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Facebook Libra: The Latest Crypto Used in Illegal Financial Activities?

“With the evolution of virtual currencies and new marketplaces, nefarious actors are continuously adapting to find new ways to engage in illegal financial activity.” said U.S. Representatives Emanuel Cleaver, during the briefing with Financial Crimes Enforcement Network (FinCEN) on 27 June.

The discussion with FinCEN focused on the use of AI and ML technology to detect illicit financial activity. Cleaver is concerned about Facebook’s Libra project during the briefing. He is doubtful on Facebook’s ability to identify bad actors and thus the ability to prevent financial fraud. He added “We’ve seen the significant damage that foreign adversaries and bad actors have wrought on our democracy through Facebook’s platform, and that was simply through messaging and advertising.”

Cleaver has been very active in encouraging corporations and regulators to prevent the use of cryptocurrencies in illegal activities. For instance, Cleaver sent a letter in July 2018, calling on FinCEN to investigate the case where 12 Russian intelligence officials had been accused of using cryptocurrencies to interfere the 2016 election and request FinCEN to provide further guidance on preventing the financial crimes. In March 2019, Cleaver also sent a letter to FinCEN Director Kenneth Blanco to host a briefing on the working progress of the bureau and steps to be taken.

Congressman Trey Hollingsworth said “I appreciated Director Blanco and his team for sharing the Bureau’s ongoing efforts to use AI/ML to combat money laundering and to collaborate with both financial institutions and technology providers to help strengthen our financial system.”

Thumbnail image credit: Shutterstock

Exclusive: Arbitrage – the Key Business Opportunity Brought by Blockchain

Following the latest update of Paxful, Ray took a step back and shared to us his inspiration to set up Paxful and what he learnt from 11 failed startups! He then identified arbitrage as the key business opportunities by blockchain and instead of decentralization, peer to peer should be the core value preposition of Bitcoin!

We noticed that prior to the establishment of Paxful, you have set up 11 startups and failed. Can you share with us the lessons learned and how do these failures inspire you to set up Paxful?

My first startup was successful and after that, I had 11 failures in a row, but every single one of them taught me something. Now We’re trying to build a peer to peer Bitcoin marketplace and there are tremendous challenges in doing that. When I look at PayPal, PayPal is literally three times more complex to build nowadays. Western Union has cash as the only payment method and it took 30 years to become successful.

We’re trying to provide over 400 different payment methods around the world to facilitate peer to peer transactions in every payment method. It is immensely difficult and mentally challenging. When I look back on my startups, they all have their unique challenges.

Billing was always a challenge for my previous 11 startups. Payment giants like Visa and MasterCard may not want to work with you if your products are targeting young teenagers or the unbanked. For example, I sold ringtones in my first startup. I was selling credits and users can buy ringtones with credits. You’d never heard of that 15 years ago and the payment giants want to work with me. To sum up, it was very difficult to launch a billing system from my previous experience of 11 startups.

How I tapped into the blockchain world?

When I first heard about Bitcoin, I read the whitepaper but I can’t figure that out initially. Then I started meeting people in the Bitcoin community, they won me over and that’s how I tapped into the Bitcoin space. It got me into libertarianism and the most important thing I got in Bitcoin by far was it taught me what money actually was and where it came from.

What are the key business opportunities brought by blockchain?

The key business opportunities are always arbitrage! There are 400 different major payment methods representing different networks. With Paxful, you can have full access to them and the markets around them. This is an amazing opportunity and humanity never has this before.

Imagine we have some magical friends in every single country that they have every financial account like banks, Paypal and Alipay. Whenever we need payment, he’ll make the payment for us. We have to pay transaction fees in return but the fact that you can now access every single financial network in the world which powers up peer to peer finance.

Do you think in the future, Bitcoin will remain the poster Coin for cryptocurrencies? Or other altcoins will overtake Bitcoin?

I can’t predict the future and I don’t think any other coins are doing better than Bitcoin. All the issues like transactions per second (TPS), privacy is trivial in comparison to the main use case of blockchain: payment network. Bitcoin is a very good payment network and that’s what the world needs! Bitcoin doesn’t need an immense throughput of billions of TPS and other altcoins can do that.

