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Stablecoin and Its Potential Business Uses

Blockchain innovation has significantly changed the way we thought in the traditional financial sector. All of those concepts and business models, such as decentralization, cryptographic tokens, and digital ledger, also brought us more imaginations toward the future forms of money. Although we are still facing the disorder from the 2017–2018 ICO chaos and increasingly strict regulatory frameworks, the overall trend of crystallization should be irreversible. The development of financial digitalization and proper use of technologies can empower our economy, even provide a great opportunity to overcome those development challenges. The concerns, therefore, can be argued that how we can bring awareness and build trust to consumers, and how to monitor and eliminate those crypto risks for the financial institutes and regulators?

The stablecoin may be a possible solution in a world that fiat is in flux while the innovation has the possibility to transform the landscape of financing and banking. By definition, stablecoin is a cryptocurrency — an internet-based medium of exchange, backed by valuable assets in the real economy. If you take US dollars between 1945–1970 as an example, each USD should be equivalent to 1/35 of an ounce of gold (however President Nixon tore apart the Bretton Woods Agreement in 1971 but that’s another story). In the crypto world, stablecoin services in a very similar function, it can be traded as the medium in any transaction because the stablecoin itself pegs its market value to some external reference, for example, USD, other fiat currencies, or commodities such as gold. Indeed, the most common style of stablecoin is backed by fiat currency at the 1:1 ratio, like USDT and Tether — both are backed by USD. Ideally, the stablecoin requires sufficient reserve assets to keep the volatility-free valuation of that “coin”, then it can be used in daily exchange — from trading other cryptocurrencies in exchanges to buying food in a physical shop.

Another interesting private project is QDAO — a fully decentralized stablecoin backed by crypto assets, which brings the discussion to the next level. While other stablecoins pledge to assets such as US dollar or gold, QDAO chooses to accept Bitcoin (or potentially other crypto assets) as the fundamental collateral (it needs to deposit or lock up certain amount of his crypto asset) and the user can decide if he wants to create any fiat-based stablecoin for further use. For example, the term “USDQ” represents a fully USD-backed token while another term “JPYQ” means the token is supported by Japanese Yen or “CNYQ” with Chinese Yen as the target. Of course, according to the basic rule, the reserve assets should always exceed the value in circulation, PLATINUM ENGINEERING (the team initiated this idea) has designed algorithms, deposit & settlement mechanisms and smart contract-driven ecosystem for supporting such stablecoin creations. The way that stablecoin is still pegged to the fiat at a 1:1 ratio but take BTC as the underlying collateral has become more popular and flexible for business cases in recent years. Actually, many decentralized finance (DeFi) projects (including QDAO) already applied this “over-collateralization” principle to develop their lending models. It’s believed that the proper stablecoin mechanism should not only defense against malicious actions/speculations, but also it should provide price stability and security for the transaction, payment, and further utilities in the financial market.

Besides those brilliant private sectors, government and public sectors also start paying more attention to a crypto solution, especially the stablecoin (due to conservative governments may not be in favor of anything “unstable”), and how to optimize our banking and even the monetary policy. The synthetic central bank digital currency (CBDC) has been introduced by the World Bank Group since the beginning of 2019. The framework aims at offering a possible path that trustable private sectors could work with the central bank and inject digital money into the market, or we can even call it the fin-tech public-private partnership for the future economy. If you are a believer in free market, the sCBDC should be an exciting approach that unlock the last economic power from sovereign government — the seigniorage (note that it assumes most of the commercial & financial activities have been privatized in the modern democratic nations, but the seigniorage is still solely and completely controlled by the central bank). Indeed, the idea of “decentralization” or “reconstruction of power” is not new, 40 years ago the Anglo-Austrian economist, Friedrich Hayek, already argued something similar in his book “The Denationalization of Money”. But of course, at that moment, the word “digital” was not yet brought to public attention.

Blockchain technology, cryptocurrency, and stablecoin should be regarded as the disruption for the financial landscape, and the monetary value can be electronically stored and pegged to a safe and liquid asset also sheds light on new payment and the accessibility to financial services. We have more than 2.5 billion individuals and 200 million SMEs lacking access to basic credit and financial support (World Bank, 2014), thus it’s persuasive that digital finance, or in more specific mean — the stablecoin, should be able to create more opportunities to not only advanced markets but for people in developing regions. The government and central bank might move slowly in this unfamiliar territory, however, the private sector can actively act as the infrastructure builder and service provider.

