#Digital Bytes-Blockchain and Digital Assets analysis 31/8/19
How long before the US$ is replaced at the worlds reserve currency?
If you want one article, read this
Here is an 2 minute interviewwith Mark Carney, the current Governor at The Bank of England, talking about the need for new ‘World Reserve Currency’. According to Carney, “The US economy is strong so Fed policy is to have a tighter monetary policy which isn't good for other economies, which then impacts on the US economy.Where we have three dominant economic regions - US, China and Europe - we need a new world reserve currency...... and it cannot be another fiat currency.”
Nothing lasts forever, as even world reserve currencies come and go ….
Going back to 1450, the average period a currency has been classed as the World Reserve Currency is 94 years. The US$ has held it for 94 years - how long can it continue to be so?
Instead of, for example, the new-proposed Facebook ‘Libra currency’ just being pegged to a basket of other fiat currencies, how about a global Digital Currency backed not just by foreign exchange but stocks, commodities, bonds and property as well? In other words, a new Digital world reserve currency linked to the real assets that we use on a daily basis. Potentially would such a currency assist in reducing the volatility of the assets that make up this new Digital currency (thus reducing uncertainty for investors) and potentially helping companies make longer-term investments which help to stimulate job creation and economic growth?
It would certainly reduce the reliance on the US$. After all, in Europe and Asia why should the cost of filling up your car with fuel or heating your home in the winter be inextricably linked to the vagaries of US politics and the gyrations of the US$ - simply because the price of fuel are based in US$.....?
Freemark, a digital currency from Worldfree is backed by twenty different commodities i.e. real assets. However, instead of being run on a Blockchain, it uses ‘nodechain’. But more about this and Freemark another time….
The fact that an esteemed central banker, such as Carney, is publicly proposing the end maybe nigh for the mighty ‘greenback’, illustrates the potential impact Digital currencies and Blockchain technology will have on our daily lives!
Football/Gaming
Man City Premier League Champions sign up “Superbloke”
Manchester City has just signed up its first Blockchain platform “Superbloke”. This partnership will mean that Man City’s players will, in effect, become part of Superbloke’s on-line gaming platform and so deepen Man City’s engagement with the lucrative Japanese, Korean and South Eastern digital gaming markets.
Superbloke chief strategy officer, Nak-Hyoung Kim, said: “It is fantastic to cooperate with Premier League champions, Manchester City. Superbloke has a vision to use blockchain technology to help football fans so that they can permanently own players' tokens they have collected. We expect that this partnership with Manchester City will be the first step to get closer to our vision.”
The Superbloke’s Blockchain-based game enables players to collect, train and grow their own Manchester City digital player cards using real-life match statistics.
Sport is no stranger to Blockchain technology, with the Sacramento Kings (US Basketball team) accepting Bitcoin as form of payment in 2014 and Dallas Mavericks joining them earlier this year. Chilliz is the token used by Socicos, which has been adopted by Juventus, Paris Saint Germaine, Roma and West Ham. Also, in the football world we have seen eToro (a big fan of Digital Assets and Crypto trading) advertising at a number of Premier League football clubs including Newcastle, Tottenham Hotspur, Brighton and Hove Albion, Cardiff, Crystal Palace, Leicester City and Southampton.
How long will it be before we see the tokenisation of players and possibly even clubs as a way to raise capital, while at the same time allowing fans to build closer relationships with clubs and their sporting heroes?
Trade finance platforms to help European SMEs
HSBC is the first bank to complete a transaction using we.trade, based in Dublin, which is a Blockchain-powered platform backed by 12 shareholders, including CaixaBank, Deutsche Bank, Natixis, Nordea, Rabobank, Santander, Société Générale and HSBC. We.trade was set up in 2017 tomanage, track and securely facilitate transactions between SMEs in Europe. The platform intends to support three major steps in SME trading, including access to counterparties for transactions that we.trade describes as ‘bank payment undertaking’ (BPU) from its banks. HSBC calls the BPU“an on-line equivalent of a letter of credit (LC)”.
Other similar on-line platforms include Voltron, which the Dutch banking giant, ING, and HSBC, amongst others, are also trialling. HSBC reportedly said that “Voltron implementation reduced transaction time by 40%”.
