Mizuho Bank, Japan’s second largest financial institution, is readying the infrastructure for a stablecoin launch in March 2019, as reported by Asia Nikkei Review. The coin is aimed at increasing low-cost cross-border transfers and remittances.
Moving towards Crypto-Finance
Mizuho plans to promote cashless payments in Japan by deploying its offering across retail stores for feeless-transactions, unlike traditional credit cards. In addition, all remittances will be conducted via the unnamed coin for zero charges. The firm is reportedly in discussion with over 60 regional banks to support liquidity for the stablecoin.
Initially termed the “J-Coin” project, the Mizuho effort was started in 2017 by group chairman Yasuhiro Sato in partnership with two Japanese “megabanks,” regional banks, and Japan Post Bank. If all goes according to plan, the project shall mark the first instance of a stablecoin used by financial corporations, banks, and retail shops.
Use of the price-stable cryptocurrency is envisioned to mirror cashless payment systems in China, which are among the most sophisticated in the world and harbored on the likes of AliPay and WePay. Currently, Japan remains a cash-based economy but looks to augment cashless transfers ahead of the 2020 Tokyo Olympics. The country has even introduced tax breaks and subsidies to encourage businesses to offer online payment alternatives at retail stores.
“Megabanks” in Japan both Agree and Differ
Payments will be possible via a simple QR code placed at vendor outlets and accessible through a dedicated phone application that supports the Mizuho stablecoin. The coin’s value will be pegged on a 1-to-1 basis with the Japanese Yen, which currently trades at JPY 110.31 against the U.S. dollar.
Meanwhile, Japan’s “megabanks” are beginning to get actively involved in cryptocurrency projects. Apart from Mizuho, the Mitsubishi UFJ Financial Group launched its stablecoin, the MUFG coin, in April 2018, and plans a nationwide rollout by 2020
As per reports, banks are also considering installing unified QR codes in retail outlets to bolster adoption, meaning a one-size-fits-all approach to lower the barriers for entry for shop owners. However, while MUFG agrees to the architecture, it differs both in the technical and fundamental aspects—mainly that of aligning with a competitor and combining its stablecoin with Mizuho’s coin.
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The fintech and crypto leader for Asia at PricewaterhouseCoopers says, “There are a lot of exciting things that the crypto ecosystem is looking forward to in 2019.”
Henri Arslanian, the crypto lead for Asia at PwC, the world’s second largest professional services network, with roughly 22% of its workforce in Asia, leads the company’s crypto efforts in the region and advises crypto exchanges, crypto funds and ICOs, as well as traditional financial institutions and regulators in relation to their crypto initiatives.
Moving into 2019, Arslanian says the crypto markets have cleared out the noise in the sector, paving the way for the entry of institutional players, whom he says are key for the struggling crypto economy.
The influx, he says, will come in different forms. Key players, such as Fidelity, will launch their own solutions and institutions will partner with crypto companies, as Nomura did with Ledger. Some will also opt to invest sizable amounts of capital into crypto-related companies, as Goldman Sachs did with BitGo.
The institutional entry is expected to go hand-in-hand with a critical development in the sector: regulatory clarity.
“If you look at 2018, a number of jurisdictions provided more regulatory clarity than we had before. Countries from Hong Kong to Switzerland from Gibraltar to Malta. And I expect many of those to take place as well in 2019, and that will give more comfort to some of these – not only institutional investors – but institutional players as well.”
Regularly named one of the most influential individuals in fintech in Asia, Arslanian is also the chairman of the FinTech Association of Hong Kong.
He points to the rise of stablecoins and security tokens backed by real, live assets as a rising sector in 2019.
“For example, real estate. In those areas it allows us to bring liquidity in a space where, especially for large real estate projects, there’s not that much liquidity. But also, it allows us to streamline a lot of the corporate action and dividends, and that is actually very exciting and should help the broader sector.”
As the 5th-largest privately owned company in the US, PwC’s reach extends into 158 countries with 743 locations. The company offers accounting and professional services to 422 out of 500 Fortune 500 companies, plus 100,000 entrepreneurial and private businesses.
