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Decentralized Prediction Markets: Gambling or a Window to the Future?

Blockchain-powered prediction markets attempt to change the world, from politics to science, by creating digital democracies with a new age of financial tools.

Recently, there have been an increasing number of blockchain-based prediction markets (PMs) such as Augur, Bitcoin Hivemind, Amoveo, Gnosis, Cindicator, etc. PMs use the technology of smart contracts for bets on various issues. For example, one user could place $100 on President Donald Trump getting reelected for a second presidential term while another person is convinced that a Democratic candidate will win the Oval office in 2020. Once the election is over, the pot is automatically transferred to the winner of the bet.

At first sight, betting may not be the most obvious or efficient way to use blockchain to its full potential. Despite this, several experimental and theoretical studies show that PMs are not just about gambling. These markets are capable of producing revolutionary changes in many industries, including politics and science. In particular, PMs are capable of making society more farsighted, even in terms of civil development.

Related: Blockchain-Powered Prediction Platforms: Governance and Uses Beyond Gimmick Markets & Death Pools

“Money bets” as a financial truth serum. Bets have unique features that can benefit communities.

Since bets can be made on any event or issue, winning them depends not only on chance or knowing the rules of gambling (like in poker), but also on the player’s knowledge and intelligence in matters of real life — in psychology, economics, sports, politics, natural sciences, etc. Betting is some sort of a “truth serum” that requires the most honest and competent answer from the bettor. The one placing a bet isn’t only willing to sacrifice sharing some private information, but also to study the question further.

Back in 2005, the founder of Palm Computing and Handspring, Jeff Hawkings, suggested in his book “On Intelligence: How a New Understanding of the Brain Will Lead to the Creation of Truly Intelligent Machines” to consider the intellect to be a substitute to prediction. Keeping this terminology in mind, bets can be labeled as intelligence competitions in their purest form.

The highest bets, as a rule, are made by the most competent bettors, since they count on winning more than the others. The brightest example of this theory are bets in which there are many participants. A well-known example of collective bets is the bookmakers. At the end, the winner receives their capital back with additional profit.

A study from Deloitte showed that, even though many bettors are habitual speculators, there is also a small percentage of sports experts who are much more likely to win on average. Their bets, as a rule, are the most statistically favorable and the most accurate indication of the winner. If all of the bets made by competent bettors are aggregated, in most cases, the correct result will be revealed.

Also, these theories can be applied outside the realm of sports in areas like economics, politics and even natural sciences. Collective bets can be a powerful tool when players have the right not only to bet on future events but also to purchase others’ bets (contracts), like in the futures markets. This is where prediction markets come in. Bets on these markets allow an external observer to evaluate not only the most probable event but also the likelihood of each of the events discussed.

Prediction markets before the blockchain era: Achievements and political difficulties

Although sports betting has been around since ancient Rome, and political betting was present in the medieval Vatican as well as in the United States in the 19th century, these bets were considered merely as gambling by the society for some time. Only in the first half of the 20th century did famous economists Ludwig von Mises and Friedrich Hayek succeeded in popularizing PMs as a socially useful mechanism. 

Real, large-scale experiments on the application of PMs began only at the turn of the 20th-21st centuries. The first major experiment of a political-focused PM took place in 1988 at the University of Iowa during the presidential election. Later, in the 1990s, other similar experiments were held. These were focused on various themes: from the box office revenues of Hollywood films to the prospects of thermonuclear fusion.

In 2001, Intrade launched in Ireland. Intrade was a website that allowed users to automatically bid on a wide range of issues. Many of its predictions regarding the 2008 and 2012 regional elections in the U.S. turned out to be much more accurate than expert forecasts and public opinion polls. In 2003, a similar Irish website, Tradesports even accepted bets on the date of the Saddam Hussein capture during the Iraq War, and with the apprehension imminent, the highest bets “guessed” the capture date rather swiftly.

In 2009, Almenberg, Kittlitz and Pfeiffer conducted a series of experiments in which they demonstrated the ability of PMs to accelerate scientific research. In the modern scientific community, communication is slow and similar tasks are sometimes investigated by independent groups that are not aware of each other’s results. However, it turned out that PMs between them, even without the sharing of information, allowed for the engagements as a single omniscient group, which was able to quickly identify the most realistic hypotheses among the many possible.

Despite all these successes, PMs are still far from mass adoption. Moreover, as in the case of politics, PMs were met with direct opposition. For example, at the end of 2012, the U.S. Commodity Futures Committee (CTFC) prohibited its citizens from visiting Intrade, citing economic considerations. The website’s profitability fell dramatically, and it was subsequently closed. Intrade was not the only internet-based PM that was subject to sanctions. In January 2019, all online gambling games were banned in the U.S. 

It is hard to say whether all these sanctions were politically motivated, but certainly authorities may have the right to be worried. Should the collective “truth serum” allow citizens to better predict upcoming events, populists will have a hard time persuading “myopic” voters. Some politicians — with the aim of achieving their sordid political ambitions — may not hesitate to resort to deception, if the majority of voters would not notice it. However, just like with sports, political PMs can reveal the truth if a small number of “experts” with large bets take part. Thus, it is no surprise that PMs walk a fine line with regulators, as concerns regarding can range from the risk of using PMs as assassination markets or to lure officials to disclose confidential information, just to name a few.