Meanwhile, TradeAssets, a platform in the United Arab Emirates (UAE), is like we.trade (being built on the Hyperledger Blockchain) and has signed up 25 banks.TradeAssets stated the platform “will help create a brand-new global ecosystem of secondary and primary financial institutions, development banks and commodity traders, securely connected 24/7, conducting, buying and selling of trade finance assets and other similar products.”
In the publication,Euromoney, it was reported that there are thirty trade-finance platforms, many sharing a common feature of ‘collaborative capitalism’. The strength of these platforms is that they enable competitive banks to trade with each other more efficiently by managing risks and securely in a digital environment, as opposed to the largely paper-based manual systems historically used. By working in a more collaborative manner banks are able to offer a better value service to their clients and also improve their own profitability.
Supply chain
Tackling the challenge of silos and data held in legacy systems using Blockchain technology
One of the common challenges many larger organisations face is how to unlock data which is traditionally siloed and non-accessible and often held in legacy systems. This is a real problem for many institutions, and it was argued that TSB’s IT challenges led to it costing TSB over ￡330 million as customers were locked out of their bank accounts for weeks.
One organisation tackling this challenge is Constellation Network Inc, based in California, which is a company using Blockchain technology, and which just signed a contract with the United States Air Force (USAF).The focus is to help the USAF with its complex supply chains. Constellation will be using Microsoft’s Azure services and also be assisting the USAF with its Additive Manufacturing (AM) parts program, using 3D printing in remote locations, potentially including battlefields. There is a necessity with AM to be able to register, track and hold data securely (but make it accessible) without being intercepted, so third parties cannot modify or alter this data.
Benjamin Jorgensen,Constellation’s CEO, said “The move by the United States Government to work with early-stage businesses and early innovation shows a massive shift by the public sector to be leaders in revolutionizing existing infrastructures by adopting new technologies that protect consumers’ privacy, while tackling futuristic visions of the connected world and joining the private sector in the $50B industry of big data”.
This is another good example of how Blockchain technology is being used ‘top down’ i.e. by governments to solve complex problems. Since other organisations see how data can be held secure enough for national defence purposes, the Blockchain technology ought to offer them comfort regarding adopting this technology!
Recruitment Sector
University programs to enhance Blockchain skills
Mousebelt is a Blockchain accelerator that has relationships with 65 student Blockchain community groups and works with 14 universities in the US and UK. Recently it has been offering programs to sponsor undergraduates and PHD students at UC (University of California) Los Angeles, UC Santa Barbara and UC Davis (near Sacramento in California) to meet student demand.
Universities are increasingly offering Blockchain courses, as detailed by the website from Accounting Degree Review, in which were listed 10 different universities - just in the USA! For those readers looking for universities in the UK, hopefully these links will be helpful:
· The UCL Centre for Blockchain Technologies
· IOHK and University of Edinburgh Blockchain Technology Laboratory
· Surrey Centre for Digital Economy (CoDE)
However, it is not just the academics who are looking to upskill the populous on Blockchain skills. The UK Financial Conduct Authority (FCA) has announced the creation of a global initiative to improve collaboration on technology (such as Blockchain)between regulators and companies, according to an official press release.
Meanwhile, ClickAcademy in Asia has launched the ‘Certified Blockchain Professional Programme’ in Singapore, developed by the Institute of iBusiness Council (IIB Council). The IIB Council is a division of the International Council of E-Commerce Consultants, one of the world’s largest cybersecurity technical certification bodies. The course fees are 90% subsidised, to support Singapore citizens by keeping them up to speed with Blockchain technology.
Indeed,CoinBase’s annual survey on Blockchain education,which surveys 50 top universities globally, found that 56% (compared to 42% in 2018) now offer at least one Crypto/Blockchain course. Also, twice as many students reported having taken a crypto or Blockchain course than had in 2018, and nearly 70 percent of crypto and Blockchain classes are in departments outside of computer science, including law, the humanities, and economics.
Thus, we can see more universities are responding to the demand from companies for staff offering Blockchain skills, since this technology is increasingly being incorporated into organisations across the globe.
Financial services
Swiss Tokenisation gathers pace
The financial services regulator in Switzerland has granted banking and securities dealer licences to two new “crypto banks”. SEBAand Sygnum are two Swiss-based firms focusing on building the infrastructure in order to enable investors to become more engaged with Digital Assets.
