Last Thursday

Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

Buy and selling property is time consuming, involves large amounts of paperwork and is costly. Indeed, in the UK, the Land Registry advises: “The processing times for updating the register (adding a mortgage or changing ownership) take about 4 to 6 weeks and creating a new register transfer of part or new lease) take about 6 to 9 months”. 



2020 global real estate universe in comparison


Source: Savills Research

If you have ever bought a property, you will be only too aware of the parties involved - lawyers for the buyer, seller, and lender, together with estate agents (realtors in the USA), surveyors, insurance, etc - the list seems to go on. Resultant from this are high fees and the inevitable delays and time to gather and verify the requisite information. Using Blockchain technology to buy and sell property can make this often tortuous process more efficient whereby reducing the time it takes to buy a property and furthermore, seamlessly and accurately recording and enforcing mortgage provisions and conditions in a far more transparent manner.
 
Potentially, there are three ways that Blockchain technology can help:
 
Digitisation of property ownership interests - there is no reason why one cannot, in effect, create a digital record of the details of a property, not dissimilar to a Non-Fungible Token, (NFT) whether the real estate be a house or a commercial building. A property digital record offers the promise to reduce the time it takes to buy and sell a property and increase the liquidity of real estate which has, historically, been classed as an illiquid asset. Undoubtedly, an extraordinary amount of due diligence is required to identify lien priorities, ownership interests and marketability issues for a particular property before a transaction occurs. However, all these details, as well as other information such as any insurance claims, planning issues, maintenance records etc for the property, could be held then traded and transferred on a blockchain-powered platform. The immutable nature of using blockchains means that the accuracy and trustworthiness of the data eliminates the time needed for extensive due diligence and enables real estate to be immediately transferable.

Storage of documents on a blockchain ledger - under the current system, parties are required to request title documents, relying on the fact that the necessary documents are recorded correctly and that there has been no mismanagement between transfers in the interim. By holding all the relevant real estate information in one place and recording this data in a structured manner, it would be possible to track and trace ownership interests of the data and be made available on a permissioned basis for the relevant parties to have access. This would yield a clearer record chain of title for a particular property, thus reducing costs and time to obtain title reports between contract and closing.

Enforcing mortgage and loan provisions through smart contracts - mortgage contracts are filled with complex contingencies, covenants and conditions that trigger different default events when they occur throughout the life of the loan. Upon the occurrence of a default event, the typical penalty is an increased interest rate until the breach is cured. Smart contracts can automate this process with greater accuracy (and more quickly) than the largely paper-based analogue systems and process currently used.

As to be expected, there are challenges needing to be addressed before we see the wholesale adoption of using blockchain-powered platforms when buying...


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On Tuesday

Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

IBM’s definition of smart contracts is: “Smart contracts are digital contracts stored on a blockchain that are automatically executed when predetermined terms and conditions are met”. Interestingly, the use of smart contracts has been heralded as a factor in the potential decline in the use of some legal services. After all, we seem to be increasingly surrounded by algorithms and machines replacing humans in the execution of transactions, whereby making business process more efficient, faster and hence potentially less risky for companies which have historically relied on their staff. Yet, when smart contracts were first being widely discussed many lawyers would often quip: “Smart contracts, they are not smart nor are they contracts”. 



Smart contracts were first used by Nick Szabo in 1994, but it was not until 2015 when Vitalik Buterin launched Ethereum that smart contracts become better known. Vitalik and his developers built smart contracts on the Ethereum Blockchain to be processed on the Ethereum Virtual Machine (EVM). Smart contracts on the Ethereum Blockchain use ether, otherwise known as ‘gas’, hence the expression ‘gas fees’ to execute a transaction. Indeed, Ethereum’s description of smart contracts reads: “A smart contract is simply a program that runs on the Ethereum blockchain. It's a collection of code (its functions) and data (its state) that resides at a specific address on the Ethereum blockchain”. Up until recently, people drew a difference between smart contracts and Ricardian contracts (which were proposed in 1996 by Ian Grigg and Gary Howland). A Ricardian contract can be seen as a bridge between paper/text contracts and digital/code with the following parameters: 
“a contract offered by an issuer to holders 
for a valuable right held by holders, and managed by the issuer 
easily readable by people (like a contract on paper) 
readable by programs
digitally signed
 carries the keys and server information
 allied with a unique and secure identifier.”

Initially, smart contracts were seen as a way to automate transactions on a blockchain-powered platform so were not treated as being a legal document or potentially enforceable. On the other hand, Ricardian contracts were designed to define the contractual relationship between various parties and could be used outside a blockchain. As Limechain has summarised, the difference between a smart and Ricardian contract is that: “A smart contract is essentially a set of instructions on how to execute certain actions based on whether certain requirements have been met. A Ricardian contract also provides the legal framework that underpins all subsequent transactions that may occur under the contract. It defines the parties in the agreement, the possible legal implications, and the relevant legislation that can be used in case of a dispute.” 

In the UK, the legal position of smart contracts has now been clarified. The Law Commission has issued a report confirming that, in order for smart contracts to be legally enforceable, only “an incremental development of the common law is all that is required to facilitate the use of smart legal contracts within the existing legal framework'. Furthermore, Professor Sarah Green, Law Commissioner for the commercial and common law team, has added to this and said: “Smart legal contracts could revolutionise the way we do business, particularly by increasing efficiency and transparency in transactions. We have concluded that the current legal framework is clearly able to facilitate and support the use of smart legal contracts; an important step in ensuring increased recognition and facilitation of these agreements.”

The legal uncertainty of smart contracts, in the UK at least, has been clarified. Meanwhile, the Bitcoin Blockchain has recently undergone an update, called Taproot. As reported by Reuters: “the upgrade introduces a new digital signature scheme called Schnorr that will help bitcoin transactions become more efficient and more private. Schnorr can also be leveraged...


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Today

Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

In June this year, the legendary silicon investor, Andreessen Horowitz, raised $2.2billion for his new crypto fund. However, the interest in cryptos as an asset class continues to expand. Founder of Coinbase, Fred Ehrsam, and his partner Matt Huang, have just raised $2.5billion for a new fund, called Paradigm Two, which will be investing in companies exposed to digital assets.


In 2018, Ehrsam launched his first fund, Paradigm One, and raised an initial $400 million which, according to the FT, has grown to be worth over $10billion. Ehrsam stated: “The biggest companies in the world are large internet tech companies powered by network effects. We think decades into the future it’s very clear the largest entities in the world will be powered by tokens.” Although Blackrock is the biggest asset manager globally in terms of funds undermanagement, to give this some context, Paradigm Two is over the 2.5 times the size of Blackrock’s new China fund which, itself, has recently raised $1billion

With more than $17billion being invested by VC funds in 2021 to date, some are beginning to question as to whether we are to see a correction in this asset class given some of the huge gains made over the last few years. An alternative view is, considering the huge amount of capital that central bankers are pumping into the world economy, interest rates have been driven down causing bond and equity markets to boom. So, investors are now searching for new and potentially fast-growing investment opportunities and firms that will benefit from the ever-digitising economy in which we now live.


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On Tuesday

Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

History may well be able to offer us some valuable lessons as to what to expect in the future when it comes to how we pay for goods and services i.e., money. Since 1450, we have seen six reserve currencies Portuguese Real (1450–1530), Spanish Real (1530–1640), Dutch Guilder (1640–1720), French Franc (1720–1815), Pound Sterling (1815–1920), and finally the US Dollar from 1921 to now. 



       The history of world reserve currencies since 1450



             Source: Market Business news

The average currency tenure as a world reserve currency is 94 years with the US$ having been the world’s reserve currency for roughly 100 years. So, what will come next? If we go back to 1862, there were 7,000 different types of US$ in circulation; 5,500 of which were fraudulent. So in 1863, the National Currency Act (which became known as the National Banking Act in 1864) was passed and this determined the US’s dollar, whereby establishing a dual banking system with national and state-chartered bank - the only such system in the world. The actual $ sign is thought to have come from the saying “pieces of eight”, meaning 8 silver peso coins for one Spanish Real, which was then abbreviated to PS. It is believed that this was abbreviated so that the S was on top of the P, producing an approximation of the $ symbol.

