Category: Blog Row 2 (Member Viewpoints)

New York’s Proposed Ban on Cryptocurrency Mining Takes Two Steps Back – Freezing Innovation and Undermining U.S. National Security

by Chamber

The Chamber of Digital Commerce strongly opposes legislation introduced in New York –– NY S. 6486 and NY A. 7389 –– to establish a three-year ban on cryptocurrency mining. This legislation is harmful to the cryptocurrency mining industry. The ban pushes businesses out of the state, hurting jobs and revenue growth. And it freezes innovation –– in an area where the United States is already lagging behind other countries, such as China –– threatening our national security. It’s a significant concern, given the two trillion dollar market capitalization of cryptocurrency today, which is growing exponentially.

Background

Cryptocurrency mining is a mathematical process that confirms transactions on a blockchain and rewards miners with small amounts of cryptocurrency for performing these complex cryptographic calculations. This type of computing uses electricity, which has raised questions among some environmental activists and legislators. Research is still being conducted on how much electricity is used and how mining is powered. Some miners rely on hydro, wind, and solar power while others rely on electricity derived from natural gas and coal.

What is NY State’s Cryptocurrency Mining Ban?

On Monday, May 3, New York State Senator Kevin Parker, Chair of the Committee on Energy and Telecommunications, introduced a bill to establish a three-year ban on cryptocurrency mining. Companies can continue operations after the ban if they pass an examination by the NY State Department of Environmental Conservation (DEC). Assemblywoman Anna Kelles introduced a companion bill in the Assembly on Thursday, May 6. With the legislation making its way through both the Senate and the Assembly, the proposed punitive measures could pass and be sent to the Governor’s desk before the legislative session ends next month. June also happens to be the month when a large cryptocurrency mining company plans to expand its operations in New York, which has been met with resistance from environmental groups.

What is the Impact?

The proposed ban would require mining centers in New York to cease operations for three years. They may resume mining only after they’ve undergone a “generic environmental impact statement” (EIS) review conducted by the DEC. A generic EIS involves an examination of a site or project’s environmental impact. Findings from the EIS will determine whether a mining company is able to obtain permits needed to operate.

If a mining center is determined to be adversely impacting the State’s greenhouse gas emission targets based on the Climate Leadership and Community Protection Act of 2019, (which requires 40% carbon emissions reduction by 2030 and 85% by 2050), then the mining center cannot obtain permits needed to operate in the state and construct facilities.

A three-year ban in New York would devastate the mining industry in the Empire State, including, ironically, the operations of mining companies that are using renewable energy. And it would have broader consequences that would damage U.S. competitiveness in blockchain and cryptocurrency.

Not only would New York be deprived of the jobs and economic benefits that come from mining, the State would also be responsible for weakening the United States’ national security interests against other countries that are engaged in mining activity. The United States is competing against China, Canada, Russia, Kazakhstan, and Norway, whose governments and businesses have been capitalizing on mining activity. And a three-year gap could set U.S. competitiveness back potentially by a decade, given the breakneck speed of innovation in this sector.

Conclusion and Recommendations

The Chamber does not support legislation designed to stifle a growing industry and destroy lawful mining activity that creates good jobs and drives economic growth. Instead, we suggest that policymakers work together with the industry to incentivize the use of green, environmentally friendly technologies in this industry. Banning the mining industry only hurts New York’s and the United States’ competitive position in this industry globally. We would rather see New York become a center for innovation, including mining, and use of renewable energy sources can be a key component of that strategy.

For more information, please contact: policy@digitalchamber.org

Chamber to IRS: Tax Payers Need Guidance on Crypto Tax Rules

by Chamber

Chamber to IRS: Tax Payers Need Guidance on Crypto Tax Rules

May 17, 2021

Over the past five years, the Internal Revenue Service (IRS) has significantly increased enforcement actions against taxpayers who transact in digital assets. But, while ratcheting up its enforcement, the IRS has not provided meaningful guidance on how to comply with tax rules since 2014.

“This disparity creates risk for taxpayers seeking to comply with the laws, wastes IRS audit resources, dampens commercial activity and economic recovery, and stifles U.S. innovation,” according to Amy Davine Kim, Chief Policy Officer at the Chamber of Digital Commerce.

This week, the Chamber published a policy position that identifies key areas where the agency must issue more guidance for taxpayers this year –– lending, information reporting, foreign bank account reporting, characterization of digital assets, and proof of stake protocols. It also sent a letter to the IRS on the application of the Foreign Account Tax Compliance Act (FATCA) to digital assets.

