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Ron Delnevo asks if central bank digital currencies are less about fending off competition from cryptos and more about advancing a political and cashless agenda

Its hard to believe that it was only in 2009 that the first cryptocurrency Bitcoin emerged from the ether, with Satoshi Nakamoto moved to announce the existence of the Genesis Block. Handily, the year before, the very same Satoshi Nakamoto had developed a blockchain to serve as the public distributed and decentralised ledger for Bitcoin cryptocurrency transactions. Very logical.

First, invent the rails, then find something to run on them. And run Bitcoin, along with many other cryptos, it certainly did, to the extent that in early January 2023, Forbes magazine reported that the total market capitalisation of the top 10 cryptocurrencies amounted to a very cool 560billion. Cool that is, until we recall that the market cap of Bitcoin alone was north of 900billion only 15 months earlier. The extreme volatility of cryptocurrency values has rightly frightened many investors.

But central banks have been frightened of crypto for very much longer. Indeed, why would any organisation jealous of its centralised powers welcome crypto passengers on Satoshis virtually endless rails, which allow alternative currencies to move around the planet without reference to any physical, political or economic boundary and therefore beyond the control of any central bank?

The ECB sees a digital euro as having the potential to usurp the dominant position of the mainly US-based payment giants

This made them very nervous, because they believe that without such control the planets fragile financial structures could collapse at any time, as actually happened in 2008, when commercial banks that we believed couldnt fail went ahead and did.

The truth may be that central banks know that there will be occasional partial collapses but they believe that their centralised control means that failing structures can be repaired. The cost of running repairs can be rather high the UK government alone spent an initial 137billion supporting the countrys banks in 2008, but the emphasis was on ensuring the economy kept grinding on. And it did. Just.

Decentralised cryptocurrencies do not allow such running repairs to be carried out. For all the stability that the stablecoin crypto market segment promotes, their value depends entirely on market sentiment and there is no safety net, no feasible central intervention, to stabilise the market. Clearly, central banks do not like cryptocurrencies, but they were aware that their launch was a genie that couldnt be put back in the bottle. Central bankers decided pretty quickly (for them) that the adage if you cant beat them, join them should apply, which meant creating central bank digital currencies (CBDCs).

A CBDC is a digital token, issued by a central bank, whose value is pegged to the value of that countrys fiat currency. Essentially, CBDCs were initially envisioned as a centralised and controlled rival to cryptocurrencies. But the thinking behind them has moved on.

Heres how it stands as of November 2022, articulated by Christine Lagarde, President of the European Central Bank: We will continue to provide cash, but if it is used less and less for payments, public money could ultimately lose its role as the monetary anchor for the hybrid model, threatening its key function in securing trust in payments, with implications for the economy. Payments are a public good that is simply too important to be left to the market.

And how does Lagarde envisage countering this threat?

Issuing a digital euro would indeed safeguard peoples confidence that one euro is one euro, allowing them to convert private digital money at par into digital central bank money, she said. It would ensure that money continues to be denominated in euros. And it would be based on a European infrastructure, facilitating intermediaries to scale payments innovation throughout the euro area and thus strengthen Europes strategic autonomy.

This really isnt about defending the euro against cryptos, though, because in the same speech, the ECB President remarked that unbacked [crypto] variants such as Bitcoin or Ether are too volatile to act as a means of payment.So, if there is no genuine threat from cryptos to cash as a payment method for the masses, why would the ECB bother to launch the digital euro?

Simple.

The ECB knows that Europe has never been able to create a rival to the big international card schemes. This failure has been underlined recently by the appearance on the payments landscape of the big tech wallets, led by Apple Pay. None of these new raptors of the payments industry is headquartered in Europe. The ECB sees a digital euro as having the potential to usurp the dominant position of the mainly US-based payment giants.

Europes Central Bank would be quite happy to see the fiat euro disappear entirely, so long as every Eurozone citizen uses the digital euro for all their payments.So, the digital euro, initially positioned as an alternative to cryptocurrencies, has now become just another weapon to be deployed in the war against physical cash. Sad but predictable.

Can we detect a similar thread of thinking among other central bankers worldwide? Two central banks rushing into the CBDC era are the Nigerian and Indian. The Nigerian Central Bank launched its CBDC, the eNaira, in October 2021, thus becoming the first significant economy to implement such a product. This launch was no half-hearted matter. All businesses in Nigeria that accept physical cash the fiat naira are now also obliged to accept the eNaira for payments.

Despite significant promotion by the NCB, by September 2022 only 270,000 eNaira digital wallets were in use in Nigeria. Considering the population of the country is currently 219 million, this take-up has to be seen as disappointing. However, with the Nigerian government steadfastly anti-cash, the central bank may take the view that every little eNaira helps the move in the direction of the cashless dream. India is another market where the government is seemingly obsessed with creating a cashless society however far from that position the country is at present. Sure enough, the India Central Bank launched the pilot of the digital rupee in December 2022.

No usage data is yet available, although the Indian authorities must surely be concerned by the poor results so far emerging from Nigeria.Meantime, in China, piloting of the digital yuan began in 2021. The consensus in the West is that this CBDC is ultimately intended to assist China and its allies to undermine the current position of the US dollar as the planets reserve currency.

