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We will make our own money
In the last decade, everyone has been able to join networks like Airbnb and Uber to rent out their property or services. The sharing economy now extends to electricity, where individuals can now supply as well as consume energy. It’s time to apply the same principles to money, says Simon Lelieveldt, a fintech and payments expert and our guest on the latest New Money Review podcast. “The classical way of thinking—in terms of producers and consumers—is outdated,” says Lelieveldt in the podcast. “We need to reconfigure our mindsets so that every consumer can be a producer, whether that’s in payments, the generation of solar energy or letting out properties,” he says. “There will be space for individualised, local payment systems. There’s an exciting future ahead of us,” he argues. Laws and regulations need to catch up with the reality of the changes in the technology of money, says Lelieveldt. “Our regulatory models need to adapt,” he says. “We need to create a free enterprise space for each individual, so I can do transactions, issue my own form of money and rent out stuff without immediately being labelled as someone that needs to follow various licence requirements.” Lelieveldt also criticises the recent attempts by governments to insist on the identification of all counterparties in virtual asset transactions, via the so-called ‘travel rule’ of the G20 Financial Action Task Force (FATF). Virtual assets are any digital representations of value that can be traded or transferred for the purposes of investment or payment. The definition therefore covers cryptocurrencies like bitcoin but also any private digital currency or payments token. “If I build an energy blockchain, where I put my energy coins in order to transfer them onwards to other people, the virtual asset regime of the FATF says that for each token transfer I need to give my name and the name of the recipient,” says Lelieveldt. “The travel rule—designed to cover all economic processes in the world—is outdated garbage from twenty years ago,” he goes on. “It needs to be taken out. The assumption should be that everyone is innocent, not that everyone is guilty. This is a fundamental privacy requirement that needs to be respected.” As governments build ever more-intrusive digital identity systems in response to the coronavirus pandemic, Lelieveldt also warns about future abuses of human rights. “The privacy rules under international treaties are more relevant than this whole bunch of data we’re gathering,” he says. “We need to change this, otherwise we’re creating a nightmare in terms of surveillance.”
Supply lines
For the last four decades we’ve been living through a period of globalisation, with economies becoming ever more specialised. That specialisation has also meant we are all more reliant on our neighbours, both near and far. Raw materials may be sourced in one country, manufacturing may take place in another, research and development in a third and financial and legal services in a fourth location. In the last few weeks, we’ve all been able to see how fragile global supply chains can be. It’s not just medical equipment that’s been subject to shortages. The supply of other vital commodities like food has seen interruptions too. Meanwhile, there’s been an oversupply of energy that’s driven oil prices temporarily below zero. What is the impact of the coronavirus going to be on the way we manage global supplies and trade? How far are we likely to retreat from globalisation? Which countries are going to be the biggest losers from this trend? Could other countries even be winners from the disruption? And what can we do to avoid a descent into a global trade war of the kind that made the 1930s depression so much worse? To help answer these complex questions, Uma Kambhampati, professor of economics at the UK’s University of Reading, joins the latest episode of the New Money Review podcast.
Crypto’s broken market structure
The dramatic March 12 price crash in cryptocurrency markets showed that the underlying market structure of bitcoin and ethereum is broken and needs fixing, says Kyle Samani, our guest on the latest New Money Review podcast. Samani is co-founder and managing partner at Multicoin Capital, an investment firm based in Austin Texas, with over $100m in assets under management. During the podcast, Samani talks about the events of March 12, which saw a collapse in bitcoin’s price from $7,800 to $3,700, with similar falls seen in ethereum and other crypto assets. Bitcoin and ethereum have since recovered most of those losses. According to Samani, excessive leverage, stale price feeds and network congestion all helped contribute to the scale of the downdraft. The introduction of a prime brokerage system across cryptocurrency markets, together with improved liquidation engines at trading venues offering leverage, could help reduce the chances of a similar episode happening again in the near term, says Samani. However, he predicts, the unregulated nature of cryptocurrencies and the limited incentives for crypto exchanges to collaborate mean a repeat event cannot be ruled out in future.
At the sharp end
For anyone working in the financial markets of G20 countries, ‘compliance’ means adherence to a set of laws and regulations governing who can have access to the financial system. Compliance is mandatory and breaches of the rules mean you can be fired and prosecuted. But what does compliance mean in an era of permissionless cryptocurrency, open networks, virtual assets and dark web markets? Marian Muller, our guest in the latest New Money Review podcast, works at the vanguard of compliance by focusing on the cryptocurrency market, an area where old-world rules often don’t fit new-world designs and practices. Muller, a former investigations specialist at Amazon and now a consultant at Bitpliance, advises cryptocurrency businesses, law enforcement agencies and financial institutions on how to handle exposure to virtual currencies. His work includes financial and crime investigations, interpretations of securities law and providing educational materials on how to handle financial crime in an era of virtual currencies and the dark web.
The new financial investigators
As a framework for transferring value, cryptocurrencies work in a radically different way to the banking system. Anyone with a bank account has an IBAN number, an identifier that provides the country, bank code, branch code and account number of the account holder. Your bank will retain additional identity information, such as your address and phone number. Cryptocurrency networks are the polar opposite: individual cryptocurrency ‘addresses’ have no inherent link to any specific identity. Any cryptocurrency user can generate millions of addresses. The contrast between the banking system and cryptocurrencies extends to financial transactions. Details of bank account transactions stay within the banking system, and in a hierarchical way. As a bank client, you can look up your own activity, but no one else’s. Each bank can only see its own and its clients’ transactions. But in cryptocurrency networks all transactions, past and present, are visible to anyone, via the linked set of blocks of data that we call the ‘blockchain’. The public nature of blockchain activity, together with the challenge involved in linking that activity to real-world entities, have spawned a new type of financial investigative work. Philip Gradwell, our guest on the latest New Money Review podcast, is chief economist at Chainalysis, one of several firms making a living out of tracking and analysing blockchain activity. Chainalysis, founded in 2014, has raised $54m in five funding rounds. Its clients are cryptocurrency businesses, financial institutions and law enforcement agencies.
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