Background: 

Since 2016, when the IRS issued a “John Doe” summons to Coinbase seeking information on customers who engaged in transactions at or above $20,000, the digital assets community has seen growing enforcement-related activity as the IRS began focusing on identifying taxpayers who may have tripped up by lack of clarity.

In 2020, the agency added a question relating to cryptocurrency on its Form 1040 for individual taxpayers. “At any time during 2019,” the IRS asked, “did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” And for the 2020 tax season, the agency moved the question right to the top of the form, displayed prominently just below the request for personal information. The IRS also sent over 10,000 taxpayers “soft letters” suggesting they may not have complied with tax reporting requirements and threatening an audit if the taxpayers did not respond to the agency’s inquiry. These letters were criticized as violating the Taxpayers Bill of Rights by the IRS’ own Taxpayer Advocate.

Recently, at a hearing before the Senate Committee on Finance, IRS Commissioner Chuck Rettig identified the need for clarity on information reporting for cryptocurrency transactions. Information reporting requires companies to report to the IRS wage and non-wage income that relate to a trade or business. Information reporting guidance would result in increased tax compliance and decreased enforcement actions. The Chamber brought this to the IRS’ attention in a letter last year describing the need for guidance regarding information reporting – a key tool to assist taxpayers in providing accurate income information –  but the agency has yet to release such guidance. In addition to the Taxpayer Advocate, the IRS has been criticized repeatedly for not providing guidance by the Treasury Inspector for General Tax Administration and the Government Accountability Office.

Highlights of the Tax Policy Framework: 

The Chamber’s policy framework identifies key areas in which the IRS must provide clarity and guidance for digital asset transactions in 2021. The goal of these recommendations is to ensure that digital asset tax policies are adopted to assist compliance and encourage innovation, economic activity, entrepreneurship, investment, and collaboration in the areas of:

      • Digital asset lending;
      • Information reporting;
      • Foreign bank account reporting;
      • Characterization of digital assets; and
      • Proof of stake protocols.

In addition to its policy framework, the Chamber separately wrote a letter to the IRS on the potential application of the Foreign Account Tax Compliance Act to digital assets. The law requires foreign financial institutions to report foreign accounts held by U.S. persons. Currently, the law does not apply to digital assets. Nevertheless, anticipating that the IRS is considering the application of FATCA to digital assets held offshore, we provide guidance to ensure better outcomes for the industry before they are published.

Our letter raises key factors the IRS must take into account, such as:

        • The need for public notice and comment if the IRS decides to apply FATCA to digital assets.
        • What is a “foreign” account in the digital asset industry?
        • Are digital assets financial assets? 
        • What types of accounts (custodial, non-custodial) should be subject to FATCA reporting? 

The policy framework and letter regarding FATCA’s application will enable better compliance with tax obligations by taxpayers and avoid unnecessary punitive measures by the IRS. 

Proof of Reserves – Establishing Best Practices to Build Trust in the Digital Assets Industry

by Chamber

Proof of Reserves – Establishing Best Practices  to Build Trust in the Digital Assets Industry

Download the Chamber’s Proof of Reserves Report

Background: As the digital assets industry has developed, both consumers and institutional investors have relied on large custodians, exchanges, and other intermediaries to custody their assets.  These intermediaries are entrusted with maintaining adequate digital asset reserves to meet customer liabilities (those digital assets the exchange or custodian holds for its customers).

The Problem: The growth of the industry has resulted in uneven and inconsistent methods for proving the existence of reserves to meet customer liabilities. Investors and customers need assurance that their funds are properly managed. Digital assets by their very nature offer built-in transparency but, until now, the innate cryptographic auditability of these assets has been woefully underutilized, despite the low technical barriers to doing so.

Bottom Line: At the end of the day, this is a very simple concept, that custodians need to be able to prove that they are indeed holding the assets that their clients have entrusted to their care. This is called Proof of Reserves (PoR).

PoR involves comparing on-chain assets held in reserve to off-chain liabilities. In other words, it empowers consumers to audit digital asset reserves held by a custodian on demand. But, despite a flurry of interest in 2015 in the wake of the failure of Mt. Gox, Proof of Reserves has failed to gain widespread adoption. Why would such a valuable practice be so infrequently and inconsistently applied, despite its benefits in promoting and maintaining industry trust and growth?

