The Financial Action Task Force (FATF) just made it harder to fund terrorists with cryptocurrencies – and made it safer for banks to trade them, changing the cryptocurrency business forever.
Roger Wilkins AO is a former president of the FATF.
Senior Policy Analyst at the FATF, Tom Neylan, worked with a team to develop recommendations (here’s a PDF of the full recommendation) that will make cryptocurrencies safer to exchange.
Facebook’s Libra could be the most important cryptocurrency ever. Is Libra the real deal – and what does it mean for the future of money? We ask crypto expert Samuel Brooks of Block.8 what Libra means – and how it might be used.
Three things happened in the space of twelve days that pretty much changed everything about cryptocurrencies.
What you need to know: Cryptocurrencies are going legit, and they’re integrating into the financial system.
How can we tell? Let’s examine the events of the twelve days from 18-29 June:
ONE: Facebook’s Libra cryptocurrency
Facebook released details of it’s new Libra cryptocurrency on 18 June.
Libra has been examined in some detail already — perhaps the most interesting point to note is that every central banker of consequence has made a statement about Libra. Why? Because it is the first cryptocurrency that has the scale to be competitive (potentially) with central bank-issued currencies.
Central bankers have never had competition before. They’ve never really had to be technological innovators (except to keep ahead of counterfeiting) and they’ve never been truly comfortable with cryptocurrencies like Bitcoin – because of their deflationary design.
Libra is probably the beginning of a process that will see state-backed ‘digital currencies’ enter the market over the next several years.
Sweden’s e-Kronor is furthest along – because Sweden wants to move to a cashless economy https://www.riksbank.se/en-gb/payments–cash/e-krona/
TWO: The Financial Activities Task Force Guidance on Cryptocurrencies
Almost no one has heard of the FATF. They’re an international body that makes ‘recommendations’ to national governments that inevitably become enshrined in law, because FATF recommendations are aimed at preventing money laundering and the funding of terrorist activities through the formal banking system.
On 21 June, FATF issued new rules for cryptocurrency exchanges – where you convert your Bitcoins into dollars and vice versa – that require them to comply with the ‘travel rule’ – which means the exchanges have to do just what the banks do – make sure you’re not sending funds to a terrorist or terrorist organisation, or a state that’s been sanctioned (Iran, North Korea).
The exchanges have hitherto operated in a largely regulation-free environment. That’s been fun for them, but also made them radioactive to the formal financial system. A bank can’t work with an exchange because it can’t ever know whether it’s facilitating money laundering by doing so. This new FATF recommendation means that exchanges and banks will be able to work together, and banks will be able to offer their customers cryptocurrency services and exchanges.
THREE: The V20 Summit
The V20 summit (disclosure: I served as Summit Chair) was called almost as an ‘emergency’ meeting for the exchanges, so they could work together to map out how they would comply with these new FATF recommendations. It means exchanges (or ‘VASPs’, Virtual Asset Service Providers, in FATF lingo) have a need to work together on common standards on how they can share the data required by the ‘travel rule’ – for example, common formats for sender and beneficiary details, or how you can tell whether another VASP is authentic, etc…
That level of cooperation and compliance has never been needed before, so at V20 the VASPs mapped out their first steps toward a system that looks a bit like SWIFT – which is how banks manage relationships with thousands of other banks internationally – but designed specifically for VASPs and cryptocurrencies.
It’s early days, but if this succeeds (failure means that the exchanges are all driven out of business by the regulators, based on FATF guidance, so that’s not really an option) then we’re seeing the birth of a big and brand-new part of the global financial system.
That’s why V20 was compared to the Bretton Woods summit that created the modern financial system:
In this new system, the leading participant is likely to be Facebook’s Libra. Quickly followed by digital dollars, Yuan, Yen, Euros, and so forth…
A world almost inconceivable just a fortnight ago has become the next stage in our global financial future. Twelve days that truly shook the world.
Good morning, ladies and gentlemen.
To set the scene for us today, I’d like to take us back 25 years.
The end of May, 1994. Geneva.
Another smallish gathering of experts.
Working on another problem.
A quarter of a century of work on computer hypertext systems had created a fragmented landscape of commercial products that had all failed to gain traction.