I don’t think another cryptocurrency will pop up that will replace Bitcoin unless something catastrophic happens to Bitcoin. I don’t see Libra as a huge threat as well, I think the reason people are freaking out over Libra is that we’re fighting with each other and coming out with our own coins, going to war with each other and it is just disgraceful. At the end of the day, Libra is just another satellite revolving around. Bitcoin is currently the clearing layer of all currencies worldwide and I hope it stays that way.

Do you think the lack of scalability for Bitcoin will hinder the mass adoption in the payment network? People view Bitcoin as more like a digital gold as a storage of value. What is the core value of Bitcoin?

I think it’s either of those things, like the people of Blockstream want you to think of Bitcoin is just gold and not scalable so we need to build a lightning network on top of it.

Then there’s people like Roger Ver creating Bitcoin cash and say Bitcoin cash should replace Bitcoin in the future. Then there is a guy like me, who is right in the middle and say “There is an entire world of money trapped in retail economies like Amazon, Apple, bank accounts in cash and all kinds of online wallets. There needs to be something that can circulate that money value around. Gold can’t do that because it’s not something that can move around like Bitcoin. Bitcoin is really the clearing and that’s what peer to peer finance is.”

When people talk about Bitcoin, they always say decentralization is the holy grail.

However, decentralization is just the technical feature but the most important point is two humans are exchanging value.

The core value proposition is we are connecting two humans together and how they actually interact with each other. We missed this fact which is honestly the biggest thing holding us back.

Do you think the emergence of Central bank digital currencies (CBDC) and Facebook Libra Coin will facilitate a world of decentralized finance and why?

Libra is not decentralized. Those validator nodes are controlled by a certain party of people. Central bankers are not going to lose control of this. They’re going to keep fighting and gain back the control eventually.

The only thing that can stop them is educating people. For example, number one: what money actually is and where it comes from. This is the key. Before Bitcoin, I had no idea about these concepts. Once I figured it out that money is not necessarily gold, silver, and fancy paper that central banks are giving us, money is a representation of our work that freed up my mind. All we need is a medium of exchange and that’s what cryptocurrency is. When we focus on that peer to peer aspect instead of decentralization, that’s when we can start to understand what we’re working with here and we can build real applications that will stay ahead of the central bankers.

Exclusive: Did Facebook Copy Hedera Hashgraph's Governance Model?

Exclusive interview with Sami Mian: Part 1

“Imitation is the sincerest form of flattery.”

When Facebook released Libra’s whitepaper, Hedera Hashgraph allegedly “thanks” Facebook for imitating their governance model, what is the story behind?

We spoke exclusively with Sami Mian, the Head of Japan and Korea for Hedera Hashgraph, to reveal the hidden story of the controversy! He also shared with us his blockchain journey and compared how Asian and western enterprises built their blockchains!

You have been previously served as a head of sales in Citi and Deutsche Bank. What makes you tap into the Blockchain industry and become the head of at Hedera Hashgraph?

In my 17 years of finance, there’s one thing that I realized was that technology and finance do not move forward. I used to trade and sell bonds, and you would have thought for sectors like finance, they will have the best technology. Settlement for money, for example, you will be able to do it in a lot more quickly than it was done in the industry. For example, when you trade bonds, the settlement would be in three days, called T+3, and then they improve the settlements and the technology, so now it becomes T+2. While PayPal or other technologies, you have instantaneous transactions going on.

“We’re still using financial systems that are 20 years old, then I realized maybe finance is the sector that’s primed for disruption.”

I left the finance industry and took a deep dive into Bitcoin and blockchain in 2016. Then I noticed four inherent flaws of blockchain technology:

1) Only 5 to 10 transactions per second;

2) Very high transaction costs;

3) Does not have any finality; and

4) It can be easily forked.

