EP17 - Crypto, Regulators and Digital Central Bank Currencies

What did the blockchain say to the central bank? I defy you. Okay, try this. What did the wheel shout to the buyers? Mine. There's no pleasing some people. Hello, everyone, and welcome to the Tech Journal. My name is Mark Vermenam and I am the digital speaker. From brain computer interfaces and monkeys playing Pong through to algorithmic management and NFTs, I aim to examine innovations and breakthroughs through my digital lens, taking a closer look at what they are and what they mean for our business and our personal lives. In today's video, I want to take a look at what's new in the cryptocurrency world, exploring some of the latest news and trying to get a clearer vision of what the future holds. And on that note, it's time to start today's digital download. As crypto is the topic, it would be rude not to mention the king of cryptos. No, not old musky boy. I mean Bitcoin itself. Bitcoin has been on everyone's lip since its founding over a decade ago, with peaks and troughs taking. Hodlers. Yes, Hodlers, not Hodlers. Look it up. On a rollercoaster of emotions. The currency has always been littered with uncertainty, and today isn't any different. Recently, big bitcoin players have been dropping like flies, with John McAfee, a famous Bitcoin wheel and antivirus king, dying in prison, and Mircea Popescu, a bitcoin whale whose holdings are thought to be in the billions, drowning in Costa Rica. News of this wheel drowning has brought more uncertainty to the coin, as Mercia's refusal to sell billions in Bitcoin is a key factor in the price. Should whoever inherit a fortune decide to sell, Bitcoin may find its price crashing into the depths of 2018, when the price drops from 15,000 to 3,000. The price of this digital currency, as with all currencies, follows the simple rule of supply and demand. Meaning if this family decides to sell and millions of bitcoins suddenly flood the market, the price would be in trouble. Having said that, the rumour mill is hard at work and suggests the family doesn't even have access to the funds. If this is the case, Mathias Bitcoin fortune would be lost forever, wiping his capital from the market, causing prices to increase due to a drop in supply. However, it's not all doom and gloom. While some are unsure of the future, others speak with steady voices. Ricardo Salinas Pliego, the influential Mexican billionaire and owner of Banco Azteca, speaks confidently about bitcoin's future. Dismissing others like the more sustainable and digitally advanced Ethereum and the meme coin Dogecoin. He already publicly bought Bitcoin last year, using 10% of his liquid investment portfolio to acquire what was probably several bitcoins. He is a billionaire after all. He also backed Monero and zcash, two other privacy focused coins. If plans go his way, his bank, Banco Aztega, will become the first in Mexico to accept Bitcoin. These grand gestures are the cornerstone to digital currencies, as seen by Musk's own grand gestures, both raising and lowering Bitcoin's price over the space of only a few months. These types of confidence boosting events are pretty common, with Dogecoin having its own metaverse party where 1 million Dogecoins and NFTs were given out to all who turned up to the online event. Unfortunately, not all big events can be positive, especially when it comes to the digital sphere. Cybercriminals have been around since the dawn of digitalization, with hackers and scammers constantly patrolling the Metaverse on the prowl for their next victim. Recently, two South African brothers who ran their own crypto trading platform made off with just over $3.4 billion worth of Bitcoin. The brothers initially told clients they'd been hacked and not to contact the authorities before vanishing into the thin air. With so much potential to gain a huge amount of untraceable capital, it's no wonder some can't resist the temptation. It's not just stealing existing crypto where cybercriminals focus, though. Recently an antivirus firm, Avast, came out and announced they discovered a new type of cyber attack focused on crypto mining. Cybercriminals had been installing a new crypto mining malware, Krakonosh, into mainstream games. This malware uses the victim's processing power to mine crypto whenever the game is running. The cybercriminals have gotten away with $2 million worth of Monero and are still no closer to being caught. Their system is now known, which puts a lifespan on this version. But if this is just our first peek into this type of malware, it begs the question of how prevalent this already is. Potentially, many more programs already have this secret malware hidden inside them, silently mining Monero. Cybercriminals aren't the only ones giving crypto a bad name, though. In a move that many described as market manipulation, while others only as a simple flip, Musk opened Tesla to accepting Bitcoins in exchange for cars pumping the price. Then only a few weeks later flipped on his decision and rejected the coin, claiming it's too environmentally damaging to be