tag:theconversation.com,2011:/uk/topics/cryptocurrency-8321/articlesCryptocurrency – The Conversation2024-03-12T14:39:27Ztag:theconversation.com,2011:article/2255912024-03-12T14:39:27Z2024-03-12T14:39:27ZWith bitcoin hitting new highs, it’ll likely reach the US$100,000 milestone before 2024 is out<p>Cryptocurrencies are surging again. Bitcoin has just hit an all-time high of more than US$72,000 (£56,300), pushing past the level of circa US$69,000 where it turned back during its last bull phase in late 2021. </p>
<p>Other top cryptocurrencies like ethereum and solana have reached their highest prices in three years, on the back of a run that has been going since the autumn. The value of the whole cryptocurrency market has raced up to US$2.6 trillion, triple what it was worth at the beginning of 2023 and not far off its previous US$3 trillion peak. </p>
<p>Much of this run has occurred at a time when the US dollar has been strengthening against other currencies (though it has fallen in the past couple of weeks). This can often be a time when cryptocurrencies get weaker, so it shows how strong they have been lately. </p>
<p>Many other fiat currencies around the world have been losing value against the US dollar during this period, so bitcoin reached <a href="https://twitter.com/balajis/status/1762802897518215405?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1762802897518215405%7Ctwgr%5E6debfb13283d2ec2221fc72013fb2560076013a7%7Ctwcon%5Es1_&ref_url=https%3A%2F%2Fwww.coindesk.com%2Fmarkets%2F2024%2F02%2F29%2Fbitcoin-is-hitting-all-time-highs-around-the-world%2F">all-time highs</a> in many of them long before it finally took out its high in the US currency. </p>
<p>So what has contributed to this explosion in prices and where is the market going for the rest of 2024?</p>
<h2>Bitcoin ETFs</h2>
<p>A major driver for this appreciation in prices has been the <a href="https://theconversation.com/bitcoin-four-reasons-why-the-price-should-surge-in-2024-220557">US authorities’ approval</a> in January of an investment vehicle known as an exchange-traded fund or ETF for the general or “spot” bitcoin market. An ETF is an easy way for the average saver to get exposure to an asset, since they buy shares in the vehicle, usually through their financial advisor, rather than having to go to the trouble of buying the underlying asset. </p>
<p>A total of 11 bitcoin ETFs were approved in the US, and their daily trading volume has now <a href="https://news.bitcoin.com/bitcoin-etfs-break-trading-volume-record-blackrocks-ibit-now-holds-over-170k-btc/">exceeded US$10 billion</a> – driven by frontrunners <a href="https://twitter.com/RexVIII/status/1767381095820022148">Blackrock and Fidelity Investments</a>. This demonstrates the large interest from traditional market participants, and as the spot ETFs become more mature, their providers will offer more promotional material and education to get more customers onboard.</p>
<p><strong>Bitcoin/US$ price</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/581314/original/file-20240312-24-ee1c8v.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Bitcoin price chart showing fall from previous high in 2022 and sharp climb to new record peak in 2024." src="https://images.theconversation.com/files/581314/original/file-20240312-24-ee1c8v.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/581314/original/file-20240312-24-ee1c8v.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=360&fit=crop&dpr=1 600w, https://images.theconversation.com/files/581314/original/file-20240312-24-ee1c8v.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=360&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/581314/original/file-20240312-24-ee1c8v.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=360&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/581314/original/file-20240312-24-ee1c8v.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=453&fit=crop&dpr=1 754w, https://images.theconversation.com/files/581314/original/file-20240312-24-ee1c8v.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=453&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/581314/original/file-20240312-24-ee1c8v.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="attribution"><a class="source" href="https://www.tradingview.com/">Trading View</a></span>
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</figure>
<p>The cryptocurrency market is always adapting and innovating, and one possible future innovation is the offer of option contracts on the new spot ETFs. Options allow traders to hedge their bets on whether the crypto market will go up or down, and would likely attract even more new money into the space. </p>
<p>However, US regulator the Securities and Exchange Commission (SEC) has <a href="https://cointelegraph.com/news/sec-delays-spot-bitcoin-etf-options-trading-decision">just postponed</a> a decision on this innovation until late April. Some <a href="https://www.reuters.com/technology/regulatory-nod-us-spot-bitcoin-etf-options-may-take-months-sources-2024-02-01/">experts think</a> approval may take longer than that as it is unclear which regulatory body would be responsible for policing this new class of derivative contracts. </p>
<h2>The bitcoin halving</h2>
<p><a href="https://www.investopedia.com/bitcoin-halving-4843769#:%7E:text=A%20Bitcoin%20halving%20event%20occurs,block%20reward%20of%206.25%20BTC.">One feature</a> of the bitcoin system which was built in at the beginning is that, roughly every four years, the rewards to companies using arrays of computers to create or “mine” bitcoin get cut in half.</p>
<p>The last halving <a href="https://theconversation.com/bitcoin-halving-qanda-what-its-all-about-and-what-it-means-for-the-cryptocurrency-138570">took place</a> in May 2020, where miners went from receiving 12.5 bitcoin for each unit of work they do to 6.25 bitcoin. The next is due to take place <a href="https://www.nicehash.com/countdown/btc-halving-2024-05-10-12-00">on April 19</a>, cutting the reward down to 3.125 bitcoin. </p>
<p>Because each halving means less new bitcoin coming on to the market, they have <a href="https://qz.com/bitcoin-halving-event-explained-price-1851300020">coincided with</a> strong price appreciation in the cryptocurrency. What isn’t clear is whether this is already priced in and therefore not actually the reason price is going up. </p>
<p><a href="https://www.cnbc.com/2024/02/29/what-bitcoin-being-halved-means-for-its-price.html">One theory</a> is that the institutions behind the spot ETFs are buying aggressively now because they know there will be less bitcoin on the open market once the halving takes place. </p>
<h2>Ethereum prospects</h2>
<p>Meanwhile, the crypto market could also be boosted by spot ETFs for the ethereum cryptocurrency system in the coming months. At least ten firms, including Blackrock and Fidelity, have applied to launch them and the SEC has until May to make a decision. </p>
<p>Whereas the online ledger that underpins bitcoin, known as its blockchain, has been seen largely as a store of value, ethereum has become the leading blockchain for developers to write applications using this technology.</p>
<p>SEC Chair <a href="https://www.coindesk.com/policy/2023/03/15/sec-chairman-gensler-suggests-again-that-proof-of-stake-tokens-are-securities-report/#:%7E:text=Gensler%20has%20said%20that%20bitcoin,of%20existing%20cryptocurrencies%20are%20securities.">Gary Gensler believes</a> that most cryptocurrencies should be treated differently to bitcoin, as financial instruments known as securities rather than as more straightforward commodities. This adds complexity to the ethereum ETF approval process. If the US authorities were to decide it was the case, <a href="https://www.coindesk.com/policy/2023/03/09/what-happens-if-ethereum-is-a-security/">it would mean</a> that ETFs couldn’t buy ethereum from crypto exchanges until those exchanges had received approval to trade it as a security. </p>
<p>While that uncertainty continues, ethereum could be boosted by the so-called <a href="https://www.coindesk.com/tech/2024/02/08/ethereum-developers-target-march-13-for-milestone-dencun-upgrade-on-mainnet/">Dencun upgrade</a> (also known as Duncan or EIP-4844). Ethereum has competition from other blockchains such as solana and avalanche due to its relatively slow transaction speed and high costs. </p>
<p>It already completed its first major step in a long-term plan to reduce costs and cope with many more users (known as scalability) when it transitioned in 2023 to a different system for verifying transactions known as <a href="https://www.investopedia.com/terms/p/proof-stake-pos.asp#:%7E:text=Proof%2Dof%2DStake%20(POS)%20uses%20randomly%20selected%20validators,new%20blocks%20to%20the%20blockchain.">proof of stake</a>. The Dencun upgrade, which goes live on March 13, will further improve scalability by making data storage more efficient on the network, while also lowering transaction fees. </p>
<h2>Where next</h2>
<p>Predicting cryptocurrency prices is not for the faint-hearted. The market is very volatile, and often exceeds expectations when it goes up or down. The behaviour of individuals determines market prices and, as <a href="https://www.amazon.com/Intelligent-Investor-Definitive-Investing-Essentials/dp/0060555661/ref=as_li_ss_tl?ie=UTF8&linkCode=sl1&tag=smithsonianco-20&linkId=25e3e053f80d4575dc0bbe8e86cdda59">Isaac Newton put it</a>, you can “calculate the motions of heavenly bodies, but not the madness of the people”. </p>
<p>However, the <a href="https://www.forbes.com/uk/advisor/investing/cryptocurrency/bitcoin-price-prediction-2024/">majority of commentators</a> expect crypto prices to keep rising over the coming months. <a href="https://advisor.morganstanley.com/the-ernie-garcia-group/documents/field/e/er/ernie-garcia-group/S%26P%20500%20in%20Presidential%20Election%20years.pdf">Election years tend</a> to be good for investments in general, while a <a href="https://www.politico.com/news/2024/01/08/donald-trump-crypto-savior-00132417">second Trump administration</a> would probably create a <a href="https://www.cnbc.com/2024/03/11/trump-suggests-he-would-not-oppose-bitcoin.html">more favourable</a> regulatory environment for crypto assets (as would a <a href="https://www.coindesk.com/policy/2023/12/20/uk-to-cooperate-with-crypto-industry-on-legislation-for-digital-securities/">Rishi Sunak victory</a> in the UK, however unlikely that seems at present). </p>
<p>As bitcoin becomes more and more mainstream and integrated with traditional assets, it isn’t inconceivable that it could hit US$100,000 in 2024 – an extraordinary feat for a invention that was worth nothing as recently as 2009.</p><img src="https://counter.theconversation.com/content/225591/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Urquhart owns some cryptocurrencies.</span></em></p>Often dismissed as a libertarian ponzi scheme, why has crypto bounced back yet again?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/2245452024-03-06T13:23:20Z2024-03-06T13:23:20ZNigeria: botched economic reforms plunge the country into crisis<p>Nigeria, Africa’s largest economy, is facing an economic crisis. From a botched currency redesign to the removal of fuel subsidies and a currency float, the nation has been plunged into spiralling inflation and a currency crisis with far-reaching consequences. The question now is: how long before the inferno consumes everything?</p>
<p>On October 26, 2022, the Central Bank of Nigeria announced a <a href="https://www.thecable.ng/breaking-buhari-unveils-redesigned-naira-notes">bold move</a> – that it had redesigned the country’s highest denomination notes (₦200, ₦500 and ₦1000) and would be removing all old notes from circulation. People were given a deadline of January 31, 2023 (a couple of weeks before a national election) to make this exchange, or all of the old notes would cease to be valid legal tender.</p>
<p>This initiative ostensibly aimed to curb counterfeiting, encourage cashless transactions, and limit the buying of votes during the elections. But, while the intention may have been sound, the execution proved disastrous. </p>
<p>Short deadlines, limited availability of new notes, and inadequate communication created widespread panic. It led to long queues at banks, frustration among citizens, and a <a href="https://carnegieendowment.org/2024/01/18/why-nigeria-s-controversial-naira-redesign-policy-hasn-t-met-its-objectives-pub-91405">thriving black market</a> for the new notes. </p>
<p>The confusion surrounding the currency redesign had an unintended consequence: the beginnings of a loss of confidence in the naira. People began to look to other mediums as a store of value and as a medium of exchange. The obvious choices were foreign currency like the US dollar and the British pound, as well as more stable cryptocurrencies like <a href="https://businessday.ng/business-economy/article/weak-naira-cross-border-payments-drive-nigerians-into-cryptos/">Tether’s USDT</a>.</p>
<p>The currency redesign was criticised at the time by the then-presidential candidate of the ruling party, Bola Ahmed Tinubu, who saw it as a move to <a href="https://www.vanguardngr.com/2023/01/2023-fuel-scarcity-naira-redesign-ploy-to-sabotage-my-chances-tinubu/">derail his presidential campaign</a>. However, Tinubu won the contested election and, once in power, set out to reshape the economy immediately. </p>
<p>In his inaugural address in May 2023, Tinubu <a href="https://www.premiumtimesng.com/news/top-news/601239-fuel-subsidy-is-gone-tinubu-declares.html">announced</a> that the “fuel subsidy is gone”, referring to the government’s longstanding subsidised petrol policy that ensured Nigerians enjoyed some of the lowest petrol prices in the world. Over the coming days, he would also announce the reversal of the currency redesign policy and the <a href="https://leadership.ng/tinubu-begins-monetary-policy-reforms-floats-naira/">floating of the Nigerian naira</a> on the foreign exchange market.</p>
<figure class="align-center ">
<img alt="A compilation of Nigerian naira bank notes." src="https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.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">When in office, Tinubu reversed the currency redesign policy.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/naira-currency-nigeria-200751113">Pavel Shlykov/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Fuelling the flames</h2>
<p>Other underlying economic conditions around the time of Tinubu’s inauguration included a large amount of foreign debt, dwindling foreign reserves and global economic headwinds. When the removal of the fuel subsidy was announced, it was met with a mix of surprise and elation by many Nigerians, and in particular by international donor agencies like the International Monetary Fund and the World Bank, who had long been <a href="https://www.reuters.com/markets/commodities/nigeria-should-end-fuel-subsidy-speed-reforms-boost-growth-world-bank-says-2021-11-23/">advocating</a> for the removal.</p>
<p>But this was all before the effects began to bite. And bite hard they did. The price of Premium Motor Spirit (also known as gasoline or petrol), which used to retail for ₦189 (US$0.12) per litre, increased by 196% practically overnight and began to retail for <a href="https://www.reuters.com/world/africa/nigeria-triple-petrol-prices-after-president-says-subsidy-end-2023-05-31/">₦557 per litre</a>. </p>
<p>One challenge with developing economies like Nigeria is that a rise in fuel price tends to cause the price of everything else to rise. Many industries, particularly those in manufacturing and agriculture, tend to rely heavily on fuel for powering machinery and equipment due to the poor supply of grid electricity nationwide.</p>
<p>Many Nigerian households were significantly affected by the increased prices. But they saw an opportunity in that the savings from the fuel subsidy regime would be redistributed to improve education, healthcare provision and the general welfare of the people, as was promised during the electioneering. The regime cost the country an estimated <a href="https://www.premiumtimesng.com/news/top-news/582724-fuel-subsidy-now-above-n400bn-monthly-nnpcl.html">₦400 billion</a> a month at its height, after all. </p>
<h2>Enter currency devaluation</h2>
<p>Then, on June 14, 2023, the Tinubu government ended the policy of pegging the naira to the US dollar, allowing it to float and find its true market value based on supply and demand. The idea was to stop corruption and reduce arbitrage opportunities due to the difference between official and black-market foreign exchange prices. </p>
<p>Currency arbitrage happens when people buy a currency at the lower official exchange rate and immediately sell it at the higher black market rate for a profit. This practice often occurs where there are strict currency controls and black markets offer a truer reflection of a currency’s value based on supply and demand.</p>
<p>However, this was one policy change too many. The naira lost a staggering <a href="https://www.focus-economics.com/countries/nigeria/news/exchange-rate/central-bank-sets-the-naira-free-to-fall/">25% of its value</a> in one day, and the cascading effects now push the country to the brink.</p>
<p>Nigeria depends heavily on imported commodities, including essential goods like food, fuel and medicine. So the policy escalated the inflationary crisis, pushing inflation to almost 30% (the major driver being food inflation, which <a href="https://leadership.ng/food-headline-inflation-spike-to-35-4-29-9/">reached 35.4%</a>). </p>
<p>Imports in general have become significantly more expensive, and Nigerians are finding their purchasing power being eroded. Wages in Nigeria are pretty fixed. The current minimum wage in the country is <a href="https://www.statista.com/statistics/1119133/monthly-minimum-wage-in-nigeria/">₦30,000</a> per month and the average monthly income is <a href="https://wagecentre.com/work/work-in-africa/salary-in-nigeria">₦71,185</a>. </p>
<p>Businesses are also feeling the pinch, facing difficulties accessing the <a href="https://www.trade.gov/country-commercial-guides/nigeria-market-challenges">foreign exchange</a> critical for importing raw materials and equipment. </p>
<h2>Pheonix or ash?</h2>
<p>The Central Bank of Nigeria has implemented measures to counter the crisis. It recently raised interest rates from <a href="https://punchng.com/just-in-cbn-raises-interest-rate-to-22-75/">18.75% to 22.75%</a> and is selling US dollars through auctions. </p>
<p>Recovery is a possibility and there are already signs of appreciation in the currency. The <a href="https://businessday.ng/news/article/naira-records-first-gain-at-official-market-after-rate-hike/">naira appreciated</a> by 6.89% a day after interest rates were raised. But it will be a long, hard road. </p>
<p>These strategies often come with trade-offs. Higher interest rates can stifle already struggling economic growth, while currency interventions might deplete already strained reserves of foreign currency. </p>
<p>The bottom line is that if the current cost of living crisis continues, civil unrest is likely. Should this happen, who knows what – if anything – will be left behind when the flames are done.</p><img src="https://counter.theconversation.com/content/224545/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kunal Sen has received funding from ESRC and DFID. </span></em></p><p class="fine-print"><em><span>Chisom Ubabukoh 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>Africa’s largest economy is in crisis, and unrest is growing.Chisom Ubabukoh, Assistant Professor of Economics, O.P. Jindal Global UniversityKunal Sen, Professor and Director, World Institute for Development Economics Research (UNU-WIDER), United Nations UniversityLicensed as Creative Commons – attribution, no derivatives.tag: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>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.tradingview.com/">Trading View</a></span>
</figcaption>
</figure>
<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>
<span class="caption"></span>
<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>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.tradingview.com/">Trading View</a></span>
</figcaption>
</figure>
<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/2181592023-11-21T16:54:05Z2023-11-21T16:54:05ZAI makes Silicon Valley’s philosophy of ‘move fast and break things’ untenable<figure><img src="https://images.theconversation.com/files/560768/original/file-20231121-21-x79tid.jpg?ixlib=rb-1.1.0&rect=20%2C10%2C6689%2C4456&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/silicon-valley-twilight-sierra-vista-open-1074439202">yhelfman / Shutterstock</a></span></figcaption></figure><p>The unofficial motto of Silicon Valley has long been <a href="https://www.wired.co.uk/article/move-fast-and-break-things-or-dont">“move fast and break things”</a>. It relies on the assumption that in order to create cutting edge technology and to be ahead of the competition, companies need to accept that things will get damaged in the process.</p>
<p>However, this approach can have implications beyond just economics. It can endanger people and be unethical. As we mark the first anniversary of the release of AI chatbot ChatGPT, it’s worth considering whether the big tech companies could do with moving slowly and taking care not to break anything. </p>
<p>ChatGPT’s <a href="https://www.zdnet.com/article/what-is-chatgpt-and-why-does-it-matter-heres-everything-you-need-to-know/">impressive capabilities caused a sensation</a>. But some commentators were quick to point to issues such as the potential it presented for <a href="https://www.businessinsider.com/school-is-back-chatgpt-mainly-tool-cheating-homework-2023-9?r=US&IR=T">students to cheat on assignments</a>. More widely, the chatbot intensified a debate over how to control AI, a transformative technology with huge potential benefits – and risks of comparable significance.</p>
<p>Let’s look at Silicon Valley’s record on other technology too. Social media was supposed to bring us together. Instead, it has <a href="https://demos-h2020.eu/en/populist-leaders-thrive-on-social-media">threatened democracy</a> and produced armies of trolls. Cryptocurrencies, touted as challenging the financial status quo have been an <a href="https://www.theguardian.com/technology/2023/apr/26/bitcoin-mining-climate-crisis-environmental-impact">environmental disaster</a> and have been <a href="https://www.ft.com/content/24d153b0-0c28-4946-acbe-2e93329bca52">vulnerable to fraud</a>. </p>
<p>The advent of the personal computer was supposed to make our work life easier. It did, but at the price of massive job losses which the job market took <a href="https://www.gspublishing.com/content/research/en/reports/2023/03/27/d64e052b-0f6e-45d7-967b-d7be35fabd16.html">more than a decade to recover from</a>.</p>
<p>It’s not that technologies in themselves are bad. However, the ideology within which they are developed can be a problem. And as technology permeates more and more of our daily lives, the “things” that break could potentially end up being human lives.</p>
<h2>Change of approach</h2>
<p>“Move fast and break things” could also prove to be economically wrong, making investors rush for novelty instead of value, as they did in the dot com bubble of the early 2000s. The idea assumes that although things might go wrong, we will be able to fix them quickly, and so the harms will be limited. Yet, looking at the history of Silicon Valley, this has been shown to be a problem on several counts.</p>
<p>Identifying that there is a problem is not the same as finding its cause. Once a technology has been deployed, the environment in which it is used may be so complex that it takes years to understand what exactly is going wrong. </p>
<p>The US justice system, for instance, has been using AI for more than a decade to assist bail decisions. These decide who should be released prior to trial against a cash bond. </p>
<p>AI was introduced not just as a way to reduce the flight risk, of defendants going on the run, but also to tackle racial bias, where white judges might be more likely to release white defendants. However, the algorithms <a href="https://www.wired.com/story/algorithms-supposed-fix-bail-system-they-havent/">produced the opposite result</a>, with fewer black defendants being released. </p>
<figure class="align-center ">
<img alt="Person using social media." src="https://images.theconversation.com/files/560771/original/file-20231121-4580-4owosj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/560771/original/file-20231121-4580-4owosj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=394&fit=crop&dpr=1 600w, https://images.theconversation.com/files/560771/original/file-20231121-4580-4owosj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=394&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/560771/original/file-20231121-4580-4owosj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=394&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/560771/original/file-20231121-4580-4owosj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=495&fit=crop&dpr=1 754w, https://images.theconversation.com/files/560771/original/file-20231121-4580-4owosj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=495&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/560771/original/file-20231121-4580-4owosj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=495&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Social media was supposed to bring us together, but it has also created challenges for everyone.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-man-using-smart-phonesocial-distancing-1704517792">13_Phunkod / Shutterstock</a></span>
</figcaption>
</figure>
<p>Engineers kept on introducing new versions of the AI algorithms, hoping to reduce bias. Nothing worked. Then, in 2019 – 17 years after the system was first introduced – a researcher found that the problem was not the AI itself, but the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3489440">way judges were using it</a>. </p>
