CoinDesk Reports

In the lore of digital disruption, Eastman Kodak Co.'s downfall is particularly momentous.

Kodak was once one of the world's most powerful companies. But it failed to act on digital cameras and online photo sharing, despite seeing the trends years before. (Kodak engineer Steve Sasson created the first digital camera in 1975.)

It's an apt story to remember now as the digital money revolution rolls ahead at a time of momentous political transition.

On this episode of CoinDesk's Money Reimagined, join Jen Zhu Scott, Executive Chairman of The Commons Project, Tanvi Ratna, CEO of Policy 4.0, along with hosts Michael J. Casey and Sheila Warren of the World Economic Forum for this deep-dive into the potential of, and thought behind China's forthcoming DCEP, better known as the digital yuan.

With DCEP, China’s supply chains will become hyper-efficient, giving it a big advantage over other countries’ production sectors. And as those models extend into China’s international One Belt One Road initiative, foreign dependency on its production processes could grow, giving Beijing geopolitical clout. 

Out of this, China will forge financial autonomy. Its digital currency will eventually be interoperable with other tokens and blockchains, allowing its businesses and their foreign trading partners to move money across borders without using dollars as an intermediary. They’ll bypass New York, in other words. 

Solution: Open Money

This won’t happen overnight. But the effect on confidence in the U.S. could arise within the next four years. 

How should Washington react? Christopher Giancarlo, former CFTC chairman and the founder of the Digital Dollar Foundation, is pushing for a digital dollar that would integrate constitutionally enshrined privacy protections, making it more appealing than the digital yuan, which many fear will become a Beijing surveillance tool. 

But will people truly trust the U.S. not to monitor digital dollar transactions? After all, as Jennifer Zhu Scott, chair of the Commons Project, noted in this week’s Money Reimagined podcast, global finance is already subject to a comprehensive U.S.-led system of surveillance.

So, while we’re right to worry about a Chinese “panopticon” ingesting people’s identifying information, that’s not the data threat the U.S. can or should compete with. In the same podcast episode, Policy 4.0 CEO Tanvi Ratna said the bigger issue is how troves of DCEP-generated anonymized data will enable Chinese businesses to extract huge efficiencies and unlock innovation across decentralized economic systems.

There may be a way for the U.S. to compete here. But it will require a radical, disruptive solution. This is an episode you won't want to miss.

Original Album Art Image by Kido Dong / Unsplash modified by CoinDesk

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With PayPal recently announcing crypto services for millions of customers, it seems the crypto industry has passed another acceptance milestone. 

But, with that acceptance comes greater responsibility, says Ajit Tripathi, a long-time consultant working at the top of the industry. 

Going forward, crypto can expect greater regulatory scrutiny and higher compliance costs. Times ten, says Tripathi.

On the Opinionated podcast this week, Tripathi discusses his recent op-ed “Bitcoin Is Good for PayPal, but Is PayPal Good for Bitcoin?” where he compares the costs of setting up a neobank in the U.K. (like Monzo) with creating a DeFi protocol this summer. 

At the moment, the former comes with millions in compliance costs and the latter comes with none, and customers are not protected, he says.

As mainstream players, like PayPal, enter the market, Tripathi argues it’s inevitable that regulators will intervene. After the last financial crisis and following the ICO run-up, they feel obliged to take notice. 

Listen in as Tripathi describes the regulatory challenges facing the industry as it becomes more popular.

Find Ajit online: twitter.com/chainyoda

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In our weekly Money Reimagined podcast, Sheila Warren and I talked to two outside-the-box thinkers on their ideas for improving governance. 

Quadratic Voting and Open Auctions

One of our guests was Glen Weyl, the political economist and Principal Researcher at Microsoft Research New England, who co-authored the book “Radical Markets” with University of Chicago Law School professor Eric Posner. We chose to focus on just two of the many ideas that that book puts forward. 

One is quadratic voting, which allows people not only to vote for or against a particular issue but to express how strongly they hold that view by buying extra votes – up to a certain limit of assigned credits. The cost in credits of each additional vote increases by a quadratic formula. It’s designed to help small groups of voters who care deeply about particular issues while still constraining them from overly skewing results.

Weyl has also worked on a variation of the concept with Ethereum founder Vitalik Buterin called quadratic funding, which in theory could diminish the influence of wealthy “whales” in voting systems that are based on financial holdings or contributions.  

The second big idea we explored is that of perpetual open auctions. Here, every bit of property, including what we might otherwise think of as public property, is owned by private entities with the proviso that it is always up for auction and that the majority of the value created from it is shared equally among citizens as a social dividend. 

Weyl and Posner argue that such an arrangement would incentivize owners to manage the property well, and that the wider distribution of wealth creation would give a greater number of people the wherewithal to start businesses. It would also be easier to develop land for infrastructure, such as high-speed rail lines, because the developer could easily acquire it. 

Both of these ideas are rooted more in legal and process innovation than in software and distributed computing per se. But they intersect nicely with concepts associated with the crypto and blockchain space. 

