NYU law professors Richard Epstein and Max Raskin published a paper to explain the potential hazards of central bank digital currencies, highlighting the risk of overstepping governmental boundaries and the importance of maintaining the ‘separation of money and state’.
Central banks worldwide are swiftly progressing with their explorations in creating digital currencies.
Numerous examples, such as the recent announcement of a successful prototype by the New York Federal Reserve or the Bank of England’s achievement in the subsequent phase of its digital pound trial, indicate that over 130 nations globally are considering the idea of central bank digital currencies (CBDCs).
The reasoning behind this is twofold.
Firstly, central banks can position themselves as protectors of consumers and innovators in cost-saving technologies by eliminating the role of private banking intermediaries.
Secondly, they can acquire an additional mechanism for policymaking.
However, the proposition of excluding these intermediaries raises an important question of who would be responsible for the other end of the financial transactions.
The inevitable answer is a far-reaching and intrusive government capable of monitoring every single expenditure.
Their argument suggests that a central bank, for instance, the Bank of England, would issue a “digital pound,” which would be a direct claim on the central bank, much like current cash is.
This process would involve creating the necessary infrastructure for individuals to store digital pounds in digital wallets and facilitate interactions with retailers and other users.
Contrasting current practices where central banks such as the Federal Reserve and the Bank of England do not offer accounts to direct depositors, the proposed model would eliminate the costly private banking system that presently stands between the central bank and the accounts held by businesses and individuals.
At a glance, it seems that CBDCs might cut unnecessary costs.
However, these apparent efficiency benefits can be deceptive and hazardous.
Intermediaries function in thousands of markets, with representatives, aggregators, and monitors in almost every significant business line. These participants can’t be easily deemed obsolete.
Intermediaries often provide value as they are motivated to offer more than the bare minimum to stand out – such as new banking products and services.
The variety of services banks can offer due to competitive pressures that ultimately benefit consumers. Restricting these forces can hamper the market economy.
CBDC implementation can be risky
The implementation of CBDCs is not without risks.
The idea of providing extensive power and confidential information to a faceless government entity can be alarming. The system can use that data against you in numerous ways.
By removing the private banking intermediaries, CBDCs would eliminate a crucial barrier that currently safeguards individuals and firms from government intrusion and overstepping.
The use of cash and bearer instruments is currently untraceable by the central government.
However, the use of digital cash would be.
It’s clear that even those who decide to stick with private bankers will still be scrutinised by the state, which holds control over all transactions.
Moreover, these digital funds would empower central banks to direct personal loans and mortgages to specific private parties with minor competition, raising concerns around state industrial policies. It’s not hard to imagine potential nightmare scenarios, yet they are difficult to avert.
The question remains: can we trust thousands of new banker-bureaucrats to perform any better?
Can we trust banks?
The Bank of England, in its digital pound argument, emphasised the British government’s commitment to fighting climate change, stating that the digital pound would be designed with this objective in mind.
Why should a topic as intricate and contentious as climate change be regulated through the financial system?
Similarly, U.S. financial regulators have started to wade into political issues like climate change.
If such explicit political objectives are considered, it is not a stretch to imagine a government-run bank using its powers to favour certain energy producers and punish others through their bank accounts.
The power to impact credits and debits must be a feature of the central banks’ proposed code, which introduces a covert system of industrial policy.
If CBDCs become a reality, officially favoured energy sources like solar and wind power could witness their bank accounts receiving subsidies without the need to attract private investors or undergo the scrutiny of the private banking system.
Bank accounts could become vulnerable to political manipulations, bureaucracies, or even disenfranchisement overnight with limited recourse.
Furthermore, these CBDC initiatives in the U.S. were originally proposed in the context of directly providing pandemic stimulus to the economy. However, the evidence is overwhelming that this hasty system of government payments was incredibly wasteful.
Moreover, central banks could implement countercyclical monetary policies, such as providing cash boosts to individuals in specific regions or sectors, which again becomes a political football.
Money and new technologies
We should undoubtedly strive to leverage new technologies, but only when implemented correctly. According to the paper in the Brown Journal of World Affairs, “Money should be a neutral unit of measurement, like inches or kilograms.”
This concept, referred to as the “separation of money and state,” aims to stabilise all currencies over time, minimising the need for private parties to design complex and costly mechanisms like adjustable-rate mortgages to handle financial instability.
For instance, Bitcoin has a predetermined supply of no more than 21 million units, not governed by any individual institution but rather by the network’s consensus mechanism.