As Mr. Jin-Young Cai, the CEO of International Finance Corporation (IFC), pointed out in the CGAP event speech that “the benefits of digital finance extends well beyond conventional financial services; it can also be a powerful tool and an engine for job creation in developing countries”, it’s foreseeable that the role of stablecoin, digital money, and DeFi solution will become more important, especially for SME businesses and eventually be adopted by the general public. The following regulatory complexities and impacts on other fields shall be the nest essential topics to everyone.

Financial Stability on The Brink of Instability Due to Bigtech Companies

With cryptocurrencies on the rise, the Financial Stability Board suggests governments and regulators to thoroughly monitor the rising trends of BigTech companies developing crypto payment and digital money transmission markets.

A recent report published that the FSB spoke on the increase in monitoring BigTech’s involvement in the financial services, as it recognizes its potentiality in terms of higher financial inclusion. Moreover, the concern was mainly with mainstream economic infrastructures being in cessation if the participation of companies like Facebook partakes in crypto payments and electronic transfers.

FSB’s primary concern relates to major tech companies whose large user groups may disintegrate banks, should they become leaders in the payments market. A report reads, “Where stored value payment products (e.g., mobile wallets) become prominent; a relatively large and potentially mobile pool of funds may be controlled outside the banking system (though often these funds are ultimately deposited with banks). Furthermore, the greater mobility of this pool of funds compared with the customer deposits may also reduce the stability of bank funding.”

Image via Shutterstock

Western Union Makes Offer to Acquire Cross-Border Payments Firm MoneyGram

Financial giant, Western Union is in discussions to acquire cross-border payments company MoneyGram according to a June 1 article by Bloomberg.

Western Union Co. is seeking to acquire MoneyGram International Inc. in a transaction that would bring together two of the largest US providers of cross-border payments. The news comes via an anonymous Bloomberg source, who the publication cannot identify as the matter has not been made public – according to the source familiar with the matter.

Officials representatives from both companies have declined to comment on Western Union’s alleged takeover offer for cross-border payments company MoneyGram.

COVID Climate and FinTech Competitors

MoneyGram’s business has been in decline as more and more people lean towards online payments. Financial Technology (FinTech) payment services are now offering solid competition to the established cross-border payments companies and policymakers are intent on bringing down fees associated with moving money around the world.

The onset of the coronavirus pandemic disruption has put MoneyGram under further duress and the cross-border payments company has been forced to close many of its operations around the globe.

Earlier this year, Ripple made an initial investment of $30 million in MoneyGram equity at the same time that it signed the commercial agreement with MoneyGram for cross-border settlement using digital assets. After this most recent $20 million investment, Ripple now owns 9.95 percent of the outstanding common stock of MoneyGram, and approximately 15 percent on a fully-diluted basis including non-voting warrants held by Ripple.

The deal seemed to be motivated by the FinTech competition and online trends of consumers during COVID, MoneyGram attempted to boost its digital remittance services but according to their first quarter report for 2020, digital cross-border remittance only made up just under 20% of their business.

Image via Shutterstock

Prepare for Bitcoin’s Early Adopters (They’re Not Who You Expect)

In the classic “diffusion of innovations” theory, new technology has to progress from innovators to early adopters before it can go mainstream.

Innovators are the 5% of people who adopt technology while it’s still experimental. They prove the concept.

Early adopters come next.

Generally, these people have connections with innovators, a high degree of thought leadership, or some social status or financial liquidity that lowers the risks of adopting bad technology. They’re your first users, the people who make everybody else think the technology is safe and useful.

Cryptocurrency has struggled to get these people en masse. You and I remain a very small class of users, and while our ranks continue to grow, it will take something special to get enough of us to push cryptocurrency into the mainstream.

Something special just arrived.

A new awareness among an old group

As the world struggles with the pandemic disease, financial crisis, and global economic turmoil, I noticed a new awareness among old people and business leaders.

What’s this awareness?

That the internet is a good thing.

For the first time, these people had to use it—not just for sending emails and Powerpoint decks, but also for teleconferences, online training, screen sharing, Slack, Zoom, cloud storage . . . you name it.

Guess what happened?

They realized with a little training and some new habits, they can save a lot of time and money without losing too much productivity. Some even gained productivity.

