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Russia’s central bank digital currency: Prospects and problems

Although the implementation of the digital ruble is planned for the next few years, market participants are still not convinced of its necessity and benefits for both themselves and for future clients and users.

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Active digitalization of large domestic financial institutions is a noticeable, definitely positive trend. Russia is one of the five world leaders in the speed of transition to cashless payments, and the number of contactless transfers and payments are increasing every year. Such active development requires changes in legislation, and inevitably, many specialists and representatives of the financial sphere turn to the issue of cryptocurrency and its place in the modern financial world.

In this matter, the Bank of Russia’s policy mainly focuses on destigmatizing the discourse that surrounds cryptocurrencies. The national central bank does not deem it fit to define cryptocurrency as property at the level of civil law but allows considering it as property in relation to certain laws, including the anti-corruption law.

Related: Russia leads multinational stablecoin initiative

Cryptocurrency has a reputation for being a means of criminal money laundering and negatively impacting the stability of financial systems. According to the central bank, there are reasons for strengthening the control over money transactions and increasing their transparency, and more importantly, there is the impetus to develop an alternative such as the digital ruble. It will be a digital currency, the implementation of which has already been successfully carried out in several regions of China by the People’s Bank of China, and several other countries are at the testing stage.

Related: Russia updates its laws for cryptocurrencies

What change will the digital ruble bring?

Firstly, it will increase accessibility and reduce the cost of payment services. This is a concern for many banks since it may lead to an outflow of clients. The scare is that convenient, cheaper electronic wallets from the central bank might become more favorable to the applications they currently use.

Cryptocurrency, unlike the digital ruble, does not meet the interests of money regulators and the tax system and does not involve a centralized obligated person. However, today, Russia’s payment system is already quite developed: Instant transfers are available to users along with QR codes, contactless payments and convenient banking application interfaces., So, the attractiveness of the transition to the digital ruble for consumers is far from obvious. Banking institutions are not interested in making information about client accounts and their transactions publicly available. The implementation of the digital ruble will lead to the only owner of the database being the central bank.

Also, the digital ruble can be designated as a separate type of money, which has both the advantages of digital (electronic currency) and fiat money, which has individually defined features, by analogy with the series and number of the banknote. Proponents emphasize that in the long term, this will lead to the complete eradication of the shadow economy and the impossibility of any money laundering, as any stage of a digital currency transaction can easily be traced.

Technical implementation

What mechanisms of technical implementation of the digital ruble are offered by the Russian central bank? It considers three options: decentralized distributed registries, a centralized database and a hybrid option involving a combination of the first and the second.

Using distributed registries and a hybrid variant may ensure a higher level of transaction security, which is proclaimed as an advantage by the supporters of the digital ruble. The disadvantages of these options are relatively low performance compared with the second option, and the lack of a generally accepted implementation of accounting and other reporting standards.

The centralized registry option wins in its ability to handle high loads but loses because of its vulnerability. This also means that all user data is stored in one place, and access to it is entirely under the control of the central bank. Such a storage system is currently used by most commercial banking institutions and does not give the central bank an advantage over them. Hacking into a database with centralized storage is easier than gaining access to keys for a blockchain-based system. So, any centralized database is a priori more vulnerable to cybercriminals.

If the central bank opts for decentralized distributed registries and smart contracts during the launch phase, the speed of transactions will be affected, notes the central bank in its report, but security will improve.

Four digital currency models are proposed by the Bank of Russia. The first one involves the implementation of e-wallets by the central bank to other financial institutions for interbank settlements without the participation of individuals and legal entities, although, as the least promising, it is not planned for further development. The second model puts the opening and maintenance of e-wallets under the full control of the central bank, which alarms the banking sector. With this model, there is a risk of liquidity outflow. The third and fourth models give financial institutions and banks a number of intermediary functions, which will allow customers to open e-wallets under familiar conditions and on familiar platforms and applications.

Digital ruble in social payments

The state allocates subsidies to families and wants these funds to be spent exclusively on children. Today, it is not always possible to track how the subsidy money is spent. If these sums are paid in digital rubles and can be spent only in children’s stores buying children’s goods, it would solve the problem of improper spending. Such payments can be color-coded: “Blue” money goes to subsidies, “red” is for tax payments. Other payments can also be color-coded to prevent their misuse.

Another promising area for digital currency is international payments. Conducting transactions within a certain group of states can become more convenient and much faster if the mechanism of digital money is used.

Although digital currency was originally conceived as an alternative to cash payments, it seems more likely that it will displace traditional non-cash payments. And it is already becoming a source of worry for commercial banks, as it affects their commission income.