Markets for predictions on the blockchain: Main ideas and advantages

Blockchain technology allows storing data about financial transactions, but also has the ability to keep record regarding user agreements. Often referred to as smart contracts, these deals have unlimited options of usage, including users’ betting on certain events. This is how it became possible to integrate the principle of PMs onto the blockchain.

Bitcoin Hivemind is the first PM project based on blockchain technology. It was launched in 2014 under the leadership of Paul Sztorc. A similar PM project, called Augur, followed soon after with the co-founder of Intrade, Ron Bernstein, and co-founder of the Ethereum blockchain, Vitalik Buterin, as consultants. In 2015, Aurgur’s initial coin offering (ICO) — one of the first ICOs in history — took place, gathering over $5 million in investment. Later, other blockchain-based PM projects — Gnosis, Amoveo, etc. — appeared on the scene. 

The main advantage of the blockchain-based PMs in comparison to Intrade is decentralization. The absence of the need to use a centralized server and manual regulation has led to the following changes:

  • PMs on the blockchain cannot be destroyed by administrative prohibition.
  • PMs on the blockchain are sufficiently better protected from distorting the results, as they are transparent. There is no central leadership that can be bribed.
  • PMs on the blockchain can guarantee a high level of anonymity for users, allowing them to share unpopular opinions.

Betting on any PM starts with someone proposing any question. For example, “Will Bitcoin exceed $20,000 by the end of 2019?” or “Will Trump win in 2020 Presidential election?”

From then on, all users can bet on whether the prediction turns out to be true or false with the blockchain registering conditions via smart contracts. At any time before the closure of betting, which is described in the contract (for example, before the end of the year or until the election results are announced), users can buy someone else’s bets. The market prices of these rates reflect the user’s assessment of the likelihood of certain events.

When the time to close these contracts comes, the blockchain network should receive information from the outside world to determine the winner, like Bitcoin’s (BTC) price or the election results. This is where blockchain-based oracles come into play. They inform the blockchain network whether the prediction was right or wrong. After the information is transferred, the bets of those who lost are automatically transferred to the winning party.

Oracles as a key technical problem of PMs on the blockchain

The creation of reliable smart contracts that “do not make mistakes” is one of the important technical issues of blockchain-based PMs, and it should be discussed in detail. Blockchain solves not only the problems of PMs but those of centralized markets as well. However, if smart contracts are dealing with the outside world, like those relating to elections or the results of an esports tournament, then it should be determined how the transfer of information will be implemented in a productive and detailed way. With PMs, this difficult task may present a bigger challenge, as the nature of the information that needs to be transferred depends on the subject of the dispute. At times, PMs just need to check numbers, but in some cases, they must conduct a detailed analysis of a political position of an individual.

Some oracles are just automated robots that visit financial websites and uncover information about exchange price rates, company capitalizations, etc. But this is not very useful for PMs that have questions that can relate to any topic, including those that even an advanced artificial intelligence or a robot cannot confidently explore and thus cannot substitute a person. Therefore, it would be unproductive to exclude a person from the information retrieval process. This is why PM developers prefer to include people, the so-called reporters, to feed information to the oracle. When the time comes to close a contract, reporters would provide a competent and honest answer.

At first glance, when the event has already occurred, there is no need for competence. But even such a simple question as “Did Donald Trump win the 2020 presidential re-election?” can be answered erroneously if the source of information is unreliable. The reporter should be able to distinguish the official election results from the preliminary ones. However, with a sufficient number of reporters, the probability of an error due to incompetence approaches zero. Reporters may have different competencies and thus choose which questions to become involved with.

The real problem surrounds the honest answers. A reporter can receive a reward for their work, but if large prize pool is at stake, there is a possibility for them being corrupted to lie — e.g., if providing a dishonest answer pays more than being honest in the outcome of an oracle. Even if this lie is revealed immediately after the contract is closed, the result may cause a PM participant to lose their funds. Any such corruption case discredits the network, which is why the oracles’ developers have come up with various methods of encouraging reporters to be honest.

The standard accounting of reporters’ reputation: Simple but insecure

Reputation is everything when there is no guarantee of trust. If a user is planning to give money to an exchange, store, broker, etc.,then it is common sense to verify their reputation beforehand. This can be either an informal reputation based on user feedback or a formal one — for example, the number of honest transactions against fraudulent ones. Initially, reputation would be enough to minimize the risks: If a trader has completed thousands of fair transactions in a row, there is a small chance that they would deviate later on.

In blockchain systems, a reporter’s reputation statistics can also be determined in a similar fashion. The higher the reputation of the source, the more often they will be invited to cooperate with the oracle and the more money they will earn. But a standard accounting of reputation in the form of an abstract points system has a serious problem that comes in the form of a retirement attack.

