Comparison between Traditional Finance and Bitcoin

Alexander Salazar
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Comparison between Traditional Finance and Bitcoin

In recent days, a group of well-known experts discussed the differences between traditional finance and Bitcoin. They also explained why decentralized finance (DeFi) has become an excellent option to reduce risks.

It was reported that renowned figures from the world of cryptocurrencies, such as Max Keizer, Jon Najarian, Ugly Old Goat, Alex Mascioli, and Tone Vays, recently talked about the role of traditional finance and how Bitcoin and the other cryptocurrencies have led new paradigm shifts.

Despite being initially harshly criticized by banks, the emergence of cryptocurrencies has now become an important new business opportunity for the sector. It is worth mentioning that very few paradigm shifts like that had penetrated the financial market so strongly in such a short time before.

After just 10 years, cryptocurrencies have an ever-increasing number of users that have made them a source of concern for regulators, the target of all kinds of speculation and, above all, an object of analysis by finance experts and curious followers, without forgetting the undisputed prominence of traditional banking.

Traditional Finance

It should be remembered that the knowledge of finance is oriented to commercial transactions based on money. Therefore, the panelist group said that finance has traditionally dealt with the most economical way to obtain funds. In contrast, finance also deals with the application of funds.

On the other hand, the experts note that the emergence of Bitcoin implied a break with many of the monetary dogmas hitherto irrefutable. Its most sensitive difference compared to the use of fiat money is that it does not have a physical entity but is only a digital means of payment.

It should be noted that, compared to fiat money or systems based on the gold standard, only the mathematical architecture in the design of these digital currencies defines their rate of issuance, their applications and the guarantee of value for financial transactions.

In this sense, the experts said that the popularity of these digital currencies has not gone unnoticed in the most recent financial forums of greater international projection, where they have occupied ample space for debate and reflection.

They also stressed that Bitcoin was widely known for having introduced a form that would revolutionize traditional finance, to the point that its underlying technology (blockchain) has proposed new productive and novel decentralized finance (DeFi) schemes.

DeFi as Best Alternative for Traditional Banks

Bitcoin was the pioneer of the decentralized space that promised high returns, but with greater risks involved. Its price is very volatile and has fluctuated more than 40% in a single day this year, so investing in cryptocurrencies forces users to have a lot of market knowledge and wisdom to read business patterns.

For this reason, the panelists stressed that decentralized finance (DeFi) has gained a lot of popularity in the last year and the companies inherent in this scheme have seen a 140% increase in investment since early 2019.

They reiterated that, in addition to the traditional high-risk investment that involves Bitcoin and other cryptocurrencies, DeFi platforms have become an excellent option to mitigate risks, obtain good returns and let go unnoticed the fraud that gave rise to controversy in many fraudulent schemes of the popular ICOs in 2017.

To conclude, Max Keiser said that the reason why traditional bankers do not like the cryptocurrency market is that the leading digital currency makes financial institutions “obsolete.” Therefore, they “rightly fear” for their jobs as Bitcoin replaces them.

By Alexander Salazar

Central Bank of Sweden Is In Tests to Launch Its Digital Currency

Maria Rodríguez
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Central Bank of Sweden Is In Tests to Launch Its Digital Currency

The tests could last a whole year, and end in February 2021.

Recently, it was known that Sweden is preparing a new digital currency. The so-called electronic crown or e-krona, is getting closer and closer to being developed and launched by the government as a digital resource for its financial operations.

The Central Bank Digital Currency (CBDC) is being supported by the highest authorities in the country and is currently beginning a trial phase that will last approximately one year, which will conclude in February 2021.

According to data provided by official sources, the intention of launching this digital currency is to replace certain payments with fiat currencies, avoiding the use of credit cards or cash. The e-krona could have the potential, through the use of a blockchain, to facilitate all financial transactions and operations in Sweden, and be available to any citizen.

It has turned out that, within the crypto community, CBDCs are being commented on and discussed by experts. To date, Sweden has become the second country to bet on electronic technology and blockchain to create an official cryptocurrency that can be legal and useful.

Bahamas is the first country to publicize a similar project, whose authorities revealed at the end of last year the launch of a pilot plan on a CBDC that will continue its development throughout this year 2020.

