The US government points to cryptocurrencies like Monero, Zcash, and Grin. The authorities allege an increasing use of privacy cryptocurrencies for illegal purposes.

Currently, the US government is seeking tools to track movements of funds in cryptocurrencies focused on privacy or second-layer solutions such as the Bitcoin Lightning network.

The authorities of the North American country, through the Internal Revenue Service (IRS), publicly requested information on this type of tool. All this is part of the pilot of its cryptocurrency monitoring program.

On June 30^th, the IRS issued a request, stating that the Criminal Investigations Division is launching this program. The objective is to facilitate investigative operations that involve the use of privacy cryptocurrencies, side chains, and transactions on second-layer protocols. They highlight that the Lightning network has a considerable number of users and is still growing.

Likewise, the institution aims to implement Schnorr signatures. In its presentation, the institution recognizes that this implementation brings multiple benefits for users. However, they believe that it reduces the effectiveness of certain traditional tracking clustering algorithms.

Among the cryptocurrencies of interest, the document lists the following: Monero (XMR), Zcash (ZEC), DASH, GRIN, Komodo (KMD), Verge (XVG) and Horizon (ZEN). Regarding second-layer protocols, the request mentions the Lightning Network, Raiden, and Celer. As for side chains, the IRS has its focus on Plasma and OmiseGo.

According to the IRS, the use of privacy cryptocurrencies is becoming increasingly popular for general use, as well as among illicit actors. Concerning the latter, they mention that a ransomware group has reportedly switched from BTC to XMR as a currency to request their ransoms, precisely seeking more privacy.

In late June, a website associated with the ISIS armed group did the same. In this regard, they not only switched from Bitcoin to Monero to receive donations, but they also contrasted the privacy benefits that Monero provides with those of the cryptocurrency that Satoshi Nakamoto created.

Chainalysis and Elliptic to Track Privacy Cryptocurrencies

The IRS sets several objectives for conducting that investigation. Among them, the most prominent is the ability to associate addresses of suspected or known users of being involved in harmful activities. The IRS also seeks to create an address library that emerges from that investigation.

Among the priorities of its search, the IRS mentions an interactive prototype that provides a graphical user interface (GUI) to group “transactions involving a user.” Furthermore, it explicitly mentions that they are seeking something similar to the tools that firms like CipherTrace, Coinbase, Chainalysis, and Elliptic offer.

Particularly, Chainalysis and Elliptic have recently addressed the tracking of private transactions. Last June, the former of these firms reportedly began tracking private transactions in Zcash and Dash.

Subsequently, on July 1^st, Elliptic announced that it would track transactions in Zcash. The IRS could then have established its first partnerships in its quest to control the movements of funds in privacy cryptocurrencies. However, it intends to have greater coverage, as stated in their request for information.

By Alexander Salazar

Tokenized versions of Bitcoin like WBTC are on the rise in the DeFi era. The metrics point to more active addresses, higher volumes, and investors.

The era of decentralized finance (DeFi) is setting a stage that increasingly involves Bitcoin and its tokenized versions on Ethereum. Three metrics analyze the case of the Wrapped Bitcoin (WBTC) token and its meteoric evolution in the smart contracts network.

Additional incentives are driving Bitcoin’s presence on Ethereum, and MakerDAO has decided to establish the token as collateral for DAI. Another factor that would be playing in favor of WBTC is the new yield farming trend.

WBTC operators could be multiplying as a result of the creation of new addresses and more active addresses. During the first week of June, there were 200 active addresses or less. However, after yield farming, the peak exceeded 800 active addresses and then dropped to around 400.

The analysis indicates that the number of daily active addresses increased 5 times in the 5 days after the launch of the yield farming partnership between Ren, Curve, and Synthetix. Integrations with other DeFi protocols have allowed WBTC to triple its average daily active addresses to 169 so far this year.

The second metric considered was the volume of large transactions, which soared after the activation of yield farming. In this regard, transactions in WBTC for more than USD 100,000 were almost non-existent in 2019 and the first quarter of 2020.