The idea is that while the reporter is engaging with the blockchain, his reputation is valued, but should the reporter leave the system, the reputation can be used to perform a malicious deed. The higher the reputation of the reporter, the less likely they will be to lie and hence will likely participate in closing the most expensive contracts. However, if somebody would suggest a large bribe, they could agree to lie because the reputation would not be important anymore, as the reporter could be intending to leave the system.

The problem of potential corruption is particularly acute for PMs, and developers are trying to find more effective solutions than just reputational accounting.

Augur and Bitcoin Hivemind’s solution: Reporters with financially convertible reputations

In order to prevent the problem of retirement attacks, the developers of Augur and Bitcoin Hivemind introduced an additional layer of protection. Good reporters are awarded REP and HIVE reputation tokens, which are freely traded on cryptocurrency exchanges. If desired, the reporter can convert their reputation tokens into financial income.

When closing any contract, several reporters can participate at once, between which a vote takes place to determine which of the PMs players have won. A reporter’s value depends on their reputation. Reporters get additional tokens for a correct answer and lose them for an incorrect one.

A system with reputational tokens is more secure from corruption, but economically, a threat is still possible. If the bettors’ stakes are high and the price rate of REP or HIVE is low, then a significant part of the token holders may be ready to lie for a larger reward.

Amoveo’s solution: Reporters bet on their answers

In the case of the Amoveo blockchain, reporters are also rewarded for correct answers and lose out with the wrong ones. But there are also some important differences in comparison to Augur and Hivemind.

First off, Amoveo has a full, independent blockchain network with a native currency — VEO — while Augur and Hivemind are add-ons over Ethereum and Bitcoin blockchains respectfully. In different situations, they use either REP and VOT tokens, or ETH and BTC

Secondly, when closing a smart contract, Amoveo reporters do not vote for the chosen solution but make bets in their favor in the VEO currency. These bets can vary, depending on how confident the reporter is. The correct answer is not the one that has the maximum votes but rather the most volume. All collected bets are distributed between those who supported the correct answer. Meanwhile, the losers get nothing back.

In comparison to Augur and Hivemind, Amoveo has the following advantages:

  • A reporter’s reward or loss does not depend on the price of the token. Reporters are free to choose the amount they want to risk.
  • Freedom of bid size makes reporters more responsible. A user may adjust the size of the bet depending on how competent they are in the area.
  • Reporter winnings can greatly depend on the complexity of the questions. If the question is elementary, then most probably the winnings will be small. But with complicated questions, a competent reporter may stake and therefore earn more in return. However, the very fact of the struggle means that the question is not optimal for an oracle to decide upon.

Could blockchain-based prediction markets bring a revolution?

Presently, PMs built using blockchains are just emerging. Despite the complexity of technical tasks, there are no insurmountable difficulties in the way of PMs for blockchains. Regardless of possible opposition to these markets, decentralized PMs have a chance to gain wider acceptance. Currently, the value of PMs is being recognized by intellectuals from a variety of areas — e.g., economists, political scientists, philosophers, natural scientists and engineers.

Moreover, it would be difficult to challenge the technology from a technical point of view but may also trigger a public discussion in which proponents of prohibitions are unlikely to win. There may undeniably be secrets that the state will defend at all costs for the safety of its citizens, for example, the plan for anti-terrorist action. There is a possibility that the state and PM supporters will compromise on a certain set of rules — just as in 2013, when the website PredictIt agreed with the U.S. government on several restrictions and was not closed, unlike other websites.

PMs have the potential to change the world, since their impact on society could be comparable not just to the advent of Bitcoin (as Roger Ver believes) but with the creation of the internet itself. PMs could help to choose viewpoints that could make humanity be more organized and farsighted.

How fast will the adoption of prediction markets on blockchains be? Could developers build systems that are well-protected from corruption? What does the future hold for the state and prediction markets? What branches of public life would be changed the most with the implementation of prediction markets? We are waiting for your comments.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Anatoly Knyazev is a computer scientist and co-founder of Exante, Bitcoin Fund and Exan.tech. He started his career as a derivatives trader at his own fund in the early 2000s. He developed unique trading software, which turned into the Malta-based prime broker Exante. In 2012, Anatoly started the world’s first Bitcoin-only hedge fund.

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Bernstein: No, Crypto Markets Aren't Like the Dot-Com Bubble

Analysts for Bernstein contended in a report published Friday that the cryptocurrency ecosystem is developing an alternative to Wall Street.

The report argues that the blockchain industry is setting up “parallel financial networks” that exist as alternatives to incumbent systems in operation today. And while these new platforms still operate “on the fringes of the mainstream economy,” Bernstein’s authors say that ‘with size and scale, we will witness mainstream talent and then eventually capital diverted towards” these new networks.

Indeed, the report argues that what is being developed is a “market-based innovation experiment” – yet one that isn’t without its issues, as seen by the prevalence of token sale scams, among other forms of crypto-specific fraud.

At the same time, Bernstein’s analysts suggest that the market for crypto-assets – being a global one that never closes for business – serves as a “natural correction system,” comparing that state of affairs favorably to the 2000s dot-com bubble that played out on regulated exchanges with specific operating times.