Our Proposed Solution: Here at the Chamber of Digital Commerce, we’ve been working to frame a consistent, industry-wide standard for Proof of Reserves to increase the confidence level of consumers, policymakers, and regulators that exchanges and custodians are managing their assets appropriately. We have created a comprehensive Best Practices resource to serve the industry with practical guidance on the core concepts of Proof of Reserves and implementation. The Best Practices, documented in this robust Practitioner’s Guide, brings together a diverse group of key industry stakeholders and subject matter experts, including digital asset custodians, exchanges, and legal and auditing professionals. This marks the first time the industry has an actionable rubric for adopting this important standard.

The Impact: Proof of Reserves is a profoundly self-regulatory measure. Using this framework, firms holding digital assets on behalf of third parties can use this trust-generating procedure. Ultimately, if the industry takes advantage of the transparency afforded by digital assets, consumers will be better protected, intermediaries will benefit from transparent practices, and regulators will appreciate these proactive measures. Put simply, it’s a win-win situation all around, for consumers, industry, and government.

Conclusion: As the industry continues to mature, it logically follows that building Proof of Reserves into custodians’ core practices will result in greater market share as well as customer, institutional, and governmental trust. If these Best Practices are adopted, for the first time, digital asset firms will benefit from the actionable intelligence specifically tailored to their needs. This effort is an important first step to bringing Proof of Reserves the attention it deserves, creating further industry engagement around trust models, and advancing our shared stewardship of the digital and decentralized future.

We are grateful to the authors and contributors who worked tirelessly to develop these comprehensive best practices with respect to creating Proof of Platform Reserves, including Members of the Leadership Committee: Noah Buxton, Armanino LLP; Nic Carter, Castle Island Ventures and Coin Metrics; Patrick South, TRM Labs; and Salvatore Ternullo, KPMG.

For More Information: 

Please contact: policy@digitalchamber.org.

House Passes Bill to Create SEC – CFTC Working Group to Foster Digital Asset Innovation in the United States

by Chamber

House Passes Bill to Create SEC – CFTC Working Group to Foster Digital Asset Innovation in the United States

April 21, 2021
By Amy Davine Kim, Chief Policy Officer, Chamber of Digital Commerce

Yesterday, the U.S. House of Representatives passed H.R. 1602: “Eliminate Barriers to Innovation Act of 2021,” an important milestone for the digital assets industry in the United States. The historic bipartisan legislation would create a working group on digital assets between the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC), the two leading agencies that oversee digital asset markets in the United States, as well as key stakeholders, including industry groups, to eliminate barriers and promote innovation through competition. 

Specifically, the digital asset working group is tasked with analyzing the U.S. legal framework for digital asset markets to identify areas where further clarity is needed and comparing it to other jurisdictions to determine U.S. competitiveness in these emerging markets. The group must also make policy recommendations to resolve the issues it identifies, including through development of standards and best practices. 

The bill will now proceed to the U.S. Senate, where it is likely to be introduced in the Committee on Banking, Housing, and Urban Affairs. This legislation is an important step forward to obtain much needed clarity in the digital asset markets.  Over the years, many legislators have tried to increase clarity – and we have supported these efforts.  The bill enables a balanced review of the issues impacting digital assets and digital asset securities by all stakeholders – the SEC, CFTC, industry, consumer groups, and others – to ensure that appropriate guardrails are created to enable efficient growth in the marketplace.  

The bipartisan nature of the legislation reflects the growing recognition in the U.S. Congress of both the rapid growth of the digital asset industry and the need to build and maintain a clear and uniform regulatory framework across agencies to position our industries for success in the coming decades. This is an urgent issue.  The SEC’s recent enforcement actions against blockchain companies for distributing digital tokens as unlicensed securities offerings plainly illustrates the serious and market-moving consequences of ongoing regulatory confusion and opacity. In other words, the industry needs more guidance specific to the unique characteristics of digital assets and their markets. The legislation gives the  working group a year to come together and identify how to resolve regulatory issues surrounding digital assets, and to provide recommendations to relevant Congressional committees. 

H.R. 1602  was introduced in the House on March 7, 2021 and referred to the Committee on Financial Services and Committee on Agriculture. For more information, see our blog post.

What Cryptocurrency Is… And Is Not

by Chamber

Cryptocurrencies have been around for more than a decade and adoption has steadily increased. As with any popular, emerging technology, questions and misconceptions remain among the media, public, and even policy makers. So here is a quick primer:

Cryptocurrencies are digital assets that enable novel and more efficient ways to send and store value online; they can be another option for payment, similar to credit cards, Apple Pay, PayPal, or Venmo. You can pay for goods and services with cryptocurrency from businesses such as AT&T, Microsoft, and Overstock, or you can trade it just as you would a currency or commodity.

