Unmasking the danger of privacy coins

 

Technology supporting cryptocurrencies is used in the real world for drug trafficking, human trafficking, sexual exploitation and smuggling of goods 

Cryptocurrencies that emphasise anonymity and encryption are frequently used by criminals

USING state-of-the-art technology to support cryptocurrencies is a double-edged sword. It facilitates cross-border payments and remittances as well as financial inclusion for the underbanked or unbanked but is increasingly used for criminal activities.

It is used in the real world for drug trafficking, human trafficking, sexual exploitation and smuggling of goods, rather than just cybercrime like ransomware attacks.

According to a European Union Agency for Law Enforcement Cooperation (Europol) report in 2022, cryptocurrencies are being used for all types of crime requiring financial transmissions, the scale of which is difficult to estimate. Europol noted that criminals have also become more sophisticated in using cryptocurrencies to in complex money-laundering schemes.

Both Europol and the Basel Institute on Governance, which also published a report in 2022, point to the rapid progress of technologies involving cryptocurrencies and the challenges governments have in keeping up through legislation and law enforcement or the need to develop and adapt through investigative technologies and techniques.

It is only now that anti-money laundering (AML) and know-your-customer (KYC) processes common in transactions involving fiat money are starting to take into account cryptocurrency transactions.

Bank Negara and the Securities Commission (SC) have guidelines for cryptocurrencies and have hired specialists to monitor or regulate them. Now, the Malaysian Anti-corruption Commission (MACC) is looking at raising the capabilities of its officers who address cases in which cryptocurrencies are used to conceal financial trails.

The move involves further specialised training as well as acquiring advanced technology and equipment. In Malaysia, people can own cryptocurrencies and they can be traded on licensed digital exchanges, but are not considered legal tender.

Some say that the MACC is late to the game as the police already have the capabilities through the Kuala Lumpur-based Cryptocurrency Analysis Laboratory, which was jointly opened with the United Nations Office on Drugs and Crime in 2022. It is the first such laboratory in South-east Asia.

In fact, a series of fraud or scams leveraging cryptocurrencies have been crippled through this crime laboratory capability going from past news reports.

Also, Bank Negara and the SC have been exploring solutions for the past year or two.

A lawyer specialising in cryptocurrency projects shares that its basically track-and-trace to follow the money trail through the blockchain, which is essentially a digital ledger where all transactions are recorded and confirmed. Unlike cash, cryptocurrency transactions are highly traceable from start to finish, and with the right tools, can be mapped out how illicit funds have moved and how they are being funnelled.

When these tools acquire more data, they can also flag out wallet addresses that have been sanctioned or linked to illegal sources, which means authorities will also know whether the funds are tainted.

Compared with the banking system, tracing funds through the blockchain’s public digital ledger is easier, even when these funds cross borders.

According to the lawyer, the police can easily trace illicit fund flows even if a circuitous route is used. Banks have limited tracing ability and cooperation of foreign correspondent banks and law enforcement will be needed once funds cross borders.

Banking laws in other countries may differ pertaining to privacy and disclosure and in most cases, a court order is needed to request information.

There is a need to better understand altcoins such as privacy coins, as these cryptocurrencies that emphasise anonymity and encryption are frequently used by criminals.

There are many privacy coins including Monero, Dash and Zcash but Monero seems to be the cryptocurrency of choice among criminals. They work by enabling anonymous transactions through obscuring both sender and receiver addresses.

What makes them even more useful is that the transaction amounts are also hidden through the use of an obfuscated public ledger specifically for privacy.

The MACC as well as other law enforcement agencies will have to equip themselves with the right tools and know-how to confront these challenges.

Europol describes it thus: “Often illicit funds do not flow straight from wallet to wallet. They instead travel through a multi-step process involving different financial entities, many of which are novel and are not yet part of standardised, regulated financial payment markets.

“Obfuscation methods and other countermeasures continue to be developed and used by criminals.”

Other methods used by criminals include over-the-counter trading in which tracing the trade is almost impossible. Initially used for smaller transactions, there are signs that it is now being used for much bigger ones.

