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Facebook’s Marcus: Libra to Satisfy All Regulatory Matters Before Its Launch

David Marcus, head of Facebook’s crypto wallet Calibra, stressed that Facebook will launch the Libra cryptocurrency project only after they address all regulatory concerns.

David Marcus, CEO of Facebook’s crypto wallet Calibra, underlined that Facebook would not launch the Libra cryptocurrency project before they address all regulatory concerns. Marcus delivered his comments at a hearing on Libra with the Financial Services Committee of the United States House of Representatives today, July 17, as reported by a Cointelegraph correspondent.

On the second day of hearings on Libra’s structure and management, Rep. Nydia Velazquez asked Marcus, “Will you commit yourself to not launch before all the concerns from the Federal Reserve and other regulators are addressed?” In response, Marcus said, “Absolutely.” Rep. David Scott followed up with a comment:

“Neither your white paper nor your subsequent Facebook post offered any concrete details as to how you plan to implement or enforce strong AML [anti-money laundering], how you plan to enforce KYC [Know Your Customer], and most important, to ensure the safety — and that’s what all of us are concerned with — of our financial system.”

Rep. Scott asked Marcus how the company envisions Libra’s responsibility to combat money laundering to protect the financial system. Marcus said that “blockchain gives additional information to law enforcement and regulators compared to our current system.”

Marcus also stated that he believes that they can improve the current system in order to preclude wrongdoers from using Libra for illicit activity.

Rep. Jim A. Himes noted that “users will have the profoundly unfamiliar experience of assuming foreign currency risk” and asked Marcus how the company is going to make foreign currency risk transparent. Marcus responded that Facebook will have educational tools built into the product.

As reported earlier today, committee chair Rep. Maxine Waters opened the hearing with an indictment of Facebook’s past behavior. In her statement, Waters noted a “demonstrated pattern of failing to keep consumer data private on a scale similar to Equifax.”

Waters also stated that Facebook, “allowed malicious Russian state actors to purchase and target ads,” which purportedly influenced the 2016 U.S. presidential elections.

On July 15, a day before the hearing, the Banking Committee released Marcus’ opening statements, where he stressed Libra and Calibra’s implications for commerce and consumers. “State financial regulators will regulate Calibra as a money transmitter, and the Federal Trade Commission and the Consumer Financial Protection Bureau will monitor for consumer protection and data privacy and security issues.”

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Top-6 Issues Experts/Entities Have With Libra

Experts and Lawmakers call for caution over potential risks of Facebook’s Libra cryptocurrency to the global financial industry.

Facebook’s unveiling of its Libra cryptocurrency has generated a lot of attention in the financial world, as well as in the crypto space. So far, the company has announced that its Libra blockchain network will be launched in 2020 and backed by a separate entity, the Libra Foundation. The cryptocurrency is set to enable users to make faster and cheaper international payments online, using platforms such as WhatsApp or Facebook Messenger.

The Libra currency

Just like any other cryptocurrency, Libra is set to have its own wallet called Calibra. Users would be able to send and receive Libra through this wallet by converting fiat currency from their credit cards into Libra coins. Third-party operators would also be allowed to sell the Libra cryptocurrency to users, and the entire process is set to be as simple as buying data for a mobile phone.

Facebook claims that the Calibra wallet “will have strong protection in place to keep your money and your information safe.” This claim has raised a lot of concern about data privacy and security, considering Facebook’s history of mishandling the data of its users. The company says that it plans to use the same verification and anti-fraud processes that are used by traditional credit card issuers and banks.

Libra is more of a stablecoin than an actual cryptocurrency in that its value will be pegged to several trusted currencies to prevent violent price fluctuations. Furthermore, Facebook plans to cede control of the Libra network to the Libra Association Council. The Libra Association Council is an organization that comprises founding members who operate the nodes of the Libra network.

This is not the first attempt by Facebook to create an in-house currency. In 2010, Facebook made moves to become a player in the digital currency space with Facebook Credits. Some reports believe that Facebook Credits were shut down due to an internal decision even though the company first intended for them to be used to pay for day-to-day activities, such as buying meals.

Related: Libra, TON and JPMorgan Coin Compared: Are They Heroes or Villains?

As it seems, Facebook is at it again with ambitious claims of using the Libra cryptocurrency to enable financial inclusion, potentially for billions of unbanked users in developing countries. The social media giant has, however, come under scrutiny from people who believe that Libra is a disaster waiting to happen. Furthermore, several countries have issued inquiries and even hearings regarding the regulatory repercussions of the use of Libra in their respective territories. 

U.S. lawmakers are skeptical of Libra

On July 2, Maxine Waters, a United States congresswoman and chairwoman of the House Financial Services Committee, wrote a letter to Facebook calling for the immediate cessation of any further development on Libra. According to the open letter, Facebook and its partners should pause any further development on Libra until the Financial Services Committee and affiliated subcommittees determine the possible risks Libra poses to the global financial system. The letter also referenced Facebook’s recent privacy scandals that involved data harvesting of over 50 million Facebook profiles. The letter stated: 

“Facebook is already in the hands of over a quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action.”