The analysts wrote:

“To see the fund-raising landscape as scam prone and with regulatory skepticism fails to recognize it as a market based innovation experiment to build out a new financial system. And the 24*7 trading market acts as a natural correction system for the bad actors unlike the dot com bubble where the feedback for weak business models came with a lag. Crypto markets build and destroy fortunes every day.”

The report also delved more deeply into specific cryptocurrencies, noting that bitcoin in particular “needs no more critiques.”

It continued, saying “to start with bitcoin is the first global, digital, non-state/non-central entity controlled, financial asset with 24 * 7 market-based prices. It also facilitates global money transfer & final settlement within less than an hour (at a cost between 0.5-1%) which no bank or international network offers.”

Bernstein also cited ethereum’s ERC-20 token and its use in token sales as “the killer application” for the network.

“While, fraught with regulatory uncertainties around retail sale of security and fraudulent projects, the fund-raising movement has funded many projects that are building the core infrastructure layer of the crypto fintech network,” the authors wrote.

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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Ripple (XRP) Xpring Financial Backing for Innovators Announced

Ripple [XRP] cryptocurrency, known for being focused on delivering better solutions and improvements when it comes to cross-border money transfers, has announced a new project called Xpring which will act as a financial supportive ground for developers that plan to contribute to Ripple’s network.

When it comes to Ripple, its original goal of being the leading international money remittance service takes shape and form even more every time a partnership is declared or its solutions undergo trials [tests] by various platforms.

Xpring will fund projects that do seem promising for XRP and its future, functioning as a hybrid accelerator/incubator project that will engage “serious” concepts and companies being developed by “proven” entrepreneurs.

In the Xpring related press release, it was mentioned that the plan for the project is to make sure that projects of interest to have what is needed essentially to grow and develop even further.

Ethan Beard – Senior Vice President is running the show for the fund together with a just-made team. On the matter, Mr. Beard gave center-stage on how important it is for the use cases of Ripple’s platform to spread even more:

“I love helping startups leverage new technologies and developments to grow. At Facebook, we saw companies in areas like gaming, music, and news use our platform to become big businesses. Blockchain and digital assets have the ability to solve important problems and XRP – with it’s speed, scalability and demonstrated real-world use case – is a great tool for startups and entrepreneurs to build businesses around.”

Latest – The intention to find use of Ripple’s distributed ledger technology for showcasing international money transfer has been declared by Mitsubishi Corporation and Mitsubishi UFJ Financial Group.

Utilizing the solutions that the blockchain based tech firm is offering has come as an idea keeping in mind that it will lower time and costs of transaction settlement – according to Mitsubishi Corporation.

“We aim for practical use within a few years,” the statement highlights.

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Why Canada has Emerged as a Leading Blockchain and Crypto Nation: Expert Take

In our Expert Takes, opinion leaders from inside and outside the crypto industry express their views, share their experience and give professional advice. Expert Takes cover everything from Blockchain technology and ICO funding to taxation, regulation, and cryptocurrency adoption by different sectors of the economy.

If you would like to contribute an Expert Take, please email your ideas and CV to george@cointelegraph.com.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. This article does not contain investment advice or recommendations. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Canada has emerged as a leading crypto nation based on its innovation, low energy costs, high internet speed and favorable regulatory regime.  While it ranks third in the world behind the U.S. and the UK when it comes to embracing Blockchain technology, Ethereum Blockchain technology adoption around the world with a wide variety of applications in finance, government, legal, health, education, space, national and multinational cryptocurrencies, energy, initial coin offerings and others is unparalleled.   

A study conducted by Cornell University shows that “The Ethereum nodes are both in the latency space, and also geographically, more distributed around the world, as opposed to Bitcoin nodes, which tend to be located in data centers” explained Emin Gün Sirer, Cornell professor and computer scientist.

Center for Blockchain innovation

Canada’s dominance in Blockchain innovation stems in part from Toronto being home to Vitalik Buterin who is the inventor of the Ethereum Blockchain, a second-generation open source software platform, with a general scripting language, which created a protocol for building reliable decentralized trusted networks. It extends the functionality of Satoshi Nakamoto’s Blockchain design which powered decentralized peer-to-peer Bitcoin payment, by adding the concept of smart contracts, also called scripting.

This feature allows the platform to store and run computer programs and enables developers to build and deploy decentralized applications and create whatever operations they want with permanent, trusted record of assets and transactions. The first public Ethereum backed network went live in 2015 and supports ether (ETH), currently the second highest valued cryptocurrency at $63 Billion.  ETH finances the Ethereum Swiss Foundation  and is used by application developers to pay for transaction fees and services on the Ethereum network.  

The platform has worldwide adoption. As Nick Johnson, the chief software architect of Ethereum Foundation, puts it:

“We are building a bridge between the human readability of cryptographic addresses and machine readability.  While some others are working similar platforms that they feel may have their own advantages, the size of the development teams around Ethereum ballooned with initial spikes in interest to something larger than anything else in the space. With that, application development, innovation in scaling and other areas followed the trend, thereby creating a snowball effect.”