Although I thought it progressed from what banking industries had, I still thought it wasn’t enough to be able to get mass adoption. That’s when I ran into Hashgraph, I studied more about Hashgraph and learned that it could process hundreds of thousands of transactions per second. It had finality in three to seven seconds, and it is non-forkable. I was like this can be the technology that would completely disrupt the existing industries. Then I met Mance Harmon, the CEO at Hedera Hashgraph. We had dinner in Tokyo, and he invited me to come on board.

In terms of a Hedera Hashgraph in Japan and Korea, how is the adoption in these two places? How would you compare the market penetration into the Asian market compared to the western market?

That’s an excellent question because corporations in Japan and Korea are definitely working on blockchain technology now. The difference between a lot of the companies in Korea and Japan versus the US is that they are more conservative. Most of the companies that I speak to in those regions are working on some sort of proof of concept on private ledgers, mostly Hyperledger.

For example, a lot of companies are working on their own private chains in Korea. Companies in Korea and Japan are not yet comfortable building something on a public ledger. The reason is privacy because Korean companies don’t want to share their technology with other companies. Moreover, they don’t want their use cases to be forked. There are valid reasons why companies in Japan and Korea are still looking at private ledgers as a platform to build solutions on.

What Hedera can provide is a gateway from what they’re already doing, the private ledger, and we have a consensus as a service that we provide, so they can plug in their existing proof of concepts or applications that they’re building on their private ledger into Hedera and decentralize it. Then they can have the best of both worlds, they can have the privacy and speed of their private ledgers and the trust of a public ledger.

Source: Ethereumworldnews

Does Facebook copy the governance model idea from Hedera Hashgraph, and can you elaborate a little bit more about this?

Hedera Hashgraph has a governing council. The governing council right now has members such as Nomura Holdings, Deutsche Telekom, Swisscom Blockchain AG, DLA Piper, and Magazine Luiza. The biggest companies in the world and the reason why we originally started recruiting these companies in 2017 because we believed that you need to have an expert council that governs public platform.

In 2018, February, Mance Harmon, our CEO went and spoke to David Marcus, the person who’s responsible for Libra at Facebook. It is for the reason of asking them to join our governing council. We spoke to Facebook about how our governing council is, the expectation of the expert council, and how we believe the transition from permissioned to permissionless. We’re very open to how our platform and governance structure will operate.

Facebook at that time in February 2018 was very interested in what we were doing. But they weren’t as forthcoming as to what they were doing. They banned cryptocurrency ads and so forth. There was a talk about they were going to be involved in the crypto world, but the market and we didn’t know that they’re working on this. Then the news came out last week that Facebook released Libra’s whitepaper with the establishment of Libra Association and they’re going from permissioned to permissionless. They have the biggest companies in the world joining their Governing Council.

“We started laughing in the sense that we’re not saying they did anything illegal of course. But it seemed there were a lot of similarities to what we shared with them and what we’re already doing.”

The important thing to notice is that there are a lot of differences, and that’s more important than the similarities.

First of all, it is not as if you want to join our Hedera governing council, you have to pay millions of dollars. On the contrary, you pay $10 million to Facebook in order to join the council. It’s essentially for-profit governing council. Our view was you need this expert council, but you have to find a way so that they don’t profit directly from the platform. For our governing council, we don’t have a director. You don’t get paid to join and receive dividends. The LLC agreement is structured so that these companies are subject to a limited term of 3 years which can be extended to a maximum of six years. Therefore each member can serve a maximum of two terms only.

Their peers will come on the council and that’s because we want a governing council that is as diversified as possible. It’s permissioned, the same way as Facebook is. But we don’t want the governing council members to profit from the network. We don’t want them to stay on indefinitely, because if that happens then they’ll collide. These are the important differences that we’re highlighting now to the market.

When the Facebook Libra association was launched, they received a lot of criticism on the centralization concerns. How about the governing expert council for Hedera Hashgraph? How do you address those centralization concerns?

That’s a very good question. First of all, our governance structure, as well as Facebook, is permissioned. What that means is we have a membership committee. Originally, Swirlds was the original member of the Hedera Hashgraph LLC that decides which companies we bring into the governing council. From August, we’re going to have the membership committee so the members themselves will decide which companies they’re going to invite into the governing council by voting.

