Tag: crypto

Blockchains, Uncategorized, Yogi Nelson

Will Chile Adopt a Central Bank Digital Currency Soon?

Yogi Nelson

Namaste Yogis.   Welcome to the Blockchain & AI Forum, where your technology questions are answered!   Here no question is too mundane.  As a bonus, a proverb is included.  Today’s question comes from Gina, Santiago, Chile.  Gina wants to know if Chile will soon adopt a digital currency?

Gina, great question!  Central bank digital currencies is a controversial topic.  I’ll explore the reasons why you and countless others, both inside and outside of Chile, believe Chile may adopt a central bank digital currency.  Let’s go directly to the source—Central Bank of Chile (CBoC) to investigate.  The CBoC produced a report in 2024 on the topic.  It’s in Spanish nevertheless here is the link:  https://www.bcentral.cl/documents/33528/130503/Segundo-Informe-MDBC.pdf/1c506d66-1dbf-2434-54bd-3997ec84784b?t=1712352384816. 

However, to answer your question with full context, we must time travel to 2022.  Why 2022? Simple. In 2022 the CBoC  produced the following report:  https://www.bcentral.cl/documents/33528/130503/Primer_Informe_MDBC.pdf/46608531-566b-0703-03ea-bcd0f088d014?t=1692398717733 Below is a summary of the report. 

Central Bank of Chile 2022 Digital Currency Report

I conclude the 2022 report was design to lay the ground work for a central bank digital currency (CBDC).  The version released to the public consists of 32-pages and it outlines a series of advantages/disadvantages but makes no definitive declaration other than more research and study is required.  Given the complexity, more research was prudent conclusion in 2022.  Below are few advantages of a CBDC according to the CBoC:

  • Increase banking services to the unbanked and underbanked
  • Improved central bank operations
  • Private banking/finance innovations
  • Currency fraud prevention
  • International money transfers

The CBoC also noted the following risk of a central bank digital currency:

  • Design and operational risk
  • Establishing relationships with retail users carries reputation risk
  • Immature technology given the stakes
  • Insufficiently clear regulatory and legal issues
  • Counterparty risk from other central banks

Central Bank of Chile 2024 Digital Currency Report

The 2024 report repeats the advantages/disadvantages of a central bank digital currency but I will not.  Instead, I’ll focus on two selected parts of the 2024 report, specifically an overview of what other nations are doing in the digital currency space and the next steps the CBoC intends to take.

Overview of CBDC Projects Across the Globe

  1. Numerous nations across the global are pushing ahead with exploring the implementation of central bank digital currencies, say the CBoC.  According to the CBoC, in 2021 74 nations were exploring a CBDC; in 2024 the number jumped to 135!  The momentum is clearly on the side of CBDC. 
  2. There is a divide among central banks.  Some central banks are exploring CBDC on a wholesale basis, e.g. for use between and among central banks, and private banks.  Whereas some central banks are analyzing the idea of a central bank direct to retail users.
  3. The broad exploration for digital currencies among central banks is creating an extensive library of lessons learned, successes, and failures that will eventually benefit the decision-making process of central banks.
  4. Central banks are moving from proof of concepts to pilot projects quickly.  As of 2024, 26% of central banks entered the pilot project stage.
  5. Despite the momentum, only 2% of the central banks actually launched a CBDC.  Moreover, about 2% cancelled or abandoned the idea.

CBoC Next Steps

No surprise, CBoC says it will continue the project.  The CBoC cites the compelling use case for a central bank digital currency, including innovations in finance.  However, CBoC does say it will remain technology agnostic, for the time being.

I leave with a proverb from Chile: “when the river makes noise, it’s because it carries stones.”

Until next time,

Yogi Nelson

Artificial Intelligence, Blockchains, cryptography, Environment

CAN BLOCKCHAINS BUILD A BETTER PLANET?

Yogi Nelson

Namaste Yogis.   Welcome to the Blockchain & AI Forum, where your technology questions are answered!   Here no question is too mundane.  As a bonus, a proverb is also included.  Today’s question comes from Tomas, in Mendoza, Argentina, and he wants to know if blockchains can build a better planet?

Tomas, you came to the right place.  Afterall, if a technology is not improving the planet, it’s of no value.  I researched your question and found a fantastic report by PwC that speaks to your question.  I’ll start with a short mention of PwC, then offer an overview of their report. 