One is the potential for self-sovereign identity models to prevent people from gaming quadratic voting. Another is the potential enhancements that smart contracts, non-fungible token-based property, and decentralized finance (DeFi) concepts such as automated market-making might bring to open auctions. Also, quadratic funding might fix free-rider problems in blockchain projects, Buterin believes. 

Smart taxation

Our other guest was Jeff Saviano, the global lead of tax innovation at EY. He is a member of the Prosperity Collaborative, within which organizations such as the World Bank, MIT Media Lab’s Connection Sciences lab and the New America Foundation are working with governments to improve transparency and efficiency in the collection and distribution of taxes.  

Saviano talks of how blockchain-based tracing systems might not only give taxpayers a transparent view of how their taxes are being spent but also incorporate programmability. 

For example, the actual, uniquely identified dollars that you contribute could be channeled directly and transparently into identifiable services that immediately benefit you and your community. Or, governments could use smart contracts to put hard constraints on those dollars, so only certain categories of expenditure, and not others, are enabled.

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In this episode, Michael J. Casey and Sheila Warren of the World Economic Forum are joined by the newly reelected Premier of Bermuda, David Burt, who is spearheading projects to use the island as a testing ground for stablecoins and to launch a communally owned national digital bank.

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This week on the Opinionated podcast, we welcome two Londoners: Lex Sokolin and Frances Coppola. 

Lex Sokolin is the global fintech co-head at ConsenSys, the Ethereum development studio, as well as a CoinDesk columnist. 

Lex discusses his recent piece How DeFi Can Avoid the Irrelevance of P2P Lending and Crowdfunding, where he compares DeFi to once-hot financial ideas, like equity crowdfunding.

He explores how DeFi can avoid the fate of those trends. DeFi has global scale, he says, a thoroughly open source nature that spurs innovation, and it offers built-in tokenized incentives for participation, among other advantages. 

“DeFi is displaying the evidence of traction with something between 500,000 and 1 million people using DeFi protocols,” Sokolin says. “There’s a magic in DeFi that wasn’t in P2P lending and crowdfunding.”

Frances Coppola is a veteran writer on banking, finance and economics and the author of “The Case for People’s Quantitative Easing.”

She discusses her recent opinion piece about the state of the banking system called “Banks Are Toast but Crypto Has Lost Its Soul.”

“The nature of the business is changing so fundamentally that what we think of as big banks and what they do will be very different in the future,” she tells us. 

But while some see stablecoins as a helpful way to move currencies around the world, Coppola believes that the industry has sold out its values by adopting fiat-backed coins like tether. 

“This game has been played from time immemorial. [It’s] creating fake things to represent real things. I think the fact that you put it on a blockchain makes any difference really,” she says.

Tune in to hear two bold thinkers with big ideas about the future of finance.

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This system is broken. It has become a leviathan – too big, too comprehensive. Giant fines have skewed the risk-versus-payoffs for banks, which impose compliance on everyone regardless of size. (This is despite AML guidelines typically allowing ID exemptions for transfers of up to $1000, and in the U.S. up to $3,000.)

It’s time to scale down, not up.

“There is a principle in design that in order to optimize the system, to maintain the most positive outcome, we have to sub-optimize the sub-systems,” crypto compliance expert Juan Llanos said during this week’s episode of the Money Reimagined podcast. “That means we may have to learn to live with a little money laundering. We might have to live with the risk that someone in Somalia might be a criminal trying to get through the cracks.”

A more open mind from regulators toward cryptographic technologies that help regulators manage system-wide risks without imposing strict identity requirements on everyone would also be welcome. Research by the MIT-IBM Watson AI Lab into how to identify system risks within otherwise anonymous bitcoin transaction flows offers one potential way forward. 

The test is whether policymakers can respond to the human cost of the existing approach.

“Is this the system that really promotes prosperity in our world?” C-Labs General Counsel Brynly Llyr asked during the same podcast episode. “I mean, yes, money laundering is very serious, tax evasion is very serious, but when we look at the remittance markets and the folks who are relying on … transfers of $50 and $100 ... is this really what we want our system to be cracking down on? Is this the best use of our resources?”

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From the CoinDesk Global Macro news desk, this is Borderless – a twice-monthly roundup of the most important stories impacting Bitcoin and the crypto sector from around the world. On this episode, Nik, Anna, Daniel and CoinDesk tech reporter Colin Harper discuss Nigerian protestors using bitcoin, the digital yuan reaching retail users in China, the IMF talking about crypto, and more.

In Nigeria, people are protesting police brutality and demanding the abolition of SARS, or the Special Anti-Robbery Squad police unit, an infamous special forces team known for abusing and harassing citizens. 

CoinDesk reporter Colin Harper joins the conversation to talk about how The Feminist Coalition, a movement advocating for women’s rights in Nigeria, has been using bitcoin to fundraise and help people hurt by the police during the protests. After the movement’s bank account was frozen, it switched to bitcoin donations, using bitcoin as a censorship-resistant tool, just as activists in another part of the world – Belarus – are doing.

