Your Cryptocurrency Newsletter for January 16, 2021

If you are interested in cryptocurrencies, this newsletter is for you. [img]  [Learn more about RevenueStripe...](   [Learn more about RevenueStripe...]( [img]( [FeedBinary Newsletter]( [Five New Year’s Resolutions For Cryptocurrency]( With a new President, Congress, and SEC Chair, the US can reset its approach and win the cryptocurrency race against China. Here are five resolutions to achieve those goals. 1.  The Senate should confirm an SEC Chair who is open or at least neutral to cryptocurrency and financial innovation. After Securities and Exchange Commission (SEC) Chair Jay Clayton (who made no secret of his animus for cryptocurrency with barrage of lawsuits, enforcements, and declarations to crush upstarts), the Senate can improve policy for cryptocurrency just by confirming a new Chair who is friendlier to financial innovation. Reports suggest that the incoming Biden Administration has in mind Gary Gensler who, in addition to his prior regulatory experience, runs MIT’s financial technology laboratory and its Digital Currency Initiative. Gensler has called cryptocurrency “a catalyst for change in the world of finance and the broader economy.” If confirmed, the SEC would gain another crypto ally along with GOP commissioner Hester Peirce, called the “crypto mom” for advocating policies to ensure US leadership in cryptocurrency. In the process, the Senate Banking Committee should ask Gensler probing questions about whether he’ll continue Clayton’s hostile approach, or whether he supports disruptive fintechs that seek to democratize financial services for Americans. 2.  Stop the turf wars between financial regulatory agencies. Regulation is not an unambiguous good. The US has accumulated over a century of financial regulation and spawned almost a dozen federal financial regulators (in addition to state level actors)—many in the last decade alone—but no one can claim that the policy for the US financial industry is optimal.  Indeed, the layers of regulation and labyrinth of federal offices and departments may have worsened the financial environment for consumers and innovators. As SEC Commissioner Hester Peirce argued in Reframing Financial Regulation: Enhancing Stability and Protecting Consumers, the more important regulation becomes, the more banks serve regulators, not customers. The notion that regulation increases the power of established financial institutions at the expense of small banks and financial innovators is well-documented. Regulators generally prefer to oversee a market a handful of giants than a dynamic market of emergent, innovative players. It stands to reason that the SEC as a securities regulator has no business overseeing all cryptocurrencies in all use cases. Already digital and cryptocurrencies are regulated by the Treasury Department’s Office of the Comptroller of the Currency, the Commodity Futures Trading Commission (CFTC), the Internal Revenue Service, and the Department of Justice on anti-money laundering requirements. 3. Congress should work in a bipartisan fashion to adopt a rational, common sense approach to cryptocurrency. It takes courage and fortitude to resist the urge to solve a problem through regulation, without first examining the larger issues at play. The first step is to determine whether government intervention would create greater harm. At RealClearPolicy’s event U.S. Crypto Policy in a Biden Administration, Congressman Patrick McHenry explained how for the last 15 years his job has been to stop the adoption of knee-jerk laws which would have killed cryptocurrency in the cradle. However, having no regulation is not a substitute for thoughtful policy to help cryptocurrency flourish while respecting the measures that protect consumers and deter fraud. Moreover, if Congress doesn’t clarify the boundaries, regulators will find new things to regulate to keep themselves relevant. McHenry’s approach, which he laid out in a 2020 podcast with Rep. Dan Crenshaw (R-TX), is that blockchain is a new technology that needs a framework of its own. With Senator Sherrod Brown (D-OH) poised to chair the Senate Banking Committee, it is time to take a fresh look. 4.  The SEC should withdraw its lawsuit against Ripple. Just hours before he left the building, former SEC Chair Clayton lobbed a lawsuit against Ripple Labs, operator of the global settlement system using XRP, the world’s 3rd largest cryptocurrency. The suit alleges that Ripple, after 7 years, has been transacting with a security, not a currency, and thus seeks to punish the company for failing to register and to bar its founder and executive from participating in the crypto market. Such a question could have been answered with notice and comment rather than a lawsuit. In any event, the SEC’s case has a fatal flaw in relying on the Howey Test from SEC v. H.J. Howey Co in 1946. According to law professor J.W. Verret of George Mason University in the RealClearPolicy discussion, a security is an investment contract where the holder participates in a common enterprise with the seller. But former CFTC Chairman Chris Giancarlo argues XRP is not an investment, and there is no “commonality” between its holders and Ripple. XRP is a medium of exchange and settlement. However, even if Ripple wins in court, and the company has asserted it will fight vociferously, the SEC will have already done its damage to the open source XRP ledger and every developer using it. The lawsuit has chilled other crypto enterprises, not to mention Ripple itself.  