However, it looks like ultimately may be a very long way off.The success of the Chinese launch can probably best be judged from this quote in early January 2023 from a former director of the Peoples Bank of China, Mr Xi Ping: The results are not ideal [and] usage has been low, highly inactive.

So thats Nigeria, India and China shakily on the CBDC bandwagon with two of them finding that their citizens have so far shown little or no interest in the digital dreams of their central banks and are happy to continue to use their previously preferred payment methods. In Nigeria and India, for most that means cash. Apparently, around 80 central banks are currently seriously considering launching their own CBDC.

However, the most important of all the central banks the United States Federal Reserve is still in information-gathering mode. It is probable that a digital dollar will never appear; the fiat dollar works brilliantly for the US. Dollars are one of the United States most successful exports and, of course, the great thing about fiat currency is that when it is exported, it often doesnt ever return. Digital dollars would buck this helpful trend. They can return home at the tap of a screen, whether welcomed by the Fed or not.

If it isnt broke, why fix it, is the likely Fed stance, when all things have eventually been considered.But what of the Bank of England, the UKs Old Lady of Central Banking? In April 2021, the bank and HM Treasury initiated the joint CBDC Taskforce to coordinate the exploration of a potential UK CBDC.

The bank also set up the Engagement and Technology forums, where relevant stakeholders from industry, civil society and academia could provide strategic and technical input to the work on CBDC. Speaking at the time, Economic Secretary to the Treasury, John Silicon Glen, said: This consultation will begin an open discussion on the role a UK central bank digital currency might play in the UK.

As of January 2023, it seems that no decision has yet been taken regarding the launch of a digital pound. However, on 10 January 2023, five UK associations including UK Finance, which speaks for all major UK banks announced that they have come together to form a new alliance; namely the UK Forum for Digital Currencies (UK FDC), which will celebrate innovation and collaboration in the payments industry.

It is highly unlikely that this UK FDC would have been created without a nod from HM Treasury that the digital pound is soon to be let loose on an unsuspecting UK public.

A digital pound has a good fit with the anti-cash agenda that has been the goal for a decade or more. HM Treasury may well see this as being the final nail in the coffin of physical currency. However, in states where citizens continue to enjoy a healthy measure of payment choice, such as Nigeria and India, there is little evidence that the public wants to replace the fiat currency with a digital alternative. In China, of course, though the digital yuan seems to have little public appeal, the government is in the position to impose a cashless future on 1.4 billion people.

Would a UK government dare to impose a digital pound on its electorate? We shall see.

This article was published in The Fintech Magazine Issue 27, Page 67-68

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EXCLUSIVE: "Alternative Realities" - Ron Delnevo in 'The Fintech ... - Fintech Finance

Ripple, the fourth biggest cryptocurrency with a market cap of $22 billion, has risen a bit more than bitcoin or eth in the past week, gaining 20% while eth has risen just 10% and bitcoin 15%.

Pretty much all of its gains were on Monday when the currency started moving while bitcoin stayed stable. Eth joined, leading to speculation the move had something to do with the securities debate.

That debate is now being held in courts up and down the country, and specifically one court that the Securities and Exchanges Commission (SEC) seems to like, the Southern District of New York.

Judge Analisa Torres has been hearing for two years in that court Ripple, the company, argue against SEC which claims XRP is a security.

Their claim was based on the fact that Ripple holds about half of XRPs total supply, and there are also questions regarding just how decentralized ripple the protocol is as it doesnt quite use a blockchain, but some gossip protocol based on the existing node quorum choosing to add or not add new nodes.

In the tribal fights within the crypto space, xrp is usually dismissed due to the latter reasons, but the case is in many ways Crypto vs SEC, not SEC vs XRP.

Thats because xrp came to the public through what back then wasnt quite called an airdrop. They gave it away for free in the amount of 50,000 XRP in 2013 to anyone in the bitcointalk forum who posted in that thread and said they wanted the xrp.

From those humble begins and a price of zero, they often, though very briefly and usually at the end of hyper-bull runs, even surpassed bitcoin in market cap or eth when the latter permanently kicked XRP off second position.

It has survived for decades while maintaining its position through numerous bulls and bears, in contrast to many many cryptos that have dwindled through the rankings.

And that suggest it has its own community, a somewhat active one, even a semi-real XRP army during better times, with anecdotal evidence suggesting they might reach audiences that other cryptos like bitcoin or eth dont, initially anyway.

That community has followed the court drama in every twist, often making a big deal out of what might seem little, with routine paper disclosure decisions hailed as victories, and all sorts of theories that paint ethereums Joe Lubin and the then SEC Director of Corporate Finance William Hinman who declared eth is not a security as some sort of bad guys.

All fair game in crypto tribalism of course, but their point is simple: how can they be a security and eth not? And their answer is somewhat simple too: eth is more resourceful and was more active to get SEC off its back.

They use far more colorful language of course, and seem to have somewhat succeeded at the edges to re-raise that question of whether eth is a security, although we consider it very settled as theres a whole background that goes with that Hinman announcement.

