What has been happening around Blockchain Technology and Cryptocurrencies this week? The most relevant local and international developments as well as appealing background reports in a pointed and compact weekly review.
Regulatory uncertainty remains a substantial hurdle to the institutional adoption of cryptocurrencies. In fact, the legal certainty factor is often cited in surveys of banks, asset managers, and other financial institutions as the primary reason for not offering services in the area. As interest in the digital asset class has grown, international regulators have been looking more closely at the field. Meanwhile, authorities such as the International Monetary Fund (IMF), the Financial Stability Board (FSB) and the Bank for International Settlements (BIS) agree on one thing: Cryptocurrencies offer disruptive potential that is far more than just being exploited by criminals. While acknowledging the potential risks and shortcomings of the field, global standard-setters are clearly committed to integrating crypto-assets into today’s regulatory environment.
The world’s third-largest asset manager, Fidelity Investments, has already been experimenting in the digital assets space since 2018. A subsidiary of the financial services firm focuses exclusively on managing crypto investments for its institutional clients in the United States. This week, Fidelity Digital Assets also received the green light to offer digital asset-related services in Canada. The regulator’s approval allows the asset manager to become the first provider in Canada to launch a bitcoin trading and custody platform for institutional investors. The move paves the way for Canadian institutions to invest in cryptocurrencies. According to Fidelity, the offering is primarily aimed at pension funds, portfolio managers, mutual funds and ETF providers.
Central bank digital currencies (CBDCs) offer a number of compelling efficiency benefits. These include the prospect of near-instant payments and settlements, the reduction of black market transactions, as well as efficiencies in the area of cash management and accounting. On the other hand, CBDCs carry substantial risks, particularly in the area of privacy protection. Alex Bechtel, Head of Digital Assets & Currency at Deutsche Bank, believes that CBDCs can also ensure anonymity with the help of cryptography. In an interview with CVJ.CH, Bechtel talks about Deutsche Bank’s crypto strategy, regulatory frameworks in the DACH region, and his vision of an anonymous yet compliant digital central bank currency.
The thriving DeFi sector has been able to establish itself as its own sub-sector of the crypto landscape over the past year. In the form of decentralized financial applications, DeFi provides permissionless access to a financial system without intermediaries. One of the most widely used DeFi sectors lies in the borrowing and lending space. Through liquidity pools, users can borrow against deposited collateral in the form of crypto assets. Thus, platforms such as Aave create actively used credit markets whose interest rates are determined by a free market.
In addition: The Bitcoin network underwent its first big update since 2017 this week. The “Taproot upgrade” is intended to create more privacy in transactions as well as unleash the potential of smart contracts on the Bitcoin blockchain. Bitcoin smart contracts are written in a language called Script, which allows conditions to be set for the release of value. This allows, as an example, to trigger the payout of a certain amount of Bitcoin after a certain period of time. Combined with so-called “Schnorr signatures,” those complex interactions look like normal transactions on the public ledger.
Selected articles in the weekly review:
Global regulatory agencies are cooperating to integrate crypto assets and DeFi applications into the current financial system.
Fidelity investments has received approval from Canadian regulators to become the country’s first bitcoin custodian.
Alex Bechtel, Head of Digital Assets & Currency at Deutsche Bank, talks to CVJ.CH about central bank digital currencies (CBDCs).
Aave has become the largest decentralised borrowing and lending protocol in the DeFi space. How did it come about and how does it work?
The Taproot upgrade offers greater privacy of multisig transactions and unleashes the potential of smart contracts on the Bitcoin blockchain.