Ron Resnick, Executive Director of the Enterprise Ethereum Alliance which launched last year adds:

“EEA serves as the connective tissue between Ethereum Blockchain and the evolving enterprise industry with over 450 members from all around the world — 135 in the Banking Work Group — which are driving production deployments through a community of over 30,000 developers.”

Take for example ConsenSys, an EEA member firm, which various Ethereum projects including Quorum, and the EU Blockchain Observatory and Forum and trains Ethereum developers at its Academy.

The EEA is also a member of Blockchain Research Institute (BRI), based in Toronto, which is dedicated to over 70 research projects that proposes ways in which Blockchain technology can be utilized to impact various industries.  BRI has partnered with the Information and Communications Technology Council (ICTC) of Canada to build a nationwide Blockchain ecosystem; alongside the Bank of Canada which has explored and experimented with a National cryptocurrency.  

Cryptocurrency mining

But it’s not only Blockchain innovation where Canada excels in. According to Hydro Quebec, the province has an energy surplus equivalent to 100 Terawatt hours over 10 years and offers some of the lowest electricity rates in North America.  This has drawn cryptominers to the region, including from China, in droves. A cryptominers easy, breezy life style starkly contrasts that with a gold miner who works 5,400 to 5,600 feet below surface, at suffocating temperatures, dripping with sweat, while punching holes into burning rock walls, to find hidden gold, in the dark.

Here is an example.  China’s Bitmain Technologies began mining in Canada in 2016, when ETH traded at $1.  When ETH’s price rose 63,600% to $636 with no implemented hard cap on the total ETH supply, Bitmain first announced a new specialized mining system for ETH; then set its eyes on cryptocurrency mining sites in Quebec, as it takes on average 29.05 TWh annually to operate a cryptocurrency mining operation. That’s about 0.13 percent of total global electricity consumption.  

While this may be potential bad news for the smaller cryptominers in the region, a local ETH miner shrugged it off:

“Quebec is one of the best places in the world for mining, thanks to low cost electricity, cool temperatures, and high-speed internet. There’s a lot of data centers in Montreal and they’ll rent you a space for your own server or ZTE smartphone–Sugar S11. Since you’d be paying about half to 1/3rd the electricity price of Ontario, then the added expense of rent is well worth it”  

However, recently Quebec Premier Philippe Couillard warned that “Cryptominers planning to move to the region will not get cheap electricity from the government-owned utility Hydro-Quebec, as the utility may not have enough power to meet the demand.” The utility has received an order to await instructions from the government.

Light cryptocurrency regulation

Excessive regulation could stifle innovation; accordingly, Canada lightly regulates cryptocurrency/ICO/tokens.  And offers a wide selection of government — federal and provincial — incentives and aid to startup tech companies.

Last year, with the boom in Ethereum Blockchain based ICOs that raised $4 Billion worldwide, the Canadian Securities Administrators suggested that Canadian Securities Law may be potentially applicable to cryptocurrencies. The Ontario Securities Commission (OSC) on the other hand granted regulatory relief to allow Ontario’s first regulated ICO under existing exemptions in securities laws.

And the British Columbia Securities Commission approved Canada’s first registered cryptocurrency investment fund, acknowledging that it views cryptocurrency investments as a new and novel way to invest.  This ruling allowed pension, investment and venture capital funds including the Ontario Municipal Employees Retirement System’s Ethereum Capital to invest in cryptocurrencies and tokens.

This year, amid extreme market volatility, Canada’s first Blockchain exchange-traded fund began trading on the Toronto Stock Exchange.  And OSC started examining the business activities of several exchanges on the concern that they were allowing trading in tokens that would otherwise qualify as securities.

Cryptocurrency taxation with incentives

The Canada Revenue Agency (CRA) began taxing cryptocurrencies in 2013, but to bolster technological and scientific innovation the –Federal and provincial—governments provide various Research and Development (R&D) tax incentives.  

Laura Gheorghiu a tax partner at Gowling WLG explained that the CRA has characterized cryptocurrency as a commodity, therefore the exchange of it becomes a taxable event as a barter transaction giving rise to either business income (fully taxable) or capital gains (50% taxable)— depending on the facts and circumstances– measured according to the value of the assets exchanged in Canadian Dollars.  

If a cryptocurrency is held as a capital asset (like an investment), then the gain is classified as a capital gain and taxed as such.  If the cryptocurrency is situated, deposited or held outside of Canada directly or through funds, taxpayer must adhere to foreign reporting rules.

If an employee receives cryptocurrency as payment for salary or wages, or otherwise in connection with employment, the amount, computed in Canadian dollars, is included in the employee’s income. Mining of cryptocurrencies is taxed as either a business or a personal hobby (non-taxable).

Business income, wages or capital gains are taxed at the applicable tax rate for the taxpayer in question.  The general combined Federal/provincial income tax rates in Canada vary between 26.5% to 30% for corporations and 44.5% to 58.75% for individuals depending on the province.