This feature provides a robust defence against value dilution that no government-centric system could hope to match.
This fixed system could offer additional institutional support for developing countries seeking modernisation.
Countries with a history of mismanaging their monetary systems could benefit from the discipline that comes with certain forms of digital currency.
For instance, a central bank like Zimbabwe‘s or Argentina’s, plagued with mismanagement, could adopt an innovative form of dollarisation using Bitcoin or another form of programmed cryptocurrency.
As the dawn of the new digital age ushers in, the synergy of blockchain and artificial intelligence (AI) is transforming multiple industries. These cutting-edge technologies are not just trending buzzwords, but robust tools that promise to revolutionize business operations, data security, and decision-making processes.
Blockchain and AI in financial services
Blockchain and Artificial Intelligence (AI) are combining to revolutionize the financial industry. Financial institutions handle massive amounts of data, and AI and blockchain can manage this data more efficiently.
By automating processes and examining data on the blockchain, these institutions can improve risk management and compliance. For example, AI algorithms can sift through financial data on the blockchain to detect potential fraud and money laundering. Here, blockchain technology guarantees that the data is safe and unalterable.
Take FactSet, a global provider of financial data and analysis software, for instance. They’re using AI and blockchain to enhance their risk management and compliance processes. AI algorithms are used to scrutinize the company’s financial data housed on a blockchain to identify potential fraud and other irregularities. At the same time, the company’s blockchain technology safeguards the algorithms and data.
Blockchain and AI in supply chains
Beyond finance, AI and blockchain have other valuable uses. In the transport sector and other industries, AI can boost the efficiency and transparency of supply chains.
AI algorithms can analyze data on the blockchain to identify supply chain inefficiencies, helping companies optimize their operations. Simultaneously, blockchain technology ensures the transparency and traceability of products in the supply chain by maintaining records of logistics documents and ensuring visibility of goods’ locations.
Blockchain and AI in healthcare
In healthcare, AI and blockchain can bring significant improvements. AI, by analyzing medical data on the blockchain, can help identify patterns in patient data, aiding doctors in making accurate diagnoses and treatments. The blockchain technology can be used to safeguard patient data, an essential requirement in healthcare.
Blockchain and AI in life sciences
Blockchain and AI are joining forces in the life sciences field, particularly in the pharmaceutical industry, to significantly enhance operations. They offer much-needed transparency and tracking abilities for the drug supply chain while significantly boosting the success rate of clinical trials.
By combining AI’s advanced data analysis capabilities with blockchain’s decentralized structure, these technologies bring about increased integrity and transparency to clinical trial data. They facilitate better patient tracking and consent management, along with automating the process of trial participation and data collection. In simple terms, AI digs deep into data to uncover valuable insights, while blockchain ensures that this data is securely stored and transparently managed, boosting the overall effectiveness of clinical trials.
Blockchain and AI in security and verification
Blockchain acts as a robust protective layer for AI systems with its encryption-backed, decentralized structure. This allows AI developers to set specific access parameters for AI, enforced by private keys and tamper-proof infrastructure like blockchains and smart contracts. Unlike centralized systems vulnerable to a single point of failure, a decentralized blockchain system is spread across multiple nodes and keys, making it harder for a single attacker to compromise the system.
This synergy between AI’s utility and blockchain’s security reduces attack possibilities, enhancing the safety of AI applications. It empowers organizations to harness AI’s full potential while maintaining high security standards supported by cryptographic assurances.
Blockchain also plays a vital role in verifying the authenticity of different media types, an aspect particularly crucial with the rise of deep learning models that can generate images and media from text prompts. These models, while promoting productivity and creativity, could be misused to spread misinformation or create deceptive synthetic media.
Blockchain technology, backed by cryptography and encryption, can validate the authenticity of a piece of content by verifying its origin and any alterations. Cryptographic watermarking, for example, can ensure tamper-proof timestamping.
In a future where distinguishing between AI- and human-generated content is crucial for societal stability, blockchain could facilitate the creation of decentralized platforms for content verification and distribution. It ensures that the spread media is unaltered, authentic, and has a transparent, verifiable history.
Non-fungible tokens (NFTs), unique digital assets on the blockchain, can also help verify the authenticity and provenance of digital content. NFTs can represent ownership and verify the origins of various media forms. When content is minted as an NFT, its origin, ownership history, and modifications become transparent and easily verifiable. This adoption can enhance online content accountability, helping differentiate between genuine and tampered content.
AI in cryptocurrency
AI (artificial intelligence) plays a significant role in the world of cryptocurrencies by aiding in market analysis, enhancing monetization insights, automating trading strategies, and predicting market trends.