It’s permissioned but it’s probably the most diversified governing council that exists. There is a difference. We have the Japanese financial service company, NOMURA, and DLA Piper, which is the top law firm in the world. We have Magazine Luiza based in South America and Brazil and we have Deutsche Telekom in Europe.

We are having more companies from different jurisdictions and industries that are term-limited. These companies don’t have any financial benefits. The finance benefit they get from joining the council completely underweights the damage that will be done to their brand by doing something malicious. If the companies do something malicious, that’s going to hurt their brand a lot more than they will make any financial reward ever.

There are two main differences between the governing council of Hedera Hashgraph and Facebook:

1) Our terms are limited;

2) No financial benefit in terms of dividends and shareholding and so forth.

Donald Trump is “Not a Fan” of Bitcoin and Crypto, Citing High Volatility

“I am not a fan of Bitcoin and other Cryptocurrencies, which are not money.” Donald Trump tweeted on 11 July.

Exhibit 1. How Donald Trump views cryptocurrencies

Source: Donald Trump Twitter

The tweet came after the night of “Social Media Summit” which did not include any representatives from social media companies such as Facebook, Twitter or Google. The summit was a closed-door conference inviting many right-wing leaders instead. Trump has been complaining about the slowdown for the number of his Twitter followers during the summit, suggesting a conspiracy without further evidence.

Trump also believed Facebook’s Libra to have little standing or dependability. He added that Facebook must seek a new Banking Charter and comply with all domestic and international banking regulations. He then concluded:

“We have only one real currency in the USA. It is by far the most dominant currency anywhere in the world, and it will always stay that way. It is called the United States Dollar!”

In June, Trump’s tweet demanding Twitter to let banned Conservative Voice back to the platform, and said: “It’s called Freedom of Speech.” Trump also tweeted in May saying he will continue to monitor the “censorship of AMERICAN CITIZENS on social media platforms” after Facebook banned seven users’ accounts including right-wing media personalities Paul Joseph Watson, Milo Yiannopoulos and Laura Loomer for policies against “dangerous individual and organizations”.

What are the 7 Key Takeaways from Facebook's Libra Hearings?

The debate on Facebook’s Libra continues with the hearing with the Senate Banking Committee (“Senate hearing”) on 16 July and the United States House Committee of Financial Services (“House hearing”) on 17 July. Here are the 7 key takeaways from the two hearings.

Libra is centralized

Regulators believed that the composition of the Libra Association has made Libra “highly centralized”. In the House hearing, New York Congresswoman Alexandria Ocasio-Cortez (AOC) questioned if the members of the Libra Association is democratically elected. David Marcus, the Head of Calibra said that the members are not elected but was governed by membership standards. When AOC realized the investment of $10 million as the criteria of founding members, she concluded Libra as “a currency controlled by an undemocratically-selected coalition of largely massive corporations.”

With regards to the eligibility of using Calibra and Libra, Marcus responded to Representative Sean Duffy’s question that anyone can use Calibra and Libra in jurisdictions where Facebook operates after they performed KYC procedures. However, when Marcus was asked by North Carolina Representative Alma Adams on whether any user can become a node on Libra blockchain, he denied and said that only large corporations with blockchain technology or finance backgrounds can become a member of the Libra association and a node on the Libra blockchain.

With the lack of decentralization, Representative Warren Davidson slammed Libra in the House hearing suggesting Libra falls in the same category as a run of the million sh*tcoins.

Can Facebook protect data privacy with its notorious track record?

In the Senate hearing, Ohio U.S. Sen. Sherrod Brown commenced with the poor history of Facebook in privacy protection, saying “Facebook has demonstrated scandal after scandal that it doesn’t deserve our trust.” Such skepticism continued in the House hearing, where committee chair Rep. Maxine Waters condemned Facebook with a “demonstrated pattern of failing to keep consumer data private on a scale similar to Equifax.” For example, Facebook purportedly influenced the 2016 U.S. Presidential elections by allowing malicious Russian state actors to purchase and target ads.

