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Stablecoin Project of Basis Confirms that it Is Shutting Down Due to Regulatory Hurdles

Just yesterday, the crypto and investor communities woke up to news that the highly anticipated stablecoin project of Basis was ceasing operations and returning a majority of its funds to investors. Backed by Bain Capital Ventures, GV, Andreessen Horowitz, Lightspeed Ventures, Stanley Druckenmiller, Polychain Capital and more, Basis was meant to utilize its one of a kind algorithm to bring a new era of stablecoins in the crypto and investing ecosystem.

However, the complexities of the coin’s algorithm was its Achilles heel in that it had 3 digital assets that would operate on the Basis blockchain. The main entity was the Base coin, that was core to the system and pegged to the USD. There were also Bond tokens and Bond shares. Both these tokens would not be pegged to anything.

The bond tokens would be auctioned off by the blockchain when it needed to contract Basis supply (inflation) and would promise the holder exactly one Basis at some time in the future and would be sold at a discounted price. The Base shares would be of a fixed supply and their value would be based on a dividend model. When new Basis coins would be minted, holders of this shares would receive the coins pro rata so long as outstanding Bond tokens would be redeemed.

Explanation of The Regulatory Hurdles in the US

This model with two tokens that can be classified as securities using laws in the US made the team seek legal advice and other avenues of solving the regulatory constraints.

The project’s founder, Nader Al-Naji, explained this via a blog post as follows:

As regulatory guidance started to trickle out over time, our lawyers came to a consensus that there would be no way to avoid securities status for bond and share tokens (though Basis would likely be free of this characterization).

Due to their status as unregistered securities, bond and share tokens would be subject to transfer restrictions…

Enforcing transfer restrictions would require a centralized whitelist, meaning our system would not only lose its censorship resistance, but also that on-chain auctions would have significantly less liquidity.

Having fewer participants in the on-chain auctions adversely affects the stability of Basis, making Basis intrinsically less attractive to users. Additionally, imposing transfer restrictions on bond and share token auctions materially hurts our ability to build the Basis ecosystem.

While transfer restrictions can generally lapse 12 months after a security is issued, because the auctions of bond and share tokens governed by our monetary policy would be continuously issued, transfer restrictions and a centralized whitelist would be required indefinitely

Alternatives Considered By the Team at Basis

Nadar Al-Naji went on to explain that they had considered the following alternatives to circumvent the aforementioned hurdles.

  • launching offshore with added utility to make bond and share tokens less financial in nature
  • starting off with a centralized stability mechanism

Basis Shutting Down

The blog post went on to state that the team realized that the odds were against them succeeding. This is why the team decided to close shop, return funds and thank all who supported them.

Nader Al-Naji completed the post with the following message of gratitude.

We owe our sincere thanks to everyone who supported us and our project — from the extraordinary backers and partners who believed in us, to the outstanding team that joined us in our mission. You gave us the opportunity to change the world, and we’re looking forward to trying again.

What are your thoughts on the stablecoin project of Basis shutting down due to regulatory hurdles?  Should they try again? Please let us know in the comment section below. 

The post Stablecoin Project of Basis Confirms that it Is Shutting Down Due to Regulatory Hurdles appeared first on Ethereum World News.

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China: Shenzhen Special Economic Zone to Use Blockchain for Electronic Tax Invoices

Tencent and the Shenzhen Municipal Taxation Bureau will launch a mobile payment platform for a taxation invoice system based on blockchain.

Shenzhen, a major city in the Guangdong Province and the first economic special zone in  China, will use blockchain technology for electronic tax invoices. This development was reported by the China Economic Net, а domestic news website focusing on economics, on Dec. 12.

The Shenzhen Municipal Taxation Bureau and Chinese tech giant Tencent have “successfully connected the blockchain invoice system with the WeChat payment platform.” The article reports that WeChat, the 1 billion user social media platform operated by Tencent, has opened its payment platform for the blockchain invoice function.

According to the director of the Information Center of Shenzhen Taxation Bureau, a blockchain electronic invoice is different from a traditional electronic invoice, as it has “the advantages of ‘distributed’ storage, traceability and non-tamperability.”