The enormity of the challenges confronting law enforcement agencies such as the MACC is that privacy coins are hard to track as most have been delisted by cryptocurrency exchanges under pressure from governments and no one knows how prevalent the use of these coins is.

Criminal networks often use unlicensed exchanges with looser AML and KYC processes, enabling transactions that involve a complex series of steps to throw off authorities, before eventually being traded for fiat currency.

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Big dreams of becoming a global cryto hub

Singapore plans to emerge as key player

Easing restrictions: A representation of the virtual cryptocurrency bitcoin. The Monetary Authority of Singapore is against clamping down on crypto. — Reuters

 SINGAPORE: Singapore is seeking to cement itself as a key player for cryptocurrency-related businesses as financial centres around the world grapple with approaches to handle one of the fastest growing areas of finance.

“We think the best approach is not to clamp down or ban these things,” said Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), which regulates banks and financial firms.

Instead, MAS is putting in place “strong regulation”, so firms that meet its requirements and address the multitude of risks can operate, he said in an interview.

Nations differ vastly when it comes to how they handle crypto: China has cracked down on large amounts of activity in recent months, Japan only recently allowed dedicated crypto investment funds – though El Salvador has embraced bitcoin as legal tender.

In the United States, while there are an abundance of options for investing in the burgeoning asset class, regulators are concerned about everything from stablecoins to yield-generating products.

“With crypto-based activities, it is basically an investment in a prospective future, the shape of which is not clear at this point,” said Menon, who has helmed the MAS for about a decade.

“But not to get into this game, I think risks Singapore being left behind. Getting early into that game means we can have a head start, and better understand its potential benefits as well as its risks.”

The stakes are high for the small island nation, which has already earned a reputation as a global wealth hub. Singapore must raise its safeguards to counter risks including illicit flows, Menon said.

The city state is “interested in developing crypto technology, understanding blockchain, smart contracts and preparing ourselves for a Web 3.0 world,” he said, referring to the third generation of online services, which will be a key theme during the Singapore Fintech Festival that MAS will host next week.

Menon acknowledged that banks and other financial institutions will face certain challenges with the decentralisation of finance. Still, Singapore wants to be “well positioned” for 2030 when “an economy of tokenisation” may come, he said.

Singapore isn’t the only place with crypto ambitions. Locations as diverse as Dubai, Miami, El Salvador, Malta and Zug in Switzerland, are also making efforts.

It can be a fine line to tread, given the crypto industry grew up with few regulations, so many players balk at government officials’ attempts to impose guardrails.

Singapore’s approach has attracted crypto firms from Binance Holdings Ltd, which has had a series of run-ins with regulators around the world, to Gemini, a US operator targeting institutional investors, to set up base.

Some 170 companies applied for a MAS licence, taking the total number of firms seeking to operate under its Payment Services Act to about 400, after the law came into effect in January 2020.

Since then, only three crypto firms have received the much-coveted licences, while two were rejected. About 30 withdrew their application after engaging with the regulator. 

Among those approved is the brokerage arm of DBS Group Holdings Ltd, Singapore’s largest bank, which is also a pioneer in setting up a platform for trading of digital tokens while offering tokenisation services.

The regulator is taking time to assess applicants to ensure that they meet its high requirements, Menon said. The MAS has also boosted resources to cope with high volumes of prospective services operators, he said.

“We don’t need 160 of them to set up shop here. Half of them can do so, but with very high standards, that I think is a better outcome,” he said.

Menon said the benefits of having a well-regulated local crypto industry could also extend beyond the financial sector.

“If and when a crypto economy takes off in a way, we want to be one of the leading players,” he said.