Back in 1999, it was thought that the Euro could replace the $ but now, given the rise of the Chinese economy, some have suggested that the Chinese Yuan has ambitions to become the world reserve currency. Certainly, the Chinese have made huge economic progress and the official launch of their new digital currency at the Beijing Winter Olympics in 2022 is set to radically alter the way payments are made domestically. We will have to wait and see whether the Chinese start asking for payment in their new digital Yuan for their exports. Perhaps the Chinese will insist that users of the harbours, airports, railways, roads and bridges that China has constructed as part of its  Belt and Road initiative be paid for in their new Digital Currency?

Facebook certainly shook central bankers out of their slumber in June 2018 when announcing that it was looking to launch its Libra digital currency (now renamed Diem). Given Facebook’s 2.8 billion monthly users, it certainly has the global distribution to gain widespread adoption, but governments and their central bankers have not seemed as keen. It has, however, encouraged over 80% of those institutions to initiate their own research into the whether they ought to have their own digital currencies. Also interestingly, Amazon was advertising on LinkedIn earlier this year for the position of ‘Head of Digital Currency and Blockchain’, although the post is now no longer available. Notably, in a row over fees, Amazon has just flexed its financial muscles and will be banning its customers from using Visa as of January 2022. The technology to create Digital Currencies certainly exists. Look at Nigeria with its e-naira - so how long will it be before we have a Digital Currencies being issued by multinational corporations? In terms of the actual infrastructure, Mastercard has announced it is planning to enable 20,000 of the financial institutions to accept digital currencies. Meanwhile, the French supermarket Casino, (with 11,000 outlets in Europe and Latin America) has already launched EuroL, which is a euro-backed stablecoin with the cash held by...


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On Thursday

Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

In simplistic terms, Decentralised Finance (DeFi) uses blockchain-powered platforms to, in effect, automate many aspects of the financial industry sector which historically have largely evolved from paper-based analogue processes and procedures. DeFi aims to remove many of the layers of intermediaries using embedded smart contracts and structured digital data to provide greater transparency for all parties, potentially including the regulators. This is leading to an alternative digital way in which to do business when it comes to handling insurance claims, lending, borrowing and making payments. Furthermore, DeFi is finally enabling the financial sector to reach out to the 1.7 billion unbanked by addressing financial inclusion in developing markets. After all, these 1.7 billion unbanked are often digitally savvy -  according to the World Bank, 66% of them have access to a mobile phone. 



The costs of regulation and compliance is a significant burden for the financial services sector and ultimately for its customers and shareholders. One of the key advantages DeFi platforms offer is to be able to monitor risk and traditional compliance functions using technology on a real time basis, as opposed to after the event. This means that compliance staff and anyone involved in managing risks within a business (e.g. treasury departments, financial controllers, board directors etc) are able to focus on managing risks as opposed to simply being engaged in manual paper based monitoring and box ticking exercises.
It is often said that nothing is new - well, it seems that DeFi has taken a leaf from the history books in following the lead of mutual insurance companies and cooperatives which had pioneered much of the insurance sector we know today. Furthermore, DeFi has embraced the mutualisation based on peer-to-peer transactions. The data held by these DeFi platforms is in a cryptographic manner and decentralised, hence not reliant on one point of failure which so many of our existing centralised services providers currently rely on. Good behaviour is incentivised and poor behaviour is easily identified and penalised. An example of such a DeFi protocol is Feed Every Gorilla (FEG), a community-driven platform which uses smart contracts to help protect investors from ‘rug pulls’ (i.e., when the developers abandon a project and take investors’ money). A market practise constantly monitored by regulators in traditional equity markets is known as ‘front running’, which is when asset managers buy stocks before they buy for a client in the belief that the price will rise once the client’s order is executed. Front running presents a challenge for DeFi exchanges since transactions are broadcast publicly. This means people can see large trades about to happen and therefore try and trade beforehand so as to take advantage of the situation. All they need to do is to work fast and bid high for gas charges so that their deals get processed more quickly. DeFi exchange, Osmosis, is working on a way in which to tackle front running. These previous examples help to give an insight into how DeFi exchanges are learning from the experiences of traditional centralised exchanges and are trying, therefore, to both build systems and use technology so as to ensure that investors can have confidence in how DeFi exchanges operate.

Meanwhile, DeFi has also created new products and services such as Yield farming which transfers cryptocurrencies 24/7/365 between different lending marketplaces, to maximize returns, with no custodians/middlemen, and available to anyone, anywhere provided they have access to the internet. Another service DeFi platforms offer is flash loans used by DeFi traders looking to profit from arbitrage opportunities when two markets price a digital asset at different prices. This means that price differentials are quickly normalised and so, in time, ought to lead to more stable pricing of digital assets. DeFi can enable the way risk is managed in a completely different manner since decentralised exchanges can automatically match...


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Last Tuesday

Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

According to
HMRC, in order for stamp duty to be applied on the trading of cryptocurrencies “they would need to meet the definition of ‘stock or marketable securities’ or ‘chargeable securities’ respectively. However, as of the original date of publication of this paper, HMRC’s view is that existing exchange tokens would not be likely to meet the definition of ‘stock or marketable securities’ or ‘chargeable securities.” Moreover: “HMRC does not consider exchange tokens to be currency or money, so they do not meet the definition of ‘money’ for Stamp Duty consideration purposes. They will also generally not count as ‘stock or marketable securities.”



Meanwhile, as reported by the Evening Standard: “Increased trading activity amongst retail shareholders through lockdown is set to help deliver a £1.5 billion boost to stamp duty receipts over the next two years”. Surely then, HMRC and tax authorities in other jurisdictions will be lobbying their governments to introduce legislation so that, ideally, all trading carried out by citizens will be liable for stamp duty, or the equivalent. This could prove to be difficult, however, where the exchanges are not regulated and/or not based in the country where the relevant tax authority is located. Exchanges/platforms which are regulated to trade stocks, shares and cryptocurrencies do exist, such as e-Toro, so it would be very easy for these exchanges to levy stamp duty or some form of trading tax. In Germany, Swarm Markets, which claims to be the only regulated DeFi exchange globally  could, in theory, also levy a transaction tax (stamp duty) since having carried out KYC to sign up a client, it could remit the tax collected to the relevant jurisdiction where the client is taxable.

 
The ten most used Blockchains by institutions


Source: Blockdata
With over 70 million digital wallets now in existence, the volume of digital assets is only set to rise. The table above shows a snapshot of the number of transactions on average per day, for just eleven cryptocurrencies. Furthermore, a report published by data acquisition and analysis company, DappRadar, highlights that:
NFTs generated $10.67 billion in trading volume during Q3 - an increase of 704% from the previous quarter. Axie Infinity, just one NFT collection has now traded over $2billion historically.
the DeFi total value of asset locked-in rose 53.45% in the last quarter to reach $178.12 billion.
the blockchain industry grew 25% quarter-over-quarter and 509% year-over-year in terms of Unique Active Wallets (UAW), reaching 1.54 million daily UAW on average during Q3 2021.
on-line games attracted UAW increasing by 140% in the last quarter, with reports claiming that 44% of gamers have purchased or traded game-related items on the blockchain in the last year.
With trading volumes and assets such as the above, it acts as a powerful driver for those governments, having run up huge deficits due to COVID-19, to look at new ways in which to raise revenue from taxing digital assets. Interestingly enough, there is no reason why smart contracts could not be employed in order to automatically calculate and deduct a small transaction tax for every digital asset traded. Now, wouldn’t that be ironic for tax authorities globally to be using Blockchain technology to collect tax revenue on assets not regulated by their own jurisdictions? But then again, under the 5th Money Laundering Directive in Europe (and an increasing number of other jurisdictions), regulators are insisting exchanges and platforms must carry out KYC and AML checks on clients even though the assets that are trade and listed on the platforms are not, themselves, regulated - or in some cases, not legally recognised. Whilst it is difficult to gather any exact numbers based solely on the daily turnover...


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3 Weeks Ago

Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

In June 2018, Facebook kickstarted the central banks’ interest, and governments and their regulators, into action by announcing it was to launch Libra, a stablecoin pegged to a basket of global fiat currencies. At the time, Libra was to be an arm’s length business (based in Switzerland) in association with a range of impressive names in the financial sector including Visa, Mastercard, Paypal, Stripe and MercadoPay. However, it ran into an avalanche of criticism, and arguably panic, as governments began to realise that with 2.9 billion people logging onto Facebook a month, there existed a user-base which was three times the population of the G7 economies. The fear was that if Libra realised its ambition, it would potentially undermine the influence of their own currencies.



