tag:theconversation.com,2011:/global/topics/digital-currencies-41020/articlesDigital currencies – The Conversation2023-12-11T19:46:36Ztag:theconversation.com,2011:article/2191922023-12-11T19:46:36Z2023-12-11T19:46:36ZCanadians have serious trust issues when it comes to a central bank digital currency<iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/canadians-have-serious-trust-issues-when-it-comes-to-a-central-bank-digital-currency" width="100%" height="400"></iframe>
<p>The Bank of Canada <a href="https://www.bankofcanada.ca/digitaldollar/a-digital-canadian-dollar-what-we-heard-2020-23-and-what-comes-next/">recently published</a> findings from its public consultation report on a central bank digital currency, known as CBDCs. </p>
<p>The findings reveal that financial privacy is top of mind for Canadians, yet those same Canadians do not trust the very institutions that would be responsible for handling data privacy and protection. </p>
<p>Put simply, CBDCs can be thought of as a digital banknote.</p>
<p>However, the key distinction between physical cash and a digital currency is that using cash allows for anonymous and untraceable transactions because it’s not recorded anywhere. CBDCs, on the other hand, would record all transaction details in a <a href="https://www.bis.org/publ/othp42_system_design.pdf">centralized ledger</a>. </p>
<h2>Design features</h2>
<p>One of the most important CBDC design features identified in the consultation was the ability to make private transactions. <a href="https://www.bankofengland.co.uk/speech/2023/october/jon-cunliffe-speech-at-the-economics-of-payments-xii-conference">Privacy is consistently ranked</a> as one of the <a href="https://www.ecb.europa.eu/pub/pdf/other/Eurosystem_report_on_the_public_consultation_on_a_digital_euro%7E539fa8cd8d.en.pdf">top concerns</a> among public consultation reports in other countries.</p>
<p>To address some privacy concerns, the innovation hub of the <a href="https://www.bis.org/about/bisih/about.htm">Bank for International Settlements</a>, a global financial institution owned by member central banks, is actively working on projects with those banks around the world, including exploring the possibility of <a href="https://www.bis.org/about/bisih/topics/cbdc/tourbillon.htm">cash-like anonymity</a> for CBDCs. Ultimately, the level of privacy employed will be up to individual nations to determine.</p>
<p>CBDCs are often described as the safer alternative to cryptocurrencies <a href="https://bitcoin.org/bitcoin.pdf">like Bitcoin</a>, because they are backed by a reliable and trusted institution — in this case, the central bank. </p>
<p>However, during a period of <a href="https://www150.statcan.gc.ca/n1/daily-quotidien/230628/dq230628b-eng.htm">record-high inflation</a> and a cost of living crisis, the <a href="https://financialpost.com/news/economy/bank-of-canadas-carolyn-rogers-seeks-to-shore-up-central-banks-credibility-amid-political-attacks">Bank of Canada’s reputation</a> has faced increased scrutiny from politicians and the general public. Conservative Party leader Pierre Poilievre, for example, has attacked the credibility, <a href="https://twitter.com/PierrePoilievre/status/1517523993301078020">financial literacy</a> <a href="https://twitter.com/PierrePoilievre/status/1522224091423457282">and independence</a> of the central bank.</p>
<h2>Is Parliament up to the task?</h2>
<p>The decision to issue a digital Canadian dollar rests with the federal government. Yet there continues to be a lack of comprehensive discourse on the topic among Canadian politicians. </p>
<p>During his leadership campaign, Poilievre promised he <a href="https://web.archive.org/web/20220928161631/https://www.pierre4pm.ca/ban_central_bank_digital_currency_audit_bank_of_canada_says_poilievre_as_inflation_is_triple_the_target">would ban</a> a Canadian central bank digital currency if elected prime minister. That’s a pledge the Conservative party <a href="https://www.conservative.ca/cpc/reject-a-central-bank-digital-currency/">continues to support</a>.</p>
<p>In the <a href="https://www.ourcommons.ca/documentviewer/en/44-1/house/sitting-208/hansard#Int-12273491">House of Commons</a>, Poilievre has claimed that a CBDC would lead to government control of personal bank accounts, likening it to the situation faced by the so-called <a href="https://www.ctvnews.ca/politics/feds-crack-down-on-trucker-protest-financing-from-crowdfund-rules-to-freezing-bank-accounts-1.5781376">Freedom Convoy protesters</a>. </p>
<p>That line of thinking seems to have resonated with some Canadians; one survey participant stated “<a href="https://www.bankofcanada.ca/wp-content/uploads/2023/11/Forum-Research-Digital-Canadian-Dollar-Consultation-Report.pdf">a digital dollar sounded great until we saw the federal government freeze private bank accounts of its own citizens for supporting a political movement it disagreed with</a>.” </p>
<p>The 2022 federal budget <a href="https://www.canada.ca/en/department-finance/news/2022/11/government-consults-canadians-to-advance-key-priorities.html">included an announcement</a> of the government’s intention to launch a financial sector legislative review, focusing on the digitalization of money. </p>
<p>However, no additional statements or updates have been put forward and there has been virtually no discussion on the topic from Prime Minister Justin Trudeau or Finance Minister Chrystia Freeland. </p>
<h2>Building trust?</h2>
<p>In contrast to Bitcoin, <a href="https://www.investopedia.com/tech/return-nakamoto-white-paper-bitcoins-10th-birthday/">which operates in a trustless system</a> that is not issued or managed by a central authority, CBDCs <a href="https://www.bis.org/speeches/sp220118.htm">cannot succeed without trust</a>. </p>
<p>Historically, central banks have maintained high levels of public trust, but that reputation doesn’t necessarily extend to the digital sphere. A notable 87 per cent of respondents said they don’t trust the Bank of Canada to issue a secure digital Canadian dollar that is resistant to cyberattacks.</p>
<p>A majority of respondents — 74 per cent — also completely distrust the federal government’s ability to protect personal payments data. That’s understandable given the <a href="https://www.ctvnews.ca/canada/class-action-lawsuit-launched-against-federal-government-over-cra-cyberattack-1.6552315">class-action lawsuit</a> launched against Ottawa in the wake of Canada Revenue Agency cyberattacks in 2020. This skepticism extends to the central bank, with 58 per cent expressing complete distrust in their ability to safeguard that data. </p>
<p>Although participants self-selected into the survey, meaning the findings aren’t necessarily representative of the Canadian population, these findings should serve as a wake-up call for policymakers to do more to bridge the trust deficit that plagues public perceptions.</p>
<p>Currently, there is no appetite for a CBDC in Canada. If the central bank wants this to be a successful endeavour, it must continue to engage with Canadians through public consultations. </p>
<h2>Transparency required</h2>
<p>The decisions around CBDC design features must be transparent. The central bank must take the time to learn from <a href="https://www.bloomberg.com/news/articles/2023-02-21/nigeria-seeks-new-tech-partners-to-revamp-enaira-central-bank-digital-currency">lessons abroad</a>. It will also need to develop an extensive digital Canadian dollar literacy campaign to clearly articulate the value of a CBDC.</p>
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<p>Canadian politicians must engage in comprehensive discussions about a CBDC that are open to the public. An outright ban could potentially stifle innovation, limit economic opportunities and the country’s ability to adapt to the rapidly evolving digital financial landscape.</p>
<p>The public consultation findings serve as a vital democratic tool offering Canadians and policymakers key data about public preferences and concerns. Understanding and addressing these concerns will be crucial in shaping responsible and inclusive policies for the future of digital currencies in Canada.</p><img src="https://counter.theconversation.com/content/219192/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anwar Sheluchin receives funding from the Social Sciences and Humanities Research Council of Canada.
</span></em></p>Recent Bank of Canada findings that showed Canadians have misgivings about a central bank digital currency should serve as a wake-up call that policymakers must do more to bridge the trust deficit.Anwar Sheluchin, PhD Student, Political Science, McMaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2094702023-07-19T14:08:51Z2023-07-19T14:08:51ZeNaira: Nigeria’s digital currency has had a slow start - what’s holding it back<figure><img src="https://images.theconversation.com/files/537313/original/file-20230713-25-z0mbqw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Adoption of eNaira has been slow.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Nigeria was the <a href="https://www.imf.org/en/News/Articles/2021/11/15/na111621-five-observations-on-nigerias-central-bank-digital-currency">first country</a> in Africa to roll out a central bank digital currency. The eNaira was launched in October 2021. </p>
<p>The <a href="https://theconversation.com/nigerias-digital-currency-what-the-enaira-is-for-and-why-its-not-perfect-171323">main reasons</a> were to promote financial inclusion, increase cross-border transactions, facilitate diaspora remittances and complement existing payment systems. </p>
<p>But adoption has <a href="https://www.imf.org/en/Publications/WP/Issues/2023/05/16/Nigerias-eNaira-One-Year-After-533487">been low</a> so far. Less than <a href="https://www.bloomberg.com/news/articles/2022-10-25/shunned-digital-currency-looks-for-street-credibility-in-nigeria?leadSource=uverify%20wall">0.5%</a> of Nigerians were using it a year after it was launched.</p>
<p>Since October 2022, the number of e-Naira wallets has reportedly increased more than <a href="https://guardian.ng/business-services/new-naira-notes-diminish-in-circulation-as-cbn-directs-banks-to-operate-weekends/">12-fold to 13 million</a>. There has also been a <a href="https://guardian.ng/business-services/new-naira-notes-diminish-in-circulation-as-cbn-directs-banks-to-operate-weekends/">63%</a> increase to N22 billion (US$48 million) in the value of transactions so far in 2023, thanks to the <a href="https://www.premiumtimesng.com/business/business-data/593346-nigerias-cash-crisis-driving-digital-transactions-to-all-time-high.html">currency crisis</a> earlier in the year. </p>
<p>Still, a lot needs to be done to encourage the financially excluded to adopt the eNaira. </p>
<p>It’s important for Nigeria and other African economies to use central bank digital currencies because the widespread use of crypto-assets poses a real threat to their monetary sovereignty. If a globally accessible and transferable currency exists to settle transactions, particularly over the internet, domestic currencies become less relevant and won’t be used. </p>
<p>Another key reason for adoption is the global <a href="https://www.imf.org/en/News/Articles/2023/06/22/cf-interest-in-cb-digital-currencies-picks-up-in-latam-the-caribbean-while-crypto-use-varies">drive</a> to tokenise assets - the representation of the ownership rights of real-world assets as digital tokens/assets on a blockchain. Central bank digital currencies are well placed to serve as the anchor for all forms of digital assets and digital currencies. </p>
<p>Projects to develop them are also happening at a frenetic pace. </p>
<p>The <a href="https://www.bis.org/">Bank for International Settlements</a> - the bank of all central banks - has launched <a href="https://www.bis.org/about/bisih/topics/cbdc.htm">numerous projects</a> through its Innovation Hub Centres, to test the uses of central bank digital currencies at the domestic and global levels. It does this in collaboration with Central Banks located in these Centres. BIS Innovation Hub Centres exist in Europe, North America and Asia; there is a need for one on the African continent. </p>
<p>The Central Bank of the Bahamas and the Eastern Caribbean Central Bank have issued their own central bank digital currency. This is primarily to facilitate financial inclusion for remote island communities and to strengthen the payments system’s resilience to natural disasters and pandemics. </p>
<p>Adoption has been <a href="https://www.imf.org/en/News/Articles/2023/06/22/cf-interest-in-cb-digital-currencies-picks-up-in-latam-the-caribbean-while-crypto-use-varies">slow</a> and accessing central bank digital currency has been a challenge. This is mostly the result of a weak awareness campaign and poor infrastructure.</p>
<p>The story is the same in China. It is piloting its central bank digital currency, called e-CNY, in <a href="https://www.abc.net.au/news/2023-05-14/why-china-digital-currency-e-cny-concerning-yuan-rmb/102328578">26 cities</a> but still experiencing poor adoption. In response, the Chinese government recently <a href="https://forkast.news/headlines/china-adopt-digital-yuan-education-sector/#:%7E:text=The%20government%20also%20plans%20to,least%2026%20provinces%20and%20cities">announced</a> its intention to broaden the use of the e-CNY in educational institutions. That includes areas like scholarship distribution, tax payment and school purchases. </p>
<p>I have <a href="https://www.fsb.org/wp-content/uploads/Dr.-Iwa-Salami.pdf">researched</a> and contributed to the <a href="https://www.fca.org.uk/firms/cryptoassets/cryptosprint">policy discussions</a> on the regulation of crypto-assets domestically and globally. I have also been involved in <a href="https://theconversation.com/nigerias-digital-currency-what-the-enaira-is-for-and-why-its-not-perfect-171323">public consultations</a> on central bank digital currency. I understand the role it can play for the future use of money and for international monetary and financial stability. </p>
<p>The eNaira, in my view, would need to get past certain challenges before it can be widely adopted domestically. These challenges include absence of technology infrastructure, lack of training for financial institution staff who have to manage the process, data privacy concerns, the electricity crisis and fear of financial crimes.</p>
<h2>Barriers to adoption</h2>
<p><strong>Technology infrastructure:</strong> The Central Bank of Nigeria needs to ensure that a robust technology infrastructure is in place to manage the eNaira. This doesn’t appear to have been clearly thought out before the launch. In February 2023, it was <a href="https://www.bloomberg.com/news/articles/2023-02-21/nigeria-seeks-new-tech-partners-to-revamp-enaira-central-bank-digital-currency">announced</a> that Nigeria was in talks with a new technology provider to develop a new system to run and manage the eNaira. </p>
<p>The original system was built by <a href="https://www.bitt.com/">Bitt</a>, a global financial technology company. </p>
<p>It is <a href="https://www.bloomberg.com/news/articles/2023-02-21/nigeria-seeks-new-tech-partners-to-revamp-enaira-central-bank-digital-currency">believed</a> that the Central Bank of Nigeria wants to develop its own software for the digital currency. The new partner would help the central bank to control the underlying technology. </p>
<p>A change of the technology provider two years into the project suggests the country does not have the right programme for rolling out a robust system. </p>
<p><strong>Training:</strong> The idea is that financial institutions would give users access to central bank digital currency wallets while the central bank oversees the ledger and manages the system. It is, however, <a href="https://guardian.ng/business-services/new-naira-notes-diminish-in-circulation-as-cbn-directs-banks-to-operate-weekends/">reported</a> that banks and financial institution staff do not appear well trained to get users on board. So the system is not fully ready for adoption. </p>
<p><strong>Data privacy:</strong> Under the current design, the central bank will be able to see all transactions of users of the eNaira. Potential users are apprehensive about this and a solution is needed. </p>
<p><strong>Prevention of financial crimes:</strong> A <a href="https://www.cbn.gov.ng/Out/2021/FPRD/eNairaCircularAndGuidelines%20FINAL.pdf">tiered mechanism</a> is in place for the issuance of eNaira wallet, depending on the level of identification documentation users provide. Each tier has certain balance and transaction limits to prevent abuse of the system. </p>
<p>But this is likely to limit access for the people who need financial inclusion the most. This is so as they are likely to find it difficult fulfilling the more stringent identification requirements needed for a larger transaction limit. Also, the eNaira design uses the existing Bank Verification Number and National Identity Number regime. Poorer people are likely to be challenged getting the documentation needed for this and it can be an expensive and cumbersome process. </p>
<p>As this system is currently <a href="https://www.cbn.gov.ng/Out/2021/FPRD/eNairaCircularAndGuidelines%20FINAL.pdf">only accessible</a> to those with bank accounts, it does not facilitate financial inclusion.</p>
<p><strong>Nigeria’s electricity and internet crisis:</strong> The electricity crisis and lack of widespread access to <a href="https://www.statista.com/statistics/484918/internet-user-reach-nigeria/">internet connectivity</a> across the country, especially in rural communities, is a challenge. There would be a need for offline access to the eNaira platform.</p>
<h2>Workable solutions</h2>
<p>To drive the smooth and speedy adoption of the eNaira, it must be made accessible to everyone with a mobile phone. Users could also get incentives to use the digital currency, in the form of discounts when paying taxes and for other public services. </p>
<p>Another strategy is to embed mobile networks or payment apps into the central bank digital currency wallets, to make it possible to operate across different mobile network operators. </p>
<p>If these challenges can be surmounted and policy approaches to adoption implemented, adoption of the eNaira is likely to pick up.</p><img src="https://counter.theconversation.com/content/209470/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Iwa Salami does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>To encourage the widespread use of eNaira, Nigeria will have to fix its infrastructure, train financial services staff and ensure data privacy for users.Iwa Salami, Reader (Associate Professor) in Law, University of East LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2080922023-06-22T22:26:56Z2023-06-22T22:26:56ZAs the Bank of Canada prepares for a digital Canadian dollar, democratic concerns loom large<figure><img src="https://images.theconversation.com/files/533037/original/file-20230620-23-x5ntzt.jpg?ixlib=rb-1.1.0&rect=43%2C7%2C4819%2C3361&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Bank of Canada recently concluded public consultations where it sought input from Canadians about the possibility of a national digital currency.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>The Bank of Canada is preparing for the possibility of the Canadian government requiring it to issue a digital version of the Canadian dollar. Although the central bank is leading the project for the new currency, any future decision to issue it <a href="https://www.cbc.ca/news/business/digital-dollar-central-bank-digital-currency-1.6841693">rests with the Canadian Parliament and government</a>.</p>
<p>As a part of this process, the central bank <a href="https://www.bankofcanada.ca/2023/05/bank-canada-launches-public-consultations-digital-dollar">recently concluded a public consultation on June 19</a> where it sought input from Canadians about the possibility of a national digital currency.</p>
<p>If the Bank of Canada were to issue the digital dollar, it could have significant implications for how Canada tackles future financial challenges.</p>
<p>However, we must not overlook the important democratic concerns associated with this currency. For the sake of our democracy, and to maintain trust in the Bank of Canada and this new digital dollar, these concerns must be addressed before a decision to issue this money is made.</p>
<h2>Mitigating financial risks</h2>
<p>The digital Canadian dollar is important for mitigating two potential future threats: the mass adoption of external currencies and the next financial crisis. </p>
<p>Most of the digital money in our economy is <a href="https://lop.parl.ca/sites/PublicWebsite/default/en_CA/ResearchPublications/201551E">commercial bank money</a> that’s created mainly through loans. This money can be risky during bank runs, which occur when everyone tries to withdraw money at the same time, rendering commercial banks vulnerable to insolvency. </p>
