tag:theconversation.com,2011:/au/topics/blockchain-11427/articlesBlockchain – The Conversation2024-01-05T17:12:11Ztag:theconversation.com,2011:article/2205572024-01-05T17:12:11Z2024-01-05T17:12:11ZBitcoin: four reasons why the price should surge in 2024<figure><img src="https://images.theconversation.com/files/568019/original/file-20240105-21-pulhq0.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Bitcoin back?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/crypto-currency-bounces-back-after-fall-2308602413">FAHM198</a></span></figcaption></figure><p>The year 2023 will be remembered as turbulent for cryptocurrencies, with numerous important developments that ultimately helped to “clean up” the space to potentially make it more attractive to mainstream investors. Notably there was <a href="https://theconversation.com/sam-bankman-fried-was-convicted-of-fraud-following-the-collapse-of-the-cryptocurrency-exchange-ftx-heres-what-investors-need-to-know-217026">the conviction</a> of FTX CEO Sam Bankman-Fried for fraud. </p>
<p>Top exchange Binance also reached a <a href="https://www.wsj.com/finance/regulation/binance-copped-a-4-billion-plea-but-is-still-fighting-the-sec-44a4e5a5">US$4 billion settlement</a> (£3.1 billion) with the US treasury department over money-laundering charges, which saw CEO Changpeng “CZ” Zhao agreeing to <a href="https://www.coindesk.com/policy/2023/11/28/changpeng-cz-zhao-steps-down-from-binanceus-board/">step down</a> and pay a US$50 million fine. </p>
<p>Meanwhile, regulators continued <a href="https://theconversation.com/us-regulators-continue-crypto-crackdown-but-heres-why-the-latest-charges-are-different-207332">cracking down</a> on other operators, but potentially lost one of their key cases against the industry after a <a href="https://www.coindesk.com/consensus-magazine/2023/10/20/ripple-is-on-a-winning-streak-but-the-game-isnt-yet-won/">US court ruled</a> that the XRP token, one of the top ten cryptocurrencies, was not a security (meaning a tradeable financial asset like shares or bonds). </p>
<p>This means its creator, Ripple, did not break the law by selling it on exchanges. Viewed as a test case for the majority of cryptocurrencies, the US Securities Exchange Commission (SEC) is <a href="https://www.reuters.com/legal/legalindustry/ripple-effects-developments-following-groundbreaking-decision-sec-v-ripple-labs-2023-12-05/">currently appealing</a>. </p>
<p>While all this was happening, the bitcoin price rose away from the lows of late 2022. It started the year at US$16,000 and ended comfortably above the US$40,000 threshold. </p>
<p>So what does 2024 look like for this sector and what key events are on the horizon?</p>
<h2>1. ETFs</h2>
<p>The SEC may finally be about to greenlight a type of investment vehicle known as an exchange traded fund (ETF) for the general or “spot” bitcoin market. ETFs already exist for everything from oil to the FTSE 100 to even regions and countries. They track the underlying asset, creating an easy way for people to invest without having to buy the asset directly. </p>
<p>Until now, the only ETFs permitted for crypto in the US have been for the <a href="https://www.forbes.com/advisor/investing/cryptocurrency/best-bitcoin-etfs/">futures markets</a>. These niche markets are concerned with where investors think crypto prices are heading in future. </p>
<p><strong>Bitcoin price 2021-24</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/568015/original/file-20240105-25-220p44.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Chart showing bitcoin price since 2021" src="https://images.theconversation.com/files/568015/original/file-20240105-25-220p44.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/568015/original/file-20240105-25-220p44.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=363&fit=crop&dpr=1 600w, https://images.theconversation.com/files/568015/original/file-20240105-25-220p44.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=363&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/568015/original/file-20240105-25-220p44.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=363&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/568015/original/file-20240105-25-220p44.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=457&fit=crop&dpr=1 754w, https://images.theconversation.com/files/568015/original/file-20240105-25-220p44.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=457&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/568015/original/file-20240105-25-220p44.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=457&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.tradingview.com/">Trading View</a></span>
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<p>A spot bitcoin ETF would likely encourage mainstream investors to buy exposure to this market, while potentially attracting banks to actively participate too. Bitcoin could be offered by financial advisors and there would no longer be a need for investors to hold the asset itself or <a href="https://en.bitcoin.it/wiki/Storing_bitcoins">face difficulties</a> like crypto exchanges, coin storage and so on. </p>
<p>There are various reasons why many commentators think the SEC may now end its opposition to such an ETF. For one thing, the list of applicants <a href="https://blockworks.co/tag/blackrock">includes Blackrock</a>, the biggest investment house in the world, along with various other <a href="https://www.coindesk.com/policy/2023/10/23/all-spot-bitcoin-etf-applications-may-be-approved-together-crypto-etf-expert-predicts/#:%7E:text=The%2012%20spot%2Dbitcoin%20ETF,Global%20X%2C%20Hashdex%20and%20Franklin.">major players</a>. </p>
<p>Also, digital asset group Grayscale won an important case against the SEC in 2023, which had been blocking its attempt to convert its US$17 billion bitcoin futures ETF, GBTC, into a spot version. This has forced the SEC to reconsider Grayscale’s application too. </p>
<p>Further, Hong Kong’s regulatory authority has announced it is open to spot bitcoin ETF applications and has <a href="https://www.forbes.com/sites/digital-assets/2023/12/31/hong-kong-spot-bitcoin-etf-signals-bullish-market-shift-more-than-us/?sh=209365697465">laid down guidelines</a> permitting several varieties. As well as the basic model that we may soon see in the US, where investors would buy into bitcoin ETFs with dollars, Hong Kong is open to a second variety known as “in-kind”. </p>
<p>This would make it possible to convert shares in a bitcoin ETF into bitcoin and vice versa, allowing more flexibility and potentially attracting more institutional investors into the space.</p>
<h2>2. Interest rates</h2>
<p>Jerome Powell, chair of US central bank the Federal Reserve, <a href="https://www.theguardian.com/business/2023/dec/13/federal-interest-rates-us-inflation">has indicated</a> that interest rates may have peaked, and that the Fed is likely to cut them during 2024. Similarly in the UK, leading mortgage lender Halifax has cut its <a href="https://www.bbc.com/news/business-67873017">lending rate</a> in expectation of a Bank of England rate cut. </p>
<p>If interest rates are cut or even stabilise in 2024, it could make bitcoin (and other digital assets) more attractive to investors, since its <a href="https://www.blockchain-council.org/cryptocurrency/how-many-bitcoins-are-left/#:%7E:text=December%206%2C%202023-,Summary,million%20left%20to%20be%20mined.">limited supply</a> makes it a hedge against traditional currencies <a href="https://kinesis.money/case-studies/paper-money-eventually-returns-to-its-intrinsic-value-zero/">losing value</a> over time. </p>
<p>More generally, rate cuts prompt investors to look for higher investment returns, and cryptocurrencies have delivered here too. </p>
<p><strong>Asset class returns since 2011</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/568003/original/file-20240105-15-labr38.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Table showing asset class returns since 2011" src="https://images.theconversation.com/files/568003/original/file-20240105-15-labr38.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/568003/original/file-20240105-15-labr38.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=320&fit=crop&dpr=1 600w, https://images.theconversation.com/files/568003/original/file-20240105-15-labr38.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=320&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/568003/original/file-20240105-15-labr38.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=320&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/568003/original/file-20240105-15-labr38.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=402&fit=crop&dpr=1 754w, https://images.theconversation.com/files/568003/original/file-20240105-15-labr38.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=402&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/568003/original/file-20240105-15-labr38.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=402&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
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<span class="attribution"><a class="source" href="https://twitter.com/charliebilello/status/1741888124031037686">Charlie Bilello</a></span>
</figcaption>
</figure>
<p>In addition, the US and other economies may enter <a href="https://www.statista.com/statistics/1239080/us-monthly-projected-recession-probability/">a recession</a> in the later half of 2024 due to the lagged effects of the interest rate hikes. </p>
<p>Equally, we saw a number of <a href="https://www.fdic.gov/bank/historical/bank/bfb2023.html">bank failures</a> in 2023, predominantly in the US. In the event of a recession or more bank problems, governments may be forced to provide stimulus packages and print more money. This would further devalue currencies and make bitcoin still more attractive. </p>
<h2>3. The halving</h2>
<p>A big event for bitcoin in 2024 is the so-called “halving”. Bitcoin runs on an online ledger known as a blockchain, in which entries are validated by “miners” using arrays of computers to solve complex mathematical puzzles. Miners are paid in bitcoin for completing a set of transactions known as a block, and the protocol stipulates that their <a href="https://theconversation.com/bitcoin-halving-qanda-what-its-all-about-and-what-it-means-for-the-cryptocurrency-138570">reward per block</a> halves every 210,000 “blocks” (roughly every four years). </p>
<p>The reward began at 50 bitcoin in 2009 and is <a href="https://www.nicehash.com/countdown/btc-halving-2024-05-10-12-00">expected to fall</a> from 6.25 bitcoin to 3.125 bitcoin around the middle of April 2024. </p>
<p>This decrease entails fewer bitcoin sold on the market, which tightens supply and may squeeze out the least efficient miners, significantly reducing the computer power used by the network. The three previous halvings have prompted dramatic bull runs, while also driving up the prices of digital assets more generally as investors take more risks in the space. </p>
<p><strong>Halving effects</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/568014/original/file-20240105-17-xer6zm.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Chart showing how bitcoin halvings have affected price" src="https://images.theconversation.com/files/568014/original/file-20240105-17-xer6zm.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/568014/original/file-20240105-17-xer6zm.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=364&fit=crop&dpr=1 600w, https://images.theconversation.com/files/568014/original/file-20240105-17-xer6zm.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=364&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/568014/original/file-20240105-17-xer6zm.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=364&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/568014/original/file-20240105-17-xer6zm.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=457&fit=crop&dpr=1 754w, https://images.theconversation.com/files/568014/original/file-20240105-17-xer6zm.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=457&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/568014/original/file-20240105-17-xer6zm.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=457&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.tradingview.com/">Trading View</a></span>
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<h2>4. Blockchain developments</h2>
<p>The bitcoin network saw a number of technological advancements in 2023. This has included enabling a new and <a href="https://forkast.news/bitcoin-nfts-raise-unique-legal-issues/">a unique</a> form of NFTs (non-fungible tokens) known as ordinals, and also a new standard called BRC-20 that makes it possible to create new cryptocurrencies on the network. Until now, NFTs and new cryptocurrencies have mostly been issued on other blockchains such as ethereum. </p>
<p>We are also seeing <a href="https://beincrypto.com/bitcoin-lightning-network-transactions-research/">growing adoption</a> of the Lightning network, a layer above the bitcoin blockchain that enables much faster transactions. All these changes are resulting in <a href="https://www.blockchain.com/explorer/charts/avg-block-size">increased demand</a> for bitcoin, which in turn may lead to higher prices.</p>
<p>In sum, there’s a strong case for being bullish about bitcoin’s price in the year ahead. <a href="https://www.cnbc.com/2024/01/01/bitcoin-btc-price-predicitions-for-2024.html">Commentators’ predictions</a> range from US$60,000 to US$500,000 by year end. Our own belief is that though the road may be bumpy, 2024 could well see increased adoption of cryptocurrencies, which will drive prices beyond the current US$40,000 mark.</p><img src="https://counter.theconversation.com/content/220557/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Urquhart owns some cryptocurrencies.</span></em></p><p class="fine-print"><em><span>Hossein Jahanshahloo 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>Twelve months ago, bitcoin looked dead in the water. Now it could be heading to all-time highs.Andrew Urquhart, Professor of Finance & Financial Technology, ICMA Centre, Henley Business School, University of ReadingHossein Jahanshahloo, Assistant Professor in Finance, Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2141452023-10-01T19:16:08Z2023-10-01T19:16:08ZAre NFTs really dead and buried? All signs point to ‘yes’<figure><img src="https://images.theconversation.com/files/550799/original/file-20230928-25-9i311a.jpg?ixlib=rb-1.1.0&rect=53%2C35%2C5937%2C3952&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Non-fungible tokens (NFTs) are in dire straits. With the market in a severe downturn, it’s safe to assume the NFT bubble has well and truly burst.</p>
<p>It was never clear why these digital collectables traded for such large amounts of money. Now they mostly do not. What’s behind their turn of fate? And is there any hope for their future?</p>
<h2>What are NFTs?</h2>
<p>Non-fungible tokens are a blockchain-based means to claim unique “ownership” of digital assets. “Non-fungible” means unique, as opposed to a “fungible” item such as a five-dollar bill, which is the same as every other five-dollar bill. </p>
<p>But just because an item is unique that doesn’t make it valuable. Digital assets are easily copied, so an NFT is essentially a receipt showing you have paid for something that other people can get for free. This is a pretty dubious basis for value.</p>
<p>The <a href="https://coinmarketcap.com/nft/">two most traded sets of NFTs</a> are the Bored Apes collection created in April 2021 and the CryptoPunks collection launched in June 2017. </p>
<p>Both sets consist of 10,000 similar-looking but unique figures, distinguished by differing hairstyles, hats, skin colours and so forth. The <a href="https://opensea.io/collection/boredapeyachtclub">Bored Ape</a> character seems derivative of the drawings of Jamie Hewlett, the artist who drew Tank Girl and Damon Albarn’s virtual band <a href="https://www.gorillaz.com/">Gorillaz</a>. The <a href="https://opensea.io/collection/cryptopunks">CryptoPunks</a> are even less interesting.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/550778/original/file-20230928-19-s52sc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/550778/original/file-20230928-19-s52sc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/550778/original/file-20230928-19-s52sc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/550778/original/file-20230928-19-s52sc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/550778/original/file-20230928-19-s52sc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/550778/original/file-20230928-19-s52sc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/550778/original/file-20230928-19-s52sc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/550778/original/file-20230928-19-s52sc.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"></a>
<figcaption>
<span class="caption">The CryptoPunk NFTs are basic computer-drawn faces.</span>
<span class="attribution"><a class="source" href="https://upload.wikimedia.org/wikipedia/en/0/07/Cryptopunks_general.jpg">Wikimedia</a></span>
</figcaption>
</figure>
<h2>Why did people buy NFTs?</h2>
<p>Although the first NFTs emerged around a decade ago, the trend really started to take off in 2021. And for a time NFTs were very fashionable.</p>
<p>Even the venerable auction house <a href="https://www.sothebys.com/en/buy/auction/2021/ape-in/101-bored-ape-yacht-club">Sotheby’s</a>, founded in 1744, jumped on the NFT bandwagon. Sotheby’s sold 101 Bored Ape NFTs for more than US$20 million in September 2021. They’re now facing a <a href="https://www.artnews.com/art-news/news/sothebys-added-defendant-investors-lawsuit-bored-ape-yacht-club-nfts-1234677041/">lawsuit</a> from a disgruntled buyer.</p>
<p>As with Bitcoin and similar speculative tokens, the primary driver for buying NFTs <a href="https://www.theguardian.com/artanddesign/2022/jan/04/bored-ape-nft-art-eminem">was greed</a>. Seeing the initial price rises, people hoped they too could make huge profits. NFTs are essentially a superficially sophisticated form of gambling. <a href="https://theconversation.com/what-is-bitcoins-fundamental-value-thats-a-good-question-171387">Like Bitcoin</a>, they have no fundamental value.</p>
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<em>
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Read more:
<a href="https://theconversation.com/nfts-an-overblown-speculative-bubble-inflated-by-pop-culture-and-crypto-mania-174462">NFTs, an overblown speculative bubble inflated by pop culture and crypto mania</a>
</strong>
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<p>Generally, one would only profit from buying an NFT by finding a “<a href="https://www.chase.com/personal/investments/learning-and-insights/article/greater-fools-day-dont-be-the-one-holding-the-joke">greater fool</a>” willing to pay even more for it. So there was never a shortage of people – including <a href="https://hypebeast.com/2022/1/eminem-bored-ape-yacht-club-nft-450000-usd-purchase">some quite</a> <a href="https://twitter.com/ksicrypto/status/1430511420454719497">famous ones</a> – talking them up and hoping to instil a fear of missing out. </p>
<p>Eminem bought a Bored Ape that looked a bit like him. Rapper KSI <a href="https://twitter.com/ksicrypto/status/1430511420454719497">boasted on Twitter</a> about his Bored Ape rising in price. </p>
<p>For a while there were large increases in the prices of many NFTs. But like all speculative bubbles, it was likely to end in tears. Although it’s almost impossible to predict when a bubble for a speculative asset will burst, we have seen this process play out before.</p>
<p>Centuries ago there were the <a href="https://theconversation.com/tulip-mania-the-classic-story-of-a-dutch-financial-bubble-is-mostly-wrong-91413">Dutch tulip</a>, <a href="https://curiosity.lib.harvard.edu/south-sea-bubble/feature/the-crash">South Sea</a> and <a href="https://www.investopedia.com/ask/answers/09/mississippi-bubble.asp">Mississippi</a> bubbles. Around 1970, there was a speculative bubble in the shares of <a href="https://www.rba.gov.au/publications/confs/2003/simon.html">nickel miner Poseidon</a>. Then came the <a href="https://www.ft.com/content/1563d643-332f-3887-8c6e-caf7435f396a">Beanie Baby</a> and <a href="https://www.rba.gov.au/publications/confs/2003/simon.html">dotcom</a> booms of the late 1990s – and more recently, <a href="https://www.theguardian.com/business/2021/feb/02/gamestop-shares-plunge-as-traders-dump-stock">meme stocks</a> and <a href="https://www.nber.org/papers/w31160">Terra-Luna cryptocurrency</a>. </p>
<h2>The NFT crash</h2>
<p>Punters now seem to be as bored with NFTs as the apes. Google searches for “NFT” – which grew rapidly through 2021 – have <a href="https://trends.google.com.au/trends/explore?date=today%205-y&q=NFT&hl=en-AU">fallen away</a> dramatically. Trading volumes <a href="https://www.ft.com/content/f3e40b9b-8b29-4483-a3cd-91cef39c4d49">have collapsed</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/550784/original/file-20230928-15-eoxphh.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/550784/original/file-20230928-15-eoxphh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/550784/original/file-20230928-15-eoxphh.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=361&fit=crop&dpr=1 600w, https://images.theconversation.com/files/550784/original/file-20230928-15-eoxphh.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=361&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/550784/original/file-20230928-15-eoxphh.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=361&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/550784/original/file-20230928-15-eoxphh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=453&fit=crop&dpr=1 754w, https://images.theconversation.com/files/550784/original/file-20230928-15-eoxphh.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=453&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/550784/original/file-20230928-15-eoxphh.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=453&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Google searches for ‘NFT’ reached an all-time high around early 2022.</span>
<span class="attribution"><span class="source">Author provided/Data from Google Trends</span></span>
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</figure>
<p>Prices in the NFT market have also seen huge falls. The prices of Bored Ape NFTs are <a href="https://www.coingecko.com/en/nft/bored-ape-yacht-club">down about</a> 90% from their peak. The CryptoPunks have done <a href="https://www.coingecko.com/en/nft/cryptopunks">slightly better</a> by losing only 80%. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/550783/original/file-20230928-17-vrxwgc.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/550783/original/file-20230928-17-vrxwgc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/550783/original/file-20230928-17-vrxwgc.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=361&fit=crop&dpr=1 600w, https://images.theconversation.com/files/550783/original/file-20230928-17-vrxwgc.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=361&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/550783/original/file-20230928-17-vrxwgc.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=361&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/550783/original/file-20230928-17-vrxwgc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=453&fit=crop&dpr=1 754w, https://images.theconversation.com/files/550783/original/file-20230928-17-vrxwgc.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=453&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/550783/original/file-20230928-17-vrxwgc.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=453&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The value of Bored Ape NFTs has fallen dramatically since March of last year.</span>
<span class="attribution"><span class="source">Author provided/Data from Coingecko.com</span></span>
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</figure>
<p>A recent <a href="https://www.theguardian.com/technology/2023/sep/22/nfts-worthless-price">report</a> covering about 73,000 NFTs estimated 70,000 are now valued at zero. This leaves 23 million people holding a worthless “asset”.</p>
<p>One <a href="https://www.bbc.com/news/world-us-canada-56307153">high-profile example</a> is an NFT of the first tweet by then-Twitter CEO Jack Dorsey. Crypto entrepreneur Sina Estavi <a href="https://www.theguardian.com/technology/2022/apr/14/twitter-nft-jack-dorsey-sina-estavi">bought this NFT</a> for US$2.9 million in March 2021. When he tried to sell it a year later the top bid <a href="https://www.theguardian.com/technology/2022/apr/14/twitter-nft-jack-dorsey-sina-estavi">was US$6,800</a>.</p>
<p>What drove the NFT collapse? As well as losing their novelty, the market was hurt by the large falls in the price of Bitcoin and other cryptocurrency, as well as the collapse of the <a href="https://www.investopedia.com/what-went-wrong-with-ftx-6828447">FTX exchange</a> and <a href="https://www.theguardian.com/technology/2022/aug/24/nfts-stolen-non-fungible-tokens-criminals-scam-cryptocurrency">publicity given to scams</a>. </p>
<p>Beyond that, the lifting of COVID lockdowns meant people who began trading NFTs now had <a href="https://www.theguardian.com/commentisfree/2023/sep/27/nfts-non-fungible-tokens-pandemic-loneliness-craze">other ways to pass their time</a>. And higher interest rates from mid-2022 made most speculative assets seem less attractive. </p>
<p>Collectively, all of these factors made NFTs seem like a riskier proposition. Prominent people started jumping off the bandwagon. Some of <a href="https://twitter.com/ksicrypto/status/1395026285068435461">KSI’s</a> later tweets lament the losses he suffered from his gambles. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1395026285068435461"}"></div></p>
<p>Last year, British Prime Minister Rishi Sunak announced, when he was chancellor of the exchequer (their equivalent of treasurer), the Royal Mint would produce an NFT. The plan has now been <a href="https://www.bbc.com/news/uk-politics-65094297">abandoned</a>.</p>
<p>Some foolish people had even taken out loans using the “value” of their <a href="https://www.afr.com/technology/bored-ape-owners-sent-broke-after-nft-price-collapse-20230706-p5dm7c">NFTs as collateral</a>. When the lenders wanted the money back, they were in trouble: forced to sell their NFTs, they got back much less than they’d paid. Fortunately, there weren’t enough people like this to lead to a systemic problem in the financial sector.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/damien-hirsts-dotty-currency-art-makes-as-much-sense-as-bitcoin-166958">Damien Hirst's dotty 'currency' art makes as much sense as Bitcoin</a>
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</em>
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<h2>Gone for good?</h2>
<p>NFTs probably won’t completely disappear. Some subjects of past bubbles are still around. Tulips are still grown in the Netherlands. Poseidon shares, <a href="https://www.firstlinks.com.au/fifty-years-ago-poseidon-made-todays-waaax-look-waned#">which ran up</a> from 80 cents in September 1969 to $280 in February 1970, are still listed (and currently trading <a href="https://www.marketindex.com.au/asx/pos">for 2 cents</a>).</p>
<p>But unless some actual use is found for them, NFTs are likely to fade further from public discussion, with their prices increasingly trending down (although the occasional blip up may give die-hard fans some hope).</p>
<p>They will probably join the Dutch tulips and dotcoms in the history of speculative follies.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/almost-no-one-uses-bitcoin-as-currency-new-data-proves-its-actually-more-like-gambling-207909">Almost no one uses Bitcoin as currency, new data proves. It's actually more like gambling</a>
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<img src="https://counter.theconversation.com/content/214145/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins 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>This is why no one is buying your cartoon ape.John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2112332023-08-28T11:39:01Z2023-08-28T11:39:01ZInternational ransomware gangs are evolving their techniques. The next generation of hackers will target weaknesses in cryptocurrencies<figure><img src="https://images.theconversation.com/files/542594/original/file-20230814-24-9r3xkv.jpg?ixlib=rb-1.1.0&rect=233%2C155%2C5458%2C2967&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/ransomware-cyber-security-email-phishing-internet-2014441709">Shutterstock/JLStock</a></span></figcaption></figure><p>In May 2023, the <a href="https://www.govtech.com/security/dallas-officials-say-ransomware-recovery-could-take-months">Dallas City Government</a> was hugely disrupted by a ransomware attack. Ransomware attacks are so-called because the hackers behind them encrypt vital data and demand a ransom in order to get the information decrypted. </p>
<p>The attack in Dallas put a halt to hearings, trials and jury duty, and the eventual <a href="https://www.nbcdfw.com/news/local/dallas-municipal-court-building-closed-this-week-due%20to-ongoing-ransomware-attack/3262694/">closure</a> of the Dallas Municipal Court Building. It also had an indirect effect on wider police activities, with stretched resources affecting the ability to deliver, for example, <a href="https://www.nbcdfw.com/news/local/ransomware-attack-still-impacts-police%20as-dallas-plans-summer-youth-programs/3259229/">summer youth programmes</a>. The <a href="https://www.cbsnews.com/texas/news/royal-ransomware-group-threatens-release-sensitive-information-dallas/">criminals threatened</a> to publish sensitive data, including personal information, court cases, prisoner identities and government documents.</p>
<p>One might imagine an attack on a city government and police force causing widespread and lengthy disruption would be headline news. But ransomware attacks are now so common and routine that most pass with barely a ripple of attention. One notable exception happened in May and June 2023 when hackers exploited a vulnerability in the <a href="https://theconversation.com/moveit-hack-attack-on-bbc-and-ba-offers-glimpse-into-the-future-of-cybercrime-207670">Moveit file transfer app</a> which led to data theft from hundreds of organisations around the world. That attack grabbed headlines, perhaps because of the high profile victims, reported to include British Airways, the BBC and the chemist chain Boots.</p>
<p>According <a href="https://www.theguardian.com/technology/2023/may/10/ransomware-payments-nearly-double-in-one-year">to one recent survey</a>, ransomware payments have nearly doubled to US$1.5 million (£1.2 million) over the past year, with the highest-earning organisations the most likely to pay attackers. Sophos, a British cybersecurity firm, found that the average ransomware payment rose from US$812,000 the previous year. The average payment by UK organisations in 2023 was even higher than the global average, at US$2.1 million.</p>
<p>Meanwhile, in 2022 <a href="https://www.bbc.co.uk/news/uk-60158874">The National Cyber Security Centre</a> (NCSC) issued new guidance urging organisations to bolster their defences amid fears of more state-sponsored cyber attacks linked to the conflict in Ukraine. It follows a series of cyber attacks in Ukraine which are suspected to have involved Russia, which Moscow denies.</p>
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<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/288776/original/file-20190820-170910-8bv1s7.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/288776/original/file-20190820-170910-8bv1s7.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/288776/original/file-20190820-170910-8bv1s7.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/288776/original/file-20190820-170910-8bv1s7.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/288776/original/file-20190820-170910-8bv1s7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/288776/original/file-20190820-170910-8bv1s7.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/288776/original/file-20190820-170910-8bv1s7.png?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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<p><strong><em>This article is part of Conversation Insights</em></strong>
<br><em>The Insights team generates <a href="https://theconversation.com/uk/topics/insights-series-71218">long-form journalism</a> derived from interdisciplinary research. The team is working with academics from different backgrounds who have been engaged in projects aimed at tackling societal and scientific challenges.</em></p>
<hr>
<p>In reality, not a week goes by without attacks affecting governments, schools, hospitals, businesses and charities, all over the world. These attacks have significant financial and societal costs. They can affect small businesses, as well as huge corporations, and can be particularly devastating for those involved.</p>
<p>Ransomware is now <a href="https://www.zdnet.com/article/ransomware-attacks-are-the-biggest-global-cyber-threat-and-still-evolving-warns-cybersecurity-chief/">widely acknowledged</a> as a major threat and challenge to modern society. </p>
<hr>
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<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>
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<p>Yet ten years ago it was nothing more than a theoretical possibility and niche threat. The way in which it has quickly evolved, fuelling criminality and causing untold damage should be of major concern. The ransomware “business model” has become increasingly sophisticated with, for instance, advances in <a href="https://ieeexplore.ieee.org/stamp/stamp.jsp?arnumber=9895237">malware attack vectors</a>, <a href="https://research.nccgroup.com/2021/11/12/we-wait-because-we-know-you-inside-the-ransomware-negotiation-economics/">negotiation strategies</a> and the structure of criminal enterprise itself.</p>
<p>There is every expectation that criminals will continue to adapt their strategies and cause widespread damage for many years to come. That’s why it is vital that we study the ransomware threat and preempt these tactics so as to mitigate the long-term threat – and that is exactly what our research team is doing.</p>
<p><strong>Prediction of global ransomware damage costs - source: Cyber Security Ventures</strong></p>
<figure class="align-center ">