Early marketing from Libra


A group of people running

Description automatically generated with medium confidence


Source: Libra


Libra was then renamed Diem and, in 2021, it was decided to migrate the busines from Switzerland to the US. Instead of being pegged/backed by a basket of fiat currencies, Diem was to be backed by the US$. Then along come NFTs, with Facebook proceeding to announce its Novi digital wallet. David Marcus, head of Facebook's Novi division, told Bloomberg: “We're definitely looking at a number of ways to get involved in the space because we think we're in a really good position to do so. When you have a good crypto wallet, like Novi will be, you also have to think about how to help consumers support NFTs.” The next chapter in this digital journey is that Facebook has changed the name of its holding company to Meta as it increasingly focuses its attention on the new digital worlds of avatars, Augmented reality and Virtual reality. However, in reference to Facebook’s original digital currency, the FT has reported Mark Zuckerberg as indicatingthat cryptocurrencies and non-fungible tokens - digital tokens that represent artworks or other collectibles - would be part of the metaverse vision.


For now, Facebook is to carry out a pilot test and launch its Novi digital wallet in America and Guatemala (where 56% of the citizens are unbanked) and will be offering a stablecoin from PAXO as a form of payment. However, surely it is not if, but when, will we see Facebook/Diem/Meta enabling its 2.9 billion monthly users to buy and sell NFTs and other digital assets in the on-line digital Metaverse, using their own digital currency?


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Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

Mastercard has 2.8 billion cards in use and works with 20,000+ financial institutions globally. The payment platform has announced that it is to provide services to help the millions of merchants on its network to be able to use crypto. Sherri Haymond, from Mastercard, has recently said: “We want to offer all of our partners the ability to more easily add crypto services to whatever it is they’re doing.”  




Logo

Description automatically generated with medium confidence


Source: Teamblockchain


This announcement is significant as it will enable easy access for those who wish to use cryptocurrencies, so removing an often-cited challenge that cryptocurrencies faced in the past - “How do I spend my cryptos?” Furthermore, Visa has reported that its customers had spent over $1billion using cryptocurrencies in the first half of 2021. So, clearly there is a demand for people to use cryptocurrencies for everyday transactions, and presumably this is the reason why Mastercard is looking to offer the ability for the banks and merchants using Mastercard to be able to transact with cryptos. Mastercard is also helping to build the infrastructure required by Central Bank Digital Currencies (CBDC) if they are to be fully embraced by retail users around the world. Mastercard's CEO, Michael Miebach, has been noted to report during the latest earnings update to shareholders that: “We are saying at this point in time, the most likely chance for this kind of technology to work for payments is if it's issued through a government in the form of a CBDC. We said that on a couple of calls before, and we said that we will make our network ready to do that as and when a government is ready to put out a CBDC that will exist alongside the dollar or the euro as a settlement currency in our network."


Given that Visa is an official partner for the Beijing Winter Olympics in February 2022, has Mastercard therefore been motivated to be ready to accept China’s new CBDC and so be the debit/credit card of choice for Chinese visitors, whereby undermining Visa’s sponsorship?


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4 Weeks Ago

Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

All-Party Parliamentary Groups (APPGs) are informal, cross-party groups formed by MPs and Members of the House of Lords who share a common interest in a particular policy, area, region or country. The APPG Blockchain was established to ensure industry and society benefit from the full potential of blockchain and other distributed ledger technologies (DLT). The Big Innovation Centre organises a series of events for the APPG which are open to the public and where leading industry figures are able to inform and educate the public and MPs of how, where and why blockchain technology is, or could, be used.



Website, calendar

Description automatically generated with medium confidence


Source: Big Innovation Centre


The next event is 17.30 on 27th October and will discuss:

  • what a Central Bank Digital Currency (CBDC) is

  • the opportunities and challenges for CBDC, and how should CBDC be designed?

  • should CBDC be a substitute or a complement to physical notes?

  • what technology could CBDC use?

  • the potential use case for stablecoins and why they are important for regulators and treasury departments.

Panellists:

  • Commissioner Hester M. Peirce, Commissioner, U.S. Securities and Exchange Commission (SEC)

  • Natacha Valla, Dean, Sciences Po's School of Management and Innovation, and Former Deputy Director-General for Monetary Policy, European Central Bank

  • Christian Catalini, Co-Creator and Chief Economist, Diem Association (Facebook-backed digital currency)

  • Rhomaios Ram, CEO, Fnality International

  • Jonny Fry, Advisor, Stratis Platform

To register to attend this on-line event use click here:  


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Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

Defined by the International Monetary Fund (IMF) and “also called the underground, informal, or parallel economy - the shadow economy includes not only illegal activities but also unreported income from the production of legal goods and services, either from monetary or barter transactions”. Potentially, every one of you reading this article are (or have at least sometime been) part of the shadow/informal economy, whereby reducing the potential tax due to a nation’s coffers! Who, me? Yes, as you pay a cash tip to someone in a bar or restaurant, pay cash to have your car washed or cash to a plumber or gardener, all of these cash transactions are part of the shadow economy and help explain why it is estimated to be at least $12 trillion of the world’s $82 trillion Gross Domestic Product (GDP) i.e. 15%. Furthermore, according to The Wire, the shadow economy in India is as much as 62%, and worth almost $14 trillion p.a. on its own.




Shadow Economy as a % of the GDP of economy



Source: Acuitymag.com

From research by the World Bank, 31.5% of people over age 15 live without bank accounts globally - that's over 1.7 billion people almost reliant on cash, yet 66% of them have a mobile phone which means they are able to access financial services. One of the ways to tackle the shadow economy is to offer digital currencies and so provide an alternative to cash. Melinda Gates, Co-Chair of the Bill & Melinda Gates Foundation has said “We already know a lot about how to make sure women have equal access to financial services that can change their lives,. When the government deposits social welfare payments or other subsidies directly into women’s digital bank accounts, the impact is amazing. Women gain decision-making power in their homes, and with more financial tools at their disposal they invest in their families’ prosperity and help drive broad economic growth.” Is the Gates foundation or other philanthropic organisations considering the creation of a digital currency to help the unbanked?

 Worldcoin is a company that has created a digital currency to be distributed to as many people as possible around the world. Worldcoin is scanning the irises of people’s eyes as a way to prove identity as people receive and then trade Worldcoin.

The potential for digital currencies has not been lost on governments. According to the European Association of Corporate Treasures, over 80% of the Bank of International Settlement members now have various CBDC projects underway. A Dutch fintech-focused think tank, dGen, has predicted in its recent report “CBDCs: Geopolitical Ramifications of a Major Digital Currency” that three to five countries will completely replace their national currency with a CBDC in ten years. The report outlines significant progress in CBDC by jurisdictions such as the Bahamas and also Sweden, where the Swedish Retail and Wholesale Council has forecast that 50% of its high street store members do not plan to accept cash as a method of payment after 2025.

A digital currency could certainly offer governments a new tool with which to control their economies. For example, they could go the extreme (such as the new Chinese CBDC being launched at the Beijing Winter Olympics in 2022) and be able to know who is spending what, where and with whom. Alternatively, CBDC could be used not simply to make payments faster and cheaper but help reach those citizens who are currently unbanked as well as being able to target payments to those citizens in real financial need, without the necessity to pay the banks to act as the distributors. 

As for corporations issuing a stablecoin, this potentially enables a far more efficient treasury management with the ability to pay shareholders and debt holders dividends and coupons based on the number of days (even hours) an investor has held the company’s shares or bonds. Stablecoins can offer greater transparency to shareholders, regulators and banks (almost in real time) as regards a corporation’s cash balances. Is it of any surprise then that...


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A Month Ago

Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

There is growing concern about the impact that some blockchains have on the environment. As Environmental Social and Governance (ESG) credentials are progressively coming under investor and government scrutiny, organisations are increasingly asking how efficient your blockchain is.


