Square Received Patent for Real-Time Crypto-to-Fiat Swaps, Vodafone Quits Facebook's Libra Project, XRP Sales Saw a Historic Low in 4Q19

This week (20-25 January) in Blockchain & Crypto was yet another interesting one -financial services and mobile payment company Square thinks it has found a way to turn fiat into crypto in real-time point-of-sale transactions, Chinese blockchain spending in areas of investment and financing deals has dropped over 40% in 2019, and much more!

About this and more, in the newest issue of Weekly Blockchain & Crypto Digest. Enjoy!

South Korea Considers Imposing a 20% Income Tax on Cryptocurrencies

South Korea’s Ministry of Economy and Finance is considering imposing a 20% tax on income from cryptocurrency transactions.

According to a report published by local English-language news outlet The Korea Times on January 20, the ministry had reportedly ordered its income office to review cryptocurrency taxation. The Korea Times cited an anonymous official who reportedly said that the ministry has not finalized its plan, but noted that the government may impose a 20% tax on crypto income.

News of the proposed rate follows reports earlier this month that South Korea is drafting a tax regime for profits made from trading cryptocurrencies. 

Some have speculated that the government may categorize gains obtained through cryptocurrency trading as “other income” and not capital gains. The other income category also includes gains made from lectures, lottery purchases and prizes.

A clear cheme for crypto cryptocurrency taxation is much needed in South Korea. This became particularly apparent when, at the end of December, major local cryptocurrency exchange Bithumb announced that it was considering administrative litigation over an $68.9 million tax bill that it believes has no legal basis. More recent reports indicate that the firm decided to follow through and take tax authorities to court.

South Korea’s cryptocurrency regulation has seen significant developments since Park Yong-jin, a member of the National Policy Committee from the ruling Democratic Party, introduced the first-ever taxation policy for crypto in 2017.

In 2019, the National Assembly’s national policy committee approved a bill that would give more legitimacy to digital assets by subjecting them to more scrutiny and government oversight.

China’s Total Blockchain Investments Dropped 40% in 2019 Compared to 2018

Chinese blockchain spending in areas of investment and financing deals has dropped over 40% in 2019, according to a new study by state-run sources. Over the course of 2019, China totally had 245 investment and financing deals, which is nearly 60% less than in the preceding year.

According to a joint study by China’s government-run financial information and media firm Xinhua and financial data platform Rhino Data, the total amount spent in blockchain investment deals has accounted for 24.4 billion Chinese yuan ($3.6 billion). Officially released by Xinhua Finance on January 15, the study says that that figure dropped 40.8% in 2019 compared to 2018.

However, both the value and number of deals have significantly increased since 2017, the report notes. As such, the year of 2018 remains the peak in terms of blockchain investment spending for China so far, with over 600 deals taking place across the year, while 2017 accounted for just 168 deals, according to the data.

As part of the study, Xinhua found that early-stage investments like Series A funding rounds accounted for 43.3% in 2019, while the proportion of strategic investment and mergers and acquisitions in the second half of 2019 increased significantly. Additionally, 292 institutions have totally participated in those investments, with Beijing, Shenzhen and Hangzhou attracting the biggest blockchain projects.

As China has been strengthening its blockchain expertise even more exhaustively after its President called the country to accelerate blockchain adoption in late October 2019, the fact that blockchain spending in the country has actually dropped in 2019 looks somewhat unexpected. In late 2019, Xinhua cited a study by American market intelligence firm IDC predicting that the country’s spending on blockchain technology will exceed $2 billion in 2023.

Alongside actively funding blockchain initiatives, the Chinese government has also made progress in its development of a government-backed digital currency, the digital yuan. One must note that the People’s Bank of China had researched the CBDC for five years before putting forward its first real-world pilot of the currency in December 2019.

Square Awarded Patent for Real-Time Crypto-to-Fiat Swaps

Financial services and mobile payment company Square thinks it has found a way to turn fiat into crypto in real-time point-of-sale transactions. 

On January 21, the United States Patent Office awarded Square a patent for a technology that the team argues cracks a present barrier in merchant transactions: 

All cryptocurrencies face the same drawback in that they are not widely accepted. Presently, cryptocurrencies, like bitcoin, are not accepted by most retail merchants, or even by most online merchants.