The discussion switched to data portability. Sen. Warner questioned if Facebook allows data portability in wallets.

“If a Facebook user wishes to use a wallet other than Calibra, will you make it easy to allow the export of other data?”

Marcus answered that Facebook will facilitate data export for wallets other than Calibra, and he hedged the same commitment for Whatsapp and Messenger. He added that the Calibra network will separate social and financial data and they will impose the highest privacy standard to earn people’s trust Sen. Warren expressed her concern on Facebook’s ability to monetize personal data among platforms. Senator McSally followed up on this and stressed that there are no grounds for committees to trust Facebook with “the track record of failing and violating and deceiving in the past”.

In the Senate hearing, Senator Robert Menendez asked if Facebook will inform users in 48 hours in cases of the data breach. Marcus replaced “48 hours” with “a reasonable length of time”.

Why Switzerland?

Both hearings questioned the registration venue for Libra Corporation. In the Senate hearing, committee chair Mike Crapo wondered why Libra Corporation is registered in Switzerland but not the U.S. Marcus replied that Libra Corporation will also register with U.S regulators in the future.

The committees are clearly not satisfied with what Marcus said in the Senate hearing. Representative Patrick McHenry raised similar concerns and Marcus explained that Switzerland is an “international place” to conduct businesses. He further addressed Representative Josh Gottheimer’s concern that the choice of Switzerland has nothing to do with evading U.S. regulations.

Several lawmakers also worried about the threat of Facebook’s Libra towards the dominance of USD. Marcus stated that the reserve is 50% backed by USD, with the Euro, the British Pound, and the Japanese Yen included as the collateral.

How about KYC and AML?

In the Senate hearing, Senator Cortez Mastro, former District Attorney of Nevada seek Marcus’s commitment to the compliance of AML and sanction laws. Marcus highlighted that they are working to comply with FinCEN regulation.

In the House hearing, Rep. David Scott explicitly expressed his concern on how Facebook Libra complies with KYC, AML and ensures the safety of the existing financial system. Marcus replied that they will launch AML guidelines to satisfy the needs of AML, KYC, and counter-terrorist financing. With regards to potential illegal activities on Libra blockchain, Marcus believed that this can be improved by system design and proper KYC controls to ensure on and off-ramps are properly regulated.

Can Facebook protect consumer’s funds on Libra?

Senator Tester questioned Libra’s ability to protect consumers against loss of funds or fraudulent purchases, along the line of credit cards or the FDIC.

While Marcus claimed they will try their best to resolve those issues as soon as possible, Tester stressed that proper solutions must be in place before Libra goes live.

Representative Carolyn Maloney asked Marcus if he would at least promise to conduct a pilot test before the full launch of Libra. She assumed the pilot test would involve less than 1 million users and overseen by the Federal Reserve and the Securities and Exchange Commission (SEC). Marcus did not provide a clear response and merely stated that they will work closely with regulators.

Is Libra public good?

AOC asked Marcus if Libra is a public good. Marcus claimed that “sovereign currency should remain sovereign” and said he is not in the position to decide whether Libra is a public good.

Praise for Bitcoin?

House minority leader Kevin McCarthy told CNBC that unlike Trump, he likes Bitcoin and the security of blockchain technology. He believed that lawmakers are skeptical about Facebook’s Libra because Libra is centralized, which can threaten the safety of the financial system. Lawmakers are not hostile towards cryptocurrency, he added.

Final words..

We believe there are some questions not properly answered in both the Senate and House hearings, such as the main reason for Facebook launching Libra. Going forward, the centralization of the Libra Association and the notorious history of privacy breach will be the main obstacles for Facebook Libra to go public.

Bitwise: Facebook’s Libra Moved Bitcoin and Cryptocurrencies Ahead by Three Years

A cryptocurrency index fund provider Bitwise based in the US is of the opinion that the Facebook-owned stablecoin Libra has accelerated the growth of cryptocurrencies by three years. This was stated in a letter published to investors on August 1.