PwC, stands for Price Waterhouse Cooper.  With offices in 158 countries and more than 236,000 employees, PwC is a worldwide provider of professional services to businesses and governments around the globe. Bottom line, PwC is a major influencer and thought leader on the world stage and when they speak as an organization, they do so from a position of authority.  What does PwC say about using blockchains to build a better planet?  Essentially, plenty but before I delve into their findings, first a word concerning the report sponsors.

The report was prepared for the World Economic Forum Initiative on Shaping the Future of Environment and Natural Resources Security and the Stanford Woods Institute for the Environment.  The report is one in a series of reports related to the “Fourth Industrial Revolution”.  This particular paper looks at blockchain and the earth. Time to examine the seven major findings.

Supply Chains.  PwC cites the ability of blockchain to create undeniable (and potentially unavoidable) transparency in supply chains. Recording transactional data throughout the supply chain on a blockchain and establishing an immutable record of provenance offers the potential for full traceability of products from source to store. Providing such transparency creates an opportunity to optimize supply-and-demand management, build resilience and ultimately enable more sustainable production, logistics and consumer choice.

Decentralized Management.  PwC argues blockchain can underpin a transition to decentralized utility systems at scale. Platforms could collate distributed data on resources thereby ending the current asymmetry of information that exists between stakeholders, enabling more informed and perhaps decentralized decision making.  With blockchain peer-to-peer transactions, dynamic pricing and optimal demand/supply balancing would of course be possible, says PwC.

New Financing.  With blockchain tech, finance platforms could potentially revolutionize access to capital and unlock potential for new investors in projects that address environmental challenges.  PwC says, blockchains could transform finance from shareholder values to stakeholder values.  I like that!

Incentivizing Circular Economies.  Could blockchain fundamentally change the way in which materials and natural resources are valued and traded, incentivizing individuals, companies and governments to unlock financial value from things that are currently wasted, discarded or treated as economically invaluable?  PwC says yes!

Transforming Market Dynamics. PwC, correctly notes the power of combining blockchain with crypto tokens to optimize existing market, e.g. carbon, to create new opportunities for carbon credit transactions. Nice!

Next-Gen Sustainability Monitoring, Reporting and Verification.  The tech that powers blockchain has the potential to transform both sustainability reporting and assurances, says PwC. This could drive a new wave of accountability and method for managing risk and reward.

Disaster Preparedness and Humanitarian Relief.  First responders and relief workers using blockchain could use a new shared system in disaster preparedness and relief to improve the efficiency, effectiveness, coordination and trust of resources. An interoperable decentralized system could enable the sharing of information and rapid automated transactions via smart contracts. Awesome!

Time to end with this proverb from Guatemala:  “skill is worth more than strength.”

Until next time,

Yogi Nelson

blockchain association, Blockchains, Ireland, Yogi Nelson

WILL IRELAND HAVE THE LUCK OF THE IRISH WHEN IT COMES TO BLOCKCHAIN INNOVATION?

Yogi Nelson

Namaste Yogis.   Welcome to the Blockchain & AI Forum, where your technology questions are answered!   Here no question is too mundane.  As a bonus, a proverb is also included.  Today’s question comes from Patrick and he wants a quick overview of blockchain innovation in Ireland. 

Patrick, you came to the right place.  Recently I read an informative research report titled:  Ireland’s Blockchain, Crypto & Web3 Strategy: A Vision to Establish Ireland as a Global Web3 Hub.

https://www.blockchainireland.ie/wp-content/uploads/2024/02/Blockchain-Ireland-Irelands-Blockchain-Crypto-and-Web3-Strategy-Paper.pdf  Below I highlight the most critical findings, but I’ll start with the authors, list the report chapters, and conclude with five recommendations. 

Report Authors

The report was prepared by researchers and academics on behalf of Blockchain Ireland.  Blockchain Ireland is essentially an industry association. According to Blockchain Ireland, the report offers a “… strategy and roadmap for creating a national and international blockchain hub in Ireland.” 

Table of Contents from the Report

  • Blockchain Ireland Overview:  In this chapter the report explains the who, what, why, and how of the organization. 
  • Blockchain Explainer:  Within this chapter, the authors go into detail regarding what is blockchain technology, how it works, why it’s important, etc.
  • Areas to Benefit from Blockchain, Digital Assets, and Crypto Innovations.  Here authors identify E-Governance & Digital Identity; Energy; Financial Services; Digital Assets; Healthcare and Supply Chain Management as the sectors where blockchain could have the greatest positive impact.
  • Government Regulations:  In this second to last chapter, the authors explain existing blockchain laws and government regulations in Ireland.
  • Recommendations and Road Map:  In this concluding chapter, the authors offer the government a series of recommendations and a “how to” narrative on implementing the ideas.