<img alt="A graph showing the damges related to ransomware" src="https://images.theconversation.com/files/543190/original/file-20230817-19-7du7xx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/543190/original/file-20230817-19-7du7xx.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=373&fit=crop&dpr=1 600w, https://images.theconversation.com/files/543190/original/file-20230817-19-7du7xx.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=373&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/543190/original/file-20230817-19-7du7xx.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=373&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/543190/original/file-20230817-19-7du7xx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=469&fit=crop&dpr=1 754w, https://images.theconversation.com/files/543190/original/file-20230817-19-7du7xx.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=469&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/543190/original/file-20230817-19-7du7xx.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=469&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="attribution"><span class="source">Alpesh Bhudia</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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<p>For many years <a href="https://ieeexplore.ieee.org/abstract/document/9854946">our research</a> has looked <a href="https://link.springer.com/chapter/10.1007/978-3-031-16035-6_9">to preempt this evolving threat</a> by exploring new strategies that ransomware criminals can use to extort victims. The aim is to forewarn, and be ahead of the game, without identifying specifics that could be used by criminals. In our <a href="https://arxiv.org/pdf/2308.00590.pdf">latest research</a>, which has been peer reviewed and will be published as part of the International Conference on Availability, Reliability and Security (<a href="https://www.ares-conference.eu/">ARES</a>), we have identified a novel threat that exploits vulnerabilities in cryptocurrencies.</p>
<h2>What is ransomware?</h2>
<p>Ransomware can mean subtly different things in different contexts. In 1996, Adam Young and Mordechai “Moti” Yung at Columbia University <a href="https://ieeexplore.ieee.org/stamp/stamp.jsp?tp=&arnumber=502676">described</a> the basic form of a ransomware attack as follows: </p>
<p>Criminals breach the cybersecurity defences of the victim (either through tactics like phishing emails or using an insider/rogue employee). Once the criminals have breached the victim’s defences they deploy the ransomware. The main function of which is to encrypt the victim’s files with a private key (which can be thought of as a long string of characters) to lock the victim out of their files. The third stage of an attack now begins with the criminal demanding a ransom for the private key. </p>
<p>The simple reality is that many victims <a href="https://www.bbc.co.uk/news/business-60478725">pay the ransom</a>, with ransoms potentially into the millions of dollars.</p>
<p>Using this basic characterisation of ransomware it is possible to distinguish different types of attack. At one extreme we there are the “low level” attacks where files are not encrypted or criminals do not attempt to extract ransoms. But at the other extreme attackers make considerable efforts to maximise disruption and extract a ransom.</p>
<p>The <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5461132/">WannaCry ransomware attack</a> in May 2017 is such an example. The attack, <a href="https://www.justice.gov/opa/pr/north-korean-regime-backed-programmer-charged-conspiracy-conduct-multiple-cyber-attacks-and">linked to the North Korean government</a>, made no real attempt to extract ransoms from victims. Nevertheless, it led to widespread disruption across the world, <a href="https://www.bbc.co.uk/news/technology-41753022">including to the UK’s NHS</a>, with some cybersecurity risk-modelling organisations even saying the global economic losses going into the billions.</p>
<p>It is difficult to discern motive in this case, but, generally speaking, political intent, or simple error on the part of the attackers may contribute to the lack of coherent value-extraction through extortion.</p>
<p>Our research focuses on the second extreme of ransomware attacks in which criminals look to coerce money from their victims. This does not preclude a political motive. Indeed, there is evidence of <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4507111">links between major ransomware groups and the Russian state</a>. We can distinguish the degree to which ransomware attacks are motivated by financial gain by observing the effort invested in negotiation, a willingness to support or facilitate payment of the ransom, and the presence of money laundering services. By investing in tools and services which facilitate payment of the ransom, and its conversion to fiat currency, the attackers signal their financial motives.</p>
<h2>The impact of attacks</h2>
<p>As the attack on the Dallas City Government shows, the financial and social impacts of ransomware attacks can be <a href="https://heimdalsecurity.com/blog/companies-affected-by-ransomware">diverse and severe</a>.</p>
<p>High-impact ransomware attacks, such as the one which targeted <a href="https://www.bbc.co.uk/news/business-57178503">Colonial Oil in May 2021</a> and took a major US fuel pipeline offline, are obviously dangerous to the continuity of vital services. </p>
<p>In January 2023, there was a ransomware <a href="https://talion.net/blog/royal-mail%20cyber-attack-wheres-my-mail-gone/">attack on the Royal Mail</a> in the UK that led to the suspension of international deliveries. It took over a month for service levels to <a href="https://www.bbc.co.uk/news/business-64718824">get back to normal</a>. This attack would have had a significant direct impact on the Royal Mail’s revenue and reputation. But, perhaps more importantly, it impacted all the small businesses and people who rely on it.</p>
<p>In May 2021, the Irish NHS was hit by a ransomware attack. This affected every aspect of patient care with widespread cancellation of appointments. The <a href="https://www.bbc.co.uk/news/world-europe-57184977">Taoiseach Micheál Martin said</a>: “It’s a shocking attack on a health service, but fundamentally on the patients and the Irish public.” Sensitive data was also reportedly leaked. The financial impact of the attack could be as <a href="https://www.infosecurity-magazine.com/news/ransomware-attack-cost-irish">high as 100 million euros</a>. This, however, does not account for the health and psychological impact on patients and medics affected by the disruption.</p>
<p>As well as health services, education has also been a prime target. For instance, in January 2023 a school in Guilford, UK, suffered an attack with the criminals threatening to publish sensitive data including safeguarding reports and <a href="https://therecord.media/vice-society-ransomware-guildford-school-student-data-extortion">information about vulnerable children</a>.</p>
<p>Attacks are also timed to maximise disruption. For instance, an attack in June 2023 on <a href="https://www.bbc.co.uk/news/uk-england-dorset-65685607">a school in Dorchester, UK</a>, left the school unable to use email or access services during the main exam period. This can have a profound impact on children’s wellbeing and educational achievement.</p>
<p>These examples are by no means exhaustive. Many attacks, for instance, directly target businesses and charities that are too small to attract attention. The impact on a small business, in terms of business disruption, lost reputation and the psychological cost of facing the consequences of an attack <a href="https://academic.oup.com/cybersecurity/article/%206/1/tyaa023/6047253?login=false">can be devastating</a>. As an example, a survey in 2021 found that <a href="https://atlasvpn.com/blog/31-of-us-companies-close-down-after-falling-victim-to-ransomware">34% of UK businesses that suffered a ransomware attack</a> subsequently closed down. And, many of the businesses that continued operation still had to lay off staff.</p>
<h2>It began with floppy disks</h2>
<p>The origins of ransomware are usually traced back to the <a href="https://medium.com/@alinasimone/the-bizarre-pre-internet-history-of-ransomware-bb480a652b4b">AIDS or PC Cyborg Trojan</a> virus in the 1980s. In this case, victims who inserted a floppy disk in their computer would find their files subsequently encrypted and a payment requested. Disks were distributed to attendees and people interested in specific conferences, who would then attempt to access the disk to complete a survey - instead becoming infected with the trojan. Files on affected computers were encrypted using a key stored locally on each target machine. A victim could, in principle, have restored access to their files by using this key. The victim, though, may not have known that they could do this, as even now, technical knowledge of cryptography is not common among most PC users.</p>
<p>Eventually, law enforcement traced the floppy disks to a Harvard-taught <a href="https://edition.cnn.com/2021/05/16/tech/ransomware-joseph-popp/index.html">evolutionary biologist named Joseph Popp</a>, who was conducting AIDS research at the time. He was arrested and charged with multiple counts of blackmail, and has been credited by some with being the inventor of ransomware. No one knows exactly what provoked Popp to do what he did.</p>
<figure class="align-center ">
<img alt="Early form of white computer text on red background" src="https://images.theconversation.com/files/543197/original/file-20230817-17-pzdpm2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/543197/original/file-20230817-17-pzdpm2.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=293&fit=crop&dpr=1 600w, https://images.theconversation.com/files/543197/original/file-20230817-17-pzdpm2.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=293&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/543197/original/file-20230817-17-pzdpm2.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=293&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/543197/original/file-20230817-17-pzdpm2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=369&fit=crop&dpr=1 754w, https://images.theconversation.com/files/543197/original/file-20230817-17-pzdpm2.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=369&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/543197/original/file-20230817-17-pzdpm2.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=369&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The on-screen message after the AIDS Trojan Horse ransomware was activated.</span>
<span class="attribution"><a class="source" href="https://en.wikipedia.org/wiki/AIDS_(Trojan_horse)">wikipedia</a></span>
</figcaption>
</figure>
<p>Many <a href="https://arxiv.org/pdf/2107.09470.pdf">early versions</a> of ransomware were quite basic cryptographic systems which suffered from various issues surrounding how easy it was to find the key information the criminal was trying to hide from the victim. This is one reason why ransomware really came of age with the <a href="https://www.bbc.co.uk/news/technology/28661463">CryptoLocker attack in 2013</a> and 2014.</p>
<p>CryptoLocker was the first technically sound ransomware attack virus to be distributed en masse. Thousands of victims saw their files encrypted by ransomware that could not be reverse engineered. The private keys, used in encryption, were held by the attacker and victims could not restore access to their files without them. Ransoms of around US$300-600 were demanded and it is estimated the criminals <a href="https://www.bbc.co.uk/news/technology-28661463">got away with</a> around US$3 million. Cryptolocker was eventually shut down in 2014 following an operation involving multiple, international law enforcement agencies.</p>
<p>CryptoLocker was pivotal in showing proof of concept that criminals could earn large amounts of money from ransomware. Subsequently, there was an explosion of new variants and new types. There was also significant evolution in the strategies used by criminals.</p>
<h2>Off-the-shelf and double extortion</h2>
<p>One important development was the emergence of ransomware-as-a-service. This is a term for markets on the dark web through which criminals can obtain and use <a href="https://www.sciencedirect.com/science/article/pii/S0167404820300468">“off-the-shelf” ransomware</a> without the need for advanced computing skills while the ransomware providers take a cut of the profits. </p>
<p>Research has shown how the dark web is the “<a href="https://www.sciencedirect.com/science/article/pii/S0167404820300468">unregulated Wild West</a> of the internet” and a safe haven for criminals to communicate and exchange of illegal goods and services. It is easily accessible and with the help of anonymisation technology and digital currencies, there is a global black economy thriving there. An <a href="https://www.europol.europa.eu/cms/sites/default/files/documents/iocta_2019.pdf">estimated US$1 billion</a> was spent there during the first nine months of 2019 alone, according to the European Union Agency for Law Enforcement.</p>
<p>With <a href="https://www.sciencedirect.com/science/article/pii/S0167404820300468?ref=pdf_download&fr=RR-2&rr=7f373d3fbf9b0722">ransomware as a service</a> (Raas) the barrier to entry for aspiring cyber criminals, in terms of both cost and skill, was lowered. </p>
<p>Under the Raas model, expertise is provided by vendors who develop the malware while the attackers themselves may be relatively unskilled. This also has the effect of compartmentalising risk – the arrest of cyber criminals using ransomware no longer threatens the entire supply chain, allowing attacks launched by other groups to continue.</p>
<p>We have also seen a movement away from mass phishing attacks, like CryptoLocker, which reached more than 250,000 systems, to more targeted attacks. That has meant an increasing focus on organisations with the revenue to pay large ransoms. Multinational organisations, legal firms, <a href="https://www.ncsc.gov.uk/news/alert-targeted-ransomware-attacks-on-uk-education-sector">schools, universities, hospitals and healthcare providers</a> have all become prime targets, as well as many small and micro businesses and charities.</p>
<p>A more recent development in ransomware, such as Netwalker, REvil/Sodinokibi, has been the threat of double extortion. This is where the criminals not only encrypt files but also exfiltrate data by copying the files. They then have the potential to leak or post potentially sensitive and important information.</p>
<p>An example of this occurred in 2020, when one of the largest software companies, Software AG, was hit with a <a href="https://www.computerweekly.com/news/252490395/Software-AG-caught-in-double-extortion-ransomware-hit">double extortion ransomware</a> called Clop. It was reported that the attackers had requested an exceptionally high ransom payment of US$20 million (about £15.7 million) which Software AG refused to pay. This led to attackers releasing confidential company data on the <a href="https://www.zdnet.com/article/german-tech-giant-software-ag-down-after-ransomware-attack/">dark web</a>. This provides criminals with two sources of leverage: they can ransom for the private key to decrypt files and they can ransom to stop publication of sensitive data.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1314648938704588801"}"></div></p>
<p>Double extortion changes the business model of ransomware in interesting ways. In particular, with standard ransomware, there is a relatively straightforward incentive for a victim to pay a ransom for access to the private key if that would allow decryption of the files, and they cannot access the files through any other means. The victim “only” needs to trust the cyber criminal will give them the key and that the key will work.</p>
<h2>‘Honour’ among thieves?</h2>
<p>But with data exfiltration, by contrast, it is not obvious what the victim gets in return for paying the ransom. The criminals still have the sensitive data and could still publish it any time they want. They could, indeed, ask for subsequent ransoms to not publish the files.</p>
<p>Therefore, for data exfiltration to be a viable business strategy the criminals need to build a <a href="https://www.mdpi.com/2073-4336/10/2/26">credible reputation</a> of “honouring” ransom payments. This has arguably led to a normalised <a href="https://www.pure.ed.ac.uk/ws/portalfiles/portal/257573307/How_Cyber_Insurance_WOODS_%20DOA27052021_VOR.pdf">ransomware ecosystem</a>.</p>
<p>For instance, ransom negotiators are private contractors and in some cases are required as part of a cyber insurance agreement to provide expertise in the managing of crisis situations involving ransomware. Where instructed, they will facilitate negotiated ransom payments. Within this ecosystem, some ransomware criminal gangs have developed a reputation for not publishing data (or at least delaying publication) if a ransom is paid.</p>
<p>More generally, the encryption, decryption or exfiltration of files is typically a difficult and costly task for criminals to pull off. It is far simpler to delete the files and then claim they have been encrypted or exfiltrated and demand a ransom. However, if the victims suspect that they won’t be getting the decryption key or encrypted data back then they won’t pay the ransom. And those that do pay a ransom and get nothing in return may disclose that fact. This is likely to impact the attacker’s “reputation” and the likelihood of future ransom payments. Simply put, it pays to play “fair” in the world of extortion and ransom attacks.</p>
<p>So in less than ten years we have seen the ransomware threat evolve enormously from the relatively low scale CryptoLocker, to a <a href="https://cybersecurityventures.com/global-ransomware-damage-costs-predicted-to-reach-250-billion-usd-by-2031/">multi-million dollar business</a> involving organised criminal gangs and sophisticated strategies. From 2020 onwards the incidents of ransomware, and consequent losses, have seemingly increased by another order of magnitude. Ransomware has become too big to ignore and is now a major concern for governments and law enforcement.</p>
<h2>Crypto extortion threats</h2>
<p>Devastating though ransomware has become, the threat will inevitably evolve further, as criminals develop new techniques for extortion. As mentioned already, a key theme in our collective research over the last ten years has been to try and preempt the likely strategies that criminals can employ so as to be ahead of the game. </p>
<p>Our research <a href="https://arxiv.org/pdf/2308.00590.pdf">is now focused on</a> the next generation of ransomware, which we believe will include variants focused on cryptocurrency, and the “consensus mechanisms” used within them.</p>
<p>A consensus mechanism is any method (usually algorithmic) used to achieve agreement, trust and security across a decentralised computer network.</p>
<figure class="align-center ">
<img alt="Financial business concept, bitcoin, etheruem, litecoin" src="https://images.theconversation.com/files/543204/original/file-20230817-25-qp0zf3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/543204/original/file-20230817-25-qp0zf3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/543204/original/file-20230817-25-qp0zf3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/543204/original/file-20230817-25-qp0zf3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/543204/original/file-20230817-25-qp0zf3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/543204/original/file-20230817-25-qp0zf3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/543204/original/file-20230817-25-qp0zf3.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 next target could by crypto.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/financial-business-concept-bitcoin-etheruem-litecoin-1056178808">Shutterstock/sundaemorning</a></span>
</figcaption>
</figure>
<p>Specifically, cryptocurrencies are increasingly using a so called “<a href="https://theconversation.com/ethereum-second-biggest-cryptocurrency-to-cut-energy-use-by-over-99-but-the-industry-still-has-a-long-way-to-go-189907">proof-of-stake</a>” consensus mechanism, in which investors stake significant sums of currency, to validate crypto transactions. These stakes are vulnerable to extortion by ransomware criminals.</p>
<p>Cryptocurrencies rely on a decentralised blockchain that provides a transparent record of all the transactions that have taken place using that currency. The blockchain is maintained by a peer-to-peer network rather than a central authority (as with conventional currency). In principle, the transaction records included in the blockchain are immutable, verifiable and securely distributed across the network, giving users full ownership and visibility into the transaction data. These properties of blockchain rely on a secure and non-manipulable “consensus mechanism” in which the independent nodes in the network “approve” or “agree” which transactions to add to the blockchain.</p>
<p>Until now, cryptocurrencies like Bitcoin have relied on a so-called “proof-of-work” consensus mechanism in which the authorisation of transactions involves the solving of complex mathematical problems (the work). In the long term this approach is unsustainable because it results in duplication of effort and avoidable <a href="https://www.forbes.com/advisor/investing/cryptocurrency/bitcoins-energy%20usage-explained/">large scale energy use</a>.</p>
<p>The alternative, which is now becoming a reality, is a “proof-of-stake” consensus mechanism. Here, transactions are approved by validators who have staked money and are financially rewarded for validating transactions. The role of inefficient work is replaced by a financial stake. While this addresses the energy problem, it means that large amounts of staked money becomes involved in validating crypto-transactions.</p>
<h2>Ethereum</h2>
<p>The existence of this staked money provides a novel threat to some proof-of-stake cryptocurrencies. We have focussed our attention on <a href="https://ethereum.org/en/">Ethereum</a>, a decentralised cryptocurrency that establishes a peer-to-peer network to securely execute and verify application code, known as a smart contract.</p>
<p>Ethereum is powered by the Ether (ETH) token that allows users to transact with each other through the use of these smart contracts. The Ethereum project was co-founded by Vitalik Buterin in 2013 to overcome shortcomings with Bitcoin. On September 15 2022, <a href="https://ethereum.org/en/roadmap/merge/">The Merge</a>, moved the Ethereum network from proof-of-work to proof-of-stake, making it one of the first prominent proof-of-stake cryptocurrencies.</p>
<p>The proof-of-stake consensus mechanism in Ethereum relies on “validators” to approve transactions. To set up a validator there needs to be a minimum stake of 32ETH, which is currently around US$60,000 (around £43,000). Validators can then earn a financial return on their stake from operating a validator in accordance with Ethereum rules. At the time of writing there are around <a href="https://beaconscan.com/statistics">850,000 validators</a>.</p>
<p>A lot of hope is being pinned on the “stake” solution of validation - but hackers are sure to be looking into how they can infiltrate the system.</p>
<p>In our project, which was funded by the Ethereum Foundation, we identified ways in which ransomware groups could exploit the new proof-of-stake mechanism for extortion. </p>
<h2>Slashing</h2>
<p>We found that attackers could exploit validators through a process called “slashing”. While validators receive rewards for obeying the rules, there are financial penalties for validators that are seen to act maliciously. The basic objective of penalties is to prevent exploitation of the decentralised blockchain.</p>
<p>There are two forms of penalties, the most severe of which is slashing. Slashing occurs for actions that should not happen by accident and could jeopardise the blockchain, such as proposing conflicting blocks are added to the blockchain, or trying to change history. </p>
<p>Slashing penalties are relatively severe with the validator losing a significant share of their stake, at least 1ETH. Indeed, in the most extreme case the validator could lose all of their stake (32ETH). The validator will also be forced to exit and no longer act as a validator. In short, if a validator is slashed there are big financial consequences.</p>
<p>To perform actions, validators are assigned unique signing keys, that, in essence, prove who they are to the network. Suppose that a criminal got hold of the signing key? Then, they could blackmail the victim into paying a ransom.</p>
<p><strong>Flow diagram showing just how complicated it gets when there is an extortion attack against proof-of-stake validators, such as Ethereum</strong></p>
<figure class="align-center ">
<img alt="Flow chart showing what happens when ransomware attacks infiltrate crypto." src="https://images.theconversation.com/files/543232/original/file-20230817-21-qc11u7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/543232/original/file-20230817-21-qc11u7.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=604&fit=crop&dpr=1 600w, https://images.theconversation.com/files/543232/original/file-20230817-21-qc11u7.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=604&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/543232/original/file-20230817-21-qc11u7.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=604&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/543232/original/file-20230817-21-qc11u7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=759&fit=crop&dpr=1 754w, https://images.theconversation.com/files/543232/original/file-20230817-21-qc11u7.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=759&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/543232/original/file-20230817-21-qc11u7.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=759&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Alpesh Bhudia</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<h2>A ‘smart contract’</h2>
<p>The victim may be reluctant to pay the ransom unless there is a guarantee that the criminals will not take their money and fail to return/release the key. After all, what is to stop the criminals asking for another ransom? </p>
<p>One solution we have found – which harks back to the fact that ransomware has in fact become a kind of business operated by criminals who want prove they have an “honest” reputation – is a smart contract.</p>
<p>This automated contract can be written so that the process only works if both sides “honour” their side of the bargain. So, the victim could pay the ransom and be confident that this will resolve the direct extortion threat. This is possible through the Ethereum because all the steps required are publicly observable on the blockchain – the deposit, the sign to exit, the absence of slashing, and the return of the stake. </p>
<p>Functionally, these smart contracts are an <a href="https://dictionary.cambridge.org/dictionary/english/escrow">escrow system</a> in which money may be held until pre-agreed conditions are met. For instance, if the criminals force slashing before the validator has fully exited, then the contract will ensure that the ransom amount is returned to the victim. Such contracts are, however, open to abuse, and there’s no guarantee that an attacker-authored contract can be trusted. There is potential for the contract to be automated in a fully trusted way, but we have yet to observe such behaviour and systems emerge.</p>
<h2>The staking pools threat</h2>
<p>This type of “pay and exit” strategy is an effective way for criminals to extort victims if they can obtain the validator signing keys. </p>
<p>So how much damage would a ransomware attack like this do to Ethereum? If a single validator is compromised then the slashing penalty – and so maximum ransom demand – would be in the region of 1ETH, which is around US$1,800 (about £1,400). To leverage larger amounts of money the criminals, therefore, need to target organisations or staking pools that are responsible for managing large numbers of validators.</p>
<p>Remember, that given the high entry costs for individual investors, most of the validating on Ethereum will be run under “staking pools” in which multiple investors can collectively stake money. </p>
<p>To put this in perspective, Lido is the largest staking pool in Ethereum with around 127,000 validators and 18% of the total stake; Coinbase is the second largest with 40,000 validators and 6% of the total stake. In total, there are 21 staking pools operating more than a 1,000 validators. Any one of these staking pools is responsible for tens of millions of dollars of stake and so viable ransom demands could also be in the millions of dollars. </p>
<p>Proof-of-stake consensus mechanisms are too young for us to know whether extortion of staking pools will become an active reality. But the general lesson of ransomware’s evolution is that the criminals tend to gravitate towards strategies that incentivise payment and increase their illicit gains.</p>
<p>The most straightforward way that investors and staking pool operators can mitigate the extortion threat we have identified is by protecting their signing keys. If the criminals cannot access the signing keys then there is no threat. If the criminals can only access some of the keys (for operators with multiple validators) then the threat may fail to be lucrative. </p>
<p>So staking pools need to take measures to secure signing keys. This would involve a range of actions including: partitioning validators so that a breach only impacts a small subset; step up cyber security to prevent intrusion, and robust internal processes to limit the insider threat of an employee divulging signing keys.</p>
<figure class="align-center ">
<img alt="Concept using blocks with locks and keys printed on them to show encryption keys being compromised." src="https://images.theconversation.com/files/543207/original/file-20230817-17-s3whx1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/543207/original/file-20230817-17-s3whx1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=405&fit=crop&dpr=1 600w, https://images.theconversation.com/files/543207/original/file-20230817-17-s3whx1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=405&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/543207/original/file-20230817-17-s3whx1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=405&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/543207/original/file-20230817-17-s3whx1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=509&fit=crop&dpr=1 754w, https://images.theconversation.com/files/543207/original/file-20230817-17-s3whx1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=509&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/543207/original/file-20230817-17-s3whx1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=509&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">What happens when hackers gain access to secret keys?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/intruder-gains-access-secrets-hacker-hacking-2249792687">Shutterstock/Andrii Yalanskyi</a></span>
</figcaption>
</figure>
<p>The staking pool market for cryptocurrencies like Ethereum is competitive. There are many staking pools, all offering relatively similar services, and competing on price to attract investors. These competitive forces, and the need to cut costs, may lead to relatively lax security measures. Some staking pools may, therefore, prove a relatively easy target for criminals.</p>
<p>Ultimately, this can only be solved with regulation, greater awareness and for investors in staking pools to demand high levels of security to protect their stake.</p>
<p>Unfortunately, the history of ransomware suggests that high profile attacks will need to be seen before the threat is taken seriously enough. It is interesting to contemplate the consequences of a significant breach of a staking pool. The reputation of the staking pool would presumably be badly affected and so the staking pool’s viability in a competitive market is questionable. An attack may also have implications for the reputation of the currency.</p>
<p>At the most serious, it could lead to a currency collapsing. When that happens - as it did with <a href="https://www.bbc.co.uk/news/business-64313624">FTX in 2022</a> following another hacking attack, there are knock-on effects to the global economy.</p>
<h2>Here to stay</h2>
<p>Ransomware will be a challenge for years, if not decades, to come. </p>
<p>One potential vision of the future is that ransomware just becomes part of normal economic life with organisations facing the constant threat of attack, with few consequences for the largely anonymous gangs of cyber criminals behind the scams.</p>
<p>To preempt such negative consequences we need greater awareness of the threat. Then investors can make more informed decisions over which staking pools and currencies to invest in. It also makes sense to have a <a href="https://link.springer.com/chapter/10.1007/978-3-031-16035-6_9">market with many staking pools</a>, rather than a market dominated by just a few large ones, as this could insulate the currency from possible attacks.</p>
<p>Beyond crypto, preemption involves investment in cyber security across a range of forms – from staff training and an organisational culture that supports reporting of incidents. It also involves investment in recovery options, such as effective back-ups, in-house expertise, insurance and tried and tested contingency plans. </p>
<p>Unfortunately, cyber security practices are not improving as one might hope in many organisations and this is leaving the door open for cyber criminals. Essentially, everyone needs to get better at hiding, and protecting, their digital keys and sensitive information if we are to stand a chance against the next generation of ransomware attackers.</p>
<hr>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=112&fit=crop&dpr=1 600w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=112&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=112&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=140&fit=crop&dpr=1 754w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=140&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=140&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p><em>For you: more from our <a href="https://theconversation.com/uk/topics/insights-series-71218?utm_source=TCUK&utm_medium=linkback&utm_campaign=TCUKengagement&utm_content=InsightsUK">Insights series</a>:</em></p>
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<li><p><em><a href="https://theconversation.com/the-melting-arctic-is-a-crime-scene-the-microbes-i-study-have-long-warned-us-of-this-catastrophe-but-they-are-also-driving-it-207785">The melting Arctic is a crime scene. The microbes I study have long warned us of this catastrophe – but they are also driving it
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<li><p><em><a href="https://theconversation.com/invisible-windrush-how-the-stories-of-indian-indentured-labourers-from-the-caribbean-were-forgotten-206330">Invisible Windrush: how the stories of Indian indentured labourers from the Caribbean were forgotten
</a></em></p></li>
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<p><em>To hear about new Insights articles, join the hundreds of thousands of people who value The Conversation’s evidence-based news. <a href="https://theconversation.com/uk/newsletters/the-daily-newsletter-2?utm_source=TCUK&utm_medium=linkback&utm_campaign=TCUKengagement&utm_content=InsightsUK"><strong>Subscribe to our newsletter</strong></a>.</em></p><img src="https://counter.theconversation.com/content/211233/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alpesh Bhudia's research was funded by the Ethereum Foundation for the project “Game theoretic modelling of a ransomware attack against Ethereum 2.0 validators” and “REVOKE: Consensus-layer mitigations for validator ransomware attacks”, from which this article derives some contributions.