Most defendants in regulatory enforcements never go to court because of the cost; instead they settle. Apparently Ripple tried to settle the question for years, but it appears that getting a headline was more important to Clayton. This abuse demonstrates what many legal scholars observe as the fundamental unconstitutionality of an administrative agency like the SEC, combining in one body an administrator, rulemaker, and judge and thus violating the separation of powers clause. [Read Full News]( The post [Five New Year’s Resolutions For Cryptocurrency]( first appeared on [Feed Binary](. [Read Full Story]( ------------------ You Might Like     [Learn more about RevenueStripe...]( ------------------ [Blockchain Beyond Bitcoin: Transforming FinTech, Healthcare, And More]( The origin of blockchain dates back to 1991, when researchers Stuart Haber and W. Scott Stornetta outlined a system to document timestamps that could not be altered. However, it is most widely known as the underpinning of Bitcoin, introduced to the tech world when Bitcoin’s pseudonymous creator, Satoshi Nakamoto, referred to it as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” Soon after that, Blockchain became the next possible bedrock of record-keeping worldwide and the underlying distributed ledger technology (DLT) that powers many of the most popular digital currencies. The goal of blockchain is to digitally record information to be distributed but not tampered with. It is an open, decentralized ledger that records transactions and entries that are confirmed by peer-to-peer networks and encrypted. The data is stored into a “block,” or a fixed event that has been approved and locked into place. Each block is then added to the “chain” of events, leading to the methodology’s moniker. Each record is easily verifiable and incorruptible. The network cannot be influenced by a single party nor taken down because it exists in multiple distributed places. Beyond Bitcoin Though Bitcoin is the most extensive application of blockchain, an essential thing to understand is that blockchain can be used to record any number of data points across any industry immutably. FinTech is following right behind cryptocurrencies in blockchain adoption, particularly during the compressed disruption in 2020 that is likely to continue this year. Let’s take a look at why and how other industries and applications will, and should, be next. The digitization of financial instruments such as digital assets, smart contracts, and programmable money multiplies the benefits of blockchain by providing unprecedented levels of connectivity and programmability between products, services, assets, and holdings. A full transaction history ensures data integrity in a single shared source of truth by digitizing financial instruments. Blockchain supports programmable capabilities to be built into the assets themselves to manage tasks associated with governance, voting and information rights, compliance, and KYC/AML. The automation of processes reduces the potential for errors, delays, and operational and transactional costs, leading to a more transparent, more accountable system. Ultimately, a more streamlined process that reduces costs and aligns stakeholders will lower the cost of capital. This, in turn, will create more liquidity potential and open up possibilities for new digital instruments. One would be hard-pressed to find a use case in financial services that wouldn’t benefit from blockchain, save for in-person payments given the single-digit TPS (transactions per second) vs the modern payment rails that operate in the tens of thousands of TPS. Trade finance, asset management, capital markets, banking and lending, insurance, etc. all would realize increased privacy, accuracy, and security from the distributed, immutable ledger technology. On cross-border settlement transactions alone, a report by Jupiter Research shows that blockchain deployments will enable banks to save up to $27 billion by the end of 2030, reducing costs by more than 11%. Financial institutions acknowledge that Blockchain technology will save billions of dollars for banks and major financial institutions over the next decade. Payments is a category on which blockchain efforts are concentrated. This is an obvious conclusion, being that on the blockchain, AP/AR is easily tracked and verified, duplications are virtually impossible, and smart contracts can automate the process based on agreed-upon terms. However, cryptocurrencies have proven too volatile and slow to be an adequate payment solution in most cases. Few merchants can feasibly accept a payment method that takes hours to process when the value may swing drastically. Paystand, a B2B payments solution, learned early on while enabling Bitcoin transactions, that its traditional banking partners were worried about the direct value transfer between parties using blockchain technology. On that path, it was also unable to provide the privacy and transparency needed for B2B payments, which sometimes involves a third-party verification such as an insurance provider or title company. The company discovered that Fiat (a government-issued currency not backed by a commodity., e.g., the dollar) or credit is the most feasible form of payment for traditional business payments.  