Report Highlights

After 25 years, Blockchain Ireland has grown to 1,400 members and 100 partnerships.  Blockchain Ireland has the ear of government officials, so let’s explore a few recommendations of the report starting with the Blockchain Hub concept: 

  1. 1. Develop a Global Blockchain Hub, a Multi-Institutional Centre for Excellence using the UN sustainable development goals (SDGs).  According to proponents, “… This Hub will bring together all the key components of the Blockchain ecosystem in an efficient and innovative way. The Hub, will contribute to drive the promotion of skills and talent in this area and position Ireland as a location of choice for Blockchain Technologies.”  What do you think about a blockchain association asking government to facilitate their industry?  Does it prove again that “free market” advocates want, need, and ask for government help when it’s convenient or did I miss something?
  2. 2. Create a Blockchain Skills Strategy and Roadmap. Blockchain Ireland is advocating for the government to adopt a blockchain strategy and of course, that it base the strategy on the report they produced and being reviewed here.  Makes sense. 
  3. 3. Create Public Trust in Blockchain.  It is unclear why Blockchain Ireland believes the government is capable of creating public trust in blockchain as opposed to other institutions but nevertheless, this is what they said.  The authors identified a number of ways to create public trust in blockchain technology, including:  more academic studies, university degrees in blockchain, conduct test pilot projects in fields of law and property, for example. 
  4. 4. Provide networking, mentoring, and financial support for emerging entrepreneurs and innovators to participate in national and EU-level innovation events, hubs and clusters.
  5. 5. Establish compliant sandbox and test-bed environments to iterate Web3 proof of-concepts, test implementations, and trial scaling propositions.

Time for a proverb from Ireland, where they say: “a cabin with plenty of food is better than a hungry castle.”

Until Next Time,

Yogi Nelson

Artificial Intelligence, Blockchains, Japan, Yogi Nelson

Understanding Japan’s Crypto Landscape: Key Concepts Explained

Yogi Nelson

Namaste Yogis!   Welcome to the Blockchain & AI Forum, where your technology questions are answered. As a bonus, a proverb is also included.  Today’s question, was submitted by Chisato and she wants to understand the evolution of crypto regulations in her native Japan.

Chisato, you came to the right place. Let’s examine the Japanese regulatory milieu of crypto by dividing the eras into three distinct periods, and ending by defining four key terms.  A big thanks and acknowledgment to So Saito and Kazuki Imanari of So & Sato Law Offices for the source of this information:

Click to access Crypto-Regulations-in-Japan-2024_240904-1.pdf

Early Era: 2014 – 2017   

Japan was an early leader in crypto but after the Mt. Gox exchange collapse in 2015, crypto fell from grace.  One year before the collapse of Mt Gox, the Japanese government decided to not regulate the industry and instead asked the industry to self-regulate.  It didn’t work. Although some retail users fled, crypto developers continued to build and true believers remained and by 2017 Japan was home to the number one crypto exchange.

Era of Stricter Regulations:  2017 – 2020

In America, stricter regulations always happen after a catastrophe; Japan is no different.    In 2018 there was a massive hacking, known as the Coincheck incident, and immediately thereafter Japanese financial regulators came charging.  Exchanges were forced to comply with new regulations, leading to a shake-out in the industry.

Web3 Makes the National Growth Strategy List:  2021 – Present

In 2021, the Japanese government approved a Web3 White Paper wherein it committed to Web3 as a national priority.  They quickly followed that action by being among the first to enact stablecoin regulations.   

Let’s now examine the Japanese definition of four key crypto concepts. 

Stablecoins

As noted above, Japan was a pioneer in crypto regulations and consequently was one of the first to establish stablecoin regulations.  In Japan, stablecoins pegged to fiat currency are defined as electronic payment instruments and require the issuer to obtain a license. Stablecoins classified as assets are subject to crypto regulations, while stablecoins classified as securities are subject to securities regulations.