SEBA describes itself as a ‘bank for the new economy’, combining the new financial world with traditional banking. Reuters reported earlier this year that SEBA had entered into a partnership with Julius Baer to enable individuals and institutional clients to trade, have safe custody and be able to borrow against traditional and Digital Assets, all under one roof. The intention is for SEBA to also offer fund management services to its clients.
Sygnum, aiming to help tokenise physical assets using Blockchain technology, is also seeking a Capital Markets Services licence in Singapore, thereby creating a direct link between these two financial services centres. Once granted, Symum will be able to offer fund management services, including a Digital Asset multi-manager fund service.
This latest announcement further demonstrates Switzerland’s crypto-friendly credentials, as well as a jurisdiction where regulators are embracing Blockchain-related businesses.
Digital Asset
Making your Digital Assets work harder
According to DataLend, in 2018,the securities-lending market created over $9.6 billion of income for lenders, involving over $2.2 trillion of assets of behalf of insurance companies, asset managers, pension funds and institutional clients.
Therefore, it is of no surprise that Binance has just launched a Digital Asset lending service on a selection of different Cryptocurrencies, offering users to lend-out their holdings. The lending service is typically for 14 days and enables holders of existing Digital Assets to generate additional revenue p.a. of between 7% and 15%. However, given the current low interest rates, it is hard to see how Binance is able to offer a potential 10% return on USTD i.e. a Digital Asset backed by US$.
Interestingly, Binance has capped the amount investors can lend so one wonders - is this a rouse to attract more new clients, given what looks likes to be attractive lending rates? Meanwhile, some people are concerned that by offering up to 15% for people who hold Binance’s (BNB) coin, “the new lending scheme does appear to be just another attempt by the company to get the people to hold the Binance Coin”
Brian Lamb, CEO of DataLend’s parent company EquiLend, says: “Securities lending was once considered a back-office, operational activity offering beneficial owners incremental yearly returns on their portfolios. Now, we see a firm shift in mindset, where more firms treat lending as a front-office activity generating significant alpha for those who lend.” If this is the case, as traditional institutions start engaging further in Digital Assets, will they also want to be involved in Digital Asset lending too?
A report from the Bank of International Settlement in February, which considered the impact of one of the largest security lenders prior to the 2008 crisis, AIG, stated, “the shutdown of AIG’s securities lending program in 2008 caused a statistically and economically significant reduction in the market liquidity of corporate bonds”. Therefore, one wonders if we are to see more companies entering the Digital Asset lending market, will this have the impact of increasing liquidity and potentially reducing the volatility of these assets?
Taxation
Crypto tax : jurisdictions to minimise your liability
Portugal has just announced that trading and investing in Cryptocurrencies will be free of all taxes whether, as Coinrivet says, this “simply a marketing stunt to increase crypto trades in order to tax them in the future, or if the Portuguese Tax Authority is, in fact, trying to attract new businesses?”
However, other jurisdictions are also taxing those involved with Digital Assets less aggressively.
· Germany - has exempted bitcoin transactions from VAT and there is no capital gains tax on Digital Assets, such as Bitcoin, provided they are held for more than one year.
· Singapore -citizens who hold Cryptocurrencies for long-term investment purposes are not subject to capital gains tax.
· Channel Islands (Jersey/Guernsey) - like Singapore, they do not levy capital gains tax on their citizens.
· Malta -long-held Cryptocurrencies are not taxed. However, if you make Cryptocurrency trades within a day, it is considered similar to day-trading in stocks and is treated and taxed as income.
· Malaysia -there is no capital gains taxin Malaysia.
· Belarus -March 2018, a new law legalized Cryptocurrency activities in Belarus and made them exempt.
· Switzerland - the tax treatment of Cryptocurrencies is interesting, with mining income typically declared as self-employment income (and taxed through income tax). The professional trading of Cryptocurrencies is subject to business tax. However, if you are qualified as somebody who invests and trades for their individual account, Cryptocurrency gains are treated as tax-exempt capital gains.
While there has been some difference of opinion in different jurisdictions regarding the tax of Cryptocurrencies, many argued they were utility tokens similar to airmiles, Nectar points etc. Digital Assets that are backed by real assets such as equities, bonds and property are more likely to be treated in the same way as their traditional incarnations.
Guest Byte
Don’t count on Unicorns - but look out for those Crypto Dragons!
Guest Byte courtesy of Dr Stephen Castell - international independent forensic ICT consultant and expert.