“The world uses over 170,000 TWh of energy per year, that means that the entire Bitcoin network, at its peak estimated consumption level, uses less than 0.1% of the world’s energy consumption. That’s for a network with 100+ million estimated users” is a quote from SwanBitcoin and, according to the University of Cambridge Bitcoin Electricity Consumption Index, the Bitcoin blockchain network consumes approximately 80 terawatt-hours of electricity annually - roughly equal to the annual output of 23 coal-fired power plants or close to the electricity required by Finland each year.
Energy Bitcoin Blockchain uses p.a.



Source: Cambridge Bitcoin Electricity Consumption Index

Bitcoin, with its Proof of Work (PoW) method of operation, compared to other blockchains that use Proof of Stake (PoS), is clearly much less efficient when it comes to measuring the amount of energy PoW Bitcoin uses to record a transaction. However, it is worth remembering that the amount of energy that Bitcoin uses is security metric, not speed or transaction metric, thus Bitcoin does not require more energy for more transactions since these 2 metrics are completely independent of each other. University College London’s (UCL’s) Centre for Blockchain Technology has recently carried out a survey to look at different PoS blockchains and their energy consumption.                                           

 
The Global Energy used per Blockchain

Source: UCL Centre for Blockchain Technology
Whilst the above examples use less than a 1/3 of the energy of Bitcoin, Dr Paolo Tasca, from UCL’s Centre for Blockchain Technologies, asserts: “However, through this research, we have found that not all proof-of-stake networks are created equally. This is something that both investors and adopters need to be wary of when selecting their network of choice.” He also advises to be mindful of the potential environmental impact of Ethereum 2.0 since it may well prove not to be as eco-friendly and efficient as some claim it will be. Furthermore, UCL found that a permissioned PoS blockchain consumed even less energy compared to permissionless blockchains, so this could be a key factor when considering which blockchain to use. Also, despite the energy required by blockchains to operate, UCL reported in its conclusion that: “POS based systems could even undercut the energy needs of traditional central payment systems, raising hopes that DLT can contribute positively to combatting climate change”. In order to address the amount of energy required to power the Bitcoin Blockchain, new more energy-efficient protocols are being harnessed. One of these is Lightning Networks which is being used for payments and for messaging, such as by Sphinx Chat (similar to WhatsApp).

Power used on a Bitcoin Lightning network versus a typical Social Media site

Source: CoinCorner

The challenge is that the more security that is required from a Blockchain and the faster you need a transaction to be processed, the more energy will be expended. Other factors impacting the amount of ESG of a blockchain include the hardware that miners and nodes use, together with the % of renewable energy that is used to power a blockchain (which is why 76% of crypto miners use renewables as part of their energy mix.) As ESG credentials are increasingly a focus so, too,...


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Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

We have had a number of readers concerned about rising inflation and who have asked – “Can Bitcoin really offer protection against inflation?” As ever, the answer to such a question remains uncertain and only time will tell if we do, indeed, see the vast amount of cash which has been pumped into the global economy result in a sustained increase in inflation. Notably, the FED has recently confirmed that inflation is likely to rise and be persistently higher than was anticipated, and for longer than was expected just a few months ago. It is worth remembering, though, that the current fiat-based currencies are only 50 years old. On the 15th of August 1971, US President Nixon, in effect, ended the 25-year-old Bretton Woods system by no longer enabling one to convert US$ into gold. Fifty years ago, many jurisdictions’ national currencies were pegged to the dollar and in reality the US’s actions ended a gold-based system which had been the norm before. Today, as more and more people question the sustainability of fiat-based currencies, Jim Reid at Deutsche Bank, has summed up the current situation in a thought-provoking manner: “Interestingly, today crypto is starting to build up the strong passionate advocates that gold has had in the past. It also, however, attracts ridicule and disbelief. Whatever happens going forward, views, orthodoxy and money systems do change over time. Fiat money has only been the dominant framework for a small fraction of history and as such it shouldn't be too controversial to suggest it may not always be the system of choice. With endless structural deficits and extraordinary levels of money printing, we have certainly stressed its flexibility in recent years. Will there be a point when it breaks rather than bends?”



Of note, Bitcoin has rallied from $40,000 to over $58,000 in the last few weeks and the US’s largest bank, JP Morgan, believes this recovery is due to “the re-emergence of inflation concerns among investors and they are trying to use Bitcoin as a hedge”. Furthermore, JP Morgan claims the three reasons helping to explain Bitcoin’s recent price pick up are that: both Federal Reserve Chairman, Jerome Powell, and SEC Chairman, Gary Gensler, reported to Congress this week that they had no intention in banning cryptocurrency, as China had. The SEC claims it is taking a different approach to China, focusing on investor protection and regulation.

the recent increasing use of the Lightning Networks enables Bitcoins to be sent extremely fast and are gaining more attention “helped by El Salvador’s bitcoin adoption,”   

 JP Morgan clients since the beginning of 2021, $10+ billion has flowed out of gold exchange-traded funds (ETFs) and $20+ billion has gone into Bitcoin funds.

  Price of Bitcoin v Gold


Source: Goldmoney

Certainly, Bitcoin’s recent rally has helped it to out-perform gold. One the challenges that Bitcoin  and other cryptocurrencies face is that they are still a relatively difficult asset class for many institutions to invest in. After all, gaining access and safely holding Bitcoin requires specialist knowledge for private investors too. According to the Australia Financial Review, a survey of 2768 people in Australia found 23% of respondents wanted their pension funds to include crypto assets and, of the 5134 people who already owned crypto assets, 67% wanted to be able have cryptocurrencies as part of their pensions and savings. Millennials were found to be the most eager for crypto-exposure in their pension funds, with 40% of respondents born between 1981 and 1996 agreeing or strongly agreeing that superannuation managers should include this asset class. 

According to Canada-based company, Goldmoney: “The implications and prospects for fiat currencies’ purchasing power is dawning on the millennials who half understand the monetary problem. It has yet to dawn on the wider public…..Chasers of the crypto money mirage would do well to dismiss the hype and inform themselves properly about money. Gold has been true money throughout history, always re-emerging when fiat fails. No fiat, no electricity, no bitcoin”. What with the cost of energy prices rising, a lack of labour due to high unemployment, and on-going supply chain challenges creating shortages of goods, it is easy to see why we could see inflationary pressures mount. As ever, the key to a successful portfolio is diversification - hence we are likely to see inflation hedge old favourites such as gold and real estate to attract investors’ attention as well as Bitcoin.

 
Will users of Digital Assets need traditional custody providers? 
Custodians by assets under custody



Source: The Asian Banker

Banks are increasingly coming under pressure to adopt new business practises and offer alternative products and services as financial markets evolve and further embrace technology, both at an institutional and retail level. With our lives becoming increasingly digitised, there is a growing dependency on IT and machine-based processing as opposed to many of the...


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Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

The interest in stablecoins and Central Bank Digital Currencies (CBDC) continues unabated as corporations, regulators and governments begin to appreciate the transformational opportunities that these Digital Assets offer. Whilst COVID-19 has led to a decline in the physical use of cash, governments worldwide have given money to their citizens, arguably fuelling the biggest cash injection into the world economy ever.


For example, in the US, 20% of all the US$s ever created was done so in 2020. While the intention was to protect jobs and shield economies from the impact of lockdowns, the result was that many people received payments they arguably did not need – undoubtedly we have seen the savings rates jumping considerably.

European savings


Chart, histogram

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Source: ecb.eureop.eu


In France, companies received up to 100% of the previous year’s trading profits as a cash compensation as part of a $424billion COVID-19 stimulus, even though some businesses, again, did not need the payments. Meanwhile in the US, its citizens are sitting on a cash pile of $2.3trillion, having had a huge boost due to COVID-19 payments being made (at $1,400 per person) as part of the US’s $1.9 trillion economic recovery package. These payments were made regardless of the financial need of the individuals. The reason for highlighting this is, were governments able to target payments to those in real need, then the cost to those nations’ finances would have been considerably less. 


A more extreme example of the way in which Digital Assets can be paid is in China where the government has been trialling its new digital Yuan, due to be launched at the Beijing Winter Olympics in 2022. Selected on a random basis, the Chinese government has been giving its citizens the equivalent of $30, in the new digital Yuan, at a time, on condition that the money can only be spent in certain approved places and typically has to be spent with 5 to 10 days.