The article highlights that WeChat payment blockchain invoices are the first stop for the blockchain electronic invoice implemented within the mobile payment platform, adding:

“The application of the blockchain electronic invoice to the WeChat payment platform is a substantial exploration made by the Shenzhen Tax Department based on the actual needs of the taxpayers to further optimize the business environment.”

Previously this fall, the Shenzhen central sub-branch of the People’s Bank of China (PBoC) — the country’s central bank — launched the trial phase of the “Bay Area Trade Finance Blockchain Platform,” aimed at providing real-time monitoring of various financial activities, as Cointelegraph reported Sep. 4.

Last week, the BeiShangGuang — an abbreviation that stands for the three major Chinese cities of Beijing, Shanghai and Guangzhou — has reportedly become China’s most concentrated area of legislation and policy related to the blockchain industry.

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Chinese Central Bank Launches Testing Phase of Trade Finance Blockchain Platform

The People’s Bank of China (PBoC) has officially launched the testing phase of a blockchain trade finance platform, local news outlet Shanghai Securities News reported September 4.

The Shenzhen Central Sub-branch of the People’s Bank of China, the central bank of the People’s Republic of China, has entered the trial phase of the so-called “Bay Area Trade Finance Blockchain Platform” earlier than scheduled.

The platform is aimed at conducting trade and financing activities, such as accounts receivable and trade financing. At the same time, the platform provides a regulatory system for trade finance to enable real-time monitoring of various financial activities.

According to Shanghai Securities News, the platform plans to create an “open financial and trade ecosystem based on the Guangdong, Hong Kong, and Macau Bay Area.” The organizations involved in the platform include Bank of China, China Construction Bank, China Merchants Bank, Ping An Bank, Standard Chartered Bank, and BYD Co., Ltd.

The report states that the platform can “help banks to conduct business authenticity audit[s], reduce business costs, improve business efficiency, [and] prevent and control business risks,” as well as to assist regulators and strengthen information sharing between departments.

Earlier in August, Chinese insurance, banking, and financial services giant Ping An Insurance released a “White Paper on Smart Cities,” advocating for blockchain, AI, big data, and cloud computing technology development, promoting the creation of a “smart city.”

Back in July, the Ministry of Science and Technology of China announced that China would lead an international research group on the standardization of the Internet of Things (IoT) and blockchain technology, as Cointelegraph reported July 18.

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India Eyes State Digital Currency to Cut $90 Million Banknote Bill

India’s central bank is researching how to introduce a rupee-backed central bank digital currency (CBDC) into its monetary policy in a bid to reduce its hefty annual bill for minting physical cash.

The news was revealed in the Reserve Bank of India’s (RBI) annual report, published Wednesday, which indicated an inter-departmental unit has already been formed within the organization to study the “desirability and feasibility to introduce a central bank digital currency.”

The effort apparently comes in response to a rapidly changing landscape of digital payments and the “rising costs of managing fiat paper/metallic money,” the bank said.

A news report from the Economic Times on Thursday further indicated the RBI also said that, for 2018, the cost of printing paper notes alone totaled nearly $90 million.

While the RBI did not reveal whether the potential CBDC may be blockchain-powered, it claimed the utilization of distributed ledger technology (DLT) in payment and settlement solutions “holds the promise of significant economic benefits in future.”

Meanwhile, in contrast to its support for adoption of DLT at a state level, the RBI again toughened its stance on crypto trading in the report, shifting its focus to transactions between individuals following its ban on bank accounts for exchanges announced in April.

“Developments on this front need to be monitored as some trading may shift from exchanges to peer-to-peer mode, which may also involve increased usage of cash,” the RBI warned in its yearly report, adding:

“Possibilities of migration of crypto exchange houses to dark pools/cash and to offshore locations, thus raising concerns on anti-money /CFT and taxation issues, require close watch.”

Since the RBI’s bank account ban went into effect in July, local exchanges have been adopting various methods to find new revenue models, including moving business focuses to peer-to-peer trading.

