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Chinese Central Bank Governor Defines STOs as ‘Illegal Financial Activity in China’

The governor of the Chinese central bank has stated during a summit that STOs are an “illegal financial activity in China.”

The People’s Bank of China (PBoC), the country’s central bank, highlighted the illegality of Security Token Offerings (STOs) in the country, English-language local news outlet South China Morning Post (SCMP) reports Dec. 9.

A deputy governor of China’s central bank, Pan Gongsheng, reportedly told a summit in Beijing “that ‘illegal’ financing activities through STOs and ICOs [Initial Coin Offerings]  were still rampant in the mainland despite a nationwide clean-up of the cryptocurrency market last year.”

Gongsheng also said that if the government had not stepped in, the chaotic crypto market could have hurt the overall financial stability in China.

The central bank official pointed out that “the STO business that has surfaced recently is still essentially an illegal financial activity in China.” Gongsheng also reiterated the stance that cryptocurrencies are associated with crime:

“Virtual money has become an accomplice to all kinds of illegal and criminal activities.”

According to the article, Gongsheng noted that “most of the financing operations conducted through ICOs in China were suspected of being illegal fundraising, pyramid sales schemes and other financial fraud.”

The article also mentions that the chief of the Bureau of Financial Work, Huo Xuewen, warned against STOs about a week ago. He said:

“I want to warn those who are promoting STO fundraising in Beijing. Don’t do it in Beijing. You will be kicked out if you do it.”

On the other hand, blockchain adoption — the tech behind most cryptocurrencies — has been relatively embraced in China. As Cointelegraph recently reported, a Chinese Internet Court has started using blockchain to protect the intellectual property of online writers.

The legal basis of this development can be assumed to be the Chinese Supreme Court’s ruling from September, which established that blockchain can legally authenticate evidence.

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Malaysia: Finance Regulator, Central Bank Say Cryptocurrency Regulation ‘Being Put in Place’

Authorities are in the process of developing cryptocurrency and ICO rules, which could become law in Q1 2019.

Malaysia’s finance regulator and central bank issued a joint press statement Dec. 6 in which they confirmed they were “putting in place” legislation on cryptocurrency and Initial Coin Offering (ICO) assets.

The statement from the Malaysia’s Securities Commission (SC) and Bank Negara Malaysia (BNM), which follows comments from senior government official that regulation of the sector could appear in Q1 2019, also reiterates the need comply with securities laws where appropriate.

“The SC will regulate issuances of digital assets via initial coin offerings (ICO) and the trading of digital assets at digital asset exchanges in Malaysia,” it confirmed.

“Regulations are currently being put in place to bring digital assets within the remit of securities laws to promote fair and orderly trading and ensure investor protection.”

Malaysia has slowly enacted a formalized stance on cryptocurrency activities this year. Last month, in addition to revealing the potential deadline, the country’s finance minister Lim Guan Eng also stated that anyone wishing to issue a new asset could only do so with BNM’s blessing.

“I advise all parties wishing to introduce Bitcoin (style) cryptocurrency to refer first to Bank Negara Malaysia as it is the authority that will issue the decision on financial mechanism,” he said.

Among those eyeing the developments is a local initiative dubbed “Hope Coin,” the creators of which may have to wait for the process to complete before launching.

The moves come hot on the heels of Thailand, which is around six months into the introductory phase of its own regulation.

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Israel: Former PM Calls Crypto a ‘Ponzi Scheme,’ But Underlines Importance of Blockchain

Cryptocurrencies are “Ponzi schemes,” while blockchain is “important,” says former Israeli prime minister.

Ehud Barak, a former Israeli Prime Minister, has compared digital currencies to Ponzi schemes, Israeli media agency Arutz Sheva reported on Dec. 3.

Barak had participated in the Camp David Accords in 2000 as part of an attempt to solve the Israeli-Palestinian conflict, and now serves as the chairman of medical marijuana producer InterCure.

Speaking an event hosted by Israeli financial outlet Globes in Tel-Aviv this Sunday, Barak fielded a question comparing the alleged marijuana investment “bubble” to crypto by underlining that “he would never invest” in cryptocurrencies as “Bitcoin and cryptocurrencies [are] a Ponzi scheme.”

Meanwhile, Barak underlined that blockchain technology and smart contracts are important and useful technological and mathematical concepts, noting:

“Anyone who has patience and understands the depth of blockchain will find many uses, from holding sensitive medical information to smart contracts.”