Trials for the Chinese Digital Yuan


A picture containing diagram

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Source: Fokast


The Hong Kong state has just released details of its proposed e-HKD (state-backed digital currency) that will run alongside the Hong Kong $ which, itself, is pegged to the US$. And, interestingly, another country just recently announcing that it is looking to launch its own CBDC is Georgia. In the US, there have been demands for stablecoins to be backed 100% by cash deposits - rather ironic as it would be impossible for banks to repay savers for the deposits they have made with the banks. Nevertheless, there are a number of existing stablecoins with further ones being planned that are/intend to be 100% backed by cash deposits.


In Digital Bytes we have written many times about CBDCs and stablecoins since this is a topic repeatedly asked about, especially as many organisations are looking at the accounting, legal, custody, banking, treasury and technical requirements  Not only do CBDCs offer governments greater control to issue capital to those most in need of financial assistance, but a digital currency could prove to be a way to tackle the challenges of the shadow economy and its citizens not paying the correct tax that is due. Without doubt we will see a number of governments issue CBDCs over the coming years and potentially a number of corporations will issue their own stablecoins too - but that is all for another day!


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Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

Today, some 55% of the world’s population – 4.2 billion inhabitants – live in cities. This trend is expected to continue. By 2050, with the urban population more than doubling its current size, nearly 7 of 10 people in the world will live in cities”. This is a quote from the World Bank in an article looking at the urban development and how it is possible to strive to make our cities more sustainable and inclusive. Urban planners and governments are increasingly turning to technology to create ‘smart cities’. The concept ‘smart city’ is thought to have been first used by IBM when it spoke about “the capability of capturing and integrating live real-world data through the use of sensors, meters, appliances, personal devices, and other similar sensors.




How the world has become urbanised



Source: World Economic Forum

In more simplistic terms, a smart city looks to improve transportation, reduce congestion, and create more inclusive social services all the while being sustainable, so making the city a more desirable place to live and, in essence, solving the challenges of urbanisation such as increased demand for energy, water, transportation, waste disposal by using technology. City planners are realising that to make cities fit for purpose and ‘smart’, data is the key. Technology, such as Internet of Things (IOT) connected by using Blockchain-powered platforms, offers some real advantages in terms of collecting, managing, holding, and sharing data in a distributed but secure manner. This is opposed to centralised systems (which often lack the ability to scale and are reliant on one organisation) having control of all the data and, even worse, if hacked or subject to cyber-attacks the database is reliant on only one point of failure.

For example, a Blockchain-powered platform can store the history of vehicle accidents, their maintenance, miles driven, when and by whom. From this, premiums could be adjusted (depending on particular vehicles and the drivers) since data on insurance claims and maintenance parts can be processed automatically based on IoT devices inside a vehicle. Furthermore, as regards transportation, research has been carried out looking at how to try and minimise Particulate Matter (PM) from tires and brake dust with the use of Blockchain technology being chosen because the researchers claimed this technology had the ability to: 
respect the privacy of individuals,
be trust-worthy,
offer fair access to the geographic area for all citizens. 
All of these are important in developing human centric solutions to technical Smart City problems.

In the US, there are plans to create a smart city called Painted Rock in the state of Nevada, covering 68,000 acres. Unveiled last year, the plans envision a city of more than 36,000 residents, 15,000 homes and 11 million sq ft of commercial space. Blockchain LLC (the company behind these plans) estimates that eventually the city will generate $4.6bn in output annually and will be run using Blockchain technology. In Dubai, there are even greater ambitions with Digital Dubai stating: "Adopting Blockchain technology Dubai stands to unlock 5.5 billion dirham in savings annually in document processing alone — equal to the one Burj Khalifa’s worth of value every year. The Dubai Blockchain Strategy establishes a roadmap for the introduction of Blockchain technology for Dubai and the creation of an open platform to share the technology with cities across the globe. The Dubai Blockchain strategy is built on three pillars of government efficiency, industry creation and international leadership.” In order to fulfil its ambition to be a smart city using Blockchain technology, the Dubai Future Foundation has created the Global Blockchain Council. The Council will have 46 members including government representatives, global firms, UAE banks and international Blockchain technology firms.

In conclusion, IOTforall.com, summarises why it thinks the use of Blockchain technology will prove to be vital for the development of smart cities: “There exist many solutions that...


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Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

In June 2021 in the US state of Texas, Governor Greg Abbott signed a new law known as the Virtual Currency Bill which came into force as of 1st September 2021. The impact of this is that Texas will now recognise virtual currencies, including digital currencies, into law. It makes Texas the second state after Wyoming to recognise cryptos. The fact that Texas now legally recognises cryptos is more evidence of how Digital Assets are being embraced and possibly helps to partially explain, along with Texas’s cheap power supplies, why so many of the Bitcoin mining firms which have fled China are now moving to Texas. However, companies engaged with crypto activities very much remain in the ‘cross hairs’ of US regulators. According to the Wall Street Journal ,the Securities and Exchange Commission (SEC) is alleged to be investigating Uniswap Labs, the organisation behind one of the world's largest DeFi platforms. Some publications, such as Coinidol, have indeed posed the question: “Is the US SEC in a War Against Cryptocurrency Business?”. No doubt this is off the back of the SEC investigations into some of the key crypto businesses such as Binance, Coinbase and Ripple.



Meanwhile, DeFi platforms are potentially challenging many of the traditional financial services - for instance lending, borrowing and insurance as well as investing, and have proved to be very popular for retail investors. In order to gain institutional appeal, DeFi platforms ideally need to be authorised and this is the route taken by Swarm Markets, itself having been regulated by the German regulator BaFin since 1st July 2021. Here in the UK, much frustration has existed regarding the time it is taking for the FCA to review firms’ applications to be listed on the FCA crypto register. As of 10th January 2020, companies engaged with crypto activities in the UK were required to register with the FCA and prove they had systems and procedures to comply with Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLRs). Whilst the FCA did grant temporary registration and allow existing firms which had been executing MLR crypto activities before the 10th January 2020, the FCA’s initial deadline to review these 100+ firms was extended to 31st March 2022. Those firms which have been granted the temporary registration include Revolut, Fidelity Digital Assets, Copper, eToro and a subsidiary of the huge Chinese Digital Asset platform, Huobi. Because of the FCA delay in the granting of permission to be able to offer crypto activities to UK citizens, it is believed that over 60 firms have relocated out of the UK. Furthermore, there are lawyers in the UK arguing that it could be illegal to promote Non-Fungible Tokens (NFTs) to UK citizens since some NFTs are backed by physical property and therefore may be considered to be security. 
However, the FCA is slowly granting registration for firms and adding them to the FCA crypto register - on the 26th of August, Coinpass, a UK-based firm which buys and sells crypto currencies was successfully added to the FCA crypto register. It has also recently agreed for another company, Ramp, to be allowed onto the FCA crypto register. Meanwhile, according to the FCA, also in the UK: "On 25 June 2021, the FCA imposed requirements on Binance Markets Limited. The firm complied with all aspects of the requirements. See our Supervisory Notice. See the FCA Register for any requirements that apply to the firm. These requirements remain in place and BML are still unable to conduct regulated business in the UK". One wonders whether this announcement from the FCA will give some comfort to those other regulators expressing concerns as to Binance, especially with regards to AML/KYC procedures. Interestingly, from a recent post we put on LinkedIn regarding the FCA adding firms to its crypto register, we had considerable interest not just from the UK but also internationally, as can be seen from the various jurisdictions below.


Source: Teamblockchain.net

This interest from various jurisdictions serves to highlight the global nature and interest in
cryptos and how they are regulated. Whilst professional advice ought to be always taken before conducting any activity in a country, Global Insights has a comprehensive summary for different countries when it...


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Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

There has been considerable coverage about how companies are able to use Blockchain technology to raise capital via tokens and while tokens are still being used as a funding mechanism - see here for a list of recent projects. The reality is that, until the volatility (the amount that the price of tokens zigs and zags up and down) declines and until we see real institutional buying of this new asset class, investors would be wise to commit a relatively small amount (3% to 5%) of their portfolio into tokens/cryptos. This leaves at least 95% and, arguably, this 95% of investors’ monies is where we could indeed see most disruption. The use of Blockchain technology to help improve the efficiency of issuing equity and debt by using smart contracts to report to compliance staff on an exceptions basis (by being able to monitor data that has been stored in a structured format) could prove to be a game changer for the financial markets.