On July 16, the Senate Banking Committee is planning to hold a hearing that will address the concerns over data privacy and the potential risks of the Libra project. Right after that, the House Financial Services Committee will also have a chance to examine Libra’s case on July 17. When asked whether Libra can actually cause a global financial crisis if left unchecked, Gregory Klumov, the CEO and founder of the euro-backed stablecoin issuer Statsis, told Cointelegraph that Libra cannot cause a financial crisis: “Most of the negativity comes from politicians. They’re afraid of losing their monopoly on financial oversight.” He further explained:

“The balance sheet of the association will not be leveraged. A financial crisis is impossible without excess leverage. Also, Libra’s coin might be recoverable if someone’s password is lost or stolen, similar to e-money like with PayPal or Skrill.”

While offering his response to the matter, Andrew Adcock, the CEO of Crowd for Angels, came out with a different opinion: 

“Libra, however, are seeking to utilize multiple assets as coverage, not just one type and are not seeking to be pegged. This could cushion a financial crisis if managed well with transparency and trust.”

Adcock, however, also believes that “the US congressman has shared the concerns and that Libra was launched when the US markets were sleeping probably shows the weight of their potential punch.”

History of Facebook scandals

Several experts recommend caution, considering Facebook’s history of mishandling user data — as was the case with Cambridge Analytica. Now that money is involved, people fear that Facebook could sell user spending and transactional data to banks and other interested third parties. After all, Facebook’s business model is to advertise by routinely allowing researchers to access user data.

According to Forbes contributor Enrique Dans, who is also a senior advisor for digital transformation at IE University, the Libra initiative has the potential to do well. However, he believes that if it were in the wrong hands, it could cause serious damage when it comes to trust. According to Dans, Facebook “has the worst reputation for privacy, along with ethical standards that have seen it involved in accusations of electoral manipulation and even genocide.” Although the company claims to be committed to securing user data, experts believe there is nothing stopping it from monetizing such data.

Facebook started off with a pledge to make the world more open and connected. But like many other experts, Dans believes that the only reason Facebook is planning to launch the Libra coin is to “capitalize on its huge user base.” According to the Libra white paper, Facebook will outsource the management of Libra to the Libra Association Council, an independent nonprofit foundation. However, David Marcus, the Libra head at Facebook and former president of PayPal, explained in a post:

“Facebook will not control the network, the currency, or the reserve backing it. Facebook will only be one among over a hundred members of the Libra Association by launch. We will not have any special rights or privileges.”

He also confirmed that, even though Facebook owns the Calibra wallet company, Calibra’s financial data will be inaccessible to Facebook. But, in response to this move to restore trust, Dans says that Facebook’s “malign philosophy is contagious“ and that it will eventually drag every other partner in the association “down to its murky levels.”

Libra security risks

According to Libra’s white paper, the Libra blockchain is set to be an open-source blockchain initiative that will offer developers a prototype in a prelaunch testnet. This will give developers an enhanced beta bounty program to identify bugs, vulnerabilities and flaws in the system before the official launch of Libra in the first half of 2020.

However, Facebook’s attempts to outsource Libra’s management and development — by allowing anyone to build products with access to billions of users — put a huge target on Libra that can be exploited by bad actors. Making Libra open-source will introduce security risks. These risks can potentially allow a black-hat developer to easily create a wallet that steals funds from users’ accounts. Even though Facebook claims that it will bear the cost of hacks on Calibra wallets, in the event of significantly large losses, the Libra white paper has not yet stipulated a system to solve such a problem. 

The letter from Congress also points out evidence of hacked crypto wallets, which has led to billions of dollars in loses. Therefore, Libra’s Calibra wallet also presents a huge risk to users and investors, who might end up using it. The lawmaker also highlighted how Libra’s white paper provided “scant information” about the project’s security features.

Lack of censorship resistance

In terms of technicality, Libra’s white paper also leaves many questions unanswered, especially when it comes to censorship resistance of the Libra blockchain. In fact, Mustafa Al-Bassam, one of the co-founders of Chainspace — the blockchain startup that was acquired by Facebook to scale research and development for Libra — points out some of the technical loopholes in the Libra white paper.

Al-Bassam is the only researcher on the Chainspace research team who did not join Facebook after the acquisition. According to a tweet thread he shared: 

“Libra could end up creating a financial system that is *less* censorship-resistant than our current traditional financial system.”

Libra’s technical philosophy attempts to solve the problem of scalability by first becoming a private blockchain with a select group of entities managing the Libra coin. However, Al-Bassam says that this presents a challenge when it comes to achieving censorship resistance. Most of the companies partnering with Facebook to form the Libra Association Council are U.S.-based companies, which include MasterCard, Paypal, Stripe, Visa and eBay, to mention only a few. According to Libra’s white paper, these entities will control the Libra network through an association-based model. Al-Bassam argues that this model of control on a blockchain network does not provide sufficient levels of censorship resistance. 

Related: Facebook’s Libra Coin: Initial Reactions Mixed

A spokesperson for MakerDAO, a blockchain-based company, told Cointelegraph that “Libra is built on a permissioned blockchain, which effectively means Facebook and its investors have a certain amount of centralized control over access, transparency and all data.” Even though Libra promises to switch to a permissionless network down the road, Al-Bassam says that, by the time the switch to a more censorship-resistant and open platform is implemented, the main central banks will have full control of the network. Klumov also agrees with Al-Bassam, arguing that: 

“Five years in the crypto industry might as well be an eternity. Both the technology and the market are developing so quickly, that no one can say for sure what will happen in five years. That’s as true of Libra as it is of any other crypto project.”