A non-resident that carries on a business in Canada, is subject to taxation under the same rules as a Canadian resident. Cross-border payments of rents or royalties in cryptocurrency to a non-resident are subject to a withholding tax of 25%, that may be reduced under an applicable tax treaty.

Personal tax returns are due at the end of April and corporate tax returns are due six months after the fiscal year-end of the corporation.

Selva Ozelli, Esq., CPA is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.

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‘A Sociological Innovation’: Big Finance Advisors Preach Blockchain At T3 Conference

Mainstream financial advisors are publicly propagating Blockchain this month, telling that it is a “sociological innovation” during the US Technology Tools for Today (T3) conference, CNBC reports Monday, Feb. 12.

A summary of the T3 Advisor Conference in Fort Lauderdale, Florida, which ran Feb. 6-9, demonstrates the significant U-turn in attitudes from advisors in 2018.

“Blockchain is a sociological innovation. It is a piece of technology, but it enables us to transfer and transact value on the internet and to organize networks in a way that we were not able to before,” senior economist Magdalena Ramada of the global advisory company Willis Towers Watson told the audience.

Traditional finance and banking have long studied the cost savings and increased efficiency Blockchain promises, but its impact on a human level is rarely mentioned outside cryptocurrency circles.

A focus on so-called distributed ledger technology and ‘permissioned’ or ‘private’ blockchains have become bywords for financial institutions looking to create Blockchain-based products over which they still exert centralized control.

This week, Cointelegraph reported how CMEGroup, which released the first Bitcoin futures contracts in December 2017, had applied for a patent on a system which would allow changing the rules of a Blockchain without requiring network consensus.

Prior to that in September last year, Accenture had acquired a patent for what it called “editable Blockchain” technology.

Regardless of its packaging, however, high-level business consultants are now aware of the need to embrace the disruptive nature Blockchain presents.

“Anyone who stands between the buyer and seller is gone, so stockbrokers are gone, mortgage brokers are gone, ticket sellers are gone,” Ric Edelman, founder and executive chairman of Edelman Financial Services continued.

“Anybody who serves as that middleman is obsolete due to the blockchain.”

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2018's Challenge: Promote Responsible Blockchain Innovation

Beth Knickerbocker is chief innovation officer at the Office of the Comptroller of the Currency, the U.S. agency that charters, regulates and supervises all national banks.

The following article is an exclusive contribution to CoinDesk’s 2017 in Review.


Innovation in financial services is critical to meeting the nation’s changing consumer and business needs, and the OCC’s Office of Innovation is working to promote responsible innovation in the federal banking system.

Operational since January 2017, the Office of Innovation is responsible for improving the agency’s ability to identify, understand and respond to financial innovation affecting the federal banking system and serves as the agency’s central point of contact and clearinghouse for innovation-related matters.

Early last year, the Office hosted “Office Hours” in technology hubs New York and San Francisco with more than 40 banks and non-banks to gain a better understanding of common issues and concerns that these entities face regarding innovation-related products, services, and emerging technologies.

The goal of the meetings was to provide these entities with candid regulatory advice and give participants a welcoming environment in which to express their views. Other topics discussed at these informal meetings included partnering with banks, third-party risk management expectations and how best to prepare to operate in a highly-regulated environment.

Action points

A dedicated web page was established on OCC.gov with links to innovation guides for community banks, financial technology companies (for example, marketplace lenders and startups in the blockchain technology and cryptocurrency space), and other non-bank institutions.

The page describes the OCC’s Responsible Innovation Framework and provides links to innovation-related news, speeches, and special purpose national bank charter information. Banks, non-bank companies, and fintech companies can contact the office through a dedicated e-mail address or phone number.

In addition to Office Hours, the OCC participated in more than 50 outreach events related to fintech and responsible innovation. Additional outreach and awareness efforts included collaborating and sharing information with other domestic and international regulators.

Internally, the Office conducts research, develops awareness materials, and maintains a library of fintech and innovation-related news articles, podcasts, and other resources. This material is available to the OCC workforce so that examiners, in particular, are prepared to discuss innovation topics with bankers and to answer questions about the OCC’s responsible innovation efforts.

The Office is also working with the OCC’s Continuing Education department on updating training plans to help OCC staff learn more about responsible innovation.

In March 2017, the OCC published a draft supplement to the Comptroller’s Licensing Manual describing its proposed approach to chartering fintech companies.

The draft supplement clarifies the agency’s approach to evaluating national bank charter applications from fintech companies, describes how it would supervise these banks and articulates expectations for how these banks would ensure fair access and fair treatment for all customers.

To date, the OCC has not decided whether to exercise its authority to grant special purpose national bank charters to non-depository fintech companies under 12 CFR 5.20(e)(1).

In a July speech to the Exchequer Club, Acting Comptroller of the Currency Keith Noreika made clear that fintech companies can seek national bank charters under other authorities used to charter full-service banks, as well as other, long-established special-purpose national banks, such as trust banks, banker’s banks, and Competitive Equality Banking Act (CEBA) credit card banks.