<p>A currency backed by the central bank could provide <a href="https://www.thestar.com/business/opinion/2023/04/29/why-a-bank-of-canada-digital-dollar-would-put-an-end-to-bank-run-crises.html">a more reliable alternative</a> to this commercial bank money. </p>
<p>Introducing the digital Canadian dollar could also <a href="https://www.bankofcanada.ca/2020/02/contingency-planning-central-bank-digital-currency/">lower the likelihood of mass adoption of alternative digital currencies</a>, like cryptocurrencies and privately issued currencies. Such a scenario would undermine the Bank of Canada’s ability to control the country’s monetary policy. Prevention is better than a cure.</p>
<p>In the face of these two scenarios, a digital Canadian dollar would ensure stability and monetary sovereignty.</p>
<h2>A promise for a better future</h2>
<p>The digital Canadian dollar has the potential to pave the way for a more promising future by bridging the present with the infinite digital possibilities of tomorrow.</p>
<p>It would serve as an alternative to existing commercial payment methods while seamlessly integrating with electronic payments and other innovative aspects of the digital economy.</p>
<p>Additionally, the ability to <a href="https://doi.org/10.38105/spr.j0hildxtyi">digitally trace transactions promotes a safer society</a> by assisting in the fight against money laundering, crime and terrorism. </p>
<p>In some visions of central bank digital currencies, it is possible <a href="https://www.bis.org/publ/arpdf/ar2023e3.pdf">to program the money</a> and <a href="https://edps.europa.eu/data-protection/our-work/publications/techdispatch/2023-03-29-techdispatch-12023-central-bank-digital-currency_en#_ftnref8">incorporate social policies</a> directly into it. </p>
<p>This could mean, for example, that specific populations or regions could receive better interest rates to promote economic equity, or automatically subsidize essential goods and services to low-income households or senior citizens. </p>
<figure class="align-center ">
<img alt="A Canadian flag hangs from the front of a glass-fronted office building." src="https://images.theconversation.com/files/533010/original/file-20230620-25-3f3spb.JPG?ixlib=rb-1.1.0&rect=12%2C12%2C8614%2C5729&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/533010/original/file-20230620-25-3f3spb.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/533010/original/file-20230620-25-3f3spb.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/533010/original/file-20230620-25-3f3spb.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/533010/original/file-20230620-25-3f3spb.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/533010/original/file-20230620-25-3f3spb.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/533010/original/file-20230620-25-3f3spb.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Bank of Canada building is pictured in Ottawa in December 2022.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Sean Kilpatrick</span></span>
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</figure>
<p>Since transactions are digital, it is possible to envision a future in which the Canada Revenue Agency could also use the digital currency <a href="https://www.bankofcanada.ca/wp-content/uploads/2019/08/sdp2019-7.pdf">to combat the underground economy</a> and automate tax collecting.</p>
<p>Together with another digital revolution — that of AI — it is easy to imagine insights gained from the enormous amounts of data.</p>
<h2>The dark side of the digital dollar</h2>
<p>Implementing this new digital currency, despite its potential benefits, <a href="https://theconversation.com/central-bank-digital-currencies-could-mean-the-end-of-democracy-187505">could introduce several risks to our democracy</a>. We risk paving the way for a future government taking control of our financial data. </p>
<p>Digital currencies can be programmable by being assigned functions to operate only under certain conditions. This could eventually lead to an economy controlled by the government at an individual level. The government would be able to <a href="https://www.wired.com/story/chinas-digital-yuan-ecny-works-just-like-cash-surveillance/">monitor its citizens</a>, <a href="https://edps.europa.eu/data-protection/our-work/publications/techdispatch/2023-03-29-techdispatch-12023-central-bank-digital-currency_en#_ftnref8">determine how money can be limited and used</a>, identify <a href="https://www.cato.org/cato-journal/spring/summer-2021/financial-freedom-privacy-post-cash-world#">political dissidents</a> and <a href="https://www.cato.org/study/risks-of-cbdcs">take action against them</a>. </p>
<p>The Canadian government has already proved it is willing to use <a href="https://www.cnn.com/2022/02/20/americas/canada-trucker-protest-covid-sunday/index.html">financial tools against protestors</a>. Moreover, centralized digital infrastructures are inherently vulnerable to software updates that could override initial safeguards. Issuing a central bank digital currency may be a point of no return.</p>
<p>While the Bank of Canada’s consultation is <a href="https://www.ctvnews.ca/business/what-a-canadian-digital-currency-could-look-like-expert-on-arguments-for-and-against-it-1.6414630">a step in the right direction</a>, the current information about the digital Canadian dollar fails to address the risk of a future government exercising greater authority in this digital domain.</p>
<h2>Mitigating concerns and building trust</h2>
<p>Democratic concerns <a href="https://www.thestar.com/business/opinion/2023/05/16/the-bank-of-canada-is-exploring-a-digital-currency-heres-why-that-is-terrifying.html">must be a part of the discussion</a> about a national digital currency. Similar worries about privacy, surveillance and national digital currency were also raised in the <a href="https://www.cnil.fr/en/digital-euro-what-stake-privacy-and-personal-data-protection">European Union</a>, the <a href="https://thehill.com/opinion/finance/3897860-fight-chinas-surveillance-coin-with-a-us-freedom-coin/">United States</a> and <a href="https://www.ft.com/content/92fb7d93-8705-44a0-850b-65f2ddef1018">elsewhere</a>.</p>
<p>Launching the digital Canadian dollar is a political decision, not a technological one. Ensuring freedom is the same. For the digital Canadian dollar and the Bank of Canada to be trusted, these worries must be addressed and mitigated. If the decision to issue this digital money is made, it needs to be done in a responsible manner.</p>
<p>It is essential to raise awareness about the potential misuse of the digital Canadian dollar and carefully assess its impact on Canadian democracy and civil liberties. Unlike the current suggested version, safeguards must be part of the digital Canadian dollar package. What these safeguards are is a discussion we should urgently have.</p><img src="https://counter.theconversation.com/content/208092/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ori Freiman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While a digital national currency does have the potential to mitigate key financial issues, we cannot ignore the democratic risks such a currency could introduce without safeguards.Ori Freiman, Postdoctoral Fellow, Digital Society Lab, McMaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2055192023-06-01T12:30:26Z2023-06-01T12:30:26ZWar in Ukraine might give the Chinese yuan the boost it needs to become a major global currency – and be a serious contender against the US dollar<figure><img src="https://images.theconversation.com/files/528317/original/file-20230525-29-2upko8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">China and the U.S. compete to be the world's largest economy, but the dollar dominates the yuan as a currency.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/sino-us-trade-war-royalty-free-image/1216692156">peng song/Moment Collection/Getty Images</a></span></figcaption></figure><p>The Chinese economy’s sheer size and rapid growth are impressive.</p>
<p>China maintained one of the <a href="https://www.worldbank.org/en/country/china/overview#1">highest economic growth rates</a> in the world for more than a quarter of a century, helping lift <a href="https://www.worldbank.org/en/news/press-release/2022/04/01/lifting-800-million-people-out-of-poverty-new-report-looks-at-lessons-from-china-s-experience">over 800 million people</a> out of poverty in just a few decades. The country is the <a href="https://wits.worldbank.org/CountrySnapshot/en/CHN">largest exporter in the world</a> and the most important trading partner of Japan, Germany, Brazil and many other countries. It has the <a href="https://www.imf.org/external/datamapper/NGDPD@WEO/OEMDC/ADVEC/WEOWORLD">second-largest economy</a> after the U.S., based on the market exchange rate, and the largest <a href="https://databankfiles.worldbank.org/public/ddpext_download/GDP_PPP.pdf">based on purchasing power</a>.</p>
<p>And yet the yuan still lags as a major global currency. The war in Ukraine, which started in February 2022, may change that. </p>
<p>As a <a href="https://www.loyola.edu/sellinger-business/faculty-research/directory/chuluun">professor of finance</a> and <a href="https://www.mheducation.com/highered/product/international-financial-management-eun-resnick/1264413092.html">expert on international finance</a>, I understand how this geopolitical conflict may put China’s currency on the next phase of its path to becoming a global currency – and prompt the onset of the decline of the U.S. dollar from <a href="https://www.bis.org/statistics/rpfx22_fx.htm">its current dominance</a>. </p>
<h2>Chinese yuan’s slow progress</h2>
<p>China has long wanted to make the yuan a global force and has mounted significant efforts to do so in recent years. </p>
<p>For example, the Chinese government <a href="https://www.reuters.com/article/uk-china-economy-yuan/china-launches-yuan-cross-border-interbank-payment-system-idUKKCN0S204320151008">launched the Cross-Border Interbank Payments System</a>, or CIPS, in 2015 to facilitate cross-border payments in yuan. Three years later, in 2018, it launched the world’s <a href="http://www.xinhuanet.com/english/2018-03/26/c_137065815.htm">first yuan-denominated crude oil futures contracts</a> to allow exporters to sell oil in yuan. </p>
<p>China has also emerged perhaps as the <a href="https://hbr.org/2020/02/how-much-money-does-the-world-owe-china">world’s largest creditor</a>, with the government and state-controlled enterprises extending loans to dozens of developing countries. And China is <a href="https://www.cnn.com/2023/04/24/economy/china-digital-yuan-government-salary-intl-hnk/index.html">developing a digital yuan</a> as one of the world’s first central bank digital currencies. Even the trading hours for the yuan were <a href="https://www.reuters.com/article/china-yuan-trading/update-1-china-to-extend-fx-market-trading-hours-to-further-internationalise-yuan-idINL1N33K0GJ">recently extended</a> on the mainland.</p>
<p>Thanks to these efforts, the yuan is now the <a href="https://www.bis.org/statistics/rpfx22_fx.htm">fifth-most-traded currency</a> in the world. That is a phenomenal rise from its <a href="https://www.bis.org/publ/rpfx02.htm">35th place in 2001</a>. The yuan is also the <a href="https://www.swift.com/our-solutions/compliance-and-shared-services/business-intelligence/renminbi/rmb-tracker/rmb-tracker-document-centre">fifth-most-actively used currency</a> for global payments as of April 2023, up from 30th place in early 2011. </p>
<p>Rankings can be misleading, though. The yuan’s average trading volume is still <a href="https://www.bis.org/statistics/rpfx22_fx.htm">less than a 10th</a> of the U.S. dollar’s. Moreover, almost all trading was against the U.S. dollar, with little trading against other currencies.</p>
<p>And when it comes to global payments, the actual share of the yuan is a <a href="https://www.swift.com/our-solutions/compliance-and-shared-services/business-intelligence/renminbi/rmb-tracker/rmb-tracker-document-centre">mere 2.3%</a>, compared with 42.7% for the dollar and 31.7% for the euro. The yuan also constituted <a href="https://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4">less than 3%</a> of the world foreign exchange reserves at the end of 2022, compared with 58% for the dollar and 20% for the euro.</p>
<figure class="align-center ">
<img alt="Two men shake hands in front of Russian and Chinese flags" src="https://images.theconversation.com/files/528318/original/file-20230525-27-sg2yw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/528318/original/file-20230525-27-sg2yw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=425&fit=crop&dpr=1 600w, https://images.theconversation.com/files/528318/original/file-20230525-27-sg2yw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=425&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/528318/original/file-20230525-27-sg2yw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=425&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/528318/original/file-20230525-27-sg2yw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=534&fit=crop&dpr=1 754w, https://images.theconversation.com/files/528318/original/file-20230525-27-sg2yw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=534&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/528318/original/file-20230525-27-sg2yw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=534&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Russian Prime Minister Mikhail Mishustin meets with Chinese President Xi Jinping in Beijing on May 24, 2023, with the two countries signing a new set of trade agreements.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/russian-prime-minister-mikhail-mishustin-meets-with-chinas-news-photo/1257684729">Alexander Astafyev/Sputnik/AFP</a></span>
</figcaption>
</figure>
<h2>US dollar’s dominance questioned</h2>
<p>The U.S. dollar has reigned supreme as the dominant global currency for decades – and concern about how that benefits the U.S. and potentially hurts emerging markets <a href="https://scholar.harvard.edu/gopinath/publications/dominant-currency-paradigm-0">is not new</a>. </p>
<p>The value of the <a href="https://www.reuters.com/markets/currencies/recession-worries-could-support-dollar-after-monstrous-2022-rally-2022-12-08/">U.S. dollar appreciated significantly</a> against most other currencies in 2022 as the Federal Reserve hiked interest rates. This had negative consequences for residents of almost any country that borrows in dollars, pays for imports in dollars, or buys wheat, oil or other commodities priced in dollars, as these transactions became more expensive. </p>
<p>After Russia invaded Ukraine in early 2022, the U.S. and its Western allies put sanctions on Russia, <a href="https://www.swift.com/news-events/news/message-swift-community">including cutting Russia’s access</a> to the global dollar-based payments system known as the Society for Worldwide Interbank Financial Telecommunication, or SWIFT. That clearly displayed how the dollar can be weaponized. </p>
<p>With Russia largely cut off from international financial markets, it stepped up its trade with China. Russia began <a href="https://www.cnn.com/2022/09/06/energy/china-russian-gas-payments-ruble-yuan/index.html">receiving payments for coal and gas in yuan</a>, and Moscow <a href="https://www.reuters.com/markets/currencies/permitted-share-chinas-yuan-russian-wealth-fund-doubled-60-finmin-2022-12-30/">increased the yuan holdings</a> in its foreign currency reserves. Russian companies like Rosneft <a href="https://www.rosneft.com/press/releases/item/212071/">issued bonds denominated in yuan</a>. According to Bloomberg, the yuan is now the <a href="https://www.bloomberg.com/news/articles/2023-04-03/china-s-yuan-replaces-dollar-as-most-traded-currency-in-russia">most-traded currency in Russia</a>.</p>
<p>Other countries took notice of Russia’s increasing use of the yuan and saw an opportunity to decrease their own dependency on the dollar.</p>
<p><a href="https://www.reuters.com/business/energy/bangladesh-pay-russia-yuan-nuclear-plant-2023-04-17/">Bangladesh is now paying Russia in yuan</a> for the construction of a nuclear power station. <a href="https://www.nasdaq.com/articles/china-completes-first-yuan-settled-lng-trade">France is accepting payment in yuan for liquefied natural gas</a> bought from China’s state-owned oil company. A Brazilian bank controlled by a Chinese state bank is becoming the first Latin American bank to <a href="https://www.bloomberg.com/news/articles/2023-03-30/brazil-takes-steps-to-transact-in-yuan-as-ties-with-china-grow#xj4y7vzkg">participate directly in China’s payments system, CIPS</a>. <a href="https://www.bloomberg.com/news/articles/2023-02-22/iraq-pivots-to-yuan-for-china-imports-in-defense-of-own-currency#xj4y7vzkg">Iraq wants to pay for imports from China in yuan</a>, and even Tesco, the British retailer, <a href="https://www.economist.com/leaders/2013/02/09/yuan-for-the-money">wants to pay for its Chinese imported goods in yuan</a>. </p>
<p>The combined dollar amount of these transactions is still relatively small, but the shift to yuan is significant.</p>
<h2>Yuan still not freely available</h2>
<p>China keeps <a href="https://www.safe.gov.cn/en/2023/0222/2067.html">a tight grip</a> on money coming in and out of the country. Such capital controls and limited transparency in Chinese financial markets mean China still lacks the deep and free financial markets that are required to make the yuan a major global currency. </p>
<p>For the yuan to achieve a truly global standing, it needs to be freely available for cross-border investment and not just serve as a payment medium to accommodate trade. </p>
<p>But the war in Ukraine may have just made it feasible for the yuan to eventually join the ranks of the dollar and the euro – even if the volume isn’t there yet. And any U.S. policy decisions that weaken the reputation and strength of U.S. institutions – such as <a href="https://theconversation.com/voters-want-compromise-in-congress-so-why-the-brinkmanship-over-the-debt-ceiling-206465">the recent drama over raising the debt ceiling</a>, which brought the government to the brink of default – will accelerate the rise of the yuan and decline of the dollar.</p><img src="https://counter.theconversation.com/content/205519/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tuugi Chuluun does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Despite China’s economic power, the yuan lags as a major global currency. Here’s why current US interest rates and sanctions on Russia may change that.Tuugi Chuluun, Associate Professor of Finance, Loyola University MarylandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2022012023-05-31T14:07:29Z2023-05-31T14:07:29ZMeet the EU’s answer to crypto: the e-euro<figure><img src="https://images.theconversation.com/files/527991/original/file-20230524-23-hmxtn.jpg?ixlib=rb-1.1.0&rect=0%2C34%2C5710%2C3607&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">EU consumers are familiar making payments with traditional coins and bills, but soon they could be joined by an 'e-euro".</span> <span class="attribution"><a class="source" href="https://unsplash.com/photos/Y_x747Yshlw">Christian Dubovan/Unsplash</a></span></figcaption></figure><p>In a bid to play catch up with technology companies and younger generations of consumers, central banks are finally starting to take digital currencies seriously. Countries such as Sweden, China, and India have establish pilot digital currencies – respectively, the e-krona, e-yuan and e-rupee – via their central banks. In the finance sector, these are known as central bank digital currencies (CBDCs).</p>
<p>The purpose, scale and status of such efforts vary considerably. In Sweden, the goal is to investigate the <a href="https://www.riksbank.se/en-gb/payments--cash/e-krona/">potential transition</a> from banknotes to a digital currency, and the e-krona remains in the starting blocks. In China, the “digital renminbi” started to roll out in 2020, and its goal is to allow the state to <a href="https://library.fes.de/pdf-files/international/20024-20230214.pdf">better control the retail economy</a>. India launched an e-rupee pilot in 2022 and its purpose is to <a href="https://economictimes.indiatimes.com/small-biz/money/indias-e-rupee-is-here-what-to-expect-from-the-retail-cbdc-pilot/articleshow/98404352.cms?from=mdr">facilitate a broad range of transactions</a>. Meanwhile, the United States is exploring the <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2022/09/16/fact-sheet-white-house-releases-first-ever-comprehensive-framework-for-responsible-development-of-digital-assets/">potential repercussions</a> of establishing its own digital currency. </p>
<p>Along the same lines, the European Union is currently toying with the idea of launching its own digital currency, the <a href="https://www.ecb.europa.eu/paym/digital_euro/html/index.en.html">e-euro</a>. As the European Central Bank (ECB) explains, it would provide a digital alternative to existing payment methods with the goal of increasing the security and stability of the EU’s monetary system. The e-euro would be held in digital wallets, with transactions facilitated by the use of blockchain. </p>