Libra is not a real blockchain

Despite the hype around Facebook getting into blockchain, the Libra coin has been criticized for not being a “real” blockchain in the true sense of the word. The Libra white paper ignores the decade-old blockchain research that has been achieved by the likes of Ethereum and even Chainspace and payments platform Algorand. 

The Libra blockchain does not have any benefits of distributed governance that is common with most blockchain platforms. Instead, Libra promises to be fully permissionless in about five years. Basically, most of the features that make up a blockchain seem to be missing with Libra. At its best, the single data structure that Libra possesses can be compared with Ripple.

Libra may not really help the unbanked

Facebook claims that it will use Libra to help the unbanked, who live in developing countries like Nigeria, Mexico, Bangladesh, China, Indonesia and India. However, Facebook is forbidden in places like China, and even jurisdictions like Indonesia, Bangladesh and Pakistan have previously put temporary bans on Facebook. In addition, developing countries and their governments have been hostile toward cryptocurrencies, with laws that seek to halt the use of cryptocurrencies. 

Basically, even as Facebook tries to launch a cryptocurrency that will give the unbanked inclusion in the global financial industry, its biggest threat remains to be the government authorities in those developing countries. Furthermore, individuals without access to bank accounts in developing countries are typically those with bad credit history or those who fail to comply with Know Your Customer (KYC) and other anti-fraud and Anti-Money Laundering (AML) requirements.

Realted: XRP, Libra and Visa to Fight It Out for Cross-Border Remittance Crown

Therefore, if Facebook is looking to be an alternative solution, it must ensure that the unbanked are compliant with KYC and AML procedures, otherwise Libra could be shut down. With a user base made up of billions of people from all over the world, it will be difficult for Facebook to completely verify the authenticity of its users.

In addition, Libra’s white paper does not seem to fully rationalize its claim to help the unbanked. The paper cites the World Bank’s data, which shows two-thirds of people globally do not have access to bank accounts. Conversely, the research also shows that the majority of the unbanked actually do not need bank accounts. In developing countries like Kenya, the so-called unbanked are still able to access the convenience of low transaction fees with instantaneous mobile payments without a cryptocurrency while using mobile payment services like M-Pesa.

It comes down to this…

The big question about Libra is whether people will actually use it once it launches. A spokesperson for MakerDAO also told Cointelegraph that it is too soon to predict whether Libra will cause a revolution: “Libra is in the white paper phase so the decisions about how this manifests — and whether they keep it truly open-sourced — will determine whether this is a transformative stablecoin or just another PayPal.” 

There is an argument that Libra can make international payment exchanges in emerging markets much cheaper and quicker. However, with Facebook’s data harvesting incidents in the past, even Marcus admits that convincing people of Facebook’s intentions will be “by far the most difficult, intellectually stimulating and challenging thing.”

While answering a question to lawmakers about how Libra would respond, Marcus admitted that, if regulation is not done right, “it could definitely present systemic risks.” He said:

“This is why we believe in and are committed to a collaborative process with regulators, central banks, and lawmakers to ensure that Libra helps with the kinds of issues that the existing financial system has been fighting, notably around money laundering, terrorism financing, and more.”

All in all, experts in the crypto space are of the opinion that, unless the issues discussed above are addressed in time, Libra could potentially dominate the crypto space and kill competition. Others believe that concerns about Libra are overblown and that Libra’s only real threat is that of digital identity and privacy.

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Polish Crypto Exchange BitMarket Shuts Down Citing Liquidity Loss

Polish cryptocurrency exchange BitMarket announced its shutdown in a message appearing on its official website.

Polish cryptocurrency exchange BitMarket announced its shutdown on its official website on July 8.

When trying to access the exchange through its website, users are instead greeted with the following text message in both English and Polish:

“Dear Users, We regret to inform you that due to the loss of liquidity, since 08/07/2019, was forced to cease its operations. We will inform you about further steps.”

Leading cryptocurrency analytics website CoinMarketCap shows that the trading platform was not popular. The volume reported by the website at press time is $850,080 in the past 24 hours. Still, it is unclear how trading is continuing while the exchange is seemingly closed. Users may still be able to trade on the platform using API keys.

Reddit user OdoBanks pointed out earlier today that the exchange has shown several “red flags” in the weeks leading to its shutdown. Notably, prior to the closure, users have been forced to change their passwords (without any given reason) and their API keys.

Lastly, he also claims that some withdrawal attempts have been halted with the exchange asking the users to comply with additional know-your-client (KYC) measures. In those cases the customers were reportedly asked for a scan of their ID, photo of their face holding the ID and “a note confirming that you are using bitmarket to buy bitcoin for yourself, as an investment (a new requirement).” The user also claims:

“Exchange representatives […] claimed that this was the long overdue KYC requirement and that they were only targeting people with expired IDs. They never addressed users’ accusations of hiding the fact that the exchange has been hacked.”

As Cointelegraph reported at the end of June, Singapore-based crypto exchange Bitrue has suffered a major hack, losing 9.3 million XRP and 2.5 million cardano (ADA) from its hot wallet.

Also in June, Firefox’s zero-day security flaw was used in attacks against major crypto exchange and wallet service Coinbase.

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Oxfam Trials Aid Distribution With DAI, Future Use ‘Highly Likely’

Oxfam issued tap-and-pay cards loaded with $50 worth of DAI to 200 Vanuatu citizens to use via Sempo’s payment platform, following six weeks of direct consultation with villagers.