The situation changed in early May, when WBTC and MakerDAO joined, producing transactions amounting to USD 28 million. However, the biggest push happened due to yield farming, which brought WBTC trading to a peak of more than USD 300 million.

The third aspect to highlight is the arrival of institutional investors, who could be driving the large volume of WBTC transactions up to USD 300 million. The average balance that WBTC maintains would show evidence regarding this point.

The study reveals that the average balance of a WBTC holder has increased as a result of the potential to make a profit from DeFi integrations. After starting the year at USD 2,350, the average balance of a WBTC address showed a trend higher than USD 10,000 at the end of May.

The figure increased even more after the launch of yield farming. The amount rose to USD 30,800 on June 27^th, to then drop to USD 22,000.

Tokens in Figures

In recent days, a total of 11,146 Bitcoin-pegged tokens (ERC-20) were on the Ethereum network. Of that amount, 8,165 units are WBTC, which represented at that time about 73% of the total tokens. Currently, that figure stands at 78%.

After WBTC, renBTC is in second place with 1,094 tokens and HBTC is in third place with 710 units. Other Bitcoin-pegged token projects on Ethereum are pBTC, tBTC, and imBTC.

Currently, the total of Bitcoin tokens on Ethereum represents 0.05% of the total circulating supply of BTC, but that number may increase. Progress would depend on whether there are vulnerabilities in the underlying protocols and whether incentives to multiply revenues motivate operators.

By Alexander Salazar

The main concern of the issuing entity is to guarantee universal access to the digital currency. It also proposes the use of the CBDC offline, in case of power or Internet failures.

The world’s central banks have digital central bank currencies (CBDC) as part of their agenda. The Bank of Japan (BoJ) recently expressed its willingness to implement a CBDC, through the publication of the document “Technical problems for the CBDC to have a function equivalent to that of cash.”

According to the report, the proposed experiment will examine the viability of the CBDC from a technical perspective. The BoJ would work with other relevant central banks and institutions, and consider the introduction of a CBDC.

Regarding the use of cash, the BoJ states that its circulation continues to increase and that there are currently no problems accessing it. However, the regulator indicates that the lack of cash will increasingly progress in all countries, in the context of the digitization of the economy.

The BoJ notes that to support the economic activities of individual economic agents, it is impossible to have a convenient and stable payment method that anyone can use, so the central bank must be responsible for the supply in the digital society. For the CBDC to have the same functions as current cash, it is necessary to have a payment method that anyone can use securely and reliably anywhere and anytime. In other words, the CBDC must have “universal access” and “resilience”.

Concerning universal access, the BoJ notes that the penetration of smartphones in Japan is 65%, which is not enough to guarantee universal access. Consequently, they say that it is necessary to develop cost-effective terminals, which several users can use.

Concerning resilience or the ability to cope with power or Internet failures, the Bank of Japan notes that it is desirable to ensure an offline P2P payment function resistant to communications and power outages.

The document analyzes several scenarios including devices with a format similar to that of a credit card, equipped with a keyboard and a small screen. However, the issuing entity considers that offline P2P operations with CBDCs still have many problems to solve, especially to guarantee privacy and security. In its conclusions, the BoJ says that further research and technological development is necessary.

In addition to the problems of settlement addressed, the study considers it necessary to know the impact of issuing CBDCs on financial systems. The BoJ says that it is necessary to understand the society’s needs for central bank money, as well as to deepen discussions about the most appropriate form of central bank money for a digital society.

Finally, the Japanese Central Bank highlights that it will confirm the technological viability of CBDCs. For this reason, it will conduct field tests and will continue the discussion on these with other central banks.

There have already been reports of initial testing of digital currencies in China by state banks. Meanwhile, the crisis over the COVID-19 pandemic has raised the expectation of central banks about central bank digital currencies.

By Alexander Salazar

The developer highlighted what he considers the spirit of the smart contracts platform. He believes that short-term exaggerated excitement is driving Yield Farming.

