Crypto Industry Report #39
Balzers (LI), 7 July 2020
This week, our blockchain experts assessed the following headlines:
Our weekly Crypto Industry Report news ticker provides you with the latest information on the global crypto industry – picked and analysed by our blockchain experts.
|
|
BIS announces four additional Innovation Hubs
The Bank for International Settlements (BIS) announced last week that additional Innovation Hubs will be launched within the next two years in Toronto, Stockholm, London and a joint centre in Paris and Frankfurt.
Moreover, these Innovation Hubs will collaborate with the US Federal Reserve in a strategic partnership. The current BIS Innovation Hubs are based in Switzerland, Singapore and Hong Kong.
Assessment
It seems that the BIS is selecting locations for the Innovation Hubs where the research related to CBDCs is advanced and also pioneer countries where the blockchain industry is well-accepted. The first three BIS Innovation Hubs were established in Switzerland, well-known for the Crypto Valley, and Singapore and Hong Kong, which were also among the pioneer countries related to blockchain and crypto-assets.
The new Innovation Hubs in London and Toronto will collaborate with the Bank of England and the Bank of Canada respectively. The joint location in Paris and Frankfurt will focus on collaborating with the European Central Bank (ECB). In addition, the Bank of France is among the pioneers in CBDC research and tests, therefore it seems likely that the Bank of France may also collaborate and support the Innovation Hub located in Paris.
In addition, the Innovation Hub in Stockholm will collaborate with the central banks of Sweden, Denmark, Norway and Iceland. However, it seems likely that the main collaboration of this location would be the Sveriges Riksbank in Sweden given its CBDC pilot program in partnership with Accenture.
The partnership with the US central bank is also significant given the role of the US Dollar as the world’s reserve currency. Moreover, several discussions are happening related to CBDCs and the digital dollar at the US Senate and the US Federal Reserve. The Digital Dollar Project seems to be accelerating the discussions related to CBDCs and the digital dollar.
The focus of central banks related to CBDCs is different depending on the priorities and use cases. For example, Sweden’s central bank is aiming to launch the e-krona for the general public. However, this is more complex and there is a larger number of risks compared to a CBDC only to be used within financial institutions for example.
Furthermore, certain central banks are testing and setting up pilot programs while other central banks are more focused on researching and identifying relevant use cases. The main risk identified seems to be the risk that central banks may compete with commercial banks and therefore this could introduce a monopoly risk. This may be a reason why the Digital Dollar Project seems to recommend that CBDCs should exist in parallel with the existing system, not replacing the role of commercial banks.
The Head of the BIS, Agustin Carstens, claimed that the Innovation Hubs are an important investment for the future of the global financial system and in particular the future of central banks. While the Innovation Hubs seem to be focused on several technologies, blockchain, CBDCs and crypto-assets seem to be a major part of the Innovation Hubs. Other topics that will be covered are related to cyber security, artificial intelligence or digital payments.
Back to top
|
|
US Senate held a hearing focused on CBDCs and the digital dollar
Last week, the US Senate Committee on Banking, Housing and Urban Affairs held a hearing that had a major focused on the digital dollar and the recent developments related to CBDCs in several central banks globally.
The former chairman of the US Commodity Futures Trading Commission (CFTC), J. Christopher Giancarlo, participated in the hearing.
Giancarlo is leading the Digital Dollar Project and he suggested that the US should develop the digital dollar before other countries such as China with the upcoming digital yuan.
Assessment
During the hearing, there was not a clear rejection of the idea of a digital dollar. This is positive and several advantages of the digital dollar, such as a more efficient way to send payments to citizens such as those needed during the Covid-19 pandemic, may have led to more acceptance to discuss the risks and advantages of a digital dollar at the US Senate.
Moreover, a digital dollar could also provide better accessibility and financial inclusion. However, while there is a certain interest, detailed research could be expected before any potential launch of a digital dollar. In particular, given the importance of the US Dollar for the global economy, the magnitude of the digital dollar project will be significant compared to other smaller countries launching a CBDC.
During the hearing discussions, it seems that the importance of launching the digital dollar is not due to a clear need such as in Sweden with the accelerating reduction of cash usage in the country. Instead, it was mentioned that since China is developing the digital yuan, bitcoin is gaining awareness and Libra may launch later this year, the US should lead regarding CBDCs rather than just follow the progress of other countries. Moreover, it was also suggested that the Covid-19 pandemic was a good moment to start the development of the digital dollar.