<p>A crucial difference between the e-euro (a CBDC) and cryptocurrencies is that its overall quantity – the number in circulation – would not be capped. Because bitcoins and other cryptocurrencies aren’t issued by central banks, the number in circulation is limited by the fact that creating new ones requires “mining”, an energy-intensive process that involves solving extremely complicated math problems. Not the case with the e-euro, as it would be regulated by the European Central Bank and be linked directly to the euro itself – there will be no exchange rate, it would simply be the euro in another format. </p>
<p>While there is a superficial similarity between the e-euro and <a href="https://www.investopedia.com/terms/s/stablecoin.asp">“stablecoins”</a> – cryptocurrencies whose value is pegged to a major currency – the e-euro would be issued and controlled from a public entity. This will ensure stability in valuations and regulation.</p>
<h2>The case in favour</h2>
<p>The 1 million euro question is why is the ECB would consider a digital currency. While we all have a centuries-long familiarity with physical currencies, digital ones have some advantages:</p>
<ul>
<li><p><em>Less resource intensive</em>. A central bank digital currency doesn’t require printing, validation, circulation, monitoring and replacement, and thus would have a considerably lower ecological footprint. That it will be issued rather than <a href="https://www.cnet.com/personal-finance/crypto/bitcoin-mining-how-much-electricity-it-takes-and-why-people-are-worried/">mined</a> adds to its energy efficiency. The International Monetary Fund estimates that a CBDC’s payment system for clearance and settlement could use <a href="https://www.imf.org/wp-content/uploads/2022/06/CBDCs-Chart.jpg">hundreds of thousand of times less energy</a> than physical currencies and cryptocurrencies while maintaining <a href="https://bpi.com/central-bank-digital-currencies-costs-benefits-and-major-implications-for-the-u-s-economic-system/">low transaction costs</a>.</p></li>
<li><p><em>Increased banking access</em>. Because a digital euro would be directly managed by central banks, it would eliminate the need for intermediaries such as private financial institutions. It thus has the potential to reduce economic exclusion, such as in the cases of <a href="https://www.theguardian.com/money/2020/jun/24/you-cant-pay-cash-here-how-cashless-society-harms-most-vulnerable">“the unbanked”</a> – low-income people without bank accounts. The ECB would create and sustain the required infrastructure, making the e-euro available to all. For example, while private institutions would require a minimum credibility score to open an account, governments could facilitate access to money by opening digital wallets as part of a social policy agenda. </p></li>
<li><p><em>Economic sovereignty</em>. It can protect the euro from competing CBDC and <a href="https://d-nb.info/124947843X/34">other cryptocurrencies</a> and thus defend Europe’s <a href="https://www.ecb.europa.eu/pub/pdf/other/key_objectives_digital_euro%7Ef11592d6fb.en.pdf">economic sovereignty</a>. It will also allow governments to monitor transactions and so reduce <a href="https://watermark.silverchair.com/fjab009.pdf">tax avoidance and money laundering</a> .</p></li>
</ul>
<h2>Where a digital currency leaves central and commercial banks</h2>
<p>Given the potential advantages of central bank digital currencies, what is holding countries back? Everything depends on how CBDCs are be designed and implemented, and some challenges that might overshadow any potential.</p>
<ul>
<li><p><em>Pushing back against private digital currencies</em>. Imagine a world where private digital currencies like bitcoin or Facebook’s libra become the means for a substantial share of world’s financial transactions. In this world, the value of the means of exchange would be entirely determined by supply and demand or by the private venture – for example, Facebook itself. The introduction of CBDCs would enable central banks to determine the value of money itself and thus help ensure their country’s monetary sovereignty. People will still be able to choose between national currencies or those supported by private firms, but with the e-euro, Europe will at least be on an equal footing.</p></li>
<li><p><em>Balancing security and privacy</em> The basic principle of tangible money is anonymity. In its cash format, money can be exchanged for goods or services without necessarily disclosing one’s identity with every transaction. A fully secure digital currency would require that all transaction information be reported to the authorities, while a fully private one disclose no information. The former would give too much power to central authorities, while the latter would encourage tax avoidance and other nefarious behaviour. The traceability of blockchain can assist in tracking back the full financial history, but should the identity of the actor be public information? The e-euro is likely to operate in a semi-anonymous format to preserve a balance between security and privacy.</p></li>
<li><p><em>More stability, less speculation</em>. The initial idea of digital currencies was that they would become decentralized means of exchange, governed by the forces of supply and demand. However, they shortly became speculative assets, subject to <a href="https://www.theguardian.com/technology/2022/aug/29/crypto-crash-how-a-teachers-dream-investment-turned-into-a-nightmare-loss">vertiginous spikes and brutal crashes</a>. Instead, a major currency should reflect the conditions of the real economy rather than speculation about its future state.</p></li>
</ul>
<p>So is the e-euro something that we need or want? This depends on how it will be designed and regulated. For this particular venture, given the complexity of EU regulation, the devil is in the details.</p><img src="https://counter.theconversation.com/content/202201/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Iordanis Kalaitzoglou ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.</span></em></p>Central banks are now taking digital currencies seriously, and the EU is exploring the idea. While an “e-euro” could increase monetary security and stability, the venture is not without risks.Iordanis Kalaitzoglou, Ascociate Professor in Finance, AudenciaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2034352023-05-02T14:06:01Z2023-05-02T14:06:01ZNigeria and digital banking: a revolution still waiting to happen<figure><img src="https://images.theconversation.com/files/520775/original/file-20230413-26-hhkl4x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Cash is still king in Nigeria. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/this-picture-taken-on-january-28-2016-in-lagos-shows-naira-news-photo/507489912?adppopup=true">Pius Utomi Ekpei/AFP via Getty Images </a></span></figcaption></figure><p><em>At the end of 2022 the Central Bank of Nigeria <a href="https://punchng.com/just-in-buhari-unveils-new-naira-notes-at-aso-rock/">launched</a> new banknotes. At the same time it also <a href="https://www.pensionnigeria.com/blog/cbn-imposes-new-cash-withdrawal-limits-on-nigeria-bank-accounts-full-circular-to-banks/">capped</a> withdrawal of the new banknotes. The rollout of the currency change was <a href="https://www.premiumtimesng.com/news/top-news/585737-timeline-naira-redesign-policy-from-inception-to-supreme-court-judgement.html">shambolic</a>. But it also led people to turn to digital financial services such as the use of <a href="https://nibss-plc.com.ng/news/4xapzv7015vgjryewfn8e2wd50">point of sale (PoS) machines for payments</a> in their transactions. <a href="https://pubdocs.worldbank.org/en/230281588169110691/Digital-Financial-Services.pdf#page=12">Digital financial services</a> are financial services which rely on digital technologies for their delivery and use by consumers. The Conversation Africa’s Wale Fatade asks Iwa Salami, an expert in financial technology regulation and financial regulation in emerging economies, to explain the increase and its implications.</em></p>
<p><strong>How did the botched currency changeover affect the way Nigerians used the banking system?</strong></p>
<p>The Central Bank <a href="https://www.cbn.gov.ng/Out/2022/CCD/Naira_Redesign.pdf">set a deadline of 31 January 2023</a> for all old notes to be deposited in banks in exchange for new. The country was <a href="https://www.premiumtimesng.com/news/top-news/585737-timeline-naira-redesign-policy-from-inception-to-supreme-court-judgement.html">plunged into a currency crisis</a> when all old notes were out of circulation and the new notes were hardly circulating. The ensuing scarcity of cash made life unbearably hard for Nigerians.</p>
<p>One outcome was that Nigerians sought alternative ways to pay for goods and services using digital alternatives, such as point of sale machines. Between 2017 and 2022, the number of point of sale terminals in Nigeria grew significantly. </p>
<p><a href="https://www.statista.com/statistics/1178109/number-of-pos-terminals-in-nigeria/">In 2017, there were around 155,000 terminals</a>, and this number has increased to roughly 1.1 million as of April 2022. Merchants and PoS operators handle the machines. Their operations are <a href="https://www.cbn.gov.ng/cashless/POS_GUIDELINES_August2011_FINAL_FINAL%20(2).pdf">regulated by the Central Bank</a>. </p>
<p>It also resulted in a <a href="https://www.nibss-plc.com.ng/news/4xapzv7015vgjryewfn8e2wd50">surge </a>in point of sales transactions in Nigeria. There was a 40.69% year-on-year increase from the N573.72 billion (US$1.24 billion) transactions that was done in January 2022 to N807.16 billion (US$1.75 billion) in January 2023. Total cashless transactions also rose by 45.41% year-on-year to N39.58 trillion (US$85.96 billion) in January 2023.</p>
<h2>What are the most developed forms of electronic transacting in Nigeria?</h2>
<p><strong>Point of Sale (PoS):</strong> These devices are installed both by traditional banks as well as by payment service banks. They are now ubiquitous throughout Nigeria - in supermarkets, large retail outlets as well as in small-scale businesses set up for this purpose only. </p>
<p><strong>Payment service banks:</strong> These <a href="https://www.mondaq.com/nigeria/financial-services/1188262/payment-service-banks-psb-in-nigeria">are technology driven companies</a> licensed by the Central Bank to engage in banking activities. Examples are Hope and MoneyMaster.</p>
<p><strong>Fintechs:</strong> This <a href="https://plaid.com/resources/fintech/what-is-fintech/">includes</a> any app, software, or technology that allows people or businesses to digitally access, manage, or gain insights into their finances or make financial transactions. A number of companies offer these services in Nigeria. They include Flutterwave, Piggyvest, OPay, Interswitch, Kuda and Remita. </p>
<p><strong>Online banking offered by traditional banks:</strong> All Nigerian banks offer online services. However, the services aren’t always reliable. During the currency crisis, for example, platforms collapsed and customers were unable to transact. Digital platforms didn’t have the ability to cope with the deluge of online transactions.</p>
<p><strong>Mobile money:</strong> <a href="https://datahelp.imf.org/knowledgebase/articles/1906552-fas-what-is-mobile-money-how-is-it-different-fro#:%7E:text=It%20is%20a%20financial%20service,is%20a%20basic%20mobile%20phone.">Financial service offered by a mobile network operator</a> and can be independent of the traditional banking network. A bank account is not required to use mobile money services – the only pre-requisite is a basic mobile phone.</p>
<p>Those offering this service include MTN and Airtel Africa. As with most other countries on the continent, mobile money uptake in Nigeria has been slow. The exception has been <a href="https://thedocs.worldbank.org/en/doc/4fff8526d366d112cd9fd96eaf4adbb1-0050062022/original/FindexNote1-062419.pdf">Kenya,</a> where the <a href="https://www.vodafone.com/about-vodafone/what-we-do/consumer-products-and-services/m-pesa">launch of MPesa in 2007 </a> led to a massive uptake in mobile financial services. </p>
<p>In 2022, the Central Bank of Nigeria issued MTN the first license to operate mobile money services. It started <a href="https://www.mtn.ng/wp-content/uploads/2022/05/MoMo-Payment-Service-Bank-commences-Commercial-Operations.pdf?_ga=2.69147735.751641338.1681378566-391186901.1681378566">operations in May</a>. MTN is the largest mobile network operator in Nigeria.</p>
<h2>Can you paint a picture of the banking landscape?</h2>
<p><a href="https://www.statista.com/statistics/1182094/number-of-bank-customers-in-nigeria/">In 2021 Nigeria had 122.3 million active bank customers</a>. According to February 2022 data only <a href="https://www.statista.com/statistics/1139751/popularity-of-financial-products-or-services-in-nigeria/">39% of Nigerians</a> use the formal banking system.</p>
<p>As has been shown elsewhere, <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/03/SOTIR_2014.pdf#page=14">mobile money offerings</a>, as well as other digital services, can extend banking to the unbanked. </p>
<p>In 2022 the volume of transactions performed electronically in Nigeria surged to the highest in five years. The total volume of the Inter Bank Settlement Scheme Instant Payment Platform transactions<a href="https://www.nibss-plc.com.ng/news/4cy2cqt4g9bkj44n75n4ete3x9#:%7E:text=A%20latest%20Mastercard%20survey%20said,websites%20to%20make%20financial%20transactions.">rose by 613.1% to 5.2 billion in 2022 from 729.2 million in 2018</a>. <a href="https://www.nibss-plc.com.ng/news/4cy2cqt4g9bkj44n75n4ete3x9#:%7E:text=A%20latest%20Mastercard%20survey%20said,websites%20to%20make%20financial%20transactions.">Its value also increased</a> by 381.5% from N80.4 trillion (US$174.6 billion) as at 2018 to N387.1 trillion (US$840.67billion) in 2022. </p>
<p>In my view, the spike in the value of transactions carried out at point-of-sale devices in Nigeria in January 2023 – they went up by <a href="https://nibss-plc.com.ng/news/4xapzv7015vgjryewfn8e2wd50">40.7% higher compared to the same month in 2022</a> – shows a wider adoption of digital payments. It is also an indication of the huge opportunities that mobile money operators and other forms of digital payments have in Nigeria. </p>
<h2>How does Nigeria’s digital currency eNaira fit into the picture?</h2>
<p>eNaira was <a href="https://www.cbn.gov.ng/out/2021/ccd/enaira%20launch%20press%20release%20%20231021.pdf">launched by the Central Bank in October 2021</a>. However, <a href="https://www.bloomberg.com/news/articles/2022-10-25/shunned-digital-currency-looks-for-street-credibility-in-nigeria?leadSource=uverify%20wall">less than 0.5% of Nigerians</a> were recorded as using it a year after its launch. </p>
<p>The Central Bank didn’t have an adoption strategy for the eNaira planned ahead of the currency change over. This was clearly a missed opportunity. </p>
<p>Although the aim of the currency was to <a href="https://enaira.gov.ng/assets/download/eNaira_Design_Paper.pdf#page=4">facilitate financial inclusion</a> and shrink the size of the informal market, it’s fallen short of the mark. It is currently only accessible to those with bank accounts. So, despite a <a href="https://www.bloomberg.com/news/articles/2023-03-21/nigeria-digital-currency-transactions-jump-63-on-cash-shortages?leadSource=uverify%20wall&sref=3REHEaVI">reported increase in the number of e-Naira wallets</a> to 13 million since October 2022, and an increase in the value of transactions in 2023, a lot still needs to be done to drive widespread adoption by the financially excluded. </p>
<p>Rethinking its architecture and policies to drive its adoption could include: </p>
<ul>
<li><p>making it accessible to all with a mobile phone; </p></li>
<li><p>incentivising people to use it such as granting significant discounts when used to pay taxes and for other public services; and </p></li>
<li><p>embedding mobile network or payments apps into Central Bank Digital Currency wallets for the wallets to be inter-operable with mobile network operators’ infrastructure. </p></li>
</ul>
<p>A lesson of the currency crisis is that fintech offers a solution to the limitations of legacy financial institutions, and at the same time, they can help address the financial exclusion challenge in Nigeria.</p>
<p>Had Nigeria appreciated the value of digital finance and particularly the key role to be played by mobile money operators, the impact of the crisis would not have been as painful.</p><img src="https://counter.theconversation.com/content/203435/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Iwa Salami does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Nigeria’s Central Bank didn’t have an adoption strategy for its digital currency. It was a missed opportunity.Iwa Salami, Reader (Associate Professor) in Law, University of East LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1994622023-02-24T12:13:32Z2023-02-24T12:13:32ZHow a digital pound could work alongside cryptocurrencies<figure><img src="https://images.theconversation.com/files/509517/original/file-20230210-28-mxi0pu.jpg?ixlib=rb-1.1.0&rect=197%2C86%2C5388%2C2418&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Bank of England has new plans for a digital pound. </span> <span class="attribution"><span class="source">Alexander Supertramp/Shutterstock</span></span></figcaption></figure><p>Like many other countries, the UK <a href="https://www.bankofengland.co.uk/speech/2023/february/jon-cunliffe-speech-at-uk-finance-update-on-central-bank-digital-currency">has developed a plan</a> for a central bank digital currency (CBDC). A digital pound would essentially act like an online form of cash suitable for everyday payments. It would not earn any interest like a standard savings account (or even some current accounts), but it could increase access to financial services in the UK. </p>
<p>The Bank of England recently proposed <a href="https://www.bankofengland.co.uk/-/media/boe/files/paper/2023/the-digital-pound-consultation-working-paper.pdf?la=en&hash=5CC053D3820DCE2F40656E772D9105FA10C654EC">a general framework</a> for how a digital pound would work. It has suggested an ambitious timeline for introducing one by 2025. You have until June 7 2023 to tell the bank <a href="https://www.bankofengland.co.uk/the-digital-pound">what you think of its plan</a>.</p>
<p>The success of a UK CBDC will largely depend on whether the benefits of offering a digital currency outweigh <a href="https://committees.parliament.uk/committee/175/economic-affairs-committee/news/160221/central-bank-digital-currencies-a-solution-in-search-of-a-problem-report-published/#:%7E:text=The%20report%20concludes%20there%20is,and%20the%20protection%20of%20privacy.">the costs of creating and rolling out the infrastructure</a> needed to support the new payment system.</p>
<p>There are clear benefits to CBDCs, such as increasing financial inclusion by providing an easier way for the UK’s <a href="https://www.ukfinance.org.uk/news-and-insight/blogs/financial-inclusion-and-access-banking-services">1.2 million unbanked residents</a> to register for banking services. The online wallets that would hold people’s digital pounds could also be used by the government to make “fiscal transfers” such as passing tax subsidies or support payments on to households and businesses. </p>
<p>But the Bank of England’s current proposal is also seeking answers to some questions about a digital pound. In particular, how (or if) it could coexist alongside other digital currencies such as cryptocurrency assets. While the bank suggests several models, broadly speaking this could help reduce systemic risk in the crypto sector and further increase banking options for UK consumers. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-are-stablecoins-a-blockchain-expert-explains-164812">What are stablecoins? A blockchain expert explains</a>
</strong>
</em>
</p>
<hr>
<p>The Bank of England’s <a href="https://www.bankofengland.co.uk/-/media/boe/files/paper/2023/the-digital-pound-consultation-working-paper.pdf?la=en&hash=5CC053D3820DCE2F40656E772D9105FA10C654EC">CBDC consultation paper</a> specifically mentions stablecoins. These are digital assets that are issued by private companies, unlike a traditional currency which is issued by a government. And unlike digital currencies such as bitcoin, the value of a stablecoin is pegged to a stable asset like the US dollar or British pound – but what about a digital pound? </p>
<h2>How stablecoins could complement digital pounds</h2>
<p>The bank talks about the overlap between what a stablecoin and a digital pound could offer. It argues they could “coexist” in a mixed payments economy. It compares this to how we use both cash and bank accounts in the same payment system right now, pointing to technology developments such as ATMs that have made this coexistence even easier over the years.</p>