In a similar background, China would also have announced a project to create its CBDC. However, the data regarding its development use cases, or official launch results to be ambiguous and confusing. But concrete initiatives such as the one in the Bahamas and Sweden put the entire cryptocurrency industry into a discussion.

Although some people understand the nature of the development of this technology in Sweden, due to the country’s significant progress in eliminating the use of cash, a possible launch of a CBDC would have sufficient impact to make the process of suppressing paper money possible, according to some experts.

Bitcoin Could Benefit From CBDC Development

In a recent interview with Barry Silbert, who is CEO of Grayscale Investments, one of the largest digital asset managers in the world, the expert said Bitcoin could take advantage of the platforms that can be created to support CBDCs.

Silbert also looks optimistically at the future of CBDCs as the future of the countries’ economies and that this would help to further establish Bitcoin and other non-centralized digital currencies.

“So at one time in the future, we could have 80 different CBDCs. And if that happens, it would trigger a tremendous amount of investment in financial system operators where essentially every financial institution would then have to be able to store and perform secure CBDC transactions. If you build that infrastructure, it could be used for digital currencies like Bitcoin”.

In that sense, according to a survey conducted by the Bank for International Settlements, it is likely that at least 10% of the World Central Banks will launch their own CBDC in the short term. This is even though the survey itself showed that currently not all Central Banks are interested in developing this technology. But it is a possibility in the future.

By María Rodríguez

Blockchain Will Make Possible Digital Transformation Program in Brazil

Josselyn Avila
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Blockchain Will Make Possible Digital Transformation Program in Brazil

The government of that country will invest USD 5.7 million this year to promote the digitalization of the public sector.

The Federal Government of Brazil seeks to implement a digital transformation program that includes Distributed Ledger Technology (DLT), better known as the blockchain. To make this project a reality, it will invest 5.7 million dollars (about 25 million Brazilian reals) this year through the Industrial Development Agency.

The idea is to implement security mechanisms in the digital environment, as detailed the ordinance number 3,237, which was published this Tuesday, February 18th.

Until now, the authorities estimate that by the first half of this 2020 a structured cybersecurity center will be in operation that will disseminate the actions conducted in public agencies, industry 4.0 and the critical infrastructures of this technology.

This measure is taken due that public entities such as the Ministry of Economy and the Special Secretariat of Productivity, Employment, and Competitiveness of Brazil, will use blockchain technology in its operations.

“The expected results are the increased confidence in the digital environment, increased cyber resistance, increased availability of trained cybersecurity professionals, and strengthen the use of blockchain applications to increase the efficiency of public management”, the ordinance notes.

More Blockchain Platforms for Public Administration

In addition to this first development that will take place during the first half of 2020, it is expected that by the second half of the year, Brazil will have a list of blockchain applications that will be used for the collection of public data through a pilot project.

This could mean that the Brazilian government intends to achieve the digitalization of the public sector for greater efficiency and safety in the work it does. However, until the moment, it is unknown the type of blockchain technology that the Brazilian government will implement.

Other Blockchain Use Cases in Brazil

During 2019, there were other multiple use cases of blockchain technology that included anti-bureaucracy programs, newborn baby registries or the program of the Brazilian Securities Commission, an entity that announced that it would use a blockchain platform for investor registration.

In October 2019, a newborn baby was registered in the 5th Civil Registry of Natural Persons of Rio de Janeiro using blockchain technology. This record was possible thanks to an association of IBM and the Notary Accountants, which offers digital registration services.

In other countries, blockchain technology is used for the certification of academic degrees, to corroborate the digital identity or for the traceability of products, even in the health industry, among other uses.

Brazil is one of the most enthusiastic countries in Latin America when it comes to applying Distributed Ledger Technology.

Last March 2019, representatives of the Information and Communication Technologies (ICT) industry of Paraná, in Brazil, launched a Paraná Hub Blockchain program to use this technology to create a non-bureaucratic, agile, and transparent public management in the country. Thus, probably, there will be more news about Brazil and the new uses it prepares for blockchain technology in the public administration sector shortly.

By María Rodríguez

Two Specialists Express Their Views in a New Book on Cryptocurrency Taxation

Alexander Salazar
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Two Specialists Express Their Views in a New Book on Cryptocurrency Taxation

The book “Cryptocurrency Taxation” will be officially launched next March. Ana Cediel and Emilio Pérez Pombo share a preview of their work.