The research team is scheduled to present their findings on August 30 at the ARES Conference. </span></em></p><p class="fine-print"><em><span>Anna Cartwright receives funding from The Ethereum Foundation, for the project "Game theoretic modelling of a ransomware attack against Ethereum 2.0 validators", from which this article derives some contributions.</span></em></p><p class="fine-print"><em><span>Darren Hurley-Smith received funding from The Ethereum Foundation, for the REVOKE project, from which this article derives some theoretical contributions. </span></em></p><p class="fine-print"><em><span>Edward Cartwright receives funding from The Ethereum Foundation, for the project "Game theoretic modelling of a ransomware attack against Ethereum 2.0 validators", from which this article derives some contributions.</span></em></p>What will ransomware attackers focus on next?Alpesh Bhudia, Doctoral Researcher in Cyber Security, Royal Holloway University of LondonAnna Cartwright, Principal Lecturer in Accounting, Finance and Economics, Oxford Brookes UniversityDarren Hurley-Smith, Senior Lecturer in Information Security, Royal Holloway University of LondonEdward Cartwright, Professor of Economics, De Montfort UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2109802023-08-08T20:05:49Z2023-08-08T20:05:49ZWorldcoin is scanning eyeballs to build a global ID and finance system. Governments are not impressed<figure><img src="https://images.theconversation.com/files/541601/original/file-20230808-25-mlnz26.jpeg?ixlib=rb-1.1.0&rect=0%2C0%2C2560%2C1708&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Worldcoin</span></span></figcaption></figure><p>Millions of people worldwide are lining up to stare into a silver sphere about the size of a bowling ball so their irises can be scanned in exchange for online identity verification and “free” cryptocurrency. </p>
<p>The silver spheres, known as “Orbs”, are part of the <a href="https://www.technologyreview.com/2023/08/07/1077250/worldcoin-officially-launched-why-its-being-investigated/">Worldcoin platform</a>, which officially launched in July 2023 after an 18-month testing phase. Led by Sam Altman (chief executive of OpenAI, the company behind ChatGPT) and entrepreneur Alex Blania, Worldcoin offers users a “digital passport” known as World ID and small allocations of a cryptocurrency token also called Worldcoin (WLD), “<a href="https://worldcoin.org/cofounder-letter">simply for being human</a>”. </p>
<p>Worldcoin aims to provide a “<a href="https://worldcoin.org/blog/worldcoin/proof-of-personhood-what-it-is-why-its-needed">proof of personhood</a>” to distinguish humans from artificial intelligence (AI) systems online. </p>
<p>However, critics say the company is essentially bribing people to hand over highly sensitive biometric data. Governments are taking note: the Worldcoin platform has already been suspended in Kenya, and is under investigation in several other countries.</p>
<h2>Gaze into the Orb</h2>
<p>Users can download the WorldApp on their mobile phone, then find their “nearest Orb”. The Orb uses iris scans to uniquely identify a person. </p>
<p>Once the person has their iris scanned, they receive a World ID which will function as an online ID much like a Google or Facebook login. World ID is meant to be different because it can prove the user is human – and more private, because it does not link to other personal information about the user. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/541648/original/file-20230808-15-37xtfa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/541648/original/file-20230808-15-37xtfa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/541648/original/file-20230808-15-37xtfa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/541648/original/file-20230808-15-37xtfa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/541648/original/file-20230808-15-37xtfa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/541648/original/file-20230808-15-37xtfa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/541648/original/file-20230808-15-37xtfa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/541648/original/file-20230808-15-37xtfa.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"></a>
<figcaption>
<span class="caption">Worldcoin says an iris scan can be used as ‘proof of personhood’.</span>
<span class="attribution"><span class="source">Worldcoin</span></span>
</figcaption>
</figure>
<p>Despite the “digital passport” label, World ID is not intended to reveal or verify a user’s identity in the conventional sense. It merely establishes the user as “a unique and real person”, rather than a bot. </p>
<p>In most countries, the user is also entitled to units of WLD cryptocurrency once their iris scan is complete.</p>
<p>The Worldcoin website currently lists <a href="https://worldcoin.org/find-orb">60 Orb locations</a> worldwide, particularly in Europe, Asia, North America and South America, and notes there will also be Orb “pop-ups”. </p>
<p>At the time of writing, there appear to be no Orb locations in Australia, so people in Australia cannot earn WLD tokens “for being human”. But they can purchase the WLD cryptocurrency via certain cryptocurrency exchanges and download the World App, which also functions as a cryptocurrency wallet. </p>
<h2>Cash for eyeballs jeopardises human rights</h2>
<p>Altman is a key player in the AI boom that supposedly makes Worldcoin necessary, so critics have <a href="https://www.thestreet.com/cryptocurrency/worldcoin-sam-altman-ai-biometric-data-collection-outlandish-bribe">suggested</a> he is “simply profiting from both AI’s problem and solution”. </p>
<p>When the Worldcoin platform officially launched, after signing up some 2 million users in a testing phase, Altman said the Orbs were scanning a <a href="https://www.cryptopolitan.com/sam-altman-claims-worldcoin-onboarding-1-user-every-8-seconds-despite-skepticism-and-waning-interest/">new user every eight seconds</a>. </p>
<p>In Kenya, the launch saw “tens of thousands of individuals waiting in lines over a three-day period to secure a World ID”, which Worldcoin attributed to <a href="https://time.com/6300522/worldcoin-sam-altman/">“overwhelming” demand</a> for identity verification. </p>
<p>Independent reporting suggests the promise of “free” cryptocurrency was a more common motive. In most locations, Worldcoin offers a “<a href="https://www.coindesk.com/business/2023/07/24/worldcoin-release-tokenomics-report-geofenced-for-some-countries/">genesis grant</a>” of 25 units of its WLD cryptocurrency when users scan their irises. (The value of WLD fluctuates, but the grant has been worth around US$50, or $A75, over the past month.)</p>
<p>People queuing for the Orb in Kenya <a href="https://www.bbc.com/news/world-africa-66383325">told the BBC</a> “I want to register because I’m jobless and I’m broke,” and</p>
<blockquote>
<p>I really like Worldcoin because of the money. I’m not worried about the data. As long as the money comes.</p>
</blockquote>
<p>Orb operators are also <a href="https://worldcoin.org/be-a-worldcoin-operator">paid for each user they sign up</a>.</p>
<p>Critics have labelled this strategy of paying people to scan their irises as <a href="https://www.thestreet.com/cryptocurrency/worldcoin-sam-altman-ai-biometric-data-collection-outlandish-bribe">dystopian and equivalent to bribery</a>. </p>
<p>Offering money for sensitive data arguably makes privacy – a human right – a luxury only the wealthy can afford. People experiencing poverty may risk future harms to meet their immediate survival needs. </p>
<h2>‘Cataloguing eyeballs’: the risks of using biometric data</h2>
<p>Worldcoin uses irises for verification because every iris is unique and therefore difficult to fake. But the risks of handing over such data are very high. Unlike a driver’s licence or a passport, you cannot replace your iris if the data is compromised. </p>
<p>Surveillance whistleblower Edward Snowden has criticised Worldcoin for “<a href="https://twitter.com/Snowden/status/1451990496537088000">cataloguing eyeballs</a>”, and <a href="https://twitter.com/Snowden/status/1451993036196618251?ref_src=twsrc%5Etfw">tweeted</a> about the unacceptable risks: </p>
<blockquote>
<p>Don’t use biometrics for anything. […] The human body is not a ticket-punch.</p>
</blockquote>
<p>Worldcoin claims the iris scans are deleted after being converted into a unique iris code, which becomes the user’s World ID. The World ID is then stored on a decentralised blockchain, with the aim of preventing fakes or duplicates.</p>
<p>However, the iris scan is only deleted <em>if</em> the user opts for the “Without Data Storage” option (which may mean they need to return to an Orb to re-verify in the future). If the user selects the “<a href="https://worldcoin.org/privacy">With Data Storage</a>” option, Worldcoin states the iris scan is sent via encrypted communication channels to its distributed data stores where it is encrypted at rest.</p>
<p>In either case, the user must <a href="https://www.technologyreview.com/2023/08/07/1077250/worldcoin-officially-launched-why-its-being-investigated/">simply trust</a> the company to delete the biometric data, or appropriately secure it against misuse. </p>
<p>There have been many instances in which Silicon Valley companies have promised to secure data and to strictly limit its use, only to <a href="https://edition.cnn.com/2023/05/03/tech/ftc-meta-younger-users/index.html">break those promises</a> by disclosing the data to other companies or government agencies or failing to secure it against attack.</p>
<p>Journalist Eileen Guo also points out that Worldcoin has not yet clarified <a href="https://www.technologyreview.com/2023/08/07/1077250/worldcoin-officially-launched-why-its-being-investigated/">whether it still uses stored biometric data to train AI models</a> and whether it has deleted biometric data collected during its test phase.</p>
<p>And despite the supposed security of biometric scanning, there have already been reports of fraudulent uses of the Worldcoin system. For example, <a href="https://twitter.com/BlockBeatsAsia/status/1659060950748782594">black market speculators</a> are alleged to have persuaded people in Cambodia and Kenya to sign up for Worldcoin and then sell their World IDs and WLD tokens for cash. </p>
<h2>Regulatory action</h2>
<p>Regulators in several countries are taking action. The Kenyan government has now suspended Worldcoin’s activities, stating regulatory concerns surrounding the project “require urgent action”. </p>
<p>The Communications Authority of Kenya and Office of the Data Protection Commissioner say they are concerned about the offer of money in exchange for consent to data collection; how securely the data are stored; and “<a href="https://www.ca.go.ke/index.php/ca-and-data-commissioner-warn-kenyans-over-worldcoin">massive citizen data in the hands of private actors without an appropriate framework</a>”. </p>
<p>The <a href="https://www.reuters.com/technology/frances-privacy-watchdog-says-worldcoin-legality-seems-questionable-2023-07-28/">German privacy watchdog</a> is investigating Worldcoin’s business practices with support from the French privacy regulator, which called Worldcoin’s data practices “questionable”. The <a href="https://ico.org.uk/about-the-ico/media-centre/news-and-blogs/2023/07/ico-statement-on-worldcoin/">UK Information Commissioner’s Office</a> has announced it will investigate Worldcoin, referring to the high risk of processing special category biometric data.</p>
<p>While there are no Orbs in Australia yet, the federal privacy regulator has previously found some companies in <a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/AICmr/2021/50.html?context=1;query=20initiated20into22;mask_path=">breach of the privacy law</a> for failing to obtain valid consent for the use of biometric data and collecting it when it was not reasonably necessary.</p><img src="https://counter.theconversation.com/content/210980/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Katharine Kemp receives funding from the UNSW Allens Hub for Technology, Law and Innovation. She is a Member of the Expert Panel of the Consumer Policy Research Centre, and the Australian Privacy Foundation.</span></em></p>Worldcoin wants to provide ‘proof of personhood’ in an AI-filled future, but critics and governments are unimpressedKatharine Kemp, Associate Professor, Faculty of Law & Justice, and Deputy Director, Allens Hub for Technology, Law & Innovation, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2054242023-06-27T16:00:56Z2023-06-27T16:00:56ZDyma beth allai'r byd crypto ei ddysgu o'r arian cyfredol oedd yn cael ei dalu i weithwyr yng Nghymru ganrifoedd yn ôl<figure><img src="https://images.theconversation.com/files/532687/original/file-20230619-29-b0fhpx.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C2400%2C1200&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tocyn hanner ceiniog gan Gwmni Mwyngloddio Parys o Fôn yn 1788. Defnyddiwyd cynllun yn dangos derwydd am flynyddoedd lawer. </span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Conder_Token_1788_Anglesey_Halfpenny_DH275_composite.jpg">BrandonBigheart/Wikimedia</a></span></figcaption></figure><p>Mae'r farchnad cryptoarian wedi gweld nifer o rwystrau diweddar: o gwymp y system <a href="https://www.ft.com/content/c10bc6f7-abbe-45dc-9367-042186c3336f">Terra/Luna ym mis Mai 2022</a> i fethiant un o gyfnewidfeydd crypto mwya'r byd <a href="https://www.ft.com/content/913ff750-d1f4-486a-9801-e05be20041c1">(FTX) fis Tachwedd diwethaf</a>. </p>
<p>Oherwydd hyn, a phryderon ynghylch <a href="https://ccaf.io/cbnsi/cbeci/ghg">allyriadau carbon cryptoarian</a>, fe gwympodd yr asedau'n llym yn 2022, <a href="https://www.bloomberg.com/news/articles/2022-09-30/does-crypto-owe-anyone-an-apology-after-2-trillion-of-losses">gan golli gwerth $2 triliwn</a> (£1.5 triliwn).</p>
<p>Ond er bod cryptoarian yn aml yn cael sylw, nid syniad newydd yw hwn. Roedd gweithwyr yng Nghymru canrifoedd yn ôl yn aml yn cael eu talu mewn ffyrdd oedd yn wahanol i arian cyffredin. Tocynnau materol oedd yr arian cyfredol hynny, oedd yn cynrychioli ac yn gysylltiedig â gwerth arian go iawn.</p>
<p>Toceiddio yw’r broses o gynrychioli ased sy’n bodoli eisoes ar gyfriflyfr drwy gysylltu’r gwerth economaidd neu’r hawliau sy’n deillio o’r asedau â <a href="https://www.oecd.org/finance/The-Tokenisation-of-Assets-and-Potential-Implications-for-Financial-Markets-HIGHLIGHTS.pdf">“thocyn”</a>. Gall tocynnau o'r fath fod yn ddigidol neu yn faterol.</p>
<p>Mae arian digidol wedi'i gynllunio i weithredu fel cyfrwng cyfnewid fesul <a href="https://www.bbc.co.uk/newsround/57115261">rhwydwaith cyfrifiadurol</a>. Dydy'r dechnoleg ddim yn ddibynnol ar unrhyw awdurdod unigol, fel <a href="https://www.bloomberg.com/opinion/articles/2021-03-15/cryptocurrencies-are-rising-so-are-the-stakes-for-governments">llywodraeth neu fanc</a>, i gynnal y rhwydwaith. Eto, mae hyn yn debyg i sut y defnyddiwyd tocynnau materol gan gwmnïau mwyngloddio Cymru.</p>
<h2>Argyfwng arian</h2>
<p>Tua diwedd y 18fed ganrif, roedd darnau arian Prydain mewn cyflwr truenus oherwydd <a href="https://coinsandhistoryfoundation.org/2021/07/13/eighteenth-century-britain-coinage-in-crisis">prinder darnau arian a chopr</a>. Yn ystod y Chwyldro Diwydiannol, bu ymfudiad o bobl o gefn gwlad i ganolfannau mwyngloddio a gweithgynhyrchu. Roedd byw mewn trefi yn golygu bod angen arian. Ond roedd y gallu i dalu cyflogau yn amhosibl i fusnesau heb newid bach. </p>
<p>Gyda'r mewnlifiad o weithwyr newydd yn defnyddio arian, agorwyd siopau newydd i ateb y galw, gan greu mwy o swyddi a oedd angen cael eu talu mewn darnau arian. Er bod cynhyrchu darnau arian ffug yn anghyfreithlon, ac yn <a href="https://www.jstor.org/stable/4091719">gosbadwy trwy farwolaeth</a>, nid oedd yn anghyfreithlon i gynhyrchu tocynnau y gellid eu defnyddio yn lle darnau arian.</p>
<p>Dechreuodd y cyfnod mawr cyntaf o gynhyrchu tocynnau yn ystod y <a href="https://education.nationalgeographic.org/resource/industrial-revolution-and-technology/">Chwyldro Diwydiannol cyntaf</a> yn 1787 pan gafodd tocyn <a href="https://www.britishmuseum.org/collection/term/BIOG214134">Cwmni Mwyngloddio Parys</a> ei gynhyrchu. Roedd y cwmni hwn yn cloddio copr ar Fynydd Parys ar Ynys Môn. </p>
<figure class="align-center ">
<img alt="Chwarel brown a oren." src="https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Dyma sut mae Mynydd Parys yn edrych erbyn heddiw.</span>
<span class="attribution"><a class="source" href="https://pixabay.com/photos/anglesey-parys-mountain-wales-3816220/">rhianjane/Pixabay</a></span>
</figcaption>
</figure>
<p>Defnyddiodd y cwmni fwyn copr Parys i gynhyrchu tocynnau y gellid eu cyfnewid am geiniogau swyddogol yn unrhyw un o siopau neu swyddfeydd y cwmni. Cwmni Mwyngloddio Parys oedd y cyntaf yn y byd i ddosbarthu tocynnau. Roedd y tocynnau yn cael eu hystyried fel “<a href="https://www.baldwin.co.uk/product/wales-parys-mines-company-penny-token-1787/">tocynnau blaenllaw</a>” yr 18fed ganrif gan arbenigwyr arian y cyfnod. </p>
<p>Yn fuan, roedd bron pob tref ym Mhrydain yn cynhyrchu'r fath docynnau. Cafodd hyn ei ysgogi’n rhannol gan brinder arian y llywodraeth a gwelliannau mewn gweithgynhyrchu darnau arian gan <a href="https://globalcapitalism.history.ox.ac.uk/files/case28-matthewboultonscoinspdf">fathdy Soho Matthew Boulton yn Birmingham</a>, oedd hefyd yn cynhyrchu tocynnau. </p>
<p>Erbyn troad y 19eg ganrif, mae'n debyg bod cyfanswm cyflenwad a chyflymder cylchrediad y tocynnau, darnau arian tramor ac amnewidion eraill yn fwy na rhai o <a href="http://projects.exeter.ac.uk/RDavies/arian/welsh.html">ddarnau arian swyddogol y wlad</a>.</p>
<p>Gwelwyd y broses toceiddio mewn gwledydd eraill, yn enwedig yn yr Unol Daleithiau. Roedd gwersylloedd mwyngloddio a thorri coed yn y 19eg ganrif fel arfer yn eiddo i un cwmni. Roeddent yn cael eu rhedeg mewn lleoliadau go anghysbell, lle yr oedd y cyfle i gael gafael ar <a href="https://www.jstor.org/stable/1992612">arian parod</a> yn wael. </p>
<p>Byddai'r fath gwmnïau yn aml yn talu eu gweithwyr mewn “sgrip”, hynny yw, tocynnau. Doedd gan y gweithwyr ddim fawr o ddewis ond prynu nwyddau mewn siopau a oedd yn eiddo i'r cwmni. Trwy ychwanegu at bris nwyddau, gallai'r cwmni <a href="https://rethinkq.adp.com/artifact-coal-company-scrip-miners/">gynyddu eu helw a gorfodi teyrngarwch gweithwyr</a>.</p>
<figure class="align-left ">
<img alt="Ceiniog arian wedi ei osod ar fwrdd gwyrdd." src="https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=576&fit=crop&dpr=1 600w, https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=576&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=576&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=724&fit=crop&dpr=1 754w, https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=724&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=724&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Ceiniog arian wedi ei gynhyrchu gan Gwmni Mwyngloddio Parys.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Parys_Penny.jpg">Obscurasky/Wikimedia</a></span>
</figcaption>
</figure>
<p>Tra bod cynhyrchu tocynnau gan Gwmni Mwyngloddio Parys wedi’i sbarduno gan y Chwyldro Diwydiannol cyntaf, mae poblogrwydd Bitcoin a chryptoarian arall wedi’i gyflymu gan y <a href="https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/">pedwerydd Chwyldro Diwydiannol</a>. </p>
<p>Er bod mwy na 200 mlynedd rhwng y ddau gyfnod, mae gan brofiad y tocynnau gwreiddiol wersi pwysig ar gyfer cryptoarian heddiw. Yn gyntaf, er mwyn i gryptoarian lwyddo, mae angen ecosystem gref arnynt. Bydd ecosystem effeithiol yn cynnwys dau brif beth – ffyrdd i unigolion gronni'r crypto/tocynnau, galw a defnydd am y crypto sy'n trwytho â gwerth, ac amgylcheddau lle gellir cyfnewid am nwyddau a gwasanaethau.</p>
<p>Yn ail, er mwyn i cryptoarian fod yn llwyddiannus ac yn gynaliadwy yn y tymor hir, rhaid iddynt gynnal eu pwrpas gwreiddiol o gael ecosystem sy'n parhau i fod yn annibynnol o un cwmni neu lywodraeth. </p>
<p>Mae ymdrechion i gloi cryptoarian i un sefydliad yn sicr o fethu. Cymerwch, er enghraifft, fethiant Facebook i <a href="https://www.coindesk.com/layer2/2022/01/28/reflecting-on-facebooks-hilarious-well-deserved-crypto-failure/">lansio cryptoarian</a> rhai blynyddoedd yn ôl. </p>
<p>Fe fethodd tocynnau cwmnïau mwyngloddio Cymru pan gaeodd y pyllau, y chwareli neu’r siopau. Arweiniodd hynny at fethiant un neu fwy o dair cydran allweddol yr ecosystem. Fe gollodd y pobl gyda'r tocynnau eu harian, sy'n wers i ni heddiw.</p><img src="https://counter.theconversation.com/content/205424/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>Cwmni mwyngloddio o Gymru oedd y cyntaf i roi tocynnau i weithwyr fel dull arall o dalu.Edward Thomas Jones, Senior Lecturer in Economics / Director of the Institute of European Finance, Bangor UniversityLaurence Jones, Lecturer in Finance, Bangor UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2055112023-06-27T16:00:54Z2023-06-27T16:00:54ZWelsh mining towns had alternative currencies 200 years ago – here’s what the crypto world could learn from them<figure><img src="https://images.theconversation.com/files/532005/original/file-20230614-21-yyoovi.jpg?ixlib=rb-1.1.0&rect=0%2C28%2C2400%2C1156&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A halfpenny token issued by the Parys Mining Company of Anglesey in 1788. The hooded druid design was used for many years and was the first of hundreds of token designs.</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Conder_Token_1788_Anglesey_Halfpenny_DH275_composite.jpg">BrandonBigheart/Wikimedia</a></span></figcaption></figure><p><em>You can also read this article <a href="https://theconversation.com/dyma-beth-allair-byd-crypto-ei-ddysgu-or-arian-cyfredol-oedd-yn-cael-ei-dalu-i-weithwyr-yng-nghymru-canrifoedd-yn-ol-205424">in Welsh</a>.</em></p>
<p>The global cryptocurrency market has seen a number of recent setbacks: from the collapse of the <a href="https://www.ft.com/content/c10bc6f7-abbe-45dc-9367-042186c3336f">Terra/Luna system in May 2022</a> to the failure of <a href="https://www.ft.com/content/913ff750-d1f4-486a-9801-e05be20041c1">FTX</a>, one of the largest crypto exchanges in the world. </p>
<p>Because of these factors, and other concerns over cryptocurrencies’ <a href="https://ccaf.io/cbnsi/cbeci/ghg">carbon emissions</a>, these assets <a href="https://www.bloomberg.com/news/articles/2022-09-30/does-crypto-owe-anyone-an-apology-after-2-trillion-of-losses">lost US$2 trillion in value</a> (£1.5 trillion) in 2022.</p>
<p>But while cryptocurrencies get a lot of attention today, in some ways they are not a revolutionary concept. Hundreds of years ago, workers in Wales were often paid with alternative currencies instead of money.</p>
<p>These currencies were physical tokens that represented and were linked to the value of real money. Many cryptocurrencies work in a similar way, acting as digital tokens that <a href="https://www.oecd.org/finance/The-Tokenisation-of-Assets-and-Potential-Implications-for-Financial-Markets-HIGHLIGHTS.pdf">represent a ledger of financial assets</a> (this is known as “tokenisation”).</p>
<p>Digital currencies are also not reliant on any central authority, such as a <a href="https://www.bloomberg.com/opinion/articles/2021-03-15/cryptocurrencies-are-rising-so-are-the-stakes-for-governments">government or bank</a>, to uphold or maintain their network of exchange. Again, this is similar to how physical tokens were used by Welsh mining companies. </p>
<h2>Currency crisis</h2>
<p>Towards the end of the 18th century the coinage of Britain was in a deplorable state due to the severe <a href="https://coinsandhistoryfoundation.org/2021/07/13/eighteenth-century-britain-coinage-in-crisis/#:%7E:text=The%20production%20of%20silver%20coins,of%20coins%20made%20from%20it.">shortages</a> of silver and copper coins. During the Industrial Revolution people migrated from the countryside into mining and manufacturing centres. But living in towns required money, and the ability to pay wages was impossible for businesses without small change. </p>
<p>With an influx of new workers using money, new shops were opened to meet demand, creating more jobs that required payment in coins. Although the production of counterfeit coins was illegal and <a href="https://www.jstor.org/stable/4091719">punishable by death</a>, it was not illegal to produce tokens with other designs which could be used instead of coins. </p>
<p>The first great era of token production during the <a href="https://education.nationalgeographic.org/resource/industrial-revolution-and-technology/">first Industrial Revolution</a> began in 1787 with the issue of the <a href="https://www.britishmuseum.org/collection/term/BIOG214134">Parys Mining Company</a> token. This company mined at Parys Mountain on the Welsh island of Anglesey. It briefly produced more copper than any other mine in the world during the Industrial Revolution. </p>
<figure class="align-center ">
<img alt="A quarried landscape of brown and orange earth." src="https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">What Parys mountain on Anglesey looks like today.</span>
<span class="attribution"><a class="source" href="https://pixabay.com/photos/anglesey-parys-mountain-wales-3816220/">rhianjane/Pixabay</a></span>
</figcaption>
</figure>
<p>It also used the high-quality ore from its mine to produce tokens which could be exchanged for official coin at full value at any one of its shops or offices. This made the Parys Mining Company the first company in the world to issue tokens. These were described as the “<a href="http://provincialtokencoinage.weebly.com">premier tokens</a>” of the 18th century by that era’s coin experts.</p>
<p>Soon, practically every town in Britain was producing its own tokens. This was driven in part by a shortage of government coinage and improvements in coin manufacturing by <a href="https://globalcapitalism.history.ox.ac.uk/files/case28-matthewboultonscoinspdf">Matthew Boulton’s Soho Mint</a> in Birmingham, who also turned his hand to tokens. </p>
<p>By the turn of the 19th century, the total supply and fast circulation of tokens, foreign coins and other substitutes probably <a href="http://projects.exeter.ac.uk/RDavies/arian/welsh.html">exceeded</a> those of the official coin of the country.</p>
<p>The process of tokenisation was subsequently seen in other countries, in particular the United States. Mining and logging camps in the 19th century US were typically owned and operated by a single company, often <a href="https://www.jstor.org/stable/1992612">in remote</a> locations with poor access to cash. </p>
<p>These companies would often pay their workers in “scrip”, or tokens. The workers, given the limited places they could spend scrips, had little choice but to purchase goods at company-owned stores. By placing large mark ups on goods, the <a href="https://rethinkq.adp.com/artifact-coal-company-scrip-miners/">company</a> could increase their profits and enforce employee loyalty. </p>
<figure class="align-left ">
<img alt="A close up of a silver coin on a green background." src="https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=576&fit=crop&dpr=1 600w, https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=576&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=576&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=724&fit=crop&dpr=1 754w, https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=724&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=724&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A Parys penny produced by the Parys Mining Company.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Parys_Penny.jpg">Obscurasky/Wikimedia</a></span>
</figcaption>
</figure>
<p>While the production of tokens by the Parys Mining Company were spurred on by the first Industrial Revolution, the adoption and popularity of Bitcoin and other cryptocurrencies has been hastened by the <a href="https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/">fourth Industrial Revolution</a>.</p>
<p>Although they are more than 200 years apart, the history of these tokens have important lessons for today’s cryptocurrencies. First, for cryptocurrencies to succeed there needs to be various ways for individuals to accumulate the crypto/tokens, plus a demand and use for the crypto that means it holds its value, and trusted environments where exchange for goods and services can take place.</p>
<p>And second, for cryptocurrencies to be successful and sustainable in the long term they must uphold their original purpose of having an ecosystem that remains independent of a single company or government. Efforts to lock cryptocurrencies to a single organisation do not look positive, for example Facebook’s failed attempt to <a href="https://www.coindesk.com/layer2/2022/01/28/reflecting-on-facebooks-hilarious-well-deserved-crypto-failure/">launch a cryptocurrency</a>, announced in 2019. </p>
<p>The tokens of Welsh mining companies inherently failed when the closures of the mine or shops led to the removal of one or more of the three components of the ecosystem. And then people left with the tokens lost their money, a lesson for us today.</p><img src="https://counter.theconversation.com/content/205511/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>A Welsh mining company was the first to issue tokens to workers as an alternative form of payment.Edward Thomas Jones, Senior Lecturer in Economics / Director of the Institute of European Finance, Bangor UniversityLaurence Jones, Lecturer in Finance, Bangor UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2073322023-06-16T14:52:20Z2023-06-16T14:52:20ZUS regulators continue crypto crackdown – but here’s why the latest charges are different<figure><img src="https://images.theconversation.com/files/532215/original/file-20230615-13202-uuij1l.jpg?ixlib=rb-1.1.0&rect=92%2C53%2C5002%2C3304&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Binance is one of several crypto firms that have been sued by US regulators recently.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/calgary-ab-canada-feb-22-2022-2129352677">oasisamuel/Shutterstock</a></span></figcaption></figure><p>The US Securities and Exchange Commission (SEC) sued the cryptocurrency platform Coinbase shortly after launching a lawsuit against the world’s largest cryptocurrency exchange, Binance. </p>
<p>This isn’t the first time Binance and Coinbase have caught <a href="https://theconversation.com/what-binances-us-lawsuit-says-about-the-future-for-cryptocurrency-regulation-202930">the SEC’s attention – it’s not even the first time this year</a>. But <a href="https://www.sec.gov/news/press-release/2023-102">the latest charges</a> are much more <a href="https://www.sec.gov/news/press-release/2023-101">serious</a>, including accusations that the exchanges are operating without the correct registration. </p>
<p>Both cases boil down to whether or not cryptocurrency tokens should be classed as “securities”, like stocks, and regulated in the same way. Binance and Coinbase have spoken out in support of regulation. And many <a href="https://www.coindesk.com/consensus-magazine/2023/05/10/we-need-regulatory-clarity-to-keep-crypto-exchanges-onshore-and-defi-permissionless/">crypto firms believe</a> that by taking legal action instead of creating clear rules, the SEC has failed to provide the industry with enough guidance, leading to uncertainty for people and businesses.</p>
<p>Since Gary Gensler became chair of the SEC in April 2021, he has regularly testified before Senate committees on the need for <a href="https://www.cnbc.com/2021/09/15/sec-chair-gensler-says-regulator-is-short-staffed.html">more staff</a> to regulate cryptocurrencies, calling the market a “<a href="https://www.c-span.org/video/?514606-1/securities-exchange-commission-oversight-hearing">wild west</a>”. On the other hand, he has also said he has no plans to <a href="https://www.cnbc.com/2021/10/06/bitcoin-jumps-to-nearly-5-month-high-topping-55000-on-wednesday.html">ban cryptocurrencies</a>, while the SEC approved the first <a href="https://theconversation.com/bitcoin-why-its-value-has-rocketed-once-again-170396">Bitcoin ETF</a> in 2021, as well as <a href="https://theconversation.com/coinbase-is-listing-for-us-100-billion-on-nasdaq-but-you-might-be-better-buying-bitcoin-instead-158843">Coinbase’s stock exchange listing</a> that same year.</p>
<p>But now the SEC has filed <a href="https://www.reuters.com/legal/us-sec-sues-coinbase-over-failure-register-2023-06-06/">13 charges against Binance</a> and its founder Changpeng Zhao, as well as a motion to <a href="https://www.reuters.com/legal/sec-files-motion-restraining-order-freeze-binance-us-assets-2023-06-06/">freeze assets</a> belonging to Binance’s US affiliate (Binance is based in the Cayman Islands). The SEC has also accused both Binance and Coinbase of operating unregistered exchanges, and offering the sale of unregistered securities in the form of crypto tokens.</p>
<p><a href="https://www.binance.com/en/blog/ecosystem/sec-complaint-aims-to-unilaterally-define-crypto-market-structure-8707489117122437402">Binance has pledged</a> to vigorously defend itself against the lawsuit, which it said reflected the SEC’s “misguided and conscious refusal” to provide guidance and clarity on regulation to the cryptocurrency industry. </p>
<p>Coinbase’s chief legal officer said <a href="https://www.cnbc.com/2023/06/12/coinbase-sued-by-sec-over-alleged-unregistered-securities.html">in a statement to CNBC</a> about the charges that “the SEC’s reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance”.</p>
<p>He called for legislation that “allows fair rules for the road to be developed transparently and applied equally, not litigation”.</p>
<h2>Counting the costs</h2>
<p>These cases are similar to another brought against <a href="https://www.cnbc.com/2023/05/08/ripple-will-have-spent-200-million-fighting-sec-lawsuit-ceo-says.html#:%7E:text=In%202020%2C%20the%20U.S.%20Securities,registering%20it%20as%20a%20security.">a crypto company called Ripple Labs</a> by the SEC in December 2020. It argues that XRP, Ripple’s cryptocurrency token, is an unregistered security. Ripple disputes this and expects to spend US$200 million (£156 million) fighting the suit, <a href="https://www.cnbc.com/2023/05/08/ripple-will-have-spent-200-million-fighting-sec-lawsuit-ceo-says.html#:%7E:text=In%202020%2C%20the%20U.S.%20Securities,registering%20it%20as%20a%20security.">according to its CEO</a>. He argues such cases are preventing US innovation around the blockchain technology that powers crypto trading.</p>
<p>At the heart of this case is the question of whether Ripple’s token satisfies <a href="https://www.investopedia.com/terms/h/howey-test.asp">the Howey test</a>, which would deem it a security, just like a stock or a bond, for regulation purposes. The test sets out three key criteria for deciding whether a financial product should come under securities regulations:</p>
<ul>
<li>it is a financial investment, meaning that participants in the transaction must be risking their own money </li>
<li>it is a shared enterprise, so the financial success of investors should be somehow connected</li>
<li>there is an expectation of profits solely from the effort of others.</li>
</ul>
<p>According to <a href="https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets">the SEC</a>, the first criterion is easily satisfied with crypto because fiat money or other digital assets are being exchanged. Likewise, the “common enterprise” test is also easily met when trading cryptocurrencies. The third criterion largely turns on whether digital assets come with an “expectation of profit to be derived <em>from the efforts of others</em>”.</p>
<h2>Why does this matter?</h2>
<p>The most recent SEC lawsuits against Binance and Coinbase go after the lifeblood of the cryptocurrency industry: the exchanges or platforms on which people trade, as opposed to the individual digital assets or tokens. These platforms enable investors to buy and sell cryptocurrencies easily without the need for expert knowledge of how blockchains work. </p>
<p>The lawsuits have had an immediate and significant impact on crypto values. Coinbase customers pulled about US$1.28 billion from the exchange after the news broke, according to initial estimates from data firm <a href="https://www.reuters.com/legal/us-sec-sues-coinbase-over-failure-register-2023-06-06/">Nansen</a>. Coinbase’s parent company, Coinbase Global Inc <a href="https://www.reuters.com/legal/us-sec-sues-coinbase-over-failure-register-2023-06-06/#:%7E:text=Shares%20of%20Coinbase's%20parent%20Coinbase,%22demonstrated%20commitment%20to%20compliance.%22">(COIN.O)</a>, saw its shares close down US$7.10, or 12.1%, at US$51.61, after falling as much as 20.9% earlier on the day the charges were announced. </p>