On the central bank digital currency front, China is charging forward with its digital yuan project: last week, about two million people got free digital yuans in a lottery in Shenzhen. People could spend the giveaway tokens in over 3,000 local stores, as Reuters reported. The consumers haven’t been impressed so far, but maybe that’s only a beginning,

Unlike in China, central bankers in the West are not that sure about CBDCs. The International Monetary Fund (IMF) issued a report discussing the benefits of issuing digital tokens by central banks. Maybe the most interesting part, the International Monetary Fund talks about the Big Tech stablecoin projects and what’s at stake there. 

Reporters Nikhilesh De, Daniel Nelson, Anna Baydakova and Colin Harper discuss these issues and more on today’s episode of Borderless.

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The market for privacy coins is so hot in 2020 that it seems regulators fear it’s reaching its boiling point. Some are even looking to take action to tamp it down and are including privacy blockchain technology as part of their guidance on larger encryption-related issues.  

Despite this potential regulatory overhang, Cypherpunk Capital, a firm publicly traded under the symbol “HODL” on the Canadian public markets, maintains that privacy is undervalued. Moe Adham, the firm’s chief investment officer, talked to CoinDesk on The Thesis about his fund’s privacy focus. 

Adham’s investment thesis on increasing private transactions on blockchain networks comes from his search for cryptocurrency use cases. That’s especially important to him because he is also co-founder and CEO of YCombinator-backed bitcoin ATM provider Bitaccess. 

Payments have not worked for crypto, in part, because it hasn’t delivered cost savings to users compared to credit cards, Adham pointed out. “We’ve really failed on the payments side,” he said. “So then, if you think that we’ve failed on payments, what is the value proposition of crypto?”  

Two other justifications for crypto, scarcity and censorship resistance, are often touted by advocates. 

According to Adham, scarcity alone might not be a compelling enough concept. 

“I think that from our perspective, when you look at scarcity a lot of assets are scarce,” Adham said. “Apple has a stock that’s a scarce asset. But the value is from the underlying company, not just the scarcity.”

“I’m not necessarily convinced that scarcity alone is a long-term value proposition,” he added. 

On the other hand, Adham calls censorship resistance and the ability for users to conduct transactions privately as perhaps cryptocurrency’s greatest innovation.

“The real fundamental change for crypto is the decentralized nature of it leads to censorship resistance,” he said. This led directly to Cypherpunk Holdings’ thesis that privacy is undervalued and has been mispriced by the market. 

That may seem like a dangerous proposition in a market that is now being scrutinized by regulators, including a recent U.S. Department of Justice crypto enforcement framework warning  market stakeholders. However, Adham points to a Europol report that showed in 2019 only 1.1% of total transactions were related to criminal activity. 

It’s a delicate balance as there are a lot of unknowns in how regulators will enact privacy policies. Nevertheless, privacy is a bet where Cypherpunk Capital is clearly putting its chips – and Adham makes a convincing argument. 

Listen in to this episode of Thesis to hear more about privacy, mixers and more with CoinDesk host Daniel Cawrey and guest Moe Adham from Cypherpunk Capital!

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On Friday morning as the OKEx withdrawal-freeze story twisted and turned, CoinDesk's editors had an off-the-cuff discussion about the fundamental realities and unique challenges of security for even the largest exchanges.

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Coinbase’s recent decision to take no position on political and social issues has divided the cryptocurrency industry. 

Some see it as a wise move in a no-win hyper-sensitive political environment. 

Others say CEO Brian Armstrong is tone-deaf to cultural forces sweeping the United States and the world. 

This week, the debate got material within Coinbase itself, with about 5% of employees choosing to quit and take a severance package, rather than work for a company with a crypto-only mission statement. 

This week on Opinionated – our new podcast featuring CoinDesk’s best columnists and contributors – we are joined by Jill Carlson and Emily Parker to discuss the Coinbase controversy and its meaning for the industry and Silicon Valley. 

Carlson is an investor with Slow Ventures and co-founder of the Open Money Initiative. 

She writes this week that Armstrong, far from creating an environment in which people can work free of distractions, is creating an environment where difficult issues remain unaddressed and people feel not-heard.

Carlson sees Coinbase’s stance cutting off useful debate. “The backlash against cancel culture is not manifesting as advocacy for dialogue, free speech, nuance and tolerance. Rather, the backlash is only driving discourse deeper underground, breeding an even more intense culture of fear and further entrenching intolerance,” she writes. 

Parker is CoinDesk’s Global Macro Editor. Her op-ed “Coinbase’s ‘Mission’ Violates the Spirit of Bitcoin” points to what she calls the hypocrisy of Armstrong going apolitical while espousing the values of Bitcoin (including economic freedom and censorship resistance). 

“Armstrong would like to have it both ways. He wants to be apolitical about the disruptions that make him uncomfortable, but political about Bitcoin’s mission to disrupt the world,” she writes. 

Join us for a lively discussion with two bold and original thinkers. 

Opinions featured in this week’s podcast:

Emily Parker – Coinbase’s ‘Mission’ Violates the Spirit of Bitcoin

Jill Carlson – Reading Between the Lines of Brian Armstrong’s Mission Memo

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