digital currency for human rights violations.

Michigan representative Rashida Tlaib pointed out that Marc Andreesen, co-founder of Andreesen Horowitz, sits on the board of Facebook; Mark Zuckerburg, CEO of Facebook, sits on the board of Breakthrough Initiatives; Peter Thiel, co-founder of PayPal, sits on the board of Facebook; Ben Horotwitz, co-founder of Andressen Horowtiz, sits on the board of Lyft; David Marcus, the witness, sits on the board of Coinbase. All are founding members of the Libra Association.

These close  relationships do nothing to soothe fears that a nexus of power exists within the Facebook network, controlled by a few individuals. Of course, this also does little to address the problem of diversity in the tech industry. 

As pointed out at an earlier Diversity and Inclusion subcommittee hearing (subcommittee of the Financial Services Committee), a lack of diversity tends to occur when non minorities in positions of power look to fill leadership rolls with those they already know. People tend to associate with those who look like themselves. Predominately white and male organizations inviting other predominantly white and male organizations to have a seat at the table does nothing to bring diverse thoughts and perspectives into new innovations.

As stated in the Libra white paper and subsequent press release, a social driver for Libra has been that it will provide easier access to those who have historically been excluded from using financial institutions.  Marcus cited the example of a young woman sending money from the US  to her loved ones in another country without the wait and fees that might apply to other methods of money transfer. Harping on the 1.7 billion unbanked and underbanked individuals in the world, he returned to the social service that Calibra might bring to a broken system.

Ohio’s Joyce Beatty (pictured with the author at left) pointed out that it “wasn't very unique” to mention 1.7 billion globally who lack access to a bank account without details on how those unbanked would have access to Libra. Many of Marcus’ responses to the lack of clarity that still exists left the burden of clarifying exactly how on this would work on regulators.

Pressley asked how Libra would serve the unbanked, who lacked a bank account to purchase Libra digitally,
 but admitted that “the reason we are here is because the Federal Reserve has failed” to provide a safe and secure system to access and move money.

Facebook’s altruistic intentions aside, the question of how they planned to benefit from Libra was posed. Marcus described two ways Facebook will make money from the new digital currency:
  1. Libra will aid 90 million businesses in transacting with one another. More consumers on the platform will drive small businesses to expand, and as they expand, they will purchase more advertisements with Facebook.
  2. As trust in Libra is earned, services will be offered in partnership with banks at lower cost that will add revenue.
“What would it mean for the world if everyone everywhere could be part of the global economy with access to the same financial opportunities?” Mercy Corps website expressed an optimistic vision of the private, public and social sectors working together to solve the existing problems of inequality.  Many other questions  were left  unanwered after the exhaustive hearings, with more hearings to come.  Questions concerning currency manipulation and social engineering still need to be addressed.

For now, the social benefits of Libra are difficult to verify. Time will tell if Libra leads to a more equitable financial system.

Wednesday, July 3, 2019

Why Regulating Facebook's Libra is a Waste of Time


Facebook’s recently announced cryptocurrency pilot, Libra, claims it will “transform the global economy.”

The company hopes that anyone would be able to send Libra through platforms like Facebook messenger and WhatsApp to act as an intermediary for transferring traditional currencies. The ultimate goal is to have this currency accepted as a (general) form of payment. And other financial services will be built on top of its blockchain-based network, called the Libra Blockchain, a “proof of authority" permissioned blockchain system.

See: https://www.americanbanker.com/opinion/regulating-libras-a-waste-of-time

Thursday, April 5, 2018

Current Status and Outlook for Cryptocurrency Regulation by Hongcheng Chen, Creative Investment Research

On April 1, "The People’s Bank of China (PBOC)’s Institute of International Finance" identified "cryptocurrencies as a top priority for 2018,": citing the potential systemic risk that "widespread retail investment into cryptocurrencies" posed to the Yuan. The article below summarizes the Mandarin-language only report.

Status and Outlook

(1) Status Quo

Global cryptocurrency is growing explosively. As of March 10th, 2018, there were more than 1,500 types of cryptocurrency, totalling $389.1 billion in value. The market value for the top 10 cryptocurrencies stands at $321.1 billion and accounts for 80% of the total cryptocurrency market value.
A wide variety of institutions are involved in the issuance of cryptocurrency. Private sector players include financial institutions and large e-commerce platforms. On a national level, Tunisia, Senegal, Ecuador and Venezuela have issued legal cryptocurrency.
Existing problems: the issuance of cryptocurrency is not guided by a clear credit foundation and thus its value is exposed to huge volatility. This negatively affects the cryptocurrency financial marketplace; some fear that anonymity means the currency may be used for money laundering or other financial crimes related to a desire to avoid monitoring and tracking by regulators; the computer based nature of cryptocurrency means it is exposed to a hacking risk and a risk of being stolen due to an immature cryptocurrency system infrastructure; insufficient and inefficient monitoring and regulation.