Earlier this year, the Bank of Finland, the country’s central bank, had published a study calling cryptocurrencies not real currencies but instead “accounting systems for non-existent assets,” Cointelegraph wrote Jul. 2.

Back this fall, Israel’s central bank had also announced that it did not intend to issue its own digital currencies. A similar negation has been expressed by Masayoshi Amamiya, the deputy governor of the Bank of Japan (BOJ), who has doubted in the effectiveness of central bank-issued digital currencies (CBDC).  

Meanwhile, Christine Lagarde, the head of the International Monetary Fund (IMF), has urged international financial institutions to “consider the possibility to issue [state-backed] digital currency,” as Cointelegraph wrote Nov. 14.

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China: Central Bank’s Digital Currency Lab Launches Research Center in Eastern Province

China’s central bank, the People’s Bank of China (PBoC), is extending the activities of its Digital Currency Research Lab beyond the country’s capital, local media outlet CNstock reports September 5.

The news reveals that the lab has opened a new fintech research center in Nanjing, the capital of China’s eastern Jiangsu province. The establishment of municipal fintech centers is reportedly intended to support the PBoC’s testing of its recently developed digital currency prototype, as the bank steers the prototype to production.

The Jiangsu center has been established in partnership with the municipal government, Nanjing University, the PBoC’s Jiangsu branch, and the Bank of Jiangsu, CNstock writes.

The center aims to serve as a bridge between “politics, production, study, research and use” and to this end will pool resources from across government departments, high-tech parks, financial institutions, and universities in order to pilot cutting-edge fintech applications and promote them across the country.

As CNstock notes, the new center has been founded several months after the Digital Currency Research Lab established its fully owned subsidiary in the southern Chinese city of Shenzhen, also in collaboration with the municipal government. Shenzhen is reportedly slated to be the first city to test the PBoC’s “legal” digital currency, and to provide the systematic preparation for its launch, including cooperation with the country’s regulators.

As Cointelegraph reported yesterday, the Shenzhen Central Sub-branch of PBoC officially launched the testing phase of its blockchain trade finance platform ahead of schedule.

PBoC’s lab has also been ratcheting up patent applications for its planned digital currency, which include several patents for a digital currency wallet. CNstock further reports that the PBoc has a host of newly unveiled patents, encompassing digital currency management methods and systems triggered by loan interest rate conditions, as well as digital currency exchange methods and systems.

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Dutch Central Bank Advisor: Bitcoin Price Changes With Google Search Activity

A policy advisor for the Netherlands’ central bank has claimed that Bitcoin price changes coincide with Google searches for the cryptocurrency, CNBC reports Friday, August 31.

In an interview with the network Wednesday, De Nederlandsche Bank’s Joost van der Burgt said that the trend became clearer last December with the advent of the first Bitcoin futures hitting the market.

“Every time bitcoin was in the news, be it positive or negative, the price went up accordingly,” he said.

Bitcoin’s failure to compensate for losses which began in the last weeks of 2017 has sparked various theories about its future prospects from traditional finance circles.

Returning to the theme of the Bitcoin “bubble,” figures such as economists Nouriel Roubini and Robert Shiller have made repeated claims throughout this year that the largest cryptocurrency cannot sustain higher prices for long.

Van der Burgt too suggested the bursting of this “bubble” may not have yet definitively occurred.

“My take on it is that because of the introduction of futures, that might have deflated the bubble before it got to a level where it might burst completely,” he added.

Van der Burgt has not taken an altogether anti-Bitcoin stance. In an April report for the Federal Reserve Bank of San Francisco, in which he discussed the Bitcoin bubble using Hyman Minsky’s financial instability index, the analyst did not dismiss the idea Bitcoin could represent a genuine innovation.

“Then again, maybe Bitcoin is different than anything we have seen before, and maybe a decade from now its market capitalization will be sky-high as it attains the status of a new global currency,” he mused in concluding comments.

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Blockchain Startup Signs MOU With Central Bank of Curaçao and Sint Maarten

Barbados-based fintech startup Bitt Inc. has signed a Memorandum of Understanding (MOU) with the Central Bank of Curaçao and Sint Maarten (CBCS) to research the possibility of issuing a digital guilder, according to an August 12 press release.