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DiamCoin, not to be confused with Diamco.in, a similar token by different folks, is intended to be a version of a stablecoin that is pegged to the value of a diamond. Each token will be pegged to the value of a millicarat of a diamond. So a thousand tokens equals 1 carat of diamond, and 14,000 tokens would presumably equal a 14-carat diamond. It’s not a stablecoin in the sense that you put a certain value in and get that same value out, although you are free to cash out in diamonds themselves.
Hello Diamonds has been serving the diamond industry for a few years with software solutions. This is their first move into blockchain. Their founders, based in Cyprus, had previously created a company called Hello Football, which helps use real-time fan data to place a value on soccer players.
“With the help of computational linguistics and in-house algorithms, we are able to process and understand any set of data including natural language resources found online. We at Hello Football strongly believe that the football industry as a whole is ripe for a revolution. As price discovery specialists, we are introducing a new way of perfecting the real-time valuation of football players.”
Like the majority of token developers, Hello Diamonds were first looking to build on Ethereum. They even finished a token that was scheduled to go live in the coming months, but they’ve realized that Ethereum may not be the best option anymore.
The recent introduction of Wormhole, a smart contract platform which runs on Bitcoin Cash, pushed them to switch their operation over to BCH, effectively making them the first project representing a stablecoin at all on Bitcoin Cash, and one of the earliest tokens to launch on Wormhole, with a projected launch of early next year at the latest.
The reasons for the switch are obvious to informed parties at this point: fast and spacious blocks, low transaction fees, and high security.
The concept of tokens backed by physical assets stored somewhere is still relatively untested in full. It’s even more exploratory than the idea of USDT, which supposes that the user should trust the bank account of Tether, and the same goes for other stablecoins as well.
In their favor, though, is the fact that Hello Diamonds has tapped a Nobel-prize winning economist, Sir Christopher Pissarides, who has helped design the system and advise it. The tokens will apparently be tradeable assets, meaning that regular crypto users will have opportunities to arbitrage their way into owning diamond assets. According to a video on the company’s site, DiamCoin will offer an important hedge against a full-scale collapse of the crypto market.
“Should the case be that all cryptocurrencies disappear, your DiamCoin will never be lost. It will still hold the value of the physical diamond, which was in a vault when the purchase was made.”
They have yet to release a whitepaper which further explains the specs and details of the system, but this reporter has learned that they are actively working with developers from Bitcoin.com to hasten the development of their software.
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All the talk about stablecoins has people re-examining the actual value of crypto tokens and the associated markets. The discussion is particularly relevant during a bear assault on the whole crypto market, like the one we’re seeing now. Frequent Bitcoin commentator and Cornell professor Emin Gün Sirer believes there is a distinct difference between a coin that is pegged to a fiat currency and a coin that is “stable.” In a recent tweet, he noted that MakerDAO should be considered “stable,” because it uses algorithmic methods of achieving a stable ratio, while USDC and Tether should be considered “pegged,” in that they use simple methods and the banking system to retain a 1:1 ratio with fiat currency.
Emin Gün Sirer
We need some nomenclature for “stablecoins.” Tether and MakerDAO are nothing alike.
*Peggedcoin*: A fiat-backed, fully-collateralized coin.
*Stablecoin*: A cryptoasset whose value is stabilized through algorithmic mechanisms
We spoke to Bill Ottman, founder and CEO of Minds.com, a next-generation social networking site which outfits users with an Ethereum wallet and whose network pays users in Minds tokens for activity on the site. A single whole Minds token is worth the equivalent of 1,000 guaranteed views on the site. Rather than using any form of traditional advertising or tracking, Minds sells the tokens as well as issues them for user activity. On the subject of what a stablecoin is, Ottman spoke to the real-world value of the Minds token.
“A newsfeed impression is stable. The value changes according to different variables about the nature of that impression, but just raw chronological impressions – someone scrolling by it in their newsfeed, that is a thing. So that is a real-world value. It’s actually even arguably more stable than a dollar amount.”
Advertising budgets exist for a reason, and advertising remains the primary tool through which online content is funded. The growing network of more than 1 million users, many of whom veer toward the tech-savvy and crypto educated, represents a valuable market in which to advertise. According to Ottman, a single token currently costs around 15 cents, meaning that advertisers can squeeze a lot of impressions and potentially sales and/or interest with a relatively small budget.