<p>In the meantime, customers <a href="https://www.reuters.com/technology/crypto-exchange-binance-hit-by-outflows-780-mln-last-24-hours-nansen-2023-06-06/">withdrew around US$780 million</a> from Binance and its US affiliate in the 24 hours following the lawsuit, according to Nansen. The Bitcoin market has rallied since, although Binance.US has <a href="https://cointelegraph.com/news/binance-us-halts-trading-for-dozens-of-usdt-btc-busd-pairs-amid-sec-lawsuit">stopped trading</a> in a number of its cryptocurrencies.</p>
<p>These latest lawsuits look like US regulators are drawing a line in the sand. If successful, these cases will limit US investors’ access to assets on these platforms and will also create further market uncertainty for companies and people. </p>
<figure class="align-center ">
<img alt="Blue screen with white ripple logo in background, foreground image is a phone that says " src="https://images.theconversation.com/files/532212/original/file-20230615-21-1e126f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/532212/original/file-20230615-21-1e126f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/532212/original/file-20230615-21-1e126f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/532212/original/file-20230615-21-1e126f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/532212/original/file-20230615-21-1e126f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/532212/original/file-20230615-21-1e126f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/532212/original/file-20230615-21-1e126f.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">Ripple Labs was charged by the SEC in 2020.</span>
<span class="attribution"><span class="source">Grey82/Shutterstock</span></span>
</figcaption>
</figure>
<h2>Global coordination on crypto rules</h2>
<p>Research shows <a href="https://www.pewresearch.org/short-reads/2023/04/10/majority-of-americans-arent-confident-in-the-safety-and-reliability-of-cryptocurrency/">around 17% of people</a> in the US have traded, invested in or used a cryptocurrency. If the crackdown by regulators cuts their access, these people may be able to use centralised exchanges in other countries, decentralised exchanges, or other means to trade cryptocurrencies.</p>
<p>But regulators in other major financial markets could follow the SEC’s lead when it comes to crypto rules. The UK’s Financial Conduct Authority recently announced <a href="https://www.fca.org.uk/news/press-releases/fca-introduces-tough-new-rules-marketing-cryptoassets">new regulations for cryptocurrency</a> firms operating in the country. This includes measures to ensure investors know the risks involved, that adverts are clear and not misleading, as well as a ban on “refer a friend” bonuses. But these rules will only affect the marketing of cryptocurrencies in the UK, so it’s a relatively small step. </p>
<p>Cryptocurrency providers seem to want regulation to provide legitimacy and clear parameters in which to work. Given the borderless nature of cryptocurrencies, regulators need to align internationally or exchanges will simply move to “friendlier” jurisdictions. Global leadership is needed to establish how – and if – cryptocurrencies should be regulated. Without this, regulators like the SEC will struggle to corral the growing global crypto market.</p><img src="https://counter.theconversation.com/content/207332/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Urquhart owns some cryptocurrency.</span></em></p>Crypto platforms are calling for clear regulations rather than lawsuits from regulators.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/1964552023-06-06T12:30:55Z2023-06-06T12:30:55ZBlockchain is a key technology – a computer scientist explains why the post-crypto-crash future is bright<figure><img src="https://images.theconversation.com/files/529878/original/file-20230602-15-hjwz91.jpg?ixlib=rb-1.1.0&rect=25%2C0%2C5665%2C3788&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Blockchain technology has many uses beyond cryptocurrency.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/abstract-blockchain-background-royalty-free-image/1401887553">Yuichiro Chino/Moment via Getty Images</a></span></figcaption></figure><p>People hear a lot about blockchain technology in relation to cryptocurrencies like bitcoin, which rely on blockchain systems to keep records of financial transactions between people and businesses. But a <a href="https://cointelegraph.com/news/7-biggest-crypto-collapses-of-2022-the-industry-would-like-to-forget">crash in public trust in cryptocurrencies</a> like <a href="https://www.reuters.com/legal/transactional/collapse-stablecoin-terrausd-sparks-bold-scheme-liability-suit-2022-06-21/">TerraUSD</a> – and therefore a massive drop in their market value – doesn’t mean their underlying technology is also worthless.</p>
<p>In fact, there are plenty of other uses for this type of system, which does not rely on centralized storage and where many people can participate securely, even if they don’t all know each other.</p>
<p>As a <a href="https://scholar.google.com/citations?user=fs2LVqkAAAAJ&hl=en&oi=ao">computer scientist</a> exploring new technologies for future smart communication network technologies, I, along with many engineers and developers, have shown that blockchain technology is a <a href="https://www.blockchainresearchinstitute.org">promising solution to many challenging problems</a> in trust and security of next-generation network-based applications. I see several ways blockchains are proving themselves useful that aren’t tied to cryptocurrency.</p>
<h2>Supply chains</h2>
<p>Modern global supply chains require a huge amount of information for the massive number of products being shipped around the world. They suffer from limits on data storage capacity, inefficient paper processes, disjointed data systems and incompatible data formats. These traditional centralized data storage methods cannot efficiently trace the origin of problems, like where a poor-quality product came from. </p>
<p>Storing information on a blockchain improves integrity, accountability and traceability. For example, <a href="https://www.ibm.com/products/supply-chain-intelligence-suite/food-trust">IBM’s Food Trust</a> uses a blockchain system to track food items from the field to retailers. The participants in the food supply chain record transactions in the shared blockchain, which simplifies keeping track.</p>
<h2>Health care</h2>
<p>Data ownership and privacy are top concerns in the health care industry. Current centralized systems cannot meet all the diverse needs of patients, health service providers, insurance companies and governmental agencies. Blockchain technology enables a decentralized system for access control of medical records where all stakeholders’ interests are protected. </p>
<p>Blockchain systems not only allow health care service providers to securely share patients’ medical records but also enable patients to <a href="https://www2.deloitte.com/us/en/pages/public-sector/articles/blockchain-opportunities-for-health-care.html">track who has accessed their records</a> and determine who is authorized to do so.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/530131/original/file-20230605-29-a8ezcn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A cargo ship is alongside a pier with ranks of hundreds of shipping containers stacked nearby." src="https://images.theconversation.com/files/530131/original/file-20230605-29-a8ezcn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/530131/original/file-20230605-29-a8ezcn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=390&fit=crop&dpr=1 600w, https://images.theconversation.com/files/530131/original/file-20230605-29-a8ezcn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=390&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/530131/original/file-20230605-29-a8ezcn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=390&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/530131/original/file-20230605-29-a8ezcn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=490&fit=crop&dpr=1 754w, https://images.theconversation.com/files/530131/original/file-20230605-29-a8ezcn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=490&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/530131/original/file-20230605-29-a8ezcn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=490&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Blockchain systems are already helping companies track items through complex global supply chains.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/ClimateActionShippingLobby/38604bfa4b1f4e74999b2ab8c12702dc/photo">AP Photo/Michael Probst</a></span>
</figcaption>
</figure>
<h2>Banking and finance</h2>
<p>Banking and finance benefit from integrating blockchain networks into their business operations. Instead of trying to develop cryptocurrencies with new or different capabilities, the financial sector has recognized that blockchain systems are a <a href="https://consensys.net/blockchain-use-cases/finance/">reliable way to store information</a> about traditional currencies like the dollar, euro and yen, as well as financial products.</p>
<p>Blockchains provide consumers with the convenience of being able to monitor their transactions as they are processed, almost in real time from anywhere. Banks also benefit from blockchains, with the opportunity to conduct business between institutions more efficiently and securely. </p>
<h2>Property records</h2>
<p>Today’s manual process of recording property rights is burdensome and inefficient. Traditional paper documentation is time-consuming, labor intensive, not transparent and <a href="https://consensys.net/blockchain-use-cases/real-estate/">vulnerable to loss</a>. Blockchain technology eliminates inconvenience, inefficiency and errors, and reduces the cost by migrating the entire process into a digital form. </p>
<p>Blockchain systems allow owners to trust that their deed is accurate and permanently recorded. Remote access is particularly meaningful to people living in areas without sufficient governmental or financial infrastructure.</p>
<h2>Voting</h2>
<p>Validating votes and maintaining voter privacy seem like conflicting requirements. Blockchain systems hold promise as a means to facilitate a fair and transparent modern voting system. Because it’s almost impossible to tamper with a blockchain-enabled voting system, it can maintain a transparent electoral process. </p>
<p>In the November 2018 midterm elections in West Virginia, a <a href="https://cointelegraph.com/news/west-virginia-secretary-of-state-reports-successful-blockchain-voting-in-2018-midterm-elections">blockchain-based voting system</a> was used and found to be secure and reliable.</p>
<h2>Smart cities</h2>
<p>A smart city <a href="https://corporate.enelx.com/en/question-and-answers/what-is-a-smart-city">embeds information and communication technologies</a> into its facilities, infrastructure and services to provide its residents a convenient, intelligent and comfortable living space. A smart city is essentially a network of many devices that can communicate with each other to share data. Connected devices can include people’s smartphones, vehicles, electrical meters, public safety monitoring systems and even homes.</p>
<p>These systems have performance, security and privacy requirements that centralized information systems cannot handle. Blockchain is a key networking technology for building smart cities because it’s able to optimize operations, enhance security guarantees and increase mutual trust among participants.</p>
<p>The future of information technology is all about decentralization. Today’s centralized architecture fails to meet the <a href="https://insidetelecom.com/the-future-is-decentralized-heres-what-it-will-look-like/">increasingly diverse needs</a> of people who want freedom to personalize their own services, control their digital assets and more easily participate in democratic processes. Blockchain is a key enabling technology for building any secure and durable decentralized information system.</p><img src="https://counter.theconversation.com/content/196455/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Yu Chen 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>There are many uses for digital systems that are not centrally controlled and that allow large numbers of people to participate securely, even if they don’t all know and trust each other.Yu Chen, Professor of Electrical and Computer Engineering, Binghamton University, State University of New YorkLicensed 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/2006242023-03-05T17:20:15Z2023-03-05T17:20:15ZCanada needs a strategic plan to safeguard consumers against counterfeit and pirated goods<figure><img src="https://images.theconversation.com/files/513290/original/file-20230302-17-u4h5cy.jpg?ixlib=rb-1.1.0&rect=13%2C17%2C2982%2C1980&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Counterfeiting has become a billion-dollar problem for countries all around the world.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>Counterfeiting is a chronic problem faced by Canadian consumers. According to Canadian manufacturers
and exporters, counterfeiting — or the sale of products that purport to be something they are not — <a href="https://bc.ctvnews.ca/crime-stoppers-warns-tens-of-billions-of-dollars-in-counterfeit-goods-imported-into-canada-every-year-1.5348127">costs Canada between $20 billion and $30 billion annually</a>. </p>
<p>Canada is not the only country struggling with counterfeiting — the practice is prevalent in many other countries and across different industries. A 2017 World Health Organization study found that <a href="https://www.who.int/news-room/detail/28-11-2017-1-in-10-medical-products-in-developing-countries-is-substandard-or-falsified">around 10 per cent of medicines sold in developing countries may be deceptively counterfeit</a>. </p>
<p>Similarly, the U.S. Government Accountability Office found that 20 of 47 items purchased from third-party sellers such as Amazon, eBay and Sears Marketplace <a href="https://www.gao.gov/assets/gao-18-216.pdf">were counterfeits</a>. Examples included <a href="https://www.wsj.com/articles/3m-files-lawsuit-against-merchant-selling-masks-on-amazon-for-18-times-list-price-11591642637">counterfeit versions of 3M N95 masks on Amazon</a>.</p>
<p>Given the scale of this ongoing issue, Canadian governments and industries must come together to design new strategies that will protect Canadians while maintaining <a href="https://www.international.gc.ca/trade-commerce/economist-economiste/analysis-analyse/key_facts-2022-01-faits_saillants.aspx?lang=eng">the country’s competitive advantage</a> in the global marketplace.</p>
<h2>Contributing factors</h2>
<p>Several diverse factors contribute to the persistence of counterfeit goods in Canada. The first relates to consumer behaviour, as some buyers may intentionally buy (or fail to avoid) counterfeit goods out of shrewdness or economic necessity. </p>
<p>Second, in terms of product quality, fakes can be very similar to the real thing. For example, the Canadian Intellectual Property Council reported that <a href="https://silo.tips/download/counterfeiting-in-the-canadian-market-how-do-we-stop-it-june-2012">a counterfeit version of a particular Procter & Gamble shampoo was so close to the original</a> even the company’s own sales force couldn’t tell the difference.</p>
<figure class="align-center ">
<img alt="A row of sneakers sitting on a table" src="https://images.theconversation.com/files/513284/original/file-20230302-1990-23hdik.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/513284/original/file-20230302-1990-23hdik.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/513284/original/file-20230302-1990-23hdik.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/513284/original/file-20230302-1990-23hdik.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/513284/original/file-20230302-1990-23hdik.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/513284/original/file-20230302-1990-23hdik.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/513284/original/file-20230302-1990-23hdik.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">Seized counterfeit footwear, including copies of Adidas and Kanye West Yeezy Boost trainers, are displayed at U.K. Border Force offices in London in February 2017.</span>
<span class="attribution"><span class="source">(AP Photo/Matt Dunham)</span></span>
</figcaption>
</figure>
<p>Third, <a href="https://www.macleans.ca/economy/why-canada-is-a-haven-for-knock-off-goods/">Canadian laws on counterfeit goods are notoriously lax</a>, hindering effective enforcement. In fact, <a href="https://ustr.gov/about-us/policy-offices/press-office/press-releases/2022/april/ustr-releases-2022-special-301-report-intellectual-property-protection-and-enforcement">the Office of the United States Trade Representative has placed Canada on its watchlist</a> of countries offering the weakest intellectual property (IP) protections.</p>
<p>A fourth factor stems from outsourcing production to overseas suppliers. This leads to a form of counterfeiting called the “third shift.” After a business outsources production, the supplier uses the business’ IP rights to produce counterfeit products in the same factory the original product is made.</p>
<p>Canadian home product manufacturer <a href="https://www.theglobeandmail.com/report-on-business/international-business/umbra-struggles-with-copycats-worldwide/article24863725/">Umbra has been plagued by numerous suppliers</a> using a third shift to reproduce its products.</p>
<p>Finally, although some customers may rely on review systems to assess the authenticity of items they buy online, these systems are far from reliable. Counterfeit sellers have found ways to manipulate the review system — <a href="https://hbr.org/2020/11/how-fake-customer-reviews-do-and-dont-work">by purchasing fraudulent five-star reviews</a>, for example.</p>
<p>In light of these difficulties, Canada needs a carefully thought-out approach to mitigate counterfeiting.</p>
<h2>Combating counterfeits</h2>
<p>Because the source of counterfeit products is often the same factory that produces the original product, one remedy is to provide supplier factories with limited quantities of raw materials. Hewlett-Packard does this by <a href="https://www.bbc.com/news/business-21407916">providing its suppliers with a certain number of printheads</a> that are used to manufacture ink cartridges for the company.</p>
<p>Another solution is to allocate parts to different suppliers so that no one supplier has all the parts needed to build a particular product.</p>
<figure class="align-center ">
<img alt="A hand peels down the tread on the sole of a boot to reveal a second tread beneath" src="https://images.theconversation.com/files/513288/original/file-20230302-16-ag2qer.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/513288/original/file-20230302-16-ag2qer.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/513288/original/file-20230302-16-ag2qer.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/513288/original/file-20230302-16-ag2qer.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/513288/original/file-20230302-16-ag2qer.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/513288/original/file-20230302-16-ag2qer.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/513288/original/file-20230302-16-ag2qer.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 U.S. Customs and Border Protection deputy chief officer shows how a Timberland brand on a counterfeit boot is hidden at a warehouse in Kearney, N.J. in 2015.</span>
<span class="attribution"><span class="source">(AP Photo/Richard Drew)</span></span>
</figcaption>
</figure>
<p>At the same time, many emerging market governments are stepping up enforcement efforts to strengthen IP protections. In 2020, China’s State Administration for Market Regulation released an <a href="https://research.hktdc.com/en/article/NDM0NjM2NzQ2">IP enforcement plan called Iron Fist</a> to better protect the IP rights of various manufacturers. </p>
<p>Similarly, <a href="https://economictimes.indiatimes.com/news/company/corporate-trends/e-commerce-battling-over-%20copycat-brands-and-trademarks/articleshow/67399720.cms">India’s IP strategy</a> is to “put greater emphasis on trademark enforcement.” </p>
<p>The <a href="https://www.ipophil.gov.ph/news/supreme-courts-revised-rules-on-ip-cases-improves-litigation-driving-innovation-and-creativity/">Philippine government’s recent IP legislation</a> aims to “ensure efficient and expeditious adjudication of IP cases” and make “IP litigation less costly and faster.”</p>
<p>For these governments, addressing IP protection is critical to ensuring manufacturers continue to feel comfortable outsourcing operations to their countries. As such, Canada should prioritize and incentivize outsourcing to countries that embrace IP protections.</p>
<h2>Using technology</h2>
<p>Businesses can also use technologies, such as radio-frequency identification or holograms, on their products to help customers identify counterfeits. </p>
<p>Recently, <a href="https://intellectual-property-helpdesk.ec.europa.eu/news-events/news/use-blockchain-protect-against-counterfeiting-2022-09-16_en">blockchain technology has been considered as a promising solution</a> to counterfeiting. Several blockchain-based applications have been launched with the aim of tagging products with unique identifiers that can’t be duplicated. </p>
<p><a href="https://ceur-ws.org/Vol-3067/paper18.pdf">Blockchain solution provider BlockPharma</a> helps patients check the authenticity of their medicines, while luxury goods giant <a href="https://consensys.net/blog/press-release/lvmh-microsoft-consensys-announce-aura-to-power-luxury-industry/">LVMH Group has partnered with blockchain firm ConsenSys and Microsoft</a> to authenticate products. </p>
<p>This tech-focused strategy aligns with the fact that governments around the world are increasingly encouraging blockchain adoption. The U.K. government, through Innovate UK, has <a href="https://cointelegraph.com/news/innovate-uk-offers-15-mln-grants-to-develop-blockchain-solutions">pledged the equivalent of C$24 million to fund blockchain companies</a> and the <a href="https://www.ledgerinsights.com/eu-intellectual-property-office-euipo-blockchain-anti-counterfeit/">European Union Intellectual Property Office uses blockchain for anti-counterfeit</a>.</p>
<h2>A joint approach is key</h2>
<p>The many factors that increase Canada’s risk concerning counterfeits, including weak laws and IP protections, make this a challenging policy issue. </p>
<p>However, anti-counterfeit strategies and the advent of new technologies like blockchain present opportunities for Canadian policymakers and industry leaders to develop an effective plan to combat counterfeiting. </p>
<p>Together, Canada’s business and political leaders can build consumer trust while further building Canada’s global advantage.</p><img src="https://counter.theconversation.com/content/200624/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hubert Pun receives funding from Social Sciences and Humanities Research Council (SSHRC) Grants (No. 430-2022-00517 and No. 435-2022-0271)</span></em></p>The global trade of counterfeit and pirated products costs countries like Canada billions a year. Governments and industries must come together to protect Canadians.Hubert Pun, Professor, Ivey Business School, Western UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1996892023-02-21T18:11:47Z2023-02-21T18:11:47ZFive emerging trends that could change our lives online<figure><img src="https://images.theconversation.com/files/509720/original/file-20230213-22-56qt5a.jpg?ixlib=rb-1.1.0&rect=22%2C11%2C7271%2C4803&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">VR headsets are key to realising the Metaverse</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/concept-technologygamingentertainment-people-african-man-enjoying-562748395">Shutterstock / SFIO CRACHO</a></span></figcaption></figure><p>The way we live our lives online is rapidly changing. Artificial intelligence (AI), virtual reality and innovations such as blockchain – a kind of digital record for transactions — are set to transform the online world, affecting everything from social media to how people and businesses make money from their creativity.</p>
<p>If you’re feeling confused by the pace of change, here’s what you need to know about five trends on the cusp of making a major impact.</p>
<h2>1. Generative AI</h2>
<p>AI and the more specific field of machine learning (where software improves at a task with experience) are already used to <a href="https://www.europarl.europa.eu/news/en/headlines/society/20200827STO85804/what-is-artificial-intelligence-and-how-is-it-used">personalise the recommendations</a> we get when we shop online, in digital assistants like Alexa and for automated translation of text. The uses for this technology are <a href="https://www.forbes.com/sites/forbesbusinesscouncil/2022/05/05/the-future-of-ai-5-things-to-expect-in-the-next-10-years/">only likely to grow</a>. There are some innovative uses of AI by businesses that may point to how people will be using the technology in future.</p>
<p>The AI-powered chatbot ChatGPT is a high-profile example. <a href="https://www.ft.com/content/a6d71785-b994-48d8-8af2-a07d24f661c5">Microsoft recently invested US$10 billion (£8.2 billion) investment in the chatbot’s parent company</a> showing how seriously these online tools are being taken.</p>
<p>It was seen by some journalists as the start of an <a href="https://www.businessinsider.com/google-microsoft-ai-search-war-will-add-to-carbon-emissions-2023-2">“AI war”</a> between Microsoft and Google. The latter company has been <a href="https://www.technologyreview.com/2022/09/22/1059922/deepminds-new-chatbot-uses-google-searches-plus-humans-to-give-better-answers/">incorporating AI into its search engine</a> to improve the answers people get. <a href="https://www.jasper.ai/demo">Jasper.ai</a> is another forward-thinking use of AI. This online service generates written content for blogs, social media posts and letters. </p>
<p>Meanwhile, Meta, the company that owns Facebook, is working on AI-powered software that can generate video from a text prompt, such as <a href="https://arstechnica.com/information-technology/2022/09/write-%20text-get-video-meta-announces-ai-video-generator/">“teddy bear painting a portrait”</a>. This is regarded as the next step on from online tools that generate images from text, such as <a href="https://openai.com/dall-e-2/">DALL-E</a> and <a href="https://stability.ai/blog/stable-diffusion-public-release">Stable Diffusion</a>.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/the-chatgpt-chatbot-is-blowing-people-away-with-its-writing-skills-an-expert-explains-why-its-so-impressive-195908">The ChatGPT chatbot is blowing people away with its writing skills. An expert explains why it's so impressive</a>
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<h2>2. The metaverse</h2>
<p>The <a href="https://en.wikipedia.org/wiki/Metaverse">“metaverse”</a> is intended to make the online world more like the real one, through the use of <a href="https://en.wikipedia.org/wiki/Virtual_reality">virtual reality</a> (VR) headsets. Instead of interacting with a two-dimensional profile on social media, you would don your VR headset to be represented by an <a href="https://uk.pcmag.com/vr-1/142134/enter-the-metaverse-how-to-create-a-virtual-avatar">avatar in a 3D virtual world</a>. Your avatar would be able to communicate with other ones in a space modelled on the real world. Online shops could take the form of 3D virtual spaces so customers could browse in much the same way they would in their everyday lives. </p>
<p>A new wave of advanced VR headsets could help facilitate the metaverse. These could include advanced features such as eye tracking — which can make interactions with 3D worlds more instant and realistic — and <a href="https://www.youtube.com/watch?v=fBLwshNHBRo">facial expression detection</a>, which would ensure 3D avatars replicate their users’ demeanours. <a href="https://www.tomsguide.com/news/apple-vr-and-mixed-reality-headset-release-date-price-specs-and-leaks">Apple</a> and Qualcomm are developing new VR headsets that could launch in 2023, but details of their features are being kept under wraps.</p>
<p><a href="https://vr.youtube.com">YouTube</a> and <a href="https://creator.oculus.com/manage/mediastudio/?locale=en_GB">Meta</a> are both building libraries of <a href="https://www.youtube.com/watch?v=eQOglqUJQZI">360-degree video</a> and images, as well as computer-generated objects and <a href="https://theconversation.com/real-estate-in-the-metaverse-is-booming-is-it-really-such-a-crazy-idea-174021">backgrounds</a> that can be used to build the 3D environments that your avatar would explore in these virtual worlds.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-is-the-metaverse-and-what-can-we-do-there-179200">What is the metaverse, and what can we do there?</a>
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<h2>3. Digital certificates</h2>
<p>The owners of 360-degree video and computer-generated landscapes designed for use in the metaverse will want to sell their digital creations. To prevent unauthorised use, a kind of token called an NFT can provide these items of digital content with certificates of authenticity and ownership. </p>
<p>These <a href="https://www.britannica.com/topic/non-fungible-token">non-fungible tokens</a> allow the content to be bought and sold with confidence, something that’s increasingly happening with the use of cryptocurrency. In 2022, YouTube, Facebook, Instagram and Twitter all introduced NFTs to their user and advertiser bases. <a href="https://usa.visa.com/partner-with-us/info-for-partners/visa-creator-program.html">Visa</a> and <a href="https://www.mastercard.com/news/perspectives/2022/simple-nft-purchasing-on-nft-marketplaces/">Mastercard</a> have also made buying NFTs possible with their credit and debit cards. </p>
<p>Despite a recent <a href="https://www.theverge.com/2022/11/14/23458863/nike-nfts-happen-dot-swoosh-sneakers-crypto">drop in the NFT market</a>, <a href="https://usa.visa.com/visa-everywhere/blog/bdp/2021/08/18/nfts-mark-a-1629328216374.html">forecasts by the US stock exchange Nasdaq</a> suggest the tokens could perform well in 2023. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/nfts-in-the-art-world-a-revolution-or-ripoff-191299">NFTs in the art world: A revolution or ripoff?</a>
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<h2>4. Blockchain</h2>
<p>A kind of digital record, or ledger, called a <a href="https://en.wikipedia.org/wiki/Blockchain">blockchain</a> could help underpin private networks of people online, providing a safe space for them free from trolls, stalkers and fraud. Permission to view information can be restricted to a small number of people and the record of activity provided by blockchain can’t be changed. This means any unauthorised activity on the network is instantly traceable.</p>
<p>And because information is stored across a network of computers rather than a single server, it is more difficult to hack. An example of an emerging type of online community that could make use of blockchain is a <a href="https://www.investopedia.com/tech/what-dao/">DAO (decentralised autonomous organisation)</a>. These networks have discarded the top-down management used elsewhere in favour of a more democratic form of governance with no central authority.</p>
<p>A social platform called Mastodon shares many aspects with DAOs. It was recently in the news when <a href="https://www.theguardian.com/news/datablog/2023/jan/08/elon-musk-drove-more-than-a-million-people-to-mastodon-but-many-arent-sticking-around">more than a million users</a> fled Twitter to the platform in the wake of Elon Musk’s takeover.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cryptocurrency-funded-groups-called-daos-are-becoming-charities-here-are-some-issues-to-watch-174763">Cryptocurrency-funded groups called DAOs are becoming charities – here are some issues to watch</a>
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<h2>5. ‘Workfluencers’</h2>
<p>Businesses have taken note of the rise of social media influencers and are adopting their approach to reach target audiences. They are making use of <a href="https://theconversation.com/linkedin-at-20-how-a-new-breed-of-influencer-is-transforming-the-business-networking-giant-196413">what’s called an employee advocate, or “workfluencer”</a>. Companies have realised that employees’ social media profiles and posts may better convey the brand than corporate accounts.</p>
<p>When crafted thoughtfully, social media posts by employees can seem significantly more authentic to other users than corporate PR. People have grown more honest about day-to-day work life, rather than only producing stories on professional milestones and achievements.</p>
<p>Organisations are likely to build procedures to encourage teams and employees to communicate and distribute material on the company’s behalf.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/linkedin-at-20-how-a-new-breed-of-influencer-is-transforming-the-business-networking-giant-196413">LinkedIn at 20: how a new breed of influencer is transforming the business networking giant</a>
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</em>
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<img src="https://counter.theconversation.com/content/199689/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Theo Tzanidis 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>Here are the trends on the cusp of transforming the online world.Theo Tzanidis, Senior Lecturer in Digital Marketing, University of the West of ScotlandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1946922022-11-17T13:29:36Z2022-11-17T13:29:36ZDramatic collapse of the cryptocurrency exchange FTX contains lessons for investors but won’t affect most people<figure><img src="https://images.theconversation.com/files/495726/original/file-20221116-12-324kxc.jpg?ixlib=rb-1.1.0&rect=81%2C72%2C4464%2C2940&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The cryptocurrency exchange FTX fell from a multibillion-dollar company to bankruptcy in less than a week.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/logo-with-crypto-coins-with-100-dollar-bill-are-displayed-news-photo/1244719587?phrase=FTX%20crypto&adppopup=true">NurPhoto via Getty Images</a></span></figcaption></figure><p><em>In the fast-paced world of cryptocurrency, vast sums of money can be made or lost in the blink of an eye. In early November 2022, the second-largest cryptocurrency exchange, FTX, was valued at more than US$30 billion. By Nov. 14, <a href="https://www.cnn.com/2022/11/15/business/ftx-madoff-bankman-fried-bair/index.html">FTX was in bankruptcy proceedings</a> along with more than 100 companies connected to it. <a href="https://scholar.google.com/citations?user=VxWst50AAAAJ&hl=en&oi=ao">D. Brian Blank</a> and <a href="https://scholar.google.com/citations?user=FKJSqjEAAAAJ&hl=en&oi=ao">Brandy Hadley</a> are professors who study finance, investing and fintech. They explain how and why this incredible collapse happened, what effect it might have on the traditional financial sector and whether you need to care if you don’t own any cryptocurrency.</em></p>
<h2>1. What happened?</h2>
<p>In <a href="https://inside.com/campaigns/inside-tech-2021-07-21-28706/sections/243700">2019</a>, Sam Bankman-Fried founded FTX, a company that ran one of the largest cryptocurrency exchanges.</p>