The team cited a number of drawbacks to current crypto spending. Transactions take a while to process. Minor advances still defy practical timeframes, like buying a hypothetical cup of coffee in a transaction that the blockchain could take hours to record. The anonymity of cryptocurrencies exposes merchants to possible criminal activity, like money laundering. There’s also the purely money angle, as the fluctuation of crypto exchange rates poses a financial risk to business owners. 

But let’s say a consumer purchases that cup of coffee. The technology would receive a request for payment in the consumer’s asset-of-choice — while using a privacy coin — and approve it for the merchant to get full value in their asset-of-choice, all in real-time. 

Vodafone Quits Facebook's Libra Project

Vodafone has become the latest Associate Member to quit Facebook's beleaguered digital currency project, Libra. 

The telecoms company continues an exodus from Facebook's project to create its own cryptocurrency, after Mastercard, Visa, eBay, Stripe, Mercado Paygo and booking.com all headed for the exit in October last year.

Vodafone has stated that despite its desire to contribute to extending financial inclusion, it believes its efforts would be better served focussing on its payment platform, M-Pesa. 

Libra's head of policy and communications, Dante Disparte, said:

Although the makeup of the Association members may change over time, the design of Libra's governance and technology ensures the Libra payment system will remain resilient.

Announced in June, Libra attracted scrutiny from regulators and politicians concerned by the social media company disrupting the world's financial system.

This culminated in CEO Mark Zuckerberg appearing on Capitol Hill where he received a grilling from Congress for the Libra project, as well as Facebook's prior record on handling of data and alleged nefarious role in influencing democratic elections.

Further blows were dealt to Libra in subsequent weeks with the EU and the Federal Reserve raising questions and issuing warnings.

Originally intended to launch in the first half of 2020, the concerns raised look likely to push this date back.

Facebook may also face powerful competition from central banks, who have banded together to conduct their own research into the prospects for central bank-backed digital currencies. 

Ripple’s XRP Sales Saw a Historic Low in Fourth Quarter of 2019

Ripple’s XRP sales continued to drop in the second half of 2019, with sales of the token reaching a historic low in Q4. According to a January 22 blog post by Ripple — the firm behind the third largest crypto asset by market cap — total XRP sales in Q4 2019 accounted for $13.08 million, down more than 80% from the $66.24 million reported in Q3 2019.

The massive decline in XRP sales in 2019 does not appear to be unexpected though. Specifically, quarterly XRP sales were consecutively dropping in 2019 as Ripple initiated the pause of programmatic sales in mid-2019. Announcing the plans in June, Ripple was expecting that XRP sales would would fall significantly:

In the short term, this means Ripple’s sales of XRP in Q2 2019 will be substantively lower (as a percentage of reported volume) than in the previous quarter—with our stated target of 20bps for programmatic sales of XRP volume, as reported by CoinMarketCap, likely dropping to less than 10bps. Longer term, by being more demanding about our expected standards for market structure and reporting, we hope to begin raising the bar industry-wide.

As Ripple started to reduce the amount of programmatic sales in Q3, the company subsequently saw a notable decline of total XRP sales. In Q2 2019, Ripple’s programmatic sales accounted for nearly 60% of XRP sales that quarter, at $144 million out of the $251 million total. In Q3, programmatic sales comprised 25% of total token sales, weighing in at over $66 million.

Finally, Q4 2019 appears to be the first quarter when Ripple has finally got rid of programmatic sales altogether, focusing solely on over-the-counter (OTC) sales. As such, total XRP sales in Q4 2019 only included OTC sales or institutional direct sales.

While Ripple does not explicitly define the term of a programmatic sale on its website, the company notes that such sales are associated with passive trade execution. The company purportedly decided to temporarily pause its programmatic sales as part of their effort to address the issue of misreported trading volumes on cryptocurrency markets. Ripple wrote in July 2019:

Ripple’s programmatic XRP sales have been done with the goal of minimizing market impact. The company did this through limiting XRP programmatic sales to what it considers a small percentage of traded volume, which was executed across multiple exchanges. Ripple relies on programmatic sales partners who mainly execute trades passively; their trading volumes do not vary based on changes in the price of XRP, but they do increase as overall XRP trading volumes increase.

As part of the initiative, Ripple also shifted to a “more conservative volume benchmark” for XRP sales, moving away from CoinMarketCap to CryptoCompare Top Tier.

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