But while this is the public arena, in the court arena it appears their main focus was in arguing that there is no common enterprise in XRP, as required by the ancient by our standards Supreme Court case that established the Howey test for securities.

Instead they are arguing there is only common interest while denying they meet any other requirements as well, like an investment contract. Ripple rightly says there was no contract here.

An investment of money well, they got it for free. A reasonable expectation of profits, well it was given away for free so not expectation, more like meh, maybe, back then anyway, to the point very many didnt claim it even though they were very aware of it and all it would have taken was to say yes to get what at one point was worth $50,000.

There also has to be an expectation that the profits are derived from the efforts of others.

If we go back to that 2013, and the present writer could claim it, didnt, in part because didnt qualify, its hard to say anyone knew of these others or even cared.

If there was any expectation of value in fact, it would have been based on the capabilities of the protocol which at the time was already running prior to the airdrop, in its design, and whether it was decentralized the latter being a subject of a very long debate tribalism within the crypto space.

Back then in addition there was no awareness, certainly where the common airdrop claimer or even investor is concerned, that these protocols can change or theres devs to it or that those devs are useful at all.

As the long debate and even civil war in regards to bitcoins blocksize showed, many had taken to heart a comment Satoshi Nakamoto had made where he stated the bitcoin protocol had been frozen in stone.

Its not until ethereum came along with an organized dev team and a long plan to get to planetary scalability, that many in crypto learned the protocol can change.

The wider public learned it only when ethereum upgraded to full Proof of Stake in September last year, at least according to the Economist which at the time said this showed that these crypto protocols can change and develop.

The great myth of Satoshi Nakamoto moreover and his disappearance, all fundamentally making the point that we dont need devs, coders or anyone as we can all run the nodes and change the code however we please, gives further credence to the suggestion there was no reasonable expectation the efforts of others either would create or in any other way would add value.

SEC of course would say but there are these devs, there is Ripple the company. Well, there is a Linux foundation as well, and theres a community of devs looking after PHP, WordPress and many other things, and people obviously expect someone to do the code work, but that someone is the collective us, all of us.

Thats the nature of open source code, and crypto is open source code. It has its benefits, this semi-communism in a way or collectivism, but it has its drawbacks in as far as, as a user, you cant really e-mail anyone to complain or expect anyone to be fired because theyre not delivering something you want or are delivering something of shabby quality.

Naturally we expect some sort of standard, but thats based on community rules, processes, etc, its based on our own efforts.

Now that we worked so hard and we built so much on crypto and its worth a lot, theres also obviously plenty of profit motive, there are plenty of businesses that rely on the code and yadayada, but the open source nature, the nature of permissionless participation, and that collective nature in a way in as far as we share our code and we fork our dapps or our blockchains, remains fundamental to crypto.

We also have our debates of course, fierce debates, regarding just how much any of those aspects are met and to what degree and by which, but often these are more not necessarily matters of fashion choice, just measuring of degrees.

If it is SEC doing that measuring and not us, then by definition that crypto can not meet those qualities because whoever is signing those SEC papers is in charge and if they are not in charge, then they cant sign the papers. If they are in charge, then obviously the crypto is not decentralized or permissionless.

The impossibility of meeting SEC requirements has in fact been cited as the reason many companies that are very regulatory-abiding are fighting the SEC.

The very fact that SEC is trying to apply to crypto regulations that are called investment contracts shows as much because there is obviously no contract in open source code.

One can make the other side of the argument, as SEC does, that all this talk about open source and decentralization is a mirage and is not real, but just because it is an official making a conspiracy theory, doesnt make it any less such.

There is a fundamental difference in crypto, in nature, form and substance, derived primarily from the nature of code itself and other aspects that have come with the internet.

The SEC chair Gary Gensler is not a coder, and SEC itself as an institution did not try until 2019, long after they had declared things like the DAO as a security, to run crypto nodes so that they can see what the front interface of crypto is.

Behind that interface, the node app, theres a whole city of code and pipelines and high speed rail and horse carriages, nowadays of bots moving on pods running on nfs-ed kubernetes nodes.

But Gensler is not a coder, so none of this is real, this city he cant see, because he has never felt just what ordering code is and just how much control you have over these living books.

Thats what these protocols are, books lines and lines of written code, but they live in as far as they do things unlike books which are static in form and live in as far as touch your imagination.

And because Gensler is not a coder, he ignores that entire aspect, and of course without the code then yes these would be securities but thats like saying without the wheels your bicycle would be your aunty, or if your aunty had wheels shed be a bicycle.

Judge Torres however is not a coder either. She has had in court representation from coders at Ripple, but the first question is just how well the fundamentally distinct code based nature of crypto has been explained to her, which was on Ripples lawyers.

She does not have a background in finance either. Her work in the law firm years was instead in real estate, thats buying houses or selling houses, managing covenants and all that Land law which in many ways has nothing to do with finance, or the chancellary.

She is a district judge however, thats the very first instance court, and thats the nature in those courts. A bit like in primary school one teacher teaches all subjects, and then you get distinct teachers for each subject.