The Bank of Canada also mentioned recently that CBDCs should be as accessible as cash. Therefore, suggestions have been made to develop a low cost universal access device (UAD) that would be able to function in certain locations with no or bad quality internet connectivity and also during electricity outages. The UAD could be used also by those without internet connection or a smartphone. The UAD should be designed also to be able to receive energy from sources such as the sunlight. These suggestions are important since access of the whole population to a potential CBDC should be ensured.
An additional development in the US regarding crypto-assets is the announcement that lawyers in Washington DC can now accept fees in crypto, as long as they have certain blockchain knowledge and are able to store the received crypto-assets securely. Other areas of the US previously also allowed lawyers to receive fees in crypto such as North Carolina, Nebraska and New York.
Back to top
|
|
Dfinity announces the opening of the network for third-party developers ahead of the mainnet launch
It was announced last week by Dfinity the launch of its ‘Internet Computer’ through the Tungsten release. Following this launch, third-party developers will now be able to use the platform ahead of the mainnet launch expected in Q4 2020.
Dfinity’s Internet Computer is a decentralised network aimed for the next generation of applications and the idea is to reboot the current internet, which Dfinity claims that it is mainly controlled by large tech companies.
The goal is that developers will be able to add their code directly to the internet rather than building on top of certain APIs or through large cloud platforms from certain major tech companies.
Assessment
It was announced last week by Dfinity the launch of its ‘Internet Computer’ through the Tungsten release. Following this launch, third-party developers will now be able to use the platform ahead of the mainnet launch expected in Q4 2020. Dfinity’s Internet Computer is a decentralised network aimed for the next generation of applications and the idea is to reboot the current internet, which Dfinity claims that it is mainly controlled by large tech companies.
The goal is that developers will be able to add their code directly to the internet rather than building on top of certain APIs or through large cloud platforms from certain major tech companies.
Implications
It seems that the ambition of Dfinity is significant because the goal is to create a better and more decentralised internet. Dfinity claims that its platform could be an alternative to the existing internet infrastructure that seems to be monopolised by large tech companies.
However, given the magnitude of the project it might be likely that certain delays could happen if major obstacles or technical challenges are found during the implementation of their research and ideas. Dfinity has also created a programming language called Motoko that is optimised for their Internet Computer platform.
The project raised an important amount of funds from top VC investors and it is reportedly already running data centres in both Europe and the US. Therefore, it seems probable that the Internet Computer may be able to launch, even with a certain delay given the complexity and magnitude of the project.
Dfinity includes among its investors a16z and Polychain Capital. The total amount raised was close to $200 million and Dfinity offered the reportedly largest airdrop ever with CHF 35 million in 2018 to community members in the form of its DFN token. Apart from its presence in the US, Dfinity also has a major office in central Zurich.
During the CHF 35 million airdrop, community members went through a KYC and AML verification process. US citizens and residents were excluded from the airdrop due to uncertainty related to regulations. Given the magnitude of the project and the amount of funds raised, Dfinity could be seen as one of the major projects expected to launch in 2020, among others such as Polkadot or Ethereum 2.0.
Moreover, the large airdrop of CHF 35 million could support with the awareness of the project and it may accelerate its development. Once these new and advanced platforms launch, there could be also synergies among them that may together accelerate the growth of the Web 3.0.
Back to top
|
|
Ethereum’s Berlin hard fork delayed by developers due to risks related to the Geth client
Ethereum core developers decided last week to postpone the next hard fork called Berlin until at least August.
The reason for the delay is related to the Ethereum client Geth since almost 80% of the Ethereum nodes run on this client.
This concentration on the Geth client could lead to a freeze of the Ethereum network in case of a bug. Therefore, the goal of the delay is to allow other Ethereum clients to increase their share of the network.
Assessment
The Geth client represents around 79% of the Ethereum nodes, and this percentage has increased 5% since December 2019. This is significant since if there was a bug in the Geth client then Ethereum could be halted, and therefore all dApps running on the network. This seems to be a major risk and therefore it is reasonable trying to incentivise other clients to increase their share of the Ethereum network.
Since the full launch of Ethereum 2.0 is not likely to happen until around 2022, the current Ethereum network will continue to be improved through regular updates. Therefore, it seems to be a priority to reduce the centralisation around the Geth client to minimise the risks of any halting of the network due to a bug in the Geth client.