Last July 1^st, Vitalik Buterin explained that some people value Ethereum for its global-access financial infrastructure, which enables new forms of social organization. On the other hand, some people who prefer to take advantage of the platform to achieve yield, especially with the new trend of Decentralized Finance (DeFi) known as Yield Farming.

Yield Farming consists of using cryptocurrencies on DeFi platforms to take advantage of high performing rates. In other words, users receive tokens to finance or request loans, which open the possibility of obtaining profits.

Ethereum has exceeded one million daily transactions for the first time so far in 2020. The increase in operations would relate precisely to Yield Farming. Buterin believes that short-term exaggerated excitement is driving the current phenomenon in the field of DeFi.

The developer considers that the most valuable parts of the DeFi ecosystem may be the most boring. That is the case with providing a cryptocurrency with an interest rate that equals the inflation rate. He recognizes that it is already something prominent in the ecosystem since many people consider it valuable. However, he argues that these types of proposals require additional improvements.

For instance, Vitalik considers that PoolTogether is a creative tool that can help people boost their ability to save. He also praised Decentralized Autonomous Organizations (DAOs) as well as Microsoft Leading Researcher Glen Weyl, who has presented fun and optimal mathematical ideas.

Ethereum’s Dialectics

Vitalik Buterin finally added his vision of what he considers most valuable about Ethereum. In a Twitter message that he posted last March, he resorts to German philosopher George Hegel’s dialectical theory, which bases on the fact that two opposites, thesis, and antithesis, solve in a higher form of synthesis.

Hegel thought that a thesis was the origin, the base, or the starting point. He established that a thesis is true until an antithesis contradicts it. Therefore, starting from an origin or thesis, the antithesis will be characterized by facing those principles, which will produce a dialectical conflict leading to the synthesis.

Knowing that this process begins with a thesis, Vitalik mentions centralized organizations and the trust that citizens may or may not place in them. These elements are the principles on which he suggests acting to drive changes with a proposal such as Ethereum, which in any case would be the basis of the engine of transformation.

The antithesis that Buterin presents is that of escaping the censorship that central organizations impose by living in isolation, with the mentality of a “do everything by yourself” man of the mountains. This approach contradicts the thesis, causing a conflict between both.

According to Hegel, the synthesis was born there, which Vitalik notes as follows: “Use blockchains, cryptocurrencies, smart contracts and other technology to build new and better ways to minimize trust and authority for people to cooperate and interact.”

Based on Hegel’s approaches, it is possible to understand the idea that Buterin focuses on: to produce changes in society, it is necessary to identify the thesis. This would be like identifying that the censorship that some centralized organizations applies to surround and limit human beings.

This thesis confronts the notion that citizens can live detached from the central organizations that they control. In summary, this would be possible using cryptocurrencies, smart contracts, and other technologies that allow them to cooperate and interact with each other.

By Alexander Salazar

The proposal received almost unanimous approval through a vote. The new method will prevent users from taking advantage of interest rates on various platforms.

The decentralized finance (DeFI) platform Compound will change in the way of allocating and distributing its token, COMP. The change arises in response to the recent growth of the practice known as Yield Farming.

Last June 2^nd, the update approved on June 30^th came into effect, through a vote on the platform. In the said vote, more than 711,000 COMP were put in favor of approving the proposal. The “no” option only received the support of 1 COMP.

According to the proposal, the idea of this update is to stop the Yield Farming method of those who are seeking higher interest rates in “any market” within the Compound platform. In the list, it is possible to see higher interest percentages for assets like BAT or ZRX.

As the distribution based on those interests, users took advantage by removing all the liquidity of the asset on the platform. Then, they returned it through another account and inflated the total interests, taking most of the issued COMP. This practice has yielded “unequal rewards”, according to the text that exposes the problem.

The update “modifies the allocation of COMP through the markets, eliminating the loan interest rate as a weighting mechanism,” as explained in the text put to the vote since June 27^th.