The main concern instead is that shes a democrat, appointed by Barack Obama in 2013.

In this space weve tried to be neutral of course and this paper backed Biden in 2020, but democrats have tended to be a bit more biased against crypto than other outlooks.

That gives us a nice way out if she decides against Ripple, which to avoid disappointment is what we should expect.

It would however, especially looked from across the Atlantic, raise significant questions about this party appointment of judges and just how independent that really make the US judiciary, but thats another matter if it came to it.

Ripple has said they will appeal if they lose, in which case for the first time crypto would go to a real court as far as these hefty analysis of reasonableness are concerned, but first theyd have to go to a semi-real would be too harsh a word, but you get the point as theres the Circuit court and then the Supreme Court, unless they decide to stop at the Court of Appeal as well.

The latter two are where the real decisions and analysis are made in complex, new, unique and novel issues, as of course this crypto question is.

For other matters all these courts are real, obviously, but if Ripple loses at this district court in New York then well put it down to some decision by some judge which doesnt even bind other judges sitting in the same court, let alone the crypto space or the public.

Of course if crypto wins, then SEC is out, it would prove all things, not securities, case closed, and free once more.

There, is the potential for hype. If they lose, nothing lost. Theres a whole drama of many episodes to follow instead, full of paper twists and minutes turned into a grand show and tales of victories, abuse, biased, truths.

Thats what you have to love about crypto, the passion. But if they win, Freeeddooom. Come you all enslaved to the land of liberty.

Making this case somewhat unique as well easily dismiss it if it goes against, but well hail it as the ten commandments of Mosses himself that kicked SEC out if it goes in favor.

And if it doesnt, then wed have a real court case to look forward to where the decision does matter and wed have to scrutinize every word in that decision in the Supreme Court.

That would be years away however, with the timeline of when Torres will make a decision being unknown too. Maybe in weeks, months, tomorrow.

But the arguments have ended. Now she is the only show, and in that time of waiting, theres is plenty of potential for rippletonians to say or hype all sorts of things, even if there is the slightest of chance and this is more maybe 50/50.

SEC, coward SEC, wont appeal the decision however if it goes against them. They dont want a real judgment, a binding decision. Theyd rather bypass the oversight of the judiciary and keep on their conspiracy that code isnt real, that all this is just paper contracts like 100 years ago.

That said, the judge has a difficult decision and SEC is not entirely without point, theyre just fundamentally mistaken in not adapting at all, in attempting to force compliance with what is impossible to comply, rather than come up with reasonable regulations where there are fiduciary relations.

The latter is not quite their job, it is that of Congress. Nor however is it their job to come up with new law by stretching to absurdity the definition of paper contracts.

Instead until Congress decides and if it does decide to come up with anything, the CFTC can oversee this space. They have jurisdiction over fraud and the like. We are very supportive of our boys in the criminal law, so theres the deterrence of prison as well as Sam Bankman-Fried of FTX is finding out. Whats wrong with that set up as regulation until the law makers decide?

It is in fact how the rule of law works. The executive, SEC, cant make law, and that they have decided to not appeal if they lose though rumored, nothing official just semi-leaks proves they are attempting to make law in breach not just of the constitution but all books in Law School.

When experienced and respected highly trained lawyers say it is impossible to comply, SEC has to listen. And if they dont listen then we wont listen either. Case closed, over to you Torres.

Original post:

XRP Hypes Ahead of Court Decision Trustnodes - Trustnodes

By: Dale Arasa -1 day ago

Stefan Matthews, the co-founder and executive chairman of nChain Group, said BSV blockchain would facilitate the digitalization of the Philippine government.

He had an interview with the cryptocurrency news outlet CoinGeek and explained his discussions with government officials regarding crypto adoption.

Matthews said he would use the BSV blockchain to store and secure data for a specific region. Moreover, he discussed blockchain training for Ateneo faculty and students.

Photo Credit: coingeek.com

President Ferdinand Bongbong Marcos Jr. shared his long-term goal of upgrading the Philippines with digital reforms during his State of the Nation Address in 2022.

In response, the province of Bataan hosted its first blockchain conference in October 2022.

Local and international blockchain leaders and government officials from the Department of Information and Communication Technology (DICT) attended the event.

The president specifically tasked this agency with the digitalization of the country. One of the guests was Stefan Matthews, the co-founder of nChain.

It is a global tech firm that offers blockchain solutions using Bitcoin SV.

The latter is a bitcoin hard fork that aims to restore the original Bitcoin protocol envisioned by Satoshi Nakamoto, the enigmatic creator of cryptocurrency.

A global tech company offering software, IP Licensing & consulting services. Providing Blockchain solutions and products. Bitcoin SV.

During the event and several meetings afterward, I had some fairly deep conversations with Governor Garcia and Congressman Garcia.

and their vision for this technology and the application of it in government is second to none. I mean, they are very, very progressive thinkers, Matthews said.

As a result, the Provincial Government of Bataan (PGB) signed a Memorandum of Understanding with nChain on January 25, 2023.

Soon, the region would become the Philippines crypto hub due to its special economic zone or freeport status. Stefan Matthews also met with DICT Secretary Jonathan Ivan and his.