Beyond Bitcoin and finance There are plenty of other examples of blockchains that function for something other than cryptocurrencies (primarily Bitcoin, Ethereum, and Ripple). Moreover, companies are building their own blockchains for industrial and business purposes other than pure finance–from the more obvious uses of supply chain management and real estate to the less obvious uses of voter certification and healthcare (including Covid 19 vaccination records). Let’s take a look at some more of these potential applications. Supply Chain The disruptions caused by Covid-19 struck organizations at all levels, accelerating the need for digitization down the supply chain. Supply chain data is not always visible, available, or trusted. By moving from spreadsheets and emails to permissioned blockchain solutions, organizations can maintain strong data quality and integrity during this transformation. While some supply chain managers are using blockchain, many are still in the proof of concept phase or at some nascent stage of adoption. Still, the benefits are apparent, and the transition inevitable. Blockchain supports the multiparty process around data that is shared and trusted across various boundaries. This allows for location identification, delivery confirmation, condition of goods, and data accuracy–all challenges that plague many supply chain firms. [Read Full News]( The post [Blockchain Beyond Bitcoin: Transforming FinTech, Healthcare, And More]( first appeared on [Feed Binary](. [Read Full Story]( ------------------ You Might Like     [Learn more about RevenueStripe...]( ------------------ [5 Things You Need to Know About DeFi]( DeFi networks are destined for success. Public blockchains like Ethereum allow anyone, anywhere in the world to create trust-minimised financial services. It is an open field of innovation; all ideas can become a reality. They may fail, but their failures are additive and pave the way for better solutions. It’s almost like the three-headed hydra of finance, cut off one head and two grow in its place. To think that the walled gardens of the current banking system will compete with the rapid process of build, launch, iterate and repeat is short-sighted. If banks wish to preserve their privileged position as intermediaries of financial activities, they will need to speed up their decision-making process to compete with an army of decentralised financial innovators. A Financial System Native to the Internet The core idea of the DeFi movement is that we can build a financial system native to the internet. One maintained and governed by thousands of computers distributed globally. DeFi protocols are different from our legacy financial system in that they are permissionless; anybody can use them. They are pseudonymous and don’t need you to reveal your identity. Their stakeholders govern their future trajectory, and they don’t require you to part with your funds as they are non-custodial. This new internet of value promises to replicate and upgrade our core financial primitives of lending, borrowing, exchange and derivatives markets. Just as the internet made information accessible and cheap, DeFi will make basic financial services orders of magnitude more accessible and affordable. This process will not happen in a straight line, and many will fail in delivering this vision. Censorship Resistant DeFi protocols are also censorship-resistant. You can’t walk into Uniswaps head office and ban their product because you don’t agree with their political stance. This censorship resistance is only possible because these protocols are decentralised and do not require a centralised entity to facilitate their service. The theme of being censorship-resistant will become exceedingly important in the years to come. We are already witnessing authoritarian like censorship by some of the worlds largest tech services. The road of censorship is a slippery one, and centralised systems will struggle to maintain a truly free and open platform. It’s only a matter of time until this kind of behaviour moves from information censorship to financial censorship. Ethereum Gas Fees Are a Problem, for now. Whilst the mission that DeFi and the entrepreneurs making the space a reality is a noble one, there still remain challenges in reaching their final vision. These trust minimised peer-to-peer financial services run on public blockchains such as Ethereum. Ethereum performs the service of processing, executing and settling requests of different services built on top of its network. This is comparable to how internet applications rely on the internet’s protocols to send and receive information. Every time you take out a loan on Aave, exchange an asset on Uniswap or make a deposit to a Compound savings account, you are required to pay a gas fee to the Ethereum network. The Ethereum network has become exceedingly congested due to the explosion of activity created by DeFi. This congestion makes the cost of processing, executing and settling various transactions expensive. Ethereum has a scalability problem, which if left unsolved, could lead to adverse network effects. There are numerous ways the Ethereum network and its community of developers are attempting to fix this problem. The most significant is the rollout of Ethereum 2.0, a more scalable version of the current Ethereum network, expected to launch in 2022-2023. Tokenomics and Value Capture This is where DeFi gets really exciting. Most DeFi projects have a token associated with the financial service that they facilitate. For example, Uniswap, a prominent decentralised exchange has UNI token. Anyone who holds UNI can participate in the network’s governance and vote on upgrades and changes to the Uniswap protocol. As the industry matures, we expect to see the communities of these projects attempt to find suitable ways of capturing the value that their network creates. These will look more like the value accrual formulas we see in equities and other capital assets.The community can make the UNI token more valuable by issuing a dividend, burning/removing UNI tokens from the supply, paying down debt, reinvesting in further development and even performing mergers and acquisitions of other protocols. [Read Full News]( The post [5 Things You Need to Know About DeFi]( first appeared on [Feed Binary](. 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