<p>Stablecoins would need to be “fully backed with high-quality and liquid assets” in order to complement a digital pound, according to the bank. It adds:</p>
<blockquote>
<p>In contrast to the digital pound, stablecoins, regardless of their backing asset, would be a liability of the private-sector issuer rather than a claim on the central bank. That means they would be private money, like commercial bank deposits. </p>
</blockquote>
<p>It also suggests a model in which these backing assets could be “held entirely with the central bank”, adding that this would make the stablecoin “economically similar to the digital pound” and reduce financial risk.</p>
<p>If the digital currency was used to back a stablecoin, this would mean that the issuer would provide holders with stablecoin tokens based on the value of digital pounds that could be used by customers for payments (both domestic and international) as well as trading in cryptocurrencies. These private forms of money would operate on the blockchain, which helps <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4328948">make payments easier and less costly</a>. In some countries, stablecoins are already being used <a href="https://www.ft.com/content/02194361-a5b9-4bf0-9147-f36ba7759cf1">as a hedge against inflation and macroeconomic uncertainty</a>.</p>
<h2>Regulating cryptocurrencies</h2>
<p>This could also have benefits for the crypto industry. Currently, stablecoins are <a href="https://www.disruptionbanking.com/2022/07/21/how-should-we-regulate-stablecoins-such-as-tether/#:%7E:text=Tether%2C%20on%20the%20other%20hand,those%20regulated%20by%20the%20NYDFS.">managed by private banks or organisations that are not regulated and audited</a>. But a stablecoin backed by a digital pound in an account held with the central bank would be much more transparent and trustworthy. The central bank could regularly audit stablecoin providers’ reserves. Legislators could also impose capital requirements, for example mandating the percentage of issuers’ reserves to be kept in the account with the central bank. </p>
<p>But there is a trade-off here: extreme capital requirements could affect the profitability of stablecoins. Since they are <a href="https://www.cnbc.com/2023/02/09/stablecoin-giant-tether-records-surprise-700-million-profit.html">typically linked to interest-bearing assets like Treasury bonds</a>, they can make money from their holdings – that is, the assets held against the stablecoins they issue. </p>
<p>In contrast, a digital pound-backed stablecoin issuer would be unlikely to earn interest on its account at the central bank. While a typical bank such as Lloyds has reserve accounts at the central bank that earns the base rate, it is unlikely that the Bank of England would give a stablecoin provider the same kind of account. This would entail being subject to the same regulations, which could affect the flexibility that crypto asset providers tend to value.</p>
<figure class="align-center ">
<img alt="Mobile banking. Woman holding smartphone with digital wallet application. credit card on table, top view" src="https://images.theconversation.com/files/509518/original/file-20230210-23-x1clyg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/509518/original/file-20230210-23-x1clyg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=425&fit=crop&dpr=1 600w, https://images.theconversation.com/files/509518/original/file-20230210-23-x1clyg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=425&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/509518/original/file-20230210-23-x1clyg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=425&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/509518/original/file-20230210-23-x1clyg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=535&fit=crop&dpr=1 754w, https://images.theconversation.com/files/509518/original/file-20230210-23-x1clyg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=535&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/509518/original/file-20230210-23-x1clyg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=535&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A digital wallet.</span>
<span class="attribution"><span class="source">Prostock-studio/Shutterstock</span></span>
</figcaption>
</figure>
<p>Stablecoins backed by a digital currency held at the central bank could certainly address some of the systemic issues surrounding this type of crypto asset. Over the past year, a major stablecoin has <a href="https://www.coindesk.com/learn/the-fall-of-terra-a-timeline-of-the-meteoric-rise-and-crash-of-ust-and-luna/">collapsed in value</a>. This typically happens when a market event prompts holders to rush to withdraw their holdings and the issuer has difficulties fulfilling so many redemptions at once.</p>
<p>If issuers were holding a certain percentage of liquid digital currency reserves at the central bank, this would ensure they had funds to process redemptions or withdrawals while maintaining the coin’s value against the digital pound. And even if an issuer bankruptcy did occur, a central bank could also provide insurance to stablecoin customers to protect their assets to a certain level. </p>
<p>Much like cash and bank accounts, it is possible that digital assets and stablecoins could coexist and even complement each other. Further, a digital pound could shine a light on the growing role of private money in the economy. This would help to make the financial system more secure while also fostering financial inclusion.</p><img src="https://counter.theconversation.com/content/199462/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ganesh Viswanath-Natraj does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The UK economy could benefit from a digital pound, but is there a role for crypto?Ganesh Viswanath-Natraj, Assistant professor, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1943132022-11-10T13:27:13Z2022-11-10T13:27:13ZCryptocurrencies: why Binance’s failed FTX rescue deal could mean ‘crypto winter’ is coming<p>Life in the cryptocurrency industry is rarely quiet for long, and after a <a href="https://decrypt.co/collections/2022-crypto-crash">tumultuous summer</a>, it seems the market is now entering a “<a href="https://www.forbes.com/uk/advisor/investing/cryptocurrency/what-is-crypto-winter/">crypto winter</a>”. Over the past week, the founders of two of the largest cryptocurrency exchanges – Binance and FTX – have had a public Twitter spat that triggered the collapse of one exchange and a failed bailout deal from the other. Unsurprisingly, these events have caused widespread panic across a market that has barely recovered from several major failures earlier this year.</p>
<hr>
<iframe id="noa-web-audio-player" style="border: none" src="https://embed-player.newsoveraudio.com/v4?key=x84olp&id=https://theconversation.com/cryptocurrencies-why-binances-failed-ftx-rescue-deal-could-mean-crypto-winter-is-coming-194313&bgColor=F5F5F5&color=D8352A&playColor=D8352A" width="100%" height="110px"></iframe>
<p><em>You can listen to more articles from The Conversation, narrated by Noa, <a href="https://theconversation.com/us/topics/audio-narrated-99682">here</a>.</em></p>
<hr>
<p>Binance, which is estimated to be worth more than <a href="https://fortune.com/2022/03/31/binance-made-billions-craze-crypto/">US$300 billion</a> (£263 billion), was actually FTX’s first investor in December 2019. Since then, FTX has grown to be worth more than <a href="https://www.barrons.com/articles/crypto-exchange-ftx-valuation-funding-51663854185">US$32 billion as of last January</a>, counting mainstream finance giants such as BlackRock and SoftBank among its many backers. </p>
<p>Binance CEO Changpeng Zhao and FTX founder Sam Bankman-Fried (often referred to as CZ and SBF, respectively) are two of the most influential people in the cryptocurrency exchange world where investors can buy, sell and store digital currencies. While Zhao has been associated with <a href="https://www.cnbc.com/2022/09/01/us-sought-records-on-binance-ceo-for-crypto-money-laundering-probe.html">regulatory concerns</a> around Binance, Bankman-Fried was seen as a relatively stable and ambitious figure in the wild west world of cryptocurrencies. He swooped in to rescue failing companies during last summer’s crypto bust and has made a point of <a href="https://www.theatlantic.com/technology/archive/2022/10/sam-bankman-fried-crypto-ftx-2022-midterms/671823/">speaking with the media</a> and <a href="https://www.expressnews.com/business/business_columnists/michael_taylor/article/Taylor-Sam-Bankman-Fried-billionaire-17255683.php">US policymakers</a>.</p>
<h2>What happened to FTX?</h2>
<p>Bankman-Fried’s empire included the FTX exchange business, as well as Alameda Research, a trading firm that was supposed to be separate from FTX. But a recent story by industry news site <a href="https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/">Coindesk</a> reported that Alameda’s balance sheet was dominated by FTT. This is the crypto token or coin issued by the FTX exchange, which grants holders a discount on trading fees on the marketplace. </p>
<p>FTT is entirely controlled by FTX, Alameda’s sister company and can be “printed” as FTX wishes. Alameda also held US$3.37 billion across a range of other cryptocurrencies, such as Solana and Serum, which means that any cryptocurrency collapse could severely affect the company. </p>
<p>While there is nothing illegal or wrong with these holdings – particularly in the notoriously <a href="https://www.fscs.org.uk/news/protection/cryptocurrencies-risk-cover/#:%7E:text=Unregulated%20Cryptoassets%20are%20largely%20unregulated,FSCS%20can't%20protect%20you.">unregulated crypto industry</a> – the report showed Alameda’s heavy reliance on a coin invented by its sister company and not one issued by an independent backer or as legal tender by a government. If a company in such a position gets into trouble, such assets would be useless in shoring up the business and protecting users because they would also fall in value. This discovery about Alameda’s balance sheet led to liquidity concerns about the entire company. </p>
<p>Indeed, after the Coindesk news story was published, Binance CEO Zhao tweeted plans to liquidate the remaining FTT on Binance’s books. In another post a few hours later he called the move “post-exit risk management, learning from LUNA” (a reference to a roughly <a href="https://www.forbes.com/sites/qai/2022/09/20/what-really-happened-to-luna-crypto/?sh=3f8b5b344ff1">US$60 billion</a> crypto crash that happened earlier this year).</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1589283421704290306"}"></div></p>
<p>Zhao has 7.4 million followers on Twitter so his tweets affect the market. The value of <a href="https://coinmarketcap.com/currencies/ftx-token/">FTT fell</a> from US$22 on Sunday to US$4 on Tuesday afternoon, while FTX was flooded with a <a href="https://techcrunch.com/2022/11/09/cryptos-biggest-acquisition-binance-ftx-exchanges-sbf-cz-alameda-unlikely-close/#:%7E:text=%246%20billion%20in%20withdrawals">reported</a> US$6 billion in withdrawal requests. <a href="https://t.me/FTX_Official/694212">Some customers</a> were unable to access their cryptocurrency holdings on the exchange due to the number of requests. </p>
<p>Bankman-Fried responded on Monday by saying a “competitor is trying to go after us with false rumours” and adding that “FTX is fine” (he later <a href="https://cointelegraph.com/news/ftx-founder-sam-bankman-fried-removes-assets-are-fine-flood-from-twitter">removed the tweet</a>). But it seems this was too little, too late: <a href="https://coinmarketcap.com/charts/">total cryptocurrency market capitalisation</a> dropped from more than US$1 trillion to around US$830 billion in a matter of days.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1590012124864348160"}"></div></p>
<p>In a surprise move, just days later both Zhao and Bankman-Fried (above) tweeted details of a deal for Binance to acquire FTX. But the <a href="https://www.wsj.com/articles/binance-is-said-to-be-likely-to-walk-away-from-deal-to-buy-ftx-11668020963?mod=tech_lead_pos4">Wall Street Journal</a> reported the following evening that Binance had decided not to proceed with the deal after reviewing FTX’s finances and business structure. </p>
<p>A tweet from Binance (below) said “the issues are beyond our control or ability to help”. Further, <a href="https://www.bloomberg.com/news/articles/2022-11-09/us-probes-ftx-empire-over-handling-of-client-funds-and-lending">Bloomberg</a> reported that US regulators, the Security and Exchange Commission and Commodity Futures Trading Commission, have both been investigating FTX over its handling of customers funds.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1590449161069268992"}"></div></p>
<h2>Crypto winter</h2>
<p>The cryptocurrency industry has struggled in the last year, particularly since the <a href="https://www.ft.com/content/8db7e24b-5a15-4856-b81e-a2027157aaad">failure of Terra and Luna tokens in May</a>, the <a href="https://www.forbes.com/advisor/investing/cryptocurrency/what-is-celsius/#:%7E:text=Celsius%20Network%20(CEL)%20announced%20on,citing%20%E2%80%9Cextreme%20market%20conditions.%E2%80%9D">collapse of lender Celsius Network</a> in June and the subsequent bankruptcy of hedge fund <a href="https://www.coindesk.com/business/2022/08/24/singapore-high-court-recognizes-three-arrows-capital-liquidation-order-report/#:%7E:text=The%20liquidators%20of%20Three%20Arrows,order%20signed%20on%20Wednesday%20says.">Three Arrows Capital</a> in July.</p>
<p>The near-collapse of one of the biggest names in crypto, followed by the will-they-or-won’t-they nature of the Binance bailout has had an effect right across the crypto industry, with Bitcoin falling by more than 18% during these events. The failure of this rescue deal will do little to boost confidence in the sector and could accelerate a crypto winter by stoking fears of price volatility and the need for future bailouts.</p>
<p>The value of the FTT coin is down by nearly 90% and <a href="https://coinmarketcap.com/rankings/exchanges/">trading volumes at FTX</a> fell by more than 70% in the 24 hours around the rescue deal discussions. Much of this lost activity will move elsewhere, meaning the collapse of FTX could make Binance larger. This could encourage regulators to start looking much more closely at the space. </p>
<p>Of course, the ultimate irony is that one of the main characteristics of cryptocurrencies is supposed to be decentralisation, but recent events may well lead to more centralisation as activity consolidates around one exchange. This could discourage some crypto-enthusiasts from using Binance in the future.</p><img src="https://counter.theconversation.com/content/194313/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Urquhart owns some cryptocurrencies.</span></em></p>The latest market chaos is set to continue and could result in more regulatory scrutiny.Andrew Urquhart, Professor of Finance & Financial Technology, ICMA Centre, Henley Business School, University of ReadingLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1899072022-09-05T16:37:59Z2022-09-05T16:37:59ZEthereum: second biggest cryptocurrency to cut energy use by over 99%, but the industry still has a long way to go<figure><img src="https://images.theconversation.com/files/482739/original/file-20220905-14-6z4map.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Proof of work mining requires specialist hardware, and as a result is energy intensive.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/miner-bitcoin-cryptocurrency-763347796">Mark Agnor/Shutterstock</a></span></figcaption></figure><p>Cryptocurrencies use an eye-watering amount of energy. Ethereum, the world’s second-largest cryptocurrency, uses an estimated <a href="https://digiconomist.net/ethereum-energy-consumption">78 terawatt hours</a> of electricity each year, comparable to the power consumption of Chile. </p>
<p>Ethereum has announced plans to rid itself of the energy-intensive code that has long muddied crypto’s environmental image, and cut <a href="https://cointelegraph.com/news/99-98-less-power-lighthouse-s-first-ethereum-and-eth2-merge-transaction">99% of its energy use</a> in the process.</p>
<p>Some <a href="https://www.businessinsider.com/crypto-ethereum-dev-merge-one-most-historic-events-blockchain-upgrade-2022-8?r=US&IR=T">cryptocurrency commentators</a> suggest that the “merge”, as the makeover has been coined, represents one of the most important events in the history of crypto. Even those uninterested in pixelated cat pics and metaverse meetups, most of which depend on Ethereum, will find comfort knowing the carbon equivalent of <a href="https://digiconomist.net/ethereum-energy-consumption">Hong Kong’s annual emissions</a> will be erased overnight.</p>
<p>The merge will result in Ethereum shifting its security mechanism away from what’s known as a proof-of-work method towards so-called proof of stake.</p>
<h2>Proof of work v proof of stake</h2>
<p>Cryptocurrencies are not governed by banks. For networks using the proof-of-work method, the job of validating transactions is performed by a global network of specialist machines, known as <a href="https://theconversation.com/bitcoin-chinas-crackdown-isnt-enough-only-a-global-effort-can-stop-cryptos-monstrous-energy-demand-161776">miners</a>. These machines repeatedly guess a random code with the winner receiving transaction fees as well as some newly minted cryptocurrency.</p>
<p>Crypto mining works like an ever-expanding game of <a href="https://www.youtube.com/watch?v=xJlKLC-nMJ0">hungry hippos</a>. The more players that join the mining competition, the harder it becomes for any single player to win anything. These machines consume vast amounts of energy. A single Ethereum transaction is responsible for the same amount of energy used by the average <a href="https://digiconomist.net/ethereum-energy-consumption">US household in a week</a>.</p>
<figure class="align-center ">
<img alt="A coal-fired power station with fumes pouring into a blue sky." src="https://images.theconversation.com/files/482740/original/file-20220905-2243-h4rmn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/482740/original/file-20220905-2243-h4rmn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/482740/original/file-20220905-2243-h4rmn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/482740/original/file-20220905-2243-h4rmn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/482740/original/file-20220905-2243-h4rmn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/482740/original/file-20220905-2243-h4rmn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/482740/original/file-20220905-2243-h4rmn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A single Ethereum transaction is responsible for the same amount of energy used the average US household in a week.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/view-smoking-coal-power-plant-129709763">Kodda/Shutterstock</a></span>
</figcaption>
</figure>
<p>The proof-of-stake process reduces the need for energy-intensive processing equipment to validate transactions. Cryptocurrency owners instead offer their own coins as a security deposit for the chance to become validators. Ethereum requires users to stake a minimum of <a href="https://www.investopedia.com/terms/p/proof-stake-pos.asp#toc-understanding-proof-of-stake-pos">32 Ether tokens</a>.</p>
<p>Rather than competing, validators are selected to mine. Do the job well, and the validator is rewarded with even more crypto. But if they validate fraudulent transactions or otherwise defy network rules, they lose their stake. This disincentive is called <a href="https://cryptorobin.com/what-is-slashing/">“slashing”</a>. </p>
<p>Proof-of-stake networks are typically assembled around 20 machines, using a comparatively small amount of energy. While being more efficient, proof of stake also reduces network congestion while being cheaper for users.</p>
<p>Advocates for proof of work argue that proof of stake is an unproven alternative. <a href="https://decrypt.co/108791/ethereum-merge-almost-here-what-could-go-wrong">Many fear</a> that the merge might consolidate control of the network in the hands of wealthy investors while weakening its security. </p>
<p>However, several networks, including Cardano and TRON, already use a proof-of-stake method. To uphold security, crypto owners in these networks vote for the most qualified validators. </p>
<p>As it is written into the project’s “<a href="https://medium.com/@VitalikButerin/a-proof-of-stake-design-philosophy-506585978d51">development roadmap</a>”, Ethereum’s journey to proof of stake has always been likely. Ethereum’s developers have consistently repeated claims of an <a href="https://www.reddit.com/r/ethereum/comments/o3swez/years_of_history_claiming_ethereum_will_go_to_pos/">imminent shift</a>. But progress has been slow, leading many to believe the merge might never happen.</p>