Firstly, AI uses sentiment analysis to gauge public feelings towards specific cryptocurrencies. Using natural language processing, AI can sift through large volumes of data from the internet and blockchain, and analyze the sentiment—negative, neutral, or positive—quickly. This can help predict potential price changes, offering valuable insights for investors.
Secondly, AI can provide more profound insights into cryptocurrency monetization. Given the vast amount of unstructured data online, AI assists data scientists in producing clean, relevant data for traders, making it easier to spot valuable investment opportunities.
AI also plays a role in fully automated trading strategies for cryptocurrencies. High-frequency trading, in which a computer executes numerous orders in fractions of a second, often relies on AI to mimic human intelligence. This speedier trade execution gives investors an edge over slower competitors.
Lastly, AI aids in accurately predicting cryptocurrency market trends. With the increasing number of investment options, AI is becoming an essential tool in the financial industry.
Large financial firms already use AI in their workflows to discover new investment opportunities and buy/sell signals, with smaller businesses following suit. Combined with blockchain, AI becomes an even more powerful tool for predicting market trends.
How can blockchain improve AI?
Blockchain technology can significantly enhance AI in several ways. Firstly, by boosting trust. Blockchain’s permanent, transparent records can help explain how AI algorithms work and reveal the source of their data, enhancing people’s confidence in AI’s data integrity and recommendations.
Secondly, blockchain’s decentralized data storage can increase data security and integrity. It acts as an audit trail, allowing users to understand how their data is used. If AI models are stored on blockchains, their decisions become more accountable and transparent.
Thirdly, blockchain can help AI expand by providing access to both internal and external data. This enables more actionable insights, better data management, and shared models, potentially creating a more trustworthy and transparent data market.
Fourthly, the fusion of AI and blockchain can automate multiparty business processes, reducing the need for human intervention. Blockchain technology can eliminate unnecessary third parties from transactions, accelerating their speed and efficiency. This reduces transaction friction and enables individuals to own their data, while blockchain secures the transaction process.
Lastly, blockchain can assist with AI’s high computational power demands. As a distributed ledger technology, it can utilize the computing power of multiple machines, an asset that centralized data servers may struggle to provide. In essence, integrating blockchain with AI can lead to more trustworthy, transparent, efficient, and powerful AI systems.
According to this report from Fortune Business Insights, the blockchain and AI market is expected to grow to over $973.6 million in 2027, “at a CAGR of 23.6% in the 2020-2027 period.”
Companies using AI and blockchain
CertiK. Provides tools powered by AI and formal verification to secure blockchain, smart contracts, and Web3 applications. With its product suite, CertiK technology helps identify security risks, monitor data insights, and visualize where crypto funds are going.
Core Scientific. Integrates personalized blockchain and AI infrastructure with current business networks, upgrading a business’ physical infrastructure, servers, and software in the process. The facilities are designed for long-term digital asset mining and to maximize hashrate, always running at optimal efficiency to reduce energy and time consumption.
Token Metrics. A tool that uses AI to analyze cryptocurrency trends for personal investment purposes. The technology scans the data of over 6,000 crypto and NFT projects and extracts market insights to help users make investment decisions.
AI BlockChain. Hosts a digital asset cloud platform built on blockchain and AI. The company applies artificially intelligent agents to its blockchain to detect changes and ensure platforms are secure.
Bext360. Uses AI and blockchain to boost supply chain transparency and efficiency in the coffee, timber, seafood, and mineral industries. The AI analyzes crops and predicts growing patterns, while blockchain ensures the recording of a product’s supply chain from seed to finished product.
Blackbird.AI. Uses its blockchain and artificial intelligence to gauge the credibility of news content in the communications and information industries.
BurstIQ. The LifeGraph platform combines AI and blockchain technology to provide enhanced ownership and management over patient data.
Chainhaus. A blockchain and AI advisory, education, and software development firm. The company provides a variety of end-to-end solutions for everything from teaching and app development to research and capital raising.
Cyware. Incorporates AI and blockchain-based tools into its cybersecurity and threat intelligence solutions.
Dobby. A home services platform for homeowners seeking assistance with maintenance or repair projects. The AI-based application operates on blockchain technology to exchange data quickly and reduce any financial loss.
Figure. Uses blockchain and artificial intelligence to streamline the home loan process. The platform offers home equity line of credit loan options, investment marketplaces and its own digital money app called Figure Pay.