“It could help create jobs, create value-add, and I think more than the financial sector, the other sectors of the economy will potentially gain.” — Bloomberg

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Singapore has grand ambitions to become a global crypto hub

 

On top for a third year running | The Star

 

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Guidance on Cryptocurrency investments, Digital asset exchanges cintinue to thrive in Malaysia

Representations of cryptocurrencies Bitcoin, Ethereum, DogeCoin, Ripple, Litecoin are placed on PC motherboard in this illustration taken, June 29, 2021. REUTERS/Dado Ruvic/Illustration

  

 Dr Tan says the forum is meant to assist the public with the best investment strategy

 Guidance on investments

Experts to speak on  Cryptocurrency at online forum on Nov 6

TWO experienced financial professionals will share their thoughts and analyses at the ‘Investment and Cryptocurrency’ online forum on Nov 6, 2021.

One of them is German-born Mustafa Aydemir who is a senior investment analyst at Saturna Fund Management Company.

He is one of the fund managers licensed by the Securities Commission Malaysia.

Besides being familiar with conventional financial investment, he is also good at Islamic financial investment.

Another speaker is Edgar ‘Jobe’ Gasper, the chief operating officer of SINEGY involved in digital asset trading, which is legal and approved by the Securities Commission Malaysia.

He has extensive practical experience in digital transactions, blockchain technology and cryptocurrency mining operations.

Both of them will conduct in-depth sharing of investment knowledge at the online forum organised by the Malaysian Financial Planning Council (MFPC) Penang Chapter from 9.30am to noon.

MFPC Penang Chapter chairman Dr Tan Chuan Hong said the forum was meant to assist the general public and retail investors to ride out the pandemic crisis with the best investment strategy.

Citing a report from the Malaysian Institute of Economic Research, he said the Government had been utilising large-scale borrowing to assist civilians and small medium enterprises as well as boost the economy since the country was hit by the Covid-19 pandemic almost two years ago.

“This has resulted in a rising debt ratio.

“Up to June this year, the debt ratio exceeded the statutory 60%, reaching 61.1%.

“This has created a lot of concern on whether Malaysia can rapidly recover from this economic crisis.

“Can our stock market this year perform like it did last year when it soared by more than 10% again in just two months? Or is it the end of the bear market?

“To make wise investment decisions, investors need time to collect and analyse the information cautiously,” he said.

Dr Tan said that many still needed more proper education about cryptocurrency investment.

He said many Malaysians had been scammed and lost their money due to inaccurate information obtained online.

“Cryptocurrency investment is originally a high-risk and high-return investment tool.

“Therefore, investors who are blinded by greed for high returns often suffered huge losses,” he said.

On the same day, MFPC executive director Chung Kar Yin, Universiti Sains Malaysia School of Management dean Prof Dr Noor Hazlina Ahmad and Tunku Abdul Rahman College Penang Branch Campus head Assoc Prof Dr Toh Guat Guan will also hold a brief sharing session.

Participants have to fill in the online evaluation form after the session to obtain a certificate of participation and 3CPDs.

Those interested can register online for free.

The public registration link is https://1st.mfpc.org.my/PublicEventRegistration/302 and the MFPC members registration link is https://1st.mfpc.org.my/.

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Digital asset exchanges continue to thrive

 About 300,000 new accounts created to date

KUALA LUMPUR: Despite market uncertainties following the Covid-19 pandemic, about RM16bil worth of digital assets and cryptocurrencies have been traded in Malaysia between October 2019 and September 2021.

Securities Commission (SC) chairman Datuk Syed Zaid Albar said digital asset exchanges in the country would continue to thrive this year, with about 300,000 new accounts created to date.

“Investor participation in alternative and digital platforms continues to be robust. New digital investment management (DIM) entrants have contributed to the segment’s assets under management growth.

“In fact, compared to last year, our eight licensed DIM holders have opened 90% more DIM accounts from January to July this year,” he said at the SCxSC Fintech Conference 2021.

In addition, Syed Zaid said the increased demand for online brokerage services resulted in close to 35% increase in new accounts opened as of July 2021.

Given the positive developments, he expects the industry to maintain the encouraging growth performance this year.

Meanwhile, Syed Zaid disclosed that equity crowdfunding (ECF) and peer-to-peer (P2P) financing platforms have raised about RM1.3bil since April last year, given the funding needs of micro, small and medium enterprises (MSMEs).