<p>They were more likely to overrule decisions that didn’t fit with their stereotypes, and the problem was the interaction between the judges and the AI. Independently, each could take somewhat appropriate decisions. Together, it was a disaster.</p>
<h2>Delayed consequences</h2>
<p>Another reason why Silicon Valley’s approach is risky is that the consequences of new technologies can take a long time to appear. This means that by the time we realise the harm done, it is already too late. </p>
<p>The Dutch welfare system, for instance, has relied heavily on AI algorithms to detect fraud. It has been <a href="https://www.amnesty.org/en/latest/news/2021/10/xenophobic-machines-dutch-child-benefit-scandal/">problematic in many regards</a>, but in particular, it was found to use ethnic origin and nationality as an important risk factor. </p>
<p>It took years for the full-blown issue to become apparent. And by that time, some people had been so heavily affected by the AI assisted decisions –- asking them to return hundreds of thousands of euros for a simple mistake on a form -– that <a href="https://www.politico.eu/article/dutch-scandal-serves-as-a-warning-for-europe-over-risks-of-using-algorithms/">some took their own lives</a>.</p>
<h2>Cleaning up the mess</h2>
<p>To “move fast and break things” also means that someone else, somewhere, will be left to clean up the mess. For those who produce the technology, it’s a way of abrogating responsibility for its outcomes, whether the companies realise it or not. Social media is a damning example of this. </p>
<p>Social media’s “suggestion” algorithms – also powered by AI – have created a host of issues, from <a href="https://www.nbcnews.com/tech/tech-news/facebook-knew-radicalized-users-rcna3581">promoting misinformation and hate speech</a> just because those things <a href="https://www.socialmediatoday.com/news/new-study-shows-that-misinformation-sees-significantly-more-engagement-than/555286/">creates more engagement</a>, to facilitating harassment and negatively <a href="https://www.tandfonline.com/doi/full/10.1080/02673843.2019.1590851">affecting mental health</a>. Yet we still struggle to curb these issues, with social media platforms refusing to take responsibility for the content they promote and benefit from.</p>
<p>The first anniversary of ChatGPT provides us with an opportunity to look back on what lessons can be learned from previous technological advances. It helps us realise that mistakes are easier to avoid than to fix, especially where human lives are involved.</p><img src="https://counter.theconversation.com/content/218159/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>AI is one of many reasons the tech company mantra should be reconsidered, says an expert.Constance De Saint Laurent, Assistant Professor of Sociotechnical Systems, Department of Psychology, National University of Ireland MaynoothVlad Glăveanu, Professor of Psychology in the School of Psychology, Dublin City UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2170262023-11-07T13:37:52Z2023-11-07T13:37:52ZSam Bankman-Fried sentenced to 25 years − how he went from $30B crypto CEO to prison inmate<figure><img src="https://images.theconversation.com/files/585146/original/file-20240328-16-k9vxuj.jpeg?ixlib=rb-1.1.0&rect=189%2C146%2C5208%2C3492&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Sam Bankman-Fried got 25 years for his role in overseeing a multibillion-dollar crypto fraud.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/BankmanFriedFTX/649eb5aa36574414b000b71c063de543/photo?Query=bankman-fried&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=322&currentItemNo=15">AP Photo/Seth Wenig</a></span></figcaption></figure><p><em>The case of Sam Bankman-Fried, who <a href="https://www.reuters.com/technology/sam-bankman-fried-be-sentenced-multi-billion-dollar-ftx-fraud-2024-03-28/">was sentenced on March 28, 2024, to 25 years in prison</a>, is emblematic of the fast-paced world of cryptocurrency, in which vast sums of money can be made or lost in the blink of an eye.</em></p>
<p><em>In early November 2022, the crypto exchange FTX was valued at more than US$30 billion. By the middle of that month, <a href="https://www.cnn.com/2022/11/15/business/ftx-madoff-bankman-fried-bair/index.html">FTX was in bankruptcy proceedings</a>. And less than a year later, on Nov. 3, 2023, its founder, Sam Bankman-Fried, was found guilty of <a href="https://www.wired.com/story/sam-bankman-fried-trial-explained/">seven counts of money laundering and fraud</a>, following a trial that featured less than a month of <a href="https://www.wsj.com/finance/currencies/sam-bankman-fried-ftx-trial-news-updates-fbef824b">testimony</a> and only about four hours of jury deliberation.</em></p>
<p><em><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, <a href="https://www.doi.org/10.1111/EUFM.12311">executives</a>, <a href="https://doi.org/10.1111/fire.12274">corporate governance</a> and financial technology. They explain how and why this incredible collapse happened, what effect it might have on the traditional financial sector and whether you should care.</em></p>
<h2>1. What happened?</h2>
<p>A million years ago, back in <a href="https://inside.com/campaigns/inside-tech-2021-07-21-28706/sections/243700">2019</a>, Bankman-Fried founded FTX, a company that ran one of the largest cryptocurrency exchanges.</p>
<p>FTX was where many crypto investors traded and held their cryptocurrency, similar to the New York Stock Exchange for stocks. Bankman-Fried also founded <a href="https://www.forbes.com/profile/alameda-research/?sh=563773816570">Alameda Research</a>, a hedge fund that invested in cryptocurrencies and crypto companies. </p>
<p>In the traditional financial sector, these two companies would be entirely separate firms, or at least have firewalls in place to avoid conflicts of interest. 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 customers’ consent</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, and soon afterward, FTX, Alameda Research and 130 other affiliated companies founded by Bankman-Fried filed for bankruptcy. This left <a href="https://www.cnbc.com/2022/11/15/ftx-says-could-have-over-1-million-creditors-in-new-bankruptcy-filing.html">huge numbers</a> of investors who bought cryptocurrencies through the exchange with <a href="https://www.cnn.com/2022/11/14/business/ftx-customer-money-bankruptcy/index.html">no good way to get their money back</a>.</p>
<p>Within a month, Bankman-Fried was <a href="https://www.nytimes.com/2022/12/12/business/ftx-sam-bankman-fried-bahamas.html">arrested</a> and <a href="https://www.foxbusiness.com/politics/ftx-founder-sam-bankman-fried-arrested-bahamas-us-expected-request-extradition-authorities-say">charged with wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering</a> by the Southern District of New York. In February 2023, <a href="https://www.reuters.com/legal/new-indictment-unsealed-against-bankman-fried-containing-12-charges-2023-02-23/">additional criminal charges</a> related to political donations were announced, followed by <a href="https://www.cnbc.com/2023/03/28/sam-bankman-fried-paid-over-40-million-to-bribe-at-least-one-chinese-official-doj-alleges-in-new-indictment.html">another indictment</a> in March related to bribery.</p>
<p>Bankman-Fried’s <a href="https://edition.cnn.com/2023/10/03/investing/sbf-trial-jury-selection/index.html">first trial began on Oct. 3, 2023</a>, and largely focused on the “<a href="https://www.bloomberg.com/news/live-blog/2023-10-26/sam-bankman-fried-testifies-at-fraud-trial">essentially unlimited</a>” access to capital Alameda had on the exchange through a secret line of credit. </p>
<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 2022 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 Securities Investor Protection Corporation – or SIPC – protects depositors against the loss of investments from an exchange failure or financially troubled brokerage firm. The crypto world lacks such guardrails.</p>
<h2>3. Why is this a big deal in crypto?</h2>
<p>While the collapse of FTX and Alameda – valued at more than $30 billion and now essentially worth nothing – was 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>. </p>
<p>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 – <a href="https://beincrypto.com/institutional-investment-in-crypto-experts-weigh-in-on-implications/">is much 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, such as
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 <a href="https://www.wsj.com/articles/ftx-sam-bankman-fried-sit-in-the-crosshairs-of-u-s-prosecutors-11668398012?mod=djem10point">in unregulated markets</a> without understanding the risks. In high-risk environments like crypto, it’s possible to lose everything – a lesson investors in FTX learned the hard way.</p>
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<h2>5. What does the trial reveal about the regulatory environment for crypto?</h2>
<p>The trial of Bankman-Fried brought attention to the ever-evolving and complex nature of cryptocurrency regulation and oversight. At the conclusion of the case, <a href="https://www.reuters.com/legal/bankman-fried-trial-poses-biggest-test-date-cryptos-top-cop-2023-09-29/">Damian Williams, the federal prosecutor for the U.S. Justice Department</a>, underlined the <a href="https://www.reuters.com/legal/ftx-founder-sam-bankman-fried-thought-rules-did-not-apply-him-prosecutor-says-2023-11-02/">department’s dedication to fighting fraud,</a> even in the relatively new crypto space.</p>
<p>This case shows that the U.S. is willing to assert broad jurisdiction over financial crimes targeting its citizens, regardless of where the perpetrating company is based, which in FTX’s case was <a href="https://www.wired.com/story/sam-bankman-fried-crypto-paradise-bahamas/">the Bahamas</a>. Notably, this trial did not fall directly under the supervision of the Securities and Exchange Commission or other regulatory bodies, although pending civil cases from both <a href="https://www.sec.gov/news/press-release/2022-219">the SEC</a> and the <a href="https://www.coindesk.com/policy/2023/02/13/cftc-case-against-sam-bankman-fried-postponed-until-after-criminal-trial/">Commodity Futures Trading Commission</a>, <a href="https://news.bloomberglaw.com/securities-law/bankman-frieds-legal-woes-extend-far-beyond-criminal-trial">along with ongoing</a> class-action lawsuits, underscore the <a href="https://www.nri.com/-/media/Corporate/en/Files/PDF/knowledge/publication/lakyara/2023/09/lakyaravol376.pdf?la=en&hash=48DA9E99702BA223ACB48E1C378E1F6833C399EF">complexities in regulating the cryptocurrency sphere</a>. </p>
<p>Despite a recent crypto crackdown by the SEC, the U.S. continues to lag behind other nations in establishing comprehensive crypto regulations. This is evident in the <a href="https://www.cnbc.com/2023/10/30/uk-confirms-plans-to-regulate-crypto-industry-with-formal-legislation.html">formal regulatory frameworks introduced by places such as the U.K.</a> and the European Union. The International Monetary Fund’s <a href="https://www.imf.org/en/Blogs/Articles/2023/07/18/crypto-needs-comprehensive-policies-to-protect-economies-and-investors">call for comprehensive regulations</a> further underscores the necessity for more robust regulatory measures within the crypto industry, hinting at a widening gap between the U.S. and much of the rest of the world.</p>
<p><em>This is an updated version of a story that was <a href="https://theconversation.com/dramatic-collapse-of-the-cryptocurrency-exchange-ftx-contains-lessons-for-investors-but-wont-affect-most-people-194692">originally published</a> on Nov. 17, 2022.</em></p><img src="https://counter.theconversation.com/content/217026/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>The downfall of the onetime multibillionaire holds lessons for investors and regulators alike.D. Brian Blank, Associate Professor of Finance, Mississippi State UniversityBrandy Hadley, Associate Professor of Finance and the David A. Thompson Distinguished Scholar of Applied Investments, Appalachian State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2169912023-11-03T04:18:06Z2023-11-03T04:18:06ZSam Bankman-Fried convicted for massive FTX fraud, in stark reminder of risks of crypto trading<p>It is not just crypto tokens that have spectacular downfalls. So can crypto personalities. </p>
<p>Sam Bankman-Fried founded FTX, one of the world’s largest exchanges for so-called cryptocurrencies, which collapsed last year owing billions of dollars. Now he has gone from being hailed as potentially the <a href="https://www.newyorker.com/magazine/2023/10/02/inside-sam-bankman-frieds-family-bubble">world’s first trillionaire</a> to a lengthy term in prison.</p>
<p>After a month-long trial, a New York jury took less than five hours to <a href="https://www.theverge.com/policy/2023/11/2/23943236/sam-bankman-fried-trial-sbf-fraud-guilty">find him guilty</a> on seven counts of fraud and money laundering. </p>
<p>Bankman-Fried’s conviction highlights the risks of crypto markets, where people trade tokens with no fundamental value via hugely complex and poorly regulated financial machinery.</p>
<p>The Australian government is currently considering how to protect consumers in such markets. Treasury has commenced a <a href="https://treasury.gov.au/consultation/c2023-427004">consultation process</a>. But it will not be an easy task when so much of the activity occurs overseas or in cyberspace.</p>
<h2>FTX was not fine</h2>
<p>Bankman-Fried chose to testify in his own defence. But he failed to convince the jury he was merely a <a href="https://www.reuters.com/legal/sam-bankman-frieds-trial-ftx-fraud-charges-heads-closing-arguments-2023-11-01/">maths nerd</a> with a poor memory who was unaware of what his friends and colleagues were doing with the companies in which he was the largest stakeholder.</p>
<p>In FTX’s final days, as concerned customers started withdrawing their deposits, Bankman-Fried tweeted “<a href="https://www.ft.com/content/eef6d795-3442-44e1-bab4-05863094d9b9">FTX is fine. Assets are fine</a>”. It appears the jury did not accept he truly believed this at the time.</p>
<p>The verdict is a salutary warning about the dangers of unregulated financial markets such as crypto. As the former chair of the United Kingdom’s Financial Conduct Authority put it, fraud is “<a href="https://www.ft.com/content/723b5753-06e1-4cd8-a629-dd795f9068f2">a feature, not a bug</a>” for much of the industry.</p>
<p>Crypto tokens such as Bitcoin have no underlying assets to give them some fundamental value. They only generate a return if the owner can sell at a higher price, to someone who expects the price to go even higher. This makes them one of the purest examples of a speculative bubble.</p>
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<em>
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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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<h2>No government</h2>
<p>One of the ironies of the crypto market is that cryptocurrency is sold as a way to avoid having to trust governments or banks, as one does with traditional currency. But in practice, crypto trading often relies on trusting individuals – some of them charlatans such as Bankman-Fried.</p>
<p>Punters thought they could trust FTX to mind their funds for them while they switched between speculative crypto tokens such as Bitcoin and Dogecoin. They were not investing in FTX, or even lending their money to it. </p>
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<em>
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Read more:
<a href="https://theconversation.com/the-spectacular-collapse-of-a-30-billion-crypto-exchange-should-come-as-no-surprise-194442">The spectacular collapse of a $30 billion crypto exchange should come as no surprise</a>
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<p>But instead of letting customers’ funds sit around waiting to be withdrawn, FTX transferred a lot of them to another company, Alameda Research. This was an investment fund, poorly run by Bankman-Fried and his cronies. </p>
<p>It is still not clear what happened to all the missing billions. Some of the money was frittered away on extravagant living. Some went to pay celebrities for advertisements and endorsements, such as the famous Super Bowl clip starring comedian Larry David. At least David can say he was warning people against “getting into crypto”.</p>
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<p>Some of the missing cash went on large political donations. Much was lost on poor bets by Alameda which failed to hedge against the risk that the price of crypto tokens could quickly plummet.</p>
<p>FTX was essentially a casino. But Bankman-Fried both owned the casino and was gambling in it – and gambling with other people’s chips. </p>
<h2>Prison looms</h2>
<p>Bankman-Fried is still <a href="https://www.reuters.com/legal/ftx-founder-sam-bankman-fried-thought-rules-did-not-apply-him-prosecutor-says-2023-11-02">proclaiming his innocence</a>. But he looks likely to be in prison for decades. </p>
<p>He will find out how long on March 28 2024. It <a href="https://www.ft.com/content/24d153b0-0c28-4946-acbe-2e93329bca52">could be more than a century</a> if he receives the maximum penalty on all the counts on which he has been convicted. And he may yet face further charges. </p>
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Read more:
<a href="https://theconversation.com/fallen-crypto-king-sam-bankman-fried-was-perfectly-positioned-to-make-a-religion-of-himself-213893">Fallen crypto king Sam Bankman-Fried was 'perfectly positioned to make a religion of himself'</a>
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<img src="https://counter.theconversation.com/content/216991/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>Cryptocurrency tycoon Sam Bankman-Fried may face a jail term of more than a century after conviction on seven counts of fraud and money laundering.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/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>
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<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>
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<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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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>
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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>
</figcaption>
</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>
<figcaption>
<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>
</figcaption>
</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>
</strong>
</em>
</p>
<hr>
<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>
</strong>
</em>
</p>
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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/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/2090252023-07-24T03:01:23Z2023-07-24T03:01:23ZThe future of money is digital – but NZ needs a careful framework to prevent the pitfalls of cryptocurrency<figure><img src="https://images.theconversation.com/files/538682/original/file-20230721-23-hklbnt.jpg?ixlib=rb-1.1.0&rect=15%2C15%2C3537%2C2349&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>New Zealand’s central bank is preparing for a future that includes the mainstream use of cryptocurrency. </p>
<p>At the end of last year, the Reserve Bank of New Zealand (RBNZ) published an issues paper, <a href="https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/consultations/future-of-money/fom-private-innovation.pdf">Private Innovation: Te Auahatanga</a>, on digital currencies. The paper sparked a wide-ranging discussion on the development of the <a href="https://www.ird.govt.nz/cryptoassets/what-cryptoassets-are">cryptoasset</a> market and how to respond to the challenges it presents. </p>
<p>The RBNZ received 50 submissions on its paper, with consultation ending in April. A <a href="https://www.rbnz.govt.nz/hub/news/2023/06/rbnz-ramps-up-monitoring-of-stablecoins-and-cryptoassets">summary of the submissions</a> was recently published. </p>
<p>We took a look at the key concerns held by those who participated in the consultation and what these concerns could mean for the uptake of cryptocurrencies in New Zealand.</p>
<h2>The future of money in NZ</h2>
<p>The RBNZ has mapped out a near future where businesses could accept digital currencies for payments, reducing currency conversion issues for international customers. Cryptocurrencies could also be used to streamline payments to suppliers or employees, particularly those based overseas. </p>
<p>And by leveraging the <a href="https://www.ibm.com/blog/how-transparency-through-blockchain-helps-the-cybersecurity-community/">transparency of blockchain</a>, businesses could improve trust by efficiently tracking transactions and supply chains. </p>
<p>But businesses will need to improve their security measures to protect against online threats as well as manage the potential market volatility associated with cryptocurrencies.</p>
<p>While outlining a path for cryptocurrencies, the RBNZ noted the challenges of regulating organisations that are entirely digital and decentralised. The bank also raised the question of how New Zealand’s existing rules on money laundering and the financing of terrorism would apply to cryptocurrencies.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1674818387732578311"}"></div></p>
<h2>The key hurdles for cryptocurrency</h2>
<p>Five key themes emerged out of the submissions received by the RBNZ. These core themes highlighted the concerns held by regulators, businesses and everyday New Zealanders.</p>
<ul>
<li><strong>A clear but flexible regulatory framework</strong> </li>
</ul>
<p><a href="https://www2.deloitte.com/us/en/insights/industry/public-sector/future-of-regulation/regulating-emerging-technology.html">Research</a> on other markets has shown that regulations cannot be static. The rules need to evolve with the technology. That said, regulations need to initially be quite prescriptive. </p>
<p>The New Zealand Financial Markets Authority (NZFMA) could establish a regulatory “sandbox” for cryptoassets, allowing businesses to test their crypto-related technologies in a controlled environment under close supervision. This would encourage innovation as well as help shape effective regulations, balancing the growth of the sector with risk management and consumer protection. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/welsh-mining-towns-had-alternative-currencies-200-years-ago-heres-what-the-crypto-world-could-learn-from-them-205511">Welsh mining towns had alternative currencies 200 years ago – here's what the crypto world could learn from them</a>
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</p>
<hr>
<p>The NZFMA could also demand that New Zealand residents transact their cryptoassets through exchanges that are based in New Zealand and thus under the country’s regulations in order to develop trust. These can be relaxed once the market matures. </p>
<ul>
<li><strong>Information and accessibility</strong> </li>
</ul>
<p>The submissions also highlighted the need for clear, accurate and accessible information on cryptocurrencies. Some respondents expressed concern about the general lack of knowledge about cryptocurrencies and how they work.</p>
<p>The lesson from the collapse of the <a href="https://www.techtarget.com/whatis/feature/FTX-scam-explained-Everything-you-need-to-know">digital trading platform FTX</a> is that New Zealand investors have to be protected, or at least made aware of, the risks of transactions through exchanges in more lenient jurisdictions. </p>
<ul>
<li><strong>Risks and opportunities</strong></li>
</ul>
<p>Risk and opportunities were also points of discussion. Respondents to the RBNZ paper acknowledged the risks associated with cryptocurrencies, such as financial crime and the risk to the wider financial system. </p>
<p>At the same time, they saw a significant opportunity to enhance competition and further innovation in New Zealand.</p>
<ul>
<li><strong>A monitoring approach</strong></li>
</ul>
<p>Respondents supported the RBNZ’s proposed monitoring approach which underscored a “same-risk, same-regulation” principle. This holds that if a cryptoasset presents similar risks to an existing financial product, it should be regulated in a similar manner. </p>
<p>This implies a flexible regulatory stance that evolves based on the risk profile of the asset, thereby creating a fair and balanced regulatory environment for all financial instruments, traditional or digital. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/scams-and-cryptocurrency-can-go-hand-in-hand-heres-how-they-work-and-what-to-watch-out-for-182033">Scams and cryptocurrency can go hand in hand – here's how they work and what to watch out for</a>
</strong>
</em>
</p>
<hr>
<p>The RBNZ has proposed working closely with international regulators and private sector information providers – companies or organisations that provide data, analysis and insights about the crypto market. This could include blockchain analytics firms, crypto exchange platforms, research institutions and financial technology companies.</p>
<p>Our own <a href="https://link.springer.com/book/10.1007/978-3-030-78873-5">earlier research</a> supports the belief that external regulations are not enough. It is essential that financial intermediaries dealing in cryptoassets develop a corporate culture of “performance with integrity”, one in which each member of the organisation is centred on the best interest of the client. </p>
<p>We need to monitor cryptoasset businesses and ensure they have robust corporate governance. Another lesson from the FTX failure is that exchanges themselves can not be custodians of customers’ assets – this must be done by regulated third party institutions.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1678632346495381506"}"></div></p>
<ul>
<li><strong>Stablecoins</strong></li>
</ul>
<p>Stablecoins, a type of cryptocurrency with value pegged to fiat currencies (a government-issued currency that is not backed by a commodity such as gold) or gold, drew interest during consultations. Participants saw their stability as beneficial. Stablecoins were seen as combining the benefits of cryptocurrencies with the stability of traditional currencies. </p>