Gainfy. A healthcare platform that employs blockchain, AI and IoT devices to improve the industry experience.
Hannah Systems. Brings AI and blockchain to autonomous vehicles with its portfolio, including an AI-powered data exchange platform, a real-time mapping tool, an insights dashboard, and blockchain.
Hashed Health. A venture studio based on blockchain that elevates startups in the healthcare industry.
Home Lending Pal. An application for home mortgage advising, comparison, and more. The AI-based platform allows users to view local homes, calculate personal budgeting, and choose their preferred home lender based on related mortgage rates.
Imaginovation. Builds and hosts customer-centric applications for clients in need. Utilizing solutions from blockchain, AI, IoT, AR, and VR, applications can be created for purposes ranging from manufacturing to entertainment.
MOBS. A blockchain-based video marketplace for the selling and buying of smartphone videos. The blockchain creates a smart contract that directly allocates money to the content creator based on engagement rates and views.
NetObjex. Merges blockchain and AI to host its NFT marketplace platform, where users can create their own marketplaces and digital wallets as well as host metaverse events.
Neureal. A prediction engine that combines AI, blockchain, and cloud technologies to predict everything from the stock market to Google searches.
Numerai. A decentralized hedge fund at which data scientists from all over the world are constantly working on AI problems.
Stowk. A blockchain-based platform that features AI tools for almost every part of a business’s operations, streamlining everything in supply chain management from data access and IT governance to procurement.
Verisart. Uses artificial intelligence and blockchain to help create and certify NFT work in real-time.
Vytalyx. A healthtech company using AI to give healthcare professionals blockchain-based access to medical intelligence and insights.
WealthBlock. An automated marketing and messaging SaaS platform for businesses raising capital. Blockchain powers the company’s investor referral and suitability checking process.
WorkDone. Helps businesses automate daily processes and discover insights to retain employees. The company specializes in machine learning and blockchain to seek out resource bottlenecks, analyze best management practices, and continually maintain service compliance.
In a groundbreaking development, a judge ruled that XRP is not considered a security in the Securities and Exchange Commission’s (SEC) case against Ripple. This ruling has significant implications for the future of XRP and the broader crypto industry.
On July 13, 2023, Ripple Labs won against the SEC, and XRP was declared to not be a security.
The company achieved a notable win in the United States District Court in the Southern District of New York when Judge Analisa Torres issued a partial ruling in favor of the company. This ruling pertained to a case brought against Ripple by the Securities and Exchange Commission (SEC) that dates back to 2020.
It’s official, Ripple’s token (XRP)is not a security
Based on documents filed on July 13th, Judge Torres granted summary judgment in favor of Ripple Labs.
The ruling clarified that the XRP token should not be considered a security, specifically in relation to its programmatic sales on digital asset exchanges.
However, the SEC also secured a victory of its own as the federal judge determined that XRP qualified as a security when sold to institutional investors. This classification was based on the conditions outlined in the Howey Test.
The SEC’s lawsuit aimed to compel Ripple to cease offering its XRP token, arguing that it qualified as a security and, therefore, required additional regulatory measures.
According to court documents, the motion for summary judgment by the defendants has been granted for Programmatic Sales, Other Distributions, and the sales made by Larsen and Garlinghouse. However, it has been denied for Institutional Sales.
This means that the XRP token is not considered a security when sold through retail digital asset exchanges.
After this news broke, the price of XRP surged from $0.45 to $0.61 within a few minutes.
The legal case against Ripple began in December 2020 when the Securities and Exchange Commission (SEC) filed a lawsuit against Ripple and its two top executives, Brad Garlinghouse and Chris Larsen.
The SEC alleged that the company was offering an unregistered security.
Throughout the past three years, the case has been filled with dramatic twists, including the release of the “Hinman Documents” and Garlinghouse’s ongoing defiance in response to the SEC’s accusations.
In addition to the noticeable price movement of the XRP token following this news, the general sentiment within the cryptocurrency community seems to be one of celebration and joy.
XRP’s non-security status
Ripple CEO Brad Garlinghouse is confident that the United States Securities and Exchange Commission (SEC) will face a lengthy process before being able to appeal the recent ruling in its case against Ripple Labs.
During an interview with Bloomberg on July 15, Garlinghouse downplayed the significance of the ruling regarding institutional sales, referring to it as “the smallest piece” of the overall lawsuit. He expressed his belief that if the SEC were to appeal the ruling on retail sales, it would only serve to reinforce Judge Torres’ decision.