<p>FTX is where many crypto investors trade and hold their cryptocurrency, similar to the New York Stock Exchange for stocks. Bankman-Fried is also the founder of <a href="https://www.forbes.com/profile/alameda-research/?sh=563773816570">Alameda Research</a>, a hedge fund that trades and invests in cryptocurrencies and crypto companies. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/495729/original/file-20221116-18-annb65.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A photo of a curly-haired man." src="https://images.theconversation.com/files/495729/original/file-20221116-18-annb65.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/495729/original/file-20221116-18-annb65.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/495729/original/file-20221116-18-annb65.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/495729/original/file-20221116-18-annb65.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/495729/original/file-20221116-18-annb65.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/495729/original/file-20221116-18-annb65.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/495729/original/file-20221116-18-annb65.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"></a>
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<span class="caption">Sam Bankman-Fried founded both FTX and the investment firm Alameda Research. News sources have reported some less-than-responsible financial dealings between the two companies.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/sam-bankman-fried-founder-and-ceo-of-ftx-testifies-during-news-photo/1237105664?phrase=sam%20bankman-fried&adppopup=true">Tom Williams via Getty Images</a></span>
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<p>Within the traditional financial sector, these two companies would be separate firms entirely or at least have divisions and firewalls in place between them. But in early November 2022, news outlets reported that a <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/">significant proportion of Alameda’s assets</a> were a type of cryptocurrency released by FTX itself. </p>
<p>A few days later, news broke that FTX had allegedly been loaning customer assets to Alameda for risky trades <a href="https://www.cnbc.com/2022/11/13/sam-bankman-frieds-alameda-quietly-used-ftx-customer-funds-without-raising-alarm-bells-say-sources.html">without the consent of the customers</a> and also issuing its own FTX cryptocurrency for Alameda to use as <a href="https://www.cnbc.com/2022/11/13/sam-bankman-frieds-alameda-quietly-used-ftx-customer-funds-without-raising-alarm-bells-say-sources.html">collateral</a>. As a result, criminal and regulatory investigators began scrutinizing FTX for potentially <a href="https://www.law360.com/assetmanagement/articles/1549319?nl_pk=c7efe457-0cc1-4a20-9d63-ded5145502ae&utm_source=newsletter&utm_medium=email&utm_campaign=assetmanagement&utm_content=2022-11-15&read_more=1&nlsidx=0&nlaidx=0">violating securities law</a>.</p>
<p>These two pieces of news basically led to a bank run on FTX.</p>
<p>Large crypto investors, like FTX’s competitor Binance, as well as individuals, began to <a href="https://decrypt.co/113723/investors-withdrawal-millions-from-ftx-binance-begins-liquidating-ftt-token">sell off cryptocurrency held on FTX’s exchange</a>. FTX quickly lost its ability to meet customer withdrawals and halted trading. On Nov. 14, FTX was also hit by an apparent <a href="https://www.coindesk.com/business/2022/11/14/ftx-hack-or-inside-job-blockchain-experts-examine-clues-and-a-stupid-mistake/">insider</a> <a href="https://edition.cnn.com/2022/11/12/business/ftx-hack/index.html">hack</a> and lost $600 million worth of cryptocurrency.</p>
<p>That same day, FTX, Alameda Research and 130 other affiliated companies founded by Bankman-Fried filed for bankruptcy. This action may leave <a href="https://www.cnbc.com/2022/11/15/ftx-says-could-have-over-1-million-creditors-in-new-bankruptcy-filing.html">more than a million</a> suppliers, employees and investors who bought cryptocurrencies through the exchange or invested in these companies with <a href="https://www.cnn.com/2022/11/14/business/ftx-customer-money-bankruptcy/index.html">no way to get their money back</a>.</p>
<p>Among the groups and individuals who held currency on the FTX platform were many of the normal players in the crypto world, but a number of more traditional investment firms also held assets within FTX. <a href="https://www.businessinsider.com/sequoia-loss-on-ftx-collapse-letter-to-investors-2022-11">Sequoia Capital</a>, a venture capital firm, as well as the <a href="https://www.theglobeandmail.com/business/article-ftx-ontario-teachers-pension-canada-regulators/">Ontario Teacher’s Pension</a>, are estimated to have held millions of dollars of their investment portfolios in ownership stake of FTX. They have both already written off these investments with FTX as lost.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/495732/original/file-20221116-16-xgz7nh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A magnifying glass over the word cryptocurrency." src="https://images.theconversation.com/files/495732/original/file-20221116-16-xgz7nh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/495732/original/file-20221116-16-xgz7nh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=357&fit=crop&dpr=1 600w, https://images.theconversation.com/files/495732/original/file-20221116-16-xgz7nh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=357&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/495732/original/file-20221116-16-xgz7nh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=357&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/495732/original/file-20221116-16-xgz7nh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=449&fit=crop&dpr=1 754w, https://images.theconversation.com/files/495732/original/file-20221116-16-xgz7nh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=449&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/495732/original/file-20221116-16-xgz7nh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=449&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">While there has been some movement to regulate cryptocurrency, enforcement is still lacking.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/cryptocurrency-royalty-free-image/1355796318?phrase=crypto%20magnifying%20glass&adppopup=true">Solidcolours/E+ via Getty Images</a></span>
</figcaption>
</figure>
<h2>2. Did a lack of oversight play a role?</h2>
<p>In traditional markets, corporations generally <a href="https://www.law360.com/bankruptcy/articles/1549089?nl_pk=6ef803a8-f435-44cb-93f5-de6a024ff206&read_more=1&nlsidx=0&nlaidx=3">limit the risk they expose themselves to</a> by maintaining liquidity and solvency. Liquidity is the ability of a firm to sell assets quickly without those assets losing much value. Solvency is the idea that a company’s assets are worth more than what that company owes to <a href="https://www.wsj.com/livecoverage/stock-market-news-today-11-15-2022/card/ftx-says-number-of-creditors-in-bankruptcy-could-top-1-million-LrfYrHxDtIoVBV42QDiG?mod=djemMoneyBeat_us">debtors and customers</a>.</p>
<p>But the crypto world has generally operated with much less caution than the traditional financial sector, and <a href="https://www.nytimes.com/2022/11/11/technology/ftx-investors-venture-capital.html?smid=tw-dealbook&smtyp=cur">FTX is no exception</a>. About <a href="https://www.bloomberg.com/opinion/articles/2022-11-14/ftx-s-balance-sheet-was-bad">two-thirds</a> of the money that FTX owed to the people who held cryptocurrency on its exchange – roughly $11.3 billion of $16 billion owed – was backed by illiquid coins created by FTX. FTX was taking its customers’ money, giving it to Alameda to make risky investments and then creating its own currency, known as FTT, as a replacement – cryptocurrency that it was unable to sell at a high enough price when it needed to.</p>
<p>In addition, nearly 40% of Alameda’s assets were in FTX’s own cryptocurrency – and remember, both companies were founded by the same person. </p>
<p>This all came to a head when investors decided to sell their coins on the exchange. FTX did not have enough <a href="https://www.bloomberg.com/opinion/articles/2022-11-10/ftx-is-still-looking-for-money">liquid</a> assets to meet those demands. This in turn drove the value of FTT from over $26 a coin at the beginning of November to under $2 by Nov. 13. By this point, FTX owed more money to its customers than <a href="https://www.bloomberg.com/opinion/articles/2022-11-09/bankman-fried-s-ftx-had-a-death-spiral-before-binance-deal">it was worth</a>.</p>
<p>In regulated exchanges, investing with customer funds is <a href="https://www.cnbc.com/2022/11/13/sam-bankman-frieds-alameda-quietly-used-ftx-customer-funds-without-raising-alarm-bells-say-sources.html">illegal</a>. Additionally, auditors validate financial statements, and firms must publish the amount of money they hold in reserve that is available to fund customer withdrawals. And even if things go wrong, the <a href="https://www.firstrepublic.com/insights-education/sipc-vs-fdic-insurance-protection-differences">Securities Investor Protection Corporation</a> – or SIPC – protects depositors against the loss of investments from an exchange failure or financially troubled brokerage firm. None of these guardrails are in place within the crypto world.</p>
<h2>3. Why is this a big deal in crypto?</h2>
<p>As a result of this meltdown, the company Binance is now considering creating an <a href="https://techxplore.com/news/2022-11-binance-fund-crypto-future-failures.html">industry recovery fund</a> – akin to a private version of SIPC insurance – to <a href="https://www.bloomberg.com/news/articles/2022-11-14/binance-ceo-cz-zhao-bids-to-replace-ftx-s-sam-bankman-fried-as-crypto-savior">avoid</a> future <a href="https://www.law360.com/bankruptcy/articles/1548995?nl_pk=6ef803a8-f435-44cb-93f5-de6a024ff206&read_more=1&nlsidx=0&nlaidx=4">failures</a> of crypto exchanges.</p>
<p>But while the collapse of FTX and Alameda – valued at more than $30 billion and now essentially worth nothing – is dramatic, the bigger implication is simply the potential <a href="https://apnews.com/article/sam-bankman-fried-ftx-crypto-downfall-a2eaec231027dfd9f18426ff8982bbf8">lost trust in crypto</a>. Bank runs are rare in traditional financial institutions, but they are <a href="https://www.wsj.com/articles/crypto-com-withdrawals-rise-after-ceo-admits-transaction-problem-11668350510">increasingly common</a> in the crypto space. Given that Bankman-Fried and FTX were seen as some of the biggest, most trusted figures in crypto, these events may lead more investors to think twice about putting money in crypto.</p>
<h2>4. If I don’t own crypto, should I care?</h2>
<p>Though investment in cryptocurrencies has grown rapidly, the entire crypto market – <a href="https://www.coindesk.com/markets/2021/10/21/crypto-market-cap-surges-to-new-record-27-trillion/">valued at over $3 trillion</a> at its peak – is much <a href="https://beincrypto.com/institutional-investment-in-crypto-experts-weigh-in-on-implications/">smaller</a> than the $120 trillion <a href="https://medium.com/ngrave/too-big-to-fail-crypto-market-size-vs-traditional-assets-eff4bb2ec529">traditional stock market</a>.</p>
<p>While investors and regulators are still evaluating the consequences of this fall, the impact on any person who doesn’t personally own crypto will be minuscule. It is true that many larger investment funds, like BlackRock and the Ontario Teachers Pension, held investments in FTX, but the estimated <a href="https://www.ai-cio.com/news/ontario-teachers-pension-could-lose-95-million-on-ftx-investment">$95 million the Ontario Teachers Pension lost</a> through the collapse of FTX is just 0.05% of the entire fund’s investments.</p>
<p>The takeaway for most individuals is not to invest in <a href="https://www.wsj.com/articles/ftx-sam-bankman-fried-sit-in-the-crosshairs-of-u-s-prosecutors-11668398012?mod=djem10point">unregulated</a> markets without understanding the risks. In high-risk environments like <a href="https://www.natlawreview.com/article/ftx-bankruptcy-and-question-prudent-retirement-plan-investments-saga-continues">crypto</a>, it’s possible to lose everything – a lesson investors in FTX are learning the hard way.</p><img src="https://counter.theconversation.com/content/194692/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 organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Even though some traditional financial firms parked millions in the bankrupt company – once valued at $30 billion – the impact of FTX’s spectacular crash is limited to crypto investorsD. Brian Blank, Assistant Professor of Finance, Mississippi State UniversityBrandy Hadley, Associate Professor of Finance and the David A. Thompson Professor in Applied Investments, Appalachian State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1943222022-11-14T17:04:21Z2022-11-14T17:04:21ZCrypto: what could more regulation mean for the future of digital currencies?<figure><img src="https://images.theconversation.com/files/494876/original/file-20221111-13-vp2flm.jpg?ixlib=rb-1.1.0&rect=0%2C8%2C5463%2C3628&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Crypto trader.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/modern-way-exchange-bitcoin-convenient-payment-1110634118">Phongphan / Shutterstock</a></span></figcaption></figure><p>The founder of the world’s largest cryptocurrency exchange, Binance CEO Changpeng Zhao, has called for more regulatory clarity after a week of crypto market chaos and a year in which investors are estimated to have lost <a href="https://www.cnbc.com/2022/11/11/crypto-peaked-in-nov-2021-investors-lost-more-than-2-trillion-since.html">US$2 trillion</a> (£1.7 trillion).</p>
<p>“We do need to increase the clarity of regulations and the sophistication of regulations in the crypto space,” Zhao said to <a href="https://www.reuters.com/technology/binance-ceo-says-crypto-industry-needs-clarity-regulations-2022-11-14/">a gathering of G20 leaders</a> at a summit in Bali. But it is not only regulators that bear responsibility for protecting people, the industry should also look at new models that could help.</p>
<p>The recent collapse of FTX – which has filed for <a href="https://www.theguardian.com/technology/2022/nov/11/cryptocurrency-exchange-ftx-files-for-bankruptcy-protection-in-us">bankruptcy protection</a> in the US, but was valued at <a href="https://abcnews.go.com/Business/32b-crypto-company-ftx-collapsed-digital-currency-reeling/story?id=93051079">US$32 billion</a> earlier this year – has had significant repercussions for the entire cryptocurrency industry. Even the most established digital currency, Bitcoin, hit a <a href="https://www.bbc.co.uk/news/business-63564364#:%7E:text=cryptocurrencies%20falling%20sharply.-,Bitcoin,-fell%20by%20more">two-year low</a> following the FTX woes.</p>
<p>Cryptocurrencies allow traders or investors to buy and sell without the need for banks and brokerages. Blockchain technology enables peer-to-peer cryptocurrency transactions to happen on exchanges such as FTX and its rival Binance without these middlemen. </p>
<p>Instead, transactions are authenticated through consensus by a group of validators, typically called miners. Miners solve complex mathematical puzzles to do this, otherwise known as the <a href="https://medium.com/@blairlmarshall/how-do-miners-validate-transactions-c01b05f36231">proof of work system</a> used by Bitcoin and most cryptocurrencies. </p>
<p>But when it comes to organising these transactions, Binance and its peers use the same “limit order book” model as any traditional exchange such the New York Stock Exchange. This means there is a centralised structure that matches buyers and sellers, with market makers supplying liquidity and charging traders for transactions. </p>
<p>This kind of structure has exacerbated recent events in the crypto space to some extent. FTX’s centralised model allowed it to make <a href="https://www.ft.com/content/69ab1469-df01-4ea2-a015-b0e9904af4cc">loans to distressed crypto firms</a> earlier this year. It also <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/">used exchange-issued tokens (FTT)</a> to round out its sister company’s books. This increases the risk of exposure to a market collapse. </p>
<p>But an emerging model, decentralised exchanges, operates under different rules for pricing cryptocurrencies and for governance that could reduce such risks. They allow investors to buy and sell tokens at an algorithmically determined price. This automated model does not rely on professional market makers, instead individual investors supply liquidity and collect a portion of fees from trades. </p>
<h2>A different crypto exchange model</h2>
<p>Like many decentralised exchanges, <a href="https://www.coinbase.com/learn/crypto-basics/what-is-uniswap">Uniswap</a>, which launched in 2018, has a governance token called UNI that individual users of the exchange can use to cast votes in decisions about how the exchange operates. In principle, no centralised entity can manipulate system decisions voted through by owners of these coins. </p>
<p>This helps the users of the exchange to retain control over what’s happening with their funds. <a href="https://thedefiant.io/uniswaps-uni-instantly-becomes-one-of-defis-most-widely-held-tokens">Estimates suggest</a> that up to 49,000 addresses on the Ethereum blockchain hold UNI tokens and 60% of tokens are held by investors. </p>
<p>Another issue that plagued FTX in its final days was that it is custodial, which means it had the right to suspend withdrawals of cryptocurrency by investors. FTX’s decision to ban withdrawals by investors meant many <a href="https://www.bbc.co.uk/news/business-63577783">people have been refused access</a> to money they used to trade on the exchange. </p>
<p>Decentralised exchanges are non-custodial, so they allow individual investors full access to their crypto wallet balances and they can withdraw or deposit liquidity or stop trading at any time with no risk of their assets being frozen by the exchange. </p>
<p>One downside of decentralised exchanges versus centralised models such as FTX and Binance, however, is that they don’t allow traders to exchange fiat (traditional currencies issued by governments or countries) for crypto – they can only trade different cryptocurrencies on the exchange. The size of any trade will depend on the size of the liquidity pool, so if the latter is too small, a trader could find it difficult to make their desired transaction happen.</p>
<figure class="align-center ">
<img alt="New York Stock Exchange building, 11 Wall Street, New York." src="https://images.theconversation.com/files/494877/original/file-20221111-17-olr5vq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/494877/original/file-20221111-17-olr5vq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/494877/original/file-20221111-17-olr5vq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/494877/original/file-20221111-17-olr5vq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/494877/original/file-20221111-17-olr5vq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/494877/original/file-20221111-17-olr5vq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/494877/original/file-20221111-17-olr5vq.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">NYSE: a traditional financial exchange.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/new-york-city-september-5-stock-375882133">photo.ua / Shutterstock</a></span>
</figcaption>
</figure>
<p>Which type of exchange is likely dominate crypto trading in the future depends on several factors. </p>
<p>As some customers have withdrawn their crypto deposits from FTX over the past week, <a href="https://twitter.com/DefiIgnas/status/1590178536161128448?s=20&t=fmCPLTL0S9_6ZKsPjFKfng">approximately 60% of the outflows</a> reportedly went to FTX rival Binance. In the short term, the outflows of investors from FTX to Binance will increase its market share of crypto trading. This additional liquidity on Binance will help it to continue to dominate because it will be able to offer lower transaction costs.</p>
<p>But when activity is concentrated in fewer exchanges, more customers are exposed to the risk of any individual crypto provider or large trader failing. And the industry is only becoming more concentrated following recent market failures. Greater concentration means greater risk of contagion.</p>
<p>And over time, decentralised exchanges will be able to become more competitive and lower their transaction costs too. This is in part due to the development of “<a href="https://iconicholding.com/ethereum-layer-2-solutions/">scaling solutions</a>” – protocols (or sets of rules) that increase activity and transaction speeds without affecting decentralisation. This will also help to bring down the amount investors must pay to validate their transactions on the blockchain, making it less costly to trade. </p>
<h2>New rules</h2>
<p>And while traditional financial markets are heavily regulated, crypto is not, something that looks likely to change following FTX’s recent difficulties, as well as the events of this year. The importance of developing more official structures for the cryptocurrency market has become even more apparent. </p>
<p>Regulators have <a href="https://www.ft.com/content/79b6f14c-110a-4c66-82e2-286003c34717">already started to investigate</a> FTX lending products and management of customer funds after its collapse. But what else can they do?</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1590055819416330240"}"></div></p>
<h2>1. Closer monitoring of crypto assets</h2>
<p>As Binance’s CEO has recently suggested on Twitter (above), one way to prevent a repeat of the FTX failure would be to monitor crypto exchange assets in real time rather than relying on <a href="https://www.ft.com/content/3fb2f6cf-e132-43f4-9d6a-34fd13eb8991">annual reports with (in some cases) gross inaccuracies</a>.</p>
<p>This is already possible. An independent third party can provide “proof of reserves”. This means the organisation publishes <a href="https://chain.link/proof-of-reserve">audit reports</a> to provide an independent review of the balance sheet of an exchange, tracking the flows of money in and out of investors’ exchange wallets. This would flag up potential systemic failures due to unexpected activity, such as the use of exchange reserves to <a href="https://www.theverge.com/2022/11/10/23451484/ftx-customer-funds-alameda-research-sam-bankman-fried">make loans</a> to crypto firms, as described already with FTX. </p>
<h2>2. Better crypto risk assessments</h2>
<p>Financial regulators also need to adopt an appropriate risk assessment framework for cryptocurrencies. This should include independent audits and stress-testing of on-chain data (information about transactions on a blockchain network). </p>
<p>Regulations could be imposed to restrict the use of an exchange’s tokens to make loans to crypto firms. More customer protection could also prevent exchanges from suspending withdrawals, leaving traders <a href="https://asia.nikkei.com/Spotlight/Cryptocurrencies/Hong-Kong-crypto-group-unable-to-withdraw-18m-in-assets-from-FTX">unable to access money</a> held by an exchange that is in trouble. </p>
<p>Even amid the “<a href="https://www.theverge.com/2022/11/10/23450169/crypto-winter-ftx-binance-celsius-bitcoin">crypto winter</a>”, all is not lost for crypto. Appropriate regulations and new models could help the industry to recover and strengthen, perhaps even encouraging further adoption of decentralised finance in mainstream financial markets.</p><img src="https://counter.theconversation.com/content/194322/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 rise of decentralised exchanges and growing regulatory pressure could strengthen crypto.Ganesh Viswanath-Natraj, Assistant professor, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1884872022-10-03T18:13:05Z2022-10-03T18:13:05ZWhy blockchain could mean fewer hassles for students and workers proving their credentials<figure><img src="https://images.theconversation.com/files/483607/original/file-20220908-27908-25ctca.jpg?ixlib=rb-1.1.0&rect=727%2C14%2C2387%2C1484&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Traditionally, institutions own and control certifications like degrees, but that could shift with 'digital degrees' and microcredentials that rely on blockchain.</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/why-blockchain-could-mean-fewer-hassles-for-students-and-workers-proving-their-credentials" width="100%" height="400"></iframe>
<p>Microcredentials — attestations of proficiency in <a href="https://www.collegesinstitutes.ca/policyfocus/micro-credentials">a specific skill or knowledge base</a> that are certified by an authority — can provide evidence of a person’s skills to employers. </p>
<p>While microcredentials are becoming more popular, the concept is hardly new: A driver’s licence or the <a href="https://www.sjayork.ca/certificate-information-reprints">St. John Ambulance certificate</a> could be considered as microcredentials, attesting respectively to a person’s driving skill or their competency in administering first aid. </p>
<p>Blockchain technology is <a href="https://auspace.athabascau.ca/handle/2149/3655">appropriate for microcredential implementation</a>. Blockchain can best be described as a digital ledger that records information that can be shared among a community of users. Bitcoin and other crypto-currencies are the <a href="https://theconversation.com/transparency-and-privacy-empowering-people-through-blockchain-104887">best-known examples of blockchain</a>, but blockchain has uses beyond financial transactions. </p>
<p>Student records stored in blockchain for security limit access only to legitimate users, such as institutional administrators and potential employers selected by students or job seekers. Traditionally, institutions own and control certifications like degrees, but that could shift with “digital degrees” and microcredentials that rely on blockchain.</p>
<figure class="align-center ">
<img alt="Image of links and a handshake." src="https://images.theconversation.com/files/483610/original/file-20220908-4832-txreha.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/483610/original/file-20220908-4832-txreha.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=264&fit=crop&dpr=1 600w, https://images.theconversation.com/files/483610/original/file-20220908-4832-txreha.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=264&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/483610/original/file-20220908-4832-txreha.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=264&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/483610/original/file-20220908-4832-txreha.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=332&fit=crop&dpr=1 754w, https://images.theconversation.com/files/483610/original/file-20220908-4832-txreha.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=332&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/483610/original/file-20220908-4832-txreha.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=332&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Blockchain can attest to students’ accomplishments.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<h2>Verifying accomplishments</h2>
<p>Besides providing effective security and privacy for users, blockchain can also facilitate the maintenance and dissemination of the credentials, while ensuring that access is readily available for students under their control. </p>
<p>Because of its immutability, blockchain can be used to attest to and verify students’ accomplishments. This is important for students seeking to <a href="https://jl4d.org/index.php/ejl4d/article/view/525/618">have their credits recognized</a> whether because they are studying to obtain new professional accreditation, studying in multiple institutions or because they are moving for study or employment. </p>
<p>Blockchain is distributed, meaning that multiple copies of the same information are stored on different computers. So, blockchain is not controlled by any central authority and the “blocks” in the “chain,” linked chronologically, are shared in a <a href="https://www.computerworld.com/article/2588287/networking-peer-to-peer-network.html#">P2P (peer-to-peer) network</a>, which can be accessed from <a href="https://www.techopedia.com/definition/5307/node">any node or point on the network</a>. </p>
<p>These blocks are immutable, as any change to the original leaves the first iteration intact and accessible.</p>
<p>When students or job seekers want to have credits transferred between institutions, gatekeepers — for example, post-secondary institutions or employers — typically insist on receiving copies of diplomas and degrees directly from each institution. As more students gain credentials from multiple institutions, this process becomes increasingly untenable. </p>
<p>Students need to control this process and blockchain can provide a solution.</p>
<h2>Securely validates learning</h2>
<p>In 2019, McMaster University announced it was awarding “digital degrees” using blockchain to Faculty of Engineering students after the university <a href="https://www.eng.mcmaster.ca/news/mcmaster-becomes-first-canadian-university-offer-digital-degrees">implemented microcredentials using blockchain</a> to securely validate students’ learning. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/3CUJNB9y7Ng?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Video about how students own their credentials on the blockchain platform from McMaster Engineering.</span></figcaption>
</figure>
<p>Some post-secondary institutions are implementing <a href="https://www.ecampusontario.ca/ecampusontario-leads-education-industry-collaboration-through-micro-certification/">pilot projects with eCampus Ontario and industry partners </a>to award microcredentials using blockchain. </p>
<p>Microcredentials are now offered by post-secondary institutions, sometimes in partnership with corporations <a href="https://financialpost.com/news/economy/tech-companies-want-workers-faster-so-theyre-designing-their-own-microcredentials-at-colleges-universities">to target labour market needs</a>. These may come in the form of “<a href="https://www.nait.ca/micro-credentials">digital badges</a>.” Digital badges are easily verifiable testaments to when, where and how skills have been mastered. Meta data in digital badges allows viewers to click on the badge to <a href="https://www.youtube.com/watch?v=-ErAbVArIPE">learn things like criteria for earning the badge, the date it was issued or when it expires</a>.</p>
<h2>Maintaining privacy of data</h2>
<p>Certification by blockchain begins when a trusted institution issues the microcredential and creates a blockchain. The student then sends <a href="https://www.ibm.com/docs/en/ztpf/1.1.0.14?topic=concepts-public-key-cryptography">a public key</a> password to the institution, requesting a transcript be sent to a potential employer. </p>
<p>The institution then adds a block onto the blockchain and sends the micro-credential, which is verified and forwarded to the potential employer. The learners can keep private keys to their credentials in <a href="https://www.investopedia.com/terms/d/digital-wallet.asp">an offline digital wallet</a>.</p>
<figure class="align-left ">
<img alt="Hands seen holding diplomas." src="https://images.theconversation.com/files/485404/original/file-20220919-27-4ndvjj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/485404/original/file-20220919-27-4ndvjj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/485404/original/file-20220919-27-4ndvjj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/485404/original/file-20220919-27-4ndvjj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/485404/original/file-20220919-27-4ndvjj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/485404/original/file-20220919-27-4ndvjj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/485404/original/file-20220919-27-4ndvjj.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">With blockchain, the ownership of credentials rests with the individual.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>Maintaining the privacy of the data is essential. With blockchain, the ownership of the microcredential rests with the individual, not the institution. </p>
<p>Blockchain supports more control for students and <a href="https://theconversation.com/how-blockchain-could-help-the-world-meet-the-uns-global-goals-in-higher-education-152885">has the capability of further democratizing education</a>. It empowers students to maintain control of their now-secure credentials and allows them to be confident their acquired skills and knowledge will be valued.</p>
<h2>Potential concerns</h2>
<p>However, there are <a href="https://doi.org/10.1007/s10551-022-05058-5">some ethical</a> and logistical concerns. Right now, when a person seeks to transfer credits through traditional channels, they can choose which documents or certifications to share with employers: mistakes, or aspects of one’s past credentials and experience deemed less salient or undesirable can be addressed or ignored. </p>
<p>But blockchain is immutable and this immutability can cause its own problems when mistakes cannot be erased. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/protecting-the-right-to-be-forgotten-in-the-age-of-blockchain-104847">Protecting the 'right to be forgotten' in the age of blockchain</a>
</strong>
</em>
</p>
<hr>
<p>Students cannot omit blocks from the chain that they do not feel are appropriate or that could damage their reputation. So, how can they create different narratives for diverse purposes or highlight and/or hide different experiences? What happens if someone wants or needs to start anew? Is there a right to forget? </p>
<p>What if a student <a href="https://www.venafi.com/blog/what-happens-if-you-lose-your-key-encrypted-blockchain">loses their key</a>? <em>The New York Times</em> reports that lost passwords have locked <a href="https://www.nytimes.com/2021/01/12/technology/bitcoin-passwords-wallets-fortunes.html">millionaires out of their bitcoin fortunes</a>. Will students and workers fare any better when it comes to academic and professional records? Who will respond to these problems within institutions?</p>
<p>These are questions post-secondary institutions and our society at large will increasingly need to navigate.</p><img src="https://counter.theconversation.com/content/188487/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rory McGreal 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>Students gain control over their own academic records or professional certifications, but blockchain’s immutability means mistakes cannot be erased.Rory McGreal, Professor and UNESCO/ICDE Chair in Open Educational Resources, Athabasca UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1891052022-09-12T12:12:52Z2022-09-12T12:12:52ZWhat is proof-of-stake? A computer scientist explains a new way to make cryptocurrencies, NFTs and metaverse transactions<figure><img src="https://images.theconversation.com/files/483613/original/file-20220908-9424-5bl1si.jpg?ixlib=rb-1.1.0&rect=0%2C25%2C5700%2C3763&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Blockchain transactions are carried in blocks. The amount of energy it takes to add a new block varies widely depending on how it's done.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/blockchain-formed-by-binaries-and-network-royalty-free-image/1322421028">Yuichiro Chino/Moment via Getty Images</a></span></figcaption></figure><p>Proof-of-stake is a mechanism for achieving consensus on a blockchain. Blockchain is a technology that records transactions that can’t be deleted or altered. It’s a decentralized database, or ledger, that is under no one person or organization’s control. Since no one controls the database, consensus mechanisms, such as proof-of-stake, are needed to coordinate the operation of blockchain-based systems.</p>
<p>While <a href="https://www.investopedia.com/terms/b/bitcoin.asp">Bitcoin</a> popularized the technology, blockchain is now a part of many different systems, enabling interesting applications such as <a href="https://theconversation.com/what-is-decentralized-finance-an-expert-on-bitcoins-and-blockchains-explains-the-risks-and-rewards-of-defi-161479">decentralized finance</a> platforms and non-fungible tokens, or <a href="https://theconversation.com/how-nonfungible-tokens-work-and-where-they-get-their-value-a-cryptocurrency-expert-explains-nfts-157489">NFTs</a>.</p>
<p>The first widely commercialized blockchain consensus mechanism was <a href="https://www.investopedia.com/terms/p/proof-work.asp">proof-of-work</a>, which enables users to reach consensus by solving complex mathematical problems. For solving these problems, users are commonly provided stake in the system. This process, dubbed mining, requires large amounts of computing power. <a href="https://www.investopedia.com/terms/p/proof-stake-pos.asp">Proof-of-stake</a> is an alternative that consumes far less energy.</p>