Citing data, he said about RM625mil funds were raised through ECF and P2P in the first half of this year, an increase of 151% and 220%, respectively, from a year ago.

Both platforms attracted young investors, with 60% of participants aged below 35.

Since their inception, 21 ECF and P2P financing platforms have raised about RM2.2bil for nearly 4,000 MSMEs.

Moving forward, the SC said fintech could be the crucial enabler in helping the country to recover as the pandemic had an adverse impact on businesses.

“The SC would seek to drive greater adoption of digital capability to enhance capital formation efficiencies and increase investor participation in the capital market,” added the regulator. 

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Blockchain: Internet of Value/ Currency of Trust; Private cryptocurrency a misallocation among blockchain technology, say research & economist

• Blockchain embodies the internet of value. How will it revolutionize our lives and our pockets?

•  And, we look at the qualities Blockchain needs to spark mass adoption.

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Currency of Trust

Blockchain has the potential to be revolutionary. But, what hurdles must it overcome before it can hit the mainstream? In London, we invited Patrick McCorry, founder and CEO of PISA Research, a grant funded by a group of Blockchain companies, to decode this ever-changing world.

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Private cryptocurrency a misallocation among blockchain technology, says economist

Cryptocurrency is digital-based cash among the internet world nowadays. Born from blockchain, this kind of "currency" is blooming in terms of high privacy. Acknowledging that, Nobel Prize-winning economist and Harvard professor Eric Maskin commented that private cryptocurrency is a misallocation.

"The most important application of blockchain so far has been cryptocurrency, and that is a terrible misallocation. In my view, cryptocurrency, at least private cryptocurrency like bitcoin is a mistake," said Maskin.

"Because the public currency like RMB and U.S. dollar are much more useful than private currency. [Public currencies] they preserve the power of central banks to conduct monetary policy. If no one is using the dollar, then the U.S. monetary policy is useless. So I'm worried about cryptocurrency only to the extent that it reduces the use of currencies like RMB or dollar," he added.

He also pointed out that cryptocurrencies could interfere with central banks' monetary policies.

Meanwhile, Maskin supports the idea that blockchain is a technology. He noted that it is one of the exciting developments that have come along in recent years.

"Blockchain can make all sorts of transactions much easier and much more secure. It can also ensure that only the information that people need to have gets transmitted," said Maskin.

"Blockchain is a way for me to guarantee that only what you need to about me gets told. And that's valuable in a world where we're beginning to worry about privacy issues," the professor explained.

Besides, Maskin supports building the country's own digital currencies. With the backdrop of e-payment booming around the world, Maskin said the digital currency can make transaction easier but it won't have all of the unpleasant side effects of these private currencies.

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Internet Protocol Version 9 第一代互联网 IPv9, Quantum Computing, AI and Blockchain: The Future of IT

Pushing blockchain revolution

(From left) World of Sharing business development manager Ice Wong, EUNEX (Asia) marketing director Kyan Lee, MBAEX chief executive officer Sebastian Ionut Diaconu, Lim, International Blockchain Research Club vice-president Sunny Chao and blockchain technology company Milletique OTO Distribution senior manager Jasmond Ng posing at Fintech Blockchain Summit in Kulim, Kedah

OVER 2,000 blockchain enthusiasts and leaders shared the latest ideas at Fintech Blockchain Summit which was held in Kulim, Kedah.

The summit themed ‘Blockchain Era, Connecting Future’ explored the potential of blockchain technology in various economic fields.

Delegates discussed blockchain trends and evolution to various platforms and digital assets.

Held at MBI Desaku Multi-function Convention Centre, the summit was jointly organised by World Crypto Organisation, Makefamous Creative Hub Sdn Bhd, Milletique OTO Distribution Sdn Bhd, Mightficent Global Sdn Bhd, Menbridges Academy Sdn Bhd and Macsintec Social Media Sdn Bhd.

Among those attending the summit was Super Minor Community vice-president Nicholas Lim who is also Chainverses magazine chief editor.