But a new technology had come along. One that could fix all of that.
Known as the World Wide Web.
The Web was open to all, free to all, useful to all – and still needed some basic agreements on how page layout should work, how to display images, and a hundred other points that we never even consider today.
Because they got sorted out at that gathering.
I know this because I was one of the experts at that meeting, invited by Tim Berners-Lee, father of the Web, to drive standardisation of the display of three-dimensional images inside the Web browser.
I did that work – it’s known as VRML – with two collaborators: Tony Parisi, and Gavin Bell.
You’ve probably not ever heard either of those names before.
But that’s not exactly true.
Gavin Bell changed his last name a decade ago. An unusual thing for a man, but it does happen.
He’s known today as Gavin Andresen.
For a long time, Gavin was chief scientist of the Bitcoin Foundation.
It was a good role for him, because he’s always understood the need for standards, solutions – and consensus.
He’s always understood the need to design for the future.
When we reconnected a few years back, I asked him what he spent most of his time working on at the Foundation.
He said, “Quantum cryptography. And what happens to the blockchain once you can factor large numbers quickly.”
Esoteric, to the layperson.
But to someone who understands how cryptocurrencies work, absolutely vital.
A problem worth solving.
Gavin had his eyes on the future.
That future is our focus today.
Now here’s the truth — whenever you come upon an undiscovered frontier, first you send out the explorers.
They don’t know what they don’t know. They learn a few things, and use that to send out the scouts.
The scouts map the terrain. But they don’t linger.
Then come the pioneers.
It’s often said that pioneers can be identified by the arrows in their backs.
But pioneers also get to live by their own lights – and their own wits.
There are no rules, other than the ones they make for themselves.
That gives every pioneering frontier an anarchic feel.
A ‘Wild West’.
But those halcyon days don’t last forever.
Pioneers are eventually overrun by settlers.
Settlers need infrastructure.
And they need security. Stability. Safety.
They need rules.
They need laws.
They need all the perks of civilisation.
And that pretty much sums up where we are today.
Almost everyone in this room is a pioneer.
You have the arrows to show for it.
And the settlers are all queued up.
Ready to stake their claims.
That’s going to change the landscape.
Cryptocurrencies have changed the world. They’re the most significant financial innovation of the 21st century.
We’re finding a growing number of uses for them.
As they become more useful, they become more attractive to the highly regulated formal financial system.
So we’re here, in this room, today, to bring a little order to the chaos.
And lay down a welcome mat for the settlers.
But first we have to come to an agreement about what that means.
And that’s why we’re here.
This V20 summit has one goal — to provide a clear roadmap toward full compliance with the new recommendations of the Financial Action Task Force.
That will happen across three workshops.
These workshops are the reason we’re all here.
We have to come out of these workshops with consensus on how to address the FATF recommendations, technically and procedurally.
Now people hear consensus and they think ‘unanimity’.
It’s not. Not anything like that.
Consensus means that it’s ‘good enough’ — that no one is willing to throw their body in front of a proposal in order to stop it.
No one has to love it. Or even like it.
It just has to get the job done.
And if we do it right – what happens here will have a lasting impact not just on the world of cryptocurrencies, but the entire world of finance.
Between the announcement of the V20 summit and this morning’s commencement, the entire cryptocurrency landscape has undergone a fundamental shift, because of Facebook’s Project Libra.
Nearly every Central Banker of consequence has an opinion on Libra – but whether they like it or not, all have stressed that Libra must comply with all relevant KYC and AML regulations.
And that just happens to be our job here.
What we’re doing – like it or not – is too important to fail.
Let me conclude with another story from that first Web conference, 25 years ago.
Tim Berners-Lee opened the the event – then immediately handed the podium over to Dr. David Chaum.
Dr. Chaum is one of the fathers of cryptocurrency.
Before Bitcoin, there was Digicash, created by Dr. Chaum.
Money designed for the Web when the Web was still very young.
The very first public demonstration of the very first digital currency was the very first keynote at the very first conference on the Web.
The connections between digital currencies and the Web, they go all the way back to the beginning.
With V20, it’s now our turn to honor that tradition – and take it forward.
So let’s get to work.