Cryptocurrency transactions are recorded on a blockchain or its equivalent technologies, more broadly defined as distributed ledger technology (DLT). Think of it as a spreadsheet that records debits and credits between accounts, similar to bank statements, except the ledger is viewable publicly to promote transparency and each transaction is encrypted so it is resistant to tampering.  

1. Cryptocurrencies are safe and secure because they are decentralized, distributed, and use cryptography. 

Cryptocurrency transactions are safe and secure through the use of cryptography distributed across multiple computers globally, allowing for enhanced cyber resiliency. As a result, hacking one computer in the network will not prevent the ledger of transactions from being altered. The use of consensus mechanisms to validate transactions also helps prevent cyber actors from manipulating data stored on the cryptocurrency’s blockchain. Even if a breach were to occur, the changes would be publicly viewable. 

To read up on how DLT can help increase cyber resiliency, see our report: Advancing Blockchain Cybersecurity: Technical and Policy Considerations for the Financial Services Industry. See also, the Considerations and Guidelines for Advancing Cybersecurity in the Token Economy Chapter II, Section D (starting at page 107) in our report series Understanding Digital Tokens.

2. Cryptocurrency transactions are auditable. 

Cryptocurrencies enable the movement of digital assets from one person to another and can be traced through tamper-resistant DLT.  These transactions are publicly auditable, which means that law enforcement officials are able to view the information through the use of blockchain analytics software.  A recent example of the Bitcoin blockchain’s use in aiding law enforcement is the 2020 Twitter Hack  where blockchain analytics helped track down the hackers who engaged in a “giveaway scam.”

For more information on how blockchain technology enables transparency and traceability, see Elliptic: Bitcoin Is Not Anonymous. See also Chainalysis: How Our Cryptocurrency Transaction Monitoring Evolved in 2018.

3. Cryptocurrencies transactions are regulated.

How a cryptocurrency transaction is regulated depends on its use. While regulation is typically applied based on the facts and circumstances of the business platform and transaction, generally speaking, cryptocurrencies that are transferred through an intermediary are regulated by the Department of Treasury’s Financial Crimes Enforcement Network and state banking departments. Cryptocurrencies offered through derivatives, swaps, and options are regulated by the Commodity Futures Trading Commission. The Securities and Exchange Commission has jurisdiction over those that are securities. In addition, the Federal Trade Commission has brought actions for unfair and deceptive acts and practices. Companies need to be cognizant that many laws can apply to transactions just as they would for any other business. 

The Chamber and its Members take compliance seriously. Our report series, Understanding Digital Tokens, covers a broad range of digital token regulations in the United States, the United Kingdom, Canada, Australia, Gibraltar, and Japan (starting at page 145).

4. Cryptocurrencies are becoming a well-established financial tool. 

Cryptocurrency use is growing: almost 30% of Millennials and 15% of Americans have adopted digital currencies, which can be used to pay for goods and services from businesses such as Microsoft and Overstock, or to trade just as any othercurrency or commodity. Further, roughly 33% of U.S. businesses large and small accept cryptocurrency for payments. 

To see a more comprehensive breakdown of the demographics that use bitcoin, check out  Blockchain Capital’s report: Bitcoin is a Demographic Mega-Trend: Data Analysis.

You should also check out a recent report regarding bitcoin’s adoption in Forbes: The Coronavirus Cryptocurrency Craze: Who’s Behind The Bitcoin Buying Binge?

Find out more about the businesses that are accepting bitcoin for payments in the HSB Survey: One-Third of Small Businesses Accept Cryptocurrency.

5. The United States must continue to take a leading role in encouraging an innovative cryptocurrency marketplace.   

For the United States to maintain its global leadership in advanced technologies, we must encourage the development of blockchain technology. Given its global implications, blockchain might soon be considered “critical infrastructure” within the new digital economy. China and the European Union understand this and already are well ahead of the curve through initiatives to develop central bank-issued digital currencies. Separately, each has publicly declared they want to be the global leader in blockchain technology and have strategic national initiatives underway. This could enable foreign actors to control the development and standards of systems and governance of technology that will power the digital economy.  Such advances would present a significant challenge to both our national and economic security. 

The Chamber is calling for a National Action Plan for Blockchain, discussing the urgent need for the United States to invest in U.S. blockchain development or risk losing our competitive edge.

Members of Congress Urge U.S. to Lead in Development of Blockchain Technology for Relief Efforts

by Chamber

Members of Congress Urge U.S. to Lead in Development of Blockchain Technology for Relief Efforts

Today’s letter from Members of the Congressional Blockchain Caucus demonstrates just how urgent it is for the United States to have a coordinated plan for developing, supporting, and using blockchain technology.  We are proud to have supported Congressman Emmer and the Caucus in continuing to bring more urgency to this issue.