The boost system works similarly to the one on other networks like Facebook: the advertiser or user creates a piece of content and then pays in tokens to boost it for a certain number of impressions. At the same time, Minds.com does not participate in direct censorship of content — although sensitive content can be labeled as such — or charge content creators for access to their audience. The ability to grow an organic following on Minds, of verifiably real people, is significantly enhanced over the current reality at Facebook, where paid-for posts are given priority, and content that users are subscribed to is not readily apparent in subscription feeds.
The Minds token — an ERC-20 token that runs on the Ethereum network — is pegged to the value of 1,000 impressions, and it is unique in this way. It always has a redemption value of 1,000 views on the Minds network, regardless of the future cost of a token. As the network grows and a wider variety of users gets on board, the real-world value of the token may increase in terms of fiat cost as well as actual conversion rates of content which is boosted. Ottman says that in the near future users will be able to opt-in to targeted advertising, which will certainly increase the potential of conversions on the platform. This is diametrically opposed to the model of Facebook, which harvests users data, interests, photos, and so forth and sells the information to advertisers wholesale, giving them access to users. Instead, users who are actively incentivized to be on the site are offered the ability to see things which may be of interest to them.
Ottman believes that the Minds token can be classified as a “semi-stablecoin,” in that you get out at least what you expect when you put value in. Having recently completed a funding round, Minds intends to continue to build its platform and work on expanding its network. It has a vibrant referral program, wherein users who get their friends to make the jump are rewarded with boost tokens, and a steadily growing user count. Its commitment to anti-censorship has meant that certain communities have gravitated faster than others, but ultimately the platform itself is intended to be neutral.
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The most commonly known stablecoin is Tether. It is a cryptocurrency that buys one American Dollar from the market before issuing one tether. This means that when one American Dollar leaves active circulation, one Tether enters active circulation. Thus, the price of Tether has stayed stable over the years. A swing of fewer than 10 cents is unheard of in the crypto world. Except, in cases of stablecoins such as Tether (TICKR: USDT)
Tether just took a 4% tumble which means that it lost its peg despite having USD in the bank to back its token.
A Brief History of Money
In a ridiculously short paraphrasing, money usually came in two variants:
The ones with intrinsic value (such as Gold), and;
The ones with extrinsic value (such as FIAT)
Each had its pros and cons but it became generally accepted that the usage of money that has extrinsic value gain currency when the stability of the governments (the issuing authorities) increases. Conversely, as the war clouds begin to loom and political crises come into play, the price of Gold shoots up due to increased demand by people who want to get rid of their FIAT and buy Gold instead.
A Brief History of Cryptocurrencies
The regular back and forth between intrinsically valuable currencies and extrinsically valuable currencies gave an opportunity to the powerful. They could stir war-like situations and political stability to keep the cycle going and make profits. The Housing crisis of 2007 caused a sharp decline in the price of the American Dollar and a steep rise in the price of commodities.
Bitcoin, the first cryptocurrency came into being at this time, and analysts rushed to classify it as one of the two types of currencies:
Some called it an intrinsically valuable currency because:
It had a limited supply.
Its value was determined by its demand.
While others called it an extrinsically valuable currency because:
It was fungible.
It was intangible.
While some people stood by the its-not-a-bug-its-a-feature argument, others saw its volatility as a cautionary tale. This brought several people to the same conclusion that their grandfathers arrived at during the inflationary years following World War II. They pegged the cryptocurrency to the stablest known currency of the time in a bid to stop the inflation.
The Arrival of Stablecoins
It was only a matter of time for people to begin minting coins and pegging it to a FIAT currency. Some even tried to peg it to commodities. It is flawed for the same reason that most Americans blame the Chinese for. A Dirty Float. During the Bretton Woods conference of 1944, the top economists of 44 countries arrived at the same conclusion. Maybe, a fixed-exchange-rate system could bring the world’s economic state to behave.
Less than 30 years later, the Americans had to move away from the fixed-exchange-rate system to a partially free float. It is partially free because all governments buy and sell their own currencies and foreign reserves in the open market.