Bitcoin is on a value roller-coaster. Facebook says it has Libra digital currency intentions. Investors yearning for a profitable Unicorn future are anticipating the arrival of the long-evangelised cryptoeconomy. But Crypto Assets are unregulated, with few innocent investor protections; and an estimated $1bn of criminal cryptocurrency theft and scams have occurred so far in this year alone.
The ‘Dragon’ is a legendary powerful, sinister creature, and a guardian of treasure: killing it is the conflict between light and darkness, slaying the forces of evil. Look out for swooping Crypto Dragons– the many and varied Financial Disputes over Crypto Assets. Complaints, disagreements, conflicts, with civil and criminal claims and legal actions will increase, driven by the growth in crypto scams, thefts, losses and investigations.
Will your lawyers know how to slay a Crypto Dragon when you and your financial affairs are assailed by one? Is a Crypto an asset class, a currency, information, an intellectual property right, or what? When a Crypto Dragon swoops, any claim in which you may become involved, whether as Claimant or Defendant, is – for what? Can a record about something in a digitally-recorded ledger be considered a certain contract for money, property, an asset – or for anything? Has there been any court judgment qualifying or defining a Crypto anywhere?
The internet is not a sue-able party, with no financial value - ‘belonging’ to no-one. A Crypto Asset fundamentally consists of zeros and ones, scratched on an internet-accessed blockchain. It is futile to ascribe a tangible value to a decentralized blockchain, without any substantive, sue-able ‘trusted third party’ responsible for or standing behind its integrity and security.
So, are Crypto Asset holdings and dealings beyond legal protection, and regulatory reach? No. When a Crypto Dragon strikes, the identification, location, and financial valuation of any Crypto Asset, access to it, holdings of it, and dealings and trading in it, will be critical. And although a Crypto Asset may essentially be ‘decentralized digital vapour’, a Court of Law can make a binding Order to get forensic traction on it, because of the legally well-established Obligation of Disclosure. This applies to a digital Crypto Asset just as it does to computer-held digital materials relevant to anyforensic investigation, whether for a Civil Dispute or for a Criminal Prosecution.
Thus,Disclosure and Valuation of Digital Assets, including Cryptoassets, is a significant issue arising in financial and technology legal actions, Civil or Criminal. In my years of expert witness experience, I have routinely assisted lawyers in framing appropriate technical Requests for Disclosure, and at request of attorneys I recently drafted a Checklist giving practical, generally applicable wording for an effective Digital Asset Disclosure exercise.
The team of litigation lawyers and experts who strive on your behalf should find this wording helpful in sharpening their Crypto Dragon-slaying swords and strengthening their defensive shields. This Checklist will assist in Financial Audits, Tax Assessments, Fraud, Fintech Due Diligence, Investment Exchange Issues/Listings, M&A Projects, Corporate Risk Assessments, Divorce Proceedings, IP Conflicts and Smart Contract Audit forensic investigations and is, in summary:
A. Disclosable Digital Assets
Disclose each and every entity including but not limited to Cash, Currencies, … any holdings or contracts denominated in all/any fiat currencies, and Cryptocurrencies including Bitcoin, Ethereum, Litecoin …; De-materialised data having ascribable financial and/or tradeable value; physical digital storage media and devices holding value; Banking, accounting records including account numbers and names;
B. Access Methodologies
Disclose all data, techniques and materials to identify, access, buy, sell, maintain, report on each and every such Disclosable Digital Asset, including … Bank Accounts, Wallets, User IDs, Passwords, PIN Codes, Signing Protocols, Two-Factor Authentication Protocols; All Relevant Trading, Storage and/or Other Exchanges Information; Software records, and audits as to its reliability and security and correctness; Anything signed by, or requiring signature by, a Digital Signature or other verification means;
C. Means of Repository and Access
Disclose andconfirm if any such Access Methodologiesare held by one or more Trusted Third Partiesand, if so, disclose all details thereof. If notheld by one or more Trusted Third Parties: (i) Immediately deliver up the details to [Named Attorney], without alteration, redaction, in complete and functional form; and (ii) Provide a detailed schedule of all things so delivered-up.
D. Assessments and Valuations of Digital Assets
Disclose existing assessments, valuations and/or demands for taxes, carried out by any tax state or regulatory authorities including: In the UK, HMRC; In the USA, the IRS; Any Law Enforcement agency or entity.
Get ready for battle!
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