Therefore, now the discussion, including the consultations of the central bank and market participants, is not so much about the introduction of digital currency in principle (there is almost no doubt that this will happen) but about what new services banks will be able to provide to customers — for example, the tracking of transfers, some sort of “color-coding,” programming smart contracts and so on.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Victor Dostov is the director for research of the Distributed Ledger Technologies Center at Saint Petersburg State University and chairman of the Russian Electronic Money and Remittance Association.

Source: https://cointelegraph.com/news/russia-s-central-bank-digital-currency-prospects-and-problems

russia’s-central-bank-digital-currency:-prospects-and-problems

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Chainalysis raises $100M in Series E funding led by Coatue

Chainalysis secures its second $100 million investment round in three months.

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Chainalysis has secured hundreds of millions of dollars in the second quarter as venture firms allocate more resources to the emerging blockchain sector.

Chainalysis raises $100M in Series E funding led by Coatue

Blockchain analytics company Chainalysis has secured $100 million in Series E financing, bringing its total valuation to a staggering $4.2 billion and highlighting once again the tremendous growth of the cryptocurrency industry.

The round was led by global investment manager Coatue, with additional participation from 9Yards Capital, Altimeter, Blackstone, GIC, Pictet, Sequoia Heritage and SVB Capital, Chainalysis announced Thursday.

Chainalysis said the funds will go toward expanding its blockchain data capabilities, which includes investing in new data tools, software and APIs.

“We believe blockchain data is the asset that can help public and private sector organizations understand the risks and opportunities surrounding this asset class and promote its adoption safely and successfully,” the company said.

Chainalysis’ valuation has more than doubled in the last quarter thanks to several strategic investments. As Cointelegraph reported, the company closed out a $100 million Series D round in March led by Paradigm, a crypto-focused investment firm. At the time, Chainalysis’ director of communications Maddie Kennedy told Cointelegraph that the funds will be used to expand the company’s enterprise data offering.

Related: Crypto-finance company Amber Group valued at $1B following $100M raise

Mega-million-dollar funding rounds have become commonplace in the cryptocurrency industry over the last six months. Venture firms have poured billions into crypto startups this year alone, with the likes of Andreessen Horowitz going a step further by announcing a new $2.2 billion crypto venture fund.

What’s more, dealmaking seems to be happening irrespective of current market conditions, which marks an important evolution from the 2017 bull market that saw venture funding dry up once the initial coin offering mania faded.

Source: https://cointelegraph.com/news/chainalysis-raises-100m-in-series-e-funding-led-by-coatue

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Crypto miners eye cheap power in Texas, but fears aired over impact on the grid

Can Texas meet the electricity demands of migrating Chinese Bitcoin miners?

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The recent crackdown on crypto mining in China has seen concerns expressed over the potential impact a hashrate migration could have on Texas’ unreliable electricity market, as an increasing number of dislocated miners eye the Lone Star State.

Texas’ abundant sources of renewable energy and highly deregulated power grid make the state an obvious choice for migrating miners from China and elsewhere, with 20% of Texan electricity being generated by wind as of 2019.

Speaking to CNBC, Brandon Arvanaghi, a former security engineer at crypto exchange Gemini, predicted Texas will see “a dramatic shift over the next few months” as miners look to set up shop.

“We have governors like Greg Abbott in Texas who are promoting mining. It is going to become a real industry in the United States, which is going to be incredible,” he said, adding:

“Texas not only has the cheapest electricity in the U.S. but some of the cheapest in the globe.”

Castle Island Ventures’ founding partner, Nic Carter told CNBC that half of the world’s hashing power could ultimately exit China’s borders and will need new homes, stating:

“Every Western mining host I know has had their phones ringing off the hook. Chinese miners or miners that were domiciled in China are looking to Central Asia, Eastern Europe, the U.S., and Northern Europe.”

Global hash rate has fallen by one-third since early May following reports that China’s mining industry would be subjected to stricter supervision.

But is the Texan power grid up to the challenge of providing power for an influx of more crypto miners? The Electric Reliability Council of Texas (ERCOT) has just requested that Texans curb their electricity usage amid the recent heatwave that saw many residents turning up their air conditioners earlier this week.

Roughly 12,000 megawatts of generation capacity was offline as of Monday — enough to power 2.5 million homes. ERCOT described the scale of forced outages as “very concerning.”

The regulator warned that a failure to heed the request could result in a repeat of the widespread winter power failures that left 69% of Texans without electricity, and roughly half without water in February. According to Buzzfeed, February’s outages could have resulted in up to 700 deaths in the state.

Angela Walch, a Texas research associate at University College London’s Centre for Blockchain Technologies, tweeted her concerns regarding the share of Texas’ electricity being devoted to Bitcoin mining, emphasizing that her family has been “asked to reduce our air conditioning use, not run washing machines & dryers, etc.”