The attention given to Bitcoin by Libra

Libra, which has been gaining substantial attention since it’s the first announcement has gained different reactions around various sectors of the world, particularly the political and the fintech sphere.

Bitwise’s global head of research Matt Hougan, issued a statement on behalf of the company.

“Thanks to Facebook’s Libra and Congress, we have just fast-forwarded two or three years into crypto’s future, accelerating all the conversations, debates, and mainstream discussions into the present day.”

The firm had also noted that it expects the government to beef up regulations in shady areas that are being exploited by fraudsters.

Image credit to Bitwise

Facebook’s Libra Likened to 2008 Subprime Mortgage Fiasco

Facebook’s Libra drew fire as Senator Sherrod Brown likened it to the 2008 subprime mortgage fiasco.

Yahoo Finance has conveyed Senator Brown’s fierce sentiments about Libra as he recalled bankers proposed the innovative product that they deemed to be a game-changer. This would, however, not be the scenario as subprime mortgages instigated a turmoil.

The senator likened Facebook’s Libra to subprime mortgages and projected that the pitch of assisting the underbanked and unbanked would similarly turn up a hoax.

Without a doubt, subprime mortgages were disastrous as millions of families lost their homes. As a result, the economy was wrecked and the nation’s “inequality” rose at an alarming rate. Brown projects that Libra will take a similar trajectory.

Libra’s escalating pressure

Brown stipulates that Facebook through Libra seeks to become the biggest bank globally. This is risky without proper regulations.

Notably, Facebook has a user base of nearly a third of the globe’s population. As a result, if they were to utilize Libra, the present financial systems would be disrupted.

Pressure against Libra has been rising at an alarming rate. Specifically, different regulatory bodies have put up stringent measures.

Facebook wavers

At the beginning of this week, Facebook gave hints that the Libra project was facing considerable constraints. As a result, it could not be launched.

Therefore, the company has backtracked on earlier authoritative declarations of being the largest bank globally.

Additionally, prevailing data privacy outrages linked to Facebook have also escalated the pressure against Libra. Facebook’s present and proposed financial services have been blocked in China and India.

Moreover, different countries have depicted significant concerns about Libra. Specifically, pressure has been rising against Facebook’s Libra project and this may jeopardize its existence.

There is no assurance Libra will be considered in a positive light as the firm has never made any significant investments in virtual currencies or blockchain.

Facebook’s Libra ‘endangers’ America

Late in July 2019, a survey conducted on market sentiments for Libra suggested that the currency’s adoption rate is paltry.

Facebook still expresses its willingness to address any concerns over the coin, mentioning that the reason for the early announcement of the launch was to accommodate requests and concerns raised by the US regulators.

The news comes as a major let-down for many cryptocurrency fans as Libra was believed to be the torch-bearer of significant crypto advancements in the years to come. For now, the uncertainty over its launching remains with the comment by Senator Brown thrown in.

Brown’s comments echo those made by Republican crypto adversary Brad Sherman, who said Libra could ‘do more to endanger America than 9/11’ at a congressional hearing.

What do you think could be the true motivation for launching Libra? Comment Below.

Images via Shutterstock

Blockchain Market Report: 2019 H1 Review

The end of bear market? Bitcoin’s price has bounced back to over USD 10,000 since late Mar with surging institutional demand being the main driver for Bitcoin’s revival. We witnessed a number of interesting trends in H1 2019. Initial exchange offerings (IEO) caught widespread attention following the token sale of BitTorrent (BTT) on Binance Launchpad. This is the latest battlefield for crypto exchanges as they are rushing to launch their IEO platforms. Tech giants are racing for the leading vendor of blockchain as-a-service (BaaS) platform with Amazon Web Services and Microsoft launching their managed blockchains. Consensus as-a-service (CaaS) can be the next tech trend to watch when IBM is heading H1 2019 marks the beginning of “Enterprise digital currencies”, with JP Morgan and Facebook launched their own digital currency and the vision of denationalization of money seems to become a reality. These, and the key regulatory trends of H1 2019 are summarized in Blockchain.News’s 2019 H1 Review.