“Various groups joined us at the summit to contribute to the progression of financial technology through discussions and sharing sessions.

“We hope this summit will open up greater opportunities for development,” Lim said.

Lim opined that blockchain had good concepts and ideas.

However, he said the biggest resistance in the current blockchain development was the lack of economic support in terms of adoption.

“To overcome this, we need teamwork, good practical solutions and support from the community to push the adoption of blockchain in the country forward,” he added.

During the summit, four groups signed an MoU, including International Financial Technology Academy, Linton University College, Milletique Technology and Menbridges Academy.

The MoU aimed to promote blockchain financial technology through education with the hope of cultivating more blockchain experts in the future.

By emilia ismail The Star


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BLOCFEST www.blocfest.asia

SOUTHEAST ASIA’S INTERNATIONAL BLOCKCHAIN EVENT

Blockchain and beyond

Brothers Hway (left) and Tze-Co say networking will be a big part of the Blocfest conference. — ART CHEN/The Star

Educate yourself on blockchain technology which is transforming businesses around the globe.

What began as an experiment in buying Bitcoin for a holiday led two brothers to explore blockchain technology and eventually organise a blockchain conference – Blocfest 2018 – which will feature more than 30 ­international speakers.

Gwei Tze-Co, 49, started investing in Bitcoin four years ago, ahead of a trip to Brazil to attend the 2014 World Cup.

“I was planning to go to Argentina after the World Cup and read that the currency situation was so bad there that you could use Bitcoin instead. I bought some but didn’t end up using it,” he says.

But that initial investment got him hooked on blockchain and cryptocurrency, especially Ethereum.

Meanwhile, Gwei Hway, 43, who is a ­programmer and has worked in tech firms for the last 20 years, was drawn to ­blockchain and cryptocurrency because of his brother’s fascination for them.

Tze-Co says in Malaysia blockchain is still an emerging technology though a few good projects by local founders have been launched.

“However, lots of people just use blockchain and cryptocurrency for hype. To put it bluntly, there’s a lot of scams and many Malaysians are falling for them,” he says.

He says that a conference with legitimate speakers sharing their experience could go a long way in educating people on how blockchain can make a difference in their businesses.

He adds that once a person better understands blockchain technology and especially how it’s used in business, it will be easier for him or her to identify the fake ones.

This is one of the reasons the brothers are organising Blocfest through their company, Blockchain Asia Sdn Bhd, which is scheduled to take place at the Shangri-La Hotel, Kuala Lumpur, on Sept 26 and 27.

The two-day conference will focus on the potential of blockchain technology in South-East Asia and feature speakers from various ­backgrounds, including ­blockchain entrepreneurs, developers, global investors, academics and ­enthusiasts.

Discussions at the conference will be divided into three streams – Regulatory, Academic and Enterprise.

Regulatory will help you understand the current regulatory landscape and what’s in store in the future for blockchain; Academy will tackle academic concepts and their impact on blockchain; and Enterprise will highlight technological aspects of blockchain and potential use-case scenarios.

Hway expects half the attendees to come from enterprises which aren’t too familiar with blockchain technology but are exploring how it could be relevant to them, while the remaining will be investors, academics and experts in the field.

“Networking is definitely a big part of the conference, and as many solution providers will be present in the exhibition halls, we expect a lot of companies to ink deals or find partnerships,” he says.

Joining the conversation will be ­regulators from countries that have begun to explore the issue, including Taiwanese Member of Parliament Jason Hsu, better known as the Crypto Congressman due to his staunch ­support for the technology, and a ­representative from the Philippines’ Cagayan Economic Zone Authority which spearheads the country’s financial ­technology efforts.

Tze-Co says there have been talks to get Malaysian regulators to ­participate and share their thoughts on the laws required to facilitate blockchain in Malaysia but the discussion is ongoing.

Other key speakers that will be at Blocfest are cryptofinance ­platform Fusion’s founder Dejun Qian, blockchain veteran and ProximaX Ltd founder Lon Wong, anti-counterfeit system Wabi’s CEO Alexander Busarov, and dating marketplace Viola.AI’s CEO Violet Lim.