Despite acknowledging that it may take a considerable amount of time before the SEC can file an appeal, Garlinghouse firmly stated his belief in the current legal status of XRP: “Based on the current law of the land, XRP is not classified as a security. Given the lengthy process required for the SEC to file an appeal, which could take years, we maintain a high level of optimism.”
Garlinghouse emphasized that this marks the first instance where the SEC has faced a setback in a “crypto case.” He openly criticized the SEC, referring to them as “bullies” who target players in the crypto industry unable to mount a strong defense.
He highlighted the initial response of various U.S. crypto exchanges when the lawsuit against Ripple was initially filed.
Many took a cautious approach, waiting to observe the outcome due to the uncertainty surrounding the case. Consequently, exchanges such as Coinbase and Kraken decided to delist XRP entirely.
Garlinghouse accused the SEC of deliberately creating confusion in the market. He claimed that the SEC was aware of the existing confusion and intentionally engaged in actions that further exacerbated the situation.
According to Garlinghouse, this deliberate confusion was a means for the SEC to exert its power, hindering innovation within the United States. He criticized the SEC for prioritizing power and politics over the establishment of clear regulatory frameworks, resulting in difficulties for entrepreneurs and investors seeking to participate in the U.S. crypto market and blockchain industry.
Why are NFT prices falling? What to avoid when buying NFTs from a crypto project?
Remember the popular NFT collection called Bored Ape Yacht Club (BAYC)?
This collection became extremely valuable in early 2022, but as of 2023, its popularity has faded, causing prices to drop dramatically.
The lowest price for one of these NFT artworks, also called the ‘floor price’, has fallen from 153.7 ETH (a type of digital currency) to 27.4 ETH.
This ‘floor price’ helps indicate the overall worth of the art collection, so a big drop in the floor price means that the value of individual pieces has also taken a big hit.
One popular example of a BAYC NFT price decrease that has been circulating on social media is a piece owned by Justin Bieber, which was once valued at $1.3 million and is now only fetching offers of around $58,000.
That being said, those who bought these artworks early are still doing okay, as these pieces are still quite valuable compared to other NFTs.
However, this isn’t the only digital asset that’s seen prices skyrocket and then crash in recent years. In fact, it’s pretty much keeping pace with the overall NFT market, which is at its lowest in two years.
However, there are important lessons to be learned from this situation.
Many people, especially those who invested heavily, have paid a steep price to learn these lessons. So if you can learn from their experiences without losing money yourself, it’s wise to do so.
Beware of projects which use extreme marketing
The Bored Apes always had an intense marketing campaign going on.
Such unnatural hype can artificially inflate an asset’s value and make its market more fragile. For digital assets like these, it can result in investors who don’t really understand what they’ve bought into.
It encourages risky speculation over genuine engagement, weakening the market. A stable market should be built on cultural value and real affection for the asset, not just a flashy advertisement.
Additionally, when these NFTs are showcased in mainstream media, it might prompt wealthy individuals to buy many, raising the entry price for new investors and creating potential points of failure.
For instance, when a major Ape owner rapidly sold dozens of NFTs earlier this year, it drove the market to a five-month low.
A healthy digital art market needs a diverse community of engaged, individual owners, not a bunch of speculators ready to sell at the first sign of trouble.
Don’t rely on digital assets to maintain a stable value
Some Bored Ape owners have used their Apes as loan collateral and are now facing losses as values fall.
For example, BendDAO, a loan service, is selling dozens of Apes that were taken as collateral for unpaid loans.
This is just one of many similar services, and these forced sales might even be causing Bored Ape values to spiral downwards.
The notion that NFTs could be used as reliable financial tools this early in their existence is highly doubtful, even though providing such a service might be profitable.
But borrowing against a volatile asset, whether it’s a digital one or not, is a terrible idea.
Now these borrowers are seeing their Apes being sold off at the market’s lowest point instead of potentially waiting for a better time.
Joining late can be costly
Those suffering the most right now are the latecomers who bought Apes NFTs at peak prices.
Some have suffered larger losses than even Justin Bieber, and it’s unlikely they’ll recover their investments.
The issue with this is that investors, especially new crypto investors, will find it challenging to identify when a market is overpriced.
However, there are a few red flags to watch out for. Be wary if you see heavy marketing (such as an Ape being promoted on late-night TV shows). Such hype could be driving up the asset’s price beyond its real value.
A cautious approach is to realize that if others are already making huge profits, it’s probably too late for you to benefit from that surge, regardless of the asset. You might end up being the one left holding the bag.
This is especially true for community-driven NFTs.