Report Content

1. The Crypto Market in H1 2019

– Market Overview

– Key Regulation

– Hong Kong

– The United Kingdom

– The United States

– The European Union

2. Key Trends and Predictions

– Initial Exchange Offerings (IEO)

– Blockchain as-a-service (BaaS)

– The era of “Enterprise Digital Currency”

Share with your friends and download the full report now!

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PwC: Crypto M&A and Fundraising in Asia Reports Major Growth

Crypto activity has shifted significantly from the Americas to APAC/EMEA
Crypto equity fundraising ticket sizes have increased by 50%
Crypto M&A and fundraising activity have increased by 51% in 2019

PwC previewed its latest white paper—PwC Global Crypto M&A and Fundraising Report—last Thursday at CoinDesk’s Invest: Asia event. The report was further shared by Henri Arslanian, the global crypto leader at PwC, via LinkedIn. This is the first report by PwC on the broader crypto ecosystem, but the firm will continue to publish updates twice a year moving forward.

Insights

Both cryptocurrency M&As and fundraising deals in the Americas have fallen to 41% in H1 2019 in comparison to the 60% of overall global deals reflected in the data for H1 2018. Although the Americas still count as the key driver, Asia and the Middle East now assume the bulk of the activity with five out of the top ten crypto M&A deals. According to the report, the average crypto equity fundraising tickets have increased from US$6 million to US9million, marking a 50% increase in H1 2019 compared to H1 2018.

Despite a notable drop in the number of deals in Q3 2018, the crypto market rebounded in Q1 2019 and PwC reports an overall increase in crypto M&A of 15% activity at Q2 2019. Fundraising deals have also increased by 51% when comparing Q2 2019 vs Q1 2019.

Trends for Q3 & Q4 2019

Historically crypto fundraising and M&A appears to be positively correlated with the price of Bitcoin. PwC expects this trend to continue and recent surges in market activity should empower the cryptocurrency exchanges and leading industry players with confidence and it is expected that they will look to acquire and expand in the second half of 2019.

The noted rise of 51% in capital allocated to fundraising activities, from Q1 2019 to Q2 2019, indicates that investors may seek further exposure in the crypto market by backing institutional-grade companies.

The surge of activity in the crypto space from Q1 to Q2 2019 has seen many global players, who had up until recently been sitting on the sidelines, rejoin the market. PwC’s report indicates the accelerated involvement of these investors has been accelerated by the anticipated launch of Facebook’s cryptocurrency Libra and other recent macro events and announcements from major institutions.

Image via Needpix.com

Exclusive: Gerard Dache, on the Two Contradictions of Facebook Libra

Exclusive interview with Gerard Dache: Part 2

In part 2 of the interview, Gerard walked us through some of the recommended bills to the government in fostering blockchain innovation, such as the “Blockchain Promotion Act”. He then shared his views on the nature of Bitcoin and two contradictions of Facebook’s Libra.

In Section 2 “Working group to recommend the definition of blockchain technology” of the Blockchain Promotion Act, as some academics have defined “blockchain technology” in their papers, is this bill trying to show that the working groups are more authoritative than the academic scholars? If the definition set is different from those in academics, will those academic papers and whitepapers lose their authority?

A great question! Firstly, we have 50 different working groups, and I am not involved in all of the output of all of them. We tend to think in terms of continuing to bring clarity, we are not in competition with the politicians or the academics and we are not a political organization. We want to bring the government and businesses together.

In my opinion, we are going to need a whole new asset class. These technologies are fundamentally different than securities or utilities or a lot of these things we seem to patent, they may have attributes of them.

We have never seen a technology like this before. We are going to need new regulatory tools to deal with it.

What’s your observation on the role of cryptocurrencies in the financial industry?

