Bank of Canada: Digital currencies only work with good regulation

Researchers at the Canadian central bank conclude that private digital currencies such as Bitcoin will not be successful in the long run without some kind of regulator.

In a paper published this week (freely available), the Canadian central bank explains its thesis on almost 35 pages. Time and again, it references historical events and compares them with currencies and financial systems of the past. In particular, the Canadian public “Dominion” notes and the notes of private banks in the 19th and 20th centuries are compared with digital currencies. Sensible, or wrong choice of comparison elements?

Bitcoin secret: Paper out of some self-interest?

If you look at the Bank of Canada study, you might ask why the bank is already addressing the regulatory implications of Bitcoin secret technologies. Looking at the bank’s history, however, it quickly becomes clear that the paper follows the idea of issuing a digital currency that is covered by the bank. Recently, the efforts of the bank, which had apparently been dealing with this issue for some time, became known. For real use, however, the system is not yet scalable enough to meet the demands of a digital currency.

Only a regulator can make cryptosoft secure

The Bank of Canada comes to the conclusion that a cryptosoft currency like the Bitcoin could spread by itself and find a strong acceptance, like this, but without the intervention of a central party it could not offer users enough security. The central bank thus contradicts many supporters of digital currencies, who see them as a unique selling point precisely because of the autonomy of state bodies.

In the past, the bank has indeed already devoted itself to political issues: In November 2015, it stated that growing interest in digital currencies could greatly reduce the impact of monetary policy.

Opinion of the author(Max):

If one thinks in conventional systems, one comes to the conclusion that a currency needs a regulator that offers security, ensures the emission and circulation of money. However, the interest in exploiting this position or the interest of individual groups among the participants in manipulating the system would be too great.

The reason why I disagree with the opinion of the Canadian central bank, however, is the core characteristic of the blockchain (in so far as one talks about crypto currencies): the point is that every participant in the system has the right to vote. This is done both via mining and via forks, by adapting the system via source code changes. In order to manipulate the system, the majority would have to unite (simplified, of course). Since the basic set of decision makers is much larger than with traditional money systems (few regulators), the probability that satisfactory decisions will be made for each participant is theoretically also higher.

Not to forget, however, some special cases: How voting rights are distributed: Proof of Work, Proof of Stake or other? How to deal with questions in which the majority decides in their own favour against a minority (e.g. many low earners want to expropriate a single multi-billionaire).

Prince Michael of Liechtenstein: “There will certainly be a consolidation”

Do you think that the training of application cases separates the wheat from the chaff? Is this currently happening on the market?

I think that is already happening in part. But I also think that everything will take some time. New things will emerge again. I wouldn’t necessarily say that “the wheat separates from the chaff. There will be more successful and less successful [crypto currencies]. That doesn’t necessarily have anything to do with quality either. It can also be better acceptance on the market, better marketing and many other factors that play a role. But there will certainly be consolidation at some point.

Now comes a disappointment phase of the news spy

This can currently be observed especially with the news spy – they no longer have the news spy reputation. The “next big thing” being discussed in the Bitcoin ecosystem is security tokens. What do you think?

I think relatively much of both models. We need security tokens because there is a claim to assets, that’s quite clear. I think the problem with ICOs was that at the beginning you just expected too much of them. And now comes a period of disappointment. But I think it [the ICO financing model] still makes sense. Look at the financial system: To make money you have to be established and big. But there are a lot of others who also need financing. I think ICOs will be important for that. Procuring money on the stock exchange – medium-sized or small [entrepreneurs] cannot do that. Financing is also becoming more and more bureaucratic.

Monopolies have the quality of Bitcoin secret

In Liechtenstein, the subject of Bitcoin secret & Co. regulation is rather open to European comparison: In Germany there is currently the idea of finding regulation at the international level. Do you think this is realistic and sensible?

I think it is realistic. The other question, however, is whether I think it makes sense. I am a great supporter of regulatory competition. That ultimately forces regulation to become more efficient. If you have international regulation, you have a monopoly. And monopolies have the quality of becoming very static.