Obviously, Bitcoin is not the sole cause of this cluster*^% that our poor political leadership in Texas has caused.

But, I am curious to know the portion of the grid it uses. Maybe Bitcoin miners are the first to be shut down in times of grid stress.

— Angela Walch (@angela_walch) June 15, 2021

However Tierion CEO Wayne Vaughan responded by asserting that much of the electricity used to power Texan mining operations comprised stranded resources that “would never be able to reach your home to power your appliances.”

Others argued that wholesale Bitcoin mining operations could actually alleviate Texas’ power issues, with Texas’ seasonal surges in electricity demand incentivizing miners to sell power back to the state’s grid that otherwise go uncaptured.

In September 2020, the Peter Thiel-backed crypto miner Layer1 in West Texas reported it had reaped profits exceeding 700% by selling renewable electricity back to the grid amid surging summer demand.

While up-to-date data for global hashrate distribution is not available, the Cambridge University’s Bitcoin Electricity Consumption Index (BECI) estimates that China represented 65% of the world’s hashing power as of April 2020.

Earlier this month, district regulators in Western Xinjiang and Yunnan issued notices mandating the suspension of virtual currency mining enterprises. BECI estimates the two regions account for 40% of the country’s hash rate.

Castle Island Ventures’ founding partner, Nic Carter told CNBC that half of the world’s hashing power could ultimately exit China’s borders and will need new homes, stating:

Source: https://cointelegraph.com/news/crypto-miners-eye-cheap-power-in-texas-but-fears-aired-over-impact-on-the-grid

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Bitcoin price hits $40K as Paul Tudor Jones slams Fed inflation claims

Bitcoin price action is back at $40,000 as Paul Tudor Jones recommends a 5% BTC portfolio.

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Bitcoin (BTC) passed $40,000 on June 14 as a consolidation period snapped to unleash a solid breakout.

BTC/USD 1-hour candle chart (Bitstamp). Source: TradingViewBTC price breaks out past $40,000

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD gaining 3% in under an hour, reaching $40,500 on Bitstamp.

The largest cryptocurrency capitalized on upside which resulted from a new positive tweet from Elon Musk over possible acceptance by Tesla in the future.

Earlier, Cointelegraph reported on traders betting on a leg up to around $47,000 before a correction.

A look at buy and sell positions on major exchange Binance showed support at $38,000, wit resistance at $40,500 the next hurdle for bulls.

Buy and sell levels on Binance as of June 14. Source: Material Indicators/TwitterTudor Jones advocates 5% BTC allocation

Bitcoin reached a $2 trillion market cap because of a “dichotomy” in Federal Reserve policy which “questions” its credibility, says famous trader Paul Tudor Jones.

In an interview with CNBC on June 14, the founder of Tudor Investment Corporation sounded the alarm over advancing inflation.

After last week’s consumer price index (CPI) report showed that U.S. inflation had hit a 13-year high, Bitcoin’s deflationary nature has rarely looked so appealing.

For Tudor Jones, the idea that higher inflation is just temporary due to recent events, as suggested by the Fed and central banks in general, is a myth.

“It’s somewhat disingenuous to say, for them to say, that inflation is transitory,” he told CNBC’s Squawk Box segment.

Today’s environment is entirely different to that which saw episodes of inflation in the past, such as 2013, and as such, there is little sense in the Fed applying the same forecasts.

CPI was much lower then, Tudor Jones noted, while now, unemployment and jobs also roughly equal each other.

Related: Paul Tudor Jones says Bitcoin is ‘like investing early in Apple or Google’

Meanwhile, gold and Bitcoin have provided a refuge for many. Despite the precious metal vastly underperforming Bitcoin in terms of gains, it remains near record highs.

“When you look at the Fed today and the Fed back then, you wonder how can you have such wildly different policy views on what constitutes the right levels for employment, the right levels for inflation,” he continued.

“How can you have that with an eight-year timeframe? It’s almost like a split personality and you wonder why Bitcoin has a $2 trillion market cap and gold’s at $1,865 an ounce. And the reason why is you have this dichotomy in policy that again questions — questions — the institutional credibility of something.”

Ultimately, a 5% Bitcoin allocation is one of the only things he advocates to those seeking portfolio advice.

“I say, ‘OK, listen, the only thing I know for certain is I want to have 5% in gold, 5% in Bitcoin, 5% in cash, 5% in commodities at this point in time,'” he added.

A look at buy and sell positions on major exchange Binance showed support at $38,000, wit resistance at $40,500 the next hurdle for bulls.

Source: https://cointelegraph.com/news/bitcoin-price-hits-40k-as-paul-tudor-jones-slams-fed-inflation-claims

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