<p>However, it must be noted that stablecoins differ in risk exposure according to the collateral they use; the <a href="https://www.sciencedirect.com/science/article/abs/pii/S1544612322005359">crash of the Terra stablecoin</a> in May 2022 versus the <a href="https://www.cnbc.com/2023/02/09/stablecoin-giant-tether-records-surprise-700-million-profit.html">resilience of Tether</a> is testament to this. Regulations must be very clear on the reserve assets demanded, and market supervisors must monitor these reserves very closely. </p>
<h2>The future is digital</h2>
<p>Although promising, the future of cryptocurrency in New Zealand is not without its challenges. The RBNZ will need to keep a close eye on things. The central bank will need to walk a fine line between encouraging new ideas and managing the risks. </p>
<p>For the moment, the RBNZ is taking a cautious approach. While there won’t be any immediate policy changes, the RBNZ will be enhancing its monitoring of the financial ecosystem, tracking global regulatory trends and collaborating with financial organisations to address data gaps.</p>
<p>The goal should be to make sure people understand cryptocurrencies, manage the risks and promote innovation. As one respondent put it: </p>
<blockquote>
<p>The future is digital. Let’s embrace it, understand it, and make it work for us.</p>
</blockquote><img src="https://counter.theconversation.com/content/209025/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>New Zealand’s central bank is taking a long, hard look at cryptocurrencies and the role they will play in future business. Here’s what businesses had to say about our digital future.Abhishek Mukherjee, Lecturer in Accounting and Finance., University of WaikatoParesha Sinha, Associate Professor, University of WaikatoPaul David Richard Griffiths, Professor of Finance; (Banking, Fintech, Corporate Governance, Intangible Assets), EM NormandieLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2066752023-07-09T20:04:34Z2023-07-09T20:04:34ZA tax expert’s tips on claiming crypto losses on tax, and how to work out capital gains<figure><img src="https://images.theconversation.com/files/536240/original/file-20230707-27-d1zm22.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C6709%2C3390&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>So, you’ve bought crypto. You’re not alone. Though the statistics are inexact, some surveys suggest as many as <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Financial_Technology_and_Regulatory_Technology/AusTechFinCentre/Final_report">21% of Australian adults</a> now own crypto assets (and that a further 8% have owned them in the past). </p>
<p>If you managed to make gains in the past year, you may need to pay extra tax. Or you may be able to use losses to offset other gains you have made.</p>
<p>The tricky part is working out those gains or losses. This isn’t based just on when you convert your crypto assets into Australian dollars. Every transaction – or what the tax office calls a “disposal” – triggers a taxable point. So you need to keep track of these.</p>
<h2>How the tax office treats crypto assets</h2>
<p>The Australian Tax Office treats cryptocurrency holdings like other investment assets, such as company shares or real estate. </p>
<p>In general, if its market value (in Australian dollars) when you dispose of your crypto is greater than when you bought it, you’ve made a capital gain. If it’s lower, you’ve made a loss.</p>
<p>How capital gains are taxed differ for businesses and professional traders. But for individuals – “mum and dad” investors – the key point is that capital gains tax is effectively the same as income tax. A capital gain is added to your assessable income, and therefore to the income tax you owe. </p>
<p>A capital loss can be offset against capital gains but not against other assessable income. If you have no capital gains in a given year, the loss can be carried forward to a future year.</p>
<p>The key issue, then, is how to calculate your <a href="https://www.ato.gov.au/Individuals/Capital-gains-tax/">net capital gain</a> – by working out the capital gain or loss for each “taxable event”. </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>
</strong>
</em>
</p>
<hr>
<h2>How do I record my gains (or losses)</h2>
<p>Generally, from the <a href="https://www.ato.gov.au/individuals/investments-and-assets/crypto-asset-investments/transactions---acquiring-and-disposing-of-crypto-assets/crypto-asset-transactions/">tax office’s</a> perspective, a taxable event occurs every time you dispose or transact with crypto – whether that be paying for goods or services, swapping it for another crypto asset, gifting it, or converting it into cash. </p>
<p>The big exception to this is if you use cryptocurrency as actual currency, to buy goods for personal use – such as a meal, concert ticket or white goods for your home. If you use crypto to buy a personal use asset for less than A$10,000, you can usually disregard the capital gain. This is known as the personal use exemption.</p>
<p>However, there are <a href="https://www.ato.gov.au/individuals/investments-and-assets/crypto-asset-investments/crypto-as-a-personal-use-asset/">rules</a> around this to prevent gaming the system. </p>
<p>The longer you’ve held crypto, the more likely the tax office is to regard it as an investment, and deny the exemption. It doesn’t provide any specific time frame but the example on <a href="https://www.ato.gov.au/individuals/investments-and-assets/crypto-asset-investments/crypto-as-a-personal-use-asset/">its website</a> mentions longer than six months as indicating the crypto is being held an investment.</p>
<p>For everything else, any crypto disposal is a taxable event, even if it doesn’t involve conversion to fiat currency (in our case, Australian dollars).</p>
<h2>Calculating the capital gain</h2>
<p>Let’s consider a scenario where you decided to swap one crypto asset for another.</p>
<p>Say you bought A$1,000 worth of the world’s second-largest cryptocurrency, Ether, in late 2020 when it was trading at about A$1,000 a unit. </p>
<p>In early 2023, when Ether’s market value hits A$3,000, you decided to swap it all for the world’s largest cryptocurrency, Bitcoin (perhaps because you thought Bitcoin had better long-term prospects).</p>
<p>That transaction wouldn’t have involved Australian dollars – but the tax office still expects you to report the capital gain as if it had. </p>
<p>So what was the capital gain on that hypothetical transaction?</p>
<p>It is the difference between the market value (in Australian dollars) of the Ether when bought (A$1,000) and the market value of the Bitcoin acquired (A$3,000). The capital gain would be A$2,000.</p>
<figure class="align-center ">
<img alt="Every crypto transaction potentially creates a 'taxable event'" src="https://images.theconversation.com/files/535976/original/file-20230706-15-wp2zw3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/535976/original/file-20230706-15-wp2zw3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/535976/original/file-20230706-15-wp2zw3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/535976/original/file-20230706-15-wp2zw3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/535976/original/file-20230706-15-wp2zw3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/535976/original/file-20230706-15-wp2zw3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/535976/original/file-20230706-15-wp2zw3.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">Every crypto transaction potentially creates a ‘taxable event’.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>Do I pay tax on all my capital gain?</h2>
<p>Actually no, so long as you’ve owned the asset for at least 12 months. </p>
<p>For any asset held longer than 12 months, you only have to pay tax on half the capital gain – what the tax office describes as <a href="https://www.ato.gov.au/Individuals/Capital-gains-tax/CGT-discount/">a 50% discount</a>. (This was a controversial reform introduced by the Howard government in 1999.)</p>
<p>So continuing with the Ether-Bitcoin scenario from above, because you owned the Ether for long enough, that transaction would only add A$1,000 to your assessable income, rather than A$2,000.</p>
<p>You input this information into the tax return by answering key questions set out in Question 18 of the <a href="https://www.ato.gov.au/forms/guide-to-capital-gains-tax-2023/?anchor=Part_B#Part_B">individual tax return</a>.</p>
<h2>Can crypto tax software help?</h2>
<p>There are online apps that can help do the heavy lifting of calculating your capital gains. They generally charge a fee, often based on the level of activity. </p>
<p>These are particularly useful if you transact often, or have a number of crypto wallets. But you will still need to double-check the results before relying on them to complete your tax return.</p>
<p>The calculators work by importing data from your digital wallet. Then, based on quantity, value, time of transaction and exchange rates, they will calculate your net capital gain for the year. </p>
<p>However, they may not account for things such as non-taxable disposals. You may need to add information manually – and it is your responsibility to ensure you are reporting to the tax office correctly. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/i-thought-crypto-exchanges-were-safe-the-lesson-in-ftxs-collapse-195800">'I thought crypto exchanges were safe': the lesson in FTX's collapse</a>
</strong>
</em>
</p>
<hr>
<h2>What if I don’t declare?</h2>
<p>The tax office acknowledges the complex nature of crypto can lead to <a href="https://www.ato.gov.au/General/Gen/Crypto-assets-2014-15-to-2022-23-data-matching-program-protocol/?anchor=Programobjectives#Programobjectives">a genuine lack of awareness</a> about tax obligations, and that crypto’s pseudonymous nature “may make it attractive to those seeking to avoid their taxation obligations”.</p>
<p>But don’t think you can get away with not declaring your gains. The tax office has ways to <a href="https://www.ato.gov.au/General/Gen/Crypto-assets-2014-15-to-2022-23-data-matching-program-protocol/">match data</a> from sources such as digital exchanges to identify possible tax evasion.</p>
<p>In past years, it has warned <a href="https://www.ato.gov.au/Media-centre/Media-releases/Cryptocurrency-under-the-microscope-this-tax-time/">hundreds of thousands</a> of taxpayers about deficiencies in their lodged returns. </p>
<p>If <a href="https://www.ato.gov.au/About-ATO/Commitments-and-reporting/Taxpayers--Charter/Taxpayers--Charter---if-you-re-subject-to-review-or-audit/">you are found</a> to have understated your tax liabilities, you will have to pay that debt, as well as interest and penalties.</p>
<p>If you need tax advice, see a <a href="https://www.tpb.gov.au/finding-and-using-tax-practitioner">registered tax agent</a>.</p>
<hr>
<p><em>Disclaimer: The content of this article is for general information only. It is not intended as professional, legal or tax advice, for this you should consult a suitably qualified accountant or other professional. Any reliance you place on the information provided is at your own risk. The tax law and Australian Tax Office position is subject to both prospective and retrospective changes.</em></p><img src="https://counter.theconversation.com/content/206675/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Elizabeth Morton receives funding from AFAANZ in relation to research on the crypto economy and tax practitioner competencies. She is also participated in submissions to Government on issues relating to crypto, and is part of the Board of Taxation's (BoT) working group related to their Review of digital assets and transactions in Australia. As well as membership to a number of professional boadies, Elizabeth is also a member of the Professional Bodies Tax Forum Working Group regarding the BoT review, as well as Blockchain Australia's tax working group. Elizabeth is also contracted to co-facilitate a short-term training contract for tax and crypto facilitated by UNSW for the ATO. Elizabeth does hold cryptoassets.</span></em></p>Up to one in five Australian adults owns cryptocurrency. A tax expert (and crypto owner) explains what you need to know about claiming losses on your tax return, and a possible discount on your gains.Elizabeth Morton, Research Fellow of the RMIT Blockchain Innovation Hub, Lecturer Taxation, RMIT 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/2080922023-06-22T22:26:56Z2023-06-22T22:26:56ZAs the Bank of Canada prepares for a digital Canadian dollar, democratic concerns loom large<figure><img src="https://images.theconversation.com/files/533037/original/file-20230620-23-x5ntzt.jpg?ixlib=rb-1.1.0&rect=43%2C7%2C4819%2C3361&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Bank of Canada recently concluded public consultations where it sought input from Canadians about the possibility of a national digital currency.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>The Bank of Canada is preparing for the possibility of the Canadian government requiring it to issue a digital version of the Canadian dollar. Although the central bank is leading the project for the new currency, any future decision to issue it <a href="https://www.cbc.ca/news/business/digital-dollar-central-bank-digital-currency-1.6841693">rests with the Canadian Parliament and government</a>.</p>
<p>As a part of this process, the central bank <a href="https://www.bankofcanada.ca/2023/05/bank-canada-launches-public-consultations-digital-dollar">recently concluded a public consultation on June 19</a> where it sought input from Canadians about the possibility of a national digital currency.</p>
<p>If the Bank of Canada were to issue the digital dollar, it could have significant implications for how Canada tackles future financial challenges.</p>
<p>However, we must not overlook the important democratic concerns associated with this currency. For the sake of our democracy, and to maintain trust in the Bank of Canada and this new digital dollar, these concerns must be addressed before a decision to issue this money is made.</p>
<h2>Mitigating financial risks</h2>
<p>The digital Canadian dollar is important for mitigating two potential future threats: the mass adoption of external currencies and the next financial crisis. </p>
<p>Most of the digital money in our economy is <a href="https://lop.parl.ca/sites/PublicWebsite/default/en_CA/ResearchPublications/201551E">commercial bank money</a> that’s created mainly through loans. This money can be risky during bank runs, which occur when everyone tries to withdraw money at the same time, rendering commercial banks vulnerable to insolvency. </p>
<p>A currency backed by the central bank could provide <a href="https://www.thestar.com/business/opinion/2023/04/29/why-a-bank-of-canada-digital-dollar-would-put-an-end-to-bank-run-crises.html">a more reliable alternative</a> to this commercial bank money. </p>
<p>Introducing the digital Canadian dollar could also <a href="https://www.bankofcanada.ca/2020/02/contingency-planning-central-bank-digital-currency/">lower the likelihood of mass adoption of alternative digital currencies</a>, like cryptocurrencies and privately issued currencies. Such a scenario would undermine the Bank of Canada’s ability to control the country’s monetary policy. Prevention is better than a cure.</p>
<p>In the face of these two scenarios, a digital Canadian dollar would ensure stability and monetary sovereignty.</p>
<h2>A promise for a better future</h2>
<p>The digital Canadian dollar has the potential to pave the way for a more promising future by bridging the present with the infinite digital possibilities of tomorrow.</p>
<p>It would serve as an alternative to existing commercial payment methods while seamlessly integrating with electronic payments and other innovative aspects of the digital economy.</p>
<p>Additionally, the ability to <a href="https://doi.org/10.38105/spr.j0hildxtyi">digitally trace transactions promotes a safer society</a> by assisting in the fight against money laundering, crime and terrorism. </p>
<p>In some visions of central bank digital currencies, it is possible <a href="https://www.bis.org/publ/arpdf/ar2023e3.pdf">to program the money</a> and <a href="https://edps.europa.eu/data-protection/our-work/publications/techdispatch/2023-03-29-techdispatch-12023-central-bank-digital-currency_en#_ftnref8">incorporate social policies</a> directly into it. </p>
<p>This could mean, for example, that specific populations or regions could receive better interest rates to promote economic equity, or automatically subsidize essential goods and services to low-income households or senior citizens. </p>
<figure class="align-center ">
<img alt="A Canadian flag hangs from the front of a glass-fronted office building." src="https://images.theconversation.com/files/533010/original/file-20230620-25-3f3spb.JPG?ixlib=rb-1.1.0&rect=12%2C12%2C8614%2C5729&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/533010/original/file-20230620-25-3f3spb.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/533010/original/file-20230620-25-3f3spb.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/533010/original/file-20230620-25-3f3spb.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/533010/original/file-20230620-25-3f3spb.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/533010/original/file-20230620-25-3f3spb.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/533010/original/file-20230620-25-3f3spb.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Bank of Canada building is pictured in Ottawa in December 2022.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Sean Kilpatrick</span></span>
</figcaption>
</figure>
<p>Since transactions are digital, it is possible to envision a future in which the Canada Revenue Agency could also use the digital currency <a href="https://www.bankofcanada.ca/wp-content/uploads/2019/08/sdp2019-7.pdf">to combat the underground economy</a> and automate tax collecting.</p>
<p>Together with another digital revolution — that of AI — it is easy to imagine insights gained from the enormous amounts of data.</p>
<h2>The dark side of the digital dollar</h2>
<p>Implementing this new digital currency, despite its potential benefits, <a href="https://theconversation.com/central-bank-digital-currencies-could-mean-the-end-of-democracy-187505">could introduce several risks to our democracy</a>. We risk paving the way for a future government taking control of our financial data. </p>
<p>Digital currencies can be programmable by being assigned functions to operate only under certain conditions. This could eventually lead to an economy controlled by the government at an individual level. The government would be able to <a href="https://www.wired.com/story/chinas-digital-yuan-ecny-works-just-like-cash-surveillance/">monitor its citizens</a>, <a href="https://edps.europa.eu/data-protection/our-work/publications/techdispatch/2023-03-29-techdispatch-12023-central-bank-digital-currency_en#_ftnref8">determine how money can be limited and used</a>, identify <a href="https://www.cato.org/cato-journal/spring/summer-2021/financial-freedom-privacy-post-cash-world#">political dissidents</a> and <a href="https://www.cato.org/study/risks-of-cbdcs">take action against them</a>. </p>
<p>The Canadian government has already proved it is willing to use <a href="https://www.cnn.com/2022/02/20/americas/canada-trucker-protest-covid-sunday/index.html">financial tools against protestors</a>. Moreover, centralized digital infrastructures are inherently vulnerable to software updates that could override initial safeguards. Issuing a central bank digital currency may be a point of no return.</p>
<p>While the Bank of Canada’s consultation is <a href="https://www.ctvnews.ca/business/what-a-canadian-digital-currency-could-look-like-expert-on-arguments-for-and-against-it-1.6414630">a step in the right direction</a>, the current information about the digital Canadian dollar fails to address the risk of a future government exercising greater authority in this digital domain.</p>
<h2>Mitigating concerns and building trust</h2>
<p>Democratic concerns <a href="https://www.thestar.com/business/opinion/2023/05/16/the-bank-of-canada-is-exploring-a-digital-currency-heres-why-that-is-terrifying.html">must be a part of the discussion</a> about a national digital currency. Similar worries about privacy, surveillance and national digital currency were also raised in the <a href="https://www.cnil.fr/en/digital-euro-what-stake-privacy-and-personal-data-protection">European Union</a>, the <a href="https://thehill.com/opinion/finance/3897860-fight-chinas-surveillance-coin-with-a-us-freedom-coin/">United States</a> and <a href="https://www.ft.com/content/92fb7d93-8705-44a0-850b-65f2ddef1018">elsewhere</a>.</p>
<p>Launching the digital Canadian dollar is a political decision, not a technological one. Ensuring freedom is the same. For the digital Canadian dollar and the Bank of Canada to be trusted, these worries must be addressed and mitigated. If the decision to issue this digital money is made, it needs to be done in a responsible manner.</p>
<p>It is essential to raise awareness about the potential misuse of the digital Canadian dollar and carefully assess its impact on Canadian democracy and civil liberties. Unlike the current suggested version, safeguards must be part of the digital Canadian dollar package. What these safeguards are is a discussion we should urgently have.</p><img src="https://counter.theconversation.com/content/208092/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ori Freiman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While a digital national currency does have the potential to mitigate key financial issues, we cannot ignore the democratic risks such a currency could introduce without safeguards.Ori Freiman, Postdoctoral Fellow, Digital Society Lab, McMaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2079092023-06-22T20:06:40Z2023-06-22T20:06:40ZAlmost no one uses Bitcoin as currency, new data proves. It’s actually more like gambling<figure><img src="https://images.theconversation.com/files/533329/original/file-20230622-30-asaf73.jpg?ixlib=rb-1.1.0&rect=0%2C147%2C6134%2C3081&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>Bitcoin boosters like to <a href="https://cointelegraph.com/explained/crypto-is-going-mainstream-heres-how-the-future-founders-will-build-on-it">claim</a> Bitcoin, and other <a href="https://www.rba.gov.au/publications/bulletin/2019/jun/cryptocurrency-ten-years-on.html">cryptocurrencies</a>, are becoming mainstream. There’s a good reason to want people to believe this. </p>
<p>The only way the average punter will profit from crypto is to sell it for <a href="https://www.scienceabc.com/social-science/greater-fool-theory-bitcoin-definition-examples.html">more than they bought it</a>. So it’s important to talk up the prospects to build a “fear of missing out”. </p>
<p>There are <a href="https://www.rba.gov.au/speeches/2021/sp-so-2021-11-18.html">loose claims</a> that a large proportion of the population – generally in the range of <a href="https://cointelegraph.com/news/world-population-reaches-8-billion-but-how-many-are-in-crypto">10% to 20%</a> – now hold crypto. Sometimes these numbers are based on <a href="https://www.grandviewresearch.com/industry-analysis/crypto-wallet-market-report">counting crypto wallets</a>, or on <a href="https://apnews.com/article/technology-business-bitcoin-f6d7ba724bf156fd5d603661c99fd5c2">surveying wealthy people</a>.</p>
<p>But the hard data on Bitcoin use shows it is rarely bought for the purpose it ostensibly exists: to buy things. </p>
<h2>Little use for payments</h2>
<p>The whole point of Bitcoin, as its creator “<a href="https://markets.businessinsider.com/news/currencies/who-is-satoshi-nakamoto-bitcoin-inventor-crypto-steve-jobs-apple-2023-4">Satoshi Nakamoto</a>” stated in the opening sentence of the 2008 <a href="https://bitcoin.org/bitcoin.pdf">white paper</a> outlining the concept, was that: </p>
<blockquote>
<p>A purely peer-to-peer version of electronic cash would allow online
payments to be sent directly from one party to another without going through a
financial institution.</p>
</blockquote>
<p>The latest data demolishing this idea comes from Australia’s central bank. </p>
<p>Every three years the Reserve Bank of Australia surveys a representative sample of 1,000 adults about how they <a href="https://www.rba.gov.au/publications/bulletin/2023/jun/consumer-payment-behaviour-in-australia.html">pay for things</a>. As the following graph shows, cryptocurrency is making almost no impression as a payments instrument, being used by no more than 2% of adults. </p>
<hr>
<p><strong>Payment methods being used by Australians</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/533397/original/file-20230622-23-nsj882.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Alternative payment methods, share of all respondents, 2022" src="https://images.theconversation.com/files/533397/original/file-20230622-23-nsj882.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/533397/original/file-20230622-23-nsj882.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=402&fit=crop&dpr=1 600w, https://images.theconversation.com/files/533397/original/file-20230622-23-nsj882.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=402&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/533397/original/file-20230622-23-nsj882.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=402&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/533397/original/file-20230622-23-nsj882.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=506&fit=crop&dpr=1 754w, https://images.theconversation.com/files/533397/original/file-20230622-23-nsj882.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=506&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/533397/original/file-20230622-23-nsj882.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=506&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Reserve Bank calculations of Australians' awareness vs use of different payment methods, based on Ipsos data.</span></span>