If everyone around you is buying into a rising asset expecting future profits, they’re probably all doing the same thing.
A bubble in NFTs can actually harm the organic growth of its community.
Of course, another aspect is also the utility of that said digital asset. While some projects have a blockchain game, such as Footballcoin, which gives true utility to their NFTs, most do now.
Most projects will use words such as “unique” or “innovative” to describe their assets but will spend little time explaining the mechanics of the project. These are other red flags that you should consider when judging an NFT project.
Don’t mix arrogance with digital assets
Remember the exclusive BAYC yacht parties?
Some of the negative feelings towards Apes stem from typical behavior seen during a booming crypto market, such as over-the-top parties.
However, Ape owners also seem to have earned a reputation for being unusually arrogant and self-centered. To many people, an Ape picture is like a rude tweet mocking those who don’t understand why a digital monkey image could be worth half a million dollars.
While this behavior might have been a reaction to widespread ridicule towards the Apes, it was a strategic blunder (similar to what we see with Bitcoin). Now, the lack of goodwill towards Apes, whether within the crypto community or in general, is resulting in less financial support for these assets.
This is because the community of owners plays a vital role in the value of NFTs like these. For instance, the communities of other NFT collections, like Wassies and Miladies, have done a much better job at maintaining their value compared to Apes over the past year, although they started from a lower price point.
This may not be a lesson you’d learn in a traditional market, but it’s an important one. Most of us are now paying more attention to the Apes’ downfall partly because of how the owners behaved when things were going well.
BlackRock Bitcoin ETF seeks SEC approval.Are Bitcoin ETFs the way to mass adoption? Or is traditional finance trying to profit from this new asset?
Bitcoin fans got excited when the news that BlackRock is applying for a Bitcoin-based fund got out. They think it could mean a big change in how the government regulates these things. They also believe it could make Bitcoin more accessible to everyone.
While there might be some truth to these ideas, we should take a step back and see the bigger picture. It’s not good that the simple chance of a Bitcoin-based fund being approved in the US can send the market crazy. The fact that BlackRock could have such a big effect on the price of Bitcoin should make us all think, not celebrate.
A Bitcoin-based fund would be an easy way for US retirement funds to benefit from Bitcoin’s potential growth. It’s also likely that if such a fund is approved in the US, it could lead to a big increase in Bitcoin’s price in the following years. But what about Bitcoin’s main goal – to become an alternative to the traditional financial system?
A Bitcoin-based fund wouldn’t do much to help with these things.
The BlackRock Bitcoin ETF
Recently, there’s been a lot of focus on applications for Bitcoin-based funds. Following BlackRock, a company that manages $10 trillion worth of assets, other firms like Fidelity, Invesco, Wisdom Tree, and Valkyrie have also applied for approval from the SEC.
If the SEC ends up approving the applications from big players like JPMorgan, Morgan Stanley, Goldman Sachs, BNY Mellon, and Bank of America who want to offer similar services, the digital currency market could open up to firms managing a total of $27 trillion in assets. As we wait for a decision on Grayscale’s application, GBTC, its Bitcoin trust, has seen its price increase by over 134% in 2023, reaching $19.47.
However, the United States may see a delay in the introduction of a Bitcoin exchange-traded fund (ETF) as the SEC has labeled recent applications by investment managers as insufficient.
According to The Wall Street Journal, the SEC found the filings by the Nasdaq and Chicago Board Options Exchange unclear and incomplete. The SEC expected them to specify a “surveillance-sharing agreement” with a Bitcoin exchange or provide enough details about these arrangements.
BlackRock’s Bitcoin ETF application included a “surveillance sharing agreement” to avoid market manipulation, leading others like ARK Invest and 21Shares to modify their applications similarly.
Other companies like Invesco, WisdomTree, Valkyrie, and Fidelity have also refiled or amended their applications. Notably, ARK Invest is considered a front-runner in this process.
Bitcoin ETFs have been continuously rejected by the SEC since 2017. However, such financial products are already available in Canada, with funds like Purpose Bitcoin, 3iQ CoinShares, and CI Galaxy Bitcoin directly investing in Bitcoin.
BlackRock ETF’s application re-submitted
Nasdaq has resubmitted its application to list BlackRock’s proposed Bitcoin ETF, and has named Coinbase as the exchange to be monitored under a surveillance-sharing agreement.
This move follows feedback from U.S. regulators and aims to prevent market manipulation.
Other applications, including one from Fidelity, have also been updated to name Coinbase as the surveillance partner.