Before we get into the technical issues with stablecoins, let’s address the human element first.
Agencies manipulate the Stablecoin
Tether, the world’s largest stablecoin by market share was accused of creating new USDT without buying an equal number of American Dollars. This is an audit problem. For as long as there is a central authority, the element of human error/malice will remain.
Velocity is the rate at which a currency changes hands. If the velocity is too high or too low, the price will fall. Stablecoins remove a currency or commodity from circulation and create artificial scarcity. Technically, the scarcity should not exist because of the 1:1 exchange rate. Practically though, no jurisdiction will agree to accept a cryptocurrency issued by a non-governmental body and will demand USD instead.
So, while a 1:1 exchange rate should lead to an increase in the value of the stablecoin, it causes a slight fall in prices due to deflated demand.
Stablecoins are not Decentralized
The stablecoins have issuers to create the token. This is not decentralization. Unless you, I, and everybody else have equal opportunity to create the same stablecoin, like the activity of mining bitcoin, there is no decentralization. Centralized stablecoins are similar to the big banks that were “Too Big to Fail” until they failed.
Stablecoins are Inflationary
The issue of 1 stablecoin to and the removal of 1 FIAT from the economy is inflationary. The exchange of 1 stablecoin for 1 FIAT does not create an economic activity. This makes stablecoins inflationary. Since the FIAT removed from the ecosystem is not destroyed/burned, it is a part of the ecosystem. Issuers can keep this FIAT in banks which loans it out to the public and the locked FIAT increases supply and causes inflation.
Stablecoins Decrease the Tax Base
If you make a profit by trading cryptocurrencies you must pay your taxes on the profits. But, if a trader buys stablecoins during bear market runs, he/she can keep their crypto-profits off the books. Thus, the number of taxpayers and the amount of tax collected decreases. Without taxes, the governments cannot function and will break down. This is different from Zimbabwe and Venezuela. In those countries the government is intact but their economy has fallen. With no government will come anarchy, not laissez-faire.
The Alternative – Asset-Backed Tokens
Also known as Security Tokens, these crypto tokens have a better chance to dodge the problems associated with stablecoins. They are backed by an underlying asset which can be company equities, real estate, or, the world’s favorite asset for over 2000 years – Gold.
Due to their intrinsic value, assets have greater price stability but a lower liquidity. Asset-backed tokens, on the other hand, bring liquidity to the assets without affecting the price stability. If you think about it, this is what happened during the early days of IPOs (Initial Public Offerings). If you owned a big company, you could not sell it. But, if you could divide the company ownership into smaller pieces, you could sell parts of it. That was the birth of equities.
However, equities are highly regulated entities and it is hard to purchase equities in multiple companies based in multiple jurisdictions. At least, for the smaller investor. This is where security tokens come into play. With a standard KYC process and PEP, AML checks, you can purchase equities of companies based in different jurisdictions.
While the standardization of KYC might be a few months/years away, the initial foray can be led by jurisdiction-agnostic assets such as gold which have more palatability. According to the Founder of Aurus, Stefan Gergely,
“Overall liquidity will increase; price will probably stabilize even more. I even expect there to be a long-term, heavy impact such as reducing the potential energy of a financial crisis since people now have a viable alternative to their own currency”.
Crypto-tokens as software layers t0 ensure the fairness of the whole system to via smart contracts is what will bring more acceptance to asset-backed tokens. Offering complex financial products to a people that are still trying to wrap their heads around digital wallet and cryptocurrencies is a hard-sell.
There are other unresolved issues as well such as bounty programs which basically give people free money which is never valued. If I get 10,000 ABC tokens (a fictional token) which I can convert to even 1 ETH, I will not value that 1ETH because I did not work for it. ICOs, on an average, give out 2-5% of their total token supply as bounties and airdrops. This is also a reason for the fall in the price of ETH.
It does not end here, the whacky economics have a dissuasive effect on the investors which was summed up by, Simon Owen, the in-house counsel for Aurus:
I’ve never been a huge fan of bounty campaigns. I understand why many token offerings do them but it seems to me more like a weakness. Here’s how I see things:
Most tokens, even the infamous utility tokens (which I’ve always stood quite firmly against) act in certain ways like securities or shares: their value is supposed to go up, proportionate to the success of the underlying project.