The traditional ways of issuing debt and being tied to one jurisdiction (therefore needing to comply with certain tax requirements) may well not hold true for the issue of digital debt instruments. It is claimed by the German firm, Cash link, that over the life cycle of a bond, by using Blockchain technology it is possible to save 35% of costs by automating many of the current manual processes such as updating bond documentation. The use of blockchain could also reduce the number of intermediaries involved since bonds may no longer need to be registered with a central securities depository. Even more extreme, HSBC Blockchain technology could help streamline the process of tracking the use of bond proceeds, resulting in savings of as much as 90%. Either way, as costs are reduced it becomes possible for smaller debt issuance programs to be undertaken by firms which historically have not been able to access capital from the bond markets. Denis Coleman, from Goldman Sachs is reported as saying: “By lowering some of the barriers to participation in bond markets, blockchain technologies could eventually open them up to much smaller players. This is just the very start of a journey, but you could see the democratisation of bond markets.”

 
How do executive view Blockchain and Digital Assets?



Source: Deloitte

Therefore, it should be of no surprise to see the findings the Deloitte 2021 Blockchain Global survey (based on 1,280 firms world-wide) be so upbeat about the use of Blockchain and Digital Assets: “Banks and industries other have no choice but to embrace change Participation in the age of digital assets is not an option - it is inevitable. Leaders are only left to decide how and when their organisation should start - and how to use digital assets and new global financial infrastructure to their greatest advantage”.

As we start to see the issuance of more Digital Assets backed by real estate, debt and equities, there will be a growing demand to be able to make income payments digitally - i.e, rent, coupons and dividends. There is no reason why such digital income payments cannot then be made on a weekly or at least monthly basis as opposed to the current six-monthly distributions, which is the norm in equity markets with quoted companies making interim and final dividend payments. As investors and managers of mutual funds are offered a choice of greater transparency (one of the key attributes that Blockchain technology enables) lower costs and potentially more frequent income payments and the demand for more Digital Assets is likely to grow.

The future of Digital Assets


Source: Deloitte

Another increasingly important consideration for investors  that has to be addressed by those organisations looking to raise capital is Environmental Social Governance (ESG) credentials. Once again, according to KPMG, Blockchain technology  offers some real advantages: “The beauty of using DLT and blockchain is that it can be combined with a range of other emerging technologies to enable exactly the type of digitized, verified, tokenized, data-sharing platform that banks, insurers and asset...


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2 Months Ago

Protecting investors and maintaining confidence in the financial markets were two of the key reasons for regulators to be established, so as to monitor activities in financial markets as opposed to a financial services sector that had previously relied on self-regulation, trust and honour.

Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/


As we have seen, what some call ‘the democratisation of wealth’ has created a fertile hunting ground for the nefarious-minded to prey on people’s ignorance. The desire for some investors to make (as the Americans would say) a ‘quick buck’ has led to a raft of con artists and scammers trying to misappropriate investors’ funds. In part, this has led to an initiative by the UK government called Take Five to Stop Fraud. The government has even been involved in the creation of Scam Academy, designed to help people “spot and steer clear of – three of the biggest financial fraud scams in the UK today...Email scams, Number spoofing and Phone scams”. Take Five To Stop Fraud




Source: Take Five To Stop Fraud

Fraud and scams are nothing new when it comes to money. CBS News lists its 14 top Financial Frauds as evidence of this including, back in 193 AD, a Praetorian Guard who tried to sell the actual Roman Empire, and in 1785, a corrupt priest and his prostitute lover (posing at Queen Antionette of France) who used the Queen’s line of credit to purchase a necklace is claimed by some to have helped start the French revolution! Unfortunately, scammers are increasingly turning their attention to Digital Assets, which are not (at the best of times) an asset class easy for novices to fully understand with its dazzling range of acronyms. The majority of Digital Assets are not regulated; therefore investors cannot rely on the safety net of investor protection schemes, but they are increasingly being drawn into Digital Assets because of the spectacular returns some of these Digital Assets have achieved. 

Furthermore, the problem of scamming appears to be worsening with the Federal Trade Commission in the US having reported: “Since October 2020, reports have skyrocketed, with nearly 7,000 people reporting losses of more than $80 million on these scams. Their reported median loss? $1,900. Compared to the same period a year earlier, that’s about twelve times the number of reports and nearly 1,000% more in reported losses”. Organisations such as CryptoChain University list various dubious websites where scams or fraudulent ICOs have occurred, and the Cryptocurrency Scambook cites 15 different scams to be aware of - worth a read for pointers as to helping decide if what you are being offered is a scam. As the article states: “A reminder to always make it a habit of being sceptical.” Arguably, the biggest scam associated with Digital Assets was Onecoin, perpetrated by the Crypto Queen, about which the BBC released a nine-part podcast. Onecoin never actually created a cryptocurrency - it was a hoax and scam from inception, yet managed to ‘snaffle away’ a reported $25billion.
The Crypto Queen



Source: BBC
Crypto scams are still occurring, and it is thought that 2021 will be a record year with over 14,000 scams being reported in the US alone in Q1 2021, with a combined value of over $215million.

Meanwhile, more platforms and exchanges are becoming regulated which will only encourage institutional investors into trading Digital Assets. Hopefully,...


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Decentralised Finance (DeFi) has certainly caught the attention of our readers with a number asking whether DeFi is “just another fad, or does it truly offer real innovation in the way some of the financial markets operate?” 

Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/


DeFi what is it?

DeFi uses Blockchain technology and removes the need for intermediaries such as banks, brokerages, exchanges, clearing houses, custodians etc, to enable financial transactions to take place.
DeFi is decentralised and often relies on computer-based Smart Contracts, many of which use the Ethereum Blockchain (which currently means that some transactions can be relatively expensive and slow).
The net value of assets locked into DeFi platforms is approximately $86.5 billion, a considerable rise since as last September as then there were only $20billion worth of assets on DeFi platforms.  
DeFi platforms enable users to lend or borrow funds, offer insurance or trade assets.

Why the fuss?
DeFi platforms can offer the ability to trade 24/7/365, unlike the current financial markets. In October 2020, the FCA announced retail investors are not allowed to buy derivatives that give exposure to cryptos. According to the UK newspaper, the Telegraph: “Bitcoin is the original and still the most important cryptocurrency, but it cannot be owned directly in traditional tax-efficient accounts such as Isa and pensions”. Yet it would seem you can now simply pop down to the Post Office and buy a crypto as using  your EasyID verification with Swarm Markets. The German regulator, BaFin, has given regulatory approval to the Swarm Markets DeFi platform so will the FCA, therefore, ban retail investors from dealing with a regulated DeFi platform? Are we to see fund managers being allowed to use Swarm and buy cryptos in UCITs for ISAs and pension funds? Payment firms such as Visa, Mastercard, Applepay, Google Pay, Samsung Pay, PayPal have all taken a market share from the banks in the payments markets so could we see DeFi platforms that offer higher returns from depositing funds or DeFi lending services begin to threaten another core service which was historically offered by the banks?

What are the regulators doing about DeFi?
Depending on which jurisdiction you look at, it would appear that the regulators take almost opposing views. In the US, the SEC is very active in pursuing firms  that are not regulated and whom it believes are selling securities as Blockchain Credit Partners, based in Cayman, as its two founding directors found out. The company Blockchain Credit Partners has been paid penalties of $12million  and two of its directors have each paid to in penalties $125,000 as the SEC claimed that Blockchain Credit Partners had sold $30million of securities via their DeFi Platform. 


DeFi future?
DeFi offers anyone with internet connection access to any global currency, allows anyone the ability to generate an income on their deposits, or get access to loans instantly. The challenge is, is that because DeFi is decentralised, then were an investor to use an unregulated DeFi platform there would be no redress in the event of some nefarious actor ‘running off’ with your money. However, there is a possibility that the derivatives market could turn its attention to DeFi since the International Swaps and Derivatives Association (ISDA) has been looking at smart contracts for a while. The ISDA released its seventh paper on smart contracts...