Liechtenstein has made itself attractive for crypto start-ups, above all through Frick Bank. What else does Liechtenstein offer crypto start-ups?

I think it is so: With the Financial Market Authority we first have a regulator that supports the [Bitcoin ecosystem]. We have support in know-how from universities. We are also a very stable and entrepreneur-friendly country. We also have relatively little bureaucracy. That’s a big advantage. We also have great security for companies. After all, we are one of the first countries to have regulation [for crypto start-ups].

Have the regulatory bases already had an impact? Has there already been any economic growth?

Yes, I don’t know exactly where it came from. But we have very strong growth. It’s probably a combination of several factors.

ICO alternative: First ETO from Neufund on 27 November

World premiere in Germany: The Berlin fundraising platform Neufund has announced the date for the world’s first equity token offering (ETO). On November 27, investors can acquire shares in Fifth Force – if they can afford it.

Clear legal situation of cryptosoft

Initial Coin Offerings (ICOs) offer companies an attractive way to achieve an immense reach for fundraising with relatively little effort. Due to numerous regulatory imponderables, however, many companies (allegedly even a silent majority) still shy away from carrying out an ICO. The fundraising cryptosoft platform Neufund enables the acquisition of legally binding company shares in the form of tokens for the first time at the end of November according to onlinebetrug. The Equity Token Offering (ETO) is the first of its kind worldwide and promises greater legal certainty than ICOs.

The operating company of Neufund, Fifth Force GmbH, may serve as guinea pigs. From 27 November, interested investors will have one week to place themselves on the whitelist for the ETO. The subsequent public sale is scheduled for seven days and ends on 15 December. This was announced by Neufund on his blog on 20 November. Newfound CEO and co-founder Zoe Adamovicz is correspondingly euphoric:

“More than a year ago we announced that we would make the first legally binding offer from Tokenized Equity on the blockchain in 2018, and we are sticking to this plan. The first ETO will be the ultimate showcase for our product”, Adamovicz said in the note.

High entry threshold – thanks to crypto trader

However, anyone wishing to participate in the ETO must have the appropriate small change. Contrary to Newfoundland’s claim to make investments accessible to everyone, the minimum crypto trader investment amount for the ETO is 100,000 euros. Read more about it:

Neufund shows whether this decision has been contrite – and blames BaFin:

“Neufund’s platform is ready to carry out the ETO 2018 as promised, but with the unexpected request from BaFin we have to raise the minimum ticket size for this ETO to 100,000 euros – so we don’t have to wait any longer to show you our product.

The “request”, to which Neufund refers, refers to a request by BaFin, which called on Neufund “at the last minute” to audit its own technology. Neufund lets it shine through that one was coldly caught by this decision:

“Such a request has neither a legal reference in the existing regulation nor in the guidelines of the BaFin and has never before been addressed in the context of our dialogue”.

The high minimum deposit underpins the regulatory authority’s attempt to keep small investors out of the crypto market as far as possible. It is also questionable whether Neufund actually expected such a request. A company claiming to merge the worlds of crypto currencies and equity transactions by blockchain should not be surprised if the highest securities supervisory authority keeps a close eye on it.

The legal situation for public ETOs in Germany is clear, although not progressive. The same rules as for securities apply to ETO tokens, which receive the mandatory classification as security. These include the obligation to publish a prospectus, ad hoc reporting obligations, organisational and behavioural obligations, regulations prohibiting market manipulation, regulations prohibiting insider dealing and the Market Abuse Ordinance.

Further details on the ETO will be announced by Neufund at the start of the whitelisting phase on 27 November.

WTO Blockchain Report: A Festival of Conjunctives

Can Blockchain technology revolutionize world trade? The World Trade Organization (WTO), based in Geneva, has investigated this question in a recently published book. The book, written by Emmanuelle Ganne, was published at a blockchain workshop held on 27 November.