</figcaption>
</figure>
<hr>
<p>By contrast more recent innovations, such as “<a href="https://www.rba.gov.au/publications/bulletin/2021/mar/developments-in-the-buy-now-pay-later-market.html">buy now, pay later</a>” services and <a href="https://www.rba.gov.au/speeches/2022/pdf/sp-so-2022-05-03.pdf">PayID</a>, are being used by around a third of consumers. </p>
<p>These findings confirm 2022 data from the <a href="https://www.federalreserve.gov/publications/2023-economic-well-being-of-us-households-in-2022-banking-credit.htm">US Federal Reserve</a>, showing just 2% of the adult US population made a payment using a cryptocurrrency, and <a href="https://www.riksbank.se/en-gb/statistics/statistics-on-payments-banknotes-and-coins/payment-patterns/">Sweden’s Riksbank</a>, showing less than 1% of Swedes made payments using crypto.</p>
<h2>The problem of price volatility</h2>
<p>One reason for this, and why prices for goods and services are virtually never expressed in crypto, is that most fluctuate wildly in value. A shop or cafe with price labels or a blackboard list of their prices set in Bitcoin could be having to change them every hour. </p>
<p>The following graph from the Bank of International Settlements shows changes in the exchange rate of ten major cryptocurrencies against the US dollar, compared with the Euro and Japan’s Yen, over the past five years. Such volatility negates cryptocurrency’s value as a currency. </p>
<hr>
<p><strong>Cryptocurrency’s volatile ways</strong></p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/533346/original/file-20230622-17-6qb358.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/533346/original/file-20230622-17-6qb358.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=218&fit=crop&dpr=1 600w, https://images.theconversation.com/files/533346/original/file-20230622-17-6qb358.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=218&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/533346/original/file-20230622-17-6qb358.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=218&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/533346/original/file-20230622-17-6qb358.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=274&fit=crop&dpr=1 754w, https://images.theconversation.com/files/533346/original/file-20230622-17-6qb358.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=274&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/533346/original/file-20230622-17-6qb358.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=274&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">90-day rolling standard deviation of daily returns for major cryptocurrencies compared with the Euro and Yen.</span>
<span class="attribution"><a class="source" href="https://www.bis.org/publ/work1104.htm">The Crypto Multiplier, BIS Working Papers, No. 1104</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>There have been attempts to solve this problem with so-called “stablecoins”. These promise to maintain steady value (usually against the US dollar). </p>
<p>But the spectacular collapse of one of these ventures, <a href="https://www.nber.org/papers/w31160">Terra</a>, once one of the largest cryptocurrencies, showed <a href="https://www.degruyter.com/document/doi/10.1515/rle-2022-0053/html">the vulnerability</a> of their mechanisms. Even a company with the enormous resources of Facebook owner Meta has <a href="https://www.bbc.com/news/technology-60156682">given up on its stablecoin venture</a>, Libra/Diem.</p>
<p>This helps explain the failed experiments with making Bitcoin legal tender in the two countries that have tried it: El Salvador and the <a href="https://www.bbc.com/news/world-africa-61565485">Central African Republic</a>. The Central African Republic has already <a href="https://www.imf.org/en/Countries/CAF/central-african-republic-qandas#crypto">revoked Bitcoin’s status</a>. In <a href="https://www.nber.org/papers/w29968">El Salvador</a> only a fifth of firms accept Bitcoin, despite the <a href="https://twitter.com/nayibbukele/status/1402446890466217985">law</a> saying they must, and only 5% of sales are paid in it.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/one-year-on-el-salvadors-bitcoin-experiment-has-proven-a-spectacular-failure-190229">One year on, El Salvador's Bitcoin experiment has proven a spectacular failure</a>
</strong>
</em>
</p>
<hr>
<h2>Storing value, hedging against inflation</h2>
<p>If Bitcoin’s isn’t used for payments, what use does it have?</p>
<p>The major attraction – one endorsed by mainstream financial publications – is as a store of value, particularly in times of inflation, because Bitcoin has a hard cap on the number of coins that will ever be “mined”. </p>
<p>As <a href="https://www.forbes.com/advisor/in/investing/cryptocurrency/advantages-of-cryptocurrency/">Forbes writers</a> argued a few weeks ago:</p>
<blockquote>
<p>In terms of quantity, there are only 21 million Bitcoins released as specified by the ASCII computer file. Therefore, because of an increase in demand, the value will rise which might keep up with the market and prevent inflation in the long run. </p>
</blockquote>
<p>The only problem with this argument is recent history. Over the course of 2022 the purchasing power of major currencies (US, the euro and the pound) dropped by about 7-10%. The purchasing power of a Bitcoin dropped by about 65%. </p>
<h2>Speculation or gambling?</h2>
<p>Bitcoin’s price has always been volatile, and always will be. If its price were to stabilise somehow, those holding it as a speculative punt would soon sell it, which would drive down the price. </p>
<p>But most people buying Bitcoin essentially as a speculative token, hoping its price will go up, are likely to be disappointed. A <a href="https://www.bis.org/publ/bisbull69.htm">BIS study</a> has found the majority of Bitcoin buyers globally between August 2015 and December 2022 have made losses.</p>
<p>The “<a href="https://www.statista.com/statistics/730876/cryptocurrency-maket-value/">market value</a>” of all cryptocurrencies peaked at US$3 trillion in November 2021. It is now about US$1 trillion. </p>
<p>Bitcoins’s highest price in 2021 was about US$60,000; in 2022 US$40,000 and so far in 2023 only US$30,000. Google searches show that public interest in Bitcoin also peaked in 2021. In the US, the proportion of adults with internet access holding cryptocurrencies fell from 11% in 2021 to 8% in 2022.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-is-bitcoins-fundamental-value-thats-a-good-question-171387">What is Bitcoin's fundamental value? That's a good question</a>
</strong>
</em>
</p>
<hr>
<p>UK <a href="https://www.gov.uk/government/publications/individuals-holding-cryptoassets-uptake-and-understanding">government research</a> published in 2022 found that 52% of British crypto holders owned it as a “fun investment”, which sounds like a euphemism for gambling. Another 8% explicitly said it was for gambling. </p>
<p>The UK parliament’s <a href="https://committees.parliament.uk/committee/158/treasury-committee">Treasury Committee</a>, a group of MPs who examine economics and financial issues, has <a href="https://publications.parliament.uk/pa/cm5803/cmselect/cmtreasy/615/summary.html">strongly recommended</a> regulating cryptocurrency as form of gambling rather than as a financial product. They argue that continuing to treat “unbacked crypto assets as a financial service will create a ‘halo’ effect that leads consumers to believe that this activity is safer than it is, or protected when it is not”. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/crypto-trading-politicians-who-say-it-should-be-treated-like-gambling-are-completely-wrong-206121">Crypto trading: politicians who say it should be treated like gambling are completely wrong</a>
</strong>
</em>
</p>
<hr>
<p>Whatever the merits of this proposal, the UK committtee’s underlying point is solid. Buying crypto does have more in common with gambling than investing. Proceed at your own risk, and and don’t “invest” what you can’t afford to lose.</p><img src="https://counter.theconversation.com/content/207909/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins was formerly a senior economist at the Reserve Bank of Australia and the Bank for International Settlements.
He has neither a long nor short position in any cryptocurrency.</span></em></p>Barely 2% of Australians or Americans use Bitcoin for its intended purpose: to buy things. Should we even call it a cryptocurrency?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/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/2061212023-05-23T14:10:57Z2023-05-23T14:10:57ZCrypto trading: politicians who say it should be treated like gambling are completely wrong<figure><img src="https://images.theconversation.com/files/527509/original/file-20230522-25-fn6rwh.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">No ifs or bits. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/crypto-trader-investor-analyst-broker-using-2066562593">Ground Picture</a></span></figcaption></figure><p>Cryptocurrency trading should be regulated in the same way as gambling, <a href="https://committees.parliament.uk/committee/158/treasury-committee/news/195246/consumer-cryptocurrency-trading-should-be-regulated-as-gambling-treasury-committee-says-in-new-report/">according to</a> the UK parliamentary select committee in charge of scrutinising finance. The committee <a href="https://publications.parliament.uk/pa/cm5803/cmselect/cmtreasy/615/summary.html">published a report</a> arguing that this was necessary because digital assets such as bitcoin have “no intrinsic value, huge price volatility and no discernible social good”. </p>
<p>Such statements remind many crypto enthusiasts that they are still early to this space despite it being nearly 15 years since the publication of bitcoin’s original <a href="https://www.ussc.gov/sites/default/files/pdf/training/annual-national-training-seminar/2018/Emerging_Tech_Bitcoin_Crypto.pdf">white paper</a>, which laid out the technological vision in the first place. </p>
<p>If crypto trading <a href="https://www.pinsentmasons.com/out-law/news/cryptoassets-should-be-regulated-as-gambling">was designated</a> as gambling, platforms would need to follow additional regulatory measures such as licensing rules and customer due diligence requirements to protect vulnerable users. There might also be protections akin to <a href="https://www.reuters.com/world/uk/uk-government-set-out-tougher-gambling-rules-2023-04-26/">recently proposed changes</a> to traditional gambling, such as stake limits, as well as closer control of advertising and promotion and a mandatory levy on participating firms. </p>
<p>The report, whose lead author is the committee’s chair, Harriett Baldwin, argues that gambling regulations are appropriate for crypto because these assets are “not supported by any underlying asset”. </p>
<p>The comparison would be betting on a roulette wheel, where you are simply playing the odds that a certain number will sometimes come up. Contrast this with buying company shares, which might not always go up but at least there’s an underlying asset such as a customer base or a branch of shops. </p>
<p>But to conclude that cryptocurrencies have no value because they lack a traditional asset base fails to understand that intrinsic value can derive from a network. It’s perfectly normal, for example, for companies to have a gap between the value of their book assets and what they are worth on the stock market overall. </p>
<p>For example, <a href="https://investor.fb.com/financials/default.aspx">Meta’s</a> total assets are presently valued on its balance sheet at US$184 billion (£148 billion), whereas the company’s valuation on the stock market <a href="https://finance.yahoo.com/quote/META/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAFWZHFfCPmhElxT_KJHKjOkk91OjS0rsbGtJJSwPyJzNt8DB9bsesKc_5LikvO-BcrQGJtIhuiLB2rDfawzt11b-zVQAjfQOrY5XYYmFAKE6J0JPAd9KYP4Q6Y2k_GBr7K9uJVtwPYOUAvm-NzPGMFfaFvUJ5g2AQEpAOHOUgWkL">is US$630 billion</a>. One reason why Meta is worth about 3.5 times more than its assets is because the market understands that there is much intangible value in networks such as Facebook and Instagram beyond what is on the company’s balance sheet. </p>
<p>Many alternative valuation methodologies have been developed to value such networks. These use principles such as <a href="https://en.wikipedia.org/wiki/Metcalfe%27s_law">Metcalfe’s law</a>, which says that any network becomes exponentially more valuable the more users that are connected through it. This is because it becomes more useful to them, meaning they’ll use it more often, and will be less likely to defect to a rival that lacks critical mass – witness how Twitter looks entrenched despite lots of people disliking Elon Musk. </p>
<p>You can <a href="https://www.sciencedirect.com/science/article/pii/S1567422317300480">view cryptocurrencies</a> as networks too, even though they are decentralised – meaning they usually have no sole company in charge – in contrast to a centralised network such as Facebook. In short, the networks that underpin cryptocurrencies <em>do</em> have underlying assets of value. </p>
<h2>Tortoises and hares</h2>
<p>Treating crypto trading as gambling would also mean taking a risk-based approach that focuses on mitigating downside risks. This is understandable, but it might be at the expense of potential upside opportunities. The UK <a href="https://www.gov.uk/government/news/government-sets-out-plan-to-make-uk-a-global-cryptoasset-technology-hub">aspires to be</a> a leader on digital assets, potentially stealing a march on the US at a time when it seems <a href="https://www.coindesk.com/consensus-magazine/2023/03/31/the-biden-administration-is-politicizing-crypto/">comparatively hostile</a> to the space. Particularly considering that financial services <a href="https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwiH1aSd24j_AhW8QkEAHXPCAAUQFnoECAkQAw&url=https%3A%2F%2Fwww.economicsobservatory.com%2Fhow-important-is-the-city-to-the-uk-economy&usg=AOvVaw1idW1ogkcN3FtAgOQEm1kL">make up 8%</a> of the UK economy, there is a delicate balance to strike here. </p>
<p>The UK government <a href="https://www.bbc.com/news/technology-65610851">has said</a> that it does not agree with the Treasury select committee that crypto trading should be treated like gambling. Earlier this year, the <a href="https://www.ft.com/content/6f5539f7-19ff-419b-8a64-5ed528de5abf?shareType=nongift">Treasury outlined</a> new principles to regulate crypto trading, which would essentially treat these assets in a similar way to shares or bonds. </p>
<p>This is in stark contrast to, say, <a href="https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwjYp9X93Yj_AhWVQEEAHdHMAQwQFnoECAcQAQ&url=https%3A%2F%2Fwww.weforum.org%2Fagenda%2F2022%2F01%2Fwhat-s-behind-china-s-cryptocurrency-ban%2F&usg=AOvVaw20xk0IbfQF7a5cEB0emgsy">China</a>, which has banned cryptocurrency to “curtail financial crime and prevent economic instability”. Yet, equally, the UK’s proposed regime will probably be more robust than a country <a href="https://www.pwc.com/gx/en/new-ventures/cryptocurrency-assets/pwc-global-crypto-regulation-report-2023.pdf">such as Switzerland</a>, which is embracing crypto within a largely new framework for financial assets. The Swiss are so progressive that their financial regulator has <a href="https://zg.ch/en/steuern-finanzen/steuern/steuerbezug/steuern-bezahlen-mit-kryptowaehrungen#:%7E:text=As%20of%20February%202021%2C%20individuals,the%20cryptocurrencies%20Bitcoin%20and%20Ether.">even permitted</a> the canton of Zug, near Zurich, to pay certain taxes in crypto. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/527593/original/file-20230522-17286-bwz42t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Lakeside view in Zug, Switzlernad" src="https://images.theconversation.com/files/527593/original/file-20230522-17286-bwz42t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/527593/original/file-20230522-17286-bwz42t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=452&fit=crop&dpr=1 600w, https://images.theconversation.com/files/527593/original/file-20230522-17286-bwz42t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=452&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/527593/original/file-20230522-17286-bwz42t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=452&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/527593/original/file-20230522-17286-bwz42t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=568&fit=crop&dpr=1 754w, https://images.theconversation.com/files/527593/original/file-20230522-17286-bwz42t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=568&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/527593/original/file-20230522-17286-bwz42t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=568&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Welcome to Zug, Switzerland, where you can pay your taxes in crypto.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/hennake/50522263538/in/photolist-2jYtNMh-sQ4Fzh-t5kpFL-2mNKFUT-2mNV36U-XjgWwR-t5kj55-2mWTXjf-2kCtFuw-2nevkYJ-2k78pad-2k8oK41-2drMkuL-2mQRpUT-2kTgSyu-DcJoFy-tYE6hP-2kBTF6z-GQgAH1-2kvPtCn-4Yw5wd-4Yw7PY-Usjf3C-ab586g-27KpVGz-2kCKWmJ-2kBJoyo-2kyPsxo-2i7rCJs-2kCeWkP-2km6JAP-uVuq6T-2jGQhx1-RKrTzq-LCbAN-2kBWSUp-UoBtub-uD2Baa-2kCSJdr-2kUPvsP-2jGAQh1-ocHBFq-2n1je6i-tYE8uV-uCZSaz-uD1oCt-vAEejm-oudsd8-2kh21Bu-uUZYfN">Henna K</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>Such disparate views on crypto regulation around the world point to one thing: uncertainty. Not around the technology as it stands today – though a surprising number even of senior policymakers don’t understand it – so much as what it could become. For example, with <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1089224/Individuals_Holding_Cryptoassets_Uptake_and_Understanding.odt">upwards of 4 million</a> people in the UK having owned or used cryptocurrencies, regulators worry that individuals might pivot to a monetary system outside of their traditional currency by transacting in crypto instead. This might make it more difficult for central banks to control the economy. </p>
<p>The risk of this pivot is probably remote, but not impossible. But trying to predict how it will play out is akin to forecasting the aviation industry when the Wright Brothers first flew, or the importance of the internet and smartphones when Steve Jobs <a href="https://www.youtube.com/watch?v=L40B08nWoMk">described the computer</a> in 1990 as a “bicycle for the mind”. </p>
<p>Overall, the UK’s approach to crypto regulation is cautious – perhaps you could spin it as a “fast follower” of the countries that are leading the way, such as Switzerland and <a href="https://www.reuters.com/business/finance/imf-says-el-salvadors-bitcoin-risks-have-not-materialized-should-be-addressed-2023-02-11/">El Salvador</a>. Given the economic existential importance of “what is money” and how it is used within an economy, this seems like the right balance to strike. When the consequences are so difficult to predict, it’s arguably better to take small steps rather than “<a href="https://www.masterclass.com/articles/move-fast-and-break-things">move fast and break things</a>” in the style of Silicon Valley. After all, the UK is a country not a company and the stakes are higher if a policy choice does not pay off. </p>
<p>Nonetheless, it’s surely right not to treat crypto trading like gambling. Let’s hope that future UK governments stick with this approach. Gambling over time is the road to ruin for the player – the house always wins. In crypto this is not true. There is no “house” but rather a value proposition which may or may not come to fruition, but oftentimes is still misunderstood.</p><img src="https://counter.theconversation.com/content/206121/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gavin Brown 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>It needs to be treated like the new class of assets that it is.Gavin Brown, Associate Professor in Financial Technology, University of LiverpoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2050392023-05-05T17:08:11Z2023-05-05T17:08:11ZCryptocasinos are evolving worryingly fast – here’s how to get to grips with them<figure><img src="https://images.theconversation.com/files/524596/original/file-20230505-25-9mlqb8.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Place your bits. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/gold-physical-bitcoin-coin-on-casino-1179867643">Cronislaw</a></span></figcaption></figure><p><a href="https://www.gov.uk/government/publications/high-stakes-gambling-reform-for-the-digital-age/high-stakes-gambling-reform-for-the-digital-age">New gambling rules</a> are being proposed by the UK government for the first time since the invention of the smartphone. But these “reforms for the digital age” are silent on cryptocasinos, where you can bet online using cryptocurrencies. These platforms have seen remarkable and potentially dangerous developments since the government’s consultation for its reforms began in late 2020. </p>
<p>The first <a href="https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0240693">peer-reviewed paper</a> on cryptocasinos was only published in October 2020. The gambling games discussed were laughably simple, such as bets on virtual coin flips or dice rolls. Such activities that might appeal to bored friends on a long journey must have seemed benign compared to the world of in-play sports betting and online slots available using conventional currencies. </p>
<p>But fast-forward a year and cryptocasinos had evolved substantially. In April 2021, Premier League football team Southampton signed a <a href="https://theathletic.com/4217895/2021/04/08/southampton-tie-up-record-breaking-three-year-sponsorship-deal-with-sportsbet-io/">£7.5 million a year</a> sponsorship deal with sportsbet.io, which specialises in allowing gamblers to make sports bets during matches with cryptocurrencies. </p>
<p>Shortly afterwards, the rapper Drake <a href="https://ftw.usatoday.com/2022/03/drake-crypto-betting-stake-partnership-inevitable">announced a partnership</a> with Stake.com, another major cryptocasino, which would see him livestreaming six-figure wagers across sports and online casino games. Stake.com then became Everton FC’s new shirt sponsor in June 2022, causing a <a href="https://www.theguardian.com/society/2022/aug/29/stakecom-told-not-to-use-everton-branding-in-5000-betting-offer">significant backlash</a> among football fans and gambling harm advocates.</p>
<p>However, most of this opposition focused on the rise of gambling shirt sponsors in football, which will be addressed by the Premier League’s <a href="https://www.espn.co.uk/football/english-premier-league/story/4922969/premier-league-clubs-to-drop-gambling-sponsors-from-shirts">recent announcement</a> banning them from the 2026–27 season onwards. Yet it’s not enough to just think of cryptocasinos in the same way as any other online gambling operator; they pose unique risks that have mostly gone unnoticed. </p>
<h2>The risks</h2>
<p>First, cryptocurrencies carry inherent risks. Becoming <a href="https://fee.org/articles/meet-the-teenage-dropout-who-became-a-bitcoin-millionaire/">a crypto millionaire</a> is now a common get-rich-quick dream, but some people get so obsessed with the high-stakes trading that they <a href="https://www.bbc.co.uk/news/world-asia-64245669">end up seeking treatment</a>, just like with gambling addiction. It is also easy for crypto assets to disappear, such as via the collapse of the <a href="https://en.wikipedia.org/wiki/Bankruptcy_of_FTX">crypto exchange FTX</a> in November 2022. </p>
<p>It may be that people are more willing to gamble with crypto than with more tangible forms of money. This would be analagous to the fact that digital deposits at online casinos <a href="https://journals.sagepub.com/doi/pdf/10.1177/1461444814521140">are thought</a> to encourage gambling more than casino chips. </p>
<p>In addition, cryptocasinos tend to be lightly regulated. They often obtain licences from the <a href="https://psyarxiv.com/fgxrb/">Caribbean island of Curaçao</a>, which has a more lax approach than, for example, Great Britain’s Gambling Commission. Platforms operating within Great Britain still have to abide by Gambling Commission rules, but there are workarounds. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/524599/original/file-20230505-25-vgybjx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Street sign saying Curacao in big yellow letters" src="https://images.theconversation.com/files/524599/original/file-20230505-25-vgybjx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/524599/original/file-20230505-25-vgybjx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=389&fit=crop&dpr=1 600w, https://images.theconversation.com/files/524599/original/file-20230505-25-vgybjx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=389&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/524599/original/file-20230505-25-vgybjx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=389&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/524599/original/file-20230505-25-vgybjx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=489&fit=crop&dpr=1 754w, https://images.theconversation.com/files/524599/original/file-20230505-25-vgybjx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=489&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/524599/original/file-20230505-25-vgybjx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=489&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The Caribbean island offers a light-touch regime for gambling operators.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/YaDcufLo7mo">Dave Drury/Unsplash</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>For instance, the Gambling Commission does not allow platforms to accept crypto deposits. As a result, cryptocasinos like Stake.com redirect mainland British visitors to a “white label” version of the site that only allows deposits in conventional currencies. </p>