<h2>Resisting the change</h2>
<p>Proof-of-work mining has up to now proved very profitable. However, the global energy crisis and crumbling crypto markets have made it far less lucrative than previously. </p>
<p>The energy crisis is also prompting regulators to act on energy-intensive industries. This is particularly true in Europe where the transition away from Russian energy dependence is biting hardest. While a <a href="https://www.bloomberg.com/news/articles/2022-03-14/eu-crypto-proposal-seen-as-de-facto-bitcoin-ban-fails-in-vote">proposal</a> to ban proof-of-work mining failed to win EU approval earlier this year, an imminent crackdown looks <a href="https://www.ecb.europa.eu/pub/financial-stability/macroprudential-bulletin/html/ecb.mpbu202207_3%7Ed9614ea8e6.en.html">inevitable</a>. </p>
<p>Yet, despite the regulatory risk, the movement to keep Ethereum’s proof-of-work mechanism alive is gathering momentum. Several prominent crypto traders have repeated their <a href="https://www.coindesk.com/business/2022/08/15/miner-chandler-guo-repeats-support-for-ethereum-fork-post-merge/">support</a> for proof-of-work mechanisms. </p>
<p>Alternative versions, called “forks”, that ignore the software update are therefore highly likely. These forks will replicate the existing network, allowing subsets of the community to <a href="https://www.sciencedirect.com/science/article/abs/pii/S0921800921000781">continue mining</a>. </p>
<p>Many <a href="https://www.coindesk.com/business/2022/08/26/coinbase-pledges-to-evaluate-forked-ethereum-tokens-in-update-to-merge-policy/">exchanges</a> broadly support Ethereum’s proof-of-stake chain. Opensea, the largest marketplace for collectable crypto assets, says it <a href="https://cointelegraph.com/news/opensea-says-marketplace-won-t-support-forked-nfts-post-merge">will not</a> list any other kind of Ethereum digital artwork. </p>
<p>However, the market is far from conclusive in its support. Large exchanges, such as FTX and Coinbase, <a href="https://www.coindesk.com/tech/2022/08/24/ethereum-proof-of-work-forks-gift-or-grift/">have confirmed</a> that they will allow users to trade forked Ethereum tokens.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1563601624756498432"}"></div></p>
<p>While soaring energy bills could discourage the mining of an unpopular Ethereum fork, miners, in this case, may migrate towards <a href="https://fortune.com/2022/07/29/eth-price-ethereum-original-coin-soar-miners-migrate-ahead-of-merge/">more established</a> proof-of-work networks. This would reduce Ethereum’s carbon footprint, but redistribute crypto’s carbon headache around the network.</p>
<h2>What does this mean for Bitcoin?</h2>
<p>Responsible for an estimated <a href="https://digiconomist.net/bitcoin-energy-consumption">70 million tonnes of CO₂ a year</a>, Bitcoin remains the dirty elephant in the room. </p>
<p>Mining the number one cryptocurrency has become so competitive that the cost of entry can be up to <a href="https://www.sciencedirect.com/science/article/abs/pii/S2214629621004813?via%3Dihub">US$1.8 (£1.55) million</a>. Bitcoin mining is done by commercial mining companies that have to invest heavily in specialist hardware. Bitcoin miners, therefore, tend to be protective of their investments and <a href="https://theconversation.com/bitcoin-greenpeace-says-a-code-change-could-slash-cryptocurrency-energy-use-heres-why-its-not-so-simple-180264">resist</a> changes to the status quo.</p>
<p>For cryptocurrency networks that cannot clean up their act, a <a href="https://www.sciencedirect.com/science/article/pii/S2214629621004813">global regulatory crackdown</a> on proof-of-work mining is required. Miners are otherwise free to migrate to other chains, or operate from <a href="https://theconversation.com/bitcoin-chinas-crackdown-isnt-enough-only-a-global-effort-can-stop-cryptos-monstrous-energy-demand-161776">countries</a> with weak environmental regulations, rather than adopt more sustainable practices.</p>
<p>During an energy crisis and climate emergency, Ethereum’s switch to a more efficient technology is good news. If it proves successful, regulators will probably see no reason why Bitcoin and other wasteful cryptocurrencies should not follow suit.</p><img src="https://counter.theconversation.com/content/189907/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Howson has received funding from The British Academy. He does not own any cryptocurrencies, NFTs, or any other digital assets.</span></em></p>Cryptocurrency has a substantial carbon footprint. Ethereum have taken steps to address this, but will others follow suit?Peter Howson, Assistant Professor in International Development, Northumbria University, NewcastleLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1883392022-08-11T16:56:30Z2022-08-11T16:56:30ZCrypto platforms say they’re exchanges, but they’re more like banks<figure><img src="https://images.theconversation.com/files/478364/original/file-20220809-15110-oy8izt.jpg?ixlib=rb-1.1.0&rect=8%2C73%2C5455%2C3358&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Crypto trading platforms Celsius and Voyager filed for bankruptcy in July 2022, suspending all withdrawals, swaps and transfers between accounts and leaving users’ assets trapped inside their platforms.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/crypto-platforms-say-they-re-exchanges--but-they-re-more-like-banks" width="100%" height="400"></iframe>
<p>There is a well-known saying shared by both crypto experts and skeptics: “Not your keys, not your coins.” The phrase, <a href="https://cointelegraph.com/news/antonopoulos-your-keys-your-bitcoin-not-your-keys-not-your-bitcoin">popularized by Bitcoin entrepreneur Andreas Antonopoulos</a>, refers to how the contents of a crypto wallet are the property of whoever has access to that wallet’s digital “keys.”</p>
<p>This means that unless you personally have the keys to your crypto assets and store them offline, you are vulnerable to hacks, scams and bankruptcies. <a href="https://www.ic3.gov/Media/News/2022/220718.pdf">The endless stream of crypto scams has been well documented</a>. So have the <a href="https://web3isgoinggreat.com/?theme=hack">security breaches</a> — and not to mention the <a href="https://www.reuters.com/technology/how-big-is-bitcoins-carbon-footprint-2021-05-13/">eye-popping carbon emissions</a>. </p>
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<em>
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Read more:
<a href="https://theconversation.com/the-digital-economys-environmental-footprint-is-threatening-the-planet-126636">The digital economy's environmental footprint is threatening the planet</a>
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</em>
</p>
<hr>
<p>Of course, offline storage requires an extra level of understanding, technological sophistication and inconvenience. Enter crypto exchanges like Coinbase and Crypto.com, which offer simple, convenient platforms for users to buy and sell cryptocurrencies and NFTs. </p>
<p>However, <a href="https://www.bloomberg.com/news/articles/2022-06-26/crypto-winter-why-this-bitcoin-bear-market-is-different-from-the-past">the crypto crash</a> has revealed that these firms are not just exchanges — they are more like banks. Except defunct crypto exchanges like <a href="https://www.cnn.com/2022/07/14/business/celsius-bankruptcy/index.html">Celsius Network</a> and <a href="https://dfr.vermont.gov/consumer-alert/voyager-digital-files-chapter-11-bankruptcy">Voyager Digital</a> were only banks if you read the fine print. Most customers, of course, did not. </p>
<figure class="align-center ">
<img alt="A hand holding a cellphone with the Coinbase app open on it in front of a laptop with the Coinbase website open" src="https://images.theconversation.com/files/478362/original/file-20220809-9831-cb7fie.jpg?ixlib=rb-1.1.0&rect=16%2C0%2C3607%2C2221&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/478362/original/file-20220809-9831-cb7fie.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=368&fit=crop&dpr=1 600w, https://images.theconversation.com/files/478362/original/file-20220809-9831-cb7fie.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=368&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/478362/original/file-20220809-9831-cb7fie.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=368&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/478362/original/file-20220809-9831-cb7fie.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=463&fit=crop&dpr=1 754w, https://images.theconversation.com/files/478362/original/file-20220809-9831-cb7fie.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=463&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/478362/original/file-20220809-9831-cb7fie.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=463&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Crypto exchanges like Coinbase and Crypto.com offer simple, convenient platforms for users to buy and sell cryptocurrencies and NFTs.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<h2>Who needs deposit insurance?</h2>
<p>Until very recently, crypto exchanges were all the rage. They had <a href="https://www.hollywoodreporter.com/business/digital/cryptocurrency-spend-big-on-hollywood-names-to-gain-trust-1235019008/">A-list celebrity spokespeople</a>, <a href="https://www.latimes.com/business/story/2021-11-16/crypto-staples">stadium naming rights</a> and <a href="https://www.ctvnews.ca/politics/poilievre-personally-holds-investment-in-bitcoin-as-he-promotes-crypto-to-canadians-1.5907615">public endorsements by major politicians</a>. </p>
<p>Crypto exchange companies market themselves as platforms for users to buy and sell crypto. But they also function like stockbrokers and, more concerningly, their core business models quite closely resemble banking.</p>
<p>Traditional exchanges, like the New York Stock Exchange, rarely go bankrupt. And since they do not offer account services, if they do go bankrupt their clients are not on the hook for any losses. Brokerage firms, like Wealthsimple, do sometimes go bankrupt, but <a href="https://www.finra.org/investors/alerts/if-brokerage-firm-closes-its-doors">their clients’ portfolios are held in the client’s own name</a> and, accordingly, may simply be transferred to a different broker. In the event of fraud, <a href="https://www.cipf.ca/cipf-coverage/about-cipf-coverage#coverage">both Canada</a> and <a href="https://www.sipc.org/for-investors/what-sipc-protects">the United States</a> provide automatic insurance for lost assets. </p>
<p>Banks, like the Royal Bank of Canada, take on more risks and <a href="https://fred.stlouisfed.org/series/BKFTTLA641N">fail more often</a>. Because banks use customer deposits to make loans, <a href="https://corporatefinanceinstitute.com/resources/knowledge/other/bank-run/">banks are vulnerable to runs</a>. This is why most high-income countries — <a href="https://www.cdic.ca/what-happens-in-a-failure/">including Canada</a> — have deposit insurance and regulate banking more than other financial services.</p>
<p>Herein lies the problem. Companies like Celsius and Voyager <a href="https://www.investvoyager.com/app/the-broker-model/">marketed themselves as both exchanges and brokers</a>, so that is how their apps appeared. But if anyone were to read the <a href="https://celsius.network/terms-of-use">terms and conditions</a>, it would be clear that they were actually uninsured, quasi-banks. </p>
<h2>Risks in crypto-banking</h2>
<p>In companies like Celsius and Voyager, customers’ accounts were not held separately in their own wallets, but rather <a href="https://www.investvoyager.com/useragreement">held in a pool owned by the platform</a>. The platform would use this pool of money to make loans (often to other crypto firms) or to engage in its own speculative investing (often in crypto assets). When depositors cashed out, they were paid from the pool, which was able to cover normal on-demand withdrawals, but did not have enough cash to handle everyone pulling out simultaneously. </p>
<p>Sound familiar? </p>
<figure class="align-center ">
<img alt="A stack of bitcoins sit in front of the logo for cyptocurrency company Voyager" src="https://images.theconversation.com/files/478365/original/file-20220809-16047-qqm53q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/478365/original/file-20220809-16047-qqm53q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/478365/original/file-20220809-16047-qqm53q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/478365/original/file-20220809-16047-qqm53q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/478365/original/file-20220809-16047-qqm53q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/478365/original/file-20220809-16047-qqm53q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/478365/original/file-20220809-16047-qqm53q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Crypto giant Voyager lied to their clients about being insured by the Federal Deposit Insurance Corporation (FDIC).</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>When crypto prices collapsed, <a href="https://www.cnbc.com/2022/07/19/what-happens-to-my-funds-if-a-crypto-exchange-goes-bankrupt.html">these firms’ loans went belly up</a> and some were forced to suspend withdrawals. When Celsius filed for <a href="https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics">Chapter 11 bankruptcy</a>, their <a href="https://www.coindesk.com/business/2022/07/18/celsius-bankruptcy-filings-hint-retail-customers-will-bear-brunt-of-its-failure/">depositors learned their accounts were worthless</a>, having been gambled away by the company. </p>
<p>These firms deliberately obscured this reality to their clients. In Voyager’s case, they <a href="https://www.cbsnews.com/news/voyager-fdic-insurance-federal-reserve/">outright lied about being FDIC-insured</a>. Snake-oil salesmen from these companies convinced <a href="https://twitter.com/celsiusnetwork/status/1384156564013993996">their customers that regulated banks were the problem</a>, only to learn exactly why those regulations exist in the first place. </p>
<p>To make matters worse, <a href="https://www.cnbc.com/2022/08/03/voyager-ceo-made-millions-in-stock-sales-in-2021.html">the lack of transparency in crypto markets makes it quite easy for executives and developers to dump their positions long before they suspend withdrawals</a>. By the time customers realize their money is gone, those responsible have cashed out with a tidy profit. </p>
<h2>The future of decentralized finance</h2>
<p>So where do we go from here? </p>
<p>At the micro level, the answers are obvious. <a href="https://www.sec.gov/reportspubs/investor-publications/divisionsmarketregbdguidehtm.html#V">Crypto exchanges should be regulated in the same manner as brokers</a>. Client assets must be held separately and securely, with clear rules on risk exposure in the firms’ own trading. </p>
<p>Crypto assets themselves should be clearly designated as securities, and therefore subject to oversight. Exchange platforms should be required to hold sufficient cash in government-issued currency. If this sounds like it violates the ethos of decentralized finance, that’s because it should.</p>
<p>The macro level is trickier. Post-2008, we have demonized the big banks and fetishized technology. Crypto enthusiasts claim Wall Street is only in it for itself, and they are right. But they’ve recreated the same system, only it’s even riskier. </p>
<p>The late arrivals to the crypto party — the ones now holding the bag — <a href="https://www.npr.org/2022/07/26/1112439917/amid-the-hype-they-bought-crypto-near-its-peak-now-they-cope-with-painful-losses">are not the wealthy investing class</a>. <a href="https://www.marketplace.org/2022/06/09/when-a-cryptocurrency-you-never-heard-of-drains-your-life-savings/">They are regular people</a>, rightly distrustful of banks and, by extension, our institutions, and are desperately searching for ways to shield themselves from <a href="https://theconversation.com/a-summer-of-discontent-why-public-sector-workers-are-preparing-to-strike-in-b-c-186808">skyrocketing inflation</a>.</p>
<p>Rebuilding that trust takes time and energy. It takes a willingness to deal with the inequities caused by a rising cost of living and an extractive financial system. And, crucially, it takes effective regulation. If it looks like a bank and behaves like a bank, it needs to be treated like a bank.</p><img src="https://counter.theconversation.com/content/188339/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>William D. O'Connell does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Because cryptocurrency exchange platforms act more like banks, they should be subject to increased oversight to protect clients’ assets.William D. O'Connell, PhD Candidate, Political Science, University of TorontoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1875052022-08-01T11:27:03Z2022-08-01T11:27:03ZCentral bank digital currencies could mean the end of democracy<figure><img src="https://images.theconversation.com/files/476550/original/file-20220728-18145-mhkc16.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3751%2C2712&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Global central banks, like the Bank of Canada, are considering their own digital currencies as a backstop to prepare for a future where cryptocurrency dethrones cash as king.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Adrian Wyld</span></span></figcaption></figure><p>In recent years, we have witnessed a growing interest in the idea of <a href="https://www.investopedia.com/terms/c/central-bank-digital-currency-cbdc.asp">central bank digital currencies</a>. Similar to cash, central bank digital currencies are <a href="https://www.imf.org/en/News/Articles/2020/10/30/sp103020-new-forms-of-digital-money">a form of money issued by central banks</a>. </p>
<p>In each country, a central bank manages the local currency and the monetary policy to ensure financial stability. Unlike cash, central bank digital currencies are expected to update national financial infrastructures to the changing needs of the economy and technology.</p>
<p>Led by international financial institutions such as the <a href="https://www.bis.org/publ/work880.htm">Bank of International Settlements</a> and the <a href="https://www.imf.org/en/Publications/fintech-notes/Issues/2022/02/07/Behind-the-Scenes-of-Central-Bank-Digital-Currency-512174">International Monetary Fund</a>, central banks examine technologies, conduct experiments and prepare national economic scenarios. However, central banks cannot — and should not — identify the social consequences of implementing this technology. </p>
<p>The transition to national digital currencies gives governments the ability to automate transactions and <a href="https://www.federalreserve.gov/econres/notes/feds-notes/what-is-programmable-money-20210623.htm">create conditions under which it can be spent</a>. This raises crucial implications about democracy that must be identified and considered <em>before</em> central bank digital currencies become a reality. </p>
<h2>Important questions to consider</h2>
<p>Central bank digital currencies are expected to hand authorities the ability to <a href="https://www.forbes.com/sites/norbertmichel/2022/04/12/central-bank-digital-currencies-are-about-control--they-should-be-stopped/?sh=2a6251136999">completely control the finances of their citizens</a>. States would be able to restrict citizens from purchasing any services and goods, and governments would <a href="https://doi.org/10.1038/s41562-022-01404-9">gain a greater influence and control over people’s lives</a>. </p>
<p>For example, societies will be able to decide whether limiting someone who is addicted to gambling from buying a lottery ticket is a positive feature of money. Similarly, they might also be able to decide whether welfare assistance can only be used for food, medicine and rent. </p>
<figure class="align-center ">
<img alt="A man puts a paper bill in an ATM that says 'ethereum' across the front" src="https://images.theconversation.com/files/476552/original/file-20220728-20558-rniefr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/476552/original/file-20220728-20558-rniefr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/476552/original/file-20220728-20558-rniefr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/476552/original/file-20220728-20558-rniefr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/476552/original/file-20220728-20558-rniefr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/476552/original/file-20220728-20558-rniefr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/476552/original/file-20220728-20558-rniefr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A man uses the Ethereum ATM, beside a Bitcoin ATM, in Hong Kong in May 2018. Cryptocurrencies like Ethereum differ from central bank digital currencies because they are decentralized, not under state control.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/AP, Kin Cheung</span></span>
