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.
The integration of cryptocurrencies into existing institutional structures is inevitably underway. Most recently, this trend has been particularly evident in the United States. A large part of established US financial service providers now offer services related to digital assets. However, this situation hides the fact that concordant regulation is still a long way off in the United States. Various authorities have already issued recommendations on how to deal with the new digital assets, but there is no cross-state legislation in place.The first effort toward unified crypto legislation can now be found in the funding section of the $1 trillion infrastructure package. An addendum called “Digital Asset Bill” is intended to set the framework for dealing with digital assets. The current directive contains far-reaching provisions that would severely restrict the industry and curb innovation. For example, cryptocurrencies would have to be classified as either commodities or securities, which would mean that they would be subject to the relevant regulations with extensive obligations for the parties involved. According to critics, the wording of the bill is poor and, contrary to the intention, could lead to more legal uncertainty. It remains to be seen in what form the Digital Asset Bill will actually come into force on January 1, 2023. The law goes through several stages and is finally given legal force by President Biden.
Monetary institutions have taken notice of cryptocurrencies and are trying to position themselves in the new territory. Although the monetary guardians are not applauding towards digital currencies, most of them recognize their raison d’être. Things are different in the field of blockchain tokens whose value is pegged to FIAT currencies; the so-called stablecoins. As clearly demonstrated by Facebook’s planned stablecoin project “Libra” (new Diem), central banks by no means want to cede control of their currency to private companies. Ultimately, issuing their own digital currency (CBDC) will not only give central banks more control over money flows, but will also open up completely new fiscal policy options. Consequently, several central banks around the globe are researching CBDCs. While China has already partially introduced the digital yuan, the European Central Bank and the United States Federal Reserve (Fed) are working intensively on its implementation. The Fed is underlining its intention by announcing a research paper that will outline the implications of a digital dollar.
Cryptocurrencies are slowly but surely establishing a footprint in a broader segment of the population. However, information about its users is scarce. To address this shortcoming, the Blockchain Research Lab conducted a survey among 4,000 German users. Based on the results, a demographic and socioeconomic profile of a typical cryptocurrency user in Germany was created. General trends point to a young and predominantly male user base with an elevated educational level on average, who are undeterred by risk and volatility. The results are interesting and inherently leave room for different interpretations.
Without them, there would be no DeFi applications and no NFTs. “Smartcontract” enabled blockchains are the foundation of today’s decentralized ecosystems. They are designed to process all transactions across the network and store them on the blockchain. However, the current heavy usage is pushing the capacity of the networks to the limit. This has to do with the structure of blockchain technology. Various efforts are underway to provide an alternative to the most widely used network, Ethereum. An explanation of the blockchain trilemma and the most common smart contract platforms.
In addition: The largest US crypto exchange Coinbase is at the forefront of a legal framework that is not yet fully developed for dealing with cryptocurrencies. The scope of the exchange operator’s active data sharing with authorities is observed critically by privacy advocates. Most recently, the company announced a cooperation with the Department of Homeland Security. Coinbase will provide the agency with user data as part of its analytics tool, which is already used by the Drug Enforcement Administration and the Internal Revenue Service (IRS). What data will actually be disclosed is still unclear. CEO Brian Armstrong assured that the information provided will not go beyond anything that is already visible on the blockchain.
Selected articles in the weekly review:
The largest U.S. crypto exchange Coinbase has signed a 1.4 Million dollar deal with the Department of Homeland Security. The Immigration and Customs Enforcement (ICE) department of the U.S. Department of Homeland Security has paid Coinbase 1.36 million dollars for a license to use Coinbase Analytics to study American residents’ knowledge and transactions.