Indian rupees image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Poland Introduces New Bill to Clarify Crypto Taxation

Polish legislators have introduced a long-awaited new bill to clarify the current crypto taxation policy. The document was published on the country’s government site on Friday, August 24, and explained by local crypto media outlet Kryptowaluty August 25.

Kryptowaluty writes that a new document has been offered for consultation, and the Polish Council of Ministers will review it in the third quarter of 2018. The previous taxation policy, which had been resisted by country’s crypto community earlier this year, was taken into account but has been slightly changed. The purpose of the bill, as stated by government, is to simplify the tax system for crypto transactions.

First, the bill defines cryptocurrencies in terms of the Act on Counteracting Money Laundering and Terrorism Financing as a “digital representation of money”. Furthermore, virtual currencies are divided in two groups — cryptocurrency and centralized virtual currency — and are allowed to be used as a medium of exchange, in e-commerce, and be accepted as means of payment.

As for taxation, the bill refers to both individuals and businesses. Crypto-to-crypto transactions performed on the stock exchange or individually will be tax free. At the same time, income from selling services, property, and goods will be treated like revenue for taxation purposes.

The document then covers crypto miners, noting that those who work for themselves won’t be charged, while others who work for entities or individuals will be obliged to pay taxes.

The current taxation system in Poland is 18% is for an annual income of up to 85,500 zloty ($23,000), and 32% for incomes above this limit.

2018 began with massive anti-cryptocurrency campaign in Poland. In February, the Central Bank of Poland admitted to funding $27,000 worth of content aimed against crypto, which was published on YouTube and then broadcast by local press. Later in May, a similar campaign was organized by Poland’s Financial Supervision Authority (KNF). Social media materials on risks associated with cryptocurrencies, pyramid schemes, and forex trading were funded by 615,000 zloty (around $173,000).

As the Polish crypto community criticized the campaign along with the newly announced taxation for digital currencies, the local Finance Ministry rolled the measure back, promising to elaborate more convenient regulation.

However, in June, crypto owners from Poland blamed banks for deliberately denying service to cryptocurrency entities and selectively closing accounts, Cointelegraph reported.

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As Central Banks Go Digital, Crypto Competition Looms

Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.

With blockchain platforms being tested for various business processes, prospective enterprise users that are unwilling to accept a volatile cryptocurrency will often complain that a key piece is missing from the platform: a stable, digital medium of exchange.

Hence the race, currently underway, to create a viable “stablecoin.”

Many tech teams, such those at Basecoin, are developing decentralized algorithms intended to peg the value of a crypto-asset to an external reference price such as a fiat currency like the dollar. Others, such as Saga, are building collateralized reserve models, offering guaranteed, fixed-price convertibility into an alternative store of value – also, such as the dollar. Based on the controversy surrounding Tether, the biggest stablecoin, it’s fair to say that a widely trusted system does not yet exist.

Here’s an alternative vision: What if the race is won by a central bank? Digitizing fiat is arguably easier than pegging to fiat. What it needs is buy-in from officialdom.

The Bank of Thailand moved the world a small step closer to that solution last week. It announced that, in partnership with eight financial institutions, it is developing a digital currency based on R3’s Corda distributed ledger protocol.

We’ll see how the Thai project evolves, but the purpose for now appears quite narrowly focused on a specific use case: facilitating interbank transfers among institutions operating within the country’s capital markets. Although limited to Thailand, it would add in the monetary piece that’s been missing from other distributed ledger initiatives to streamline securities settlement, such as that at the U.S. settlement and clearing agency, the DTCC.

However, it’s not hard to imagine that if Thailand’s or another country’s “wholesale” central-bank digital currency experiment shows signs of success there will be pressure to expand these so-called CBDC models to a wider community of users.

Expanding access to CBDC

With blockchain-based solutions for supply chains now moving from proofs of concept to implementation, with a lot of that activity in Thailand’s neighborhood, businesses could start to seek digital fiat solutions to these new models of automated trade. This will, of course, be limited to in-country transactions, but if prospective decentralized, smart contract tools such as atomic swaps , currently being explored for blockchain assets, can also be applied to digital fiat currencies, instantaneous cross-border CBDC exchanges might become a reality.