In addition to Blocfest, ­attendees can also take part in several other events during the KL Blockchain Week, which will be held between Sept 24 and 27, including a ­hackathon.

Those interested in attending Blocfest can get 40% off VIP ­tickets priced at US$450 (RM1,860) or normal ­tickets priced at US$375 (RM1,550) by keying in the promo code BLOC40D ­during checkout but this offer is only ­available for a limited time. Visit www.blocfest.asia for more ­information.

Credit:Qishin Tariq The Star online


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BLOCKCHAIN beyond Bitcoin

Blockchain is beginning to enter the spotlight as organisations see uses for it over and above the cryptocurrency Bitcoin. From combating fake degrees to being able to track the origin of organic products, blockchain is proving to be a reliable solution in trust.

The underlying technology that powers cryptocurrencies like Bitcoin and ethereum is blockchain.

Creating trust in transactions Varanasi: Blockchain can be used to store verified documents so that users don’t have to keep validating important documents every time it’s submitted to a new party.

While blockchain was confined to finanin cial tech the early days, many organisations are starting to employ it in other industries because the technology is highly secure and even allows for transparency.

This encourages trust and in some cases even eliminates the need for a third party to validate the data, making it valuable to many organisations.

WITH fake doctorates and degrees becoming increasingly common, how are employers and graduates to find an efficient way to bridge the gap in trust?

According to Dr Mohamed Ariff Ameedeen, from University Malaysia Pahang (UMP), the solution could lie with blockchain technology.

As director of IBM’s Centre of excellence, which has been based in the university since 2012, he is continuously exploring novel uses for blockchain beyond cryptocurrency.

he said one of the early ideas the team was working on was a secure database that would prevent students from hacking to change their grades.

however, his team then decided to solve a more pressing issue affecting universities – fake degrees.

Mohamed Ariff said some universities are already integrating QR codes into graduates’ certificates to help validate credentials. however, even QR codes are now easily tampered with.

Taking it one step further, the UMP team created a system called Valid8, a QR code linked to a student profile secured by blockchain, which contains the student’s name, photo, title of degree and the year it was awarded.

This made tampering with the QR code pointless, as it only acted as a key to the information on the blockchain.

“even if someone used another person’s QR code, the data would clearly show it was not the person’s name or photo connected to the certificate,” he said.

he added that all the info placed on the blockchain is already publicly available so it would not compromise the students’ privacy.

Mohamed Ariff said making the data trustworthy meant time savings – as employers don’t have to contact the university to verify the certificate, they can be quicker in deciding if they should hire the job applicant.

So far, UMP has run a pilot programme with Valid8 by issuing supplementary certificates to 180 graduates from the industrial Management Faculty.

Mohamed Ariff said it took a couple of days to configure the blockchain node and a few more days to input the 180 students’ data.

“Although entering the information is relatively straightforward, migrating 15 years of old data (of earlier graduates) that includes more than just the initial four data points is going to take a bit longer,” he said.

The full-scale test for Valid8 will be the students graduating at the year-end convocation, estimated to be around 2,000.

To make the student profiles more useful, Mohamed Ariff said the team is planning to add more information such as grades, attendance, courses and maybe even disciplinary records.

“The beauty of blockchain is that it can grow with time and track a student’s academic life. imagine how much data it would have if a profile was set up for students when they entered kindergarten,” he said.

To encourage such a situation, UMP is open to collaborating with other universities that wanted to adopt blockchain for student iDs.

however, eduValue founder Barry Ew Yong warned that even a secured system has an obvious point of failure – human error.

he added that once errors entered the system there is a chance that it will be perpetuated. “Technology does not increase trust. Systems increase trust, though technology can be a useful tool to do so,” he said.

Like with UMP’s Valid8, the quality assurance startup has adopted blockchain to secure graduate certificates, using the technology to store a softcopy of the degree.