<p>At its core, blockchain technology provides <a href="https://doi.org/10.1145/3369752">three important properties</a>:</p>
<ol>
<li>Decentralized governance and operation – the people using the system get to collectively decide how to govern and operate the system.</li>
<li>Verifiable state – anyone using the system can validate the correctness of the system, with each user being able to ensure that the system is currently working as expected and has been since its inception.</li>
<li>Resilience to data loss – even if some users lose their copy of system data, whether through negligence or cyberattack, that data can be recovered from other users in a verifiable manner.</li>
</ol>
<p>The first property, decentralized governance and operation, is the property that controls how much energy is needed to run a blockchain system.</p>
<h2>Voting in blockchain systems</h2>
<p>Blockchain systems use voting to decentralize governance and operation. While the exact mechanisms for how voting and consensus are achieved differ in each blockchain system, at a high level, blockchain systems <a href="https://online.stanford.edu/how-does-blockchain-work">allow each user to vote on how the system should work</a>, and whether any given operation – accepting a new block into the chain, for example – should be approved.</p>
<p>Traditionally, voting requires that the identity of the people casting ballots can be known and verified to ensure that only eligible people vote and do so only once. Some blockchain systems allow users to present a digital ID to prove their identity, enabling voting with negligible energy usage.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/-C19r0UsYws?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Proof-of-work and proof-of-stake compared.</span></figcaption>
</figure>
<p>However, in most blockchain systems, users are anonymous and have no digital ID that can prove their identity. What, then, stops an individual from pretending to be many individuals and casting many votes? There are several different approaches, but the most used is proof-of-work. </p>
<p>In proof-of-work, users get votes based on the amount of computational power they have in proportion to other users. They demonstrate their ownership of this computational power by solving difficult mathematical problems. If one user can solve twice as many problems as another user, they have twice the computational power as other users and get twice as many votes.</p>
<p>However, solving these mathematical problems is extremely energy intensive, leading to complaints that proof-of-work is not sustainable. Researchers at the University of New Mexico have found that the climate impact from bitcoin mining is <a href="https://www.nature.com/articles/s41598-022-18686-8">greater than impact of global beef production</a>.</p>
<h2>Proof-of-stake</h2>
<p>To address the energy consumption of proof-of-work, another way to validate users is needed. Proof-of-stake is one such method. In proof-of-stake, users validate their identities by demonstrating ownership of some asset on the blockchain. For example, in Bitcoin, this would be ownership of bitcoins, and in Ethereum, it is ownership of Ether. </p>
<p>Though this does require users to temporarily lock their assets in the blockchain for a period of time, it is far more efficient because it requires negligible energy expenditure. By the company’s estimation, moving from proof-of-work to proof-of-stake will <a href="https://ethereum.org/en/energy-consumption/">reduce Ethereum’s energy consumption by 99.95%</a>.</p>
<h2>Ethereum’s ‘Merge’</h2>
<p>This <a href="https://www.nbcnews.com/tech/tech-news/cryptocurrency-goes-green-proof-stake-offer-solution-energy-concerns-rcna1030">improved energy efficiency</a> is why many blockchain systems intend to transition away from proof-of-work to proof-of-stake. Ethereum plans to make this change during the week of Sept. 15, 2022. This is known as the Merge. During this merge, operations will shift from being voted on using proof-of-work to being voted on using proof-of-stake. At the completion of the merge, only proof-of-stake will be used to vote on transactions. </p>
<p>The hope is that this will set up Ethereum to be sustainable for the foreseeable future.</p>
<figure>
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<figcaption><span class="caption">The ‘Ethereum Merge’ is slated to shift one of the largest blockchains to energy-efficient, proof-of-stake technology.</span></figcaption>
</figure>
<p><em>This article has been updated to include new research about the environmental impact of bitcoin mining.</em></p><img src="https://counter.theconversation.com/content/189105/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Scott Ruoti 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>Ethereum, one of the world’s largest blockchains and host of decentralized finance, NFTs and billions of dollars’ worth of cryptocurrency, is poised to dramatically reduce its energy consumption.Scott Ruoti, Assistant Professor of Computer Science, University of TennesseeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1861882022-09-07T19:38:58Z2022-09-07T19:38:58ZWe need to anticipate and address potential fraud in the metaverse<figure><img src="https://images.theconversation.com/files/481907/original/file-20220830-23550-44snrs.jpg?ixlib=rb-1.1.0&rect=44%2C8%2C5890%2C3016&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">As the possibilities of the metaverse expand, it will occupy an increasing role in everyday life.</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/we-need-to-anticipate-and-address-potential-fraud-in-the-metaverse" width="100%" height="400"></iframe>
<p>The metaverse is a virtual online world that people can access in a variety of ways, including through virtual and augmented reality. It offers people an interactive social experience where users are represented by avatars. Users can teleport through different virtual social worlds, participate in events and make transactions using cryptocurrencies.</p>
<p>By 2026, it is predicted that <a href="https://www.gartner.com/en/newsroom/press-releases/2022-02-07-gartner-predicts-25-percent-of-people-will-spend-at-least-one-hour-per-day-in-the-metaverse-by-2026">25 per cent of people will spend at least one hour a day in the metaverse</a>. There, they’ll be able to participate in activities such as working and shopping, and 30 per cent of firms will have their products and services ready for the metaverse.</p>
<p>The metaverse — which includes blockchains and cryptocurrencies — is still in its early stages. As its possibilities expand, it’s important to consider the potential threats and dangers as the metaverse introduces risks related to legislation, property, control, fraud, privacy threats, <a href="https://doi.org/10.1109/MC.2022.3148642">ethics and security</a>.</p>
<p>As researchers interested in forensic accounting and digital fraud, we have attempted to <a href="https://doi.org/10.1108/JFC-06-2022-0124">identify the risks that are unique to the metaverse</a>.</p>
<h2>Opportunity or threat?</h2>
<p>The metaverse appears to be a foray into developing new models of conducting business online. And as such, can we anticipate the related risks? Are <a href="https://www.dlapiper.com/fr-CA/canada/insights/publications/2022/02/exploring-the-metaverse/">current laws applicable to the metaverse</a>? How are we protected from fraud in the metaverse? </p>
<p><div data-react-class="InstagramEmbed" data-react-props="{"url":"https://www.instagram.com/p/ChsAAAEMi8w","accessToken":"127105130696839|b4b75090c9688d81dfd245afe6052f20"}"></div></p>
<p>While the metaverse offers new opportunities for firms and customers, as a nascent technology, it comes with multiple risks.</p>
<p>Breaches in ethics are possible. For example, do firms consider whether their code of ethics has been updated to account for expansion into the metaverse? How do customers and employees behave in the metaverse? Is sensitive information protected?</p>
<p>Legal issues will relate to intellectual property rights, the regulation of virtual assets, privacy and gambling. Firms considering using the metaverse should <a href="https://dx.doi.org/10.2139/ssrn.4002551">anticipate intellectual property rights</a>, in particular those related to terms of service agreements and end-user license agreements.</p>
<h2>Metaverse fraud risks</h2>
<p>The <a href="https://doi.org/10.1109/MC.2022.3144763">metaverse can bring many fraud risks</a>, such as market manipulation, cyber breaches and attacks, privacy breaches, money laundering, corporate espionage and identity theft. </p>
<p>Unlike traditional social media platforms, users have no guarantee that the data they share is only shared with those they choose to share it with in the metaverse. That means <a href="https://doi.org/10.3390/encyclopedia2010031">user identities can be tracked and revealed</a></p>
<p><a href="https://doi.org/10.3390/encyclopedia2010031">As one researcher explains</a>: “We cannot just turn off who can follow our avatars in the metaverse as we can do in the traditional social media.”</p>
<p>Personal information, such as biometric data, can be <a href="https://scholarship.law.vanderbilt.edu/jetlaw/vol23/iss1/1/">collected through the metaverse</a> and in turn <a href="https://home.kpmg/sg/en/home/insights/2022/06/treading-boldly-into-the-metaverse.html">used for marketing purposes</a>. Organizations using the metaverse need to ensure data is anonymized and users cannot be identifiable.</p>
<p>The rapid development of the metaverse has also brought risks related to cryptocurrencies, <a href="https://doi.org/10.1093/bjc/azab118">which are already subjected to very little official regulation</a>. Scams could potentially flourish in the metaverse — and at worse, become normalized as a metaverse experience.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/OFRGEEVxyWE?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">CNBC looks at how scammers are targeting metaverse investors.</span></figcaption>
</figure>
<h2>Preventing fraud</h2>
<p>Risks in the metaverse can be mitigated by corporations and governments implementing controls that ensure users and administrators are protected. These are steps that can be taken to deter, prevent and detect fraud in the metaverse. </p>
<p>In our research on identifying potential fraud in the metaverse, we identified two sets of actions: macro, which take place at the government level, and micro, which affect corporations.</p>
<p>At the government level:</p>
<ul>
<li><p>Specific regulation is needed for the metaverse, possibly in the form of a new Metaverse Act that encompasses metaverse transactions and actions;</p></li>
<li><p>Increased oversight by government bodies, such as financial authorities;</p></li>
<li><p>Establishment of an international and global authority to oversee the metaverse;</p></li>
<li><p>Co-operation with businesses to share information that will reduce risks and prevent malicious use and unethical behaviour and misinformation in the metaverse;</p></li>
<li><p>Regulatory bodies should require or encourage organizations to disclose how they mitigate metaverse risks, what resources they have, and how they protect users from identity theft, misinformation, cyber threats and privacy breaches.</p></li>
</ul>
<p>At the level of individual corporations or organizations active in the metaverse, here are some steps that can be taken:</p>
<ul>
<li><p>Adopt a comprehensive internal approach within different departments (for example auditing, marketing and finance departments) to identify weaknesses when processes are implemented in the metaverse;</p></li>
<li><p>Implement measures that regulate avatar behaviour on different platforms to ensure users conform to community standards;</p></li>
<li><p>Employment of artificial intelligence to combat fraud and scams;</p></li>
<li><p>Update codes of ethics and whistleblowing programs to protect whistleblowers and facilitate whistleblowing channels;</p></li>
<li><p>Ensure that an adequate program is in place to mitigate and respond to metaverse threats.</p></li>
</ul>
<p>Boards of directors, governance bodies and management should be trained and able to co-ordinate efforts to combat the emergence and the expansion of crime in the metaverse. Training and education are the first steps in establishing an efficient metaverse anti-fraud program.</p><img src="https://counter.theconversation.com/content/186188/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>As businesses establish themselves in the metaverse, the amount of financial transactions there will increase. This will come with previously unknown risks.Nadia Smaili, Professor in Accounting (forensic accounting), Université du Québec à Montréal (UQAM)Audrey de Rancourt-Raymond, Assistant researcher, Université du Québec à Montréal (UQAM)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1871412022-07-25T13:57:22Z2022-07-25T13:57:22ZCryptocurrencies are gaining ground across Africa. That’s both good news and bad<figure><img src="https://images.theconversation.com/files/474385/original/file-20220716-12-et8a8k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Some of the of 19,000 private cryptos in use by end of June 2022. Users have increased sharply in Africa after the COVID-19 outbreak. Silas Stein/Picture Alliance via </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/june-2022-baden-wuerttemberg-rottweil-the-application-apps-news-photo/1241318687?adppopup=true">Getty Images</a></span></figcaption></figure><p><em>Cryptocurrencies have become popular in African and other developing countries. That’s according to a <a href="https://unctad.org/system/files/official-document/presspb2022d8_en.pdf">policy brief</a> released recently by UNCTAD, a United Nations agency. Significant proportions of Kenya <a href="https://www.citizen.digital/tech/kenya-leads-in-africas-cryptocurrency-ownership-5th-in-world-un-n301621">(8.5%)</a>, South Africa (7.1%) and Nigeria’s (6.3%) populations are using these digital currencies. In June, the Central African Republic <a href="https://www.bbc.com/news/world-africa-61565485">adopted</a> bitcoin as a legal tender.</em></p>
<p><em>The report warns that widespread use of unregulated digital currencies poses danger to the continent’s financial system. In an interview with The Conversation Africa, Iwa Salami, an expert in financial technology law and regulation, examines the future of digital currencies in Africa.</em></p>
<h2>Why is cryptocurrency becoming popular in Africa?</h2>
<p>Cryptocurrencies have gained acceptance among a large proportion of the low-income population that was, previously, <a href="https://www.tandfonline.com/doi/pdf/10.1080/23322039.2022.2058734">financially marginalised</a>. Most banks in Africa were not accessible to this segment. Even when they were, low-income account holders were discouraged by <a href="https://www.weforum.org/agenda/2017/04/financial-inclusion-south-africa/">high transaction costs</a>. </p>
<p>Another factor is economic stagnation compounded by debt crises and political instability in African economies since the era of independence. This has resulted in weak currencies ravaged by inflation in countries like <a href="https://www.brookings.edu/wp-content/uploads/2016/07/kenya-country-case.pdf">Kenya</a> and <a href="http://jedsnet.com/journals/jeds/Vol_5_No_2_June_2017/4.pdf">Nigeria</a>. </p>
<p>Cryptocurrencies promised to address both financial exclusion and the problem of weak domestic currencies.</p>
<p>Cryptocurrency gives everyone with access to a mobile device and internet connectivity the opportunity to engage in activities similar to those conducted through financial institutions and intermediaries. That includes payments, sending remittances and making investments.</p>
<p>Investment is particularly inviting to the <a href="https://furtherafrica.com/2022/06/08/crypto-adoption-in-africa-soars-despite-challenges/#:%7E:text=Rising%20acceptance%20rates%20in%20Africa,persons%20has%20acknowledged%20using%20cryptocurrency">technically savvy</a>. It gives them the opportunity to hold assets that aren’t affected by rising inflation and depreciating domestic currencies. </p>
<p>Cryptocurrencies are also quicker, cheaper and easier to use than conventional methods. That’s because the technology facilitates <a href="https://www.blockchain-council.org/blockchain/peer-to-peer-network/">peer-to-peer</a> transactions rather than relying on intermediaries. These currencies were <a href="https://clsbluesky.law.columbia.edu/2021/03/26/how-the-covid-19-pandemic-affected-the-cryptocurrency-market/">more accessible</a> than traditional banks during the pandemic and lockdowns. This further drove their use and growth across Africa.</p>
<h2>What does a high number of people holding cryptos imply?</h2>
<p>This can facilitate economic activity in African countries. People with no access to banks and banking services are able to pay for goods and services using cryptos. </p>
<p>Crypto transactions are also believed to be a more secure way of transacting. Unless someone gains access to the private key for your crypto wallet, they cannot sign transactions or access your funds. </p>
<p>The system also facilitates transparency. All cryptocurrency transactions take place on the publicly distributed blockchain ledger. There are tools that allow anyone to look up transaction data – including where, when, and how much of a cryptocurrency someone sent from a wallet address. </p>
<h2>But there are risks, too. What are those?</h2>
<p>First, cryptocurrencies are very complex. They require a bit of technological astuteness to embrace. A significant proportion of the adult population in sub-Saharan Africa (34.7%) is <a href="https://www.statista.com/statistics/262886/illiteracy-rates-by-world-regions/">illiterate </a> and may not be able to grasp it. This, to a certain extent, turns the financial inclusion argument on its head.</p>
<p>Secondly, although it is argued that the blockchain is a more secure way of transacting, the downside, of course, is that if you lose your private key there’s no way to recover your funds. This is a threat that does not exist if you have a bank account. </p>
<p>Thirdly, cryptocurrencies have had a history of <a href="https://www.forbes.com/sites/nicolelapin/2021/12/23/explaining-cryptos-volatility/?sh=3c053c927b54">volatility</a>, (as is currently being <a href="https://www.cnbc.com/2022/07/14/why-the-2022-crypto-winter-is-unlike-previous-bear-markets.html">experienced</a> in the crypto market). This has adversely affected retail investors, especially those who do not understand this type of asset class. </p>
<p>Another issue of profound concern to African states is the potential threat to monetary sovereignty. Should crypto ever be more widely used than domestic fiat currency, national monetary agencies such as central banks may not be able to <a href="https://www.afronomicslaw.org/2020/03/06/why-african-countries-must-consider-national-digital-currencies-to-counter-the-threats-posed-by-private-digital-currencies-like-facebook-libra">steer their economies</a> to a path of growth using monetary policy. Such policy is, after all, primarily administered through domestic currencies. </p>
<p>An associated threat is the weakening of effective capital controls in African states. These are needed to prevent <a href="https://boycewire.com/causes-and-effects-of-capital-flight/">capital flight</a> from domestic economies. Any weakening can result in significant volatility in currency rates and the rapid depreciation of domestic currencies. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/decentralised-finance-calls-into-question-whether-the-crypto-industry-can-ever-be-regulated-151222">Decentralised finance calls into question whether the crypto industry can ever be regulated</a>
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</em>
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<p>There are also threats to financial stability. This could arise from significant exposure that financial institutions, like banks, have to crypto firms such as through loans. Regulation in some African countries, <a href="https://www.cbn.gov.ng/Out/2021/CCD/Volume%203%20Number%202%20CBN%20Update%20February%202021.pdf">such as Nigeria</a> addresses this by restricting transactions between banks and crypto assets service providers.</p>
<h2>What is the future of cryptocurrencies in Africa?</h2>
<p>Despite the ongoing downturn in the market, cryptocurrency represents the future of finance and financial transactions. And there are indications that cryptocurrencies are here to stay which is seen from their increasing recognition by countries. At one extreme, the governments of El Salvador and the Central African Republic have adopted bitcoin as legal tender, although the implementation and impact of this on their broader economies have been faced with <a href="https://www.bloomberg.com/news/articles/2022-05-04/bitcoin-adoption-by-central-african-republic-a-concern-imf-says">severe criticisms</a>.</p>
<p>Others, such as <a href="https://theconversation.com/nigerias-digital-currency-what-the-enaira-is-for-and-why-its-not-perfect-171323">Nigeria</a>, have recognised the need for state representation of digital currencies in the form of central bank digital currencies. Many other countries are now <a href="https://www.bis.org/about/bisih/topics/cbdc.htm">exploring</a> this option. </p>
<p>It is important to note, however, that the <a href="https://coingeek.com/nigeria-enaira-now-available-via-ussd-to-boost-adoption-and-financial-inclusion/">uptake</a> of central bank digital currencies has been <a href="https://www.vanguardngr.com/2022/04/enaira-pushes-through-difficult-environment/">very low</a> in developing countries that have rolled them out. There are also ongoing <a href="https://www.refinitiv.com/perspectives/future-of-investing-trading/the-rise-of-central-bank-digital-currencies/">investigations</a> by countries into the economic impact of central bank digital currencies and whether adoption is the right approach. </p>
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<em>
<strong>
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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</em>
</p>
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<p>But if cryptocurrencies are to live up to their promise, both on the African continent and elsewhere, there must be a globally <a href="https://www.europeanfinancialreview.com/cryptocurrencies-cross-border-financial-regulatory-dimensions/">coordinated</a> and <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3733647">holistic approach</a> to regulation, since transactions are global. Although some action on this front is emerging, the current fragmented approach to regulation across the world is not ideal.</p><img src="https://counter.theconversation.com/content/187141/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 live up to their promise, both on the African continent and elsewhere, digital currencies must be globally coordinated.Iwa Salami, Reader (Associate Professor) in Law, University of East LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1850982022-06-16T20:44:25Z2022-06-16T20:44:25ZCould the blockchain restore consumer trust and food security?<p>Despite attempts to label the blockchain as a disruptive <a href="https://www.economist.com/leaders/2015/10/31/the-trust-machine">“trust machine”</a>, the tangible business applications of this nascent technology have yet to take shape in practice and be more visible for customers.</p>
<p>In the food and grocery industry, however, trust has become an essential element for increasingly demanding consumers after a decade of scandals such as the <a href="https://www.theguardian.com/uk/2013/feb/15/horsemeat-scandal-the-essential-guide">horsemeat fraud</a> in 2013 and the <a href="https://www.theguardian.com/uk-news/2018/oct/03/pret-a-manger-to-bring-in-full-labelling-teenagers-death-natasha-ednan-laperouse">Pret à Manger mislabeling</a> in 2016. This year, examples of Nestle’s <a href="https://www.reuters.com/article/nestle-buitoni-france-idAFL2N2X42AJ">Buitoni Pizza</a> and <a href="https://www.foodnavigator.com/Article/2022/04/26/From-Nestle-s-Buitoni-to-Ferrero-s-Kinder-High-profile-scandals-put-European-food-safety-in-the-spotlight">Ferrero’s Kinder</a> were found to be contaminated with <em>E. coli</em>.</p>
<p>For food-industry supply chains, the two key trust enhancers are traceability and transparency. Traceability requires cooperation and sharing of information between different actors of the supply chain, ensuring efficiency and reducing risk. Transparency includes disclosure, knowledge sharing, and clarity. It has become one of the key value drivers for food, alongside more traditional factors such as price and taste.</p>
<p>The blockchain functions as a distributed ledger of all transactions that have been executed between users belonging to a network, thus serving as a secure and transparent information storage and transmission technology. It thus has the potential to provide the trust enhancers required by the food industry.</p>
<p>Through the consensus mechanism, the blockchain network also bypasses the need for an intermediary and automates the trust in the whole system, disrupting the way transactions and processes occur compared to the current traditional system.</p>
<h2>Retailers are launching more blockchain initiatives</h2>
<figure class="align-center ">
<img alt="A hand is shown carrying an egg box. Inside, instructions and a QR code invite the reader to investigate the eggs’ supply chain" src="https://images.theconversation.com/files/469004/original/file-20220615-13-xh5ox.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/469004/original/file-20220615-13-xh5ox.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=288&fit=crop&dpr=1 600w, https://images.theconversation.com/files/469004/original/file-20220615-13-xh5ox.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=288&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/469004/original/file-20220615-13-xh5ox.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=288&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/469004/original/file-20220615-13-xh5ox.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=362&fit=crop&dpr=1 754w, https://images.theconversation.com/files/469004/original/file-20220615-13-xh5ox.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=362&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/469004/original/file-20220615-13-xh5ox.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=362&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">An egg box by the French retailer Carrefour provides instructions and a QR code to the consumer in order for them to track the eggs’ supply chain.</span>
<span class="attribution"><span class="source">Authors</span></span>
</figcaption>
</figure>
<p>Today, new consumer demands are pushing companies to rethink the way they engage and communicate their information to stakeholders, shedding light onto every step of the supply chain. Among the various existing traceability options, blockchain has particularly gained popularity because it allows real-time tracking and visibility and access to every transaction in the supply chain process.</p>
<p>A number of companies have begun to adopt blockchain, including the retail industry. In 2017, IBM has launched its first version of the <a href="https://www.ibm.com/fr-fr/blockchain/solutions/food-trust">Food Trust</a> followed by a commercial version released in 2020 after 18 months of testing. Designed exclusively for businesses, the platform aims to help food companies ensure traceability and brings together distributors, suppliers, manufacturers and other stakeholders in the food chain, aiming to connect these players through an immutable and shared record of food system data. – It was the American giant <a href="https://www.forbes.com/sites/biserdimitrov/2019/12/05/how-walmart-and-others-are-riding-a-blockchain-wave-to-supply-chain-paradise/?sh=894f30d77918">Walmart</a> that started the trend in early 2018 with the aim of optimising food quality and traceability.</p>
<p>Carrefour followed suit in Europe and started to gradually integrate the technology across several food supply chains by launching a <a href="https://actforfood.carrefour.eu/fr/pourquoi-agir/la-blockchain-alimentaire">food blockchain</a> in the sectors of chicken, eggs, tomatoes, and milk production.</p>
<h2>How to use blockchain</h2>
<p>Simply scan your product via a QR code and you will find all the traceability information about the product in question such as the location of the hatchery, the date, the details of the breeding and slaughterhouse, the batch number of the slaughter and the day of its departure to Carrefour, as well as the delivery in your local supermarket and the use-by date.</p>
<p>A <a href="https://doi.org/10.1108/JBS-02-2021-0032">study</a> we conducted on a French retail leader that integrates blockchain into some of its products shows traceability systems have become more efficient over time. The technology allows the management of product identification, the secure sharing of data – without possible alteration – between the actors of the supply chain, and a faster recovery of data.</p>
<h2>What form will blockchain take?</h2>
<p>The blockchain is a distributed ledger of all the links in the production chain where each party records and signs its information on a transparent, secure and immutable blockchain platform. All this information is then aggregated on a database and then put in place on an easy-to-access interface via the QR code of each product.</p>
<p>The video below is a use case of the blockchain at Carrefour and applied to several products. Food traceability technology can track food across all phases of its supply chain, allowing customers to see the complete history of food items and information such as certifications, harvest dates, packaging dates, and temperature data via a simple QR product scan.</p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/kdKGCP9qguc?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Carrefour food traceability with IBM (Majid Al Futtaim).</span></figcaption>
</figure>
<p>The blockchain presents itself as a promising technology offering many features to guarantee trust, traceability, as well as product quality and food waste reduction. The biggest challenge for its expansion remains its technological complexity, however. Companies would need to build technological and human skills to successfully implement it within an organisation. The technology could also benefit from more processing speed that is needed to scale it up, a more affordable data storage, and reduced energy usage.</p><img src="https://counter.theconversation.com/content/185098/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Les auteurs ne travaillent pas, ne conseillent pas, ne possèdent pas de parts, ne reçoivent pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'ont déclaré aucune autre affiliation que leur organisme de recherche.</span></em></p>Retailers are increasingly resorting to the technology in a bid to increase consumer confidence over their products’ supply chain.Ghassan Paul Yacoub, Professor of Innovation, Strategy, and Entrepreneurship, IÉSEG School of ManagementMaria Castillo, Head of Sustainability and Assistant Professor, IÉSEG School of ManagementLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1828192022-06-15T12:26:20Z2022-06-15T12:26:20ZHow we describe the metaverse makes a difference – today’s words could shape tomorrow’s reality and who benefits from it<figure><img src="https://images.theconversation.com/files/465865/original/file-20220529-53562-v9r9jp.png?ixlib=rb-1.1.0&rect=3%2C0%2C2552%2C697&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The metaverse might be a work in progress, but a key prototype – the virtual world – has been around for several decades.</span> <span class="attribution"><span class="source">Screen capture from Second Life by Tom Boellstorff</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>Quick, define the word “metaverse.”</p>
<p>Coined in 1992 <a href="https://www.penguinrandomhouse.com/books/172832/snow-crash-by-neal-stephenson/">by science fiction author Neal Stephenson</a>, the relatively obscure term <a href="https://trends.google.com/trends/explore?q=metaverse&geo=US">exploded in popularity during the COVID-19 pandemic</a>, particularly after Facebook rebranded as Meta in October 2021. There are now myriad articles on the metaverse, and <a href="https://venturebeat.com/2022/03/31/everyones-joining-the-metaverse-but-the-real-business-opportunity-is-building-your-own/">thousands of companies have invested in its development</a>. Citigroup Inc. has estimated that by 2030 the metaverse <a href="https://icg.citi.com/icghome/what-we-think/citigps/insights/metaverse-and-money_20220330">could be a US$13 trillion market</a>, with 5 billion users. </p>
<p>From climate change to global connection and disability access to pandemic response, the metaverse has incredible potential. Gatherings in virtual worlds have considerably lower carbon footprints than in-person gatherings. People spread all over the globe can gather together in virtual spaces. The metaverse can allow disabled people <a href="https://doi.org/10.1080/1369118X.2018.1472796">new forms of social participation through virtual entrepreneurship</a>. And during the early days of the COVID-19 pandemic, the metaverse not only <a href="https://www.draxtor.com/virtualcultures">provided people with ways to connect</a> but also served as a place where, for instance, those sharing a small apartment could be alone. </p>
<p>No less <a href="https://gizmodo.com/meta-horizon-worlds-metaverse-vr-headset-zuckerber-1849002182">monumental dangers exist as well</a>, from surveillance and exploitation to disinformation and discrimination. </p>
<p>But discussing these benefits and threats remains difficult because of confusion about what “metaverse” actually means. As a <a href="https://scholar.google.com/citations?user=uFsG9kcAAAAJ&hl=en">professor of anthropology</a> who has been researching the metaverse for almost 20 years, I know this confusion matters. The metaverse is at a virtual crossroads. Norms and standards set in the next few years are likely to structure the metaverse for decades. But without common conceptual ground, people cannot even debate these norms and standards. </p>
<p>Unable to distinguish innovation from hype, people can do little more than talk past one another. This leaves powerful companies like Meta to literally set the terms for their own commercial interests. For example, Nick Clegg, former deputy prime minister of the U.K. and now president of global affairs at Meta, attempted to control the narrative with the May 2022 essay “<a href="https://nickclegg.medium.com/making-the-metaverse-what-it-is-how-it-will-be-built-and-why-it-matters-3710f7570b04">Making the Metaverse</a>.”</p>
<h2>Categorical prototypes</h2>
<p>Most attempted definitions for metaverse include a bewildering laundry list of technologies and principles, but always included are virtual worlds – places online where real people interact in real time. Thousands of virtual worlds already exist, some gaming oriented, like <a href="https://www.epicgames.com/fortnite/en-US/home">Fortnite</a> and <a href="https://www.roblox.com/">Roblox</a>, others more open-ended, like <a href="https://www.minecraft.net/en-us">Minecraft</a> and <a href="https://animal-crossing.com/new-horizons/">Animal Crossing: New Horizons</a>. </p>
<p>Beyond virtual worlds, the list of metaverse technologies typically includes avatars, nonplayer characters and bots; virtual reality; cryptocurrency, blockchain and non-fungible tokens; social networks from Facebook and Twitter to Discord and Slack; and mobile devices like phones and augmented reality interfaces. Often included as well are principles like interoperability – the idea that identities, friendship networks and digital items like avatar clothes <a href="https://theconversation.com/what-is-the-metaverse-2-media-and-information-experts-explain-165731">should be capable of moving between virtual worlds</a>.</p>