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He told CoinGeek they discussed blockchain and its applications being built for Bataan. Also, they talked about the sovereignty of government data.

Specifically, Matthews and the DICT Secretary discussed whether information stored on a blockchain is private or accessible to others.

Overall, his companys activities in the Philippines would create more opportunities for nChain and the Philippines.

The Philippine government and nChain partnered with the Ateneo de Manila University in delivering blockchain education to its students.

Stefan Matthews said, We will be working with faculty staff to train them on the delivery of blockchain courses, blockchain material.

We will be sponsoring or providing grants or funding projects for three Ph.D. students at the university to extend their research in blockchain here in the Philippines

which also includes making available the entire intellectual property portfolio of nChain for students. Finally, there is the internship issue.

We want to provide internships both in our companies and in terms of what were doing in Bataan for university students to be able to complete their education.

Also, the nChain chair announced the companys plan to build a Block Dojo incubator in Bataan.

Block Dojo brings blockchain startups to investors so that they can offer the Philippines new services and more jobs.

He said it aligns with their aim to foster Filipino innovation in the building of solutions on the blockchain that will be deployed domestically.

.but also potentially, internationally, it also allows us to contribute to possibly uncovering a Filipino unicorn.

The Philippine government will further its digitalization with the help of nChain and the Bitcoin SV blockchain.

As a result, the country would thrive and prosper in the age of AI, realizing his presidential campaign chant, Bagong Pilipinas, Bagong Mukha (new Philippines, new face).

In response, adapt to the worlds rapid digital revolution. Start by following the latest digital trends from Inquirer Tech.

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The Philippine Government Will Digitalize With BSV Blockchain - INQUIRER.net

Introduction

Good afternoon. Its a pleasure to be here for the inaugural meeting of the Technology Advisory Committee (TAC) under Commissioner Goldsmith-Romeros sponsorship. The work of the Commissions Advisory Committees is critical to the development of the CFTCs regulations and policies, as well as industry best practices.

I want to thank Commissioner Goldsmith-Romero and Anthony BiagioliTACs Designated Federal Officer, for convening this meeting today. I also want to thank you, TACs membership and todays panelists. The Advisory Committee has an ever-more important role in furthering and fostering the knowledge and understanding of the Commissioners and Commission. The Committee is fortunate to have the leadership of Chair Carole House from Terranet Ventures and previously the White House National Security Council where she served as Director for Cybersecurity and Secure Digital Innovation and Vice Chair Ari Redbord of TRM Labs.

In the spring of 2000, the TAC held its inaugural meeting. A year later, following the tragic events of September 11th, members of TAC demonstrated tremendous resolve, holding a meeting in November of 2001 and focusing on electronic order routing and disaster recovery, business continuity plans, and technology-centered recovery and resilience planning.

Over the following years, TAC continued to focus on the unique and important issues outlined in the Committees charter and at the intersection of the integration of technology in finance. Specifically, in 2005, TAC examined critical questions including how best to define prior art in the patents process; intellectual property in trading and settlements technology; restrictions on the usage of exchange settlement prices; and market data piracy. More recently, TAC has led the Commissions efforts to understand and explore high frequency and algorithmic trading practices; the role of technology in pre- and post-trade transparency in implementing the Dodd-Frank Act; universal product and legal entity identifiers; standardization of machine-readable legal contracts; semantics; and date storage and retrieval.

As we gather today, consider how our world has changed. Much has been made (and publicized) about distributed ledger technology within the context of tokens, currencies, and other stores of value or medium of exchange uses. Even if Satoshi Nakamotos white paper, published over a decade ago, offers a precise description of the archetypal use case, there is much to explore and discover in the context of the introduction of this technology in our society.[1]

Allow me to highlight a few of interesting and I believe important, uses for distributed ledger technology.

As we think about the many potential use cases for distributed ledger technology (DLT), the need to focus on climate risks in financial markets comes quickly into focus. As a recent report explains:

The 2021 estimate by the Interagency Working Group on Social Cost of Greenhouse Gases puts the social cost of carbon at $56 per metric ton of carbon dioxide (CO2) by 2025 and $85 per metric ton of CO2 by 2050 (in 2020 dollars, at a 3% discount rate). These consistently higher estimates for the future social cost of carbon are largely driven by expectations of increasing costs of climate-related damage.[2]

The authors of the recently published report further explain that, whether we are discussing compliance or voluntary carbon markets, financial markets can perform a price discovery and risk allocation function in determining the price of carbon emissions.[3]

In addition to providing critical infrastructure for developing carbon markets, others have proposed the use of DLT technology in agricultural markets. For example, IBM recently launched the IBM Food Trust program.[4] This program facilitates better handling of perishable fruits and vegetables through information sharing and dynamic optimization. In other contexts, supply chains have introduced DLT tools that enable end-to-end traceability.