Outlook

Looking ahead to 2018, the OCC is considering developing a program for the OCC to participate in bank pilots to further the its understanding of innovative products, services, processes, or technologies.

A program such as this may accomplish the same goals as what others call “sandboxes,” and allow the OCC to foster responsible innovation by OCC-supervised banks and enable participants to obtain OCC feedback early in the development process.

Information gathered in the pilots could also inform OCC policies and ensure that we are ready to supervise the new activity when implemented on a larger scale. Pilots, however, do not provide a safe harbor from banks’ compliance responsibilities.

Also in 2018, the OCC will expand its Office Hours program to other financial innovation hubs, build on its outreach and research efforts, and improve the awareness and knowledge of OCC staff on emerging trends in the industry.

The OCC will continue to identify ways to promote and support banks interested in engaging in responsible innovation by partnering with fintechs and other non-bank companies in a safe and sound manner, reducing costs and increasing earnings, and serving their customers more effectively.

Rope net image via Shutterstock

The leader in blockchain news, CoinDesk strives to offer an open platform for dialogue and discussion on all things blockchain by encouraging contributed articles. As such, the opinions expressed in this article are the author’s own and do not necessarily reflect the view of CoinDesk.

For more details on how you can submit an opinion or analysis article, view our Editorial Collaboration Guide or email news@coindesk.com.

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My New Year's Resolution? Revisit Blockchain's Fundamentals

William Mougayar is the author of “The Business Blockchain” and a board advisor to, and investor in, various blockchain projects and startups (see disclosures).

The following article is an exclusive contribution to CoinDesk’s 2017 in Review.


In the midst of a new wave of euphoria and interest in cryptocurrencies, it’s all the more important that we remain clear on what the fuss is about.

Sure, rising cryptocurrency prices have given the field a flurry of mainstream headlines, resulting in higher consumer awareness and visibility. Undoubtedly, the cascading effect has attracted more participants, from eager speculators, to curious software developers, to novice users.

However, our emphasis should remain on how we apply the fundamental innovations of blockchain technology. As we enter 2018, it is clear to me that this key narrative has been lost on many, and as a New Year’s resolution, I believe we should all be reminded of it.

When something as new and fundamental as the blockchain comes along, the initial reaction is to quickly apply its elements to what we currently see, as an overlay of the old. But this approach only gets us so far in terms of reaping the fruit of innovation.

We need to create new things, and not just tinker with the old.

As an analogy, the web’s first phase (web 1.0 era) consisted of plastering information on the web, and saw the development of early versions of e-commerce. But there was no social web, because we didn’t figure out the web’s two-way read-write capabilities until later. The fundamental Web 2.0 innovation was about empowering users to add web value by being content publishers themselves.

With many token-based ICOs and other blockchain initiatives, it looks like we are copying what we already see instead of inventing what we don’t discern yet.

Against that backdrop, let us re-visit the blockchain’s fundamental innovations and be reminded that it is only by applying them that we will uncover the next versions of applications and protocols that will truly usher us into a crypto-based economy.

When you encounter blockchain implementations, technologies, applications, ICOs and projects, ask yourself if one or several of the following six fundamental outcomes are seriously being tackled:

1) Replacing Intermediaries and counterparties

That is a sine qua non condition for blockchain technology.

The original intent of bitcoin (which started this revolution) was to use the blockchain to validate the finality of transactions without counterparty involvement or intermediaries that relay (and delay) transactions. That is the essence of the trust network. You must ask how the blockchain is being used to fulfill this function, in lieu of synchronizing databases via intermediary players.

For example, one target application area is decentralized assets trading, where the initial order is relayed and settled on the blockchain directly, without exchanges.

2) Native assets liquidity

Thanks to CryptoKitties, native assets on the blockchain are getting a memorable poster child.

Consider the fact that cryptocurrency itself is the first native asset of the blockchain. But any digital asset with a unique ownership component can – and will – be traded on the blockchain.

Of course, the first candidates are assets that already have a digital form, but think about also applying fractional ownerships to hard assets, and giving them instant liquidity. Global asset liquidity is going to get a boost, as much of the world’s non-liquid assets will have a chance to trade on the blockchain.

3) Proofs of X

If the blockchain represents the version of the truth, we need to be able to go somewhere and check that truth. I would like to start seeing easy-to-use portals and capabilities that query blockchains for business answers, just like Etherscan and Blockchain (the company) allow us to query them for technical transactions details and respective history about the ethereum and bitcoin blockchain.

Did this particular event take place at this specific time, and between what parties? Who owned this asset on this given date? When did we learn about this event?

There are so many examples waiting to become the next “Googling” equivalent for the blockchain.

4) Letting the blockchain enact consequences

Smart contracts are the execution instigators for blockchain logic.

Their outcome is to enact the result of certain programmable conditions, and we are gradually learning to gain their confidence by giving them more autonomy. Blockchains should be able send funds, reward users, transfer ownerships, accept votes, release rights or do whatever smart contracts program them to do.