 

Highlighting its potential use in managing identity, supply chains, and credentialing, the letter, led by Congressional Blockchain Caucus Co-chairs Reps. Tom Emmer (R-MN), Bill Foster (D-IL), David Schweikert (R-AZ), and Darren Soto (D-FL), urges the Administration to convene leaders from the public and private sectors to meet and develop a strategy effectuating use of blockchain technology in relief efforts.  We appreciate the leadership of Congressman Tom Emmer and the Congressional Blockchain Caucus in showing how a national strategy for blockchain would support the United States and enhance resilience in our economy, digital infrastructure, and public health system.

“The Chamber of Digital Commerce has led the way with their National Action Plan for Blockchain, and the Congressional Blockchain Caucus has found a deep partnership with this important organization. This letter stands for our shared principles and goals. We must encourage the private sector in America to develop these technologies, and the public sector to explore its potential uses. When a crisis forms like the Coronavirus outbreak, blockchain can be an answer to many of the problems we face. This letter urges the administration to have each agency explore how blockchain can help combat the coronavirus outbreak. The Blockchain Caucus is grateful for our partnership with the Chamber of Digital Commerce and will continue to push for increased federal exploration of blockchain technology in addressing many of America’s challenges.” – Congressman Tom Emmer

This is not the first time Members of Congress have come together to urge the Administration to proactively utilize blockchain technology. Last year, the Co-chairs of the Congressional Blockchain Caucus wrote to the Administration requesting that it facilitate a forum for government and business leaders to meet and discuss how a national strategy for blockchain can transform commerce, government services, public health, and our digital infrastructure.   Had such a forum been convened, it could have been useful in addressing the circumstances we face today.  And just three months ago, members of the Caucus again wrote to Secretary Mnuchin, urging consideration of blockchain technology for use in aid distribution.

The time is now to develop a strategic plan to support and promote the use of this technology.  Other nations – China, the European Union, India, Australia, Singapore, and the United Arab Emirates, to name a few – are already using this model framework for their own purposes. The United States is at risk of being eclipsed in the next wave of global technological development.

Government and industry must work together to support the development of this technology and coordinate U.S. blockchain strategy, through a designated office or otherwise, to play a pivotal role in identifying both areas of opportunity to deploy blockchain technology as well as areas of friction in policies and laws that are keeping us from realizing this technology’s full potential.

The Promise of Blockchain Interoperability

by Chamber

The Promise of Blockchain Interoperability

To remain viable, blockchain projects need networks that are performant, secure, and reliable. But many initially successful organizations encounter roadblocks if the network they build on serves up unpredictable and costly transactions, long verification times, or overall congestion.

Reasons for network congestion vary. In 2017, major congestion occurred as a result of token offering-driven fundraising. It happened again with CryptoKitties. It’s not always easy to predict when the network will be congested, and this can become a real problem for blockchain application developers.

Interoperability represents a bridge to performant blockchains for application builders to cross when network-related issues halt progress. Without an interoperability solution, blockchain projects might be forced to deploy their own protocols or even shut down due to the high cost of running their apps. Developers have greater freedom when more performant networks support interoperability protocols, making it more feasible for businesses to explore blockchain solutions and for the industry at large to take steps towards mass adoption.

 

The Industry Search for Solutions

Block.one is a global blockchain software company, committed to researching and developing performant interoperability solutions for blockchain developers. In that spirit, Block.one recently launched the EOSIO Challenge, calling upon developers around the world to create an EOSIO-based interoperability solution.

The vision behind the EOSIO Challenge was to support a complete Ethereum application development environment within an EOSIO virtual machine. Contestants were asked to write a smart contract on EOSIO capable of running solidity-based Ethereum smart contracts in an environment similar to that of the Ethereum Virtual Machine (EVM). At the same time, the smart contract must take advantage of the capacities of EOSIO, including high transaction throughput and performant smart contract processing.

The winning submission, EOSIO.EVM, was created by community developer Syed Jafri and goes above and beyond the challenge specifications. EOSIO.EVM reduces the steps for application builders to deploy solidity-based smart contracts on a low-cost, high performance EOSIO blockchain.

 

Leverage Raw Speed and Performance Across a Wider Blockchain System

According to Syed, businesses can launch their solidity-based apps and run up to “100 times faster and 1,000 times cheaper” on EOSIO.EVM. Make the switch to EOSIO without incurring substantial costs retooling your application for a new codebase.