Beyond food production, DLT also helps farmers with other challenges in data management and operation. DLT may aid cotton farmers and others who seek to authenticate or verify information regarding crops.[5]

Another important use case for DLT in financial markets is the digital identity use case.[6]

Technology developers increasingly present novel solutions empowering individuals to manage their own data. In its simplest form, digital identity is self-managed identity information stored on the blockchain. Using DLT, these systems would track and certify data, events, and information relating to an individuals personal and financial information.[7] The information would be stored in an individuals digital wallet and instantly verifiable on the blockchain. Proponents of this use for blockchain technology tout many benefits including encrypted information and pseudonyms to ensure privacy, autonomy for individuals to control access to their data, and reduced opportunity for mass data leaks and cyber threats.[8]

There is tremendous promise in the possibility of developing and deploying digital technologies that enable the creation of digital identities with effective embedded privacy protection. As I have previously explained during testimony before the U.S. House Financial Services Committee in July of 2019:

Supplementing traditional credit underwriting data inputs and processes, [distributed digital ledger technology employs] newer modeling techniques and consider[s] a broader range of source data referred to descriptively (rather than normatively) as alternative data. These new inputs include information regarding consumers financial transactions [and] recurring payments history.[9]

The opportunity to gain access to additional sources of information such as utility bill payments or rental payments offers great promise but also present unique concerns. There are, however, notable concerns, including the need to ensure effective privacy protections are embedded in the development of such technologies. Legislative and regulatory authorities must balance these laudable promises of greater inclusion with the significant risks posed, particularly the risks that vulnerable populations may face. Today, we will have the benefit of hearing from TAC Chair Carole House on this matter and I very much look forward to her presentation.

Earlier this year, ION Cleared Derivatives acknowledged that a cybersecurity event had affected some of its services.[10] ION provides back-office trade processing and settlement of exchange-traded derivatives for many futures commission merchants (FCMs) and other participants in our markets.

Because of this central role in trade processing, the cyberattack disrupted not only IONs operations but also the operations of other market participants, triggering a ripple effect across markets. Because they could not rely on ION, affected parties returned to manual (old-school) trade processing, leading to delays in reconciliation, information sharing, and reporting.

Earlier this month, at a meeting of the Market Risk Advisory Committee (MRAC) that I sponsor, I invited speakers to engage in a deep dive discussion exploring cyberthreats that create risk management concerns.[11] During the meeting, Walt Lukken, the Chief Executive Officer and President of the Futures Industry Association announced the creation of a Cyber Risk Task Force focused on improving operational resilience across diverse market participants. In addition, Tom Sexton, President and Chief Executive Officer of the National Futures Association described recent initiatives to enhance cyber risk oversight and acknowledge efforts to expand oversight to critical third-party service providers.

First, cyber risks are not siloed, individual enterprise risk management concerns; all too often, cyber threats demand coordinated action across several market participants, with thoughtful incorporation of large, systemically important market participants.[12] The National Cybersecurity Strategy, released just prior to the MRAC meeting, makes this point clearly: [A]cross both the public and private sectors, we must ask more of the most capable and best-positioned actors to make our digital ecosystem secure and resilient.[13] Accountability must be top of mind and at the center of the systems development and regulatory oversight.

Second, our economy is a digital economy. Reliance on third-party service providers and non-proprietary software for key operational functions such as trade processing, margin determinations, and data distribution underscore the importance of revisiting our risk management regulations to ensure that the Commission has adequate visibility into the system safeguards of firms that may impact the operational integrity of registered market participants.[14] Even robust and well-designed safeguards and regulatory frameworks may be inadequate if they are not broad enough in scopewe cannot train our focus only on our registered entities and market participants, but must cast a wider net to ensure sufficient identification and mitigation of cyber risks.[15]

We must also note that benefits and challenges of integrating an increasingly prominent service provider that plays a critical role in our financial system: the cloud-services industry. Three large cloud-service providers (CSPs), Google Cloud, Amazon Web Services, and Microsoft Azure, provide a significant percentage of cloud-services.[16]Most major futures exchanges and stock exchanges rely on these CSPs.[17] CSP market concentration and exchanges reliance on CSPs may potentially engender broader risk management concerns from common exogenous threats such as hacking to nuanced concerns such as outages.[18]

CSPs provide a particularly complex challenges.[19] Due to their size and market power, regulation may present unique challenges.[20]

The disruption in financial markets over the past several weeks further establishes the implications of interconnection in markets. Interconnectedness and correlations may amplify the consequences of cyber-attacks against critical infrastructure resources. As noted at the MRAC meeting, I have long advocated for regulators and market participants to prioritize cybersecurity and investigate the potential for cyberthreats to create systemic risk or national security concerns.[21]

While I called for MRAC to serve as a timely and transparent forum for critical discussions regarding resilience, recovery, and resolution, these issues are so significant and multifaceted that there is substantial benefit to be gained from a diversity of voices. Accordingly, I look forward to hearing from TAC members today about their perspective on these important issues.