And despite concerns about financial instability expressed by the Bank of International Settlements, a central bank-owned body that coordinates activity among its members, I think it’s fair to assume a fully retail CBDC will one day exist somewhere.

The BIS’ concerns primarily lie with the potential threat to the banking system from money fleeing short-term deposits into CBDC wallets. But that position presupposes banks should continue to play a central role in our payments systems. Many central bankers, who were blindsided by the problems caused by too-big-to-fail banks during the financial crisis, take a different view: that our dependence on for-profit private institutions to manage our monetary system is the very cause of the systemic risks to which our society has long been subject.

No lesser figure than former Bank of England Governor Mervyn King has argued forcefully about the need to reform the bank-centric financial system. And although his successor, Mark Carney, has soured on the idea of a digital pound, it’s noteworthy that BOE researchers, among the first to explore CBDC ideas, initially explored the potential benefits of removing banks from payments by ending their privileged access to central bank reserves.

A world of competing currencies

If this future does come to pass, it will be a long way from that envisaged by crypto developers who want to remove central banks from the equation. It’s even further from the vision of bitcoin enthusiasts, who see the need for a fully censorship-resistant currency with a monetary policy that cannot be altered by policymakers.

But all will not be lost for monetary innovators. The act of digitizing currencies – whether by central banks or by crypto developers – is likely to lead to increased global competition across currencies, as access and the cost of trading them becomes more efficient. That will put central banks themselves under pressure to develop currencies that people want to use.

The competition won’t only be among different countries’ currencies. With the help of Lightning and/or other Layer 2 solutions, cryptocurrencies will become more scalable and can present themselves as one of a number of options.

I see the scenario eventually evolving into something like the vision of Austrian economist Friedrich Hayek, a favorite of libertarians, who foresaw a world of competing private currencies emerging. It’s just that this one would entail competition between crypto- and government-run digital currencies.

Hopefully out of that competitive soup something that best serves humanity will arise.

Of course, this isn’t happening tomorrow. It’s premature to place all-out bets on any kind of currency solution becoming the standard.

But to assume that the world of money won’t change at all is also foolhardy. These forces will come to bear in ways that will be difficult for any actors, public or private, to control.

Protecting people’s interests

When that change starts to happen, it’s critical that we, the people, provide input into how these systems evolve. A world of competing digital currencies isn’t necessarily a utopia.

As I argued in a previous column, crypto tokens have in some cases worsened society’s problems with truth in social media, prompting tribes of specific token holders to fiercely defend their coin against valid criticism. Imagine the same thing happening with fiat digital currencies promoted as investments by dictatorships.

We might just be getting a test of that with Venezuela’s move to peg the bolivar to its new digital currency, the Petro. The government of President Nicolas Maduro has long employed an aggressive propaganda campaign in favor its tragically failed policies. Imagine if he gets a team of Petro-holding trolls to amp up that campaign.

Digital fiat currency could also become an alarming surveillance tool. Already, the concept of China’s “social score” system is raising concerns in that country. Add traceable digital payments to that kind of model and something even more invasive emerges.

Still, competitive pressures might also help us here. As I’ve previously argued, privacy is vital to good, functioning, fungible currency systems. So too, naturally, is broad adoption.

If we can create a world of genuine choices across currencies, it’s reasonable to assume that people will gravitate toward those that don’t entail surveillance and aren’t used as propaganda tools.

Will cryptocurrencies do a better job of achieving these standards? Possibly. But it depends on their design. There are plenty of bad altcoins out there.

Still, if a cryptocurrency, whether bitcoin or an alternative with a different monetary policy, attains scalability and includes robust privacy protections, there’s still a very decent chance it could eventually outcompete government currencies.

Either way, let’s bring on the competition. May the best coin win.

Image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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UK Central Bank Says New Payments System Will Be Blockchain Friendly

The Bank of England’s updated payments system will be compatible with blockchain-based financial technology forms, Reuters reported Monday.