<p>The problem is that humans don’t categorize by laundry lists. Instead, decades of research in cognitive science has shown that <a href="https://psycnet.apa.org/record/1987-97828-003">most categories are “radial,” with a central prototype</a>. One could define “bird” in terms of a laundry list of traits: has wings, flies and so on. But the prototypical bird for North Americans looks something like a sparrow. Hummingbirds and ducks are further from this prototype. Further still are flamingos and penguins. Yet all are birds, radiating out from the socially specific prototype. Someone living near the Antarctic might place penguins closer to the center. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/468857/original/file-20220614-11-ru1v1i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="a graphic of a sparrow-like bird in the middle of a ring surrounded by a hummingbird, duck and chicken in a second ring, with an ostrich, kiwi, penguin and flamingo outside the second ring" src="https://images.theconversation.com/files/468857/original/file-20220614-11-ru1v1i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/468857/original/file-20220614-11-ru1v1i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/468857/original/file-20220614-11-ru1v1i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/468857/original/file-20220614-11-ru1v1i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/468857/original/file-20220614-11-ru1v1i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=565&fit=crop&dpr=1 754w, https://images.theconversation.com/files/468857/original/file-20220614-11-ru1v1i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=565&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/468857/original/file-20220614-11-ru1v1i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=565&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">This representation of radial categories shows that the prototypical bird for most Americans is a sparrow, and that while ostrich legs are bird parts, they aren’t part of every bird.</span>
<span class="attribution"><span class="source">Tom Boellstorff</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>Human creations are usually radial categories as well. If asked to draw a chair, few people would draw a dentist chair or beanbag chair.</p>
<p>The metaverse is a human creation, and the most important step to defining it is to realize it’s a radial category. Virtual worlds are prototypical for the metaverse. Other elements of the laundry list radiate outward and won’t appear in all cases. And what’s involved will be socially specific. It will look different in Alaska than it will in Addis Ababa, or when at work versus at a family gathering.</p>
<h2>Whose idea of essential?</h2>
<p>This matters because one of the most insidious rhetorical moves currently underway is to assert that some optional aspect of the metaverse is prototypical. For instance, many pundits define the metaverse as <a href="https://www.fool.com/investing/stock-market/market-sectors/information-technology/metaverse-stocks/metaverse-crypto/">based on blockchain technology</a> and cryptocurrencies. But many existing virtual worlds use means other than blockchain for confirming ownership of digital assets. Many use national currencies like the U.S. dollar, or metaverse currencies pegged to a national currency.</p>
<p>Another such rhetorical move appears when Clegg uses an <a href="https://miro.medium.com/max/1400/1*_dujMK5Pp2ZZO1EdLrvfpg.png">image of a building</a> with a foundation and two floors to argue not only that interoperability will be part of “the foundations of the building” but that it’s “<a href="https://nickclegg.medium.com/making-the-metaverse-what-it-is-how-it-will-be-built-and-why-it-matters-3710f7570b04">the common theme across these floors</a>.” </p>
<p>But Clegg’s warning that “without a significant degree of interoperability baked into each floor, the metaverse will become fragmented” ignores how interoperability isn’t prototypical for the metaverse. In many cases, fragmentation is desirable. I might not want the same identity in two different virtual worlds, or on Facebook and an online game. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/6XLk9uUjuFU?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">The 13-year-old computer game Minecraft lets players build virtual worlds, which makes it a prototypical element of the metaverse.</span></figcaption>
</figure>
<p>This raises the question of why Meta – and many pundits – are fixated on interoperability. Left unsaid in Clegg’s essay is the “foundation” of Meta’s profit model: tracking users across the metaverse to <a href="https://www.markettradingessentials.com/2021/07/heres-how-zuckerberg-thinks-facebook-will-profit-by-building-a-metaverse/">target advertising and potentially sell digital goods</a> with maximum effectiveness. Recognizing “metaverse” as a radial category reveals that Clegg’s claim about interoperability isn’t a statement of fact. It’s an attempt to render Meta’s <a href="https://news.harvard.edu/gazette/story/2019/03/harvard-professor-says-surveillance-capitalism-is-undermining-democracy/">surveillance capitalism</a> prototypical, the foundation of the metaverse. It doesn’t have to be.</p>
<h2>Locking in definitions</h2>
<p>This example illustrates how defining the metaverse isn’t an empty intellectual exercise. It’s the conceptual work that will fundamentally shape design, policy, profit, community and the digital future. </p>
<p>Clegg’s essay concludes optimistically that “time is on our side” because many metaverse technologies won’t be fully realized for a decade or more. But <a href="https://www.penguinrandomhouse.com/books/97779/you-are-not-a-gadget-by-jaron-lanier/">as the VR pioneer Jaron Lanier has noted</a>, when definitions about digital technology get locked in they become difficult to dislodge. They become digital common sense.</p>
<p>With regard to the definitions that will be the true foundation of the metaverse, time is emphatically not on our side. I believe that now is the time to debate how the metaverse will be defined — because these definitions are very likely to become our digital realities.</p><img src="https://counter.theconversation.com/content/182819/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tom Boellstorff 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>Who makes money from the metaverse, and how, comes down to what it becomes. And shaping the metaverse is, to a large degree, a matter of definitions.Tom Boellstorff, Professor of Anthropology, University of California, IrvineLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1824462022-06-01T11:53:17Z2022-06-01T11:53:17ZNFTs: how top brands like Nike and Prada are using them – and what could go wrong<figure><img src="https://images.theconversation.com/files/466409/original/file-20220531-20-x8ukck.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Forget real sneakers – soon we'll be more worried about the digital variety. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/avatars-metaverse-online-store-merchandising-via-2140674043">naratrip2</a></span></figcaption></figure><p>Luxury fashion house Prada has a scheme for customers who want something even more exclusive than its usual range of clothing and accessories. Each month, on a first-come first-served basis, the Time Capsule Collection offers ultra-limited editions of Prada products. They’re only on sale for 24 hours, with purchases delivered straight to customers’ doors. </p>
<p>For the new June edition, there’s <a href="https://www.ledgerinsights.com/prada-to-incorporate-nfts-in-time-capsule-project/">an extra twist</a>. Those who buy one of only 100 black and white button-down shirts by Cassius Hirst, son of renowned British artist Damien, will receive an NFT (non-fungible token) as part of the experience. They are GIFs of the black and white capsules that Prada uses to brand these events, and they’re also being made available to purchasers of previous editions. </p>
<p>It is the latest example of how top brands are experimenting with NFTs to add another dimension to their businesses. This has recently included everything from Nike digital sneakers to virtual collectables from sport clubs such as AC Milan. For example, <a href="https://www.esquiremag.ph/money/wealth/virtual-gucci-bag-roblox-a00304-20210526">Gucci is selling</a> a digital bag for more than its real-world equivalent (US$4,115 vs US$3,400), in a sign that the Prada NFTs could fetch a high price if they are resold. </p>
<p>Most of the media coverage around NFTs has focused on big art auctions such as <a href="https://www.theverge.com/2021/3/11/22325054/beeple-christies-nft-sale-cost-everydays-69-million">Beeple’s Everydays</a>, a giant digital collage that sold for US$69 million, and the heavily hyped <a href="https://boredapeyachtclub.com/#/">Bored Ape Yacht Club</a>, 10,000 cartoon avatars of primates looking, well, bored. But clearly, the arrival of traditional brands is also a major part of the story. Total NFT sales for 2022 are heading for <a href="https://finance.yahoo.com/news/nft-market-sales-dropping-170000363.html">about £90 billion</a>, more than double 2021 despite the fact that markets are sinking right now. </p>
<p>So what are the best examples of brands operating in this space, and are there pitfalls?</p>
<h2>Early movers</h2>
<p>NFTs are online assets that double as certificates of ownership, usually of digital items such as a piece or art or a video, but potentially even physical things like an item of clothing or a car. People can buy and sell NFTs on marketplaces including <a href="https://opensea.io/">OpenSea</a>, <a href="https://looksrare.org/">LooksRare</a> or <a href="https://magiceden.io/">Magic Eden</a>, and the <a href="https://www.cnbc.com/2022/03/10/trading-in-nfts-spiked-21000percent-to-top-17-billion-in-2021-report.html">market exploded</a> in 2021 on the back of the Beeple hype and leading celebrities like Snoop Dogg and Lebron James issuing NFTs of their own. </p>
<p>Sport associations such as <a href="https://www.cbsnews.com/news/sports-nft-dapper-labs-nba-investment/">NBA</a> and <a href="https://www.cbsnews.com/news/sports-nft-dapper-labs-nba-investment/">NFL</a> were among the early movers, selling NFTs of collectable cards of sporting heroes, videos of classic moments, and even jerseys autographed by players. This is all about using NFTs to capitalise on a loyal fan base by offering them rare assets. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/466410/original/file-20220531-16-jyi8f1.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Rows of sports NFTs" src="https://images.theconversation.com/files/466410/original/file-20220531-16-jyi8f1.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/466410/original/file-20220531-16-jyi8f1.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=506&fit=crop&dpr=1 600w, https://images.theconversation.com/files/466410/original/file-20220531-16-jyi8f1.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=506&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/466410/original/file-20220531-16-jyi8f1.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=506&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/466410/original/file-20220531-16-jyi8f1.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=636&fit=crop&dpr=1 754w, https://images.theconversation.com/files/466410/original/file-20220531-16-jyi8f1.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=636&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/466410/original/file-20220531-16-jyi8f1.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=636&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Sports associations and clubs are making hay out of NFT collectables.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/avatars-metaverse-online-store-merchandising-via-2140674043">Maurice NORBERT</a></span>
</figcaption>
</figure>
<p>In the coming years, NFTs are likely to meld with the virtual worlds of the metaverse, in the sense that many will probably be usable there. Balenciaga, another luxury fashion house, has been an early pioneer in this direction, offering a collection of NFT accessories for gamers to <a href="https://www.epicgames.com/site/en-US/news/balenciaga-brings-high-fashion-to-fortnite">wear on Fortnite</a>. </p>
<p>Nike has been particularly forward-thinking, buying NFT pioneer <a href="https://news.nike.com/news/nike-acquires-rtfkt">RTFKT Studios</a> late in 2021. RTFKT made its name with a collection of Manga-style 3D NFT characters called <a href="https://opensea.io/collection/clonex?search%5BsortAscending%5D=false&search%5BsortBy%5D=LAST_SALE_DATE">CloneX</a> that now trade for tens of thousands of US dollars. In keeping with other top NFT collections like the Bored Apes, RTFKT is using the CloneX characters to craft a storyline that is gradually unfolding over time. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/466562/original/file-20220601-49160-xhye11.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="CloneX avatars on sale on OpenSea." src="https://images.theconversation.com/files/466562/original/file-20220601-49160-xhye11.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/466562/original/file-20220601-49160-xhye11.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=303&fit=crop&dpr=1 600w, https://images.theconversation.com/files/466562/original/file-20220601-49160-xhye11.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=303&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/466562/original/file-20220601-49160-xhye11.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=303&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/466562/original/file-20220601-49160-xhye11.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=381&fit=crop&dpr=1 754w, https://images.theconversation.com/files/466562/original/file-20220601-49160-xhye11.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=381&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/466562/original/file-20220601-49160-xhye11.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=381&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">CloneX avatars on sale on OpenSea.</span>
<span class="attribution"><a class="source" href="https://opensea.io/collection/clonex">OpenSea</a></span>
</figcaption>
</figure>
<p>In February, CloneX owners were airdropped NFTs of mystery digital boxes <a href="https://boardroom.tv/nike-rtfkt-mnlth-nft-collectible/">known as Mnlths</a>. The Mnlths had Nike swooshes on the side and quickly started selling for upwards of US$10,000 (£7,944) on NFT marketplaces, even though nobody knew what they contained. In April, Nike announced that owners could “burn” them to unlock a pair of digital sneakers known as <a href="https://www.voguebusiness.com/technology/nike-and-rtfkt-take-on-digital-fashion-with-first-cryptokick-sneaker">CryptoKicks</a>, plus a vial that allows users to customise them, and another mystery box called Mnlth 2. A pair of CryptoKicks has since reportedly sold <a href="https://indianexpress.com/article/technology/tech-news-technology/nike-sold-an-nft-sneaker-for-usd-134000-7944870/">for US$134,000</a>. </p>
<p>Meanwhile, online platforms are helping to make these NFTs more usable. <a href="https://www.ft.com/content/2745d50b-36e4-4c0a-abe0-e93f035b0628">Meta is creating</a> features for Facebook and Instagram that will make it possible for users to create NFTs and showcase them on their social media profiles. <a href="https://techcrunch.com/2022/05/16/spotify-new-feature-artists-promote-nfts/">Spotify is working</a> on something similar, with a view to creating new revenue streams for artists and record companies. </p>
<h2>Danger ahead?</h2>
<p>But if these are examples of NFTs’ potential for major brands, there are also serious risks. The market has <a href="https://www.theblockcrypto.com/post/146566/nft-bayc-crypto-markets-prices-ethereum-solana-cryptopunks-terra-luna#:%7E:text=The%20popular%20Bored%20Ape,ETH%20over%20the%20same%20period.">fallen substantially</a> in both prices and volumes in recent weeks in line with drops in everything from the stock market to cryptocurrencies. Many collectors will be sitting on assets that were worth a lot more several months ago. </p>
<p>A historic sports club like, say, Real Madrid might unintentionally end up undermining its fans’ financial well-being as a result. Should the club compensate these people in some way to avoid jeopardising the relationship? Or what if the fans become like day traders, flipping NFTs to try and make money. Is the club then vulnerable to being accused of enabling something close to gambling? </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/466411/original/file-20220531-18-d9x58e.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="NFT of a one-arm bandit" src="https://images.theconversation.com/files/466411/original/file-20220531-18-d9x58e.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/466411/original/file-20220531-18-d9x58e.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=495&fit=crop&dpr=1 600w, https://images.theconversation.com/files/466411/original/file-20220531-18-d9x58e.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=495&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/466411/original/file-20220531-18-d9x58e.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=495&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/466411/original/file-20220531-18-d9x58e.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=622&fit=crop&dpr=1 754w, https://images.theconversation.com/files/466411/original/file-20220531-18-d9x58e.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=622&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/466411/original/file-20220531-18-d9x58e.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=622&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The NFT casino is now open.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/roulette-machine-pixel-art-style-2161140547">Pixelart</a></span>
</figcaption>
</figure>
<p>Another danger is undesirable repercussions from a company giving control of assets to unknown third parties. How would, say, fashion label Patagonia’s customers feel about its sustainable and activist values if its NFTs ended up being flaunted by a major entrepreneur in fossil fuels?</p>
<p>For many brands it’s also not yet clear whether NFTs could cannibalise the sales of their physical products. Equally, not all brands have the same scarcity value of a Prada or Gucci. A budget retailer such as Primark might experience a lack of demand if it launched NFTs, and its image could be harmed as a result. </p>
<p>Companies launching NFTs are going to potentially need to change more than it first appears. They will need to set up a range of new roles to manage relationships with NFT owners and their corporate reputation. </p>
<p>This could become a distraction from the company’s core business. Perhaps they become like an investment house, more focused on maximising the sales of NFTs than creating value for their customers. Especially for brands with a more progressive culture such as Ben & Jerry’s or Oatly, that could raise awkward ethical issues. </p>
<p>Nonetheless, it’s going to be fascinating to see how this market develops. The companies that succeed will probably be the ones that are alert to these risks, and view NFTs as a new revenue market to explore rather than a short-term opportunity.</p><img src="https://counter.theconversation.com/content/182446/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Achilleas Boukis 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>NFT sales passed US$40 billion in 2021 and now more brands want to get in on the action.Achilleas Boukis, Associate professor, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1830582022-05-17T12:48:57Z2022-05-17T12:48:57ZA central bank digital euro could save the eurozone – here’s how<figure><img src="https://images.theconversation.com/files/463610/original/file-20220517-16-38nhq8.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Blockchain bailout?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/central-bank-digital-currency-euro-on-1857106741">4K_Heaven</a></span></figcaption></figure><p>The <a href="https://www.ecb.europa.eu/home/search/html/central_bank_digital_currencies_cbdc.en.html">European Central Bank</a> and its counterparts in the <a href="https://www.bankofengland.co.uk/research/digital-currencies">UK</a>, <a href="https://www.federalreserve.gov/central-bank-digital-currency.htm">US</a>, <a href="https://www.csis.org/blogs/new-perspectives-asia/chinas-progress-towards-central-bank-digital-currency">China</a> and <a href="https://indianexpress.com/article/business/banking-and-finance/cbdc-launch-in-calibrated-nuanced-manner-7858891/#:%7E:text=The%20RBI%20plans%20to%20come,and%20make%20transactions%20real%20time.">India</a> are exploring a new form of state-backed money built on similar online ledger technology to cryptocurrencies such as bitcoin and ethereum. So-called central bank digital currencies (CBDCs) envision a future where we’ll all have our own digital wallets and transfer money between them at the touch of a button, with no need for high-street banks to be involved because it all happens <a href="https://www.euromoney.com/learning/blockchain-explained/what-is-blockchain#:%7E:text=Blockchain%20is%20a%20system%20of,computer%20systems%20on%20the%20blockchain.">on a blockchain</a>. </p>
<p>But CBDCs also present an opportunity that has gone unnoticed – to vastly reduce the exorbitant levels of public debt weighing down many countries. Let us explain. </p>
<p>The idea behind CBDCs is that individuals and firms would be issued with digital wallets by their central bank with which to make payments, pay taxes and buy shares or other securities. Whereas with today’s bank accounts, there is always the outside possibility that customers are unable to withdraw money because of a <a href="https://www.investopedia.com/terms/b/bankrun.asp">bank run</a>, that can’t happen with CBDCs because all deposits would be 100% backed by reserves. </p>
<p>Today’s retail banks are required to keep little or no deposits in reserve, <a href="https://www.bankofengland.co.uk/statistics/details/further-details-about-banking-sector-regulatory-capital-data">though they</a> do have <a href="https://www.bankingsupervision.europa.eu/press/pr/date/2022/html/ssm.pr220210%7E6455538b07.en.html">to hold</a> a proportion of their capital (meaning easily sold assets) as protection in case their lending books run into trouble. For example, eurozone banks’ minimum requirement is 15.1%, meaning if they have capital of €1 billion (£852 million), their lending book cannot exceed €6.6 billion (that’s 6.6 times deposits). </p>
<p>In an era of CBDCs, we assume that people will still have bank accounts – to have their money invested by a fund manager, for instance, or to make a return by having it loaned out to someone else on the first person’s behalf. Our idea is that the 100% reserve protection in central bank wallets should extend to these retail bank accounts. </p>
<p>That would mean that if a person put 1,000 digital euros into a retail bank account, the bank could not multiply that deposit by opening more accounts than they could pay upon request. The bank would have to make money from its other services instead. </p>
<p>At present, the ECB holds about 25% of EU members’ government debt. Imagine that after transitioning to a digital euro, it decided to increase this holding to 30% by buying new sovereign bonds issued by member states. </p>
<p>To pay for this, it would create new digital euros – just like what happens today when <a href="https://theconversation.com/quantitative-easing-now-looks-permanent-and-has-turned-central-banks-into-pseudo-governments-130098">quantitative easing (QE)</a> is used to prop up the economy. Crucially, for each unit of central bank money created in this way, the money circulating in the wider economy increases by a lot more: in the eurozone, <a href="https://www.ecb.europa.eu/pub/pdf/other/ebbox201706_07_1.en.pdf?f307ee1c10fc673686926c27caa18c7a">it roughly triples</a>. This is essentially because QE drives up the value of bonds and other assets, and as a result, retail banks are more willing to lend to people and firms. This increase in the money supply is why QE can cause inflation. </p>
<p>If there was a 100% reserve requirement on retail banks, however, you wouldn’t get this multiplication effect. The money created by the ECB would be that amount and nothing more. Consequently, QE would be much less inflationary than today. </p>
<h2>The debt benefit</h2>
<p>So where does national debt fit in? The high national debt levels in many countries are predominantly the result of the global financial crisis of 2007-09, the eurozone crisis of the 2010s and the COVID pandemic. In the eurozone, <a href="https://worldpopulationreview.com/countries/countries-by-national-debt">countries with very high debt</a> as a proportion of GDP include Belgium (100%), France (99%), Spain (96%), Portugal (119%), Italy (133%) and Greece (174%). </p>
<p>One way to deal with high debt is to create a lot of inflation to make the value of the debt smaller, but that also makes citizens poorer and is liable to eventually cause unrest. But by taking advantage of the shift to CBDCs to change the rules around retail bank reserves, governments can go a different route. </p>
<p>The opportunity is during the transition phase, by reversing the process in which creating money to buy bonds adds three times as much money to the real economy. By selling bonds in exchange for today’s euros, every one euro removed by the central bank leads to three disappearing from the economy. </p>
<p>Indeed, this is how digital euros would be introduced into the economy. The ECB would gradually sell sovereign bonds to take the old euros out of circulation, while creating new digital euros to buy bonds back again. Because the 100% reserve requirement only applies to the new euros, selling bonds worth €5 million euros takes €15 million out of the economy but buying bonds for the same amount only adds €5 million to the economy. </p>
<p>However, you wouldn’t just buy the same amount of bonds as you sold. Because the multiplier doesn’t apply to the bonds being bought, you can triple the amount of purchases and the total amount of money in the economy stays the same – in other words, there’s no extra inflation. </p>
<p>For example, the ECB could increase its holdings of sovereign debt of EU member states from 25% to 75%. Unlike the sovereign bonds in private hands, member states don’t have to pay interest to the ECB on such bonds. So EU taxpayers would now only need to pay interest on 25% of their bonds rather than the 75% on which they are paying interest now. </p>
<h2>Interest rates and other questions</h2>
<p>An added reason for doing this is interest rates. While interest rates payable on bonds have been meagre for years, they could hugely increase on future issuances due to inflationary pressures and central banks beginning to raise short-term interest rates in response. The chart below shows how the yields (meaning rates of interest) on the closely watched 10-year sovereign bonds for Spain, Greece, Italy and Portugal have already increased between three and fivefold in the past few months. </p>
<p><strong>Mediterranean 10-year bond yields</strong></p>
<p>Following several years of immense shocks from the pandemic, the energy crisis and war emergency, there’s a risk that the markets start to think that Europe’s most indebted countries can’t cover their debts. This could lead to widespread bond selling and push interest rates up to unmanageable levels. In other words, our approach might even save the eurozone. </p>
<p>The ECB could indeed achieve all this without introducing a digital euro, simply by imposing a tougher reserve requirement within the current system. But by moving to a CBDC, there is a strong argument that because it’s safer than bank deposits, retail banks should have to guarantee that safety by following a 100% reserve rule. </p>
<p>Note that we can only take this medicine once, however. As a result, EU states will still have to be disciplined about their budgets. </p>
<p>Instead of completely ending fractional reserve banking in this way, there’s also a halfway house where you make reserve requirements more stringent (say a 50% rule) and enjoy a reduced version of the benefits from our proposed system. Alternatively, after the CBDC transition ends, the reserve requirement could be progressively relaxed to stimulate the economy, subject to GDP growth, inflation and so on. </p>
<p>What if other central banks do not take the same approach? Certainly, some coordination would help to minimise disruption, but reserve requirements do differ between countries today without significant problems. Also, many countries would probably be tempted to take the same approach. For example, the Bank of England holds over one-third of British government debt, and UK public debt as a proportion of GDP currently <a href="https://www.statista.com/statistics/282841/debt-as-gdp-uk/">stands at 95%</a>.</p><img src="https://counter.theconversation.com/content/183058/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>By changing the rules around bank lending, you can make a huge cut to national debt.Guido Cozzi, Professor of Macroeconomics, University of St.GallenLeonardo Becchetti, Professor of Political Economy, University of Rome Tor VergataLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1815322022-05-03T13:13:43Z2022-05-03T13:13:43ZCurious Kids: what are NFTs – and why are they so expensive?<figure><img src="https://images.theconversation.com/files/460066/original/file-20220427-24-gee6ii.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">shutterstock</span> </figcaption></figure><p><strong>What is the purpose of making NFTs and what makes some of them so costly? – Tanvi, aged 16, Delhi, India</strong></p>
<p>An NFT is a technology that proves who the owner of a digital object is. This digital object could be a song, a picture, a video, a tweet – or even a piece of digital land in an online game or virtual world. Recently, pieces of digital land in a forthcoming <a href="https://www.cnet.com/personal-finance/crypto/bored-ape-yacht-club-just-broke-the-ethereum-blockchain/">virtual world called Otherside</a> sold for nearly US$6,000 (£4,791) each. What’s more, people were so keen to buy them that they also paid thousands of dollars in transaction fees.</p>
<p>NFT stands for non-fungible token. If something is non-fungible, this means that it cannot be replaced or exchanged for something of identical value. An example of something fungible is a current coin, such as a one pound coin, because this can be exchanged for another pound coin. It doesn’t matter which of the coins you have – you still have £1.</p>
<p>Something like a painting, though, is non-fungible. That particular painting only exists once. If you bought a painting, you could take that painting and hang it up in your bedroom. It would be yours – no one else would own that exact painting. </p>
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<img alt="" src="https://images.theconversation.com/files/282267/original/file-20190702-126345-1np1y7m.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/282267/original/file-20190702-126345-1np1y7m.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=293&fit=crop&dpr=1 600w, https://images.theconversation.com/files/282267/original/file-20190702-126345-1np1y7m.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=293&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/282267/original/file-20190702-126345-1np1y7m.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=293&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/282267/original/file-20190702-126345-1np1y7m.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=368&fit=crop&dpr=1 754w, https://images.theconversation.com/files/282267/original/file-20190702-126345-1np1y7m.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=368&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/282267/original/file-20190702-126345-1np1y7m.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=368&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em><a href="https://theconversation.com/au/topics/curious-kids-36782">Curious Kids</a> is a series by <a href="https://theconversation.com/uk">The Conversation</a> that gives children the chance to have their questions about the world answered by experts. If you have a question you’d like an expert to answer, send it to <a href="mailto:curiouskids@theconversation.com">curiouskids@theconversation.com</a> and make sure you include the asker’s first name, age and town or city. We won’t be able to answer every question, but we’ll do our very best.</em></p>
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<p>Owning something is more tricky for digital objects, because they can be copied. For instance, if you find a picture online that you like, you can right-click it, save it in your computer, and use it as a background if you want. This is where NFTs come in.</p>
<p>If you bought an NFT of a digital painting from the person who made it, a record of your purchase is kept in the <a href="https://kidscodecs.com/what-is-the-blockchain/">blockchain</a>. The blockchain is a giant database maintained by many people in their computers, and it is almost impossible to alter. Once the blockchain keeps a record of a transaction, it’s there forever. Everyone can see that you bought the NFT – and it proves that you are the only owner of the digital painting.</p>
<h2>High values</h2>
<p>Some digital objects have been bought for large sums of money. For instance, in 2021, the first tweet ever sent was sold for <a href="https://edition.cnn.com/2021/03/23/tech/jack-dorsey-nft-tweet-sold/index.html">almost US$3 million</a>. But why would someone pay so much money for an NFT? </p>
<p>First of all, most NFTs actually have a low price. We just only get to hear about them whenever there has been a record sale. It is the same with physical art. We hear about it when someone paid millions for a painting by a famous artist like Picasso, and never about all the paintings sold for much less.</p>
<figure class="align-center ">
<img alt="Illustration of art coming out of phone screen" src="https://images.theconversation.com/files/460316/original/file-20220428-26-ws931r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/460316/original/file-20220428-26-ws931r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=316&fit=crop&dpr=1 600w, https://images.theconversation.com/files/460316/original/file-20220428-26-ws931r.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=316&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/460316/original/file-20220428-26-ws931r.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=316&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/460316/original/file-20220428-26-ws931r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=397&fit=crop&dpr=1 754w, https://images.theconversation.com/files/460316/original/file-20220428-26-ws931r.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=397&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/460316/original/file-20220428-26-ws931r.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=397&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">NFTs prove ownership of a digital object.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/3d-render-illustration-golden-coins-nft-1953459553">Alongkorn Sanguansook/Shutterstock</a></span>
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<p>Like physical things, the value of digital art or other digital objects depends on how much someone is willing to pay for it – and that can come down to a lot of factors. </p>
<p>The person buying it might think it is very beautiful or important, and so is happy to pay a lot of money for it. The person who bought the first tweet, businessman Sina Estavi, <a href="https://www.bbc.co.uk/news/business-56492358">wrote about it on Twitter</a>, saying, “This is not just a tweet! I think years later people will realise the true value of this tweet, like the Mona Lisa painting”. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1374063984396136450"}"></div></p>
<p>The <a href="https://www.louvre.fr/en/explore/the-palace/from-the-mona-lisa-to-the-wedding-feast-at-cana">Mona Lisa</a>, a painting by the Renaissance artist Leonardo da Vinci, is one of the most famous pieces of art in the world. It hangs in the Louvre gallery in Paris, and millions of people go to see it each year. </p>