The fact that the World Trade Organization also has the issue of blockchain on its agenda was shown in the World Trade Report 2018 published in October at the latest. According to this report, the WTO counts blockchain and other distributed ledger technologies among the “big four” technologies that can significantly change world trade. The WHO held a blockchain workshop in Geneva on 27 November on what these changes could consist of. On the occasion of the workshop, WHO published a report entitled “Can Blockchain revolutionize international trade?

The report analyses possible application areas of the technology in international trade. The focus is on paperless commerce, copyright issues, new services in finance and e-commerce, and government procurement management. The author of the analysis is Emmanuelle Ganne, Vice President of the Allam Advisory Group. The almost 150-page report contains little that is new – but a lot of statements of the kind “Hätte, könnte, sollte” (Had, could, should). Ganne emphasizes the much-vaunted potential of blockchain technology, but also points to the technical and regulatory hurdles that still need to be overcome.

Bitcoin revolution: Interoperability and regulation

On the technical side, the lack of interoperability (and scalability) of blockchains remains the main obstacle to the full development of the Bitcoin revolution: “In particular, technical Bitcoin revolution solutions must be developed to address the problem of the ‘digital island’ and to ensure that blockchains can communicate with each other”.

Moreover, there is still a lack of a global regulatory Bitcoin revolution framework:

“The broad use of blockchain requires an appropriate legal Bitcoin revolution framework that recognises the legal validity of blockchain transactions, clarifies applicable law and obligations, and regulates how data can be accessed and used, Ganne notes on

It is by no means certain, however, that this will ever happen. This applies in particular to Permissionless Blockchains, where there is no de facto (and de jure) contact for regulatory authorities. An example: to whom should the German government turn in order to force the Bitcoin Protocol into a regulatory concept? Exactly. The situation is different with private or “enterprise blockchains”, for example, which are the focus of IBM’s Hyperledger.

In order to overcome these hurdles, close cooperation between all parties involved is required:

“Given the potential of blockchain, companies, civil society organisations, software developers, academics, governments and intergovernmental organisations should work hand in hand to assess the practical and legal implications of the technology and develop common solutions to existing challenges.

If this ambitious goal is achieved, world trade could undergo “radical” change in ten to 15 years.

Identity 2.0: The Decentralization of Identity

We embark on a journey to personality: What does identity mean? How do we move from analogue to digital identity? On the way there, we illuminate historical concepts of identity until we arrive at the topic of digital identity and blockchain – and can ask ourselves: Who and how will we be?

The decentralization of the Bitcoin loophole

Let us remember part 1 of this series: At the time of the Enlightenment, certain schools of thought saw identity as the solid core of individuals. An unchangeable quality, therefore, which gives people a clear Bitcoin loophole centre. However, this point of view would soon change. The “core” of man was to be understood as mobile, as something in flux. And thus in a certain sense: decentralized.

The news spy becomes decentralized

At first, there was the news spy in this context between an inside and an outside of identity. Especially in the sociological (G.H. Mead, C.H. Gooley), but also in the psychological (Sigmund Freud, Jacques Lacan) context, the opinion prevailed in the 19th and 20th centuries that there are basically two different the news spy ways in which people “maintain” their identity. Thus, depending on the line of thought, there is an “inner” and an “outer” identity.

The external identity is formed in the sociological context in the relationship to the environment. Through contact with family, teachers and cultural institutions, we learn values, norms and conventions that shape our (external) identity. This “external” identity is therefore no longer an unchangeable core, but is formed in the interaction of man and environment. These formations also have influence on the inner identity, the character, the ways of thinking and internalised patterns of behaviour.

The stories we tell
Towards the end of the 20th century, the concept of the narrative became important – the story(s) we tell about ourselves. Stuart Hall, for example, one of Britain’s leading cultural theorists, assumed that we do not have a fixed core as identity, but that identity depends on the contexts in which we find ourselves and to which we move.

Shakespeare wasn’t the only one who made a fuss. Actually, we all play theatre – every day.
In this context Erving Goffmann used the concept of social roles based on theories from theatre theory. He assumed that one assumes different roles in different social situations and contexts. Depending on how one wants to work and what impression one wants to make on people in one’s environment, one behaves differently. So at work you certainly behave differently than in the familiar circle of the family, while with friends you probably have other conversations than with the grandmother. Whether this happens consciously or unconsciously does not play a role in this observation – one works, lives and speaks differently – depending on the context.