With EOSIO.EVM, you can deploy on a new blockchain in weeks as opposed to years, removing a network barrier that once prevented some blockchain projects from reaching their full potential.

 

Interoperability: How does it work?

EOSIO’s speed and performance can now be leveraged across the wider blockchain ecosystem. For solidity developers, EOSIO.EVM offers the advantage of a quick transition into a solidity-based Ethereum environment wrapped in an EOSIO shell.

EOSIO.EVM deploys a one-to-one copy of the solidity smart contract on EOSIO, and it poses no security risk for previously audited functional code. This means solidity developers can continue to use tools they are familiar with to engineer their applications deployed on EOSIO.

If you’re a solidity developer and you want to get started, you don’t need to maintain a node. Instead, you can save time by setting up a mock RPC as an endpoint. Use your preferred tool, such as Remix, to deploy solidity code to an address that you will supply to the mock RPC.

Next, you must cover your application’s CPU, NET, and RAM costs. Create an account to purchase and stake resources on the EOSIO network you intend to deploy. Supply this account to the mock RPC, and it will manage your application’s resource costs.

When you’re finished, users will be able to find your network with tools like MetaMask, and they can then interact with your application just as they would if it were on Ethereum.

Block.one is invested in building solutions for the blockchain ecosystem, and EOSIO.EVM presents an opportunity for more projects to thrive.

. . .

About Block.one

Block.one is a global software company specializing in high performance blockchain software. Its flagship product EOSIO is a free, open-source protocol designed to bring speed, scalability, and ease of use to the secure and transparent fundamentals of distributed databases. Block.one invests in companies, projects, and developers around the world leveraging EOSIO technology through its EOS VC initiative.

What’s Harming Crypto: Humility

by Chamber

What’s Harming Crypto: Humility

By Dave Balter, CEO, Flipside Crypto

An industry birthed from ICO madness has generated hubris — and leadership destined to fail.

You know the old adage about blind squirrels right?

As the story goes, even as misguided as they are, they occasionally find acorns — ultimately, they’re more lucky than smart.

Robert Joseph Farkas probably felt lucky for a while.

In 2017, he leaned on Floyd Mayweather and DJ Khalid to promote his ICO for Centra Tech — and landed $25M from plucky investors seeking a short path to getting rich quick.

On June 20, 2020, Farkas — the ‘crypto entrepreneur’ — pled guilty to wire and securities fraud. I bet he isn’t feeling so smart right now.

The crypto industry is at a dangerous inflection point, but Farkas — and the rest of the criminals and thieves who showed up to take advantage of ICO madness — are just the tip of a much more menacing iceberg.

Sure they are a dark smear. A stain on many people doing many good things.

But they aren’t the real problem.

The real problem is something that will take down this industry even faster: hubris.

…

“We literally just print money.”

That’s what one crypto executive exclaimed as we sat in a board room wired with wall to wall video displays. I chuckled, I think, awkwardly. He then reiterated the statement, to ensure I fully understood. “No, literally. We just print money.”

In another case, we took the elevator to the 40th floor of a high rise in a major city. As we looked out at the sun dappling the nearby mountain range, our host — a 30-something, tattooed bearded hipster in a straw hat — noted the office used to be the showcase of a massive legal firm.

He then went on to explain that in the years since their ICO — which netted somewhere around $200M — they kept lean at about 70 employees. The founders were all long gone, some spat over direction or legal woes driving a wedge between the partnership. Their product hadn’t really taken shape and they were changing direction again.

I, of course, asked a natural question about the decision-making process, “ok, so, who is the CEO now?”

“CEO,” he whispered, not to me, but to the mountains, “We haven’t had one of those in over a year.”

…

This is a message to every cryptocurrency entrepreneur, employee, executive or leader: Dig a hole, throw your ego into it, and pour concrete on top. Find humility instead.

Flipside Crypto licenses its analytics technology to blockchain organizations. This provides us a front-row seat to the behaviors and attitudes of leaders and employees across hundreds of blockchain platforms, dapps, exchanges and other ecosystem participants.

The summary of years of dialogues: many leaders have formulated that just being in the blockchain space has made them untouchable. Some count an easy ICO raise as validation of success. For others they’re proud that they’re developing something so technically complex, that their team barely understands it themselves.

In one meeting, a senior executive admonished a teammate in front of us, exclaiming her work as, “useless, irrelevant and without impact.” In another, the leadership of an Asian-based exchange asked us to distribute a series of splashy press-releases, even though a working relationship was still in the formative stages.