Non-Fungible Tokens (NFTs)

NFT regulations are generally clear.  The basic rule says, that if the NFT does not function as a payment instrument it is not considered a crypto asset.  Japanese regulators say “pure” NFTs have technical features that prohibit their use as payment instruments.  Japanese regulators also examine whether the quantity and price of NFTs are suitable for payment instruments.  Bottom line:  NFTs are not regulated in Japan; they are treated analogous to trading cards.  However, if an NFT is linked to a real-world asset, e.g. real estate, it could be considered a security. 

Crypto Lending

Crypto lending is not regulated in Japan.  What do I mean by crypto lending?  In crypto lending, a service provider borrows crypto assets from users for a certain period of time and pays a lending fee in exchange.  Why is this not regulated?  Because crypto assets are not considered money, therefore the Money Lending Business Act does not apply.  However, crypto lending maybe regulated in cases where the service is considered custody. 

Crypto Taxation

Death and taxes are inevitable everywhere, including Japan.  In Japan, tax authorities define crypto asset profits as miscellaneous income.  Profits generated by crypto asset transactions are taxed based on the personal tax bracket of the individual.  Income tax rates in Japan go from 5% to 45%!  Ouch. 

I end now with a proverb from Japan, where they say: “the mouth is the source of disaster”.

Until next time,

Yogi Nelson

Uncategorized

Coinbase SEC Filing Analysis: Revenue Doubles, Expenses Up

Yogi Nelson

Namaste Yogis. Welcome to the Blockchain & AI Forum, where your blockchain and artificial intelligence technology questions are answered! Here no question is too mundane. As a bonus, a proverb is also included. Today’s question was submitted by Victor from San Juan, and he wants to know my view of the crypto exchange company Coinbase.

Victor, you came to the right place. It just so happens, that I’m a Coinbase customer and own their stock hence I try to keep up on their performance. Let’s go through their August 7th, Securities and Exchange Commission (SEC) filing, to answer your question. We start by comparing a few important data points from December 31, 2023, to June 30, 2024.

At the end of 2023, Coinbase had $5.13B in cash; whereas on June 30th, 2024, it had $7.22B. Two billion dollar plus increase in six months is noteworthy. Coinbase provides crypto custody services, therefore let’s examine that metric. It turns out Coinbase now is the custodian of $262B in crypto assets whereas on December 31st, it had only $193B in customer accounts. A $70B increase is monumental. I suspect this increase is tied to the Bitcoin ETF approved by the SEC in January. Coinbase was selected by Blackrock and other investment managers as their Bitcoin ETF custodian. Holy vault Batman!

The amount of crypto held for investment by Coinbase climbed from $330M to $1.23B! Coinbase stockholders were delighted with their equity stake growing to $8.37B from $6.28B in only six months. Last, revenue more than doubled year over year to $1.38B but the net income was not particularly impressive, checking in at only $36M. Over 50% of Coinbase’s revenue is generated by fees placed on trading. Hence, that is a concern.

What about expenses? Short answer, expenses are up across the board. For example, transaction expenses, marketing, technology development, and general administrative all increased 10% plus. In an earlier article, I noted Coinbase pledge to spend millions on supporting pro-crypto politicians in this election cycle. Those expenses will shoot up during the third and fourth quarter as the general election approaches in November. Will there be a return on investment of those political contributions? Maybe, but it will take years provided the election goes the way Coinbase seeks. If anti-crypto candidates win, Coinbase could find itself with fewer friends and more opponents.

From a macro perspective there is good news for Coinbase’s business model. For instance, in the centralized crypto exchange world, Coinbase has no serious competitor. Most people prefer to participate in crypto via a centralize exchange and Coinbase reigns supreme for several reasons. First, Coinbase has an easy-to-use interface. Super simple to navigate, on-board, etc. Second, Coinbase is USA headquartered and registered with the SEC thus clients perceive there is a “cop on the beat”. Third, Coinbase takes extraordinary steps to ensure compliance with SEC rules which is exactly why Blackrock and other institutional investors selected Coinbase as their Bitcoin ETF custodian. Coinbase basically has the lion share of the centralized exchange and custodial market except for a small percentage of people who insist on peer-to-peer trades and being their own custodians. Could Coinbase lose market share in the future? Yes, a new centralized exchange might challenge. However, Coinbase is unlikely to lose significant clients due to the mass market going the way of peer-to-peer exchange and custodian free.

Time to go, but first a proverb from Vietnam, where they say: “talking to you is like pouring water over a taro leaf” (in one ear out the other).

Until next time,

Yogi Nelson