In recent months, we have witnessed the potential for artificial intelligence (AI) to address endemic challenges in financial markets.[22] This includes the potential for AI to improve the efficiency of trading in financial markets, as well as the accuracy and dexterity of market surveillance and fraud detection.[23] There are, however, challenges to the increasing adoption of and reliance on AI. Several years ago, commentators began to focus on the ethical implications of AI and concerns regarding the potential for limited data sets and shortcomings in the curation, structuring, partitioning, and cleaning of data to lead to hardwiring bias in the real world deployment of AI.[24] I have spoken previously about the potential for innovative technology to further goals of financial inclusion.[25] While these challenges extend beyond the markets and entities regulated by the CFTC, I am hopeful that todays discussion will reach these questions and that TAC will foster a systematic effort to study and address them.

Thank you again to Commissioner Goldsmith-Romero, Chair House, Vice Chair Redbod, and DFO Biagioli. I look forward to hearing from each of you today.

[1] Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System.

[2] E.g., Alessandro Cocco, Jesse Leigh Maniff, David Radziewicz & Michael Werner, Distributed Ledger Technology, Carbon Accounting, and Emissions Trading, Chicago Fed Letter (Nov. 2022), https://www.chicagofed.org/publications/chicago-fed-letter/2022/474.

[3] Id.

[4] IBM Food Trust (accessed Mar. 7, 2023), https://www.ibm.com/blockchain/resources/food-trust/fresh-produce/.

[5] Terry W. Griffin, Keith D. Harris, Jason K. Ward, Paul Goeringer & Jessica A. Richard, Three Digital Agricultural Problems in Cotton Solves by Distributed Ledger Technology, Applied Econ. Perspect. Policy (2022), https://onlinelibrary.wiley.com/doi/epdf/10.1002/aepp.13142.

[6] Shlock Gilda, Tanvi Jain & Aashish Dhalla, None Shall Pass: A blockchain-based federated identity management system, Arxiv (July 5, 2022), https://arxiv.org/pdf/2207.02207.pdf.

[7] Id.

[8] Id. See also Linda Jeng, How self-custodied identity works, presentation at the CFTC Market Risk Advisory Committee meeting, March 8, 2023, https://www.cftc.gov/media/8326/MRAC_PowerPoint032223/download.

[9] Kristin N. Johnson, Examining the Use of Alternative Data in Underwriting and Credit Scoring to Expand Access to Credit, written testimony before the U.S. House Committee on Financial Services Task Force on Financial Technology, July 25, 2019, https://democrats-financialservices.house.gov/UploadedFiles/HHRG-116-BA00-Wstate-JohnsonK-20190725.pdf.

[10] Cleared Derivatives Cyber Event, ION Cleared Derivatives, Jan. 31, 2023, https://iongroup.com/press-release/markets/cleared-derivatives-cyber-event/.

[11] Opening Statement of Commissioner Kristin N. Johnson Before the Market Risk Advisory Committee Meeting, Mar. 8, 2023, https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement030823.

[12] See FIA's CEO Walt Lukken speaks on cyber resilience before CFTC, Remarks by FIA President and CEO Walt Lukken delivered to MRAC, Mar. 8, 2023, https://www.fia.org/fia/articles/fias-ceo-walt-lukken-speaks-cyber-resilience-cftc (noting the importance of communication to coordinate action); Remarks by NFA President and CEO Tom Sexton delivered to MRAC, Mar. 8, 2023 (noting the importance of communication and a unified response between industry, government, and SROs to mitigate the impact of the ION hack).

[13] National Cybersecurity Strategy, Mar. 2023, at 45, https://www.whitehouse.gov/wp-content/uploads/2023/03/National-Cybersecurity-Strategy-2023.pdf. Notably, the document identifies governments role, in part, as ensur[ing] private entities, particularly critical infrastructure, are protecting their systems. Id. at 5.

[14] NFA requires Members to adopt and implement a supervisory framework over functions that they outsource to third parties, including with respect to cyber risks. See Sexton remarks, supra; see also NFA Interpretive Notice 9079NFA Compliance Rules 2-9 and 2-36: Members Use of Third-Party Service Providers, Feb. 18, 2021, https://www.nfa.futures.org/rulebooksql/rules.aspx?Section=9&RuleID=9079.

[15] Notably, the Futures Industry Association announced at MRAC that it was forming a global Cyber Risk Taskforce to look at the ION event and develop recommendations, including with respect to safeguards around third-party service providers. See Lukken remarks, supra. FIA intends to release an initial report on recent cyber incidents by the second quarter of 2023 and we look forward to reviewing that report.

[16] Carolina Asensio, Antoine Bouveret, & Alexander Harris, Financial Stability Risks from Cloud Outsourcing, ESMA (May 2022), https://www.esma.europa.eu/sites/default/files/library/esma_wp_cloud_may_2022.pdf.

[17] CME Group Signs 10-Year Partnership with Google Cloud to Transform Global Derivatives Markets Through Cloud Adoption, CME Group (Nov. 4, 2021), https://www.cmegroup.com/media-room/press-releases/2021/11/04/cme_group_signs_10-yearpartnershipwithgooglecloudtotransformglob.html; NYSE Market Data Via Amazon Web Services, NYSE (accessed Mar. 21, 2023), https://www.nyse.com/nyse-cloud; Nasdaq and AWS Partner to Transform Capital Markets, Nasdaq (Nov. 30, 2021), https://www.nasdaq.com/press-release/nasdaq-and-aws-partner-to-transform-capital-markets-2021-12-01.