Throughout May 2019, United Kingdom-based nonprofit organization Oxfam International executed a month-long trial that saw MakerDAO’s DAI stablecoin distributed as a means of exchange among citizens of Vanuatu. The Oxfam initiative, named UnBlocked Cash, was conducted in partnership with MakerDAO, ConsenSys and Australian tech startup Sempo. The Australian government also supported the program.

Tsunamis, cyclones and volcanic eruptions comprise a constant concern for the citizens of Vanuatu, with WorldRiskReport describing it as the world’s most at-risk nation to natural disaster for five consecutive years. The month-long program saw 200 residents of the Vanuatu villages of Pango and Mele Maat issued tap-and-pay cards loaded with roughly 4,000 Vanuatu vatu (approximately $50) worth of MakerDao’s DAI stablecoin.

Related: From Clean Water Supply to Rebuilding Notre Dame: Crypto and Blockchain in Charity

Local vendors who agreed to participate in UnBlocked Cash were provided with Android smartphones with an app facilitating the processing of DAI payments. The vendors were also able to convert DAI into fiat currency through Sempo‘s cryptocurrency exchange or any other platform, if desired. In total, 34 vendors participated in UnBlocked Cash, including local stores and schools.

Approximately 2,000 transactions were recorded during the pilot. Due to privacy concerns, an individual’s purchases were not tracked. However, the program recorded the general category of purchases — such as “medicine,” “food” or “bills.” During May, 5% of all new DAI addresses were created by the citizens of Vanuatu.

Cash trumps in-kind provisions

According to Australian media outlet Micky, contemporary research indicates that providing aid in the form of a liquid means of exchange is significantly more effective than giving in-kind support, such as food and other basic provisions. 

The publication approximates that roughly “70 percent of Syrian refugees have been forced to sell in-kind donations for cash so they can buy the items that actually need to suit their personal circumstances.” The provision of cash also serves to encourage local economic activity.

Sandra Uwantege Hart, the head of Oxfam’s Pacific Cash & Livelihoods in Vanuatu, told Cointelegraph that “Oxfam was already managing a portfolio of activities designed to scale cash transfers as a means of delivering disaster assistance across the Pacific region” as early as 2017. She continued:

“Typically, cash transfers are much more efficient than providing goods as a form of aid relief, but they are also slow to set up and often bogged down by lengthy financial reconciliation processes and slow monitoring and reporting, which is often difficult for donors to verify. We saw the potential for higher transparency, rapid analytics and automated transaction tracking typical of blockchain solutions as a vehicle to improve and accelerate our cash transfer programs and ultimately make them more responsive to people’s needs.”

According to Hart, it took Oxfam “a while to find the right tech provider to get this solution off the ground before settling on Sempo through an RFP process. Sempo stood out from the pack as one of the only tech providers who fully understood both sides of the equation we were trying to solve — how cash transfers work, and how to design blockchain solutions in a local context-adapted way to make them work for the people who need them the most.”

Sempo’s platform operates offline

Speaking to Cointelegraph, Sempo’s Melanie Hardman described that the platform’s mission is to solve the challenges encountered by both vendors and customers who seek to conduct trade in periods of crisis. Hardman said:

“Our platform consists of: an app used by vendors as a ‘point of sale’ platform, an e-voucher or ‘tap and go’ card which hold a balance of funds and is used by recipients to make purchases, and a dashboard managed by the Oxfam team, where they can enroll and approve program participants, disburse funds and monitor transactions.”

The platform is able to continue operating offline by “cryptographically recording recipient’s balances on tap-to-pay smart cards, which are then synced at a later point.” The platform also does not require recipients to have access to a mobile phone and does not require users to undergo Know Your Customer (KYC) identification checks, which Hardman described as “critical,” given that many people living in the developing world lack identity documentation. 

In late 2018, Sempo used its platform to deliver cash aid to refugees based in the Greek city of Athens, Iraqi Kurdistan, as well as Beirut and Akkar in Lebanon. According to Sempo, the programs saw the “creation of a digital credit transfer platform that is easy for both vendors and recipients to use, regardless of literacy and existing levels of financial inclusion.” The company also noted that it was able to increase the transparency of the program by leveraging distributed ledger technology.

Stablecoin issuance as cash aid

Sempo’s Nick Williams told Cointelegraph that MakerDAO and Sempo developed a process for UnBlocked Cash that distributed DAI-backed digital vouchers, which were redeemable for fiat currency, to Vanuatu citizens. 

“Dai was used as collateral for a special e-voucher, which means that vendors can be reimbursed by anyone who meets the regulatory requirements of the Vanuatu Government. This gives the platform capacity for much lower cost overheads, as well as creating the foundations for open financial ecosystems in the communities that need them.”

Greg DiPrisco, head of business development for the Maker Foundation, told Cointelegraph that “Sempo was convinced that Dai was the best solution for their needs and thus went through the proper channels to ensure that they could use it in the pilot.” DiPrisco described the initiative as “a testament to the power of a decentralized stablecoin to empower disenfranchised populations.”

Sempo’s Hardman stated that the company was selected by Oxfam to provide its cash transfer platform technology for the Unblocked Cash pilot following year-long discussions between the two entities regarding “the potential to revolutionize the cash transfer space using blockchain.” Hardman continued:

“Sempo was invited to put forward a proposal by Oxfam as part of their RFP process. This involved Sempo presenting an initial presentation on our work to date, and then developing and submitting a proposal, which we did in partnership with ConsenSys.”