Now, banking from home is a life-saving convenience. Video chats are cost-effective ways to connect with friends, family, and colleagues. Virtual paperwork really is easier than ink pad signature stamps. Downtown offices really are too expensive. My millennial subordinates really can be productive without coming into the office.

You might not think these people matter for cryptocurrency because they embody the legacy system. They don’t care about cryptographically-secure, time-stamped, distributed digital ledgers, nor do they think about the flaws of fiat money and inflationary central bank policies. Yet, these people have money and power. They run our businesses and governments. Depending on what survey you believe, they hold as much as $70 trillion worth of financial assets.

Inevitability is a selling point

This year, they have driven a surge in demand for virtual services.

While some of this demand will subside as life goes back to normal, some will stick.

A lot of routine doctor visits and most consultations will move to telemedicine. Many meetings and almost every clerical or paperwork process will migrate to a digital platform.

Companies will shift some positions to permanent telework. Mortgages and many routine financial transactions will settle using secure, internet-based commercial platforms. Companies will replace their payment processors with lower-cost, more nimble platforms like Stripe.

Even governments will change the way they deliver services and manage their money systems. China is testing its digital yuan. The U.S. Federal Reserve accelerated progress on its digital dollar. European Union is tinkering with blockchain.

Everybody wants to get rid of patchwork legacy systems, paper checks, physical banknotes, and layers of databases.

None of these shifts need to include blockchain technology. Most won’t. That’s not the point.

The point is more and more people recognize the flaws in our commercial and financial systems.

While blockchain technology still has its limitations, it offers an alternative to the complexity and security challenges of digital platforms. For example, bottlenecks and security issues or the costs and drawbacks of authenticating legal documents, verifying identity, and protecting privacy and confidentiality.

As the key innovation that gives value to blockchain technology, cryptocurrency will get a lot of attention. Curiosity, perhaps, at first—but that’s where it starts.

As a person in finance told me, lots of his clients have a sense that crypto “is the way everything’s going.” Inevitability is a very compelling concept.

An alternative, not “the” solution

It’s not that people necessarily want cryptocurrency. It’s that they’re open to the idea of cryptocurrency. They’re willing to explore and experiment.

That’s exactly the type of behavior that will lead them to try out a beta project or tinker with some features, such as sending a private transaction on Ethereum, staking some crypto, or using XRP to settle money transfers.

If this seems premature, consider how far cryptocurrency has come since the 2017 boom. Many projects now have mainnets, dApps, and real usage beyond trading. Wall Street veterans now run crypto funds and crypto-related businesses. Universities teach blockchain. Some governments have crafted legal frameworks to protect and promote cryptocurrency.

DeFi has shown that you can manage financial systems without governments. Bitcoin has shown you can send money to people without banks. Altcoins have shown you can use money systems to solve social, political, and business problems.

True, on a small scale. This is still a young, developing technology. But it doesn’t have to be great yet. It just needs to work.

That’s great, Mark. When moon?

More people understand that crypto is not about creating a new Venmo, but rather, building global, permissionless networks that all people and businesses can use.

Does that mean bitcoin will get a massive rush of money and innovation tomorrow?

No. It takes time for people to wrap their heads around what’s going on. Awareness does not mean action.

Wall Street has only just started to corner the market for their clients. The lightning network hasn’t caught on the way everybody expected and DeFi platforms still have operational, security, and regulatory issues to fix before they can go mainstream.

Also, your average person is worried about their job, their business, their family, and so many other problems. Even if they had money to spare, they probably aren’t going to put it into bitcoin.

If you want that big, massive, life-changing bull market that sends prices into the stratosphere, this is a good thing.

You need people to commit to this market. They need to care so much that they’re willing to suffer through 30-40% crashes, threats of government bans, failures with DeFi protocols, faulty oracles, high transaction fees, and all the growing pains cryptocurrency has suffered over the years.

In other words, you need to wait for the early adopters to make everything seem safe for the mainstream. Then, the floodgates will open.

Growth comes from Conviction

Those early adopters need to want this technology to succeed. Otherwise, they will not spread awareness or advocate for its use.

Jumping the FOMO bandwagon won’t get us there. Once the wheels fall off, everybody will disappear.

The good news is, conviction has entered the markets.

As I’ve shown to readers of Crypto is Easy, we have a lot of evidence that bitcoins have flowed into the hands of long-term HODLers and institutional investors—people who are willing to ride the market up and down.

