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U.S. Needs to Modernize with Blockchain and Cryptocurrencies, Said Former Trading Commission Chairman

Christopher Giancarlo said U.S. falling behind China on new wave of innovation, driven by blockchain and cryptocurrencies.

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Christopher Giancarlo speaking during the panel hosted by the American Enterprise Institute Tuesday

WASHINGTON, January 4, 2022 – A former chairman of the U.S. Commodity Futures Trading Commission said the federal government needs to catch up and modernize the currency system to include cryptocurrencies, lest the U.S. fall behind competitors in the global arena.

Christopher Giancarlo, staunch supporter of cryptocurrencies and adjacent technologies, said during a panel hosted by the American Enterprise Institute Tuesday that, while some entities in the private sector are blazing ahead on cryptocurrencies and the decentralized ledger system called the blockchain — exploring the possibilities and limits to these technologies — western governments and societies at large are lagging.

“Money is changing right before our eyes,” the former chairman said. “Like text messages and photographs, money is becoming digital, decentralized, tokenized and borderless.”

Antiquated methods of transferring and ordering money are still mainstream, and not suitable for the fast-paced transactions that take place in the 21st century, said Giancarlo. He argued that these methods put the U.S. “at a competitive disadvantage to the likes of China, that are building new financial infrastructure from scratch with 21st century digital technology.

“It typically takes days in the United States to settle and clear retail bank transfers, while in many other countries it takes mere minutes if not seconds. And it takes days to settle securities transactions, and it’s ridiculously expensive to remit money overseas,” said Giancarlo. “It is often faster to move money around the globe by stuffing cash in a suitcase and hopping on a plane than it is to send a wire transfer.

“I just rode the Acela from Newark to Washington and the state of our dilapidated American infrastructure is on full display right outside the train window,” he said. “But sadly, the same is true about much of our financial infrastructure, both in the United States and in developed western economies.”

Innovation on the internet comes in waves, said Giancarlo. The first wave was the “Internet of Information,” which gave rise to digitally accessible and nearly instantaneously shareable libraries, such as Wikipedia. The second wave is what is commonly referred to as the “Internet of Things,” where nearly every device one can engage with can be accessed via the internet.

The ‘Internet of Value’

In Giancarlo’s view, a third wave is now in the midst of crashing down: the “Internet of Value” has begun to wash across the internet, where property titles, contracts, stock certificates, and other fungible and non-fungible assets can be shared and exchanged.

“Thanks to stablecoins, value is now transferable around the world in nanoseconds – 24/7/365 – the way that is increasingly decoupled from the traditional bank account-based system and corresponding correspondent banking service,” he said. “And it is the private sector, not the official sector that is leading the way to the future of money.”

Giancarlo condemned the U.S. government’s inability to “declare any national imperative to harness digital asset innovation to upgrade our creaky exclusive financial system to expand inclusiveness and lower costs for new generations of Americans.”

“I believe we can harness this wave of innovation this internet of value for greater financial inclusion, capital and operational efficiency and economic growth for generations to come. But if we do not act, this coming wave of the internet will lay bare in the shortcomings of our aged, analog financial systems with potentially disruptive impact on our western economies.”

Giancarlo stated that 80 percent of the world’s central banks are currently considering a central bank for digital currency. Bearing that in mind, he provided seven core reasons why they are doing so:

  • access to citizens economic data
  • financial infrastructure modernization
  • financial inclusion solution monetary policy execution
  • rising success of stable coins
  • geopolitical influence

He said that over the coming decades, there will be myriad stakeholders attempting to advance digital currencies – ranging from national governments, to legacy fintech institutions, to Big Tech – but that “citizens for a free society” need to be one of the key players.

“Looking back on the carnage of World War One, French premier George Clemenceau is said to have remarked, ‘war is too important to be left to the generals,’” Giancarlo said. “I adapt Clemenceau’s famous quote: money, especially the digital money of the future, is too important to be left to central bankers.”

Giancarlo stated that it is important for both non-sovereign and sovereign currencies to coexist in the same financial ecosystem. “The best protection against impermissible government surveillance of economic activity or restrictions on otherwise lawful transactions may be robust competition from well-constructed stable coins, and other non-sovereign digital money.

“On the other hand, privately held operators of stable coins are not bound by the Fourth Amendment to respect individual privacy. They can easily be brought under political pressure to surveil or restrict politically incorrect transactions.

“Perhaps the best approach is what I call a ‘jigsaw’ approach to privacy, where no entity or provider of the digital currency has all the information about a transaction.”

He argued that such a system would be “the most effective guarantor of economic liberty and individual privacy.”

Reporter Ben Kahn is a graduate of University of Baltimore and the National Journalism Center. His work has appeared in Washington Jewish Week and The Center Square, among other publications. He he covered almost every beat at Broadband Breakfast.

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Blockchain

Payment Stablecoins Should be Regulated for Safety, FDIC Chair Says

“The main benefit…of a payment stablecoin is the ability to offer cost-effective, real-time, around-the-clock retail and business payments.’

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Screenshot of Martin Gruenberg, acting chairman of the Federal Deposit Insurance Corporation.