[18] Erik Feyen, Jon Frost, Leonardo Gambacorta, Harish Natarajan & Matthew Saal, Fintech And the Digital Transformation of Financial Services: Implications For Market Structure And Public Policy, BIS (July 2021), https://www.bis.org/publ/bppdf/bispap117.pdf. Third-Party Dependencies in Cloud Services: Considerations on Financial Stability Implications, FSB (Dec. 9, 2019), https://www.fsb.org/wp-content/uploads/P091219-2.pdf; Juan Carlos Crisanto, Johannes Ehrentraud, Marcos Fabian & Amlie Monteil, Big Tech InterdependenciesA Key Policy Blind Spot, BIS FSI Insights on Policy Implementation (July 2022), https://www.bis.org/fsi/publ/insights44.pdf.

[19] See, e.g., U.S. Dept of the Treasury, The Financial Services Sectors Adoption of Cloud Services, sec. 6 (Challenges with the Financial Sectors Use of Cloud Services) (Feb. 8, 2023), https://home.treasury.gov/system/files/136/Treasury-Cloud-Report.pdf.

[20] See id. sec. 6.46.5 (describing several challenges associated with greater cloud adoption by U.S. financial institutions, including risks related to concentration in the CSP market and resulting difficulties in contract negotiations).

[21] See, e.g., Kristin N. Johnson, Cyber Risks: Emerging Risk Management Concerns for Financial Institutions, 50 Ga. L. Rev. 132 (2015) (explaining that cybersecurity concerns are an ever-increasing threat, and concluding that enterprise risk management solutions focusing only on an individual firms cyber defenses may be inadequate to address concerns arising from reliance on third party service providers or resulting from the networking or interconnectedness created by transactional relationships); Kristin N. Johnson, Managing Cyber Risks, 50 Ga. L. Rev. 528 (2015) (emphasizing market participants adoption of the NIST cybersecurity framework).

[22] See generally, German Lopez, The Brilliance and Weirdness of ChatGPT (Dec. 8, 2022), https://www.nytimes.com/2022/12/05/technology/chatgpt-ai-twitter.html.

[23] E.g., Podcast, Deep Learning: The Future of the Market Manipulation Surveillance Program, FINRA (Jan. 25, 2022), https://www.finra.org/media-center/finra-unscripted/deep-learning-market-surveillance.

[24] Reva Schwartz, Apostol Vassilev, Kristen Greene, Lori Perine, Andrew Burt, & Patrick Hall, Towards a Standard for Identifying and Managing Bias in Artificial Intelligence, U.S. Dept. of Commerce National Institute of Standards and Technology (Mar. 2022), https://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.1270.pdf.

[25] E.g., Commissioner Kristin Johnson, Opening Remarks of Commissioner Kristin Johnson for the CFTC and OMWI Roundtable on Digital Assets and Financial Inclusion, CFTC Roundtable on Digital Assets and Financial Inclusion (Aug. 19, 2022), https://www.cftc.gov/PressRoom/SpeechesTestimony/opajohnson1.

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Opening Remarks of Commissioner Kristin N. Johnson Before the ... - Commodity Futures Trading Commission

Benzinga - Are investors making too many assumptions about Bitcoin (CRYPTO: BTC)? JPMorgan Chase & Co (NYSE: JPM) CEO Jamie Dimon is bullish on blockchain technology, but Bitcoin is another story.

"How do you know it's going to stop at 21 million? ... maybe it's going to get to 21 million and Satoshi's picture is going to come up and laugh at you all," Dimon said during a Jan. 19 appearance on CNBC's "Squawk Box."

What To Know: Satoshi Nakamoto is a presumed pseudonymous person responsible for the creation of Bitcoin. Many argue that Bitcoin holds value because of its scarcity, given the maximum number of coins that can be mined is capped at 21 million, according to Bitcoin's source code.

Related Link: Satoshi Nakamoto's Last Messages Before Disappearing, The Odds Of $250K BTC In 2023

Dimon reminded listeners that no one really knows what will happen, but he has strong opinions on the world's oldest and most valuable cryptocurrency.

"Bitcoin itself is a hyped-up fraud, a pet rock," Dimon said.

"I think all of that has been a waste of time and why you guys waste any breath on it is totally beyond me," he told CNBC during an interview at the World Economic Forum.

Blockchain, on the other hand, is a technology leger system and it's much different than cryptocurrency tokens, he said, adding JPMorgan uses blockchain technology to move information and money around.

The rest is more of a "decentralized Ponzi scheme," Dimon said.

"I don't care about Bitcoin, so we should just drop the subject."

It may take a while to find out if Dimon is right in his thinking. Bitcoin isn't expected to reach the 21-million mark until 2040.

Check This Out: If You Invested $1,000 In Bitcoin When Tesla Bought The Crypto, Here's How Much You'd Have Now

Originally published on Jan. 19, 2022.

Photo: Tumisu from Pixabay.

2023 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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Jamie Dimon Is Bullish On Blockchain, But Not Bitcoin Satoshi ... - Investing.com UK