<p>As well as the fact that the first tweet is unique and historical, buying it is also a matter of status. Only one person in the world can say that they own the first tweet ever sent.</p>
<h2>In a bubble</h2>
<p>Another reason NFTs might be so expensive is because of something economists call a bubble. We say that there is a bubble in a market when investors buy things with the main prospect of selling them shortly afterwards at a higher price. This pushes the price up. </p>
<p>Bubbles tend to occur whenever new technology appears. Plenty of investors come with their money after hearing about the astronomical price of a new technology, or about celebrities buying them. They buy them without fully understanding them, just attracted by the money they might be able to make by selling them on. <a href="https://theconversation.com/nfts-an-overblown-speculative-bubble-inflated-by-pop-culture-and-crypto-mania-174462">Some people think</a> this is what is happening with NFTs. </p>
<p>This is not to say that NFTs have no value: it is to say that some of the people buying them are doing so solely to obtain a profit, not because they are interested in owning an image. </p>
<p>Another reason NFTs might be so expensive is because of the potential they have to link with the metaverse. The metaverse is a virtual universe in which people would be represented by avatars and own digital space, like the digital land sold in the Otherside virtual world. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/460996/original/file-20220503-14-rhidin.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Smartphone pics of Bored Apes" src="https://images.theconversation.com/files/460996/original/file-20220503-14-rhidin.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/460996/original/file-20220503-14-rhidin.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/460996/original/file-20220503-14-rhidin.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/460996/original/file-20220503-14-rhidin.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/460996/original/file-20220503-14-rhidin.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/460996/original/file-20220503-14-rhidin.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/460996/original/file-20220503-14-rhidin.jpeg?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"></a>
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<span class="caption">The Bored Ape Yacht Club is one of the leading collections of NFTs.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/bored-ape-4873-nft-digital-art-2099895151">mundissima</a></span>
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</figure>
<p>In the future, NFTs could be displayed in this digital space, in the same way we might hang a painting up in a physical house. It will probably also be possible to convert some of them into unique avatars that the owner can use to interact in that world. Since Otherside is owned by the same company that created a famous collection called the Bored Ape Yacht Club, maybe there will be a way in future for avatar versions of these apes and other NFTs to move around in the Otherwise metaverse.</p><img src="https://counter.theconversation.com/content/181532/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Francesc Rodriguez-Tous 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 value of digital art or other digital objects depends on how much someone is willing to pay for it.Francesc Rodriguez-Tous, Lecturer in Banking, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1790672022-04-21T12:19:38Z2022-04-21T12:19:38ZCan you truly own anything in the metaverse? A law professor explains how blockchains and NFTs don’t protect virtual property<p>In 2021, an investment firm <a href="https://www.cnet.com/personal-finance/people-are-paying-millions-for-land-in-the-metaverse-heres-why/">bought 2,000 acres of real estate</a> for about US$4 million. Normally this would not make headlines, but in this case the land was virtual. It existed only in a <a href="https://theconversation.com/what-is-the-metaverse-2-media-and-information-experts-explain-165731">metaverse</a> platform called <a href="https://www.sandbox.game/en/">The Sandbox</a>. By buying 792 <a href="https://theconversation.com/how-nonfungible-tokens-work-and-where-they-get-their-value-a-cryptocurrency-expert-explains-nfts-157489">non-fungible tokens</a> on the <a href="https://ethereum.org/en/what-is-ethereum/">Ethereum blockchain</a>, the firm <a href="https://www.republicrealm.com/news/republic-realm-completes-largest-ever-metaverse-land-acquisition%2C-%244.28-million-usd">then owned</a> the equivalent of 1,200 city blocks. </p>
<p>But did it? It turns out that legal ownership in the metaverse is not that simple.</p>
<p>The prevailing but legally problematic narrative among crypto enthusiasts is that NFTs allow true ownership of digital items in the metaverse for two reasons: decentralization and interoperability. These two technological features have led some to claim that <a href="https://www.ft.com/partnercontent/crypto-com/nfts-the-metaverse-economy.html">tokens provide indisputable proof of ownership</a>, which can be used across various metaverse apps, environments and games. Because of this decentralization, some also claim that <a href="https://ethereum.org/en/nft/">buying and selling virtual items can be done on the blockchain</a> itself for whatever price you want, without any person or any company’s permission.</p>
<p>Despite these claims, the legal status of virtual “owners” is significantly more complicated. In fact, the current ownership of metaverse assets is not governed by property law at all, but rather by contract law. As a <a href="https://scholar.google.com/citations?user=b8cRIfIAAAAJ&hl=en">legal scholar</a> who studies property law, tech policy and legal ownership, I believe that what many companies are calling “ownership” in the metaverse is not the same as ownership in the physical world, and consumers are at risk of being swindled.</p>
<h2>Purchasing in the metaverse</h2>
<p>When you buy an item in the metaverse, your purchase is recorded in a transaction on a blockchain, which is a digital ledger under nobody’s control and in which transaction records cannot be deleted or altered. Your purchase assigns you ownership of an NFT, which is simply a unique string of bits. You store the NFT in a crypto wallet that only you can open, and which you “carry” with you wherever you go in the metaverse. Each NFT is linked to a particular virtual item.</p>
<p>It is easy to think that because your NFT is in your crypto wallet, no one can take your NFT-backed virtual apartment, outfit or magic wand away from you without access to your wallet’s private key. Because of this, many people think that the NFT and the digital item are one and the same. Even experts conflate NFTs with their respective digital goods, noting that because <a href="https://www.nytimes.com/interactive/2022/03/18/technology/nft-guide.html?referringSource=articleShare">NFTs are personal property</a>, they allow <a href="https://theconversation.com/the-metaverse-is-money-and-crypto-is-king-why-youll-be-on-a-blockchain-when-youre-virtual-world-hopping-171659">you to own digital goods in a virtual world</a>.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/uIllSiXVfmI?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">NFTs and the hype about the metaverse have sparked a virtual land rush.</span></figcaption>
</figure>
<p>However, when you join a metaverse platform you must first agree to the platform’s terms of service, terms of use or end user license agreement. These are legally binding documents that define the rights and duties of the users and the metaverse platform. Unfortunately and unsurprisingly, almost no one actually reads the terms of service. In one study, <a href="https://doi.org/10.1080/1369118X.2018.1486870">only 1.7% of users found and questioned a “child assignment clause</a>” embedded in a terms of service document. Everyone else unwittingly gave away their first-born child to the fictional online service provider.</p>
<p>It is in these lengthy and sometimes incomprehensible documents where metaverse platforms spell out the legal nuances of virtual ownership. Unlike the blockchain itself, the terms of service for each metaverse platform are centralized and are under the complete control of a single company. This is extremely problematic for legal ownership.</p>
<p>Interoperability and portability are defining features of the metaverse, meaning you should be able to carry your non-real-estate virtual property – your avatar, your digital art, your magic wand – from one virtual world to another. But today’s virtual worlds are not connected to one another, and there is nothing in an NFT itself that labels it as, say, a magic wand. As it stands, each platform needs to link NFTs to their own proprietary digital assets.</p>
<h2>Virtual fine print</h2>
<p>Under the terms of service, the NFTs purchased and the digital goods received are almost never one and the same. NFTs exist on the blockchain. The land, goods and characters in the metaverse, on the other hand, exist on <a href="https://dx.doi.org/10.2139/ssrn.3682090">private servers running proprietary code</a> with secured, inaccessible databases.</p>
<p>This means that all visual and functional aspects of digital assets – the very features that give them any value – are not on the blockchain at all. These features are completely controlled by the private metaverse platforms and are subject to their unilateral control. </p>
<p>Because of their terms of service, platforms can even legally delete or give your items away by delinking the digital assets from their original NFT identification codes. Ultimately, even though you may own the NFT that came with your digital purchase, you do not legally <a href="https://dx.doi.org/10.2139/ssrn.3834643">own or possess</a> the digital assets themselves. Instead, the platforms merely grant you access to the digital assets and only for the length of time they want.</p>
<p>For example, on one day you might own a $200,000 digital painting for your apartment in the metaverse, and the next day you may find yourself banned from the metaverse platform, and your painting, which was originally stored in its proprietary databases, deleted. Strictly speaking, you would still own the NFT on the blockchain with its original identification code, but it is now functionally useless and financially worthless.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/458454/original/file-20220418-24-iytufa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A graphical image of a young woman with purple hair and slanted bangs" src="https://images.theconversation.com/files/458454/original/file-20220418-24-iytufa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/458454/original/file-20220418-24-iytufa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=311&fit=crop&dpr=1 600w, https://images.theconversation.com/files/458454/original/file-20220418-24-iytufa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=311&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/458454/original/file-20220418-24-iytufa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=311&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/458454/original/file-20220418-24-iytufa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=391&fit=crop&dpr=1 754w, https://images.theconversation.com/files/458454/original/file-20220418-24-iytufa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=391&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/458454/original/file-20220418-24-iytufa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=391&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Virtual items like this avatar are sold in NFT marketplaces.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/azulmarino/51774354674/">Nescolet/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>While admittedly jarring, this is not a far-fetched scenario. It might not be a wise business move for the platform company, but there’s nothing in the law to prevent it. Under the <a href="https://www.sandbox.game/en/terms-of-use/">terms of use</a> and <a href="https://www.sandbox.game/en/premium-nft-terms-of-use/">premium NFT terms of use</a> governing the $4 million’s worth of <a href="https://www.republicrealm.com/news/republic-realm-completes-largest-ever-metaverse-land-acquisition%2C-%244.28-million-usd">virtual real estate purchased on The Sandbox</a>, the metaverse company – like many other NFT and metaverse platforms – reserves the right at its sole discretion to terminate your ability to use or even access your purchased digital assets. </p>
<p>If The Sandbox “reasonably believes” you engaged in any of the platform’s prohibited activities, which require subjective judgments about whether you interfered with others’ “enjoyment” of the platform, it may immediately suspend or terminate your user account and delete your NFT’s images and descriptions from its platform. It can do this without any notice or liability to you.</p>
<p>In fact, The Sandbox even <a href="https://www.sandbox.game/en/premium-nft-terms-of-use/">claims the right</a> in these cases to immediately confiscate any NFTs it deems you acquired as a result of the prohibited activities. How it would successfully confiscate blockchain-based NFTs is a technological mystery, but this raises further questions about the validity of what it calls virtual ownership.</p>
<p>The Conversation reached out to The Sandbox for comment but did not receive a response.</p>
<h2>Legally binding</h2>
<p>As if these clauses weren’t alarming enough, many metaverse platforms reserve the right to amend their terms of service at any time with <a href="https://scholarship.law.upenn.edu/jbl/vol14/iss4/6/">little to no actual notice</a>. This means that users would need to constantly refresh and reread the terms to ensure they do not engage in any recently banned behavior that could result in the deletion of their “purchased” assets or even their entire accounts. </p>
<p>[<em>Over 150,000 readers rely on The Conversation’s newsletters to understand the world.</em> <a href="https://memberservices.theconversation.com/newsletters/?source=inline-150ksignup">Sign up today</a>.]</p>
<p>Technology alone will not pave the way for true ownership of digital assets in the metaverse. NFTs cannot bypass the centralized control that metaverse platforms currently have and will continue to have under their contractual terms of service. Ultimately, legal reform alongside technological innovation is needed before the metaverse can mature into what it promises to become.</p><img src="https://counter.theconversation.com/content/179067/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>João Marinotti 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>NFTs are hailed as the foundation of the metaverse economy because they allow you to purchase unique digital assets, from art to real estate. But legally, you might not own what you think you do.João Marinotti, Associate Professor of Law, Indiana UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1802642022-03-31T14:19:10Z2022-03-31T14:19:10ZBitcoin: Greenpeace says a code change could slash cryptocurrency energy use – here’s why it’s not so simple<figure><img src="https://images.theconversation.com/files/455542/original/file-20220331-17-mkngiz.jpg?ixlib=rb-1.1.0&rect=40%2C202%2C2887%2C1733&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-vector/cryptocurrency-sustainability-problem-bitcoin-crypto-currency-1980165455">EamesBot/Shutterstock</a></span></figcaption></figure><p>Fewer and fewer people <a href="https://www.bloomberg.com/news/articles/2019-05-31/bitcoin-s-rally-masks-uncomfortable-fact-almost-nobody-uses-it">are using bitcoin</a> for digital payments. Nevertheless, bitcoin transactions are consuming more energy than ever before – the <a href="https://doi.org/10.1016/j.erss.2021.102394">same amount</a> as the whole of Thailand. With a carbon footprint equivalent to the Czech Republic’s (around <a href="https://digiconomist.net/bitcoin-energy-consumption">114 million tonnes per year</a>), bitcoin is cancelling out other climate wins. </p>
<p>The global take-up of electric vehicles, for example, is estimated to have <a href="https://doi.org/10.1016/j.erss.2021.102394">prevented 50 million tonnes of CO₂ so far</a>. That’s less than half of bitcoin’s emissions for a single year. And the problem’s getting worse. The growth of <a href="https://theconversation.com/bitcoin-isnt-getting-greener-four-environmental-myths-about-cryptocurrency-debunked-155329">bitcoin “mining”</a> powered by fossil fuels is outpacing greener alternatives, causing bitcoin’s carbon footprint to <a href="https://doi.org/10.1016/j.erss.2021.102394">swell five-fold</a> in just two years.</p>
<p>But, according to campaign groups <a href="https://www.greenpeace.org/usa/greenpeace-bitcoin-climate-change-crisis-clean-up/">Greenpeace</a> and the <a href="https://www.ewg.org/news-insights/news/2022/03/why-ewg-talking-about-cryptocurrency-and-climate-change">Environmental Working Group</a>, all this can be easily fixed with a simple update to bitcoin’s software. Their campaign, called <a href="https://www.cleanupbitcoin.com/">Change the Code Not the Climate</a>, launched recently and calls on bitcoin software developers to switch the network from its currently wasteful system for verifying transactions to a more climate-friendly alternative. </p>
<p>The switch, <a href="https://www.cleanupbitcoin.com/">they claim</a>, would reduce bitcoin’s carbon footprint by 99.9%. But it’s unlikely to happen soon – and here’s why.</p>
<h2>Proof of waste to proof of stake?</h2>
<p>Bitcoiners don’t trust bankers, taxmen and other meddling middlemen. Because there are no banks with bitcoin, the job of keeping the books straight is given to a global network of specialist computers. The owners of these computers compete for bookkeeping tasks in return for the transaction fees paid by network users. They also get a few newly minted bitcoins as a thank you. </p>
<p><a href="https://theconversation.com/bitcoin-chinas-crackdown-isnt-enough-only-a-global-effort-can-stop-cryptos-monstrous-energy-demand-161776">This competition</a> is known as Proof of Work (PoW) mining. It works like an ever-expanding game of hungry hippos. The more players that join the contest, the more work each hippo needs to do in order to win anything. If a new hippo with green intentions joins the game, everyone at the table has to work harder. Players powered by coal in Kazakhstan, or fossil gas in Texas, then belch out extra smog. </p>
<p>The higher the bitcoin price, the more the dirty hippos are prepared to waste on coal and gas until their costs for doing so are equal to their reward. And so, Proof of Work is proof of waste. And this is waste by design: Bitcoiners call this inefficiency “<a href="https://doi.org/10.1016/j.erss.2021.102394">the feature, not the bug</a>”.</p>
<p>Greenpeace hopes the bitcoin community could learn to love Proof of Stake (PoS) instead. With the network running on PoS, bitcoin’s bookkeepers would need to stake a prescribed minimum number of bitcoins as a security deposit. If they validate fraudulent transactions, they lose their stake. This disincentive keeps the network secure. </p>
<p>A number of blockchains, including Cardano, EOS, and TRON already use a PoS system, where token holders vote for the most qualified block producers. While bitcoin currently uses millions of mining computers, these PoS networks usually maintain an assembly of around 20 machines using a comparably minuscule amount of energy, taking turns to receive bookkeeping rights.</p>
<h2>Code blockers</h2>
<p>For bitcoin, coding these changes would be straightforward. Greenpeace claims that only 30 people – the largest mining outfits, exchanges like Coinbase and Binance, and code developers – would need to agree the switch to PoS. </p>
<p>But this ignores the fact that everyone would need to run the upgraded software. On average, to successfully mine bitcoin once per week requires <a href="https://doi.org/10.1016/j.erss.2021.102394">shelling out around US$1.8 million</a> (£1.4 million) on hardware. Most miners are protective of these investments and conservative when it comes to amending the software code that underwrites their winnings. </p>
<p>For this reason, <a href="https://www.bloomberg.com/news/articles/2022-03-29/greenpeace-crypto-billionaire-lobby-to-change-bitcoin-s-code?sref=M4pzWyOx">Chris Bendiksen</a>, a commentator at the cryptocurrency website CoinShares, puts the chance of Bitcoin ever moving to PoS at 0%. “There is no appetite among Bitcoiners to destroy the security of the protocol by making such a move”, <a href="https://www.bloomberg.com/news/articles/2022-03-29/greenpeace-crypto-billionaire-lobby-to-change-bitcoin-s-code?sref=M4pzWyOx">he says</a>.</p>
<figure class="align-center ">
<img alt="An engineer adjusts cables on a wall of servers." src="https://images.theconversation.com/files/455548/original/file-20220331-19-wh09xw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/455548/original/file-20220331-19-wh09xw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=304&fit=crop&dpr=1 600w, https://images.theconversation.com/files/455548/original/file-20220331-19-wh09xw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=304&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/455548/original/file-20220331-19-wh09xw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=304&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/455548/original/file-20220331-19-wh09xw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=382&fit=crop&dpr=1 754w, https://images.theconversation.com/files/455548/original/file-20220331-19-wh09xw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=382&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/455548/original/file-20220331-19-wh09xw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=382&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 mining centres have restarted shuttered coal power plants in some areas.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/miner-bitcoin-cryptocurrency-761471737">Mark Agnor/Shutterstock</a></span>
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</figure>
<p>Bitcoin is no stranger to coding stalemates. An amendment to fix intermittent congestion issues and stabilise transaction fees was <a href="https://www.theverge.com/2016/3/2/11146584/bitcoin-core-classic-debate-transaction-limit-crisis">proposed in 2016</a>. Despite being a relatively simple fix, the change split the bitcoin community, with the vast majority continuing to support the slower, more expensive status quo.</p>
<p>Even if some users were prepared to ditch PoW, the original bitcoin network would continue in some form. This PoW version would keep the name, branding, super-rich disciples, and polluting PoW miners. The PoS offshoot could end up as just another <a href="https://thenextweb.com/news/bitcoin-hard-fork-useless">disappointing experiment</a>.</p>
<p>Another <a href="https://theconversation.com/nfts-wwf-tried-raising-money-with-digital-art-but-backtracked-environmental-charities-should-follow-suit-176315">PoW heavyweight network</a>, Ethereum, has been promising a shift to PoS since birth. But this migration has remained <a href="https://www.reddit.com/r/ethereum/comments/o3swez/years_of_history_claiming_ethereum_will_go_to_pos/">just around the corner</a> for several years.</p>
<p>Starting a PoS network from scratch is another option. But there is already a <a href="https://www.bitcoinpos.net/">BitcoinPoS</a> cryptocurrency. Aside from an early flurry of interest, it’s <a href="https://coinmarketcap.com/currencies/bitcoinpos/">attracted few supporters</a>.</p>
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Read more:
<a href="https://theconversation.com/bitcoin-isnt-getting-greener-four-environmental-myths-about-cryptocurrency-debunked-155329">Bitcoin isn't getting greener: four environmental myths about cryptocurrency debunked</a>
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<h2>Tackling crypto greenwashing</h2>
<p>Many Bitcoiners <a href="https://www.coindesk.com/tech/2022/03/29/bitcoiners-scoff-at-chris-larsens-5m-campaign-to-force-a-btc-code-change/">scoffed</a> at the Greenpeace campaign. After all, much of the <a href="https://www.bloomberg.com/news/articles/2022-03-29/greenpeace-crypto-billionaire-lobby-to-change-bitcoin-s-code?sref=M4pzWyOx">funding for this marketing mission</a> comes from billionaire venture capitalist Chris Larsen, co-founder of rival cryptocurrency Ripple. </p>
<p>Larsen’s Ripple was also an original member of the UN-backed Crypto Climate Accord, an organisation <a href="https://theconversation.com/bitcoin-chinas-crackdown-isnt-enough-only-a-global-effort-can-stop-cryptos-monstrous-energy-demand-161776">convened in April 2021</a> to promote more sustainable cryptocurrency trading. In response, <a href="https://www.sciencedirect.com/science/article/pii/S2214629621004813?dgcid=author">prominent bitcoin advocates</a> established the Bitcoin Mining Council – a public relations group <a href="https://www.coindesk.com/markets/2021/05/25/michael-saylor-mining-council-will-defend-bitcoin-against-uninformed-and-hostile-energy-critics/">aiming</a> to “defend bitcoin against uninformed and hostile energy critics”, like Larsen.</p>
<p>Some argue governments <a href="https://www.coindesk.com/policy/2022/03/30/eus-mica-bill-to-enter-next-phase-of-negotiations-on-thursday/">in Europe</a> and <a href="https://www.federalregister.gov/documents/2022/03/25/2022-06284/request-for-information-on-the-energy-and-climate-implications-of-digital-assets">North America</a> should follow <a href="https://theconversation.com/bitcoin-chinas-crackdown-isnt-enough-only-a-global-effort-can-stop-cryptos-monstrous-energy-demand-161776">China’s lead</a> and ban PoW mining. </p>
<p><a href="https://www.coindesk.com/layer2/miningweek/2022/03/26/can-crypto-miners-make-the-world-greener/">Retaliatory campaigns</a> from bitcoin advocates are ramping up, and their greenwashing appears to be winning. The European Parliament recently <a href="https://fortune.com/2022/03/14/attempt-ban-bitcoin-europe-fails-key-vote/">rejected a bill</a> to ban PoW mining across the EU. The UK government also <a href="https://www.cityam.com/why-the-uk-must-embrace-the-crypto-revolution/">fears</a> an exodus of crypto trading talent for other financial centres.</p>
<p><a href="https://www.sciencedirect.com/science/article/pii/S2214629621004813?dgcid=author">Research</a> I have led suggests that effective regulation of bitcoin will not come from charity appeals. A globally coordinated ban, led by governments, is likely to prove the most effective solution.</p>
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<img alt="Imagine weekly climate newsletter" src="https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?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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<p><strong><em>Don’t have time to read about climate change as much as you’d like?</em></strong>
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<p class="fine-print"><em><span>Peter Howson has received funding from The British Academy.</span></em></p>Proof of Work mining is inherently wasteful, but don’t expect a switch any time soon.Peter Howson, Senior Lecturer in International Development, Northumbria University, NewcastleLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1779812022-03-31T12:44:06Z2022-03-31T12:44:06ZBehind the crypto hype is an ideology of social change<figure><img src="https://images.theconversation.com/files/455113/original/file-20220329-21-5ds15m.jpg?ixlib=rb-1.1.0&rect=0%2C25%2C5706%2C2737&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">For some, promoting cryptocurrencies is political activism.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/young-man-with-a-face-mask-and-a-poster-in-his-royalty-free-image/1296675280">Vasil Dimitrov/E+ via Getty Images</a></span></figcaption></figure><p>Ads for <a href="https://gizmodo.com/super-bowl-crypto-ads-feature-larry-david-lebron-james-1848531978">blockchain, NFTs and cryptocurrencies like Bitcoin</a> seem to be everywhere. Crypto technologies are being promoted as <a href="https://dl.acm.org/doi/10.1145/2594288">a replacement for banks</a>; a <a href="https://www.nytimes.com/2021/03/11/arts/design/what-is-an-nft.html">new way to buy art</a>; the <a href="https://www.youtube.com/watch?v=BH5-rSxilxo">next big investment opportunity</a>, and an essential part of <a href="https://theconversation.com/the-metaverse-is-money-and-crypto-is-king-why-youll-be-on-a-blockchain-when-youre-virtual-world-hopping-171659">the metaverse</a>. </p>
<p>To many, these technologies are <a href="https://www.theatlantic.com/technology/archive/2022/02/crypto-nft-web3-internet-future/621479/">confusing or risky</a>. But enthusiasts <a href="https://www.vice.com/en/article/88gb75/at-sxsw-a-pathetic-tech-future-struggles-to-be-born">ardently promote them</a>.</p>
<p>As a <a href="https://scholar.google.com/citations?user=ef0ApTwAAAAJ">cybersecurity and social media researcher</a>, I’ve found that behind the hype is an ideology about social change: Hardcore enthusiasts argue that <a href="https://dl.acm.org/citation.cfm?id=3359138">crypto will get people to trust in technology rather than government</a>, which they see as inherently untrustworthy. This ideology leads people to encourage its use while downplaying its risks. </p>
<h2>The true believers</h2>
<p>My colleagues and I studied almost three months of discussions on Reddit forums about cryptocurrencies to try to understand <a href="https://doi.org/10.1145/3359138">how people talk about crypto and Bitcoin</a>. The loudest voices on the forum were a group of crypto enthusiasts who called themselves “<a href="https://doi.org/10.1145/3290607.3312969">True Bitcoiners</a>.” Unlike technology enthusiasts or crypto marketers, “true bitcoiners” didn’t talk about technology, or about their own use of crypto. Instead, they talked about <a href="https://doi.org/10.1145/3359138">trust and corruption</a>. </p>
<p>These crypto enthusiasts often <a href="https://doi.org/10.1145/3359138">cite examples</a> of what they see as government corruption and corporate corruption. They recognize that society depends on governments and corporations setting and enforcing rules, and they complain that people are stuck with these “corrupt” institutions. Corruption, they say, is an inevitable flaw in humanity and leads to trying to control and mistreat others.</p>
<p>The enthusiasts see Bitcoin, blockchain and other crypto technologies as providing an alternative to the corruption. They argue that these new technologies are “<a href="https://repository.law.umich.edu/mttlr/vol25/iss1/2/">trustless</a>” and don’t depend on institutions. You can buy and sell things using bitcoin without checking with a bank or using government-issued cash. </p>
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<figcaption><span class="caption">Blockchain, the technology underlying cryptocurrencies, keeps records of ownership and transactions without requiring trust in anyone or any institution.</span></figcaption>
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<p>These two beliefs – that governments are corrupt and that crypto avoids that corruption – are common among the crypto enthusiasts we studied. But enthusiasts go one step further. They seek change. They want to change who has power and who doesn’t. </p>
<p>They argue that crypto is how that change will happen. For crypto enthusiasts, using crypto isn’t just a way to buy and sell things. By using crypto technologies, they argue, society will become less dependent on governments and corporations. That is, using crypto – and getting as many people as possible to use it as much as possible – is a way to change the world and <a href="https://dl.acm.org/citation.cfm?id=3359138">take power away from governments</a>.</p>
<h2>Pushing an ideology</h2>
<p>These beliefs about who should and should not have power in society embody <a href="https://www.taylorfrancis.com/chapters/edit/10.4324/9780203702444-11/media-makes-ignites-breaks-ideology-david-livingstone-smith">an ideology</a>. An important part of the crypto ideology is that this change can’t happen unless people use crypto. The technology and the ideology are tied together. </p>
<p>For many of these enthusiasts, recommending crypto to other people is not just a technology recommendation. To them, buying and selling crypto is <a href="https://doi.org/10.1145/3359138">a form of political and social activism</a>. They argue that buying crypto will remove corruption and change society to trust technology over government. </p>
<p>This ideology is a <a href="https://openyls.law.yale.edu/bitstream/handle/20.500.13051/7831/01_3YaleJL_Tech1_2000_2001_.pdf?sequence=2&isAllowed=y">more extreme version of technolibertarianism</a>, which seeks to replace government with technology. Like technolibertarians, true bitcoiners want technology to control society. But they focus on financial and economic control more than civil liberties. And because promoting crypto is part of this ideology, crypto has often been compared with <a href="https://theconversation.com/why-are-people-calling-bitcoin-a-religion-175717">a religion</a>.</p>
<h2>Crypto dangers</h2>
<p>An important aspect of any ideology is the way it emphasizes some dangers and downplays others. True bitcoiners emphasize the problems with government corruption. But they downplay the <a href="https://www.ftc.gov/news-events/blogs/data-spotlight/2021/05/cryptocurrency-buzz-drives-record-investment-scam-losses">financial risks of crypto</a>. The price of Bitcoin fluctuates wildly, and <a href="https://doi.org/10.1007/978-3-662-54970-4_33">many people have lost money</a> buying crypto. Crypto wallets are <a href="https://www.usenix.org/system/files/soups2020-mai.pdf">difficult to understand and use</a>, and fraudulent transactions are <a href="https://doi.org/10.1109/SP.2015.14">difficult to reverse</a>. </p>
<p>Crypto enthusiasts frequently downplay the technology’s risks to <a href="https://doi.org/10.1109/SP.2015.14">people</a> and <a href="https://doi.org/10.1257/jep.29.2.213">society</a>. They also dismiss the valuable role that governments and corporations play in <a href="https://pluralistic.net/2022/03/02/shadow-banking-2-point-oh/#leverage">protecting people’s money</a>, <a href="https://www.fdic.gov">providing insurance for bank accounts</a> and <a href="https://www.latimes.com/business/story/2022-02-09/bitfinex-who-will-get-crypto-back-after-arrests-in-3-6-billion-bitcoin-hack">returning money that’s been stolen</a>. </p>
<p>Beliefs in crypto’s ability to create social change are also overstated. Crypto technologies don’t necessarily eliminate corporations or avoid government control. There are <a href="https://www.ibm.com/blockchain">private, corporate blockchains</a> and many <a href="https://www.forbes.com/sites/jasonbrett/2021/12/27/in-2021-congress-has-introduced-35-bills-focused-on-us-crypto-policy/?sh=65388ccac9e8">government</a> <a href="https://www.ncsl.org/research/financial-services-and-commerce/cryptocurrency-2021-legislation.aspx">regulations</a> <a href="https://tile.loc.gov/storage-services/service/ll/llglrd/2021687419/2021687419.pdf">about cryptocurrencies</a>. As I see it, simply using the technology doesn’t necessarily lead to the social change these enthusiasts seek.</p>
<p>[<em>Science, politics, religion or just plain interesting articles:</em> <a href="https://memberservices.theconversation.com/newsletters/?source=inline-checkoutweekly">Check out The Conversation’s weekly newsletters</a>.]</p><img src="https://counter.theconversation.com/content/177981/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rick Wash receives funding from the National Science Foundation and from Google. He is affiliated with Association for Computing Machinery and the USENIX Association.</span></em></p>Many people promoting cryptocurrencies are looking for something bigger than the future of financial transactions. They’re aiming to break free of governments and corporations.Rick Wash, Associate Professor of Information Science and Cybersecurity, Michigan State UniversityLicensed as Creative Commons – attribution, no derivatives.