The innovation originated in 2009 by the first cryptocurrency, Bitcoin, which resonates in the fields of finance, taxation, government regulation, and banking, among others. Being a disruptive technology, everything related to this new form of money is yet to be said and written.

Millions of people use Bitcoin or other cryptocurrencies daily as a means of payment or an investment mechanism, which has aroused over the years the interest from States in improved control and the establishment of rules for their taxation.

Given the growing demand for information on the accounting and taxation of Bitcoin, researchers Ana Cediel and Emilio Pérez Pombo explain in their book “Cryptocurrency Taxation” the characteristics of this type of taxation from a legal-economic point of view.

To learn more about the book, which will be officially launched next March, and its implications, Cediel and Pérez Pombo delved into the book and the most complicated elements to address. Cediel considers that the book seeks to bring light to those who operate with cryptocurrencies and tax regulations.

Pérez Pombo stressed that, despite some administrative pronouncements, there are still really serious doubts about the accounting and tax regime applicable to cryptocurrencies. The researcher even highlighted the characteristics of the Spanish cryptocurrency user and how he or she is perceived by the tax authorities.

The author is among those that believe that this uncertainty and the related doubts are responsible for harming and hampering the development and growth of the actual use of cryptocurrencies in Spain.

Legal and Economic Aspects

When asked about the legal and economic aspects, Cediel stressed that, undoubtedly, both aspects are extremely complex. She stated that whoever analyzes cryptocurrencies must have an extensive and solid knowledge of the perspective from which it is analyzed, as well as of cryptocurrencies and the technology sustaining them.

The academic, Professor of Financial and Tax Law, believes that the lack of definition of legal nature causes serious harm to the theoretical analysis of cryptocurrencies on both the legal and economic levels. Cediel stressed that the applicable legal regime can be determined at the legal level, but the economic level forces operators to act de facto, as in the case of accounting, which places them in a position compromised by legal indeterminacy.

On this same subject, Pérez Pombo noted that economists may sometimes allow themselves to be inaccurate and set aside debates about essences, to assess or study the economic impact, opportunities, and usefulness of cryptocurrencies and the associated technology.

The analyst explained that tax administrations and governments are like ship captains that, having lost their way, insist that their men continue rowing to exhaustion to lead them adrift or directly against a cliff. The legal aspect is much more complex than the economic one.

Both authors are convinced that with a minimum legal certainty and security, along with a fair and reasonable tax treatment, cryptocurrencies will be able to exponentially increase their use and dissemination among the population.

By Alexander Salazar

Debate on DeFi Platform Ecosystem Triggered by bZx Case

Alexander Salazar
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Debate on DeFi Platform Ecosystem Triggered by bZx Case

This aroused criticism in the environment of Ethereum and the rest of the cryptocurrency projects. Most believe that it was not an attack since everything occurred within the rules of the platform.

It was recently reported that the decentralized finance (DeFi) platform bZx, which runs on the Ethereum blockchain, lost about USD 1,000,000. It suffered a total of two attacks in a span of just 4 days, with losses amounting to over 3,500 ethers (ETH).

Even though the event occurred due to premeditated, and obviously planned, actions by a user, the community has insisted on criticizing the possibility that such attacks occur, rather than the attack itself. Particularly, the general consideration is that, beyond the attacker’s premeditation, everything was done within the rules established in the various platforms on which it operated.

Last February 14th, a user requested a flash or instant loan, through the DeFi dYdX platform for a total of 10,000 ETH. With more than half of those funds, he requested a loan of 112 wBTC with collateral in ETH through Compound. Then, he opened a position of about 1,300 ETH in Fulcrum and then converted more than 5,600 ETH into wBTC through Uniswap.

According to the bZx report, that last move resulted in a significant increase in the value of wBTC. The attacker took advantage of that situation, changing the 112 wBTC obtained through Compound for more than 6,870 ETH, with a total of 1,193 ETH of profits (equivalent to about USD 300,000), after repaying the loans.

The second attack, although not conducted in exactly the same way, consisted of a fairly similar mechanism and left the attacker with a favorable balance equivalent to around USD 640,000 in ethers.