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<p>Introducing a central bank digital currency raises a number of important questions. The first is whether or not people would benefit from the new features of these digital currencies. The second is whether we can be sure these features, in the hands of governments, won’t undermine the <a href="https://www.idea.int/gsod-indices/democracy-indices">already-trembling foundations of democracies</a>. Both questions raise important discussions about the future and our values as a society.</p>
<p>There are also plenty of open questions that citizens, rather than central banks, should deliberate about. Do we want to connect personal financial information with credit systems? How about sharing health expenses or political donations with governments and corporations? What do we think about issuing different money, with different financial characteristics, to different people? What is the social importance of keeping cash alongside central bank digital currencies? Do we even need a central bank digital currency? </p>
<p>We don’t want to leave these questions solely for those who develop and implement digital monetary systems, or raise them too late. Currently, concerns about democracy are lagging behind the race to implement central bank digital currencies. We must have these discussions before it’s too late.</p>
<h2>Maintaining democracy</h2>
<p>When it comes to decisions related to the central bank digital currency infrastructure, each country should examine whether structural changes are required for maintaining democratic supervision and proper checks and balances. </p>
<p>This not only applies to central banks, but also to <a href="https://www.centralbanking.com/fintech/cbdc/7511376/some-thoughts-on-cbdc-operations-in-china">security agencies and authorities in charge of anti-money laundering and tax collecting</a>, who will most likely have access to user information and be able to freeze accounts and confiscate funds. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/476554/original/file-20220728-31273-nz3nt1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/476554/original/file-20220728-31273-nz3nt1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/476554/original/file-20220728-31273-nz3nt1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/476554/original/file-20220728-31273-nz3nt1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/476554/original/file-20220728-31273-nz3nt1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/476554/original/file-20220728-31273-nz3nt1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/476554/original/file-20220728-31273-nz3nt1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A visitor passes by a logo for the e-CNY, a digital version of the Chinese yuan, displayed during a trade fair in Beijing, China, in September 2021. China is developing an electronic version of the yuan for cashless transactions that can be tracked and controlled.</span>
<span class="attribution"><span class="source">(AP Photo/Ng Han Guan)</span></span>
</figcaption>
</figure>
<p>It is up to democratic institutions to guarantee that actions like <a href="https://nationalpost.com/opinion/jamie-sarkonak-under-emergencies-act-suspected-dissidents-are-at-the-mercy-of-their-banks">freezing bank accounts of political dissidents</a> won’t become a common practice. </p>
<p>There will be those who will argue that central banks are only examining and preparing the infrastructure and, when the day comes, it will be governments who fill in the details. But this kind of answer is unacceptable. It detaches designers of the system from those responsible for running it and, most importantly, from those who will be affected by it. </p>
<h2>Diverse discussion needed</h2>
<p>Deliberation requires a diverse mix of public representatives, including the marginalized, elderly and poor, those living in remote places and people with disabilities. Social organizations, academia, citizens and the press should highlight different perspectives. </p>
<p>The bottom line is that central bank digital currencies are not just a matter of technology, but also a matter of political power and social justice. They have the potential to unleash unintended, unwanted and unexpected societal consequences — only time will tell what these consequences are.</p>
<p>Although central banks are <a href="https://www.newyorkfed.org/medialibrary/Microsites/fmlg/files/2021/Skinner_Central%20Bank%20Activism.pdf">responsible for platforming social issues to the public stage</a>, democratic institutions must take the lead for this issue. Countries should implement digital currencies only if they can ensure that their governments and authorities will not cross red lines. These rules and regulations must be drawn immediately by democratic institutions, <a href="https://www.weforum.org/agenda/2022/05/cbdcs-the-case-for-public-private-cooperation/">rather than exclusively by central banks</a>. </p>
<p>Ultimately, what lies ahead of us is not just a technological advancement in payment, but a <a href="https://www.reuters.com/markets/us/coming-crypto-storm-central-banks-focus-digital-money-intensifies-2022-06-02/">fundamental change in the world’s financial infrastructure</a>. This change is expected to cause shifts in the social and political fabric of societies, and we must prepare for it in a democratic way.</p><img src="https://counter.theconversation.com/content/187505/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ori Freiman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Central banks worldwide are racing to implement national digital currencies, yet democratic considerations are hardly discussed in public. This has to change.Ori Freiman, Postdoctoral Fellow, Centre for Ethics, University of TorontoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1748132022-01-13T11:45:20Z2022-01-13T11:45:20ZCrypto countries: Nigeria and El Salvador’s opposing journeys into digital currencies – podcast<figure><img src="https://images.theconversation.com/files/440633/original/file-20220113-23-s6t8er.jpg?ixlib=rb-1.1.0&rect=139%2C106%2C5324%2C3522&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Banking on bitcoin: El Salvador announced plans to build a Bitcoin City in November 2021. </span> <span class="attribution"><span class="source"> Rodrigo Sura/EPA</span></span></figcaption></figure><p>We dive into the world of crypto and digital currencies and take a close look at two countries approaching them in very different ways in this episode of <a href="https://theconversation.com/uk/topics/the-conversation-weekly-98901">The Conversation Weekly</a>. And if the latest Matrix film has left you wondering whether we are really living in a simulation, we talk to a philosopher on the long history of that idea. </p>
<iframe src="https://embed.acast.com/60087127b9687759d637bade/61e00e99915bad00125a73fd" frameborder="0" width="100%" height="190px"></iframe>
<p><iframe id="tc-infographic-561" class="tc-infographic" height="100" src="https://cdn.theconversation.com/infographics/561/4fbbd099d631750693d02bac632430b71b37cd5f/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Nigeria is Africa’s largest economy and its most populous country. El Salvador is a small republic in central America. But despite their many differences, they have two economic problems in common. First, a large proportion of their populations don’t have access to bank accounts. Second, their economies rely heavily on remittances, money sent back by people living abroad. But the money transfer companies that facilitate these cash flows can be slow and costly. </p>
<p>In 2021, both countries turned to the fast-moving world of digital currencies in an effort to tackle these, and other problems. But they’ve taken very different routes. </p>
<p>Nigeria banned <a href="https://qz.com/africa/1970446/nigerias-central-bank-takes-aim-at-cryptocurrency-again/">bank trading of cryptocurrencies</a> in February and then launched its own central bank digital currency, <a href="https://www.aljazeera.com/economy/2021/10/25/nigeria-becomes-first-african-nation-to-roll-out-digital-money">the eNaira</a>, in October. Nigeria was only the second country in the world to launch a central bank digital currency, <a href="https://www.bloomberg.com/news/articles/2021-05-20/the-bahamas-central-banker-explains-why-its-sand-dollar-led-the-way">after The Bahamas</a>. More may soon follow suit, including China, which in January expanded the pilot of its <a href="https://www.cnbc.com/2022/01/04/china-launches-digital-currency-app-to-expand-usage.html">digital yuan</a> to more areas, including the major cities Shanghai and Beijing. </p>
<p>Nigeria’s decision to launch its own digital currency came as a surprise to many, says Iwa Salami, reader and associate professor in law at the University of East London in the UK and an expert on digital currencies. Initially, eNaira wallets are only available for people with bank accounts, but the plan is to extend access to anyone with a phone number in the future. </p>
<p>One of the questions, Salami says, is whether Nigeria will be able to “fully achieve financial inclusion in the way that it’s been promoted.” There are a number of risks involved, she says, including to financial stability if those with eNaira wallets start using them as a deposit account. “Therefore, rather than using commercial banks, people actually use eNaira wallets to store their savings, which then means that the relevance of banks becomes redundant,” she says.</p>
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Read more:
<a href="https://theconversation.com/nigerias-digital-currency-what-the-enaira-is-for-and-why-its-not-perfect-171323">Nigeria's digital currency: what the eNaira is for and why it's not perfect</a>
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<p>While Nigeria opted to create its own central bank digital currency, El Salvador became the first country in the world to adopt a cryptocurrency as legal tender. The US dollar has been El Salvador’s currency since 2001, when it abandoned its currency, the colón. But in September 2021, El Salvador <a href="https://www.theguardian.com/world/2021/sep/07/el-salvador-bitcoin-experiment-nayib-bukele">added bitcoin</a> to its list of official currencies. </p>
<p>Erica Pimentel, an assistant professor at the Smith school of business at Queen’s University in Ontario, Canada, says there were geopolitical reasons for the decision, as well as an aim to increase financial inclusion and speed up remittances. “We see El Salvador standing up and saying we don’t want the dollar anymore, we want to be masters of our own domain,” she says. </p>
<p>In November, the government of El Salvador’s President Nayib Bukele announced plans <a href="https://www.bbc.co.uk/news/world-latin-america-59368483">for a Bitcoin City</a>. Pimentel says it’s “a city built from scratch, whose economy is centred on bitcoin mining and is powered by a volcano.” She talks us through the risks involved with El Salvador’s embrace of bitcoin, and says other countries will be closely watching what happens.</p>
<p>From virtual currency, we turn to virtual brains, and the question of whether or not we’re living in a simulation, a little like that in The Matrix. Benjamin Curtis, senior lecturer in philosophy and ethics at Nottingham Trent University in the UK, explains the long history of this idea. He tracks versions of this question posed by ancient Greek philosophers, to René Descartes in the 17th century and how it evolved with the modern computing era. Curtis says when The Matrix film first came out in 1999 it “certainly introduced these ideas to a much wider audience”. (At 30m20)</p>
<p>And finally, Rob Reddick, COVID-19 editor at The Conversation in the UK, picks out some recent coverage of the wave of omicron cases sweeping the world. (At 42m10)</p>
<p>This episode of The Conversation Weekly was produced by Mend Mariwany and Gemma Ware, with sound design by Eloise Stevens. Our theme music is by Neeta Sarl. You can find us on Twitter <a href="https://twitter.com/TC_Audio">@TC_Audio</a>, on Instagram at <a href="https://www.instagram.com/theconversationdotcom/?hl=en">theconversationdotcom</a> or <a href="mailto:podcast@theconversation.com">via email</a>. You can also sign up to The Conversation’s <a href="https://theconversation.com/newsletter?utm_campaign=PodcastTCWeekly&utm_content=newsletter&utm_source=podcast">free daily email here</a>. </p>
<p>A transcript of this episode <a href="https://theconversation.com/how-el-salvador-and-nigeria-are-taking-different-approaches-to-digital-currencies-plus-are-we-living-in-a-simulation-the-conversation-weekly-podcast-transcript-174807">is available here.</a> </p>
<p>Newsclips in this episode are from <a href="https://www.youtube.com/watch?v=AC1eFaFR3Zg">Channels Television</a>, <a href="https://www.youtube.com/watch?v=J3qAr-T-k-g">TVC News Nigeria</a>, <a href="https://www.youtube.com/watch?v=r72qNehD7M4">CBS News</a>, <a href="https://www.youtube.com/watch?v=w8nFfz_a-Fk">DW News</a>, <a href="https://www.youtube.com/watch?v=6OUaP2JPh9w">CNBC Television</a>, <a href="https://www.youtube.com/watch?v=eFS8c4Rpjj4">WION</a>, <a href="https://www.youtube.com/watch?v=J-V-hmSpBEc&t=64s">CNA</a> and <a href="https://www.youtube.com/watch?v=XV8z5AlIdHg">France24 English</a>. </p>
<p><em>You can listen to The Conversation Weekly via any of the apps listed above, download it directly via our <a href="https://feeds.acast.com/public/shows/60087127b9687759d637bade">RSS feed</a>, or find out how else to <a href="https://theconversation.com/how-to-listen-to-the-conversations-podcasts-154131">listen here</a>.</em></p><img src="https://counter.theconversation.com/content/174813/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Iwa Salami and Erica Pimentel do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointments.</span></em></p><p class="fine-print"><em><span>Benjamin Curtis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Plus, a philosopher explains the history of the idea that we might all be living in a simulation. Listen to The Conversation Weekly podcast.Gemma Ware, Editor and Co-Host, The Conversation Weekly Podcast, The ConversationDaniel Merino, Assistant Science Editor & Co-Host of The Conversation Weekly Podcast, The ConversationLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1387742020-07-07T13:41:17Z2020-07-07T13:41:17ZCash and the coronavirus: COVID-19 is changing our relationship with money<figure><img src="https://images.theconversation.com/files/343574/original/file-20200623-188891-erstsw.jpg?ixlib=rb-1.1.0&rect=0%2C100%2C5184%2C3344&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The coronavirus pandemic may provide another incentive for some countries to move to e-currencies.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>The coronavirus pandemic has prompted retailers to ask customers to wear masks, maintain physical distancing and avoid the use of cash when possible. Despite scientific evidence indicating that <a href="https://globalnews.ca/news/6712120/coronavirus-cash-precautions/">currency doesn’t transmit COVID-19</a>, there continues to be an unprecedented weariness around the use of cash altogether. </p>
<p>At the peak of the global pandemic, banks in China and South Korea began <a href="https://www.theguardian.com/world/2020/feb/15/chinese-banks-disinfect-banknotes-to-stop-spread-of-coronavirus">disinfecting and quarantining bank notes</a> to slow the spread of the novel coronavirus. Other central banks have refused to adopt such measures, communicating that risks posed by handling cash are low compared to other objects that are frequently touched, such as PIN pads.</p>
<p>The Bank of Canada, for example, encouraged retailers to <a href="https://www.theglobeandmail.com/business/article-bank-of-canada-asks-retailers-to-stop-refusing-cash-payments-over/">stop refusing cash</a> because it could disproportionately affect those who are dependent on cash as a form of payment. </p>
<p>Despite such assurances, fear of transmitting the virus could accelerate the trend of digital payment apps and reduce the use of cash in society.</p>
<p>Although digital payment systems such as Apple Pay, Venmo and Google Pay have become much more <a href="https://www.payments.ca/sites/default/files/12-Dec-18/paymentscanada_trendsreport2018_13.pdf">widespread in recent years</a>, these payment apps were not meant to replace existing currency. These apps also haven’t substantially reduced the amount of cash in circulation. </p>
<h2>Cashless in a crisis</h2>
<p>The Bank for International Settlements, which advises central banks around the world, <a href="https://www.bis.org/publ/bisbull03.pdf">released a bulletin</a> in April that said the pandemic could speed up the shift toward digital payments around the world, including central bank digital currencies. That’s not a surprise. A global crisis can often act as a catalyst for <a href="https://doi.org/10.1080/13501760802453221">structural change</a>. </p>
<p>For instance, the <a href="https://www.theguardian.com/world/2009/sep/23/swedish-cash-depot-helicopter-raid">2009 Västberga heist</a> led to a cashless society in Sweden. As a string of robberies occurred in shops, banks and even buses, Sweden moved to reduce cash circulation as a way to protect workers. Cash use in Sweden has since been <a href="https://www.riksbank.se/globalassets/media/rapporter/sa-betalar-svenskarna/2019/engelska/payments-in-sweden-2019.pdf">on the decline</a>, from 39 per cent in 2010 to 13 per cent in 2018. Currently about 20 per cent of retailers in the country no longer accept cash. </p>
<p>Sweden’s central bank, the Riksbank, announced in 2017 that it would initiate a pilot program exploring the viability of a national digital currency called the <a href="https://www.riksbank.se/en-gb/payments--cash/e-krona/">e-krona</a>. The Riksbank <a href="https://www.riksbank.se/en-gb/press-and-published/notices-and-press-releases/notices/2020/the-riksbank-to-test-technical-solution-for-the-e-krona/">recently launched</a> a joint project with Accenture to determine the technical aspects of the e-krona. The only details released so far indicate the digital currency will use blockchain technology. However, <a href="https://www.riksbank.se/globalassets/media/rapporter/e-krona/2017/rapport_ekrona_uppdaterad_170920_eng.pdf">previous reports from the pilot</a> concluded the e-krona would be centrally managed, ensuring the central bank would have firm control over money supply.</p>
<h2>China’s digital currency trials</h2>
<p>China recently <a href="https://www.theguardian.com/world/2020/apr/28/china-starts-major-trial-of-state-run-digital-currency">launched a pilot program of its digital yuan</a> in four major cities, but details of the national digital currency are scarce.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/343859/original/file-20200624-133002-xnnj69.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/343859/original/file-20200624-133002-xnnj69.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/343859/original/file-20200624-133002-xnnj69.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/343859/original/file-20200624-133002-xnnj69.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/343859/original/file-20200624-133002-xnnj69.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/343859/original/file-20200624-133002-xnnj69.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/343859/original/file-20200624-133002-xnnj69.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A Chinese national flag flutters in front of the People’s Bank of China in Beijing.</span>
<span class="attribution"><span class="source">(AP Photo/Andy Wong)</span></span>
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</figure>
<p>The digital yuan is backed by China’s central bank, the People’s Bank of China, and pegged to the national currency. This sovereign digital currency is unlikely to resemble traditional cryptocurrencies such as Bitcoin, which support decentralization and are not issued or managed by a central authority. The Chinese digital currency allegedly uses <a href="https://www.usna.edu/Users/cs/wcbrown/courses/si110AY13S/lec/l26/lec.html">asymmetric cryptography</a> (public/private keys) and smart contracts, which allows for <a href="https://in.reuters.com/article/china-markets-digital-currency/chinas-digital-currency-not-seeking-full-control-of-individuals-details-central-bank-official-idINKBN1XM0JA">controllable anonymity</a> and the prevention of counterfeiting.</p>
<p>The centralized design of the digital yuan would provide the Chinese government with unmatched oversight over money flows and transactions. Moreover, the People’s Bank of China has <a href="https://www.reuters.com/article/us-china-markets-digital-currency/chinas-proposed-digital-currency-more-about-policing-than-progress-idUSKBN1XB3QP">filed over 50 patents</a> related to the digital yuan and plans to distribute the digital currency through commercial banks. The bank is also exploring a tracking system that would trace the digital currency’s movement.</p>