(2) Global Regulation of Cryptocurrency

There is movement to clarify the legal status of cryptocurrency through legislation. Japan legalized cryptocurrency as a means of payment on May 25th, 2016.
Several countries seek to regulate cryptocurrency trading though agents (such as exchanges). The Financial Service Agency of Japan has granted licenses to 16 cryptocurrency exchanges. South Korea regulates cryptocurrency trading through the banks providing account service to exchanges.
Taxes on cryptocurrency trading and exchanges. The National Tax Agency of Japan has imposed a capital gains tax on cryptocurrency trading. South Korea imposed a tax of 24.2% on Exchanges.
Strengthening global cooperation. Finance Ministers in Germany and France have called for a discussion on establishing global cryptocurrency regulation at the G20 Summit this year.
Research and development of cryptocurrency. At the Gold and Silver Currency Teleconference on March 28th, the People’s Bank of China implied that they will focus on both rectification and, research and development of cryptocurrency this year.

(3) Recommendations for Government

Specify the essential nature of cryptocurrency through legislation. Governments should define the nature of cryptocurrency from the legal perspective.
Strengthen regulatory cooperation and establish a global cryptocurrency regulatory framework. Governments should explore the establishment of a global cryptocurrency regulatory framework, share cryptocurrency transaction information, fight crime and protect consumers.
Actively participate in the global governance of cryptocurrency. Governments should take the initiative to get involved in cryptocurrency governance and strive to play a decisive role with respect to cryptocurrency development and regulation.

Translation by Hongcheng Chen, Creative Investment Research. Edited by William Michael Cunningham.

Thursday, February 22, 2018

Cryptocurrency regulation is a job for Treasury | American Banker

As Congress considers new rules for digital currencies, lawmakers should consider putting responsibility in the hands of the Treasury Department, given its role in handling traditional currency. 

https://www.americanbanker.com/opinion/cryptocurrency-regulation-is-a-job-for-treasury

Tuesday, September 5, 2017

What's Going On with Bitcoin Now? Brendan Cody, Impact Investing Intern, George Washington University

The meteoric rise of cryptocurrencies supported by the blockchain has regulatory agencies, financial institutions and central banks around the globe asking the same question: What in the world is going on here?











(Illustration by Jacques Barkhuizen, Chief Information Officer - Distribution & Digital at Barclays) 
Applications in finance, data storage, cybersecurity, and government merit the attention blockchain technology has received. As of last week, Bitcoin (the first and most notable cryptocurrency) approached $5,000, up +600% on the year compared to a 20% return for the Dow Jones Industrial Average over the same time. (Bitcoin has since returned to the more mundane level of $4,470 as of 9/5/17) Other cryptocurrencies ,including Litecoin and Ethereum, have seen a similar pattern of rise, retreat and rise.

Governments and financiers acted decisively in the past month in an attempt to seemingly make up for lost time. The Securities and Exchange Commission issued new regulations on the proliferation of Initial Coin Offerings (see: the American Banker Newspaper BankThink section - SEC takes jab at startups while leaving the big banks alone at https://www.americanbanker.com/opinion/sec-takes-jab-at-startups-while-leaving-the-big-banks-alone). Chinese regulators issued an outright ban on ICOs. Additionally, central governments in Russia, Estonia and Thailand have been studying blockchain. Russia and Thailand may create their own cryptocurrencies while Estonia is studying the potential to secure records and government data on the blockchain. New regulations foreshadow further actions as policymakers pay closer attention. (For our take on what should be done at this stage in the development of these new financial technologies, see: Why we need a Global ICO Census and Databasehttps://www.linkedin.com/pulse/global-ico-census-database-william-michael-cunningham-am-mba)

Furthermore, six of the world’s largest financial institutions announced the development
of a cryptocurrency to improve “record-keeping and transparency” of financial transactions. This
“utility settlement coin” is intended to speed transaction and asset transfer times while maintaining privacy and security. If executed correctly, this could lower transaction costs and time without sacrificing quality. The coin is still in development, with a projected launch date at the end of 2018. (NOTE: Picture at left not necessarily reflective of the author's opinion.)

Wall Street has also taken notice, with fifty hedge funds (including one backed by Mark
Cuban) now exclusively focusing on cryptocurrency investing. Institutional finance’s interest in
cryptocurrencies will only increase, with a Blockchain Electronically Traded Fund coming online soon and increased access for retail investors.

The myriad potential uses of blockchain and increased interest from financial institutions
might prolong the rally in asset prices for the foreseeable future. (Already, bitcoin shows signs of recovering from the Chinese Government's sudden policy shift.) Bitcoin’s volatility may keep
some investors away amid a distinct possibility of a pullback, but for buy-and-hold investors
with a long-term outlook, there is still great value in cryptocurrencies. When compared to bonds
at historically low and even negative yields and equities at high valuations, cryptocurrencies
present value for risk tolerant investors unmatched by other asset classes.

Edited by William Michael Cunningham