Claudio Lisco, strategic initiatives lead at ConsenSys, told Cointelegraph that the company was engaged by Oxfam alongside Sempo “to assess the time, cost and quality of digital cash based transfer programs” after the nonprofit became aware that ConsenSys had built a financial inclusion platform in conjunction with the Union Bank of the Philippines, titled Project i2i. Lisco stated: 

“ConsenSys aided in the initial design of the pilot, provided blockchain advisory and communications support, and evaluated the pilot to make recommendations for future utilization and scaling potential. We were on the ground during the pilot, to document and collect data insights, and conducted interviews and filming. We are now producing the debrief report, video case study, and advising on future developments and how iterations of the cash transfer program can be scaled.”

Pilot program seen as success

While Sempo and ConsenSys will meet with Oxfam during the final week of June to discuss the pilot’s findings — and whether there is potential to employ the program at scale in Vanuatu and other regions — representatives of the entities involved indicate that the program was seen as a success. 

Oxfam’s Hart stated that Oxfam’s previous cash assistance programs in Vanuatu involved a setup process that “took between 30 minutes and an hour of long lines and verifying paper lists.” According to Sempo’s Hardman: 

“Within the pilot, enrolment times were reduced between communities from 5.4 minutes to 3.6 minutes, demonstrating significant time savings when compared with other cash transfer modalities, where recipients may have to attend a registration session, return at another time to verify their identity, and then travel to collect a cheque.”

Hart concluded that there were significant gains in the speed with which Oxfam was able to pay vendors, emphasizing meaningful participation on the part of many small, community-level merchants, who rarely take part in assistance programs due to typically being unable to wait weeks to be paid. Hart explained:

“Now, with weekly payments, virtually all vendors in this trial were small scale and community based, and located within walking distance for most recipients — this means that we are enabling small-scale community economic recovery that is more inclusive and better adapted to people’s purchasing habits.”

Pilot program produces “unprecedented” transparency

Transparency has long comprised a fundamental value proposition put forward by cryptocurrency, with the UnBlocked Cash pilot demonstrating the advantages digital currencies offer over opaque means for distributing public finance. Hardman stated that the initiative “provided high levels of transparency for Oxfam and their donor, the Australian Government, as administrators were able to see transaction data in real time both on the Sempo dashboard, and the public blockchain.” 

Related: Young Africa Looks to Crypto for Payment

Hardman also reported that Vanuatu community members indicated that Sempo’s platform would be the preferred modality of aid issuance in future disaster scenarios, attributing such to the greater ease of use afforded to recipients when compared with other forms of cash aid. However, she also noted, on reflection, that Sempo would like to see the platform’s offline data reporting functionality strengthened in order to improve monitoring.

ConsenSys’ Lisco described the program as showcasing the unique value propositions of cryptocurrency technology, concluding that Sempo’s platform offered significant efficiency advantages over cash, checks and other traditional methods for distributing financial aid. He continued: 

“The pilot demonstrated that direct donations (without any intermediaries or administration) are possible utilizing Ethereum-based stablecoins. This method of transfer was also significantly cheaper for small donations. For instance, bank transfers to Vanuatu from Australia cost approximately $20 AUD. An Ethereum transaction, by contrast, averages less than 10 cents in AUD.“

Oxfam “highly likely” to continuing using stablecoins to distribute aid

Moving forward, Hart indicated that Oxfam is currently in the process of compiling reports aimed at showcasing the UnBlocked Cash initiative, and that it will “seek out the resources to be able to plan longer-term, and look at how we scale up this innovation in the Pacific, and elsewhere.” 

Joshua Hallwright, Oxfam Australia’s humanitarian lead, told Cointelegraph that it is “highly likely that Oxfam will use stablecoins or other distributed ledger technologies to provide cash aid in disaster responses in the future, either in Vanuatu or elsewhere.”

Hallwright noted that “Oxfam is exploring the use of distributed ledger technologies because of their potential to change power dynamics and address inequities,” adding: 

“As DLTs become ever more present in society, Oxfam is engaging in their development and impact in line with our goals of eliminating poverty and reducing inequalities. Oxfam is currently piloting six different uses of DLTs, globally, and sees these pilots as producing important insights that will shape future DLT applications in crisis responses and more broadly in emerging economies.”

The program showcases the potential of cryptocurrencies to facilitate far greater efficiency in the provision of resources, especially within the developing world and in response to crisis formulation. It is also good to hear that more such trials may take place, which could lead to a wide-scale adoption of crypto in the disaster relief sector.

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Circle and Coinbase’s Centre Seeks to Form Consortium to Promote, Issue USDC

Centre consortium founders Coinbase and Circle open invitations to other institutions wishing to issue USD Coin.

Stablecoins have become rather frequently discussed in the news and social media over the past few weeks, especially with the news of the release of the Facebook-backed Libra coin. The current wave of stablecoin issuance could be attributed to the lack of liquidity in the cryptocurrency world. But even though the crypto market is now slowly recovering from a long bear trend, the ecosystem of stablecoins continues to expand even further. 

One of the most notable events in the stablecoin space was a recent announcement by Circle and Coinbase. After launching its own digital dollar — called USD Coin (USDC) — in September 2018, Circle (a Goldman Sachs-backed crypto startup) is now opening its doors to other institutions interested in issuing USD Coin. Circle partnered with crypto exchange and wallet company Coinbase to launch a consortium called Centre that will support and develop USD Coin.