Meanwhile, altcoins have seen a steady rise in users, apps, and transaction volume. While that could change any moment, it suggests interest is spreading beyond traders and speculators. It’s not “buy low, sell high” but actual usage and commitment to projects.

Ranks are growing

In other posts, I’ve talked about the opt-out movement, that mass of angry people looking for a way out, latching on to cryptocurrency as a peaceful, passive way to escape their political and economic systems. Something along the lines of Lucas Cacioli’s recent post, “Bitcoin Adoption is the Ultimate Protest Against Government and State Abuse of Freedoms.”

Now, I also see the potential for professionals and old people to join them—not as a political statement but because “that’s the way everything’s going.”

Can you imagine how the perception of cryptocurrency will change when professionals use it to boost their businesses or fix problems with the traditional financial system? When old people buy a little bitcoin as part of their estate or retirement portfolio?

Perhaps we’re not there yet, but it won’t take much longer. Paul Tudor Jones opened a lot of people’s minds to bitcoin as an investment asset. Jamie Dimon opened a lot of people’s minds to crypto as financial technology. Others have made their own contributions to public discourse.

Combined with this larger social awareness of the need to move into the digital world, and a reaction to the problems authenticating, verifying, and exchanging “things” in a virtual world, we may finally have all the momentum needed to move into the next phase of adoption.

ECB Plans to Lead CBDC Exploration to Unleash Global Power of the Euro

Fabio Panetta, a member of the Executive Board of the European Central Bank (ECB), stated in his address to the European Parliament that the ECB intends to remain at the forefront of discussions concerning the nature of money in the digital world, including the exploration of the desirability and feasibility of establishing a central bank digital currency (CBDC).

Italian economist and Member of the Executive Board of the ECB, Fabio Panetta addressed the European Parliament via a Frankfurt Am Main video conference on July 7—where he spoke on the Euro’s untapped global potential, citing the necessity to stay ahead of the pack in terms of CBDC development.

Euro’s role in the Global Markets

Referencing the findings of the 19th annual review of the international role of the euro, Panetta highlighted to the ECB members that although the euro has been one of the most profound changes to the international monetary system since the collapse of the Bretton Woods System, the euro’s share in international currency sits at around 19% which is lower than the approximate 50% share of the US dollar, but well ahead of any other currency.

Panetta reflected, “Developments since the outbreak of the coronavirus (COVID-19) pandemic have not changed the picture: investors rushed to the safety and liquidity of the US dollar in March 2020, confirming its pre-eminent role in the global monetary and financial system.”

Panetta stated that the euro’s global potential is yet to be fully realized, “But the right policies could unleash it.”

Covid-19 and the Rise of Digital Money

The Covid-19 pandemic crisis has accelerated the digitalization of money which Panetta believes, “May have implications for the euro’s global role.”

The Italian economist highlighted that Europe has stepped up its efforts in meeting the challenge to create a true European and modern payment solution through the European Payments Initiative. The initiative is a collaboration of 16 European banks and aims to create a unified payment solution for consumers and merchants across Europe, encompassing a payment card and a digital wallet and covering in-store, online, and person-to-person payments as well as cash withdrawals. Panetta said, “This is essential to ensure the autonomy of the European payments market, in the face of increasing dominance by foreign players.”

CBDC Could Raise the International Status of the Euro

The ECB will continue to monitor how new technologies change payment behaviors and intends to remain at the forefront of the discussion—including the exploration of the desirability and feasibility of establishing a central bank digital currency (CBDC).

Panetta said, “A CBDC would have domestic implications for the euro area in areas such as monetary policy, financial stability, and payment systems, which would need to be thoroughly assessed.” But according to the ECB member, “If the CBDC is allowed to be used outside the euro area, it is likely to have implications for the global monetary and financial system too.”

Panetta believes that the euro’s international status could be greatly strengthened if the CBDC represented and an attractive payment vehicle or store of value for non-euro residents. He said, “It could have implications for capital flows and the exchange rate of the euro, with potential knock-on effects on the euro area and global economic developments. It could amplify the real and financial cross-border spillovers of domestic monetary policy shocks by creating a new channel for their propagation. The magnitude of such effects would depend on the design of the CBDC.”

Towards the end of his speech, Panetta asserted, “Regardless of the choice of technology, the stability of money and payment systems should continue to rest on the firm foundations central banks provide. Maintaining the unit of account, guaranteeing the finality of payments, providing liquidity, and conducting oversight remain essential public goods that are provided by central banks. They are paramount to maintaining trust in a currency and safeguarding monetary sovereignty.”