If you own a particular token before your friends or network, you have a vested interest in them getting it anyway, be it because you believe in the project and want to see your friends profit alongside you, be it to hedge certain potential risks.
Regardless, there is an incentive for you to encourage others to buy the token. Any incentive created by the company on top of this has, in my point of view, higher chances of scaring away investors who actually know how to judge the value of a project.
The Way Ahead
Even though the top 100 bitcoin wallets hold a vast majority of the bitcoins, the community believes in them because bitcoin is decentralized. Bitcoin is a parallel currency. Bitcoin is not affected by the price of the FIAT currencies. The recent downturn of the crypto-markets has taken us back to 1944. The top economists are contemplating stablecoins as a solution to help us sail through these tumultuous times. Fixed-exchange-rate systems led to an economic depression almost 50 years ago. Stablecoins, if left unchecked will make history repeat and kill the decentralization movement as we know it.
In sum, people think that the march from centralization to decentralization is linear. History teaches us that it is circular. The road back towards centralization goes through stablecoins. The stablecoins are not a bridge, they are a flight of Penrose stairs.
Internet giant Google made an ad for its new service, the call screen, and promptly took a swing at crypto. Now, the community is torn between whether this mention is good or bad for the industry as a whole.
The woman in the video tells the man that the electric company is calling, “they say that your bill is super high.” He replies, “Right, well, cryptocurrency mining takes a lot of energy.” And she follows up with, “Cryptocurrency – that money’s not real.” After the man replies that “money isn’t real”, the woman asks whether he’s going to “live that lie”.
Listen by yourself:
One part of the community is firmly in the “all publicity is good publicity” ring. The main takeaway for them is that this ad shows cryptocurrency cannot be ignored anymore. In a way, it shows that Google recognizes that most of their viewers will recognize the terms “cryptocurrency mining” without additional explanation, and tries to be relatable with the debate of whether cryptocurrency is real money or not.
Perhaps expectedly, the bigger group consists of those saying Google is opposed to crypto. Earlier this year, Google banned cryptocurrency ads in an attempt to weed out potential scams and misleading services. Now, Reddit user u/jam-hay points out, “Bitcoin was one of the most searched terms last year and Google opted to leave it out of their end of year video.” User u/Hanspanzer didn’t waste their time mincing words: “[G]oogle is now officially on the hit list.”
However, in September, Google said it has once again opened up for ads with crypto-related content in the US and Japan, after placing a ban earlier this year. Meanwhile, in July, Google co-founder Sergey Brin expressed his interest in cryptocurrencies and blockchain. Google missed its chance to be a leader in blockchain, while he has been mining Ethereum and making “a few pennies and dollars since,” he said. Also in July, the most popular browser added new cryptos to its currency converter.
However, in the current discussion over the add there is a third group: those who think the video is actually funny. u/FudgieThaWhale doesn’t understand why everything has to be such a big deal, saying, “I’m still here after finding crypto [two and a half] years back and honestly it’s the people and the toxicity that put me off more than any of the projects or companies in the space.” Meanwhile, u/Arnoud1987000 says what we all believe: “Lol wtf, they bought the dip.” Well put, u/Arnoud1987000.
Whether this mention is good or bad is hard to tell by people, but looking at the market, the prices don’t seem to have moved too much since the video was published yesterday. Bitcoin – currently the butt of jokes in the community as the “new stablecoin” thanks to its pretty stable price lately – doesn’t seem to care whether it’s real money or not. As u/Kukri4321 puts it, “Uh huh, well one of my ‘not real’ coins is worth six and a half thousand of your ‘real’ coins.”
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The London Block Exchange has announced the launch of a GBP-pegged cryptocurrency stablecoin called LBXPeg. In a statement posted on its website, LBX revealed that the so-called “cryptopound” will be tied to the value of GBP held in an auditable U.K. bank account on a 1:1 basis.
“We will be ready for the first cryptopound to be minted in the next 10 days. The primary use case will be settlement for OTC trades in the London market, then commonwealth exchanges where they don’t have fiat banking, and then securities tokens who want to pay dividends in a cryptopound.”