<p>The timing of the digital yuan launching comes when the rest of the world is <a href="https://business.financialpost.com/news/economy/cp-newsalert-bank-of-canada-cutting-overnight-rate-target-to-0-75-per-cent">cutting interest rates</a> and dealing with the global pandemic, providing China with an unusual opportunity. The objective of the digital yuan is to increase its circulation, with the end goal of becoming a global currency much like the U.S. dollar.</p>
<p>China also aims to beat private competitors, such as <a href="https://libra.org/en-US/">Facebook’s Libra</a>, by maintaining control over the country’s financial security. China believes digital currencies that are not issued by governments or central banks are a threat to sovereignty.</p>
<h2>Digital currency coming to Canada?</h2>
<p>The Bank of Canada appears to have a strong interest in rethinking the nature of cash and reinventing the role of central banking. A recent <a href="https://careers.bankofcanada.ca/job/Ottawa-%28Downtown%29-Project-Manager%2C-CBDC-ON/540226217/">job posting</a> at the central bank indicated it would be “embarking on a program of major social significance” by designing and presumably deploying its own central bank digital currency system. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/343860/original/file-20200624-132996-1patx6z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/343860/original/file-20200624-132996-1patx6z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=429&fit=crop&dpr=1 600w, https://images.theconversation.com/files/343860/original/file-20200624-132996-1patx6z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=429&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/343860/original/file-20200624-132996-1patx6z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=429&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/343860/original/file-20200624-132996-1patx6z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=539&fit=crop&dpr=1 754w, https://images.theconversation.com/files/343860/original/file-20200624-132996-1patx6z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=539&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/343860/original/file-20200624-132996-1patx6z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=539&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Like other central banks around the world, the Bank of Canada may be considering the creation of a digital currency system.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Adrian Wyld</span></span>
</figcaption>
</figure>
<p>The proposed digital currency would protect user privacy, but it would not provide the same anonymity as cash transactions. It’s intended to be accessible, indicating the digital currency could be used by all Canadians, even those who don’t have a bank account or a mobile phone. </p>
<p>Many countries have been experimenting with digital currencies since the growing interest in blockchain and cryptocurrency emerged. As central banks attempt to enter the race of developing digital currencies, governments must first examine whether such a move will actually help the economy. Citizens must also think critically before jumping on board because national digital currencies have serious <a href="https://theconversation.com/a-national-digital-currency-has-serious-privacy-implications-130520">privacy implications</a>. </p>
<p>There seems to be some leeway with introducing change during a crisis, as the experiments in China and Sweden display. But the introduction of a digital currency during a crisis could provide governments with frightening new powers. The role of the state could drastically change as nations shift towards a cashless society, which encourages central banks to adapt in order to maintain firm control over money supply.</p><img src="https://counter.theconversation.com/content/138774/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anwar Sheluchin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There’s no indication that handling cash increases your chance of catching COVID-19. But that hasn’t stopped countries around the world from looking at digital currencies.Anwar Sheluchin, PhD Student, Political Science, McMaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1187062019-07-12T09:35:51Z2019-07-12T09:35:51ZFour ways blockchain could make the internet safer, fairer and more creative<figure><img src="https://images.theconversation.com/files/283726/original/file-20190711-173351-bhc1jk.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C8124%2C4986&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/blockchain-technology-information-blocks-cyberspace-decentralized-1134313550?src=Ygq-b0Vg6VDFi07rDI8GDA-1-55&studio=1">Yurchanka Siarhei/Shutterstock</a></span></figcaption></figure><p>The internet is unique in that it has no central control, administration or authority. It has given everyone with access to it a platform to express their views and exchange ideas with others instantaneously. But in recent years, internet services such as search engines and social media platforms have increasingly been provided by a small number of very large tech firms. </p>
<p>On the face of it, companies such as Google and Facebook claim to provide a free service to all their users. But in practice, they harvest huge amounts of personal data and sell it on to others for profit. They’re able to do this every time you log into social media, ask a question on a search engine or store files on a cloud service. The internet is slowly turning into something like the current financial system, which centrally monitors all transactions and uses that data to predict what people will buy in future.</p>
<p>This type of monitoring has huge implications for the privacy of ordinary people around the world. The digital currency <a href="https://bitcoin.org/bitcoin.pdf">Bitcoin</a>, which surfaced on the internet in 2008, sought to break the influence that large, private bodies have over what we do online. The researchers had finally solved one of the biggest concerns with digital currencies – that they need central control by the companies that operate them, in the same way traditional currencies are controlled by a bank. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/283763/original/file-20190711-173351-1646hx0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/283763/original/file-20190711-173351-1646hx0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/283763/original/file-20190711-173351-1646hx0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/283763/original/file-20190711-173351-1646hx0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/283763/original/file-20190711-173351-1646hx0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/283763/original/file-20190711-173351-1646hx0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/283763/original/file-20190711-173351-1646hx0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Bitcoin was the first application of a blockchain, but the technology shouldn’t stop there.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/bitcoin-physical-bit-coin-digital-currency-674460637?src=l37Sdn0-y_jQyrBkOhfGvA-1-2&studio=1">AnnaGarmatiy/Shutterstock</a></span>
</figcaption>
</figure>
<p>The core idea behind the Bitcoin system is to make all the participants in the system, collectively, the bank. To do this, blockchains are used. Blockchains are distributed, tamper-proof ledgers, which can record every transaction made within a network. The ledger is distributed in the sense that a synchronised copy of the blockchain is maintained by each of the participants in the network, and tamper-proof in the sense that each of the transactions in the ledger is locked into place using a strong encrypting technique called hashing.</p>
<p>More than a decade since this technology emerged, we’re still only beginning to scratch the surface of its potential. People researching it may have overlooked one of its most useful applications – making the internet better for everyone who uses it.</p>
<h2>Help stamp out hate</h2>
<p>In order to use services on the internet such as social media, email and cloud data storage, people need to authenticate themselves to the service provider. The way to do this at the moment is to come up with a username and password and register an account with the provider. But at the moment, there’s no way to verify the user’s identity. Anyone can create an account on platforms like Facebook and use it to spread fake news and hatred, without fear of ever being identified and caught.</p>
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Read more:
<a href="https://theconversation.com/now-theres-a-game-you-can-play-to-vaccinate-yourself-against-fake-news-92074">Now there's a game you can play to 'vaccinate' yourself against fake news</a>
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<p>Our idea is to issue each citizen with a digital certificate by first verifying their identity. An organisation like your workplace, university or school knows your identity and is in a position to issue you with a certificate. If other organisations do the same for their members, we could put these certificates on a publicly accessible blockchain and create a <a href="https://www.researchgate.net/publication/317428254_X509Cloud_-_Framework_for_a_ubiquitous_PKI">global protected record</a> of every internet user’s identity.</p>
<p>Since there’d be a means for identifying users with their digital certificate, social media accounts could be linked to real people. A school could create social media groups which could only be accessed if a student had a certificate issued to them by the school, preventing the group being infiltrated by outsiders.</p>
<h2>Never forget a password again</h2>
<p>A user could ask for a one-time password (OTP) for Facebook by clicking an icon on their mobile phone. Facebook would then look up the user’s digital certificate on the blockchain and return an OPT to their phone. The OTP will be encrypted so that it cannot be seen by anyone else apart from the intended recipient. The user would then login to the service using their username and the OTP, thereby eliminating the need to remember passwords. The OTP changes with each login and is delivered encrypted to your phone, so it’s much more difficult to guess or steal a password.</p>
<h2>Vote with your phone</h2>
<p>People are often too busy or reluctant to go to a polling station on voting days. An <a href="https://www.researchgate.net/publication/321803764_THE_FUTURE_OF_E-VOTING">internet voting system</a> could change that. Digital currencies like Zerocash are fully anonymous and can be traced on the blockchain, giving it the basic ingredients for a voting system. Anyone can examine the blockchain and confirm that a particular token has been transferred between two parties without revealing their identities.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/283761/original/file-20190711-173325-14k8q3o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/283761/original/file-20190711-173325-14k8q3o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/283761/original/file-20190711-173325-14k8q3o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/283761/original/file-20190711-173325-14k8q3o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/283761/original/file-20190711-173325-14k8q3o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/283761/original/file-20190711-173325-14k8q3o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/283761/original/file-20190711-173325-14k8q3o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Blockchain could ensure more people are able to vote.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/flat-isometric-vector-concept-voting-online-1128828170?src=JXxu_LOjRcbkVuds2w7N9Q-1-0&studio=1">TarikVision/Shutterstock</a></span>
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</figure>
<p>Each candidate could be given a digital wallet and each eligible voter given a token. Voters cast their token into the wallet of their preferred candidate using their mobile phone. If the total number of tokens in the wallets is less than or equal to the number issued, then you have a valid poll and the candidate with the most tokens is declared the winner. </p>
<h2>No more tech companies selling your data</h2>
<p>People use search engines everyday, but this allows companies like Google to gather trends, create profiles and sell this valuable information to marketing companies. If internet users were to use a digital currency to make a micropayment – perhaps one-hundredth of a cent – for each search query that they perform, there would be less incentive for a search company to sell their personal data. Even if someone performed a hundred search queries per day they would end up paying only one cent – a small price to pay for one’s privacy.</p>
<p>Blockchain technology started as a means for making online transactions anonymous, but it would be shame for it to stop there. The more researchers like me think about its potential, the more exciting possibilities emerge.</p><img src="https://counter.theconversation.com/content/118706/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hitesh Tewari receives funding from Science Foundation Ireland (SFI) and Enterprise Ireland (EI). </span></em></p>More than ten years since blockchains were developed, their usefulness is only just being discovered.Hitesh Tewari, Assistant Professor in the School of Computer Science and Statistics, Trinity College DublinLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/895852018-01-03T13:15:17Z2018-01-03T13:15:17ZThe Bank of England is planning a bitcoin-style virtual currency – but could it really replace cash?<figure><img src="https://images.theconversation.com/files/200674/original/file-20180103-26166-17d08zw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/image-depicting-golden-bitcoin-british-pound-775989712?src=DdfR8dqeEhSQEqeppiVA4A-1-12">Shutterstock</a></span></figcaption></figure><p>Governments are extremely worried about cryptocurrencies such as bitcoin. These virtual currencies mean you can make payments without involving the banks that most economies and government financial models are built on. People can transfer large amounts of money without the authorities knowing, potentially making it easier to evade tax or launder money.</p>
<p>So several countries’ central banks, including the <a href="http://www.telegraph.co.uk/news/2017/12/30/bank-england-plots-bitcoin-style-digital-currency/">Bank of England</a> and the <a href="https://www.reuters.com/article/us-israel-cenbank-currency/israel-central-bank-mulls-issuing-digital-currency-for-faster-payments-idUSKBN1EI0D5">Bank of Israel</a>, are reportedly planning to launch their own digital currencies. This could help lure people back into using an official system that combines some of the benefits of both traditional and crypto- currencies. But the risks involved may be too great for many typical cash users to bear.</p>
<p>One of the major drawbacks of existing cryptocurrencies is that their value tends to <a href="https://www.ft.com/content/4682c87c-d560-11e7-a303-9060cb1e5f44">swing widely</a> and it is often difficult to pinpoint how much they are really worth. National cryptocurrencies would be tied to the value of the country’s official currency, making them less volatile and easier to actually use as a way of spending.</p>
<p>National cryptocurrencies would also make payments much faster because transactions would be recorded instantly and wouldn’t have to be cleared by a bank (although some implementations require around eight minutes to be verified). The existing systems for electronic payments and transfers can often involve several banks and companies sending each other data and running security checks that add time and expense <a href="https://www.investopedia.com/articles/personal-finance/050515/how-swift-system-works.asp">to transactions</a>. Cryptocurrencies are able to bypass this clearing process altogether because they don’t actually involve transfers from one entity to another. </p>
<p>Instead they use a technology known as a blockchain, which keeps a public but encrypted <a href="https://www.ibm.com/blogs/blockchain/2017/05/the-difference-between-public-and-private-blockchain/">record of all transactions</a>. Basically, as illustrated in the figure below, the payer (in this case, Bob) signs a transaction to agree to pay someone (Alice) a given amount. The transaction is then validated using Bob’s personal encryption code known as his “private key”. If the transaction is valid, it is added onto the blockchain, recording how much money Alice and Bob now have.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/200544/original/file-20180102-26160-12zl5wb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/200544/original/file-20180102-26160-12zl5wb.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=472&fit=crop&dpr=1 600w, https://images.theconversation.com/files/200544/original/file-20180102-26160-12zl5wb.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=472&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/200544/original/file-20180102-26160-12zl5wb.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=472&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/200544/original/file-20180102-26160-12zl5wb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=593&fit=crop&dpr=1 754w, https://images.theconversation.com/files/200544/original/file-20180102-26160-12zl5wb.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=593&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/200544/original/file-20180102-26160-12zl5wb.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=593&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Outline of traditional transactions and blockchain based ones.</span>
<span class="attribution"><span class="source">Author supplied</span></span>
</figcaption>
</figure>
<p>Because all transactions would be recorded in this way, the government would have much greater oversight of who is paying whom and how much, helping to crack down on financial crime. Unfortunately, because transactions on blockchain ledger are typically kept as a public record, it might also be possible for other people to access this information and see how much you or anyone else is spending and what you’re buying.</p>
<p>Your money might also be at greater risk if it’s stored as a cryptocurrency. Currently banks guard your wealth and will always release it if you can prove your identity, while credit card companies insure you against fraud. If your bank account is hacked, there is a good chance you will get your money back. But cryptocurrencies store money in independent digital wallets that can be <a href="https://www.linkedin.com/pulse/looking-cryptocurrency-wallets-prof-bill-buchanan-obe-phd-fbcs/">lost or broken into</a>. If that happens there is no one who can help you.</p>
<h2>Currency needs trust</h2>
<p>For a typical shopper, there would be little difference between using a national cryptocurrency and something like Apple Pay, which makes payments at the click of a trusted application on a mobile device. I love using Apple Pay on my iPhone to purchase my coffee in the morning, as well as my bus tickets and even my parking. I now have little use of cash and only carry around my credit cards in a wallet as a backup in case my battery fails.</p>
<p>Having found out over Christmas that most supermarkets now do not have a limit on Apple Pay, I see it as one of the most trusted methods of payment, especially as I trust the <a href="https://support.apple.com/en-gb/HT204587">fingerprint scanner on my phone</a>. I also know that my bank is involved in the transaction. So I believe the days of paper money – and even carrying around cards – are rapidly fading. Our mobile phone and our trust in our apps provide us with more trusted ways of making transactions. </p>
<p>But Apple Pay is still backed up by trusted financial institutions. The step to cryptocurrency may be one step too far for most people. Few people would actually understand the risks of storing the cryptocurrency in a digital wallet and could leave themselves open to losing all their money.</p>
<p>I believe that most countries will deal with cryptocurrencies by regulating them and monitoring their use rather than co-opting them. But it will be interesting to see whether regulation or competition will win in the battle of crytocurrencies. While the encryption of crytocurrencies can create strong digital trust in the technology, human trust in the transactions themselves will likely be the key factor that determines whether citizens adopt government-backed cryptocurrencies.</p><img src="https://counter.theconversation.com/content/89585/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bill Buchanan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>National cryptocurrencies could make payments faster and prevent crime, but they come with their own risks.Bill Buchanan, Head, The Cyber Academy, Edinburgh Napier UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/852272017-10-18T10:42:17Z2017-10-18T10:42:17ZJapan’s new digital age brings together the old and the new<p>Popular fascination with Japan often begins with a vision of a country existing between two realms. On the one hand, we have the traditional “old world” of temples, tea ceremonies and calligraphic cherry blossoms. On the other hand, there shines a futuristic “new” world of bullet trains, <a href="https://www.youtube.com/watch?v=H--iR2KGq_o">AI dogs</a> and <a href="https://www.theguardian.com/travel/2012/feb/01/top-10-video-games-shops-tokyo">funky gaming consoles</a>. </p>