In this context, identity cannot be seen as something fixed, unchangeable or even a core. Rather, it is an alternating play of inside and outside, of self-perception and external perception, composed of many different moments.

Here one remembers the quotation of Mark Zuckerberg from the first part. His statement about the lack of integrity in several identities can thus be regarded as extremely doubtful. But as we will learn in the next parts, the idea behind this is the centralization of data. More on this in the next week.

Ethereum: Casper and the Emergency at Stake Problem

Ethereum programmers have been looking for a viable alternative to energy-intensive consensus building by proof-of-work for almost four years. The Casper Protocol, (for the time being) a hybrid of Proof of Work (PoW) and Proof of Stake (PoS), is intended to enable the Ethereum network to switch from PoW to PoS. An overview of the underlying problems of consensus building and the current state of Casper development.

To date, the proof-of-work method is the most common way to build consensus in blockchains. The mechanism is not only used by Bitcoin, the mother of all crypto currencies. Ethereum, the second largest crypto currency in terms of market capitalisation, also uses PoW. However, they wanted to prepare themselves early on for the eventuality that PoS would become more popular with miners or other reasons would make a change mandatory. Thus, research into alternative mechanisms of consensus building began as early as 2014.

Weaknesses of the proof-of-work process

The proof-of-work process is notorious for its catastrophic energy efficiency. This is partly in the spirit of the inventor. After all, high computing costs are intended to deter malicious miners from carrying out illegitimate transactions or forking the blockchain at their discretion. From this point of view, the process has proved its worth, but the environmental balance remains catastrophic. As mining difficulty increases, the cost of computing and energy increases quasi-proportionally. According to estimates by, the current energy consumption for Bitcoin mining alone is around 73.12 TWh per year, and the trend is (inevitably) rising. With this energy quantity one could supply nearly seven million US households. At over 200 million kilowatt hours, the daily energy requirement for Bitcoin’s mining is currently so high that it could cover 31 households a day. Bitcoin mining is responsible for 0.33 percent of global energy consumption.

However, there is also criticism of the proof-of-work process outside of energy consumption. This allows financially strong individuals and organizations to obtain more and better mining hardware, which gives them an advantage over other, less liquid miners. In other words, the “big players” tend to receive more block rewards, can buy better hardware from the profit, can mine more blocks, and so on. What at first glance may seem questionable from a socio-romantic perspective, but ultimately legitimate, has tangible consequences for the degree of decentralization of the network.

As an individual Miner hardly has a chance of winning a slice of the Block Reward cake, many join together to form Mining Pools. The four largest mining pools after Hashrate are, Antpool, BTC.TOP and SlushPool. Together, they currently account for 58.2 percent of the total hashrate of the Bitcoin network. In theory, they could join forces to launch a 51 percent attack and manipulate the block chain in their favor. Decentralization looks different.

Proof of Stake

These weaknesses of the POW process have been known for some time. And so it is not surprising that Ethereum has been working on an alternative for a long time. The developers focus on the implementation of a Proof-of-Stake-Mechanism (PoS). In PoS, the mining process is virtually virtualized. So-called “validators” replace the miners. These validators must first set aside part of their coins as “stake”. The following applies: the larger the stake, the higher the probability of being appointed as validator for the next block. For example, if you “risk” coins worth 100 euros, you have ten times less chance of being selected as a validator than if you had clocked 1,000 euros.

Once a validator has confirmed a block, it becomes the newest member of the blockchain and the validator receives the transaction fees as a reward. Conversely, a validator is penalized for fraudulent transactions by losing part of its stake. As long as the deposited stake is higher than the sum of the transaction fees of a block, manipulation by the validator is not worthwhile.

In terms of energy use, PoS has clear advantages over Proof of Work, since energy-intensive mining is practically eliminated.