The announcement is the latest in the BoE’s ongoing efforts to modernize its Real-Time Gross Settlement system (RTGS), which is essential for banking and trading in Britain and handles transactions worth around ‎£500 billion annually, or almost a third of the country’s economic output. The upgraded system is expected to be launched in 2020, and will be designed to be resistant to cyber-attacks while also being available to a wider number of smaller businesses.

This would enable these businesses to use the system directly, rather than through a proxy of a large bank.

In March, the BoE presented a “proof of concept,” asking several firms, including payments technology providers Baton Systems and Token, R3 and Clearmatics, for feedback. They were asked to examine whether the “renewed” cloud-based RTGS service would be able to interact with systems based on distributed ledger technology (DLT) and how its functionality could be expanded through the use of new technologies.

“All participants confirmed that the functionality offered by the renewed RTGS service would enable their systems to connect and to achieve settlement in central bank money,” the BoE explained Monday. “A number of recommendations were received to ensure optimal access to central bank money.”

One of those recommendations was to explore the possible use of “cryptographic proofs” to protect data from being stolen or altered.

Bank of England image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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EU Report Says Cryptocurrencies 'Unlikely' to Challenge Central Banks

Cryptocurrencies will not challenge the economic power of central banks, the European Parliament said last week.

In the latest Monetary Dialogue report issued on June 26, the European Parliament’s Committee on Economic and Monetary Affairs said that while cryptocurrencies have made financial transactions “relatively safe, transparent, and fast,” they pose no threat to sovereign currencies around the world.

The analysis, which was conducted by the Center for Social and Economic Research, a non-profit research institute based in Warsaw, first recognized the positive changes cryptocurrencies have brought to financial transactions, noting that they now “are used globally, disregarding national borders.”

Cryptocurrencies “respond to real market demand,” the analysis claimed, and they will have the potential to become a “full-fledged private money” or even a permanent element to the global economy.

However, the researchers said it is “unlikely” cryptocurrencies will threaten central banks and sovereign currencies and dismantle the existing monetary structures, especially in countries where their sovereign currencies are widely circulated.

At present, according to the analysis, the total value of all cryptocurrencies circulating in the market heavily underweigh the value of major sovereign currencies in circulation.

But a few exceptions exist. The report cited runaway inflation in Venezuela and noted that in much smaller monetary jurisdictions, cryptocurrencies “may” offer alternative to unstable currency.

In addition, the analysis suggested that financial regulators should treat cryptocurrencies as “any other financial transactions or instruments,” given the potential risks associated with transactions using cryptocurrencies, including money laundering, tax evasion, and financing illicit activities.

Cryptocurrencies image via Shutterstock.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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St Louis Fed Now Tracks Crypto Prices on Its Research Database

The St. Louis division of the U.S. Federal Reserve Bank is now tracking the prices of four cryptocurrencies in its research database.

According to an announcement on Tuesday, Federal Reserve Economic Data (FRED), an extensive database maintained by the central bank’s St. Louis branch, is now offering data points for bitcoin, bitcoin cash, ethereum and litecoin.

The price data for the well-known and widely cited economic research database is being provided by the U.S. exchange Coinbase and is updated on a daily basis, according to the announcement. Furthermore, the database makes available the historical price data of the four assets back to as early as 2014.

The move to add crypto data is not, perhaps, entirely surprising, given that the St. Louis Federal Reserve – a center for local, national and global economic research – has never shied away from taking a focus on cryptocurrencies.

Most recently, speaking at CoinDesk’s Consensus 2018 conference in May, James Bullard, president of the St. Louis Fed, raised concerns that the sheer number of cryptocurrencies these days may bring the risk of a “chaos of exchange rates” that has been seen previously in U.S. history – especially during the civil war.

The St. Louis branch has had its eyes bitcoin since as early as 2014, when its vice president, David Andolfatto, hosted a seminar on the topic and notably commented at the time that the innovation is forcing traditional institutions to either “adapt or die.”

Federal Reserve image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.