The Future of Money: five developments you need to know this week (16 May 2020)

Dear friends - welcome back to my weekly newsletter where I share some of the major developments on the future of money that you need to know about!

Make sure to subscribe to receive your Future of Money newsletter in your inbox every Saturday!

1. The Bitcoin halving and its secret message!

The Bitcoin halving took place around 8:30pm GMT last Monday evening at block height 630,000. But it is not the various virtual parties celebrating the halving that will go down in history but rather a secret message.  

On the final block right before the halving, a secret message was added in its coinbase that read:

“NYTimes 09/Apr/2020 With $2.3T Injection, Fed’s Plan Far Exceeds 2008 Rescue.”

This message is a direct reference to the original message that Bitcoin’s mysterious creator, Satoshi Nakomoto, had inscribed in the first-ever Bitcoin block mined (called the Genesis Block) that read as follows:

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”

There are numerous ways to encode messages on the Bitcoin blockchain. For example, you can send a transaction to a fake Bitcoin address that is actually a hidden message or have a Bitcoin miner insert it in the coinbase field of each new block mined that provides for 100 bytes of arbitrary data. 

Messages over the years have varied from marriage proposals to Nelson Mandela tributes. 

This hidden message will remain in the Bitcoin blockchain forever. It also highlights the concerns that many in the Bitcoin community have on the recent record levels of quantitative easing and their impact on the future of money.

Funny Twitter post of the week 

The decision from J.P. Morgan to extend services to regulated crypto exchanges is a positive development.

But, of course, Twitter went on fire!

2. The U.S. taxman coming after your crypto gains…

Tax authorities are slowly catching on to cryptocurrencies.

The IRS hosted earlier this year a crypto tax summit. The agency also amended its Form 1040 to include a question on cryptocurrencies. 

The IRS is now hiring experts to assist in calculating the gains’ and losses’ of taxpayers cryptocurrency transactions. 

Unlike traditional cash which is very private and allows individuals to transact without leaving much of a trace, most cryptocurrency transactions are public and generally traceable.

This is why the IRS wants these experts to not only analyse API keys provided through crypto exchanges but also publicly available on-chain data. 

Cryptocurrencies may be the future of money but that does not make them immune from tax. And cryptocurrencies (particularly central bank digital currencies) are probably the best tool that authorities will have in the future to combat tax evasion and money laundering.

Money quote of the week

 “I’m tired of hearing about money, money, money, money, money. I just want to play the game, drink Pepsi, wear Reebok.”

Shaquille O’Neal

3. Europeans still love physical cash

Whilst many countries from China to Sweden are de facto cashless, the Old Continent seems to be clinging on to old habits.

This reluctance comes despite the fear that banknotes may act as a vehicle for transmitting the Coronavirus.

 Even in normal conditions, 3/4 of consumer transactions in the Euro Zone are made in cash (with large countries like Germany, Spain and Italy using cash above euro area averages).

In mid-March, the weekly increase in the value of banknotes in circulation almost reached the historical peak of €19 billion according to the European Central Bank.

Source: European Central Bank

This increase partly reflects higher spending in supermarkets and shops before the COVID-19 lockdown when the demand for cash was similar to that in the week before Christmas. 

But it also exposes people’s impulse to hoard cash during a crisis.

 Source: European Central Bank

But have no fear. To ensure that handling cash remains as safe as possible, the ECB is apparently working closely with top-tier European laboratories to assess the behaviour of coronaviruses on different surfaces. 

The results indicate that coronaviruses can survive more easily on a stainless steel surface (e.g. door handles) than on cotton-based Euro banknotes. 

Other analyses indicate that it’s much more difficult for a virus to be transferred from porous surfaces such as cotton banknotes than from smooth surfaces like plastic. Phew…..

Source: Bureau of International Settlements

4. The European Central Bank Joins the CBDC Party

The European Central Bank has joined the central bank digital currency (CBDC) party and has joined the club of the 80% of central banks who are working on CBDCs. 

The ECB made it clear that it will be seriously exploring the optimal design of a CBDC so that it will be well prepared should it ever take a policy decision to issue a digital currency.

However, the ECB is worried about the survival of banks if people can convert commercial bank deposits into a CBDC at a rate of 1 to 1 and suddenly find it far more attractive to hold a risk-free CBDC rather than bank deposits. 