The Nasdaq reached an agreement with Coinbase on June 8, according to the new filing. The filing also indicates that Coinbase accounted for about 56% of the dollar-to-Bitcoin trading on U.S.-based platforms so far this year.
The SEC has historically rejected attempts to launch a Bitcoin spot ETF, but money managers are still trying. The news has positively affected Coinbase shares.
Traditional finance wants to take its share of crypto trading
The application from BlackRock and all the talk around it have really highlighted the mistrust that some people in the crypto world have toward traditional finance.
The timing of BlackRock’s move into Bitcoin funds is pretty interesting and has set off a bunch of conspiracy theories. Since the US Securities and Exchange Commission (SEC) has taken legal action against Binance and Coinbase, some think the government is trying to push aside crypto-focused companies to make way for traditional firms like BlackRock to lead in the crypto industry.
Whatever the reason is, the risk right now is that Bitcoin will turn into another type of investment.
Looking more closely at BlackRock’s application, more warning signs start to appear. The application includes a clause stating that in case of a major change or ‘hard fork’ in Bitcoin, BlackRock can decide which version of Bitcoin the fund should use. This could be a big deal because it means BlackRock could have a say in Bitcoin’s future or at least guide where big businesses and the general public put their money.
Having such a strong influence over what’s supposed to be a decentralized money system is obviously a problem. But, there’s another issue with these funds. Investors don’t actually get to own the Bitcoin their investment is based on. And owning Bitcoin is where the real benefits are.
Conflicting interests in Bitcoin-based funds
Bitcoin was created as a direct reaction to the financial aid and money-printing that happened after the 2008 financial crisis. Unlike regular money, there’s only a limited amount of Bitcoin. It’s truly rare and managed in a decentralized way.
Fifteen years after the crisis, central banks all over the world are still printing money as if it’s a free pass.
But it’s anything but free. Regular, hardworking people all over the world pay the price as the value of their money goes down, a problem that’s getting worse due to high, lasting inflation.
While central banks take risky gambles with public money, Bitcoin’s aim is to give power to individuals by providing a type of money that can’t be censored and works everywhere. As an open-source money network, Bitcoin has the potential to change the way we use money. It could even make centralized institutions much less important or not needed at all – something traditional finance likely knows all too well.
Bitcoin-based funds seem to go against this empowering philosophy.
El Salvador, with its revolutionary approach to adopting Bitcoin, arguably aligns more with Bitcoin’s main goals than any fund ever could.
While El Salvador is working to give power to people without banks by actively promoting Bitcoin ownership, investors in Bitcoin-based funds won’t get any of the benefits of Bitcoin.
Instead, they’ll fill the pockets of – and strengthen the position of – traditional finance institutions.
Potential risks of Bitcoin-based funds
Bitcoin-based funds are likely to become more common in the crypto world and appeal to a certain type of investor in the coming years. But their role shouldn’t distract us from Bitcoin’s long-term future.
If we only focus on letting people benefit from price changes without actually owning any Bitcoin, then we’ve completely missed the point of what could be a groundbreaking money system.
And no, if a rule is ever suggested that forces regular people to invest only through funds and not by owning Bitcoin directly, that’s not “protecting consumers.” It’s taking power away from them.
We in the crypto industry should be cautious, recognizing that the growing involvement of funds and traditional finance in the crypto world could threaten Bitcoin’s core purpose.
Being aware of these threats means not getting carried away by all the excitement but staying true to Bitcoin’s original goal – to change the world’s financial systems, not just to be an asset for gambling on price changes.
Navigating the dynamic landscape of the crypto industry, we explore the crucial role of security, education, and regulation in mitigating escalating crypto scams. How can these new-age digital assets, despite their rapid evolution and growth, can be protected from the increasing threats posed by bad actors?
The amount of money stolen by criminals in the cryptocurrency world has gone up a lot in the past two years. Even so, people who specialize in online security aren’t worried. They say that new technology often gets taken advantage of when it’s first introduced.
CertiK, the blockchain security company, published a report about online security in 2022. According to the report, wrongdoers stole more than $3.7 billion from Web3 technologies last year. This was a huge jump – 189% more than the $1.8 billion stolen in 2021.
In another report about the first three months of 2023, CertiK said that hackers got their hands on over $320 million.
While this is worrying tech developers and investors, it’s also a normal phenomenon. The more projects and technologies are launched, the more there will be people who will search for ways to misuse that technology. This is because new stuff often has weaknesses and opportunities for misuse.
We’ve seen this pattern before, from the beginning of the internet to the spread of email and, most recently, with the introduction of blockchain and digital money.