What Happened Exactly

Among the most repeated views is the consideration that the attacker only took advantage of a failing mechanism, manipulating its operation without breaking its own rules. Some have even joked about the opportunity to commit sophisticated robberies like this, taking advantage of DeFi platform systems.

Developer Santiago Palladino, who is part of the OpenZeppelin team, explained in a thread published on Twitter that what happened not only did not break the mechanism of instant loans offered by bZx, but that this product precisely serves for such operations.

He summarizes the possibility to receive loans without collateral as a never seen opportunity. Palladino explains that these types of loans allow users to conduct financial operations as arbitration, without an initial investment. In other words, it is not necessary to have any money to receive more money.

For his part, Alex Svanevik, Founder of The Data Science DAO, assessed that risk does not only exist in bZx, but that it is a general problem with DeFi platforms. This happens especially due to the possibility that in a single address is accumulated up to one half of the liquidity of one of those platforms.

The lack of liquidity that allows the manipulation of the price by a user is one of the most commented circumstances around this case. In particular, it is questioned that a platform uses a single reference to determine the price of an asset, as occurred in bZx.

Developer Julien Bouteloup, from the firm Stake Capital, went a little further by stating that it was impossible to consider what happened as an attack, especially after he had “repeatedly” warned that the platform’s funds were not safe. However, Bouteloup said that bZx considers it to be false.

By Alexander Salazar

Belgian Regulator Updated Its Crypto-Regulated Businesses Blacklist

Maria Rodríguez
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The list now includes a total of 141 websites offering cryptocurrency-related services that are considered as “fraudulent”.

Belgium’s Financial Services and Markets Authority (FSMA) have added new crypto-related businesses to its blacklist to avoid the operation of companies not authorized to operate with cryptocurrencies in its territory.

These are websites associated with fraudulent activity, according to the official entity so they could not work and the FSMA is looking to prevent them from committing money laundering with crypto assets.

In this sense, the FSMA made the update due to a growing number of complaints from Belgium-based users who dealt with fraudulent offers of investment in digital currencies, according to an announcement known this February 21st.

After the latest revision, the FSMA’s blacklist now includes a total of 141 websites offering cryptocurrency-related services.

Previous Warnings

But, as the FSMA explained, this list includes only those businesses reported by users and found by the agency’s findings. This means that it does not include all the crypto-related businesses that could be illegally operating in Belgium.

Some months ago, the FSMA issued similar warnings to cryptocurrency investors, explaining that they should be wary of companies that claim to hold authorizations from supervisory authorities. In this case, investors should be very sure about the legality of the company they are working with.

Regarding that aspect, the FSMA said: “This is a very frequently used technique. However, these are often cases of identity theft. Feel free to ask the FSMA to confirm the information you have received”.

Campaigns to Raise Awareness

Last June, the Belgian FPS Economy launched a website to raise awareness of the risks associated with investments in crypto when companies are not very sure about the legality and precedence of some “providers”.

Previously, in 2018, Belgian investors had reported to the FSMA agency the loss of €2.2 million (USD 2.5 million) in crypto scams. However, the FPS said that this was “just the tip of the iceberg” as only 4% of crypto fraud cases had been reported.

According to the estimations of the FPS, investors in Belgium lose about €130 million ($152 million) per year due to crypto scams. These crimes could be prevented so the FSMA is now acting to try to alert investors and prevent future inconveniences.

International Support for Investors

The positive news is that there are authorities in countries around the world that provide informational support for cryptocurrency investors as an attempt to “save” them from potential losses.

Last January, the State Security Board in the American state of Texas, in the United States, included cryptocurrencies in their list of top “threats” for investors.

“Promoters’ claims of ‘secure’ cryptocurrency-related investments and ‘guaranteed’ profits should be approached with caution: Cryptocurrencies tend to be extremely volatile and investors may be unable to quickly liquidate products tied to them”, a guide warned to this type of public.

Meanwhile, Financial Stability Board Chair Randal Quarles has voiced his concerns regarding how quickly digital currencies are affecting (for better or worse) the global economy while regulatory action struggles to keep up.

The truth is that cryptocurrencies and blockchain technology are a new form to execute faster payments but real crypto-businesses should try to operate legally in the country they are and investors should be sure about the transparency and legality of the company they are working with.

By María Rodríguez

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