When cryptocurrencies first came out, the biggest enemy of cryptos was the financial services industry. Everybody in blockchain started moving to all these different use cases, such as supply chain, identity, healthcare, and others; blockchain will be helpful but it will be a slow path. In the area of financial services, there was the most animosity towards cryptocurrencies. The pace of blockchain development will be the quickest because the banks and financial institutions realize if they don’t leverage blockchain in their operations, they’re going to be left behind and will be out of existence.

The minute that banks start moving into this space, they will then drag the government. All the Facebook hearings, Libra hearings and other things are happening because the financial services industry is moving much faster than any other industry, and we see incremental innovations there. In the area of banking and financial services, that’s where the earthquakes will rock the foundations of our finances. That’s also where the laws must go first.

The US SEC claimed Bitcoin is not a security; the IRS said Bitcoin is considered property; the CFTC said Bitcoin is a commodity. How does the GBA or your personal view the nature of Bitcoin? Should Bitcoin be regulated?

There is no government agency that can come in and make an impact on Bitcoin. There isn’t any way for a government to regulate or to change the supply or to change the price of cryptocurrencies. The government can require its citizens to report it, but it is literally impossible for them to be regulated.

In your opinion, do you think Bitcoin is a security, commodity, property, or none of the above?

I believe it’s none of the above – Bitcoin has the property of the above mentioned and it bears similar characteristics as gold. However, for high dollar transactions, it can also be a payment system. GBA is not a lobbyist organization, so we’re not trying to push for legislation. In my opinion, we need a new asset class and new rules.

Let’s talk a bit about the future of Facebook’s Libra. David Marcus mentioned in the hearing that Facebook Libra is a payment instrument. What are the regulations required for Libra to stay compliant?

Facebook was hit with two completely conflicting issues; they said the reason that they are building this is that they want to help bank the unbanked. They also said at the same time that they will be fully AML and KYC compliant. The reason why so many people are unbanked is that they don’t have an identity. How are you going to give identity, do AML/KYC and at the same time bank the unbanked?

Facebook is going to run into so many regulatory challenges that I doubt they will ever launch, and if they do, it’s not going to be anytime soon.

Do you think Libra is not a cryptocurrency because of its centralized nature?

Yes. Facebook hasn’t figured out a lot of this stuff themselves yet, so the fact that they announced when they did, caused a lot of chaos but also woke up a lot of people. They are not ready for their prime time yet. In fact, many members of the association have many questions about what it would mean when trying to run a node and when they would be compliant, and the current regulators are not ready for this.

Recently, Walmart filed a patent on digital currency. What will be the future of Bitcoin when traditional giants start launching their own digital currency like Facebook?

For Facebook’s Libra and Walmart, when they launch their own token, I believe they will become another ‘Western Union’: another centralized payment channel.

I don’t think that they can actually take on the properties of a cryptocurrency. The concept of cryptocurrencies, as a decentralized mechanism, is so antithetical to what they’re trying to do.

My prediction is that I see Bitcoin going up to about half a million dollars. The reason is that if I go to Starbucks, or McDonald’s, I don’t need 51% of all the computers in the world to validate my transaction. However, if I’m going to buy a house or a car, or if the government is going to send a transfer payment to a state, a currency as secure as Bitcoin will be needed. I believe that we’ll see networks and technologies that are much lighter, much faster like the lightning network that will be secure enough for smaller transactions. Bitcoin will become more like the cornerstone gold, and more like the reserve currency that all of these technologies are tethered to.

I believe Bitcoin has something that very few other cryptocurrencies have – which is a fully decentralized nature gaining people’s trust. I think that’s where the value is, not in the everyday payment system, but as the foundation for a whole new economy.

Do you think the future of blockchain development will be driven by permissioned blockchains instead of public blockchains?

When the internet first came out, it was hard to imagine that we would be using the internet for our banking. Then we would use the internet to swipe right or left to decide who to date. We need transitional technologies and I believe that these enterprise permissioned blockchains are very important transitional technologies. If you try to tell someone we’re going to go from where we were ten years ago, to a fully decentralized economy, people will say you’re crazy. It is going to take time for that to happen. It may take decades, but these enterprise permissioned systems, I believe, are critical to the transition to the new economy.