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Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

Typically, local authorities spend money in five different areas - education, public welfare, health, roads and criminal justice - and the monies they have at their disposal are not insignificant. In the US, state and local governments spent $3.2 trillion on direct general government expenditures in 2018 and in the UK, local authorities spent £94.6 billion in 2019-20. Therefore, it ought to be of no surprise that government offices are looking for ways in which technologies such as Blockchain can help them deliver services to the local community in a more efficient and transparent manner - after all, they are spending our taxes.



One of the key attributes that using Blockchain technology has, is the ability to offer greater transparency and therefore trust. For example in the UK, this offers some real benefits for local authorities when complying with special educational needs and disabilities (SEND) for young people. Historically, the current systems of many local authorities have been dependent on bureaucratic analogue procedures which rely on paperwork and files. Such cumbersome and bureaucratic processes demonstrate their efficacy (or, conversely, inefficiency), yet struggle to retain or expand social capital, chiefly ‘trust’ - i.e. parental trust in one local authority. Local Educational Authorities (LEA) rely on partners to cooperate – parents trusting professionals in their assessments of their children. However, by creating a blockchain-powered platform where all relevant parties can have access to the same data it is possible (using smart contracts) to create a ‘trust-free’ database with far greater transparency. 

Although the use of Blockchain technology would enable LEAs to replace bureaucratic systems in a variety of ways, they would absolutely need to be cognisant of what data is held and who has access to this data in accordance with GDPR legislation. However, this ability to verify and share information about children and young people known to a local authority could resolve many issues LEAs face regarding SEND. Such a new digital blockchain-based system would help to make holistic assessment feasible, ensuring appropriate intervention by monitoring and reviewing a child on an on-going basis. Blockchain technology would remove the need to have to trust in a centralised data controller (typically the school the child attends) in order to accurately represent the child’s needs for support and provision. Since all this data would automatically be shared with the LEA and relevant professional carers, on-going intervention could also be automatically triggered using ‘trust free’ smart contracts. Once services have been delivered, the ability to establish and implement self-executing pay-on-delivery would improve the quality of the evidence submitted to tribunals (and potentially the decisions made by judges) by providing clear quantitative data on the exact cost of a child’s support.

Another way that Blockchain technology could be used is the automatic payments of benefits. Chainlink is a ‘decentralised oracle network’ providing reliable, tamper-proof inputs and outputs for complex smart contracts on any blockchain. For example, Chainlink can be used to monitor weather temperature and rainfall data. By using smart contracts, automatic payments could be made against a local authority’s insurance policy covering flooding, power outage or sustained abnormal temperature fluctuations.




Source: Chainlink

In Reno, Nevada, the mayor is optimistic about using Chainlink, saying in a tweet: “The time is now to work on great projects for Nevada. $LINK.” Since blockchain-powered platforms have the ability to hold and store data, this enables the historic spending and payments made by a local authority to be very transparent. Interestingly, local authorities in the US will be receiving substantial funds in the near future from the American Rescue Plan which allows Federal relief funds to be sent directly to state and local governments of all sizes....


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Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

It could be argued that, since 2008, banks have had a torrid time globally as they desperately tried to repair their balance sheets and rebuild their capital reserves. The cosy cartel that many banks enjoyed has been challenged as they faced real competition from FinTech firms, with governments in various jurisdictions actively encouraging ‘challenger banks’ and ‘neobanks’ (on-line digital banking).



The payments eco system



Source: Insider Inteligence

Whilst you will no doubt recognise some of the organisations above, many are unlikely to be familiar. With increasing competition from a variety of companies, this is the conundrum that many banks face. Some argue that with the growing interest in Decentralised Finance (DeFi) another wave of change and competitors are on the horizon. Biznewspost claims: “The coronavirus pandemic accelerated payments industry digitization by two to three years, as lockdowns, restrictions, and ongoing consumer health concerns upended daily life in ways that trickled into spending trends and consumer habits.” Habits such as, ‘Buy Now Pay later’, have offered stiff competition for traditional banks as companies including Klarna (Europe’s biggest Unicorn valued at over $1billion ), Affirm, Afterpay, and even Paypal (having just paid $2.7billion for Paidy, a Brazilian buy-now-pay-later firm), are making it easier for shoppers to obtain credit as they spread the cost of buying over a few months.. According to CB Insights: “E-commerce software companies that support online retail have seen surging investment in 2021, with $12.4B raised in the first half of the year — a 51% jump from all of 2020”.

European FinTech Unicorns - firms worth $1billion+



Source: Sifted

According to CB Insights, there has been a tremendous growth in FinTech firms, with Europe now accounting for 25% of all 120 FinTech unicorns globally. A number of these FinTechs, and certainly many of the Payment platforms such as Google Pay, ApplePay (with 383million users), PayPal, Visa and Mastercard, are all accepting Digital Assets as payment. 

Payment platforms are preparing themselves for the inevitable issuance of digital currencies from Europe, the US, the UK and Japan, to name just a few, with one of the most established payment cards, Mastercard, having recently acquired a US-based business crypto intelligence firm, CyberTrace. Meanwhile on the whole, banks have largely fought shy of Digital Assets. Indeed, it still is the case that, apart from Clear Bank in the UK, it is extremely difficult for those organisations engaged in cryptocurrencies to even obtain a bank account. This is also true in much of Europe. In Australia however, as reported by TechWire Asia: “Approximately 17% of Australians own a cumulative AU$7 billion worth of cryptocurrency.” Volt, a neobank, has teamed up with a crypto exchange to enable clients to trade cryptos and, more importantly, hold/store them in their Volt account. This potentially means that Volt will be the first bank globally to be able to offer clients the ability to store Digital Assets and be protected by a nation’s bank deposit insurance compensation scheme.

For a while the traditional banks have suffered from low Price Earnings with JP Morgan’s 2021 estimated PE 11.7; Europe’s largest bank, BNP Paribas, PE 8.8; Japan’s largest bank, MUFG, PE 6. If you compare this with some of the payment platforms’ PE - Visa 54.78, Mastercard 48.8 or Paypal 70 - you can see (in terms of which forms have the best prospects for future earnings growth) what investors are believing, as they are clearly rating the...


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Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

One of the impacts of the COVID-19 pandemic is that many traditional jobs were at best suspended, and many have been lost. However, what was created was an ideal back drop for those with time on their hands and an internet connection to look for other ways to fill their days and earn money, whereby helping to explain the phenomenal rise in popularity of Play to Earn. Arguably, Axie Infinity has led the way, having risen in price from $4.47 on 7th June 2021, to over $74 now



Axie Infinity



Source: Axie Infinity.com

Axie Infinity describes itself as a "digital pet universe on the blockchain" where players look after their digital pets. However, in order to start playing, small digital animals called Axies need to be purchased. Ironically, the game (which was developed in Vietnam) has been dominated by people in the Philippines who make up 40% of the players. Now the Philippine government is also looking to profit as it seeks to levy tax on the gains its citizens are making. Due to the popularity of Axie, the price of Axies has risen immensely - meaning for those who cannot afford the initial purchase price, they are able to enrol for Axie scholarships at Axie Universities. A ‘scholarship’ in Axie Infinity is when an owner of Axies gives free Axies to someone, resulting in the original owner/donor earning a % of the players’ income. These types of scholarships are a helpful way for those people new to cryptos to learn how to use digital wallets and how to cash in the ‘Secret Love Points’ that one earns while playing Axie Infinity. Depending on the scholarship terms, the profit share can vary between having to pay away 30% to 40% of the income generated.

Another Play to Earn on-line game is Blankos Block Party, from Mithical games. Its developers also worked on highly successful video games including Call of Duty, World of Warcraft and Guitar Hero. When playing ‘Blankos, one can earn Non Fungible Tokens (NFTs) which can be traded on marketplaces. Rudy Koch, a co-founder of Blankos, has said: “What NFTs allow us to do is to bring the player into the economy so they can participate in the value that they bring to the game. Through the items that they earn, through the levels that they build, through the customizations that they make - they own the NFTs. They own the items, for the first time. And they can play with them, they can sell them.” Whilst the idea of buying and selling items you have won/earnt from playing on-line games is not new, the ownership and transparency that comes with Blockchain technology is. Burberry, the fashion designer and retailer has its Non-Fungible Token (NFT) collection on the Blankos Block Party. Rod Manley, chief marketing officer at Burberry, has stated: “That pushing boundaries through experimentation is at the heart of what the company does and it is excited to unlock genuine value for the gaming community by encouraging players to interact with the brand in an environment that celebrates art, design and exploration”.
Burberry’s collaboration with Block Party demonstrates how traditional global brands are engaging further with Digital Assets as a means in which to raise their profile among a new and growing audience which is paid to play.