<p>But UK users can easily reach the crypto version of Stake.com (licensed in Curaçao) by using a virtual private network (VPN) to make it appear that they are from a different country, as demonstrated by <a href="https://www.theguardian.com/business/2022/oct/01/uk-gambling-safeguards-no-match-for-online-bookie-stake-com">investigative reporters</a>. Stake.com responded that all operators in the sector experienced users trying to bypass such restrictions using VPNs, and pointed to an example of one user that it had shut down. </p>
<p>We also contributed to <a href="https://psyarxiv.com/fgxrb/">research that</a> found that 22 frequently visited cryptocasinos did not even require a VPN for British users to evade such site restrictions. These sites were also part of a wider group of 37 cryptocasinos (out of 40 surveyed) that didn’t require proof of ID before allowing crypto deposits. </p>
<p>Meanwhile, cryptocasinos are often accessible from <a href="https://dealerslounge.com/bitcoin-casinos-china">countries such as China</a> where online gambling is illegal. The fundamental anonymity of cryptocurrencies makes it harder for law enforcement to intervene in these situations. </p>
<p>The lax regulation in this area is also apparent when you look at the safer gambling messaging. The messaging used by conventional online gambling operators is <a href="https://psyarxiv.com/n5d9h">bad enough</a> – many introduced a very weak “take time to think” message a couple of years ago, for example. But the cryptocasinos are worse, using wholly inappropriate messages emphasising potentially huge winnings. For instance, BetBigDollar.com tells its customers: </p>
<blockquote>
<p>Yes, there is a chance of winning vast amounts of money, but, if not treated as entertainment only and nothing more, irresponsible gaming can have dire consequences for the player.</p>
</blockquote>
<h2>What would help</h2>
<p>Cryptocasinos demonstrate how online gambling will continue to evolve rapidly. The British regulatory approach is much too slow, insisting on evidence that researchers simply don’t have the tools to deliver. The <a href="https://www.gov.uk/government/publications/high-stakes-gambling-reform-for-the-digital-age/high-stakes-gambling-reform-for-the-digital-age">new proposals</a> give the following rationale for not recommending any substantive new restrictions on gambling marketing:</p>
<blockquote>
<p>The limited high-quality evidence we received shows a link between exposure to advertising and gambling participation, but there was little evidence of a causal link with gambling harms or the development of gambling disorder.</p>
</blockquote>
<p>A government that makes policies based on only what is known for certain, and which takes two years to react to evidence, is doomed to repeat the policy failures of the 2000s. Gambling was liberalised at that time, but few realised that smartphones would soon give people access to a casino in their pocket.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/524601/original/file-20230505-21-372ed3.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A smartphone with dice and cards coming out of it" src="https://images.theconversation.com/files/524601/original/file-20230505-21-372ed3.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/524601/original/file-20230505-21-372ed3.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/524601/original/file-20230505-21-372ed3.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/524601/original/file-20230505-21-372ed3.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/524601/original/file-20230505-21-372ed3.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/524601/original/file-20230505-21-372ed3.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/524601/original/file-20230505-21-372ed3.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>
<figcaption>
<span class="caption">So the UK liberalised gambling and then this happened.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/creative-background-online-casino-male-hand-2028773756">Marko Aliaksandr</a></span>
</figcaption>
</figure>
<p>The truth is that cryptocasinos are too new, and their future evolution too uncertain, to know for sure how policymakers should respond. Cryptocasinos may ultimately require too great a degree of technical knowledge to become a widespread public health concern. But some danger signals are there. </p>
<p>For example, Gamstop is a service that UK-based gamblers can use to self-exclude from online gambling. Some self-excluded gamblers have <a href="https://www.reddit.com/r/problemgambling/comments/11w0qiu/guys_i_need_help_i_relapsed_bad_today_and_its/">posted on social media</a> that cryptocasinos have allowed them to evade Gamstop and continue gambling again, with terrible consequences.</p>
<p>For now, some broad principles could be used. The trick is not to make decisions based solely on the information available, but to anticipate how things may evolve. New gambling operators are going to use all available tools to gain gamblers’ attention and increase their perceived legitimacy. That will always include marketing, not just on Premier League shirts, but via influencers and social media, so it would make sense to restrict this avenue. </p>
<p>The Gambling Commission’s approach to giving cryptocasinos access to UK markets via white labelling should also be reconsidered. Without question, it is much easier to use cryptocurrencies to gamble than it should be.</p><img src="https://counter.theconversation.com/content/205039/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Philip Newall is a member of the Advisory Board for Safer Gambling – an advisory group of the Gambling Commission in Great Britain, and in 2020 was a special advisor to the House of Lords Select Committee Enquiry on the Social and Economic Impact of the Gambling Industry. In the last three years, Philip has contributed to research projects funded by the Academic Forum for the Study of Gambling, Clean Up Gambling, Gambling Research Australia, NSW Responsible Gambling Fund, and the Victorian Responsible Gambling Foundation. Philip has received travel and accommodation funding from Alberta Gambling Research Institute, and received open access fee funding from Gambling Research Exchange Ontario.
</span></em></p><p class="fine-print"><em><span>Maira Andrade 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 new UK white paper reforming the gambling laws for the digital age says nothing about one of the most concerning new developments in this field in the past 20 years.Philip Newall, Lecturer in the School of Psychological Science, University of BristolMaira Andrade, PhD Researcher, University of BristolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1929192023-02-27T17:41:12Z2023-02-27T17:41:12ZThe next phase of the internet is coming: Here’s what you need to know about Web3<figure><img src="https://images.theconversation.com/files/512125/original/file-20230224-16-lbuoo9.jpg?ixlib=rb-1.1.0&rect=19%2C19%2C3281%2C2177&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The terms Web3 and Web 3.0 are often used interchangeably, but they are different concepts.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>The rapid growth of <a href="https://theconversation.com/cryptocurrencies-are-in-crisis-but-they-are-not-going-to-disappear-197777">cryptocurrencies</a> and <a href="https://theconversation.com/what-are-nfts-and-why-are-people-paying-millions-for-them-157035">virtual non-fungible tokens</a> have dominated news headlines in recent years. But not many may see how these modish applications connect together in a wider idea being touted by some as the next iteration of the internet — Web3. </p>
<p>There are many misconceptions surrounding this buzzy (and, frankly, fuzzy) term, including the conflation of Web3 with Web 3.0. Here’s what you need to know about these terms.</p>
<h2>What is Web3?</h2>
<p>Since Web3 is still a developing movement, there’s <a href="https://www.wired.com/story/web3-paradise-crypto-arcade/">no universal agreement among experts</a> about its definition. Simply put, Web3 is envisioned to be a “<a href="https://doi.org/10.1109/MIS.2022.3181504">decentralized web ecosystem</a>,” empowering users to bypass internet gatekeepers and retain ownership of their data.</p>
<p>This would be done through <a href="https://www.theverge.com/22654785/blockchain-explained-cryptocurrency-what-is-stake-nft">blockchain</a>; rather than relying on single servers and centralized databases, Web3 would run off of public ledgers where data is stored on computer networks that are chained together.</p>
<p>A decentralized Web3 would fundamentally change how the internet operates — financial institutions and tech companies would no longer need to be intermediaries of our online experiences.</p>
<p>As <a href="https://www.npr.org/2021/11/21/1056988346/web3-internet-jargon-or-future-vision">one business reporter put it</a>: </p>
<blockquote>
<p>“In a Web3 world, people control their own data and bounce around from social media to email to shopping using a single personalized account, creating a public record on the blockchain of all of that activity.”</p>
</blockquote>
<p>Web3’s blockchain-based infrastructure would open up intriguing possibilities by ushering in the era of the “<a href="https://doi.org/10.1016/j.bushor.2022.10.005">token economy</a>.” The token economy would allow users to monetize their data by providing them with tokens for their online interactions. These tokens could offer users perks or benefits, including ownership stakes in content platforms or voting rights in online communities. </p>
<p>To better understand Web3, it helps to step back and see how the internet developed into what it is now.</p>
<h2>Web 1.0: The ‘read-only’ web</h2>
<p>Computer scientist Tim Berners-Lee is credited with inventing the world wide web in 1989, which allowed people to <a href="https://ijcsit.com/docs/Volume%205/vol5issue06/ijcsit20140506265.pdf">hyperlink static pages of information</a> on websites accessible through internet browsers. </p>
<p>Berners-Lee was exploring more efficient ways for researchers at different institutions to share information. In 1991, he launched the <a href="http://info.cern.ch/hypertext/WWW/TheProject.html">world’s first website</a>, which provided instructions on using the internet. </p>
<figure class="align-center ">
<img alt="A middle-aged man in a suit sits in an arm chair speaking into a microphone" src="https://images.theconversation.com/files/511796/original/file-20230222-25-gh8wik.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/511796/original/file-20230222-25-gh8wik.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=404&fit=crop&dpr=1 600w, https://images.theconversation.com/files/511796/original/file-20230222-25-gh8wik.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=404&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/511796/original/file-20230222-25-gh8wik.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=404&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/511796/original/file-20230222-25-gh8wik.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=508&fit=crop&dpr=1 754w, https://images.theconversation.com/files/511796/original/file-20230222-25-gh8wik.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=508&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/511796/original/file-20230222-25-gh8wik.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=508&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Tim Berners-Lee, the inventor of the World Wide Web, speaks at the Open Government Partnership Global Summit in Ottawa in May 2019.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Justin Tang</span></span>
</figcaption>
</figure>
<p>These basic “read-only” websites were managed by webmasters who were responsible for updating users and managing the information. In 1992, <a href="https://www.npr.org/2021/08/06/1025554426/a-look-back-at-the-very-first-website-ever-launched-30-years-later">there were 10 websites</a>. By 1994, after the web entered the public domain, there were 3,000. </p>
<p>When Google arrived in 1996 there were two million. Last year, there were <a href="https://siteefy.com/how-many-websites-are-there/">approximately 1.2 billion websites</a>, although it is estimated only 17 per cent are still active.</p>
<h2>Web 2.0: The social web</h2>
<p>The next major shift for the internet saw it develop from a “read-only web” to where we are currently — a “read-write web.” Websites became more dynamic and interactive. People became mass participants in generating content through hosted services like Wikipedia, Blogger, Flickr and Tumblr. </p>
<p>The idea of “Web 2.0” gained traction after technology publisher Tim O’Reilly <a href="https://www.oreilly.com/pub/a/web2/archive/what-is-web-20.html">popularized the term in 2004</a>.</p>
<p>Later on, social media platforms like Facebook, YouTube, Twitter and Instagram and the growth of mobile apps led to unparalleled connectivity, albeit through distinct platforms. These platforms <a href="https://www.techtarget.com/searchsecurity/definition/walled-garden">are known as walled gardens</a> because their parent companies heavily regulate what users are able to do and there is no information exchange between competing services. </p>
<p>Tech companies like Amazon, Google and Apple are deeply embedded into every facet of our lives, from how we store and pay for our content to the personal data we offer (<a href="https://www.pcmag.com/news/the-reckoning-is-coming-regulating-big-tech">sometimes without our knowledge</a>) to use their wares. </p>
<h2>Web3 vs. Web 3.0</h2>
<p>This brings us to the next phase of the internet, in which many wish to wrest back control from the entities <a href="https://www.washingtonpost.com/technology/2021/03/24/online-moderation-tech-stack/">that have come to hegemonize it</a>.</p>
<p>The terms Web3 and Web 3.0 are often used interchangeably, but they are different concepts.</p>
<p>Web3 is the move towards a decentralized internet built on blockchain. Web 3.0, on the other hand, traces back to Berners-Lee’s original vision for the internet as a collection of websites <a href="https://www.w3.org/standards/semanticweb/data">linking everything together at the data level</a>.</p>
<p>Our current internet can be thought of as a gigantic document depot. Computers are capable of retrieving information for us when we ask them to, but they aren’t capable of understanding the deeper meaning behind our requests. </p>
<figure class="align-center ">
<img alt="A hand holding a cellphone displaying a group of social media platform icons" src="https://images.theconversation.com/files/512122/original/file-20230224-22-egvmi1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/512122/original/file-20230224-22-egvmi1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/512122/original/file-20230224-22-egvmi1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/512122/original/file-20230224-22-egvmi1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/512122/original/file-20230224-22-egvmi1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/512122/original/file-20230224-22-egvmi1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/512122/original/file-20230224-22-egvmi1.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">In a Web 3.0 world, users would be able to link personal information across social media platforms.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>Information is also siloed into separate servers. Advances in programming, natural language processing, machine learning and artificial intelligence would allow computers to discern and process information in a more “human” way, leading to more efficient and effective content discovery, data sharing and analysis. This is known as the “semantic web” or the “read-write-execute” web. </p>
<p>In Berners-Lee’s Web 3.0 world, information would be stored in <a href="https://solidproject.org/about">databases called Solid Pods</a>, which would be owned by individual users. While this is a more centralized approach than Web3’s use of blockchain, it would allow data to be changed more quickly because it wouldn’t be distributed over multiple places.</p>
<p>It would allow, for example, <a href="https://www.nexxworks.com/blog/web3-and-web-3-0-are-not-the-same-thing-heres-why">a user’s social media profiles to be linked</a> so that updating the personal information on one would automatically update the rest.</p>
<h2>The next era of the internet</h2>
<p>Web3 and Web 3.0 are often mixed up because the next era of the internet will likely <a href="https://medium.com/fluree/blockchain-meet-the-semantic-web-8f516233555a">feature elements of both movements</a> — semantic web applications, linked data and a blockchain economy. It’s not hard to see why there is <a href="https://www.coindesk.com/web3/2022/12/16/crypto-winter-isnt-chilling-vcs-from-investing-in-web3-says-pitchbook-analyst/">significant investment</a> happening in this space. </p>
<p>But we’re just seeing the tip of the iceberg when it comes to the logistical issues and legal implications. Governments need to <a href="https://forkast.news/crypto-regulatory-storm-front-coming-in-2023/">develop new regulations</a> for everything from digital asset sales taxation to consumer protections to the <a href="https://doi.org/10.3233/SW-180289">complex privacy and piracy concerns of linked data</a>. </p>
<p>There are also critics who argue that Web3, in particular, is merely a <a href="https://marker.medium.com/the-false-promise-of-web3-7e6c1a00d4be">contradictory rebranding of cryptocurrency</a> that will not democratize the internet. While it’s clear we’ve arrived at the doorstep of a new internet era, it’s really anyone’s guess as to what happens when we walk through that door.</p><img src="https://counter.theconversation.com/content/192919/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Adrian Ma 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>Web3 has become a catch-all term for the next iteration of the internet. But what does it mean exactly?Adrian Ma, Assistant Professor, Journalism, Toronto Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1994622023-02-24T12:13:32Z2023-02-24T12:13:32ZHow a digital pound could work alongside cryptocurrencies<figure><img src="https://images.theconversation.com/files/509517/original/file-20230210-28-mxi0pu.jpg?ixlib=rb-1.1.0&rect=197%2C86%2C5388%2C2418&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Bank of England has new plans for a digital pound. </span> <span class="attribution"><span class="source">Alexander Supertramp/Shutterstock</span></span></figcaption></figure><p>Like many other countries, the UK <a href="https://www.bankofengland.co.uk/speech/2023/february/jon-cunliffe-speech-at-uk-finance-update-on-central-bank-digital-currency">has developed a plan</a> for a central bank digital currency (CBDC). A digital pound would essentially act like an online form of cash suitable for everyday payments. It would not earn any interest like a standard savings account (or even some current accounts), but it could increase access to financial services in the UK. </p>
<p>The Bank of England recently proposed <a href="https://www.bankofengland.co.uk/-/media/boe/files/paper/2023/the-digital-pound-consultation-working-paper.pdf?la=en&hash=5CC053D3820DCE2F40656E772D9105FA10C654EC">a general framework</a> for how a digital pound would work. It has suggested an ambitious timeline for introducing one by 2025. You have until June 7 2023 to tell the bank <a href="https://www.bankofengland.co.uk/the-digital-pound">what you think of its plan</a>.</p>
<p>The success of a UK CBDC will largely depend on whether the benefits of offering a digital currency outweigh <a href="https://committees.parliament.uk/committee/175/economic-affairs-committee/news/160221/central-bank-digital-currencies-a-solution-in-search-of-a-problem-report-published/#:%7E:text=The%20report%20concludes%20there%20is,and%20the%20protection%20of%20privacy.">the costs of creating and rolling out the infrastructure</a> needed to support the new payment system.</p>
<p>There are clear benefits to CBDCs, such as increasing financial inclusion by providing an easier way for the UK’s <a href="https://www.ukfinance.org.uk/news-and-insight/blogs/financial-inclusion-and-access-banking-services">1.2 million unbanked residents</a> to register for banking services. The online wallets that would hold people’s digital pounds could also be used by the government to make “fiscal transfers” such as passing tax subsidies or support payments on to households and businesses. </p>
<p>But the Bank of England’s current proposal is also seeking answers to some questions about a digital pound. In particular, how (or if) it could coexist alongside other digital currencies such as cryptocurrency assets. While the bank suggests several models, broadly speaking this could help reduce systemic risk in the crypto sector and further increase banking options for UK consumers. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-are-stablecoins-a-blockchain-expert-explains-164812">What are stablecoins? A blockchain expert explains</a>
</strong>
</em>
</p>
<hr>
<p>The Bank of England’s <a href="https://www.bankofengland.co.uk/-/media/boe/files/paper/2023/the-digital-pound-consultation-working-paper.pdf?la=en&hash=5CC053D3820DCE2F40656E772D9105FA10C654EC">CBDC consultation paper</a> specifically mentions stablecoins. These are digital assets that are issued by private companies, unlike a traditional currency which is issued by a government. And unlike digital currencies such as bitcoin, the value of a stablecoin is pegged to a stable asset like the US dollar or British pound – but what about a digital pound? </p>
<h2>How stablecoins could complement digital pounds</h2>
<p>The bank talks about the overlap between what a stablecoin and a digital pound could offer. It argues they could “coexist” in a mixed payments economy. It compares this to how we use both cash and bank accounts in the same payment system right now, pointing to technology developments such as ATMs that have made this coexistence even easier over the years.</p>
<p>Stablecoins would need to be “fully backed with high-quality and liquid assets” in order to complement a digital pound, according to the bank. It adds:</p>
<blockquote>
<p>In contrast to the digital pound, stablecoins, regardless of their backing asset, would be a liability of the private-sector issuer rather than a claim on the central bank. That means they would be private money, like commercial bank deposits. </p>
</blockquote>
<p>It also suggests a model in which these backing assets could be “held entirely with the central bank”, adding that this would make the stablecoin “economically similar to the digital pound” and reduce financial risk.</p>
<p>If the digital currency was used to back a stablecoin, this would mean that the issuer would provide holders with stablecoin tokens based on the value of digital pounds that could be used by customers for payments (both domestic and international) as well as trading in cryptocurrencies. These private forms of money would operate on the blockchain, which helps <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4328948">make payments easier and less costly</a>. In some countries, stablecoins are already being used <a href="https://www.ft.com/content/02194361-a5b9-4bf0-9147-f36ba7759cf1">as a hedge against inflation and macroeconomic uncertainty</a>.</p>
<h2>Regulating cryptocurrencies</h2>
<p>This could also have benefits for the crypto industry. Currently, stablecoins are <a href="https://www.disruptionbanking.com/2022/07/21/how-should-we-regulate-stablecoins-such-as-tether/#:%7E:text=Tether%2C%20on%20the%20other%20hand,those%20regulated%20by%20the%20NYDFS.">managed by private banks or organisations that are not regulated and audited</a>. But a stablecoin backed by a digital pound in an account held with the central bank would be much more transparent and trustworthy. The central bank could regularly audit stablecoin providers’ reserves. Legislators could also impose capital requirements, for example mandating the percentage of issuers’ reserves to be kept in the account with the central bank. </p>
<p>But there is a trade-off here: extreme capital requirements could affect the profitability of stablecoins. Since they are <a href="https://www.cnbc.com/2023/02/09/stablecoin-giant-tether-records-surprise-700-million-profit.html">typically linked to interest-bearing assets like Treasury bonds</a>, they can make money from their holdings – that is, the assets held against the stablecoins they issue. </p>
<p>In contrast, a digital pound-backed stablecoin issuer would be unlikely to earn interest on its account at the central bank. While a typical bank such as Lloyds has reserve accounts at the central bank that earns the base rate, it is unlikely that the Bank of England would give a stablecoin provider the same kind of account. This would entail being subject to the same regulations, which could affect the flexibility that crypto asset providers tend to value.</p>
<figure class="align-center ">
<img alt="Mobile banking. Woman holding smartphone with digital wallet application. credit card on table, top view" src="https://images.theconversation.com/files/509518/original/file-20230210-23-x1clyg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/509518/original/file-20230210-23-x1clyg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=425&fit=crop&dpr=1 600w, https://images.theconversation.com/files/509518/original/file-20230210-23-x1clyg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=425&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/509518/original/file-20230210-23-x1clyg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=425&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/509518/original/file-20230210-23-x1clyg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=535&fit=crop&dpr=1 754w, https://images.theconversation.com/files/509518/original/file-20230210-23-x1clyg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=535&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/509518/original/file-20230210-23-x1clyg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=535&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A digital wallet.</span>