Compound will now distribute COMP based on “loan demand” (in the equivalent in US dollars). The text adds that there is an equal division allocation between providers and borrowers.

There will now be a daily distribution of a total of 2,880 COMP tokens. The platform will distribute these tokens equally between those who offer loans and those who request them through the system.

According to Brendan Forster, from Dharma, a company that offers Compound-based savings accounts positioned itself in favor of the new modality. In his opinion, it best meets the objective of distributing COMP. He said that the supply of the token seeks to reward “users who generate value for the protocol, either by providing capital or by paying interest on loans.

Recent Yield Farming and COMP Explosion

The recent boom of the Yield Farming method experienced a clear sample from the launch of DeFi Compound token, last June 15^th. During the first days since its release, COMP gained close to 200% in its market value.

Despite the drop in the valuation of the token valuation, Compound outperformed MakerDAO in terms of total capitalization between DeFi platforms. Updated data from DeFiMarketCap show that Compound remains at the top of that list, tripling the capitalization of MakerDAO and Synthetix, which is currently in second place.

This method of “reaping” interest allows users to generate returns of up to 100% on their funds, according to analyst Tony Sheng.

The method unleashed interest as a result of COMP’s release, which even led the Ethereum network to exceed one million daily transactions for the first time. This blockchain is the base of Compound and other DeFi platforms.

By Alexander Salazar

The Senate Banking Committee discussed financial inclusion and competition with China. Lawmakers are interested in knowing the scope of creating a digital currency.

The US Senate Banking Committee held a hearing last June 30^th to discuss how to improve the country’s financial infrastructure. The meeting focused on the possible creation of a digital dollar and how it would be better than Bitcoin and the digital yuan that China is developing.

Most of the legislators are not against a project of this magnitude, but they expressed their doubts about how to handle it and how it would help a greater inclusion of the unbanked, among other things.

The Senators believe that China is more advanced in what the digital yuan would be as a new central bank digital currency (CBDC). Besides, they noted that that of the United States must be better than that of the Asian giant, and even than Bitcoin.

Senator Tom Cotton said that the United States needs a digital dollar He considers that the US dollar must continue gaining that position in the global payment system. He stressed that it has to be better than Bitcoin and the digital yuan.

Along with the Senators, among those attending the hearing were Paxos CEO  Charles Cascarilla, Duke University researcher Nakita Cuttino, and the former head of the US Commodity Futures Trading Commission (CFTC) Chris Giancarlo, a promoter of the creation of the digital dollar.

Giancarlo highlighted that the United States needs the digital dollar, but that its development must include more debates and special attention to its application.

The executive said that it is necessary to update the US dollar with care and deliberation. However, he insisted that they have to start immediately if Bitcoin is the reason to start now.

Bankers Association

As senators debated the US digital dollar and Bitcoin, one of the participants read a statement from the American Bankers Association, a private consortium of American banks. The document questioned the creation of a digital currency by the central bank, since an instrument of this type, sponsored by the Federal Reserve, would yield more power to the State.

The Bankers Association believes that the creation of a US digital dollar would lead the Federal Reserve to become “the almost monopoly provider of the currency, bank accounts, and payment services.”

In this sense, Federal Reserve Chairman Jerome Powell himself said in June that private entities should not participate in the creation of digital currency that the central bank manages.

Regarding China’s progress on developing its digital currency, the country has been accelerating its creation in a secret environment. The task force has been reportedly operating away from the headquarters of the People’s Bank of China.

In case the digital yuan materialized, China would become a pioneer in the handling of digital currencies by central banks, which could pose a threat to the financial interests of the United States worldwide. The matter would raise the tension between the two nations, which have already clashed in the arenas of commerce, politics, and even health, as a consequence of COVID-19.

China’s use of the digital yuan as cash, without participants having to register an account with the central bank, could affect the use of the US dollar as a global exchange currency, so the United States would be at a disadvantage.

By Alexander Salazar