There’s glory in being on a podcast; And fame for hosting one.

These are all danger signs. Indications that leadership is acting with unchecked confidence. With attitudes of self-worth, grandiose thinking and a terrible case of ‘we-have-it-all-figured-out’.

Blind squirrels, scratching in the dirt.

…

Around the corner from our office (remember those?), was a cryptocurrency company who took part in the ICO wave.

In late 2019, the Securities and Exchange Commission (SEC) recognized their illicit fundraising efforts by publicly admonishing them for committing securities fraud. In addition, they charged them with registration violations, and required them to pay a hefty fine and refund every single investor in full.

A few weeks later, during a dinner at a local restaurant, my conversation was repeatedly interrupted by a rowdy table nearby. Whoops and cheers were met with wild fits of laughter. Drinks were being passed around. Glasses clinking.

Waiters were bringing chop after chop of cut meat.

It didn’t take long to figure out who the diners were, given most were wearing hoodies emblazoned with the logo of the recently-disgraced, SEC-fined firm.

Their CEO deceived investors and broke the law.

Was he removed. Nope. Should the team rebrand? Nope. Should they quietly melt into the woodwork? Nope.

Instead, they should party. They should let everyone know where they work. That they won.

Oh the hubris: they considered it a victory.

…

Don’t get me wrong. There are some terrific leaders in the crypto industry.

Brian Armstrong is one. So is Jeremy Allaire.

Two very different leadership styles — Brian began as an engineer (at Airbnb among other places), and Jeremy as a long time entrepreneur, and a seasoned executive. Their similarity lies in a distinct truth: each approaches their businesses with maturity, clarity and delivery. All traits of leaders with the humility to build strong organizations.

Case in point: with the onset of Covid, Armstrong immediately takes action. He listens to his employees, to his customers, to the market. He makes adept shifts to their organizational infrastructure and institutes a remote first policy — and on May 20th published it publicly so it could serve as a roadmap for others.

Case in point: Allaire’s Circle has gone through a series of dramatic evolutions. Early Bitcoin ATMs made way for a truly massive OTC trading group — and as the market evolved again, he executed a nimble pirouette and developed USDC, a stable coin business.

An important note about strong leadership who recognize the art of humility. Neither Brian nor Allaire lack confidence. They have it in spades. But that confidence doesn’t root them so deeply in place that they can’t adapt. That they can’t listen to the market and their team; have the presence to focus on execution vs. promotion — and make sound, results-oriented decisions to carry their organizations forward. That’s humility at work.

…

The humility imperative is simple: If you’re an ego-fueled leader, find humility today, before it’s too late. Disregard the fawning fanboys and king-like power you feel right now. Instead, choose to recognize your place in the universe is no more important than anyone else’s. Know you can learn from every single interaction — no matter the person’s credentials. Understand that your competitors are smart — perhaps (gasp!) even smarter than you. Believe that media glory is fleeting. Remember that fundraising is a tactic, not a strategy; your reputation isn’t forever golden because VC firm A16z backed you.

Here’s what matters more: You treat your employees with kindness; You are willing to be wrong; and — yes, this is hard — you share the spotlight.

Here’s the inevitable call to arms: if this isn’t fixed soon, the crypto industry will become ‘what might have been’. It will become a case study in what not to do. It will end not with a flourish or a bang, but with a whimper.

And many of the industry’s leaders — the blind squirrels — will scratch their heads (with their tiny paws) and will wonder where possibly it went wrong.

Having trouble admitting your ego is out of control? Ask your family, friends, or most trusted adviser. Find someone willing to tell you straight. Your cryptocurrency will be much better for it and you’ll truly have the opportunity to create something sustainable. Humility will prepare you for the endurance test to come. It will give you the flexibility to create an organization that can thrive in good times and survive the bad.

Have humility, or your hubris will have you.

…

Dave Balter is the CEO of Flipside Crypto. His latest book, The Humility Imperative, will be released June 30th.

The Race is on: China Plans to Gain “New Industrial Advantages” via Blockchain Technology

by Chamber

The Race is on: China Plans to Gain “New Industrial Advantages” via Blockchain Technology

February 12, 2020

The Chamber of Digital Commerce reveals the text of 84 New Chinese Blockchain Patents Applications, Translated in English

By: Perianne Boring, Founder and President, Chamber of Digital Commerce

Download Report

Last fall, the President of the People’s Republic of China Xi Jinping addressed China’s most powerful political body on the critical importance of blockchain technology:

“It is necessary to strengthen basic research, enhance the original innovation ability, and strive to let China take the leading position in the emerging field of blockchain, occupy the commanding heights of innovation, and gain new industrial advantages.”