Mark Jeffrey and Rob Tercek join Mark to discuss the JPMCoin, Facebook’s crypto play, the collapse of QuadrigaCX – and are 95% of Bitcoins trades bogus?
Topics: JPMorgan Coin; Facebook might earn $20B from Crypto; Jack Dorsey dedicates efforts to open-source crypto development; report submitted to SEC on fraudulent Bitcoin trading; Ethereum Classic suffers a 51% attack; the QuadrigaCX drama – and more!
The awesome Mark Jeffrey has a new series – “Crypto Explained Simply” that’s designed to teach you all about cryptocurrency:
Cryptocurrency pioneer Mark Jeffrey & “Vaporised” author Robert Tercek on the ICO collapse, Facebook’s and Sweden’s cryptocurrency, plus more!
We conclude series one with a panel — four innovators discuss the incredible innovations flowing from Satoshi Nakamoto’s first white paper on Bitcoin, published ten years ago.
Our fantastic panelists:
Plus our wonderful ‘drop-in guests’: Joe Lubin, Ron Tucker, Sheffield Clark, Mark Jeffrey, Hugo O’Connor and Chami Akmeemana.
And here’s the original Bitcoin white paper, from 31 October 2008:
After a great conversation, we lit candles on a birthday cake — for Bitcoin!
This amazing event wouldn’t have been possible without heaps of assistance from Stone and Chalk (Laura Rowan, Olga Link & Annie Le Cavalier) and the Spark Festival – many thanks for their support.
This brings series one of CRYPTONOMICS to a close, and I won’t say producer Alex Mitchell and I are celebrating the successful conclusion of the production, but…
A live-to-audience interview with Joe Lubin, co-creator of Ethereum, and ‘godfather’ of the smart contract, tracing an arc from his college days at Princeton to founding ‘blockchain venture studio’ ConsenSys.
As Joe makes clear in our conversation, Ethereum is a process – not yet a product. Here’s the roadmap for Ethereum 2.0, which takes a lot of what’s been learned since the network went live in 2016 — and tries to fix its shortcomings.
Here’s a great interview with Vitalik Buterin – the other half of Ethereum’s founding team (Joe spreads the credit around more widely) about cryptoeconomics and more.
The “live” version of the Ethereum white paper, maintained on the Ethereum website – it’s an interesting read. Particularly when you remember that it was drafted by someone who was only eighteen years old at the time.
Fanatical belief in cryptocurrencies lead to the perfect becoming the enemy of the good. Michel Bauwens takes us on a tour of what’s good.
Rob Tercek sat through a day of rally-style promotion of cryptocurrencies in Puerto Rico in February 2018 – and came away with a few questions. Here’s Max Keyser’s talk at that event, which Rob found particularly disturbing:
Michel Bauwens’ P2P Foundation has been working to promote social uses of blockchain technologies.
Here’s a P2P Foundation post about “10 blockchain projects to keep an eye on“, including: The Possible Project and ShareRing. (ShareRing is Australian, so we do our best to have them on CRYPTONOMICS in our next series!)
The Bill & Melinda Gates Foundation’s Level One Project promises to bring cryptocurrency and smartphone-based trading to the developing world.
Finally, the Regen Network, which sees in itself a complete rewriting of how we account for value in civilisation.
ICOs are risky investments – CRYPTONOMICS looks at how their pitches play on our wishes for a better world, to get us to part with our cash.
We heard about the Great Keppel Island ICO, and here’s the original press release I received on the 4th of September, 2018:
The Crypto Challenge Forum promises:
Blockchain and the Future of Humanity:
Economy. Environment. Ethics
Then we took a look at the white paper’s for two ICO’s we discussed back in Episode 4:
PowerLedger’s POWR token white paper: Power-Ledger-Whitepaper-v3
The Guardian Circle GUARDIUM token white paper: guardium_whitepaper_en-1.0.3
And if you want to have a peek at the Mark Pesce Token, go here…
Businesses risk big losses accepting cryptocurrency payments. Do we need a ‘stablecoin’ that holds its value – or government ‘fedcoins’?