California Man Pleads Guilty to Running Illegal Bitcoin ATMs and Money Laundering

The US Department of Justice has accepted a guilty plea from a Californian man for operating a money laundering and illegal Bitcoin business.

According to a plea agreement filed Wednesday, July 22 in federal court, 36-year old Kais Mohammad, also commonly recognized as “Superman 29”, has agreed to plead guilty to one count each of operating money laundering, unlicensed money transmitting business, and failing to maintain an effective AML (anti-money laundering) program.

Law Enforcements Spot and Study Patterns to Catch Criminals

Federal investigators revealed that Mohammed owned and operated HeroCoin, which was an illegal digital currency money services business, exchanging Bitcoin cryptocurrency for cash and charging commission rates of up to 25% that were “significantly above” the market rate.

The company also operated Bitcoin ATM kiosks in multiple retail centers, including convenience stores, gas stations, and malls throughout San Bernardino, Riverside, Los Angeles, and Orange counties. Such kiosks allowed customers to either sell Bitcoin in exchange for cash or buy Bitcoin with cash that would be dispensed on site.

Prosecutors claimed that Mohammad knew at least some of his clients’ funds were obtained through illegal activities.

As part of his plea agreement, Mohammad admitted to having exchanged more than $25 million through the firm.

Prosecutors alleged that Mohammad intentionally failed to register the firm with the U.S Department of Treasury’s Financial Crime Enforcement Network (FinCEN) or develop an effective anti-money laundering program.

Prosecutors also claimed that being a former banker, Mohammad was aware, but ignored regulations related to reporting requirements for digital currency exchanges. Regulations required Mohammad to report exchanges of currency bigger than $10,000 or any transactions over $2,000 involving customers suspected to be involved in criminal activities. But Mohammed ignored complying with these regulations.

According to court records, law enforcement officials conducted several transactions with Mohammad as a way of carrying out their investigations. One undercover agent bought $14,500 value of Bitcoin cryptocurrency during three successive transactions at a Bitcoin ATM kiosk located in Lakewood.

As per the U.S attorney’s office, Mohammad once again met in person with undercover agents who represented themselves that they worked at a ‘karaoke bar, which employed beautiful women from Korea who entertained men in several ways, including engaging in sexual activity. Mohammed agreed to accept $16,000 in cash from one of the undercover agents in exchange for Bitcoin, prosecutors reported.

Prosecutors alleged that Mohammed did not file the required currency transaction reports nor a suspicious activity report, in relation to the exchanges involving the undercover agents.

So far, no hearing date has been scheduled for Mohammad to enter a plea of guilty. He faces a maximum sentence of 30 years in federal prison. He has agreed to forfeit cryptocurrency, cash, and 17 Bitcoin ATMs that he used for his business operations.

Laundered Cryptocurrency Washed with Exchange Services

Chainalysis report reveals that a majority of criminally-connected cryptocurrencies are laundered on basic online exchange services. In 2018, doge cryptocurrencies amounted to more than $1 billion were washed by simply depositing them onto digital asset exchanges and trading them. Money launders utilized other p2p (peer-to-peer) exchange services to clean a further 12% of their illegal proceeds. This implies that over 75% of illegal cryptocurrencies were moved through an online exchange service in 2018.

The majority of illicit money flowed through either peer-to-peer exchanges or crypto exchanges, with others flowing through conversion services like gambling sites, mixing services, and Bitcoin ATMs.

Most of the digital currencies were acquired by hacking crypto exchanges directly. In 2018, about $36 million value of Ethereum was stolen through exit scams, Ponzi schemes, or phishing.

PlexCoin Founder Indicted by US Grand Jury for 2017 ICO Securities Fraud

A United States grand jury indictment has been delivered to Plexcoin founder, Dominic Lacroix, as well as Yan Ouellet and Sabrina Paradis-Royer for securities and wire fraud, according to the DOJ.

The United States Department of Justice (DOJ) announced recently that a Cleveland grand jury has delivered a five-count indictment in the PlexCoin initial coin offering (ICO) scam charging Founder Dominic Lacroix and two other employees with conspiracy to commit securities fraud and wire fraud, as well as conspiracy to commit money laundering activities.