In addition, in the coming months the Ethereum 2.0 beacon chain will be launched, and deposits of ETH to obtain an equivalent amount of ETH2 will be possible to start earning staking rewards. Therefore, a halting of Ethereum will also impact Ethereum 2.0 since deposits of ETH to obtain ETH2 would also be halted.
According to certain comments from developers, it seems that this centralisation around the Geth client is also delaying Ethereum 2.0 due to the risks involved. It seems a priority for the Ethereum developers and the community to ensure a better distribution of Ethereum nodes among different clients.
Another major Ethereum client, Parity Ethereum, began decreasing its relevance when Parity announced last year in December that they were unable to provide enough resources to continue the project. This might be related to the launch process of Polkadot and Substrate, since Parity was assigned by the Web3 Foundation to lead the development of both Polkadot and Substrate.
The goal of the Ethereum developers is to have no client with a share of the network above 33%. Since Parity Ethereum was one of the largest clients after Geth, the fact that Parity is no longer supporting Parity Ethereum may have led to a further increase of the Geth client, as indicated by the 5% raise of its share of the Ethereum network since December last year, after Parity announced that they did not have the resources to continue supporting the Parity Ethereum client.
Reducing the network share of the Geth client from around 80% to below 33% may be challenging, in particular in a short time period. However, the community should support this challenge since the centralisation issue of the Geth client is slowing both Ethereum 2.0 as well as the network updates of Ethereum through hard forks, such as the next planned Berlin hard fork that has now been delayed at least until August.
Back to top
|
|
Swiss bank InCore enables deposits and withdrawals in Euro for Kraken
As announced last week, InCore bank is now the first financial entity in Switzerland offering a EUR fiat gateway to crypto exchange Kraken.
The service will be offered to InCore bank’s clients based in the European Union (EU), excluding Cyprus and Iceland. There will be a 72-hour withdrawal hold for all the first-time fiat deposits.
Assessment
The announcement is significant since a large percentage of clients fulfilling the requirements will be able to get exposure to crypto-assets efficiently through Kraken. Moreover, it was mentioned that apart from EUR, support is also planned in Q3 this year for CHF, GBP and CAD.
If other Swiss banks decide also to enable fiat gateways to leading crypto exchanges for their clients that could inject an important amount of fiat and liquidity to the crypto markets. This is important since one of the challenges currently for those aiming to get exposure to crypto-assets is having a clear, trusted and efficient fiat gateway to the crypto markets.
In addition, InCore bank might increase its client base if certain investors located in the EU would like the fiat getaway access through the Single Euro Payments Area (SEPA). This is likely to happen given the increasing interest from institutional as well as private investors to get exposure to bitcoin and other crypto-assets. Depending on the actions and decisions of central banks, the interest in crypto-assets may increase further.
According to the announcement, it seems that InCore bank will focus not only on crypto-assets, but also on projects related to blockchain dApps and tokenisation. Therefore, this seems to indicate that InCore bank is not only aiming to provide a fiat gateway to crypto markets, but the goal could be to also participate in blockchain tokenisation projects for example related to real estate.
Kraken seems to be currently the leading crypto exchange for EUR. While InCore bank is based in Switzerland, the trading volume in the crypto markets related to EUR is significantly higher than the CHF volume for example. Therefore, InCore bank might have considered it more important to begin offering the EUR fiat gateway first and then later this year offer also fiat gateways for CHF, GBP and CAD.
Back to top
|
|
Crypto Market Update
The overall crypto market capitalisation remained stable last week and there was only a slight increase above $260 billion.
Regarding bitcoin’s price, it stayed also stable around $9.1k. While the 200-day simple moving average (SMA) is still lower than the current price at $8.4k, the 100-day exponential moving average (EMA) is close to the current price at a value around $8.9k.
Ethereum’s price increased from $223 to over $230. Both the 200-day SMA and EMA are significantly lower than the current price at $191 and $200 respectively.
Regarding the traditional markets, there were some positive developments with the Cboe VIX index decreasing below 30 and other indexes such as the S&P 500 showing a certain recovery.
Back to top
|
|
Our weekly Crypto Industry Report news ticker provides you with the latest information on the global crypto industry – picked and analysed by our blockchain experts.
Browse our Crypto Industry Report Archive
|
|
|
|