The parties signed the MOU in order to develop a central bank digital currency to facilitate financial payments within the monetary union of Curaçao and Sint Maarten. Per the announcement, the bank is looking to “reduce the level of cash usage within the monetary union” and facilitate “more secure, more Anti-Money Laundering (AML) and Know Your Customer (KYC) compliant” transactions between the islands. Rawdon Adams, CEO of Bitt Inc, commented on the collaboration:

“The MOU clears the way for collaboration and information sharing regarding a feasibility study, designed to determine the viability and functionality of using a central bank-issued digital guilder within the financial ecosystems of each member, and across both members of the monetary union.”

Adams further explained that printing fiat money by a central bank and distributing it between the two member states is costly and challenging. Conversely, digital currency can be used on mobile wallets and makes it easier to make transactions and payments in the monetary union in a more secure way. Leila Matroos-Lasten, acting President of the CBCS said:

“The CBCS herewith recognizes the transformative potential of innovation and technology and is committed to exploring solutions regarding efficiency of cross-jurisdictional transactions and digital payments whilst ensuring compliance and security assurances obtained by these state of the art (fintech) solutions. This would be beneficial to everyone.”

In 2017, Bitt Inc. appointed Rawdon Adams, the son of the prime minister of Barbados between 1976 and 1985, as its new CEO. The hiring was viewed as part of the firm’s strategy to add weight to its plans in the region. That year the company partnered with the central bank of Barbados for the advancement of pilot blockchain projects.

Bitt Inc. is a fintech portfolio company of Medici Ventures, a wholly owned subsidiary of Overstock.com, which was established to develop blockchain-powered solutions to “solve real-world problems.” Medici Ventures is the majority owner of tZERO company.

While the bank of the Dutch Caribbean regions demonstrates openness to issuing its own digital currency, the divisional director of the Dutch Central Bank, Petra Hielkem, said that due to the volatility of cryptocurrencies and the possibility for consumer risks, it cannot be considered money. She added that, while cryptocurrencies are not “real money,” the bank has no plans to ban them.

Recently, Iran announced its commitment to create its own state-issued cryptocurrency aiming to circumvent U.S. sanctions, despite the fact that earlier the central bank banned domestic banks and other financial establishments from dealing with crypto, citing money-laundering concerns.

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Dutch Central Bank Does Not Consider Cryptocurrencies as ‘Real Money’

An executive at the Dutch Central Bank has said that while cryptocurrencies are not “real money,” the bank has no plans to ban them, local news outlet Dutch News reported August 3.

The divisional director of the Dutch Central Bank, Petra Hielkema, told Dutch News that due to the volatility of cryptocurrencies and the possibility for consumer risks, it cannot be considered as money,

“If something wants to be treated as money, you have to be able to spend, save and calculate with it […] So we do not consider it [cryptocurrency] to be money as such.”

Hielkema also noted that the bank has been experimenting with blockchain — the technology behind cryptocurrencies — for the past three years and has already developed four prototypes. Although Hielkema adds that blockchain is not ready yet to be implemented in Dutch payments systems, there are “possibilities for [it] in the future, with more innovation.”

Previously this summer, the Netherlands Authority for the Financial Markets (AFM) had also underlined the “risks” associated with cryptocurrencies, noting their “serious doubts […] associated with cryptos and their management”.

In June, the Bank of Finland had released a paper where the concept of a digital currency had been called a “fallacy” that is not to be considered as “real money.”

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Iran ‘Preparing Ground’ for National Cryptocurrency to Dodge US Sanctions

Iran has confirmed it will press ahead with creating its own state-issued cryptocurrency to circumvent incoming U.S.. sanctions, local media Press TV reported July 25.

Quoted by local news media outlet ISNA and translated by PressTV, Alireza Daliri, deputy for management and investment at the Directorate for Scientific and Technological Affairs, said plans for the creation of a working digital currency were already on its agenda.

“We are trying to prepare the grounds to use a domestic digital currency in the country,” Daliri told ISNA, continuing:

“This currency would facilitate the transfer of money (to and from) anywhere in the world. Besides, it can help us at the time of sanctions.”

Technical details about the national cryptocurrency remain unknown, while a national encrypted key for the domestic banking system could see an introduction likely within the next three months following “ironing out” of inconsistencies.

Talk of Iran releasing a national cryptocurrency had surfaced months previously as the looming return of U.S. sanctions led to increasing calls for preemptive measures.