According to the announcement from US Attorney Justin Herdman, the indictment was delivered to Dominic Lacroix, Yan Ouellet, and Sabrina Paradis-Royer who are all based in Quebec, Canada. The indictment alleges that the trio conspired to sell PlexCoin tokens to investors from May 2017 to December 2017—offered through PlexCorps.

The DOJ asserts that the three defendants planned to make themselves rich by duping unwitting investors into purchasing the cryptocurrency through PlexCoin’s ICO—which raised around $8million dollars in PlexCoin tokens.

According to the indictment, around June 2017, PlexCorps began promoting PlexCoin to the public as a new digital cryptocurrency that would be available through an upcoming ICO. Around August 2017, PlexCorps published a whitepaper for PlexCoin which was available for review on the internet by potential investors. The Whitepaper contained numerous false claims, including that some investments in PlexCoin could result in a 1,354% return.

“While technologies and the means to make investments may change, one thing remains constant – securities fraud ruins lives and deprives victims of their hard-earned money and savings,” said US Attorney Justin Herdman, “Digital currencies are a new type of investment, and just like with traditional securities, you should take the time to research and know exactly what you’re getting into before making any type of investment.”

Lacroix had been Warned

Plexcoin founder Lacroix had been ordered by the Autorité des marchés financiers (AMF) in Quebec not to go ahead with the launch of the ICO in July of 2017. He defiantly proceeded the following month and was sentenced to two months jail for contempt of court ruling. He was also served with a $110, 000 fine.

In December 2017, PlexCoin subsequently came under fire from the United States Securities and Exchange Commission. The US regulator moved to seize Lacroix’s assets in another attempt to halt the fast-moving ICO fraud which had raised $15 million dollars from investors by falsely promising incredible returns of up to 13 times the investment in a very a short period of one month.

US Federal Court Defines Bitcoin As Money

A US Federal court has classified Bitcoin as a “money” under the Washington, D.C., Money Transmitters Act (MTA).

A US Federal court would not dismiss criminal charges laid against Larry Dean Harmon, the operator of an underground Bitcoin trading platform, for running an unlicensed money transmitting business under D.C. law and for laundering money under federal law—because Bitcoin is a form of money according to Act. Chief Judge Beryl A. Howell.

On Friday, July 24, Act. Chief Judge Beryl A. Howell wrote for the US District Court of Colombia, that money is defined as “a medium of exchange, method of payment, or store of value,” before adding, “Bitcoin is these things.”

The decision to label Bitcoin as “money” was made as the court denied the motion by Larry Dean Harmon’s defense to dismiss criminal charges of operating an illegal-money-transmission—arguing that Bitcoin is not money under the MTA which meant his business could not have done anything illegal under US regulation.

What does this mean for Bitcoin?

The ruling in the US District Court of Columbia is not expected to have much impact on how Bitcoin is perceived in the mainstream market. The definition does, however, further provide parameters on how the US Courts regulate cryptocurrency in money transmissions and how Bitcoin will be treated by federal and state authorities in the context of anti-money laundering.

Peter Van Valkenburgh, Director of Research at Coin Center told Bloomberg Law, that the district court’s ruling means that Bitcoin is only treated as money in the context of D.C. money transmission law. He said, “These cases pop up all the time because nearly every state has its own definition of money transmission.”

According to the official indictment, Harmon’s platform was located on the darkweb and was allegedly advertised as a Silk Road type of service, which provided a way to mask the purchase of drugs, guns, and other illegal transactions from law enforcement. The platform was allegedly used to exchange the equivalent of around $311 million dollars between 2014 and 2017.

The court has further seized 160 Bitcoins from Harmon and has also denied his request to have them released as there is a very high likelihood that the funds were leveraged in illegal transactions.

New Money Theory: Understanding the Fundamental Internal and External Factors of Money

In brief

We introduce the internal and external factors of money to explain the concept of money systematically. Internal factors: money form, money issuance standard, and money flow. External factors: power, evolution, competition, and competition output.
Currently, money is an extension of power. Money has a huge influence on shaping humanity’s collective values. With blockchain, humans, for the first time in our history have the power to design money with goodwill, while also removing the absolute power of institutional money issuers and “trusted third parties”.

Money has always had a fundamental influence on the development of the world and society’s values. Money is a major incentive for our economic society. Everybody knows the importance of money, but how money is created and achieves its value still remains a mystery for most people.