<p>Mixing this together into one addictive, fun-house concoction for the West has been Japanese pop culture in the shape of <a href="https://www.japan-guide.com/e/e2070.html">manga/anime</a>, games like <a href="https://theconversation.com/the-pokemon-go-craze-sees-gamers-hit-the-streets-but-it-comes-with-a-warning-62278">Pokemon Go!</a>, film and even snack foods (<a href="http://metro.co.uk/2015/02/20/omfg-you-can-buy-these-japanese-kitkats-here-in-the-uk-5071802/">maccha KitKat, anyone?</a>). </p>
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<p>Whether it is <a href="https://scontent-amt2-1.cdninstagram.com/t51.2885-15/e35/19379283_1112124565598533_7598214892323078144_n.jpg">futuristic mecha-bots</a> stomping on the ancient slopes of Mount Fuji or J-Pop stars shimmering like plastic dolls in silk kimonos, we indulge in the guilty (or not-so-guilty) consumption of Japan like electronic sushi: something traditional repackaged within the innovative, creating that perfect old/new bite.</p>
<p>But what do we really know about Japan today beyond <a href="http://www.bbc.co.uk/newsbeat/article/29761389/kawaii-culture-in-the-uk-japans-trend-for-cute">kawaii</a> (cuteness), ninjas and that mysterious savoury taste sensation <a href="https://www.theguardian.com/lifeandstyle/wordofmouth/2013/apr/09/umami-fifth-taste">umami</a>? </p>
<h2>Inhabiting 2D and 3D worlds</h2>
<p>In the true Japanese style that loves being “in-between” (old/new, East/West, salty/sweet), <a href="https://www.j25musical.jp/en/">2.5 Dimensional Theatre</a> is a digital-technological art form that exists between the worlds of 2D and 3D. Initially, a fan-based phenomenon, it has become an established industry and institution in its own right within the last decade. 2.5 Dimension productions bring to life the 2D world of manga, anime and video-games on a 3D stage using the latest digital technologies and communications platforms.</p>
<p>The use of social networking sites, smartphones and other technologies such as <a href="https://pro.sony.com/bbsccms/assets/files/mkt/digicinema/brochures/EntAccessGlasses-DI-0272_2.pdf">subtitle glasses</a> (spectacles that project subtitles for the individual user) enrich the audience experience by increasing participation and interaction that goes beyond the stage. Emerging from a country with a longstanding history of artistic stage productions – from noh and bunraku to kabuki – 2.5 Dimensional Theatre is a perfect example of various Japanese creative industries, old and new, coming together through the digital to create entirely new experiences.</p>
<p>Such digital phenomena point towards society’s increasing need to inhabit an augmented reality. Products and services encourage users to constantly seek ways to make realities more real through digital technologies. Digitising ourselves is now the norm (as we see when people generate bio-data through fitbits) and our lives are frequently personalised mini-2.5 Dimensional stages. </p>
<p>For example, helping users to create their own “in-between” reality is the Ricoh THETA SC, a virtual camera that takes 360 degree images. At the end of this month, a <a href="http://miku.ricoh/en/">limited edition “Hatsune Miku” type</a> will be released: users can now “exist” alongside the popular virtual singer in any environment of their choice.</p>
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<figcaption><span class="caption">Make a virtual singer, Hatsune Miku, part of your ‘real’ life!</span></figcaption>
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<h2>Robots and digital currency</h2>
<p>Shinzo Abe, the Japanese prime minister, has been investing a significant amount of resources “to make robots <a href="https://www.roboticsbusinessreview.com/manufacturing/tokyo_olympics_abenomics_and_robot_automation/">a major pillar of our economic growth strategy</a>”, in time to showcase during the <a href="http://edition.cnn.com/travel/article/tokyo-olympics-2020/index.html">Tokyo 2020 Olympics</a>. Hailed as the <a href="https://www.forbes.com/sites/stephenharner/2013/09/10/the-2020-olympics-a-fourth-arrow-for-abenomics-and-second-term-for-abe/#2adf0d0b1157">“fourth arrow” of Abenomics</a>, Tokyo 2020 seems to have indeed provided a governmental incentive to boost Japanese “soft” power (who can forget <a href="https://www.cnbc.com/2016/08/22/super-abe-was-a-taste-of-tokyos-2020-olympic-campaign.html">Abe as Super Mario</a> during the Olympic closing ceremony in Rio 2016?) and strengthen the country’s position as a global force. Here again, the digital hails the way. </p>
<p>Japanese banks have announced plans <a href="https://www.ft.com/content/ca0b3892-a201-11e7-9e4f-7f5e6a7c98a2">to introduce digital currency</a>. Their aim is to have the J Coin in full circulation in Japan by 2020 – part of making <a href="https://thediplomat.com/2017/09/tokyo-global-financial-center-under-the-spotlight-again/">Tokyo a financial centre once again</a>. </p>
<p>Similarly, one of the biggest sponsors for Tokyo 2020, Toyota, is working <a href="https://www.digitaltrends.com/cars/toyota-self-driving-cars-2020-olympics/">on self-driving cars</a> to be used near the sporting venues during the Olympics. The Japanese government is also mapping the country’s road network to provide a digital infrastructure.</p>
<p>Despite all the hi-tech, it is also intriguing how certain major digital platforms like Uber and AirBnB are actually <a href="http://www.triplepundit.com/2017/02/uber-airbnb-struggle-in-tokyo/">failing in Japan</a> for legal, social and cultural reasons. In many ways, this highlights the pressure Japan faces in maintaining the Western and self-projected image of a country in between worlds. Wrapped in its own contradictory tensions, is it possible for Japan to be both old and new at the same time?</p>
<p>Japan may well be at the forefront of a kind of digital revolution. But if any of these innovations go global they will still bear the stamp of that inherent Japanese character that makes the country so unique.</p><img src="https://counter.theconversation.com/content/85227/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Esperanza Miyake receives funding from Great Britain Sasakawa Foundation for the one-day symposium, 'Japan in the Digital Age', to be held at Manchester Metropolitan University on 28th October. </span></em></p>How culture can inform technological innovations.Esperanza Miyake, Lecturer - Department of Languages, Information and Communications, Manchester Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/784092017-07-25T13:33:04Z2017-07-25T13:33:04ZThe big business revolution: why the future is blockchain<figure><img src="https://images.theconversation.com/files/179198/original/file-20170721-21259-1le72v2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/benjamin-franklin-bitcoin-eyes-cryptocurrency-traditional-632416238">Shutterstock</a></span></figcaption></figure><p>The value of one <a href="https://www.bitcoin.com/you-need-to-know">bitcoin</a> recently hit a record high of US$3,025, a staggering rise of over 200% in value this year alone.</p>
<p>Aswath Damodaran, professor of finance at the New York University, known as Wall Street’s “dean of valuation”, has said that among the younger generation, digital currencies have <a href="http://www.cnbc.com/2017/07/18/wall-streets-dean-of-valuation-says-digital-currencies-replacing-gold.html">replaced gold</a> as a choice of investment and that, sooner or later, currencies such as bitcoin and <a href="https://blockgeeks.com/guides/what-is-ethereum/">ethereum</a> will compete against nation-state paper currencies.</p>
<p>So could bitcoin become a popular currency and decrease the popularity of euros, dollars, pounds, roubles and others? For anything to be seen as “money” it needs to meet three functions – a <a href="http://www.investorwords.com/6686/store_of_value.html">store of value</a>, a <a href="http://www.politicaleconomy.org/speV_3.htm">measure of value</a> and a <a href="http://www.politicaleconomy.org/speV_3.htm">medium of exchange</a>. Bitcoin’s <a href="https://seekingalpha.com/article/4087232-bitcoins-volatility-presents-risk-investors">volatility</a> shows that it is an infant in meeting these three criteria, but has the potential to do so. </p>
<p>However, digital currencies like bitcoin are just one application of the blockchain technology that makes them possible. Blockchain, as the BBC <a href="http://www.bbc.co.uk/news/business-35370304">explains</a>, is:</p>
<blockquote>
<p>a method of recording data – a digital ledger of transactions, agreements, contracts – anything that needs to be independently recorded and verified as having happened. The big difference is that this ledger isn’t stored in one place, it’s distributed across several, hundreds or even thousands of computers around the world. And everyone in the network can have access to an up-to-date version of the ledger, so it’s very transparent.</p>
</blockquote>
<p>Blockchain combines the security of <a href="http://searchsoftwarequality.techtarget.com/definition/cryptography">cryptography</a>, the storage and transmission of data in coded form, with <a href="http://www.computerworld.com/article/2588287/networking/peer-to-peer-network.html">peer-to-peer networks</a> to create a shared database of transactions that is trusted, yet controlled by no one. </p>
<p>If blockchain finds uses in various industries we could see a more digitally integrated global economy, something that could enhance economic growth and decrease poverty. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/179200/original/file-20170721-18148-lql90c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/179200/original/file-20170721-18148-lql90c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=330&fit=crop&dpr=1 600w, https://images.theconversation.com/files/179200/original/file-20170721-18148-lql90c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=330&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/179200/original/file-20170721-18148-lql90c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=330&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/179200/original/file-20170721-18148-lql90c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=415&fit=crop&dpr=1 754w, https://images.theconversation.com/files/179200/original/file-20170721-18148-lql90c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=415&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/179200/original/file-20170721-18148-lql90c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=415&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Blockchain technology could make economic transactions around the world more transparent and secure.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/golden-bitcoin-digital-currency-vector-illustration-636483977">Shutterstock</a></span>
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<h2>Huge potential</h2>
<p>In business today, we still require trusted administrators to manage and record the numbers and databases – auditors, supervisory boards and so on. The potential of blockchain is that it offers the chance to “distribute” these digital ledgers to others through a network of computers across the world. It could actually <a href="http://www.techrepublic.com/article/growth-of-enterprise-ethereum-alliance-signals-blockchains-impact-on-future-of-business/">dispense</a> with those businesses that are based on trusted relationships – such as banking, auditing, solicitors, even aspects of government. For example in Sweden, Georgia and Ukraine <a href="https://www.newamerica.org/international-security/future-property-rights/blog/will-blockchain-work-ukraine/">property registers</a> are being moved on to the blockchain. </p>
<p>In finance, people rarely lend directly to each other, hence the need for banks as trusted go-betweens. The beauty of <a href="https://digitaleconomyforum.org/chapter-2-the-future-of-digital-currency-bitcoin?gclid=CjwKCAjwqcHLBRAqEiwA-j4AyOErziyO_Rg7Z47EEMDX4s7ucJYCTexqfIe8miZYbW65k2eg_hOKAxoCtL4QAvD_BwE">cryptocurrencies</a> such as bitcoin or ethereum is that they remove the need for the trusted third party, using instead an encrypted, secure database. This has huge implications for any business that requires the verification of payments and performance of contracts – that is, most businesses. </p>
<p>The beauty of blockchain is that something can be unique and stored digitally with ease, without needing an equivalent in the real world. For example, things like contracts, wills, deeds and share certificates might only require a piece of code stored on the blockchain that represents the exchange. Instead of a trusted intermediary verifying transactions, the computers of the shared network of bitcoin users themselves perform the verification at no cost to those involved in the transaction.</p>
<h2>Truth and trust</h2>
<p>This verification process holds the seeds of change across huge numbers of industries. The distributed ledger – the blockchain – offers the chance to enhance truth and trust in every system to which it is applied. It can prove who owns what at any given moment. Anything that currently exists to verify contracts, ownership, payments and even performance can be <a href="https://shift.newco.co/graphic-blockchain-for-every-industry-dfcbdcfe23ea">shifted to the blockchain</a>.</p>
<p>This would transfer power away from those who currently manage or verify transactions – a seismic change to the way the world currently operates. As with any power shift, those holding power are reluctant to surrender it. The “winners” in this scenario will come from existing companies rather than start-ups, given that for this new system to work, it requires buy-in and trust – existing brands already have this advantage.</p>
<p>So what are blockchain’s main advantages? By performing the functions of record keepers and managers it would <a href="http://www.economist.com/node/14298890">enhance decentralisation</a>, reduce the amount of intermediaries involved and provide an alternative to how value can be stored. Physical as well as digital assets could be uniquely verified online to prove ownership. </p>
<p>As transactions stored on the blockchain could be independently verified and traced, it would be easier to fight crime, counterfeiting and fraud, reducing systemic risk in the financial system. A distributed digital ledger would make it near impossible to change or falsify data, because data would have to be altered across all the related “blocks” in the digital chain, so any tampering would be exposed. Consequently associated costs would fall, enhancing economic growth and prosperity.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/179201/original/file-20170721-18113-1e4lyqh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/179201/original/file-20170721-18113-1e4lyqh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=389&fit=crop&dpr=1 600w, https://images.theconversation.com/files/179201/original/file-20170721-18113-1e4lyqh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=389&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/179201/original/file-20170721-18113-1e4lyqh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=389&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/179201/original/file-20170721-18113-1e4lyqh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=489&fit=crop&dpr=1 754w, https://images.theconversation.com/files/179201/original/file-20170721-18113-1e4lyqh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=489&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/179201/original/file-20170721-18113-1e4lyqh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=489&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">In places like India, blockchain could bring access to banking to millions of poor people, helping them to save and plan for their future.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/download/confirm/475797655?src=enQs5BizKqXeNgRJ0TSnzw-1-42&size=huge_jpg">Shutterstock</a></span>
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<p>A dramatic disruption is happening already in the financial industry: the world’s largest custodian bank, BNY Mellon, is using a blockchain based platform for <a href="https://www.globalcustodian.com/Technology/Study-suggests-BNY-Mellon-leading-the-pack-on-blockchain/">government bond settlement</a>. And one of the Bank of England’s <a href="http://www.bankofengland.co.uk/publications/Pages/news/2017/029.aspx">research focus areas</a> is based around financial technology or “<a href="https://www.forbes.com/sites/bernardmarr/2017/02/10/a-complete-beginners-guide-to-fintech-in-2017/#6c3a0a3e3340">fintech</a>” and how it affects the way markets and society function.</p>
<p>Another benefit would be to make <a href="http://whatis.techtarget.com/definition/micropayment">micropayments</a> possible digitally. A country such as India, where huge number of people still do not have access to banking, could experience profound economic change if brought within their reach, helping them save, borrow and plan for their future.</p>
<h2>Taking back our privacy</h2>
<p>The online marketing and advertising industry has feasted on data generated by internet users, and social media platforms such as Facebook – with more than two billion users – Google and Amazon collect considerable amounts of individualised data on us to target adverts at us. Blockchain could enhance our online privacy, by allowing us to store our digital footprint on our own unique blockchain and control who has access to it. Rather than these massive organisations building up records of our tastes and preferences, this data would be decentralised and within our own control.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/179202/original/file-20170721-3654-19or37o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/179202/original/file-20170721-3654-19or37o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=369&fit=crop&dpr=1 600w, https://images.theconversation.com/files/179202/original/file-20170721-3654-19or37o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=369&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/179202/original/file-20170721-3654-19or37o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=369&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/179202/original/file-20170721-3654-19or37o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=464&fit=crop&dpr=1 754w, https://images.theconversation.com/files/179202/original/file-20170721-3654-19or37o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=464&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/179202/original/file-20170721-3654-19or37o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=464&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Online privacy would be tightened up with blockchain, as individuals would have secure control over their own personal data.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/cyptocurrency-digital-money-concept-imagebitcoin-sign-483273430">Shutterstock</a></span>
</figcaption>
</figure>
<p>Blockchain could enhance entrepreneurship in developed and developing countries, breaking down barriers built from embedded bureaucracy and corruption by providing a means to bypass existing power structures. For example, the digital ledger <a href="https://www-01.ibm.com/common/ssi/cgi-bin/ssialias?htmlfid=LUV12347USEN">Everledger</a> is tracking a real-life object – diamonds – to prove their provenance and ownership. As a result, trust in the system is enhanced.</p>
<p>When the internet came into being, it was a disruptive, game-changing force for many industries – blockchain technology holds the same potential. In moving trust from the current “verifiers” to a distributed blockchain system, the world could see a massive shift in power to the masses – a truly revolutionary idea.</p><img src="https://counter.theconversation.com/content/78409/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Blockchain technology is familiar to us in the form of digital currency bitcoin. And if it makes it way to the mainstream, could it change the way the world does business forever?Rob Gowers, Senior Lecturer in Leadership and Management, Anglia Ruskin UniversityJukka Aminoff, Visiting Honorary Professor, Anglia Ruskin UniversityLicensed as Creative Commons – attribution, no derivatives.