At the same time, we need to remember that the crypto industry is still new. Some people in the industry are more interested in growing and creating new things than they are in making sure everything is secure. This could be why we’re seeing so many thefts.
Statista, a company that collects data, offers data that may anticipate more growth in the crypto industry. According to their report, the cryptocurrency market is projected to reach US$37.87 bn in 2023. The number of cryptocurrency users is expected to reach 994.30 million by 2027.
Why are there so many scams in crypto?
The fast growth in the number of users and earnings in the crypto industry, along with its new ideas, may lead to more misuse. In the end, we must remember that blockchain technology and smart contracts, which is the infrastructure for digital currencies, are very complicated.
This complexity can lead to weak security spots that talented hackers can misuse. Because digital currencies have real value and can be exchanged for fiat money in many parts of the world, they’re tempting for hackers who can quickly take and possibly cash in the stolen digital money.
In the future, the crypto world will become more secure, and as Web3 gets more mature, there will be fewer successful hacks, misuses, and scams.
However, there will always be a never-ending fight between the wrongdoers and the blockchain security experts, as they both work towards their goals in this constantly changing industry.
But industry leaders see it as a wake-up call for us to double our efforts to secure our funds. And for the financial authorities to oversee these game-changing technologies and make it possible for everyday users to access them safely and responsibly.
Artificial Intelligence – is it secure?
Artificial intelligence (AI) has been a hot topic recently. Some people are talking about how it might change the way we work, while others, like tech entrepreneur Elon Musk, are saying we should be careful about how it’s developed.
We will probably see AI gets used more and more, and it’ll probably face its own security problems, just like Web3 and other new types of technology.
As AI becomes a bigger part of our everyday lives, especially in areas where security is important, like self-driving cars or financial systems, the chance for hacks, misuse, and scams will likely go up.
AI systems can be taken advantage of in several ways, from messing with machine learning algorithms to data tampering and hostile attacks.
Sensitive data can also be accidentally shared from large language models as people interact and share info with AI chat platforms like ChatGPT.
However, as long as there is no immediate money-making opportunity with AI, scammers will probably not start using AI just yet.
But AI can certainly aid any researcher in doing their job, whatever that may be. For instance, AI capabilities may allow for a more advanced set of attack methods. Machine learning can be used by security researchers to check smart contracts to find weak spots more efficiently,
The pain points of the crypto industry
The cryptocurrency industry, being relatively new, is experiencing a number of pain points.
Rapid Evolution. The speed at which the industry evolves makes it challenging for security measures and best practices to keep up, leading to vulnerabilities.
User Knowledge. Users are still learning how to use crypto technologies safely, making them easy targets for exploitation.
Smart Contracts. Their open and visible nature means that if a contract has a flaw, it can be exploited by anyone, at any time.
Decentralization. Unlike traditional systems that can add extra layers of security through centralized servers, the decentralized nature of blockchain technologies can expose them to more threats.
However, the industry is continually improving its security practices, with some decentralized finance (DeFi) platforms implementing additional measures such as multi-signature wallets and time locks.
In addition, there’s an increased focus on regulatory scrutiny and user education to reduce future scams and hacks.
Crypto scams get more attention than traditional thefts
But crypto scams represent only a fraction of the total financial scams. The traditional money system continues to set records for losses through malicious actions each year.
Crypto is often highlighted in the news for theft and fraud, but the total losses are actually much less than fraud involving credit cards, automated clearing house transactions, and wire transfers worldwide.
According to the Global Anti Scam Alliance, a nonprofit group dedicated to protecting consumers from financial crime and scams, traditional money lost to scams has been increasing, with $47.8 billion lost in 2020 and $55.3 billion in 2021.
The United Nations estimates that globally, the amount of money laundered around the world in a year is guessed to be 2 – 5% of global GDP, which is about $800 billion – $2 trillion in today’s US dollars. However, since money laundering is done in secret, it’s hard to figure out the total amount of money that’s actually laundered.
What draws so much attention to crypto scams is the very thing that attracted investors in the first place – its transparency.
Crypto transactions happen on the blockchain and are visible to everyone. This transparency can help track stolen funds and may explain why losses in crypto get more attention.
When a major theft occurs, everyone around the world can help track the funds to see exactly where they go. This isn’t possible in traditional financial systems where fund movements happen behind closed doors on private networks.
As more people around the world start using crypto, total losses will probably increase accordingly. However, better education and understanding of cryptocurrencies will ensure this increase isn’t disproportionate to other payment methods.