associated with Tesla, sending the price falling more recently this time alongside Amazon. He told the world that he might start accepting bitcoin after all. Musk cited bitcoin mining as being especially bad for the environment. With bitcoin mining warehouses kept on 24 hours a day, Cambridge researchers claim it's equal to 121 terawatt hours a year, which works out to more than the entire country of Argentina. And that's just bitcoin. With all the crypto mining going on, we've potentially sleepwalked into a new environmentally damaging industry. Although progress is being made, we are watching new consensus mechanisms being developed, one being the proof of stake method wherein validators will have to put up their own crypto as collateral. Basically, new blocks aren't determined by processing power, but instead the size of the validator's holdings. The main argument in favor of this is that it significantly lowers the energy consumption of mining some crypto While it's perfectly acceptable and very human to change one's mind as new evidence comes in, the general public turned against Musk and saw a vast swath of retail traders trying to short Tesla in an attempt to crash the stock. The attempt was pretty short lived though, as Tesla stock has already recovered from the small low of 644 on July 77. Not everyone took Tesla's announcement badly though. Nvidia, a US technology company, announced they'll make efforts to produce GPUs with less hash, making them harder to use for crypto mining. Nvidia chips have notoriously become key assets in crypto mining as gamers and digital enthusiasts alike find themselves unable to get hold of any new Nvidia chips thanks to the crypto miners. Bulk buying While you would expect a move like this to alienate the company, causing their products to lower in demand and therefore in value, the move actually had the opposite effect, proving their dedication to ethical digital innovation and to the target audience. With all these ups and downs in the digital finance world and more, with dogecoin and the general concept of meme coins becoming widely accepted, government bodies are looking to get in fast with regulations, shutting down the decentralized and runaway new digital industry as much as they can. Recently we saw the leading cryptocurrency exchange Binance banned by the UK's and Japanese financial regulators. The move, if anything, highlighted more the ineffectiveness of country specific regulations as traders within the UK and Japan continued trading. The bans only affected Binance's in country offices and they continued operations from international servers. However, traders can't withdraw any funds to bank accounts within the affected countries. The companies were accused by the financial regulators of operating without licenses and mis selling cryptocurrency investments. It seems like we are witnessing countries trying to catch up with the fast paced world of cryptocurrency. Of course, it's not just the UK and Japan getting on the anti cryptom bandwagon. China is and has been at the forefront of state sanctioned crypto regulations for some time now. On 18 June, Chinese authorities ordered all bitcoin mining operations in the Sichuan province to cease operations. China's central bank, the People's bank of China, summoned various major banks and payment companies directing them to come down harder on all cryptocurrencies. The institutions were told they cannot provide any products relating to crypto from trading through to clearing transactions. With this order resulting in the closure of 26 mines, the Bitcoin price crashed once more, reaching a new recent lows of US$28,000. All this government interest in crypto may spell disaster for earlier less developed currencies like Bitcoin, but be in favour of more advanced and adaptive blockchain networks and their respective currencies such as Ethereum, Cardano and Polkadot. Whoever wins the digital currency race, decentralized finance these days, simply known as Defi, is becoming even more stable. Most decentralized currencies don't use Bitcoin's blockchain, which is inflexible and rigid, but instead use Ethereum, which easily reads the mantle of the world's second biggest cryptocurrency, thanks to its blockchain's programmable nature. A major perk of this programmable nature is the ability to create smart contracts, sometimes referred to as transaction protocols. Basically, the paying party or the party handling over their ether can create a smart contract and put it in there, programming the contract to only release the ether once the control has been fulfilled. The smart contract acts as a third party, further removing the need for corruptible human elements from the transaction equation. Taking the very defi dream to its logical conclusion. But it's not over there. No. Ethereum is making huge strides in the crypto world world and come 2022, Ethereum 2.0 will be launching. Ethereum 2.0 wants to open itself up to a wider market and trade at much higher volumes. And so it's setting out to achieve two things. First, raising the blockchain's minimum