The company serves around 30 private schools, mostly tertiary schools offering up to Masters. Founded in Singapore in December 2012, it only just started employing blockchain.

he said the company uses a two stage system to ensure that only qualified students would be given certificates.

in the first stage it will help set up the standard by which students will be evaluated in order for them to graduate, and the approval process will be audited – schools found lacking will be struck off the system.

in the second stage it will vet all data being uploaded to the platform.

For UMP this is just a start – it’s also testing a blockchain based e-wallet called Xchain that students, lecturers, staff and vendors would eventually use for all transactions in UMP.

Beyond the security benefits, Mohamed Ariff said the open-nature of blockchain’s shared ledger meant the spending patterns could be analysed, making the university a giant data pool.

“With a population of 13,000 users, there’s a lot of potential data. And as a university, we love data,” he said.

Xchain is still in beta as the team is waiting to get Bank Negara to issue it an e-wallet license.

Mohamed Ariff concluded that blockchain is promising, especially for the education field, which relies on data that is open to peer review while also being trustworthy and tamper-evident.

ACADEMICIAN hu Dong, who advises Shanghai Jiaotong University’s Zero Bay incubator, said the supply chain industry could see huge advantages by having a more efficient and transparent data manto agement system.

Blockchain can be used track a product’s origin and determine if the materials were sourced as claimed, which is invaluable to sectors such as organic farming and ethical diamond mining. Also, by tracking the product’s trail along each stop on the supply chain, should an issue arise that requires a product to be recalled, the company could zero in on where the fault occurred.

For example, if a company found that the computer it’s making has a faulty hard drive, it would be able to identify which one of its factories was responsible. it then only needs to recall the computers that originated from the affected factory instead of all its products.

This would save cost as the recall will be smaller

and speed up the process which could help limit damage to the company’s reputation.

Dong, who was in Malaysia for a conference by blockchain incubator WeMerge, said the highlight of blockchain is accountability and transparency so it would create a higher degree of trust, which makes it great for smart contracts.

A smart contract can digitally facilitate, verify, or enforce the performance of a contract without the need for third parties. And if executed via blockchain, the transactions are trackable and irreversible.

He said smart contracts could ensure factories, for instance, get paid faster, as the payment can be released once the contract is verified through the blockchain instead of waiting for a third-party to process it.

Startup Eximchain, which has raised US$20mil (rM78.41mil) in funding to continue developing blockchain solutions, is offering Smart Contracts.

Its solution allows banks to verify the validity of orders and provide the necessary financing; and the transaction history can be used by suppliers to prove their reliability to buyers and rating institutions. For banker turned blockchain technologist Bobby Varanasi, limiting the technology’s application to Bitcoin is just shortsighted.

The co-founder of Thynkblynk Technologies, along with partner Parag Jain, have developed ChainTrail, a “trust platform” for storing verified documents, including education certificates, medical records and contracts.

By using ChainTrail, you don’t have to keep verifying a document each time it’s presented to a new party.

However, Varanasi said the company was not in the business of certification and that the onus was on the data provider, be it a university or bank, to ensure that the data is correct.

“A lie, once committed to blockchain, would become an immutable one,” said Jain, referring to how data can only be added but not modified on a blockchain.

To mitigate such risks, ChainTrail vets customers by validating their credentials and ensuring that they are authorised to represent stakeholders.

For instance, it would verify that a lecturer is from the university he or she claims to represent.

It also offers templates for agreements such as contracts and term sheets.

“In today’s world, lack of trust is increasingly permeating the world of trade, both politically and financially... blockchain as a tech has finally presented an opportunity to create trust amongst a variety of parties that transact with each other,” said Varanasi.

Chain of trust:

Built for cryptocurrency Bitcoin, blockchain is being used in innovative ways in a number of industries.

 

Basics of blockchain

LIKE a lot of complex technologies, blockchain is easier to understand once you break it down.

A blockchain is made up of a block of “transaction data” which is why it’s also called a ledger. Each block also has a hash – a string of numbers which uniquely identifies the block.

And similar to how a person has their parent’s names added to theirs, a block features a portion of the preceding block’s hash.