As the ECB highlights: “During a systemic banking crisis, this could trigger digital bank runs of unprecedented speed and scale, magnifying the effects of such a crisis.”

As we have seen earlier, many Europeans seem to prefer cotton-based Euro banknotes for now so the ECB still has some time!

5. Regulators killed the Telegram star?

For the last 2 and a half years, engineers at Telegram, the popular messaging app with over 400 million users worldwide, have been working on a next-generation blockchain platform called TON and its cryptocurrency named Gram.

TON was designed to share the principles of decentralization pioneered by Bitcoin and Ethereum, but claimed to be vastly superior to them in speed and scalability. When integrated with Telegram, TON aimed to revolutionize how people store and transfer funds and information.

However, this past week Telegram’s CEO announced that the messaging app's active involvement with TON is over. 

This disclosure followed months of legal battles with the U.S. SEC over the claim that Telegram’s token sale in 2018 (which raised around US$1.7 billion) consisted of the sale of unregistered securities. 

A judge not only blocked the delivery of Grams to its initial purchasers but later clarified that the ban also applied globally including for non-U.S. based investors, although $1.27 billion of the US$1.7 billion of the funds raised to finance the development of the TON came from overseas-based investors.

This is an unfortunate development which puts an end to one of the biggest blockchain development projects globally that could have had a big impact due to its scale.

But this decision may reignite the debate around decentralisation and how many view the future of money. As Telegram’s CEO wrote in ending his letter: 

“I want to conclude this post by wishing luck to all those striving for decentralization, balance and equality in the world. You are fighting the right battle. This battle may well be the most important battle of our generation. We hope that you succeed where we have failed.”

Funny video of the week 

A funny blooper happened after I finished co-hosting a full 3 1/2 hours central bank digital currency stream at Consensus this past week. Our last session was with the governor of the Eastern Caribbean Central Bank. Then the music came on and we all thought that we weren't live anymore...until we realised that we were still broadcasting to over four thousand people who were still tuned in!

I guess we’re all still learning the ropes of virtual conferences! Enjoy! 

Educational video of the week

What is the role of derivatives in crypto markets?

I discuss this topic with Arthur Heyes, co-founder and CEO of BitMEX in this FinTech Capsule episode filmed pre-Coronavirus!

My media mentions last week

Bloomberg - Cryptocurrency hedge fund survey hints at big quant disparities

The Block - Crypto Hedge Funds AuM doubled in 2019 to over 2 billion

Cointelegraph - Crypto Hedge Funds doubled their AuM in 2019

My upcoming (virtual!) speaking engagements

26 May - Digital Week Online - Blockchain Day

3 June - FinTech Generations

Enjoyed this content? Make sure to subscribe or share it with a friend! A new Future of Money newsletter will be in your inbox each Saturday!

See you all next week!! 

Henri Arslanian

*Please note that this newsletter reflects Henri’s personal views and not those of any organisation he is involved with.

Who is Henri?

Passionate and focused on the future of finance and money, Henri Arslanian is the PwC Global Crypto Leader and Asia FinTech Leader, the Chairman of the FinTech Association of Hong Kong and an Adjunct Associate Professor at the University of Hong Kong, where he teaches the first FinTech university course in Asia.

With over 500,000 LinkedIn followers, Henri is a TEDx and global keynote speaker, a best-selling published author and is regularly featured in global media, including Bloomberg, CNBC, CNN, the Wall Street Journal and the Financial Times.

Henri was named by LinkedIn as one of the global Top Voices in Economy & Finance and is the host of the FinTechCapsules? and CryptoCapsules? social media series.

Chambers Global recently named him the “highest-profile FinTech consultant in Hong Kong” and Asian Private Banker awarded him the “FinTech Changemaker of the Year” award.

Henri’s latest book, The Future of Finance: The Impact of FinTech, AI and Crypto on Financial Services, published by Palgrave Macmillan, was ranked as one of Amazon’s global top 10 best-sellers in financial services and was recognized as one of the “Best FinTech Books of All Time” by Bookauthority.

You can learn more about Henri on his website (www.henriarslanian.com) and you can reach him at [email protected]