A real consideration of what makes something valuable can be mindblowing and the factors can range from spiritual to utility, but often throughout history, forms of value have been connected to scarcity, things that were difficult to acquire or mine like gold, silver, and diamonds. In the Napoleonic era, aluminum was seen as far more valuable than gold as it was more scarce and difficult to acquire at the time. Napoleon’s crown was even made from aluminum to highlight his supreme power as Emperor, but, by today’s standards, the prospect of aluminum being more valuable than gold is quite absurd. The design of currency can drive humans toward a collective staple value, as was the case with Gold for thousands of years and later on Gold-backed currency issuance. Blockchain technology, however, creates a new system of value.

Through Blockchain technology, we can create a whole new system of value and even design a new currency with the purpose of bringing true monetary freedom to humans for the first time in their history. To understand the essence of money and its influence on human society, in this article, we introduce six factors to describe money in two categories: internal factors and external factors.

Internal and External Factors

Internal factors: money form, money issuance standard, money flow. Those reflect the essence of money.

External factors: power evolution, competition, competition output. Those reflect the nature of humans in terms of money.

In the previous post “Blockchain Brings Monetary and Financial Freedom”, we have already discussed the internal factors that give money value. In this article, we map the relationship between money and its influence on human society, in terms of human incentive, human nature, human welfare, and more—the external factors. We investigate and demystify money in a combination of internal and external factors.

On power evolution and money form

When gold was used as money in forms of gold coins or gold bars, everybody had a consensus on gold itself. No central authority or agency could influence the value of Gold.Gradually, central and sovereign authorities achieved the power of standardization of gold and maintained the power of supervising thereafter. But gold ultimately proved to be quite inconvenient for trade, so humanity progressed to the gold-backed paper money. We trusted in the paper money issuer and one type of credit was introduced.

Then speculation prevailed. Paper money was not fully backed by gold. The concept of ” leverage” and another type of credit were introduced and we need to trust the issuer. This is actually what typical commercial banks have been doing. We can say that it is the inherently physical defect of gold. And leave us to design a better currency without such weakness.

Bitcoin is quite different from traditional electronic money as its ownership is guaranteed by private key and bitcoin network security which related to computing power. The technology guaranteed ownership is different from ownership guaranteed by law as law. We can bitcoin’s ownership “absolute ownership”.

On power evolution and money issuance standard

Initially, take gold as an example, the issuance of money is decentralized, everybody can do gold mining. There were once a few gold rushes in history. The standardization of gold gave the authority the power of supervision. Then the authority provided the market with “alternative coins”. It is the coin with less gold or mixed with other heavy metals. Then the authority introduced the partial power of issuance. As mentioned above, paper money needs to be backed by gold reserve, be it full reserve or not full reserve. But what would happen if we removed the gold reverse? Well, the money seems to be issued from the thin air. This is exactly how money is issued in our current monetary system. In other words, money issuance is backed by national credit. And authority monopolized the issuance power. You know it is illegal to print paper money by yourself because of no national credit in it.

This money issuance standard began after 1973 when the US defaulted its US dollar for gold promise and the fixed exchange rate became fluctuated. This marked the collapse of the Bretton Woods system. It was not a money issuance perfect update but a national default from fears that the gold reserve could drain dry. As the US dollar is the de facto world currency, now virtually all money is US dollar-based money issuance standard. The money issuance power transited from distributed to monopoly and absolute power.

Where there is a dependence, there is a risk of being influenced or enslaved. In an international relationship, there is a phenomenon where one countries monetary is highly influenced by another country. We call it “money colony”.

Will the money issuance right get back to the general public in the long run? Hayek in his famous book “Denationalization of Money” once conceived the vision of private money. This type of private money is different from a period of the gold standard when the gold is the consensus and private miners are reliable providers of gold money. We can devise a new money creation mechanism that has consensus among all people and the creation will benefit all in general. Bitcoin a good start.

On power evolution and money flow

Money flow refers to payment, settlement, remittance, etc. Most money flow is in the hands of traditional financial institutions. In general, the service of money flow is high. Traditional financial institutions have monopolized the money flow system. Although we have witnessed the emerging fintech industry that has made money flow a bit more convenient, it still has much space to improve.

With blockchain, we can reduce the concept set. And the implementation is much simpler. Blockchain provides an alternative to traditionally US dollar-based settlement networks. Blockchain also provides an alternative to the current payment network globally. With the power of money flow transitioned to blockchain-based, we can expect an apparent cost reduction in money flow.