The country’s authorities had previously come out against public cryptocurrencies such as Bitcoin (BTC), in April banning banks from dealing with them altogether.

Like Venezuela’s state-sponsored token Petro, Iran now appears to be looking to blockchain technology to circumvent challenges, including a complete ban on acquiring U.S. dollars from August.

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EU Parliament Study: Central Bank Digital Currencies ‘Will Reshape Competition’ in Crypto Market

A study on issues of competition in fintech, commissioned by the European Parliament Committee on Economic and Monetary Affairs (ECON), was published July 20. It found that central bank-issued digital currencies could be a “remedy” for a lack of competition policy in the crypto sector:

“The arrival of permissioned cryptocurrencies promoted by banks, even by central banks, will reshape the current competition level in the cryptocurrency market, broadening the number of competitors.”

The study mentions cryptocurrencies like Bitcoin (BTC) as “technological and operational paradigms that are a source of disruption for the entire sector, including monetary policy and financial stability.” Other “disruptive and innovative applications” of new technologies include “AI, cloud computing, biometrics, digital identity, blockchain, cybersecurity, RegTech, internet of things (IoT), augmented reality.”

Private digital currencies are defined separately from central bank-issued digital currencies (CBDC), noting that the CBDCs differ by being based on a “conventional bilateral settlement with a trusted central party.”

According to the study, since closed cryptocurrency systems require a supervisory authority, central banks could be considering using “permissioned cryptocurrency systems” to “complement or substitute” the currencies already used.

The study claims that CBDCs “will reshape the current competition level in the inter-cryptocurrency market” by adding to the pool of competitors:

“A potential inadequacy of traditional competition policy to address competition issues in the cryptocurrency markets can be found, suggesting direct public participation through a central-bank digital currency as a remedy.”

The competition issues, the ECON study notes, can be divided into “inter-cryptocurrency market” competition between cryptos, and “intra-cryptocurrency” market competition between service providers like wallets and exchanges.

In terms of “inter-crypto market” competition, the study reports that the “presence of network effects” and a high number of users of a cryptocurrency could provide a barrier to entry for other cryptos attempting to join the market. The study hypothesizes that this competition “may lead to potential collusive agreements between members of hypothetical cartels.”

For “intra-crypto market” competition, wallets, exchanges, and payment providers could create practices that would keep others out of the market, such as receiving inducements from miners that favor one cryptocurrency over another.

In mid-July, a new EU directive came into force that set stricter transparency rules for digital currencies to protect against money laundering and terrorist financing.

Also in July, virtual currencies were discussed for the first time at ECON’s “Monetary Dialogue” session, with five different briefing reports discussed on topics ranging from crypto and central banks to crypto and the “Eurosystem.”

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Bank of Canada Study Finds Double Spending in Blockchain is ‘Unrealistic’

The Bank of Canada (BoC) has published a study on the “incentive compatibility” of blockchain technology this week, finding that double spending is an “unrealistic” outcome.

The new BoC study focuses on a proof-of-work (PoW) protocol for blockchain technology, modelling the behaviors of a “honest miner” and a “dishonest miner.”

The Canadian bank’s researchers modelled a system to check whether a digital ledger like blockchain was immune to types of “cheating” such as double spending, when users change records in the ledger for their own gain.

The study writes that the main innovation of a digital ledger technology like blockchain is to make the users within the system responsible for the guarding of the system itself. For blockchain technology, the system approves new transactions when an update is agreed upon by all users in the system.

The study finds that if one miner controls more than half of all of the computational power, the miner would hypothetically be able to stage a “51% attack,” where

“Confirmation lags, in theory, lose their power in controlling double-spending incentives. The dishonest miner creates an arrival rate that is larger than those of the other honest miners combined […] and, thus, can always cheat by double spending.”

However, the study notes that in order for this to happen from an economic standpoint, a “dishonest miner” must have “deep pockets” and be “risk neutral,” concluding,

“These assumptions tend to be unrealistic and, in practice, users have little economic incentives to launch such an attack, especially when the computational investment by other miners is large.”

James Chapman, senior research director at the BoC’s funds management and banking department, had previously questioned the effectiveness and security of using blockchain tech for banking.

Another study conducted by major global management consultancy firm Bain & Company found that the implementation of distributed ledger tech like blockchain “has the potential to revolutionize transaction banking.”