What is the consortium about?

Centre is a membership-based framework and governance scheme with an overall aim of growing and developing the idea of digital money. The founders of the consortium aim to build a blockchain-based infrastructure that will enable fiat money to work over the open internet. At the moment, USD Coin is Centre’s first initiative.

Although Circle was the first to issue USDC, the stablecoin’s being listed on Coinbase’s platform on Oct.10, 2018 fueled the coin’s popularity in the crypto space. USDC is reportedly 100% backed by United States dollar reserves, and enables customers to tokenize dollars as USDC and redeem USDC for dollars. Therefore, the Centre consortium acts as a watchdog over the institutions issuing USDC to fiat conversions.

Now, Coinbase and Circle have jointly announced that membership in the Centre consortium is open to other entities looking to participate and own the right to issue or redeem USDC.

Why new members now?

Circle and Coinbase’s vision is to build interoperable protocols and standards for an open global financial system. To achieve this, the two companies are looking to collaborate and partner with other industry players. 

However, the opening of membership to the consortium comes at a time when Tether, the issuer of the most popular and eponymous stablecoin, is reportedly facing transparency issues. Although Tether enjoyed a first mover’s advantage in the stablecoin space, it has also had to deal with the many challenges that come with sustaining a stablecoin’s value.

Among the mistakes that Tether made at the start was the failure to secure a credible third-party auditor. Plus, compared to other blockchains, the Tether Omni protocol is much slower. In response, Tether has recently introduced an ER-C20 version of its stablecoin.

However, as a trailblazer of the stablecoin uprising, Tether has paved the way for other coin issuers and still proves to be useful in the crypto landscape. However, stablecoins like USDC represent the next generation of coins, which are designed to enhance transparency while enabling a user-friendly technology that will increase the speed of cross-border payments. 

By allowing new members to join, Centre is looking to use USDC to enable nearly instantaneous settlement across borders. Therefore, Centre is looking to partner with institutions that will contribute to the development of the Centre network

Centre also aims to achieve a greater level of interoperability that will enable USDC to function across multiple private and public chains. Centre claims that this will enable money to function like content and data on the internet.

According to Jeremy Allaire, the CEO of Circle, USDC will have a “huge difference from something like Tether.” Allaire also said:

“Market infrastructure like stablecoins will become the base layer that supports every financial application. It has to be legitimate, trustworthy and be built on open standards.”

Ultimately, bringing new members into the Centre consortium is set to enable better standardization for USDC issuers across the globe. The new USDC issuers will have to comply with Centre’s rulebook. Plus, Centre’s board of managers will provide guidelines for the safe investment of USDC to limit various risks. The move will also decentralize control of USD Coin, as the issuers will become part of the governing body. 

How institutions can join Centre

Institutions that want to join Centre and become issuers of USD Coin will have to agree with Centre’s operating rules. 

To begin with, the institutions must be “licensed and regulated to support electronic money services.” 

Member institutions will also have to comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) processes as well as Countering the Financing of Terrorism (CFT) rules, as prescribed by Centre.

Custody of fiat reserves is also a requirement. These reserves are set to be audited by Centre on a monthly basis to ensure 100% USDC backing with fiat.

Only companies that meet the technological requirements of Centre’s protocol will be allowed membership in the consortium.

Why would a company want to join the consortium?

USDC was the first stablecoin to be issued on the Coinbase platform. Since then, the stablecoin has become popular mostly among traders who use it as a bridge between fiat and cryptocurrency positions. 

Although other exchanges such as Binance have also listed the coin on their exchange platforms, USDC users have only been able to redeem their tokens for fiat on Coinbase’s and Circle’s platforms. With this new opening, members will be able to redeem USDC for fiat as well.

USDC issuers will enjoy a level of autonomy such that they will be able to decide their own fee structures for redeeming USDC.

Centre members will also be able to build their own financial products on top of the USDC network. For example, a company will be able to build a lending platform using USDC. As part of the Centre consortium, members also get to play a vital role in determining the future development of the Centre network.

However, according to Gregory Klumov, the CEO and founder of stablecoin platform Stasis, few companies are likely to be interested in joining the consortium. He explained to Cointelegraph: 

“Right now, everyone wants to develop their own stablecoin. Last year there were around 150 projects announced. Look at JP Morgan, and other banks like Silvergate and Signature Bank, which all have their own Ethereum-based coins. As long as they think they can gain market share on their own, they’re unlikely to join a consortium. There’s also the huge issue of regulatory uncertainty — we still don’t know how US regulators will address stablecoins, or crypto in general, down the road.”

New members of the consortium

At the moment, no new issuers have been announced. However, there is potential for a huge level of interest in participation, considering the fact that over 100 exchanges support USDC. For example, Nexo, a decentralized lending company, allows its customers to earn compound interest on their USDC balances.

Other companies supporting USD Coin include Bitmain, Crypterium, Bitpanda, Nitrogen and Chainalysis. 

These companies, together with the exchange platforms listing USDC, are driving interest among institutions that want to become members of the Centre consortium.

The future of the consortium

With only a few months under its belt, USDC is among the fastest-growing stablecoins at the moment. So far, more than $470 million worth of USDC has been redeemed and over $795 million of USDC has been issued. Centre claims that USD Coin has been used to complete more than $11.1 billion worth of on-chain transfers.  