For readers who are looking for more information about other pay to play games, including update of new games due to be launched, there is now an on-line publication called Play to Earn on-line.  But remember, these games afford no guarantees and players can lose as well...


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Written by Jonny Fry
Writers linkdin: https://www.linkedin.com/in/jonnyfry/

There appears to be a growing realisation that, as a society, we will have no choice but to live with COVID-19 and its mutations. Many times we have witnessed the fact that, as soon as a country allows international travel, there is the potential for the virus to quickly enter its shores. Far-flung countries, such as Australia and New Zealand, initially evading the ravages of the virus last year and appearing to have been able to hold it at bay by strictly shutting down their borders, have now found themselves in prolonged lockdowns.


While there exist many who are ‘anti-vaxxers’, there are a growing number of countries and businesses insisting that you have to be able to prove you have recently been tested and/or you have had two vaccinations, before you can enter a particular jurisdiction, shop, restaurant or event.

The challenge is, how do consumers and travellers prove their vaccination status or their most recent test results? Whilst there is no definitive answer to this question, we are increasingly seeing a number of organisations turning to the use of Blockchain technology as the basis of a digital, transparent solution. Indeed, the World Economic Forum has proposed that for travellers to foreign countries “a ‘vaccine passport’ or ‘e-vaccination certification of compliance’ for border crossing regulations” could be required “to enable seamless border-crossing”. In Europe, the Digital Green Certificate, a digital certificate for travel available to cover anyone vaccinated against COVID-19 or those who have recently been tested and proved to be negative, is seen as a possible solution.

One of the first platforms to use Blockchain technology was by the International Chamber of Commerce and the world’s largest medical, security and travel repatriation firm, SOS. They launched AOK in May 2020, allowing users to keep control over their personal data whilst allowing them to share an authenticated digital copy of their COVID-19 compliance status certificate. IBM’s Digital Health Pass, using a Blockchain-powered platform, is now  integrated with Amadeus which, itself, is an airline booking system that is used by more than 450 carriers worldwide and means that your health and vaccination status can be securely stored and then shared when you book in at an airport. It seems that governments are pushing the responsibility for covid health and vaccination proof onto the airlines; in a similar way that it is the airline that checks to ensure you have the correct entry vias before you board a plane. Hong Kong University has teamed up with ConsenSys to build the Medoxie COVID-19 Digital Health Passport which will run on the Ethereum Blockchain. As reported on the website Business Blockchain, Karen Cohen, deputy chair for Blockchain Australia believes a blockchain-based COVID-19 certificate could pave the way for the protected circulation of health data worldwide, stating: “This would be a really wonderful test case as a globally secured way of sharing health data.”

However, the use of Blockchain technology is not without its challenges when it comes to using this technology to store and cryptographically share information, including issues such as:
speed of the blockchain 
cost to record data
security of data - personal information will need to be hashed/stored in a manner such that the data could not be subsequently removed at a future time. There is very much the need to be mindful or privacy laws and regulations such as the General Data Protection Regulation (GDPR)
close attention to the management of vaccine certifications and test results 
the success of immunity and vaccine certifications will be largely dependent on the trust in the public authority which, in many countries, cannot be taken for granted. 
vaccine passports...


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There are reported to be over 480 exchanges which trade Digital Assets but, as with traditional stock exchanges, there are just a few exchanges which dominate the trading of Digital Assets.  


The six biggest digital exchanges (excluding derivatives)


Source: Coingecko.com

The six largest Digital Asset exchanges all usually enjoy daily turnovers - i.e., reported to be buying and selling billions of US$ worth of transaction in 24 hours - which is impressive when you consider the number of Digital Assets they list is, at most, only 335. In terms of valuation of these exchanges, Coinbase is the only publicly quoted firm (having listed earlier this year) and is currently valued at $54 billion. Coinbase’s valuation is greater than that of the NASDAQ stock exchange, which itself is valued at $31.5billion. NASDAQ is the world’s second largest stock exchange in terms of the value of the companies that are listed on its exchange. When it first listed, Coinbase's valuation was almost as valuable as Goldman Sachs, yet it only employs 4% of the number of staff compared to Goldman Sachs. Notably, Coinbase has recently announced some very impressive trading results which has enabled its cash reserves to swell to $4.36billion.

It is understood that the crypto exchange, Kraken, is also considering an IPO (having seen the success of Coinbase’s listing) and it is thought that Kraken will look to float for $20billion. Kraken has 6 million investors and its COE, Jesse Powell, has told CNBC: “The first quarter just completely blew away the entirety of last year. We beat last year’s numbers by the end of February. The whole market has really just exploded”. Binance is the biggest Digital Asset exchange with its Binance token being worth over $70billion (although it had previously been valued at $100billion in May 2021). Whilst Binance has recently had to face some regulatory challenges in various jurisdictions, its US subsidiary has expressed a desire to become listed and raise $100m. Binance is another example of a Digital Asset platform which has become very profitable and yet it, too, only employs a fraction compared to other long-standing financial institutions. For example, back in 2018, Binance made a profit of $54million more than Deutsche Bank, with just 200 staff at Binance compared to Deutsche’s 100,000 employees.
The world’s 18 largest stock exchanges



Source: Statista.com

There are other exchanges, whilst not as large, which are attracting impressive valuation such as Naga AG, based in Germany, which continues to trade on a lofty PE of 170 compared to NASDAQ’s PE of 27.9. NAGA’s copy trading turnover grew by over 360% in the first half of 2021 compared to the previous year. Meanwhile in Asia, Indonesia's first regulated cryptocurrency exchange, TokoCrypto, is looking to list as a publicly traded company in the next two to three years, having made $10 million in profits in the first half of 2021. According to the publication Nikkei Asia: “Tokocrypto launched its token offering (TKO) on the Binance platform in May 2021. Around 200,000 people participated in the offering and committed around $4.2 billion, Tokocrypto said it holds approximately $1 billion worth of TKO tokens and has 800,000 users; it claims to acquire a new user every five seconds”. Even in India,...


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Thomas Power, Alan Sugar’s first apprentice back in the 1980’s, often reminds me about the famous line “Show me the money” in the film Jerry Maguire or, as some say: “Put your money where your mouth is”. Well, global banks are certainly doing that when it comes to investing in companies which are engaged in blockchain and/or Digital Assets. The publication, Business Insider, has drawn up a list of 13 of the worlds’ global banks which have already invested in firms that are involved in a variety of different ways with Blockchain technology and/or Digital Assets:

Global banks investing in companies engaged with Blockchain technology


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Source: Blockdata


55% of the 100 biggest banks are increasingly being asked by their clients to offer services to allow them to become engaged with Digital Assets. One of the most common services is that of providing custody services i.e. the ability to securely look after clients’ Digital Assets, with 23 of the 100 biggest banks in the world (ranked by assets undermanagement) actively exploring crypto custody solutions. Standard Chartered is providing custody for ICAP, the world’s largest interdealer broker, as it launches a cryptocurrency trading platform in conjunction with Fidelity Investments. This will enable many of ICAPs and Standard Chartered’s clients to be able to access and trade cryptos.

Furthermore, payment platforms continue to embrace digital currencies, with Paypal (which has over 400million customers) recently announcing that it is to launch the facility for its UK clients to buy and sell crypto currencies. This comes on the heels of last week's announcement from Walmart (the world’s largest retailer with over $555billion of sales last year) that it is searching for an expert to head up crypto and digital payments - presumably to enable Walmart to transact using digital currencies? This job vacancy comes not long after Amazon, too, announced that it was searching for someone with a similar skill set.

 
Yet more evidence of how merchants and payment platforms are embracing Digital Assets - which they will have to do (as will the banks) if we are to see CBDCs being launched in Europe, Japan, Sweden, Korea, UK and USA...... For a quick way to see what different central banks are doing about launching CBDCs click here for the CBDC tracker map of the world.

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