President Xi Jinping’s talk has been described as a Sputnik moment. It is clear China is taking a leading role in the development of blockchain technology.

Money is power. But what is money?

Throughout most of recorded history the great civilizations, such as the Roman and British Empires, used gold, silver or both as money. Until, that is, 1971 when the world monetary and financial system moved to a fiduciary currency system. Currency became backed not by a guarantee of convertibility into a precious metal but by “the full faith and credit” of the United States. The power to regulate the value of the dollar became managed in the discretion of the Federal Reserve System rather than set, as stipulated in the Constitution, by the U.S. Congress.

The dollar — even as a pure fiduciary currency no longer legally convertible to a defined weight of gold — remains the world reserve currency. Yet, the hegemony of the dollar is not unchallenged.

Bank of England governor Mark Carney called for a global replacement to the U.S. dollar last year. His sentiment was echoed by one of the most influential thought leaders in China, Chan Kung, who wrote: “The “excessive privileges” of the dollar are increasingly incompatible with the current needs of international trade and financial transactions. For this, the world has a real need and reason to get rid of the dollar.”

Money is technology. Technology is power.

There is a new space race. It is the cyberspace race of building and controlling the systems and governance that will power the digital economy. As China’s president pointedly observed this race includes other advanced technologies — AI, Big Data and the IoT — but the pivotal challenge will be blockchain.

China has made developing blockchain technology one of its highest national priorities. China is not the only nation-state taking blockchain technology seriously. About 80 percent of central banks globally are interested in or already pursuing central bank-issued digital currency. The Federal Reserve, however, is not taking a leading role. At a House Financial Service hearing in December 2019, U.S. Treasury Secretary Mnuchin, said “[Federal Reserve] Chair Powell and I have discussed this. We both agree that in the near future, in the next five years, we see no need for the Fed to issue a digital currency.”

While U.S. policymakers and regulators have taken a skeptical view and innovation-discouraging stances, China is aggressively pursuing blockchain dominance. Blockchain development is part of China’s “13th Five-Year Plan”. This is not just an aspirational plan; China is well on its way to implement robust blockchain technology networks that will have far-reaching implications.

Meet Crypto-Yuan.

The People’s Bank of China (PBoC) has moved from the development phase to internal testing of the Digital Currency Electronic Payment (DC/EP) platform, according to local sources. Detailed technology specifications have not been publicly made available regarding this digital currency project, however the PBoC has filed more than 80 digital currency related patents.

The People Bank of China’s digital currency platform aims to replace the M0 money supply in China through a digital renminbi. M0 includes cash, coins, notes and other assets that are easily convertible into cash, China is a “cash-light society.” AliPay and WeChat Pay account for 96 percent of the mobile payment market in China. They “are running a very systematically important payment system,” per Mu Changchun, Director-General of the Institute of Digital Currency at the PBoC.

The PBoC is “trying to provide a redundancy to our very advanced electronic payment systems,” said Changchun. In other words, the government wants to run these systems, at the least in parallel. According to the filed patent applications, the DC/EP platform would not allow for anonymous transactions, only “managed anonymity”. Conventional bank account information will be used for identification and authorization.

Users will be publicly pseudonymous, but Chinese regulators will have the ability to track all transaction information, including the identity of the transacting parties, location of the digital currency, and process the transaction data in various ways. Circulation of the digital currency will be managed by the PBoC, with the ability to delete wallets and manage digital currency supply.

Chinese digital currency is intended to become tightly integrated into its existing banking systems.

For example, the patent applications indicate that digital currency wallets will be bound to conventional bank accounts in a dynamic manner. Payments and deposits will be processed through commercial banks. The patent applications also indicate circulation of the digital currency will be streamlined by allowing the banks to use various settlement mechanisms that increase efficiency. These efficiencies could speed up and lower costs for interbank clearing and cross border payments.

The PBoC blockchain patent portfolio is extraordinarily comprehensive. This allows some provisional inferences about China’s future course to be made. In the spirit of open source, we have translated the patent applications to English and is sharing the data freely to allow others to review and analyze this information.

It is critically important for American and western policymakers to understand how serious China and other nations are taking digital currencies and blockchain technology. It is crucial to become conscious as to what we can expect to see from those who seek dominance in the space, implications for the international monetary and financial system, and, more pointedly, for the U.S. dollar as the world’s hegemonic currency and America’s international preeminence are existential.

View: Digital Yuan Patent Strategy: A Collection of Patent Applications Filed by the People’s Bank of China