Going forward, Centre plans to grow its fiat token support beyond the U.S. dollar by building an infrastructure that will support new currencies on the Centre network. The plan is to continue in the research and development of smart contracts on the Centre network to enable more payment settlements using programmable money.

As of now, USD Coin is mostly being used by traders, but Centre has hinted at plans to create “a new global digital currency” made up of stablecoins backed by a variety of currencies.

However, some believe that scaling USD Coin will be the least challenging task that the Centre consortium will face. According to Klumov:

“The biggest challenge for stablecoin issuers is commoditization. When you have several stablecoins all pegged to the same currency, and they all hold their peg to more or less the same degree, then it’s difficult to find ways to differentiate yourself.”

What are the prospects?

Apart from Coinbase and Circle, other prominent names that have shown interest in stablecoins include the Winklevoss brothers, who have already launched their own dollar-backed stablecoin called Gemini. IBM has also partnered with Stellar in an effort to create a real-time, controlled global payment network. By introducing a level of compliance to AML and KYC practices, Centre and other organizations are enabling mainstream adoption of stablecoins and other cryptocurrencies for daily transactions.

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US’s FinCEN and G20 Countries Could Adopt FATF’s Crypto Guidance

FAFT Crypto Guidance

The Financial Action Task Force (FATF)
has published guiding regulations on combating money laundering and financial
terrorism using ‘’virtual assets’’.

FATF is an intergovernmental organization that develops policies to essentially tackle international money laundering as well as financial terrorism. As such, the regulations will aim at ensuring these issues are mitigated. Notably, FATF has 37 member countries who share a common interest in having regulations to streamline this sector.

FATF’s new standards will require “virtual asset service providers” (VASPs), including crypto exchanges to pass information about customers between each other as they conduct transactions. Accordingly, this can empower all the exchanges with the ability to track and report suspicious transactions.

As a matter of fact, FATF views the
issue of misuse of crypto for illegal ends as an “urgent and serious” issue.
Therefore, FATF has given countries a year to review and possibly adopt these
new measures before the next review in June 2020.

Moreover, the rules require individuals who have crypto wallets on exchanges be subject to licensing requirements. This is if they run the wallet as a business. As such, member countries will be free to develop licensing requirements in line with jurisdiction-specific rules.

Individuals who use crypto to buy and
sell goods and services or make on-off transfers will be exempt. Member
countries should, therefore, register business wallets as VASPs. The regulations
state that the overall aim of the measures as follows:

“Competent authorities should take the necessary legal or regulatory measures to prevent criminals or their associates from holding, or being the beneficial owner of, a significant or controlling interest, or holding a management function in, a VASP.’’

Impact of The Measures

First of all, it is important to note that
the FATF regulations are not binding. These are essentially proposals
that member countries choose whether to adopt or not. This means that
enforcement is not automatic and uniform.

As such, an entity like FinCEN in the United States has more direct impact on crypto regulation than FATF.  FATF provides an oversight and policy framework but it is definitely up to agencies like FINCEN or the G20 to enforce the measures. The Anti-Money laundering and CFT regulations from FINCEN have a direct impact on exchanges in that institution.

Some crypto enthusiasts will be up in
arms over this. This is because any attempt to regulate crypto, to some, is
another example of “regulatory overreach and attempts at centralization”.  Others will look at the importance of keeping
crypto elements from tarnishing crypto forever.

Either way, the measures can
significantly shape crypto in the short and long-term. There will certainly be
a drop in crypto-services if the rules come into effect soon. Nonetheless, the
remaining ones will attain a higher level of transparency and lawful operation.

Adoption by The G20

The G20 group of nations has already signaled that it will align with the FATF regulations in due course. This is in the form of a communique on the Japanese Ministry of Finance. Notably, this comes after a meeting over the weekend in Fukuoka, Japan.

The adoption by the G20 will certainly signal a fundamental transformation of the crypto landscape. Regulations on KYC and more effective monitoring in the world’s most powerful economies will certainly have wide impact. Accordingly, the balance between crypto regulation and nurturing innovation will remain an important debate for years to come.

The post US’s FinCEN and G20 Countries Could Adopt FATF’s Crypto Guidance appeared first on Ethereum World News.

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Appetite for Blockchain Tech Builds Among Korean Banks, but Without Crypto

Korean banks push for blockchain adoption as former high-level officials join the space.

In recent weeks, major South Korean financial institutions have rolled out a number of services incorporating blockchain technology, especially in the areas of Know Your Customer (KYC) procedures and security. Fintech has become a buzzword for local banks trying to keep up with the change of the times.

The banks, however, are not looking into an important part of blockchain, which is digital assets, says one influential Korean advocate of alternative currency. In order to assess the Korean blockchain space, it is important to understand how the trend affects existing players and the cryptocurrency market.

Blockchain as a ledger

Shinhan Bank, the first bank to be established on the peninsula, incorporated blockchain into its lending services on May 27.

The bank’s “Blockchain Verification System” allows users to receive evidential documents on private enterprises. Through this system, it has shortened the process from two to three days to almost instant verification.

KB Kookmin Bank, one of the largest banks in the country, signed a memorandum of understanding (MoU) with blockchain firm Atomrigs Lab, as Cointelegraph reported June 11. The partnership is designed to explore digital asset management and protection solutions.

What differentiates Atomrigs Labs from other blockchain developers is that it specializes in the financial sector and is known to have the technology to retrieve private keys in case of loss.