Havven is an Australian startup creating a ‘stablecoin’ on the back of a very well-subscribed ICO, raising USD $30,000,000 (closer to AUD $40M). Those funds serve as the surety so that their currency can be exchanged dollar-for-dollar with USD.
We spoke to Havven founder Kain Warwick about what it takes to create a stablecoin – and why people might want to use one.
Tether is the most well-known stablecoin. But it’s been devilishly hard to find an auditor willing to say Tether has an adequate store of USD:
Ecuador had a wild ride into and then out of a ‘fedcoin’:
But will stablecoins really work? MIT Tech Review says ‘um…’
Imagine a company with no employees, no managers, no board of directors. Imagine a company that ran as a piece of software guaranteeing a democracy of shareholders.
Distributed Autonomous Organsation, or DAO, promised this to its investors:
It didn’t quite go as planned.
We’ve invented ‘sandboxing‘ – your smartphone apps can’t steal data from one another, nor can the websites you visit.
Enabling ‘smart money’ – money that can think for itself – Ethereum has proven among the most useful of all coins – and as a result is now worth more than any cryptocurrency other than Bitcoin.
EtherScripter is an amazing tool that lets you drag-and-drop the design of smart contracts. It draws heavily from the SCRATCH programming language used to teach children as young as 6 years old the essential skills of programming. So EtherScripter is easy to understand – and fun.
Here’s a simple EtherScripter smart contract that performs a coin flip:
Get your hands dirty with EtherScripter here!
As we learned in our interview with CryptoFlip‘s Max Kenny, there’s a lot more to doing a coin flip well – that is, with truly random results.
The DAO failed because of bugs – and hubris. Smart contract pioneers wanted to run before they’d learned to walk.
This WIRED article explores the failure of the DAO in detail.
What gives a coin its value? Gold is rare (as is Bitcoin), but most coins are plentiful. So we need to ask another question – is a coin useful?
The utility of a coin can be determined by observing how it’s been designed to be used – and comparing that against how people actually use it.
Bitcoin was originally meant to facilitate peer-to-peer cash transactions on the Internet, but because of its long settlement times (in the tens of minutes) and high fees, it’s rarely appropriate. Instead, Bitcoin’s utility comes from its store of value.
But there are other coins:
In 2015, Ethereum came along – more about that in episode 5 – and the number of ‘initial coin offerings’ exploded, generating well over twenty billion dollars (USD) in sales:
PowerLedger provides a blockchain-based accounting mechanism allowing individuals generating energy at home – via renewables such as solar and wind – to sell that energy to their neighbors, with real-time payments.
Dr. Jemma Green joined us to discuss the utility of the POWR token – created to act as a ‘bond’ against settlement of electricity bills – but with much broader applications.
Dr. Green described a system of POWR tokens and another token – SPARKS – used together to facilitate payments:
The POWR token sale raised $34,000,000 in investment for PowerLedger.
According to Mark Jeffrey, the real value of any coin can be surmised by its usefulness – and he suggests we head over to Block’tivity to see the real-time chart of the most useful coins.
Here’s a snapshot from 25 August 2018:
Mark Jeffrey also took us through the tokenomics of Guardian Circle, his ‘decentralised 9-1-1’ application that aims to bring emergency services to billions in the developing world. It uses a ‘Guardium‘ token to incentivise first responders. (Disclaimer: I am both an adviser to Guardian Circle and am a Guardium token holder in recognition of my services as an adviser. This is not investment advice.)
Agricultural settlements are a long-term problem for agribusiness.
The farmer is always taking on all of the ‘counterparty risk‘ – the chance that the buyer won’t or can’t pay.
AgriDigital created a blockchain for agricultural settlements – ensuring farmers get paid for their crop as soon as it get sold – and not six months later.
Arianee is creating an asset registry for luxury items – very similar to the blockchain application described in the middle of the episode. Here’s a short video about what they’re up to:
In 2015, IBM and Samsung jointly announced their ADEPT initiative – to bring blockchain security to all of the connected devices in our world.
Here’s IBM’s whitepaper describing their goals for ADEPT – which could bring blockchain to almost all connected devices, numbering in the tens of billions:
The University of Melbourne has tested a blockchain-based solution to provide access to verifiable academic credentials. Graduates can expect a system like this to be in common use within the next few years.