On competition field and money issuance standard

We categorize competition field into consensus-based and non-consensus based (or credit-based)

If there is a consensus on the form of money like with the gold standard, the competition evolves into who can get the most money. And we are happy to utilize new technologies to improve efficiency in gold mining. Sometimes, we may even engage in all out conflict in seizing the gold mining field as well.

For bitcoin, it is Proof-of-Work (POW) based. The competition on bitcoin creation is reduced to computing power and power consumption.

For fiat money, there is actually no consensus on money. The money issuance is based on national credit, it is the national credit standard. The fiat money is forced in circulation by government nationally and internationally its values are determined by its adoption or requirement.

This money issuance standard is quite different from gold standard. The competition is a much likely zero-sum game. This can be seen as money colony.

For national credit standards, money is forced into circulation by government nationally and internationally its values are determined by its adoption or requirement. This is quite different from the gold standard. The competition is a zero-sum game. This can be seen as a money colony.

On competition out and money issuance standard

Different competitions lead to different results and side effects.

In the era of the gold standard, we definitely got more and more gold. And as a side effect, we created more efficient ways of mining gold and improving mining tools. Under national credit issuance, actually there is no consensus on money as there was with the gold standard. This standard easily leads to conflict in the money adoption field, like oil, resource, countries. To maintain the dominance or zone of influence, military operation may be incurred. Typically currencies like USD, EURO, and RMB all have tried its way to increase influence in terms of money adoption or requirement. On bitcoin’s POW, we get back to a money consensus with unified rules for all. It would waste power and computing power in some sense. But we can guess computing power is the most important factor in a future society where AI and smart machines prevail. Competition on computing power and power efficiency would accelerate the development of our society.

Design money with human goodwill

can we design new money issuance standards for a better world? Is the human goodwill currency following God’s expectation?

Bitcoin’s POW raised concerns about waste of computing power and power. The key here is how to reduce the cost to contribution instead of wasting of computing power and power.

Let’s reversal thinking. We first focus on the goal of competition output, our goal here is the development of human society. Let’s go deeper, What’s the most important and most basic and stable factor(s) that serves for the development of human society? We proposed: take these factor(s) as the input of money issuance. The money issuance standard problem is reduced to the contribution of the development of human society. The is completely new. Since our society is driven by value incentives and we have redefined value creation, this may lead to the reconstruction of our value system. And since basic money is mainly from machine-based algorithms. It shifts our focus from “human-oriented” to “machine-oriented”. This is large cooperation on a global scale. We need more research on this topic.

Author: Kun Hu, Francis Lau

Editor: Lucas Cacioli

Ripple CEO: Global Governments Now See Blockchain Solution to Addressing Transparency and Settlement

Brad Garlinghouse, Ripple CEO, believes most governments consider blockchain technology a game-changer as it solves frictions like transparency and settlement.

Crypto skyrocketing as the dollar diminishes

As a response to a Bloomberg report, he tweeted that many viewed crypto as a scam in 2019, but now the odds have changed as it is up by 80%, whereas the dollar has declined by 3%.

The US dollar has been at the helm as the global reserve currency. Garlinghouse trusts that this position will not change in favor of crypto or gold, as it is the backbone of the global financial infrastructure. Nevertheless, he points out that it has been shaky and weak, especially during the present economic turmoil instigated by the coronavirus (COVID-19) pandemic.

On the contrary, the crypto market is on an upward trajectory given that Bitcoin, the leading cryptocurrency, slumped to $3,800 on Black Thursday in March, but it’s now hovering around the $11,000 price.

Different nations are continuing to be active participants in the crypto space. For instance, Iran recently gave power plants the go-ahead to mine Bitcoin because of cheap electricity.

Diversification is key

Garlinghouse acknowledged that worldwide populations are losing confidence in fiat currencies, as evidenced by the dollar drop. Therefore, this gives blockchain an upper hand as it boils down to trust in the financial system.

He noted, “It comes down to trust in the financial system at the end of the day. As global populations continue to lose confidence in fiat currencies (as we’re seeing with USD), they will choose to diversify. Our future global financial system will do the same.”

Blockchain triggers transparency based on the decentralization of systems, and this is an issue Garlinghouse highlights as it will prompt diversification based on immutable storage and traceability.

Image source: Photo by Steve Jennings / Getty Images