WASHINGTON, October 20, 2022 – Martin Gruenberg, acting chairman of the Federal Deposit Insurance Corporation, on Thursday argued payment stablecoins would be safer if subjected to “prudential” – or risk-minimizing – regulation. 

Speaking at a web event hosted by the Brookings Institution, Gruenberg outlined risks associated with cryptocurrencies – including market volatility and fraudulent behavior – and floated the introduction of “payment stablecoins,” which he said could be used for retail transactions.

“There has been considerable discussion and public debate regarding the benefits and risks associated with the development of a payment stablecoin for both domestic and international, cross-border payment purposes that is subject to prudential regulation,” said Gruenberg. “The main benefit given for the development of a payment stablecoin is the ability to offer cost-effective, real-time, around-the-clock retail and business payments.”

The value of stablecoins, a type of cryptocurrency designed to reduce price volatility, is tied to a reserve asset, such as the U.S. dollar. Stablecoins were developed to trade between other cryptocurrencies without “the need for converting into and out of fiat currencies,” Gruenberg said. Panelists at previous events argued for stablecoins potential ability to increase financial inclusion in the country, and its importance in the technology race with China

Part of the criteria for such stablecoins, Gruenberg further said, is that they be backed dollar-for-dollar by high-quality, short-dated United States treasury assets, and for the transactions to be conducted on well-regulated permissioned ledger systems.

A permissioned ledger system allows moderators to regulate who can participate in the network.  In addition, participants are not anonymous, which, according to Gruenberg, is important for the safety of payment stablecoins. “The ability to know all the parties…that are engaging in payment stablecoin activities is critical to ensuring compliance with anti-money laundering and countering-the-financing-of-terrorism regulations and deterring sanction evasion,” he argued.

Because of the novel and complex nature of cryptocurrency, Gruenberg said, the FDIC should approach its regulation with thought and care. The FDIC issued a letter to its supervised banks that requested information on their cryptocurrency activities earlier this year, and Gruenberg said collaboration with banks would continue.

“There are important risks and policy concerns that will need to be taken into consideration before a payment stablecoin system is developed,” he said.

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Blockchain

Treasury to Release Three Reports on Digital Currencies in ‘Coming Weeks’

The reports will discuss digital asset implications on national security, financial inclusion, privacy and citizens.

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Photo of Treasury Secretary Janet Yellen

WASHINGTON, August 29, 2022 – The Treasury Department announced last week it will be releasing a series of reports about the security and state of digital currencies in the U.S. “in the coming weeks.”

The department said three reports will be released and will discuss the impact of digital assets on issues such as national security, financial inclusion, privacy and on consumers, businesses, and investors.

The department’s August 24 announcement will fulfill a commitment required by a March executive order from the Biden administration that mandates within 180 days the department produce a report about the future of money and payments systems, including adoption of digital assets, and the implications of technology and those assets on the country’s financial system.

The Biden administration has put “a high level of urgency towards research and development efforts into a potential U.S. central bank digital currency,” Julia Smearman, director of international financial markets at the Treasury Department, said Wednesday.

At an event earlier this year, experts pondered whether the U.S. was falling behind other nations, such as China, when it comes to developing their own digital currency.

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Blockchain

IBM Exec Touts Blockchain Technology as Economy Accelerator

Blockchain will be commonplace in the economy ‘within the decade,’ the IBM executive said.

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Screenshot of Jerry Cuomo, IBM vice president of blockchain technologies

WASHINGTON, August 23 – Blockchain technology will speed up the economy in the coming decade in part by making the process of verifying information – such as user identity – more safe, streamlined and efficient, said IBM’s vice president of blockchain technologies at a Tech Forward event on Tuesday.

Jerry Cuomo described blockchain as an “odd duck” type of database with a few defining features, explaining that each blockchain has several administrators, that each transaction must be vetted by the administrators before being recorded to the digital “ledger,” and that transactions, once recorded to the ledger, are essentially impossible to change or delete. Cuomo also explained that each data point – or “block” – in each blockchain is heavily encrypted, which creates high levels of security and user trust.

Although blockchain is most widely associated with the transactions of cryptocurrencies like Bitcoin, Cuomo said it can used for a wide variety of purposes – including identity verification, food safety and intra–supply chain communication. For example, Cuomo suggested that instead of making hundreds of accounts on various websites, a user may soon be able to have a single, blockchain-based identity that would be accessible whenever verification is necessary.

Cuomo said he believes food safety, for example, can be improved by using blockchain technology to document salient information about food conditions during transport. IBM Food Trust is a blockchain-based service that the company says allows participants to track a food product throughout a given supply chain and to ensure that it is safe, fresh, and sustainably sourced.

The company said it offers a wide variety of blockchain services. IBM’s supply chain service, for instance, promises “data integrity and faster reconciliation,” features that are made possible by the immutability of each blockchain record once it is entered into the ledger.

As for the timetable on blockchain technologies becoming commonplace in the economy? “I think its within the decade,” said Cuomo. “This is not an ‘if,’ this is a ‘when.’”

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