The latest move is part of KB Kookmin’s strategic blueprint to make the promotion of digital transformation a priority. Last year, the bank announced it will focus on technological improvements using the acronym “ABCDE” — standing for artificial intelligence, blockchain, cloud, data and ecosystem.

KB Kookmin has also signed an MoU with LG Corp., and is currently developing a joint product currently being called Magok Pay. The nickname comes from where the LG Science Park is located in Seoul.

The payment system using LG CNS’ technology, the IT subsidiary of the umbrella company, is aimed at allowing users to pay with tokens on their smartphones without cash or a bank card.

In turn, the retail lender will pay the amount and manage the transactions in fiat. It was ranked the world’s 60th-largest bank in 2017 based on Tier 1 Capital.

Since April, NH Savings Bank started offering a peer-to-peer financial certificate service, which aims to prevent the tampering of records of receivable principal and interest. More recently, it has also opened a new training course to some of its workforce to groom them to be well-versed in digital ledger systems.

The bank is an extension of the National Agricultural Cooperative Federation’s financial operations and serves some 20 million customers.  

In an interview with Cointelegraph, Sung-jung Kim, the head of Asia for Cindicator — an analytics provider of traditional and digital assets using collective intelligence and machine learning models based in Seoul, St. Petersburg and New York — said the recent race to blockchain adoption by Korean retail banks can be categorized into either the institutions developing their own private blockchains or searching for hybrid options that are already available in the market. According to Kim:

“The Korean economy is heavily dependent on a few large institutions within the nation and as these institutions continue their pursuit for appropriate blockchain solution, we expect more resources to be deployed to enrich the blockchain landscape, especially towards domestic projects.”

It is worth noting both KB Kookmin and NH Savings bank came under regulatory scrutiny last year from Korea’s Financial Supervisory Service (FSS). In its joint review of the banks, the financial watchdog criticized their management of cryptocurrency transactions in regard to Anti-Money Laundering (AML) regulations.

The FSS is Korea’s integrated banking regulator that examines and supervises private lenders under the oversight of the Financial Services Commission.

Related story: State of Regulation in South Korea: Banks Required to Provide Fair Services to Crypto Exchanges

KEB Hana Bank, another household name, began offering its blockchain-based payment system called Global Royalty Network — or GLN — in Taiwan in April.

Later this year, the bank also plans to issue debit cards that double as ID cards to university students.

Using the digital ledger, the reissuing duration will be shortened to three days from the current three weeks, in case of loss. Korea University students will be the first beneficiaries of this service.

Woori Bank is also working to launch a blockchain-based international wire transfer service. The bank already has a strong presence in India and China and is now working with the Japanese bank consortium SBI Ripple Asia to prepare a pilot.  

Shadow over cryptocurrency continues

Despite these developments, there has been a lack of interest in using the technology for settlement, payment and the use of cryptocurrency.

One of Korea’s biggest crypto influencers, Hyun-sik Choi, better known as Soso to his 40,000 viewers and subscribers, believes more needs to be done:

“Korean banks are jumping into the blockchain field. While this proves there is huge interest in the technology from traditional finance, all the attempts are on the tech side. They are ignoring the cryptocurrency part.”

The longtime crypto advocate explained there are two main reasons.

The government separates cryptocurrency from the blockchain technology and only supports the latter. A smaller but definitely noticeable part is that some companies use the term blockchain more as a marketing tool rather than a real solution.

Cindicator’s Kim is hopeful the technology’s overall adoption by traditional market participants can bring about desired influence to digital money:

“We view this as a positive development for the Korean crypto market. These developments can also be seen in the light of the high interest the Korean population has in crypto assets, probably leading to banks wanting to participate in the potential boom.”

From hoodies to suits

With the spike in blockchain adoption by traditional financial institutions comes the change in the players’ demographic.

On June 11, the Korea Blockchain Association announced its nomination of Gap-soo Oh, former deputy governor of the Financial Supervisory Service, as its next chairman. He is scheduled to be sworn in on June 24 during a general meeting.

As Cointelegraph has reported, 70-year-old Oh is now serving as the president of the Global Finance Society, and previously worked as deputy chief of the Standard Chartered Bank Korea, and as an external director at KB Kookmin Bank.

In recent months, more former civil servants and traditional bankers have switched over to digital assets. Crypto watchers in the country are welcoming this trend.

Jun-heon Hwang — better known for his blog Coin Student — says the merging of traditional and digital finance worlds is part of a wider trend across the globe:

“Overseas, traditional financial firms have already entered the digital assets market and that includes its workforce. There are enough young CEOs in the space. To systemize blockchain incorporation, onboarding of established bankers and civil servants in this sector is not only inevitable but necessary.”

Following the money — in fiat

The strong inclination to adopt the new technology comes on the back of staunch support from Seoul.

The government of South Korea nearly doubled its projected spending on blockchain development for selected cities around the country for this calendar year from the same period last year.

In 2018, the government allocated less than 4 billion Korean won ($3.4 million) to seven blockchain projects. For this year, the allocation was expanded to a dozen projects for 8.5 billion Korean won ($7.17 million).

Whether the support for the ledger side of blockchain technology will eventually lead to a trickle-down effect on cryptocurrency in the future in South Korea remains to be seen.

For now, all eyes are on how Korean buyers will affect the global market if — or when — the government relaxes its regulations on digital assets. If the East Asian country’s influence on the price of major coins is any indication, domestic buyers are expected move with unforeseen alacrity.