Since opening in Nov. 2017, LBX has become one of the UK’s busiest crypto exchanges, and, like many other exchanges, it sees a significant value in the stablecoin concept. Taking the concept from a fresh angle designed to appeal to U.K.-based crypto traders, LBXPeg promises its users fully transparent auditing processes, management structure and distribution schedules, all of which have been major complaints about the stablecoin market lodestar tether (USDT).
According to LBX, the new “cryptopound” will enable seamless and fast transfer of GBP digital equivalent on a worldwide scale. In addition to just being a stablecoin, it also comes with built-in use cases such as company dividend distribution to shareholders via smart contracts using the Ethereum blockchain.
LBXPeg will initially run on Ethereum’s ERC-621 standard, which is an extension of the popular ERC-20standard. The company says that this will provide the necessary flexibility in total supply to match the GBP holdings kept in the segregated bank account. Eventually, the plan is to LBXPeg to be issued on other blockchains subject to compliance audits.
The company further revealed that following LBXPeg’s initial release, it will explore tying the stablecoin to other auditable accounts containing fiat currencies like EUR and USD, so as to improve the product’s scope and stability.
Of late, USDT has faced a growing number of challenges to its stablecoin market dominance. CCN reported recently that Goldman Sachs-backed Circle Financial announced the issue of USD Coin (USDC), a dollar-pegged stablecoin that took aim at tether’s perceived opacity and lack of accountability. Gemini, the cryptocurrency exchange owned by Cameron and Tyler Winklevoss, also recently announced the launch of the Gemini Dollar, which was billed as the world’s first fully-regulated stablecoin, operating under the oversight of the New York Department of Financial Services (NYDFS).
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Just like has already happened with the US Dollar and the Euro, among others, Australia is about to get its first Aussie-backed stablecoin.
This will be made possible by a partnership between Bit Trade, one of the oldest cryptocurrency exchanges in Australia, and blockchain employment platform, Emparta. The two firms will collaborate in designing and launching the stablecoin which is expected to be launched next year.
According to the managing director of Bit Trade, Jonathon Miller, the AUD-backed stablecoin will fill a gap that exists in the market as it will act as a buffer against the wild fluctuations associated with cryptocurrencies.
“Stablecoins solve one of the principal issues that may drive investors seeking steady returns and merchants that currently accept traditional currency away from digital currencies: volatility,” wrote Miller in a statement. “We believe that stablecoins will boost trust, accelerate wide-spread adoption, and could function as the backbone of blockchain-based financial applications, especially here in Australia given the favourable regulatory environment.”
The two firms are currently working on a prototype which will be completed in a period of a little over a month. Per Emparta, full redeemability on demand will be one of the key differences that will exist between the AUD-backed stable coin and the world’s best known stable coin, Tether. Emparta also revealed in a Medium blog post that the stablecoin’s initial treasury will be located in the continent-cum-country.
“The first treasury will be based in Australia to support the first partner platforms – Bit Trade and Emparta Payments – and deliver the first Australian Dollar backed stablecoin,” wrote Emparta.
The AUD-backed stablecoin comes less than a fortnight since Gemini, a cryptocurrency exchange started by the Winklevoss twins announced a USD-backed stablecoin. While making the announcement Gemini made it clear that it was aiming to supplant Tether by offering the very qualityTether has been accused of lacking – a ‘trusted and regulated digital representation of the U.S. dollar on the blockchain’.
However, stablecoins have not been greeted warmly in all quarters despite serving as a bridge between fiat currencies and cryptocurrencies. For instance, soon after the announcement by Gemini, Barry Eichengreen, a professor of economics at the University of California, Berkeley, questioned the viability of stablecoins.
According to Eichengreen, stablecoins which are fully collateralized involve a great deal of expense for the issuing firm since every unit of the stablecoin has to be backed by an equivalent of the asset that it’s pegged to. The semi-collateralized ones, on the other hand, are prone to the equivalent of a bank deposit run in the event of loss of faith and trust in the issuing institution.
Despite these arguments, it is highly unlikely that the AUD-backed stablecoin by Bit Trade and Emparta will be the last one the crypto world will ever hear of.
This post credited to ccn Featured image from Shutterstock.