<span class="attribution"><span class="source">Prostock-studio/Shutterstock</span></span>
</figcaption>
</figure>
<p>Stablecoins backed by a digital currency held at the central bank could certainly address some of the systemic issues surrounding this type of crypto asset. Over the past year, a major stablecoin has <a href="https://www.coindesk.com/learn/the-fall-of-terra-a-timeline-of-the-meteoric-rise-and-crash-of-ust-and-luna/">collapsed in value</a>. This typically happens when a market event prompts holders to rush to withdraw their holdings and the issuer has difficulties fulfilling so many redemptions at once.</p>
<p>If issuers were holding a certain percentage of liquid digital currency reserves at the central bank, this would ensure they had funds to process redemptions or withdrawals while maintaining the coin’s value against the digital pound. And even if an issuer bankruptcy did occur, a central bank could also provide insurance to stablecoin customers to protect their assets to a certain level. </p>
<p>Much like cash and bank accounts, it is possible that digital assets and stablecoins could coexist and even complement each other. Further, a digital pound could shine a light on the growing role of private money in the economy. This would help to make the financial system more secure while also fostering financial inclusion.</p><img src="https://counter.theconversation.com/content/199462/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ganesh Viswanath-Natraj does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The UK economy could benefit from a digital pound, but is there a role for crypto?Ganesh Viswanath-Natraj, Assistant professor, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1986822023-01-27T17:04:19Z2023-01-27T17:04:19ZBitcoin has shot up 50% since the new year, but here’s why new lows are probably still ahead<figure><img src="https://images.theconversation.com/files/506823/original/file-20230127-16-4cgk1e.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Up, up and ...</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/golden-bitcoin-digital-currency-futuristic-money-1653739108">CKA</a></span></figcaption></figure><p>To the delight of investors across the cryptosphere, the price of bitcoin (BTC) has rallied over 53% since its low of US$15,476 (£12,519) in November. Now trading around US$23,000, there’s much talk that the bottom has finally been reached for the leading cryptocurrency after a year of painful decline – in November 2021, the price peaked at almost US$70,000. </p>
<p>If so, it’s not only good news for bitcoin but the whole market in cryptocurrencies, since the others broadly move in line with the leader. So is crypto back in business?</p>
<h2>Dotcom lessons</h2>
<p>The past is littered with various periods of market turmoil, from the global financial crisis of 2007-09 to the COVID-19 collapse in 2020. But neither of these is a particularly good comparison for our purposes because they both saw sharp drops and recoveries, as opposed to the slow unwinding of bitcoin. A better comparison would be the dotcom bubble burst in 2000-02, which you can see in the chart below (the Nasdaq is the index that tracks all tech stocks). </p>
<p><strong>Nasdaq 100 index 1995-2005</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/506820/original/file-20230127-20-zmaqij.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/506820/original/file-20230127-20-zmaqij.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/506820/original/file-20230127-20-zmaqij.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=337&fit=crop&dpr=1 600w, https://images.theconversation.com/files/506820/original/file-20230127-20-zmaqij.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=337&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/506820/original/file-20230127-20-zmaqij.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=337&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/506820/original/file-20230127-20-zmaqij.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/506820/original/file-20230127-20-zmaqij.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/506820/original/file-20230127-20-zmaqij.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.tradingview.com">Trading View</a></span>
</figcaption>
</figure>
<p>Look at the bitcoin chart since it peaked in November 2021 and the price action looks fairly similar: </p>
<p><strong>Bitcoin bear market price chart 2021-23</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/506783/original/file-20230127-22-fi77rv.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/506783/original/file-20230127-22-fi77rv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/506783/original/file-20230127-22-fi77rv.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/506783/original/file-20230127-22-fi77rv.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/506783/original/file-20230127-22-fi77rv.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/506783/original/file-20230127-22-fi77rv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/506783/original/file-20230127-22-fi77rv.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/506783/original/file-20230127-22-fi77rv.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.tradingview.com">Trading View</a></span>
</figcaption>
</figure>
<p>Both charts show that bear markets go through various periods where prices rise but don’t reach the same level as the previous peak – known as “lower highs”. If bitcoin is following a similar trajectory to the early 2000s Nasdaq, it would make sense that the current price will be another lower high and that it will be followed by another lower low. </p>
<p>This is partly because like the 2000s Nasdaq, bitcoin seems to be following a pattern known as an <a href="https://www.investopedia.com/terms/e/elliottwavetheory.asp#:%7E:text=The%20Elliott%20Wave%20theory%20is%20a%20form%20of%20technical%20analysis,that%20oppose%20the%20larger%20trend.">Elliott Wave</a>. Named after the renowned American stock market analyst Ralph Nelson Elliott, this essentially argues that during a bear phase, investors shift between different emotional states of disappointment and hope, before they finally despair and decide the market will never turn in their favour. This is a final wave of heavy selling known as capitulation. </p>
<p>You can see this idea on the chart below, where bitcoin is the green and red line and Z is the potential capitulation point at around US$13,000 (click on the chart to make it bigger). The black line is the path that the Nasdaq took in the early 2000s. The blue pointing finger above that line is potentially the equivalent place to where the bitcoin price is now. </p>
<p><strong>Bitcoin now vs Nasdaq in the early 2000s</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/506821/original/file-20230127-3270-sl362z.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/506821/original/file-20230127-3270-sl362z.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/506821/original/file-20230127-3270-sl362z.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=285&fit=crop&dpr=1 600w, https://images.theconversation.com/files/506821/original/file-20230127-3270-sl362z.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=285&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/506821/original/file-20230127-3270-sl362z.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=285&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/506821/original/file-20230127-3270-sl362z.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=358&fit=crop&dpr=1 754w, https://images.theconversation.com/files/506821/original/file-20230127-3270-sl362z.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=358&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/506821/original/file-20230127-3270-sl362z.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=358&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Author provided</span></span>
</figcaption>
</figure>
<p>The one other thing to note on the chart is the wavy line that’s moving horizontally along the bottom. This is the <a href="https://www.investopedia.com/terms/r/rsi.asp">stochRSI or stochastic relative strength index</a>, which is an indication of when the asset looks overbought (when the line is peaking) or oversold (when it’s bottoming).</p>
<p>A sign of a coming shift is when the stochRSI moves in the opposite direction to where the price is heading: so now the stochRSI is coming down but the price has held up around US$23,000. This too suggests a fall could be imminent. </p>
<h2>The game of wealth transfer</h2>
<p>Within markets, there is often a game that investors from institutions such as banks and hedge funds play with amateur (retail) investors. The aim is to transfer retail investors’ wealth to these institutions. </p>
<p>This is particularly easy in an unregulated market like bitcoin, because it is easier for institutions to manipulate prices. They can also talk up (or talk down) prices to stir up retail investors’ emotions, and get them to buy at the top and sell at the bottom. This “traps” the irrational investors who buy at higher prices, transferring wealth by giving the institutions an opportunity to convert their holdings into cash. </p>
<p>It therefore makes sense to compare how the retail and institutional investors have been behaving lately. The following charts compare those crypto wallet addresses that hold 1 BTC or more (mostly retail investors) with those holding upwards of 1,000 BTC (institutional investors). In all three charts, the black line is the bitcoin price and the orange line is the number of wallets in that category. </p>
<p><strong>Retail investor behaviour</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/506787/original/file-20230127-12-9lnq48.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/506787/original/file-20230127-12-9lnq48.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/506787/original/file-20230127-12-9lnq48.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=275&fit=crop&dpr=1 600w, https://images.theconversation.com/files/506787/original/file-20230127-12-9lnq48.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=275&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/506787/original/file-20230127-12-9lnq48.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=275&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/506787/original/file-20230127-12-9lnq48.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=346&fit=crop&dpr=1 754w, https://images.theconversation.com/files/506787/original/file-20230127-12-9lnq48.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=346&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/506787/original/file-20230127-12-9lnq48.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=346&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://glassnode.com/">Glassnode</a></span>
</figcaption>
</figure>
<p><strong>Institutional investor behaviour pt 1</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/506831/original/file-20230127-23-4dwklf.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/506831/original/file-20230127-23-4dwklf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/506831/original/file-20230127-23-4dwklf.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=277&fit=crop&dpr=1 600w, https://images.theconversation.com/files/506831/original/file-20230127-23-4dwklf.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=277&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/506831/original/file-20230127-23-4dwklf.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=277&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/506831/original/file-20230127-23-4dwklf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=349&fit=crop&dpr=1 754w, https://images.theconversation.com/files/506831/original/file-20230127-23-4dwklf.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=349&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/506831/original/file-20230127-23-4dwklf.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=349&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 chart shows all wallets that hold at least 1,000 BTC.</span>
<span class="attribution"><a class="source" href="https://glassnode.com/">Glassnode</a></span>
</figcaption>
</figure>
<p><strong>Institutional investor behaviour pt 2</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/506789/original/file-20230127-21-6vw6f7.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/506789/original/file-20230127-21-6vw6f7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/506789/original/file-20230127-21-6vw6f7.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=282&fit=crop&dpr=1 600w, https://images.theconversation.com/files/506789/original/file-20230127-21-6vw6f7.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=282&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/506789/original/file-20230127-21-6vw6f7.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=282&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/506789/original/file-20230127-21-6vw6f7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=354&fit=crop&dpr=1 754w, https://images.theconversation.com/files/506789/original/file-20230127-21-6vw6f7.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=354&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/506789/original/file-20230127-21-6vw6f7.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=354&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 chart shows all wallets that hold at least 10,000 BTC.</span>
<span class="attribution"><a class="source" href="https://glassnode.com/">Glassnode</a></span>
</figcaption>
</figure>
<p>This shows that since the <a href="https://theconversation.com/i-thought-crypto-exchanges-were-safe-the-lesson-in-ftxs-collapse-195800">FTX scandal</a> back in November, which led to the world’s second-largest crypto exchange collapse, retail investors have been buying bitcoin aggressively, resulting in the highest number of addresses holding at least one BTC ever. On the other hand, the biggest institutional investors have been offloading. This suggests that the institutional investors agree with our analysis. </p>
<h2>Where we’re heading</h2>
<p>There are those who argue that bitcoin is a bubble and that ultimately cryptocurrencies are worthless. That’s a separate debate for another day. If we assume there is a future for blockchains, which are the online ledgers that enable cryptocurrencies, the key question is when bitcoin will reach the accumulation phase that typically ends a bear phase in any market.</p>
<p>Known as <a href="https://www.investopedia.com/articles/active-trading/070715/making-money-wyckoff-way.asp">Wyckoff accumulation</a>, this <a href="https://school.stockcharts.com/doku.php?id=market_analysis:the_wyckoff_method">is where</a> the price of the asset repeatedly tests two areas: the upper bound where traders previously sold heavily enough for the price to stop rising (known as resistance), and the lower bound where traders bought heavily enough that the price stopped going down (known as support). </p>
<p>At the point where institutional investors decide the lower bound has proved to be sufficiently resilient – in other words, they think the price is cheap at that level – they will start buying the asset again. That moment is only likely to come after there has been a capitulation. </p>
<p>Of course, history does not repeat itself exactly. It may be this is the first time that retail investors have outsmarted the large institutions, and that the only way is now up. </p>
<p>More likely, however, there is more pain on the way. With a recession on the cards, unprecedented job layoffs and weak retail data coming out of the US, it doesn’t point to the kind of optimism that tends to move markets higher. It would therefore make sense to brace yourself for another plunge in the price of bitcoin and the rest of the crypto market.</p><img src="https://counter.theconversation.com/content/198682/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>James Kinsella works part-time as an investment analyst for Tyndall Asset Management.</span></em></p><p class="fine-print"><em><span>Richard Fairchild does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There’s much excitement among bitcoiners right now – but are they about to be disappointed?James Kinsella, PhD Researcher in Finance, University of BathRichard Fairchild, Senior Lecturer in Corporate Finance, University of BathLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1977772023-01-17T20:16:09Z2023-01-17T20:16:09ZCryptocurrencies are in crisis, but they are not going to disappear<figure><img src="https://images.theconversation.com/files/504333/original/file-20230112-22-3byu1u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A worker from Hope House, an organization that sponsors the use of cryptocurrencies on El Zonte beach, makes a purchase at a small shop that accepts bitcoins, in Tamanique, El Salvador, June 9, 2021.</span> <span class="attribution"><span class="source">(AP Photo/Salvador Melendez)</span></span></figcaption></figure><p>Cryptocurrencies are experiencing their worst crisis <a href="https://www.investopedia.com/terms/c/cryptocurrency.asp">since the arrival of the first crypto assets and virtual currencies</a> in the 1990s and their democratization in the 2010s. </p>
<p>Bitcoin had an unprecedented tumble in late 2020 and has yet to recover. In addition to this sharp decline, there is much discussion about the worrisome collapse of some so-called <a href="https://www.investopedia.com/terms/s/stablecoin.asp">stablecoins</a>, which are supposed to be less volatile. </p>
<p>This is compounded by the fall of cryptocurrency giants, particularly due to <a href="https://www.investopedia.com/what-went-wrong-with-ftx-6828447">allegations of fraud in cases like the FTX scandal</a>. At its peak, FTX had one million users and was the third-largest cryptocurrency exchange in terms of volume.</p>
<p>Experts agree that the aftershocks of its collapse have hit investors hard and will likely slow the pace of crypto asset adoption <a href="https://www.cnbc.com/2022/12/19/three-ways-the-ftx-disaster-will-reshape-crypto.html">for the next few years</a>. </p>
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<p>
<em>
<strong>
À lire aussi :
<a href="https://theconversation.com/investir-dans-les-cryptoactifs-voici-comment-limiter-le-risque-detre-expose-a-une-fraude-182835">Investir dans les cryptoactifs : voici comment limiter le risque d’être exposé à une fraude</a>
</strong>
</em>
</p>
<hr>
<p>As an expert in the field of cryptocurrencies, I will try to answer the following question: are cryptocurrencies really here to stay, or are they just a fad?</p>
<h2>Speculation and extreme volatility</h2>
<p>Cryptoassets include tokens that can be used for digital currency purposes (i.e. cryptocurrencies such as Bitcoin and Ethereum). They are also used for investment in an entity (a <a href="https://www.bitpanda.com/academy/en/lessons/what-is-the-difference-between-utility-tokens-and-security-tokens">“security token,”</a> which entitles the holder to ownership of a portion of an entity), or for products or services (a <a href="https://www.bitpanda.com/academy/en/lessons/what-is-the-difference-between-utility-tokens-and-security-tokens">“utility token,”</a> which entitles the holder to a product once it has been produced, for example).</p>
<p><a href="https://blog.bitpanda.com/en/what-are-stablecoins">Stablecoins</a>, which are supposed to be associated with lower volatility, are unique in that they are backed by a currency (e.g. the U.S. dollar), a commodity (e.g. gold) or a financial instrument (e.g. a stock or a bond). This is to keep the value of the digital currency stable.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="man shows the screen of his phone on which his cryptocurrency balance can be seen" src="https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.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">Erich García, a 33 year-old programmer and YouTuber, poses with his bitcoin wallet, at his home in Havana, Cuba, in March 2021.</span>
<span class="attribution"><span class="source">(AP Photo/Ramon Espinosa)</span></span>
</figcaption>
</figure>
<p>Bitcoin’s plunge is followed in the <a href="https://www.nbcnews.com/tech/crypto/bitcoin-plunge-breaks-24000-200-billion-wipe-crypto-market-weekend-rcna33234">headlines</a> on a daily basis. While this is not the first time it has fallen, it is particularly noteworthy as it is the biggest drop in value <a href="https://www.cnbc.com/2022/05/12/bitcoin-btc-price-falls-below-27000-as-crypto-sell-off-intensifies.html">since late 2020</a>. The collapse is partly due to rising interest rates and the flight of investors from these risky investments. Although it is recovering, Bitcoin is still a long way from the heights it once reached.</p>
<p>This media coverage raises many questions about the sustainability of these cryptoassets. Indeed, the latter are marked by extreme volatility in their <a href="https://news.harvard.edu/gazette/story/2021/09/regulating-the-unregulated-cryptocurrency-market/">unregulated markets</a> in addition to being associated with <a href="https://medium.com/wolverineblockchain/the-surprising-similarities-between-cryptocurrencies-tulips-4c4ab5a1bea1">speculation by many players in the financial world</a>.</p>
<p>Indeed, the BBC recently reported that cryptocurrency laundering <a href="https://www.bbc.com/news/technology-60072195">rose 30 per cent in 2021</a>. The <a href="https://www.ftc.gov">U.S. Federal Trade Commission</a>, which aims to protect U.S. consumers, reported that in 2021, fraud schemes cost investors <a href="https://www.ftc.gov/business-guidance/blog/2022/06/reported-crypto-scam-losses-2021-top-1-billion-says-ftc-data-spotlight">more than $1 billion in cryptocurrencies</a>. Needless to say, very few of the defrauded investors have recovered their money.</p>
<h2>One billion users by 2022</h2>
<p>Yet we are seeing a slow but sure increase in the adoption of cryptocurrencies by companies. In an ongoing study of the impact of cryptocurrency adoption by public companies on their social responsibility, I noted that many of them, such as Starbucks and McDonald’s, have started to accept Bitcoin as a form of payment. This is particularly the case in their branches in El Salvador, following that country’s adoption of <a href="https://globalnews.ca/news/8171521/el-salvador-adopts-bitcoin-legal-tender/">Bitcoin as legal tender</a>.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1487634924865740804"}"></div></p>
<p>Others, such as Japanese online retail giant <a href="https://www.rakuten.ca/">Rakuten</a>, have chosen to accept cryptocurrencies even if their country is not pushing to adopt Bitcoin as a currency. They say they are driven by a desire to offer more payment options to their customers.</p>
<p>The user base for cryptocurrencies is growing year on year. For example, Crypto.com, an exchange platform, estimated that about 295 million people had entered the cryptocurrency market as of <a href="https://assets.ctfassets.net/hfgyig42jimx/5i8TeN1QYJDjn82pSuZB5S/85c7c9393f3ee67e456ec780f9bf11e3/Cryptodotcom_Crypto_Market_Sizing_Jan2022.pdf">December 2021</a>. The platform expected the number of users to cross the one billion mark by December 2022.</p>
<p>Cryptocurrencies also allow people with unreliable or insecure banking systems to access a parallel banking system that is independent of the traditional banking system. Offering a less affluent part of the population access to a different form of banking system is one of the reasons the President of El Salvador gave <a href="https://www.nytimes.com/2022/07/05/world/americas/el-salvador-bitcoin-national-currency.html">for making Bitcoin legal tender in the country</a>.</p>
<h2>A healthy fluctuation</h2>
<p>The growing interest in <a href="https://www.cnbc.com/2021/06/18/whats-defi-crypto-based-decentralized-finance-explained.html">decentralized finance (DeFi)</a>, as well as the development of the metaverse, are also factors that influence the sustainability of cryptocurrencies. Decentralized finance often relies on stablecoins for its operation. Meanwhile, the metaverse, a <a href="https://theconversation.com/what-is-the-metaverse-and-what-can-we-do-there-179200">universe of 3D virtual worlds</a>, also allows the use of cryptocurrencies to purchase goods or services, creating an immersive world.</p>
<p>Experts in the sector believe that, despite the debacle that the cryptoasset market has experienced recently, decentralized finance — particularly via products backed by cryptoassets — <a href="https://www.cnbc.com/2022/06/03/crypto-firms-say-thousands-of-digital-currencies-will-collapse.html">is here to stay</a>. This is because there is a market and players willing to participate.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="person holds a Bitcoin coin in front of a screen" src="https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=379&fit=crop&dpr=1 600w, https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=379&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=379&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=476&fit=crop&dpr=1 754w, https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=476&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=476&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">Cryptocurrencies can be used for transactional purposes in the metaverse.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>Moreover, they argue that while this sharp decline in cryptocurrency-related markets does remove some players, this is a welcome change. By the admission of <a href="https://www.youtube.com/watch?v=H1FYJlaxlOg">Raoul Ullens</a>, co-founder of <a href="https://blockchainweek.be/">Brussels Blockchain Week</a> (an annual conference devoted to blockchain and cryptocurrencies):</p>
<blockquote>
<p>it is healthy, for the adoption, the maturation of these Web3 technologies, to skim, to rebalance the sector. […] An unhealthy ecosystem will not attract the masses.</p>