transaction to 100,000 per second. The creators hope this will create a more streamlined blockchain, making networks clog a thing of the past and second, drastically reducing the energy required to mine a currency. As I mentioned before, the environmental effects of crypto mining are on everyone's lips right now, and so it's no wonder Ethereum wants to address that if it's serious about its future. Right now, Ether, like other cryptos, validate transactions by a proof of work protocol, generally referred to as mining, which uses the miners computer processing power to solve complex puzzles. Ethereum 2.0, on the other hand, aims to change this to proof of stake, which looks to verify blockchain transactions by getting miners to put up their existing coins as a stake with no mining rewards or transaction fees. Once ethereum and Ethereum 2.0 merge, proof of work mining will become obsolete. So while Bitcoin currently sits as king of crypto, if I were a betting digital twin at wage, Ethereum 2.0 will overtake Bitcoin and the Bitcoin blockchain the next decade. Whether that's due to Ethereum's growth, a Bitcoin crash, or a little bit of both, I can't say. But I already said in 2017 that Bitcoin will become the MySpace of the crypto world, the first to market, but the last to evolve. Still, regardless of what happens with digital finance, government regulators will increasingly involve themselves as civil servants become increasingly digitally literate. Evidence of this can be seen with the rising regulatory interest in digital giants such as as it's a recent string of antitrust breaches made by Google in the eu. Google has been accused of monopolizing market data by the European Commission. They are accused of keeping data to themselves and their customers, and it is their first time charges are being brought against them by the European Commission. The other three antitrust charges equaled a total of 8.2 billion euros, or $9.7 billion in fines. They've also been hit by France. Specifically, the French competition agency charged Google with a historic 500 million euros single fine after failing to negotiate fairly with news publishers. Google was reported to have forced deals and was unwilling to negotiate profit sharing. Google was given two months from this fine to negotiate payments for the protected news content, otherwise face more fines next time, though being €900,000 or 1 million every day they don't implement it. Over in the US Google isn't doing much better. They are being taken to court over mismanagement of their app store and last year over a secret deal with Apple to make Google the default search engine on Apple products. What was a landmark case last year is now becoming a regular occurrence. If this continues, we may begin to see more antitrust cases brought against the other digital giants as they've all gotten so large they run the risk of becoming monopolies. Facebook, Amazon and Google all have their firm holds over their respective markets, and while the other giants put up with higher levels of competition, none can compare to the Goliath hold these companies have over the free market. Still, it's not all doom and gloom as financial institutions look to catch up with the digital tide. As centralized finance becomes ever more outdated, governments will need to either embrace the change or be left at the mercy of the free market. China's DCRP is a great example of a country embracing digitalized finances and has already seen $5.3 billion circulated around 20 million individuals via 70 million transactions. Talking about the DCRP China's answer to the digital currency, the European Central bank announced just this July 202021 that they are now looking to creating a digital euro. Much like China, the European Central bank has been keeping a close eye on the rise of cryptocurrency and have had the foresight to create a digital version of their cash, in this case the euro, before it's too late. Unlike China's foresight though, it took Covid to act as a catalyst for the shift as the pandemic sparked an increasing trend to go cashless and created a world where even beggars have a QR code. The ECB have announced that they plan to take two years to research, then three years to develop the digital Euro. Meaning right now we are looking at a 2026 arrival. As this goes ahead we get an image of the future where the Euro and the Chinese Yuan are the first centralized digital currencies, potentially propelling both currencies to positions more valuable than the dollar. What do you think the digital future of finance looks like? Do you think we are moving towards decentralization or will this have an adverse effect and simply firm up the stage grip? Let me know what you think in the comments. And on that digitalized note, I have been your digital host Marc Veremenam, the Digital speaker and this has been the Tech Journal. If digital innovation gets your imagination firing, be the first to hear about the latest digital breakthrough. Press the subscribe button now. See you next time. For your information, Download Stay Digital It.