Of course, mistakes and poor implementations can lead to bad consequences, but that also comes with this new territory. So, this part comes a degree of caution that we need to fully test and start by taking initial steps with, before endowing greater enactment responsibilities to the blockchain.

5) Peer-to-peer infrastructures

Another key tenet of blockchains is the peer-to-peer infrastructure underlying its operations.

As a starting point for setting up a blockchain network, computer servers represent this peer-to-peer infrastructure, but we should not forget they can include anyone with a smartphone or a personal computer. Sometimes, this infrastructure features just people as users, and sometimes it consists of servers and people. Regardless, it is a slice of the innovation side of the blockchain that deals with its deployment in ways that weren’t possible before.

A blockchain with limited P2P infrastructure will have limited impact on its participants.

6) Network effects at the protocol levels

Horizontal or vertical protocols are the next fabric upon which many blockchain applications will depend on. This might be the equivalent of the web standards we are used to, like HTTP, HTML, URLs, CSS, XML, etc.

Standards enable the proliferation of usage, because of the knowledge network effects around them. We need to see more network effects applied to blockchain technology, where every additional user adds value to the rest of the network.

With that backdrop of capabilities in mind, you can apply “acid test” questions for blockchain implementations you encounter. Answering at least one of them in the affirmative, then expanding on a further description of exactly how it is being done, is a necessary condition that would point you towards where blockchain innovation is in the works.

  • What intermediaries or counterparties are you replacing?
  • What tradable native assets are you creating or recording?
  • What are the consequences that the blockchain is empowered to automatically act upon?
  • What peer-to-peer infrastructure are you relying on?
  • How are you achieving network effects at the blockchain level?
  • What added value does every new user provide for the rest of network?

Two years ago, crypto-engineers were rushing (and gushing) to the market, with their immature technology. Today, the trend is reversed.

While most blockchain developers and researchers have hunkered down trying to perfect their technology, business people are the ones rushing to the market with immature business models. We must ask whether any blockchain project is leading us to unchartered levels of true innovation, or diverting us into a meandering path of distraction.

Many short-sighted blockchain projects start via an intention to place some record on a blockchain ledger. That task is becoming easier, but it is only a starting point, and that is certainly not enough.

Inventing the future on the blockchain is hard, but if you diligently endeavor to apply the fundamental innovations of blockchain technology, you might land on some breakthroughs.

Have your own advice for blockchain businesses? CoinDesk is accepting submissions for its 2017 in Review. Email news@coindesk.com to share your pitch.

Building blocks image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Interested in offering your expertise or insights to our reporting? Contact us at news@coindesk.com.

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Ethereum Could Become the Leader Just by its Innovation: Crypto-World Take Over

Based on the title, readers should understand that this is a long-term future assumption which could follow up after major changes and developments in the cryptocurrency community. As for the moment, leading the virtual currency pack is Bitcoin – ‘The Golden Coin’.

To get the whole picture why Ethereum and its blockchain could be in the lead of the group, its of importance to pin down the differences between Bitcoin and Ethereum.

Bitcoin [BTC] could be defined just by calling it “the digital dollar”. It is money that can be bought or sold very easily through exchanges, websites and platforms like the very famous Coinbase but it lacks the traditional ‘money regulation’ from banks. So, it is no company or technology, just money in a virtual structure.

Other uses of Bitcoin are the so called ICO – Initial Coin Offerings, in which Bitcoins are exchanged for tokens that are issued by a company that is raising capital with the help of early adapting investors.

Some people buy Bitcoin because they want to store their money somewhere other than a bank. Some buy Bitcoin as an investment, believing that its price a few months or years from now will be substantially higher than it is today.

The second in-follow for the first place is Ethereum – [ETH] is a different digital currency which many analysts and crypto-enthusiast specify as an alternate leader and that could be dominant in the market.

In any economy, currency is relative. Since Bitcoin has been the leading coin since the beginning, the price of every other “altcoin” (and there are a lot of them) is measured against Bitcoin. Take Litecoin, for example. It is a currency that has its own market and holds its own merit, but while Bitcoin is priced at $5,400, Litecoin currently sits around $56. So, while it has its own value, it is by no means a market leader.

While Ethereum is a different digital coin with its market token “Ether”, it truly is by far just that. Its ledger technology and blockchain structure makes it possible for firms and companies with startup ideas and so on, to build new apps and programs over it called dApps (decentralized applications).

In short words: Its the new and more robust blockchain with the opportunity of great innovation.

Furthermore, significant support for Ethereum’s technology comes from The Enterprise Ethereum Alliance. This is a very large group of 500 companies that have all agreed to work together to learn and build upon Ethereum’s blockchain technology—otherwise referred to as “smart contract” technology. In this case, “smart contracts” mean that demanding business applications can automate extremely complex applications.

Ethereum’s Tech has great important and will do major impact for IoT projects and processes – keeping in mind that there is still room for improvement and developments, it still marks an era of opened doors for all unique innovations.

Both Bitcoin and Ethereum are targeting parallel but different goals – Where Bitcoin is trying to disrupting currency, Ethereum is disrupting equity.

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