</blockquote>
<p>According to these players, such a drop in the cryptoasset markets is not only necessary, but also healthy, contributing as it does to rebalancing the valuation of cryptocurrencies.</p>
<h2>Cryptocurrencies are here to stay</h2>
<p>The launch of cryptocurrencies by central banks, via central bank digital currencies (CBDCs), also lends weight to the argument that cryptoassets are here to stay. Indeed, the Bank of Canada is currently working on the <a href="https://www.bankofcanada.ca/research/digital-currencies-and-fintech/projects/central-bank-digital-currency/">creation of a CBDC</a>. According to the institution, a CBDC issued by the Bank of Canada would be an “official digital currency (that) would retain its face value in Canadian dollars because it is issued by the <a href="https://www.bankofcanada.ca/research/digital-currencies-and-fintech/projects/central-bank-digital-currency/?_gl=1*11n5guo*_ga*NTA4MDM3MDQwLjE2NzM1NTYyOTg.*_ga_D0WRRH3RZH*MTY3MzU1NjI5Ny4xLjAuMTY3MzU1NjI5Ny4wLjAuMA..&_ga=2.93130141.106029617.1673556298-508037040.1673556298">Bank of Canada</a>, just like bank notes.”</p>
<p>Other nations in the world have already issued such a currency, including the <a href="https://www.ndtv.com/business/here-are-the-timelines-and-status-of-central-bank-digital-currencies-in-some-countries-2820164">Bahamas (Sand Dollar) and Nigeria (eNaira)</a>. One reason CBDCs are different from privately issued digital currencies (such as Bitcoin or Ethereum) is that their intended use is for transaction purposes only, not for investment or speculation. They offer the same possibilities of use as cash. </p>
<p>CBDCs also aim to promote the financial inclusion of a part of the population that has little or no access to the traditional banking system, and to simplify the implementation of monetary and fiscal policy in the issuing countries.</p>
<p>Developments in the world of digital currencies, whether in the metaverse or with the arrival of the CBDC, and the craze that they continue to generate, mean cryptocurrency is here to stay.</p>
<p>This durability means the form of cryptoassets take will continue to evolve and transform with the technologies that support them (notably, blockchains) and the variation in demand from users and/or investors.</p><img src="https://counter.theconversation.com/content/197777/count.gif" alt="La Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Annie Lecompte has received funding from the Fondation des CPA du Québec.</span></em></p>An expert in the field of cryptocurrencies answers the question: Is crypto really here to stay or is it just a fad?Annie Lecompte, Assistant prof - Audit, Université du Québec à Montréal (UQAM)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1966542022-12-21T19:11:26Z2022-12-21T19:11:26ZFuelled by hope and fear, cryptocurrency markets are primed for contagion<figure><img src="https://images.theconversation.com/files/502311/original/file-20221221-25-xj577v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">shutterstock</span> </figcaption></figure><p>Financial contagions can be triggered easily, if conditions are right. First one financial institution falls and then others follow, like a chain of falling dominoes. </p>
<p>The cinder that sparked the global financial crisis in 2007 is considered by many to have been a March 14 briefing by executives of the Lehman Brothers’ investment bank.</p>
<p>Under intense questioning from financial analysts, the executives admitted the bank had overstated the value of billions of dollars in subprime mortgages. </p>
<p>This news saw Lehman Brothers’ stock price crash, and led to investors losing faith in the entire edifice of complex financial deals that had been so profitable for banks and brokers.</p>
<p>As share prices fell, more investors scrambled to sell their stock, driving prices even lower. The contagion spread through global share, property and derivative markets.</p>
<p>Of course, it was a crisis waiting to happen. It took years to create the rickety system that collapsed under pressure. It was going to happen sooner or later. But it still needed a trigger.</p>
<p>We’re at a similar point in cryptocurrency markets.</p>
<h2>2022’s major collapses</h2>
<p>This year has seen several major crypto-related collapses. </p>
<p>In May the Terra/Luna cryptocurrency, <a href="https://www.fool.com/investing/2022/05/03/the-largest-market-cap-coin-you-havent-heard-of-lu/">considered a reputable stablecoin</a> with a total market cap of US$31 billion in April, was <a href="https://www.coindesk.com/learn/the-fall-of-terra-a-timeline-of-the-meteoric-rise-and-crash-of-ust-and-luna/">wiped out</a>. </p>
<p>In July the US-based crytocurrency lender Celsius, with assets valued at US$12 billion in May, <a href="https://www.cnbc.com/2022/06/13/crypto-lender-celsius-pauses-withdrawals-bitcoin-slides.html">went bankrupt</a>.</p>
<p>Then in November, FTX – one of the world’s biggest cryptocurrency exchanges, valued at $US32 billion at <a href="https://www.cnbc.com/2022/01/31/crypto-exchange-ftx-valued-at-32-billion-amid-bitcoin-price-plunge.html">the beginning of 2022</a> – collapsed, taking with it the assets of 1.2 million customers.</p>
<h2>Binance fears</h2>
<p>Crypto owners are spooked, waiting for the next exchange to drop.</p>
<p>Last week it looked as if that might be the world’s biggest cryptocurrency exchange, Binance, after customers <a href="https://www.reuters.com/technology/binance-sees-withdrawals-19-billion-last-24-hours-data-firm-nansen-says-2022-12-13/">withdrew US$1.9 billion</a> of assets in 24 hours. </p>
<p>To put that in perspective, that’s just 3.5% of the US$55 billion in assets Binance reported it was holding <a href="https://defillama.com/protocol/binance-cex">on December 18</a>. Binance says withdrawals <a href="https://www.reuters.com/technology/binance-ceo-says-deposits-returning-exchange-2022-12-14/">have settled down</a>. </p>
<p>But the panic was real enough – apparently triggered by some large depositors interpreting a trading halt for one of Binance’s listed coins as signifying something more serious. </p>
<figure class="align-center ">
<img alt="Fears of something amiss at Binance led to customers withdraw US$3.9 billion in 24 hours." src="https://images.theconversation.com/files/501224/original/file-20221215-21-fabjnv.jpg?ixlib=rb-1.1.0&rect=0%2C273%2C2942%2C1460&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/501224/original/file-20221215-21-fabjnv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/501224/original/file-20221215-21-fabjnv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/501224/original/file-20221215-21-fabjnv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/501224/original/file-20221215-21-fabjnv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/501224/original/file-20221215-21-fabjnv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/501224/original/file-20221215-21-fabjnv.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">Fears of something amiss at Binance led to customers withdraw US$1.9 billion in 24 hours.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>Centralised exchanges are a risk</h2>
<p>In any market crisis there’s always an underlying problem that provides the fuel for a cinder to spark.</p>
<p>In this case the problem is that Binance and other other centralised crypto exchanges (known as CEX) are riskier than other ways to store crypto assets. </p>
<p>There are good reasons for any crypto owner, after seeing what happened with FTX, another centralised exchange, to withdraw their assets.</p>
<p>The lesson from FTX is that if you don’t have self-custody of your crypto assets, you have no real control. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/i-thought-crypto-exchanges-were-safe-the-lesson-in-ftxs-collapse-195800">'I thought crypto exchanges were safe': the lesson in FTX's collapse</a>
</strong>
</em>
</p>
<hr>
<p>Centralised cryptocurrency exchanges are more like banks than exchanges. They act as custodians, holding customers’ crypto or fiat currency, similar to holding money in a bank account. </p>
<p>But banks are regulated – in part to minimise the disastrous “bank runs” that occurred regularly in the past. </p>
<p>This includes a global regulatory framework known as the Basel prudential guidelines, introduced in 1988 to ensure every bank holds enough capital and sufficient liquidity to meet withdrawals. It also requires banks to report financial information on a regular basis. </p>
<p>We take all this for granted. But it didn’t happen magically. It’s a function of careful planning based on strict minimum liquidity and capital requirements imposed by banking regulators. </p>
<h2>Containing the next crisis</h2>
<p>Banks are closely supervised because they hold most of the money in the economy. For the economy to function it is vital that people can store money safely and securely, and accessed when required. </p>
<p>We need the same oversight of cryptocurrency.</p>
<p>Every centralised crypto exchange is in danger if customers’ withdrawals exceed its liquid assets. If it can’t cover withdrawals, it must freeze customers’ accounts. At that point the end is nigh. This is what happened with FTX – albeit the person making the most problematic withdrawals was founder Sam Bankman-Fried. </p>
<p>The next big crypto collapse is not a question of “if” but “when” – and whether governments can work quickly enough to build the regulatory buffers to stop collapse leading to contagion.</p>
<p>It may not be possible to avert a crisis, but it can be contained.</p><img src="https://counter.theconversation.com/content/196654/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul Mazzola 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>It may not be possible to avert a a cryptocurrency crisis, but it can be contained.Paul Mazzola, Lecturer Banking and Finance, Faculty of Business and Law, University of WollongongLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1949912022-12-15T13:03:27Z2022-12-15T13:03:27ZInnovative products lead to a boom in imitation and often a bust - just look at Atari and Bitcoin<figure><img src="https://images.theconversation.com/files/499882/original/file-20221208-14505-8hx86p.jpg?ixlib=rb-1.1.0&rect=7%2C0%2C4684%2C3264&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Atari and Centipede games unearthed from a 2014 excavation of a New Mexico landfill.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/henofthewoods/14036097792/">taylorhatmaker/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>Buried in a dusty landfill in Alamogordo, New Mexico, are more than <a href="https://www.usatoday.com/story/tech/2014/04/26/diggers-find-ataris-et-games-in-landfill/8232609/">700,000 discarded Atari game cartridges</a>, including E.T., the 1982 <a href="https://spectrum.ieee.org/atari-2600">Atari</a> game based on the blockbuster film. This bleak trove of artifacts symbolizes the video game crash of 1983, when consumer demand plummeted and companies like Atari literally <a href="https://www.nytimes.com/1983/09/28/business/atari-parts-are-dumped.html">dumped their cartridges</a> in the trash. </p>
<p>Why did the popularity of Atari video games rise exponentially only to collapse seemingly overnight? As soon as creative original Atari games like Centipede and Space Invaders hit store shelves, many, many imitations flooded the market.</p>
<p>Lucrative ideas are often copied and replicated to capitalize on successes by the company that created the original, and by imitators. There are, for example, more than 20 movie sequels to Marvel’s “Avengers” and “X-Men.” </p>
<p>When Atari games were growing in popularity in the early 1980s, entrepreneurs jumped in, copying and modifying the computer code to create knockoffs such as Phobos, Pushky, Quarxon, Yahtman, Catterpiggle and Diggerbonk. As copycats copied the original and then copied the copies, the initial coders who created pioneering Atari games, including Pong, Combat and Super Breakout, were no longer directly involved. Their creativity and innovation were diluted by the sheer number of game designers copying one another. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/499119/original/file-20221205-14-dchtz0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A computer monitor displays the retro Pac-Man video game." src="https://images.theconversation.com/files/499119/original/file-20221205-14-dchtz0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/499119/original/file-20221205-14-dchtz0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/499119/original/file-20221205-14-dchtz0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/499119/original/file-20221205-14-dchtz0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/499119/original/file-20221205-14-dchtz0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/499119/original/file-20221205-14-dchtz0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/499119/original/file-20221205-14-dchtz0.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">Based on an arcade game, Pac-Man was one of Atari’s most popular releases, selling more than 8 million copies.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/s/photos/Atari">Giorgio Trovato for Unsplash.com</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Our international team of researchers studies this phenomenon and calls it the “dilution of expertise.” In a <a href="https://doi.org/10.1057/s41599-022-01380-5">recently published study</a> we examined how replication and imitation affect a product by asking: Were there measurable warning signs before the collapse of a multimillion-dollar market <a href="https://www.nytimes.com/1983/10/17/business/video-games-industry-comes-down-to-earth.html">as Atari saw</a>? We believe that the results of this research could be beneficial to investors and consumers to better understand the trends and cycles of creative products.</p>
<h2>Boom-and-bust cycles</h2>
<p>Our team tackled this issue using our collective expertise in <a href="https://scholar.google.com/citations?user=hA2IaXkAAAAJ&hl=en">network theory</a>, <a href="https://scholar.google.com/citations?user=7QETPJAAAAAJ&hl=en">anthropology</a>, <a href="https://scholar.google.com/citations?user=C6lV11IAAAAJ&hl=en">cultural evolution</a> and <a href="https://scholar.google.com/citations?user=LDIHlqIAAAAJ&hl=en">evolutionary biology</a>. We reviewed three case studies of creative products that had experienced distinct phases: explosive growth and collapse. </p>
<p>The case studies included Atari games from 1979 to 1991, cryptocurrencies from 2015 to 2020 and Reddit posts, an online network of communities, from 2018 to 2019. Each of these examples had undergone a “boom and bust” cycle beginning with a rapid rise and ending with a sudden decline. All were characterized by significant numbers of knockoff products that competed for consumer attention and money, inundated the market and effectively diluted the pioneering expertise. </p>
<p>Knockoffs are particularly easy to do with both words and code, because slight changes in text or computer code can count as a new version of a product.</p>
<p>Reddit posts, for instance, are typically short messages written in English, which very often copy <a href="http://peerproduction.net/issues/issue-4-value-and-currency/peer-reviewed-articles/karma-precious-karma/">previous posts</a> with minor alterations. <a href="https://medium.com/swlh/how-i-spent-my-summer-of-1982-59638293f358">Atari games</a> are a collection of 8-bit machine code sequences that were shared among programmers within the company and could also be copied, or reverse-engineered, by other companies. <a href="https://www.debr.io/article/21260.pdf">Cryptocurrency white papers</a> are widely available documents written in English containing technical information about the currency and the business itself.</p>
<h2>Can imitation predict failure?</h2>
<p>The case studies were assessed for repetition, or what our team calls lexical diversity, and uniqueness, what our team calls information density. For example, “Hello, hello hello!” is more repetitive than “Hello, how are you?” “Hello, how are you?” is also more varied, as it includes new words that cannot be found in the other example.</p>
<p>Contrasting the uniqueness and repetition of a product with earlier ones can yield measures similar to plagiarism scores. If new texts are copied and edited from prior texts with little originality, then both repetition and uniqueness should decline.</p>
<figure class="align-center ">
<img alt="A graph shows dilution of expertise in the video game crash of 1983." src="https://images.theconversation.com/files/497230/original/file-20221124-22-wul2j4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/497230/original/file-20221124-22-wul2j4.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=296&fit=crop&dpr=1 600w, https://images.theconversation.com/files/497230/original/file-20221124-22-wul2j4.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=296&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/497230/original/file-20221124-22-wul2j4.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=296&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/497230/original/file-20221124-22-wul2j4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=372&fit=crop&dpr=1 754w, https://images.theconversation.com/files/497230/original/file-20221124-22-wul2j4.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=372&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/497230/original/file-20221124-22-wul2j4.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=372&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The boom-and-bust cycle in the number of Atari 2600 video games released between 1977 and 1991 (red line) matches a rapid and sustained loss of complexity in the internal computer codes (blue line).</span>
<span class="attribution"><span class="source">Salva Duran-Nebreda & Sergi Valverde</span></span>
</figcaption>
</figure>
<p>Indeed, we found that the collapse in number of products released was preceded by a measured decline in originality in each of our <a href="https://www.nature.com/articles/s41599-022-01380-5">case studies</a>. Between 1980 and 1983 the number of video games Atari released grew exponentially. This phase of enormous productivity corresponds to a marked and continuous loss of originality in its computer codes. </p>
<p>That is, with each copy, the underlying machine code for these games grew simpler and more repetitive. Imitation and the replication of the original games’ content contributed greatly in the run-up to the market collapse. </p>
<h2>Innovation as a collective process</h2>
<p>When modifications are made by copycats, rather than the experts who created the initial product, the original ideas of those experts can disappear under layers of incremental modifications. This “dilution of expertise” describes content that is copied and recopied with little inventive modification. The dilution is like making new pitchers of lemonade by adding water to each cup of lemonade taken from the previous batch.</p>
<p>As the copies multiply and the number of products grows, the expertise that gave freshness to the pioneering products is further and further buried, similar to the Atari cartridges in the landfill. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/499117/original/file-20221205-20-s6i9ee.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A small tan monkey holds a mirror to its face and looks at the image." src="https://images.theconversation.com/files/499117/original/file-20221205-20-s6i9ee.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/499117/original/file-20221205-20-s6i9ee.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/499117/original/file-20221205-20-s6i9ee.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/499117/original/file-20221205-20-s6i9ee.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/499117/original/file-20221205-20-s6i9ee.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/499117/original/file-20221205-20-s6i9ee.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/499117/original/file-20221205-20-s6i9ee.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">Monkey see, monkey do. Copying and imitation are fundamental to cultural evolution.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/GBEHjsPQbEQ">Andre Mouton for Unsplash.com</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>It is our belief that when expertise is diluted, original thinking is also diminished. For Atari, there were eventually too many Space Invaders-like games. With cryptocurrency, there have been many newly created cryptocurrencies similar to Bitcoin, but it remains the most popular. For Reddit, too many posts on a stale topic led users to lose interest, driving down the number of subscribers. </p>
<p>When imitations flood <a href="https://www.nature.com/articles/srep06477">the market</a>, the expert creativity that acted as a catalyst is diluted. Consumers lose interest, as with Atari, or investors lose their money when they can no longer distinguish innovation from a bad imitation.</p>
<h2>Can we see it coming?</h2>
<p>Imitation is not bad. After all, <a href="https://doi.org/10.1126/science.1184719">copying successful ideas</a> is key to <a href="https://press.princeton.edu/books/paperback/9780691178431/the-secret-of-our-success">human culture and technology</a>. New products are rarely created in isolation; past ideas are the building blocks for future innovation.</p>
<p>A booming trend in some creative products will likely bust when the number of copycats vastly outnumbers the supply of fresh ideas or “expertise.” The methodology used for our study may have the potential to predict such a collapse. In the future, this analysis could be applied to complex systems like technology patents or music genres. Expanding this framework could provide insights on the effect of collective imitation.</p><img src="https://counter.theconversation.com/content/194991/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Salva Duran-Nebreda receives funding from the Beatriu de Pinós programme by the Universities and Research department of the Generalitat de Catalunya and the Marie Sklodowska-Curie COFUND by the H2020 programme.</span></em></p><p class="fine-print"><em><span>Sergi Valverde receives funding from the Spanish Ministry of Science and Innovation through the State Research Agency (AEI).</span></em></p><p class="fine-print"><em><span>Michael J. O'Brien and R. Alexander Bentley 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>Is imitation the sincerest form of flattery? Maybe. When good ideas prosper, so do replicas, diluting the power of original thinking.Salva Duran-Nebreda, Researcher, Consejo Superior de Investigaciones Científicas (CSIC)Michael J. O'Brien, Professor of History, Texas A&M University-San AntonioR. Alexander Bentley, Professor of Anthropology, University of TennesseeSergi Valverde, Tenured Scientist, Consejo Superior de Investigaciones Científicas (CSIC)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1963612022-12-12T19:03:16Z2022-12-12T19:03:16ZHow FTX Australia was able to claim it was ‘ASIC-licenced’<p>When cryptocurrency exchange <a href="https://www.abc.net.au/news/science/2022-11-12/cryptocurrency-ftx-exchange-collapse-australian-investors/101640914">FTX Group</a> collapsed in the Bahamas last month, its local subsidiaries <a href="https://kordamentha.com/insights/kordamentha-voluntary-administrators-ftx-express">FTX Australia</a> Pty Ltd and <a href="https://kordamentha.com/insights/kordamentha-voluntary-administrators-ftx-express">FTX Express</a> Pty Ltd fell over too. </p>
<p>The Australian companies were placed into administration on November 11 and within days the Australian Securities and Investments Commission (ASIC) had <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2022-releases/22-316mr-asic-suspends-ftx-australia-s-afs-licence/">suspended</a> the Australian financial service licence FTX Australia had held since March 2022.</p>
<p>The fact that FTX Australia had an Australian financial service came as a surprise to some people, who had wrongly assumed everything crypto-related was beyond the reach of Australia’s regulators. </p>
<p>It also raised questions – including for <a href="https://www.afr.com/companies/financial-services/asic-had-extensive-powers-to-suspend-or-cancel-ftx-s-licence-20221206-p5c452">Assistant Treasurer Stephen Jones</a> – about how FTX Australia managed to acquire its Australian financial services licence, and how ASIC seemed to have missed the chance to intervene sooner.</p>
<p>And it draws wider attention to the 20-year-old licensing system and what an Australian financial service actually means for the firms that have them.</p>
<h2>Licensed to do what, precisely?</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/500217/original/file-20221211-90872-p3m533.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/500217/original/file-20221211-90872-p3m533.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/500217/original/file-20221211-90872-p3m533.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1064&fit=crop&dpr=1 600w, https://images.theconversation.com/files/500217/original/file-20221211-90872-p3m533.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1064&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/500217/original/file-20221211-90872-p3m533.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1064&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/500217/original/file-20221211-90872-p3m533.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1337&fit=crop&dpr=1 754w, https://images.theconversation.com/files/500217/original/file-20221211-90872-p3m533.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1337&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/500217/original/file-20221211-90872-p3m533.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1337&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.prnewswire.com/news-releases/ftx-establishes-local-presence-in-australia-301506261.html">FTX Trading Limited</a></span>
</figcaption>
</figure>
<p>When FTX commenced operations in Australia this year, its media release was headed: “<a href="https://www.prnewswire.com/news-releases/ftx-establishes-local-presence-in-australia-301506261.html">FTX launches fully registered and licensed Australian operations</a>”. </p>
<p>But what exactly was it licensed to do?</p>
<p>The Australian financial service (AFS) licensing regime in place since the late 1990s authorises each firm to do specified things, in relation to specified financial products, for specified clients.</p>
<p>Each firm’s licence is different, and what is required by ASIC is different depending on what the firm is authorised to do.</p>
<p>FTX Australia’s licence authorised it to deal in, make a market for, and provide general advice relating to derivatives and foreign exchange contracts to retail and wholesale clients. That’s it. </p>
<p>Note that crypto-assets are not specified, nor is running a crypto-asset exchange.</p>
<p>The <a href="https://www.ft.com/content/e8df6ea4-e9fb-4058-9a36-cef9c12f4726">jury is still out globally</a> on whether crypto-assets (as distinct from investments derived from crypto-assets) are financial products at all. </p>
<p>It is possible to think of them as like gold bullion or fine art – or <a href="https://www.afr.com/markets/currencies/jpmorgan-ceo-calls-crypto-tokens-pet-rocks-20221207-p5c496">pet rocks</a> – where the asset itself is not a financial product, but a financial product might be constructed from it. </p>
<p>If a cryptocurrency is not a financial product, then licensing laws can’t apply, which might explain why one of the two firms set up in Australia – FTX Express, which operated the crypto-exchange – was not AFS licensed.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/i-thought-crypto-exchanges-were-safe-the-lesson-in-ftxs-collapse-195800">'I thought crypto exchanges were safe': the lesson in FTX's collapse</a>
</strong>
</em>
</p>
<hr>
<p>The lesson is that knowing a firm has an AFS licence only takes you so far, and often not very far at all.</p>
<p>Unless you check the <a href="https://asic.gov.au/online-services/search-asic-s-registers/professional-registers/">specific authorisations</a>, there’s no way of knowing how little the firm you are dealing with is licensed to do.</p>
<p>And ASIC-regulation doesn’t involve <a href="https://www.apra.gov.au/what-prudential-regulation">prudential regulation</a>, which is directed at the stability of the company itself, ensuring among other things that it should be able to meet its financial commitments under reasonable circumstances. </p>
<p>Prudential regulation is the job of the Australian Prudential Regulation Authority, which regulated neither FTX Australia nor FTX Express.</p>
<h2>Licences for sale</h2>
<p>FTX Australia’s ASIC licence was originally granted to someone else entirely back in 2008. A series of takeovers meant it passed through a number of hands until it ended up with FTX in March this year.</p>
<p>While an original applicant has to satisfy rigorous checks, this hasn’t always been the case for subsequent purchasers.</p>
<p>ASIC has known for years that its ASF licences were ending up in new hands when companies were bought and sold. In 2017, it asked the government’s ASIC <a href="https://treasury.gov.au/review/asic-enforcement-review/r2018-282438">Enforcement Review Taskforce</a> to recommend changes to the law that would allow it to revisit an AFS licence when its owners changed.</p>
<p>The change that was eventually legislated in 2020 only required licensees to <a href="https://asic.gov.au/for-finance-professionals/afs-licensees/changing-details-and-lodging-afs-forms/change-in-control-of-afs-licensee/">notify</a> ASIC when a licence changed hands, within 30 days.</p>
<p>It did not require ASIC to approve the change in control.</p>
<h2>Limited ASIC powers</h2>
<p>ASIC is able to inquire further to determine whether there is reason to believe a new licensee was likely to contravene its statutory obligations or is “fit and proper” – but it is not required to do so.</p>
<p>If it finds either that the licensee is likely to contravene its obligations or that it is not fit and proper, it is able to suspend or cancel the licence after giving the new owners a fair hearing. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-bad-credit-lender-cigno-has-dodged-asics-grasp-187887">How 'bad credit' lender Cigno has dodged ASIC's grasp</a>
</strong>
</em>
</p>
<hr>
<p>But such inquiries have not become routine. Most of the (hundreds of) licensee purchases notified each year seem to go through to the keeper, as did FTX’s.</p>
<p>Even if ASIC had reviewed FTX’s purchase of the licence in March 2022, it might well have found no grounds to revoke it, given the very limited range of activities it authorised.</p>
<p>The FTX collapse may result in ASIC changing its attitude to change-of-control transactions involving AFS licensees, for which it might need more resources.</p>
<p>But even if that happens, clients would still be well advised to take care to understand exactly what “AFS licensed” really means.</p><img src="https://counter.theconversation.com/content/196361/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Pamela Hanrahan 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 licence didn’t extend to trading in cryptocurrenices, and had been granted to a firm FTX took over, rather than FTX itself.Pamela Hanrahan, Professor of Commercial Law and Regulation, UNSW Business School, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1958002022-12-11T19:06:34Z2022-12-11T19:06:34Z‘I thought crypto exchanges were safe’: the lesson in FTX’s collapse<figure><img src="https://images.theconversation.com/files/499168/original/file-20221206-18-xll7xg.jpg?ixlib=rb-1.1.0&rect=0%2C282%2C4594%2C2304&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>Anthony* (a friend) called a few weeks ago, deeply worried.</p>
<p>A deputy principal of a high school in Queensland, over the past year he spent hundreds of thousands of dollars buying cryptocurrencies, borrowing money using his home as equity. </p>
<p>But now all his assets, valued at A$600,000, were stuck in an account he couldn’t access. </p>
<p>He’d bought through FTX, the world’s third-biggest cryptocurrency exchange, endorsed by celebrities such as Seinfeld co-creator Larry David, basketball champions Steph Curry and Shaquille O’Neal, and tennis ace Naomi Osaka.</p>
<p>With FTX’s spectacular collapse, he’s now awaiting the outcome of the liquidation process that is likely to see him, 30,000 other Australians and more than <a href="https://www.businessofapps.com/data/ftx-statistics/">1.2 million customers worldwide</a> lose everything. </p>
<p>“I thought these exchanges were safe,” Anthony said. </p>
<p>He was wrong. </p>
<h2>Not like stock exchanges</h2>
<p>Cryptocurrency exchanges are sometimes described as being like stock exchanges. But they are very different to the likes of the London or New York stock exchanges, institutions that have weathered multiple financial crises. </p>
<p>Stock exchanges are both highly regulated and help regulate share trading. Cryptocurrency exchanges, on the other hand, are virtually unregulated and serve no regulatory function. </p>
<p>They’re just private businesses that make money by helping “mum and dad” investors to get into crypto trading, profiting from the commission charged on each transaction.</p>
<p>Indeed, the crypto exchanges that have grown to dominate the market – such as Binance, Coinbase and FTX – arguably undermine the whole vision that drove the creation of Bitcoin and blockchains – because they centralise control in a system meant to decentralise and liberate finance from the power of governments, banks and other intermediaries. </p>
<p>These centralised exchanges are not needed to trade cryptocurrency, and are pretty much the least safe way to buy and hold crypto assets. </p>
<h2>Trading before exchanges</h2>
<p>In the early days of Bitcoin (all the way back in 2008) the only way to acquire it was to “mine” it – earning new coins by performing the complex computations required to verify and record transactions on a digital ledger (called a blockchain). </p>
<p>The coins would be stored in a digital “wallet”, an application similar to a private bank account, accessible only by a password or “private key”. </p>
<p>A wallet can be virtual or physical, on a small portable device similar in appearance to a USB stick or small phone. Physical wallets are the safest because they can be unplugged from the internet when not being used, minimising the risk of being hacked. </p>
<figure class="align-center ">
<img alt="A physical digital wallet is the safest way to store your cryptocurrency." src="https://images.theconversation.com/files/499901/original/file-20221209-14505-dzckvc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/499901/original/file-20221209-14505-dzckvc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/499901/original/file-20221209-14505-dzckvc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/499901/original/file-20221209-14505-dzckvc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/499901/original/file-20221209-14505-dzckvc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/499901/original/file-20221209-14505-dzckvc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/499901/original/file-20221209-14505-dzckvc.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">A physical digital wallet is the safest way to store your cryptocurrency.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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</figure>
<p>Before exchanges emerged, trading involved owners selling directly to buyers via online forums, transferring coins from one wallet to another like any electronic funds transfer.</p>
<h2>Decentralised vs centralised</h2>
<p>All this, however, required some technical knowledge.</p>
<p>Cryptocurrency exchanges reduced the need for such knowledge. They made it easy for less tech-savvy investors to get into the market, in the same way web browsers have made it easy to navigate the Internet. </p>
<p>Two types of exchanges emerged: decentralised (DEX) and centralised (CEX).</p>
<p>Decentralised exchanges are essentially online platforms to connect the orders of buyers and sellers of cryptocurrencies. They are just there to facilitate trading. You still need to hold cryptocurrencies in your own wallet (known as “self-custody”). </p>
<p>Centralised exchanges go much further, eliminating wallets by offering a one-stop-shop service. They aren’t just an intermediary between buyers and sellers. Rather than self-custody, they act as custodian, holding cryptocurrency on customers’ behalf. </p>
<h2>Exchange, broker, bank</h2>
<p>Centralised exchanges have proven most popular. Seven of the world’s ten biggest crypto exchanges by trading volume <a href="https://coinmarketcap.com/rankings/exchanges/">are centralised</a>.</p>
<p>But what customers gain in simplicity they lose in control.</p>
<p>You don’t give your money to a stock exchange, for example. You trade through a broker, who uses your trading account when you buy and deposits money back into your account when you sell. </p>
<p>A CEX, on the other hand, acts as an exchange, a brokerage (taking customers’ fiat money and converting it into crypto or vice versa), and as a bank (holding customer’s crypto assets as custodian). </p>
<p>This is why FTX was holding cash and crypto assets worth <a href="https://www.ft.com/content/f05fe9f8-ca0a-48d5-8ef2-7a4d813af558">US$10-50 billion</a>. It also acted like a bank by borrowing and lending cryptocurrencies – though without customers’ knowledge or agreement, and without any of the regulatory accountability imposed on banks. </p>
<p>Holding both wallets and keys, founder-owner Sam Bankman-Fried “borrowed” his customers’ funds to prop up his other businesses. Customers realised too late they had little control. When it ran into trouble, FTX simply stopped letting customers withdraw their assets.</p>
<h2>The power of marketing</h2>
<p>Like stockbrokers, crypto exchanges make their money by charging a commission on every trade. They are therefore motivated to increase trading volumes. </p>
<p>FTX did this most through celebrity and sports marketing. Since it was founded in 2019 it has spent an estimated <a href="https://decrypt.co/114210/ftx-spent-hundreds-of-millions-of-dollars-on-sports-marketing-on-road-to-bankruptcy">US$375 million</a> on advertising and endorsements, including buying the naming rights to the stadium used by the Miami Heat basketball team. </p>
<figure class="align-center ">
<img alt="FTX Arena in Miami." src="https://images.theconversation.com/files/499748/original/file-20221208-22-uu9du9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/499748/original/file-20221208-22-uu9du9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/499748/original/file-20221208-22-uu9du9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/499748/original/file-20221208-22-uu9du9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/499748/original/file-20221208-22-uu9du9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/499748/original/file-20221208-22-uu9du9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/499748/original/file-20221208-22-uu9du9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">FTX Arena in Miami.</span>
<span class="attribution"><span class="source">Lynne Sladky/AP</span></span>
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</figure>
<p>Such marketing has helped to create the illusion that FTX and other exchanges were as safe as mainstream institutions. Without such marketing, it’s debatable the value of the cryptocurrency market would have risen from US$10 billion in 2014 to <a href="https://coinmarketcap.com/charts/">US$876 billion in 2022</a>.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/why-sports-sponsorship-is-unlikely-to-save-cryptocurrency-firms-from-crypto-winter-195582">Why sports sponsorship is unlikely to save cryptocurrency firms from 'crypto winter'</a>
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</em>
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<hr>
<h2>Not your key, not your coins</h2>
<p>There’s an adage among crypto investors: “Not your key, not your coins, it’s that simple.”</p>
<p>What this means is that your crypto isn’t safe unless you have self-custody, storing your own coins in your own wallet to which you alone control the private key. </p>
<p>The bottom line: crypto exchanges are not like stock exchanges, and CEXs are not safe. If the worst eventuates, whether it be an exchange collapse or cyber attack, you risk losing everything.</p>
<p>All investments carry risks, and the unregulated crypto market carries more risk than most. So follow three golden rules.</p>
<p>First, do some homework. Understand the process of trading crypto. Learn how to use a self-custody wallet. Until governments regulate crypto markets, especially exchanges, you’re largely on your own. </p>
<p>Second, if you’re going to use an exchange, a DEX is more secure. There is no evidence to date that any DEX has been hacked. </p>
<p>Lastly, in this world of volatility, only risk what you can afford to lose.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/crypto-what-could-more-regulation-mean-for-the-future-of-digital-currencies-194322">Crypto: what could more regulation mean for the future of digital currencies?</a>
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<p><em>*Name has been changed.</em></p><img src="https://counter.theconversation.com/content/195800/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>Cryptocurrency exchanges like FTX aren’t safe. Here’s what every crypto investor needs to know.Paul Mazzola, Lecturer Banking and Finance, Faculty of Business and Law, University of WollongongMitchell Goroch, Cryptocurrency Trader and Researcher - Centre for Responsible Organisations & Practices, University of WollongongLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1912992022-12-11T13:41:48Z2022-12-11T13:41:48ZNFTs in the art world: A revolution or ripoff?<figure><img src="https://images.theconversation.com/files/486288/original/file-20220923-10674-ahh3cj.jpg?ixlib=rb-1.1.0&rect=4%2C2%2C986%2C556&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Many NFT creators come from a practice of 3D modelling, graphic design, animation or video game design. </span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>Non-fungible tokens (NFTs) are digital objects that represent something else, such as a work of art, a video or even a <a href="https://www.theguardian.com/technology/2022/apr/14/twitter-nft-jack-dorsey-sina-estavi">tweet</a>. They certify the existence and the ownership of this item through a data recording on a blockchain (a <a href="https://www.cpacanada.ca/en/business-and-accounting-resources/other-general-business-topics/information-management-and-technology/publications/introduction-to-blockchain-technology">distributed ledger technology</a>).</p>
<p>Since the emergence of NFTs in 2016, many artists have experimented with this new digital device to market their creations. NFTs are most often bought and resold via auction sites, where payments are made in cryptocurrency (such as <a href="https://ethereum.org/en/eth/">ether currency</a>). It is this notion of a certificate registered on a blockchain that distinguishes an NFT from a standard digital work.</p>
<p>The public and media discourse about NFTs is polarized: in the eyes of their strongest enthusiasts, NFTs represent the future of art, while their detractors consider them a vast ripoff and waste of energy.</p>
<p>How can this NFT phenomenon be characterized? To what extent does it challenge the established codes of contemporary art?</p>
<p>As a researcher specialized in media studies and sociology of culture, I am providing a brief overview of the situation.</p>
<h2>Crypto-evangelists and crypto-skeptics</h2>
<p>On one hand, there is the camp that can be described as crypto-evangelists: they adhere to a discourse that present NFTs as a radical revolution that will change everything.</p>
<p>This is precisely the discourse surrounding the sensational 2021 sale of a work by the artist Beeple (a collage of vignettes created by digital software) at the prestigious auction house Christie’s for nearly US$70 million. According to the <a href="https://www.thetimes.co.uk/article/beeple-how-i-changed-the-art-world-for-ever-tggbx99vm">two main buyers</a>, the purchase was “emblematic of a revolution in progress,” and marked “the beginning of a movement carried out by a whole generation.”</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1361670588608176128"}"></div></p>
<p>On the other side, there are the crypto-skeptics. This is the position of Hito Steyerl, a widely recognized media artist. She believes that NFTs are the “equivalent of toxic masculinity,” and owe their development to “the worst and most monopolistic actors” who are “extracting labour from precarious workers” and “<a href="https://www.holo.mg/stream/hito-stereyl-nfts-like-toxic-masculinity/">take up way too much attention and use up all the oxygen in the room</a>.”</p>
<p>This polarization means that the real potential of NFTs, as well as their flaws, which are also very real, tend to be overshadowed by caricatured positions of principle. However, within this ecosystem of NFTs, there exists a set of rich and plural artistic practices.</p>
<h2>Emerging creative scenes</h2>
<p>The NFT format definitely represents a new type of object being traded. It is based on a new type of contract (known as “smart”), which is itself the result of the innovation of blockchain technology. In this way, the NFT format has given rise to the emergence of a new creative scene. Or, rather, scenes, in the plural, which are characterized by a great effervescence — but also by certain contradictions.</p>
<p>The “native” scenes of the NFT format, that is to say, those born with the invention of this format, are characterized by a strong media visibility, a volume of far-reaching financial investment, and, for some of its actors, a will to reshuffle the cards of the art world by criticizing its established order.</p>
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<p>A large portion of NFT creators come from a practice of 3D modelling, graphic design, animation or video game design — in other words, from the creative industries sector. In recent decades, this sector has generated a very large pool of skills, whose <a href="https://doi.org/10.1080/07053436.2004.10707657">creative surplus</a> finds a mode of expression in the NFT format, but also a source of additional income to cope with the often precarious conditions of creative work.</p>
<p>Many figures of the native NFT scenes are, to use the expression of the <a href="https://www.simonandschuster.com/books/Outsiders/Howard-S-Becker/9781982106225">sociologist Howard S. Becker</a>, outsiders (neophytes) in comparison to the established art world. That is, they socialize in circles other than those of the institutional art world, and they transgress its rules in many respects.</p>
<h2>A more egalitarian art world?</h2>
<p>The discourse of the main purchasers of Beeple’s sensational work is very enlightening in this sense. MetaKovan and Twobadour (two investors of the crypto world, both of Indian origin) reveal in an interview:</p>
<blockquote>
<p>We have been conditioned, from a very young age, to think that art was not for us. <a href="https://www.thetimes.co.uk/article/beeple-how-i-changed-the-art-world-for-ever-tggbx99vm">…We have always been against the idea of exclusivity. The metaverse is all inclusive. … A metaverse in which everyone will have the same rights, powers, will be legitimate. … It is particularly egalitarian.</a></p>
</blockquote>
<p>However, there are major contradictions between the discourse of egalitarianism they are advocating here, and its implementation in the projects of these two investors. For example, during the technological art event <a href="https://www.dreamverse.life/ticketing.html">Dreamverse</a> that they organized in New York in 2021, the price of admission to the evening varied between US$175 and $2,500 — an unaffordable cost for many amateurs. This hierarchy of prices leads, rather, to the reproduction of a logic of exclusivity that favours the most fortunate.</p>
<h2>Museums are cautious</h2>
<p>The gap between the market value of NFTs and their value in museums is unprecedented. The former is reaching unprecedented heights, while the latter is still at rock bottom. Indeed, the collection of NFT by museums remains, to this day, a very marginal practice. Only a handful of NFTs are integrated into museum collections. Some of them are acquired following an exhibition in a museum, where they are presented on digital screens hung on the wall.</p>
<p>Cultural legitimacy is affected by the disintermediation (elimination of intermediaries) and reintermediation (introduction of new intermediaries) that characterize the world of NFTs. In its disruptive impulse, the proclaimed revolution of NFTs cuts itself off from a chain of well-established, legitimate intermediaries — the gallery owners, curators, art critics, conventional collectors and public subsidies.</p>
<p>It has replaced them with new intermediaries, primarily “whales” — investors who have made a fortune in cryptocurrency — or popular culture celebrities. These new intermediaries overinvest in financial capital in the production of NFTs with the aim of gaining a position of prestige as a collector, or to enrich themselves by increasing the value of works. But they often lack the social and cultural capital to find a way to access museums and their exhibition spaces and their collections.</p>
<h2>In search of legitimacy</h2>
<p>However, these works are publicly accessible, as all NFTs are freely searchable on their buyers’ e-wallets. Some collectors buy works only to speculate. Others gain visibility by displaying their NFTs in a metaverse (a virtual world) such as <a href="https://decentraland.org/">Decentraland</a> or <a href="https://www.tryspace.com/">Space</a>.</p>
<p>And for others, still, the quest for legitimacy goes further: in the spring of 2022, a group of artists, curators, collectors and NFT platforms organized a <a href="https://decentralartpavilion.io/">Decentral Art Pavilion</a>, in parallel to the Venice Biennale. Remaining outside the official program, the exhibition aimed to position NFTs in the orbit of this key contemporary art event.</p>
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<p>But the presence of NFTs remained marginal in this edition of the biennial. Only the <a href="https://www.labiennale.org/en/art/2022/cameroon-republic">Cameroon pavilion</a> exhibited NFTs under the leadership of a curator with a <a href="https://news.artnet.com/art-world/outrage-kenyan-pavilion-venice-biennale-281137">shady reputation</a>, and the result was disappointing.</p>
<p>The recognition of the NFTs by the consecrated art world will perhaps come about by other avenues, like the more experimental practices presented at the <a href="https://documenta-fifteen.de/en/">documenta art exhibition in Kassel, Germany</a> this year, or through artistic movements from developing countries, like the <a href="https://balot.org/">Balot project</a>, which used an NFT to criticize the <a href="https://www.theguardian.com/artanddesign/2022/feb/19/congolese-statue-loan-legal-battle-nfts-colonial-rule-us-museum">appropriation of a work originating from the Republic of the Congo by an American museum</a>.</p>
<p>So recognition could come through the margins. But in these cases, the marginal players could more easily access the established art world because they share its codes.</p><img src="https://counter.theconversation.com/content/191299/count.gif" alt="La Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nathalie Casemajor 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>Creators of NFT art are organizing themselves into new art scenes, but they are still searching for cultural legitimacy while museums remain skittish.Nathalie Casemajor, Professeure, Institut national de la recherche scientifique (INRS)Licensed as Creative Commons – attribution, no derivatives.