Put in terms of family lines, it’s like how you could tell that Amir bin Ali is the son of Ali bin Abu, who is in turn the son of Abu bin Bakar, and so on.

Basically, the hash “chains” the blocks together, by affirming their place in relation to the blocks before and after, hence the term blockchain.

Security in numbers

A key feature of blockchain is security. Blockchain runs on the paraphrased adage that you can fool some of the people some of the time, but not all the people all the time.

So rather than making it tamper-proof, blockchain is tamper-evident – this is done by making a copy of the blockchain available to all members of the network, which is why blockchain is sometimes referred to as a public ledger.

As members of the network all have a copy of the same blockchain, if anyone’s chain is compromised by a hacker, it would look different from others.

If you have ever tried to organise a movie night with an extended group of friends on a WhatsApp group, you’ll get the idea.

Say, you want to watch Marvel’s Avengers: Infinity War and get the ball rolling by choosing the day and cinema, and then ask whoever that’s interested to add their names to the list.

The original message can’t be altered as it has been sent to the group. Instead everyone adds to the data by including their names and maybe a request for a specific timeslot. This concept is called “persistence”, wherein the older data cannot be retroactively altered.

Though a cheeky friend could change the date to try to troll the group, he wouldn’t be able to hide the fact that earlier messages will show a different date. This is what makes a public ledger like the blockchain tamper-evident.

Blockchain transaction

The blockchain is stored on computers, also known as nodes, that are connected via a peer-to-peer network.

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Bitcoin: Utter pipedream

No intrinsic value: Unlike enterprises, bitcoin has no business, no intrinsic value, no cash flows and no balance sheet. — AFP

I JUST returned from a meeting of the Asian Shadow Financial Regulatory Committee in Bangkok.

The group comprises Asian academic experts on economics and finance. Their role is to monitor the state of the world economy and the workings of its financial markets in the light of existing and prospective policies; and draw lessons and give advice on vital public policy issues of current interest to regulators and market practitioners to make the world a better place.

The group comprises 23 professors from 14 countries, coming from a diverse group of universities and think-tanks, including the universities of Sydney and Monash, and of Fudan, Hong Kong and Sun-Yat-Sen in China, Universitas Indonesia, universities of Tokyo and Hitotsubashi, Yonsei and Korea universities, Sunway University, Massey University in New Zealand, University of the Philippines, Singapore Management University, National Taiwan University, Chulalongkorn University and NIDA Business School, University of Hawaii and University of California at Davis, University of Vietnam, and Tilburg University in the Netherlands.

They examined key issues surrounding the theme: “Cryptocurrencies: Quo Vadis?” focusing on the role and activities of the flavour of the month, bitcoin. At the end of it all, they issued the following statement:

“Cryptocurrencies in general, and bitcoin, in particular, have been receiving considerable press of late, driven mainly by wide swings in value in the cryptocurrency exchanges. There are now in excess of 2,500 products considered to be cryptocurrencies and in the last three weeks alone their combined market value has plummeted from US$830bil to US$545bil as of today, of which US$215bil is attributed to bitcoin and bitcoin cash.

To keep this in perspective, however, Apple Inc has a market value of US$880bil as of today. Market value measures the equity value of a business – or what investors are willing to pay for its future profits. Unlike enterprises, however, bitcoin has no business, no intrinsic value, no cash flows, no profit and loss statement, and no balance sheet. It is a speculative instrument.

Cryptocurrencies, including bitcoin, are not considered currency today because they are not a universal means of payment, nor a stable store of value, nor a reliable unit of account. Buyers purchase on the basis that these cryptocurrencies would rise in value. While market value has been the main focus of the current interest, the more important issues are around the role of cryptocurrencies both as financial assets, and the role they can play in transaction settlements, and their implications, if any, on financial stability.

While there is much interest in cryptocurrencies, especially bitcoin, the volume of transactions remains very small currently. For example, total US dollars (cash) in circulation amount to US$1.6 trillion as of today. M3 (broad money) is valued by the Federal Reserve at US$14 trillion. Total US economy assets in 2016 were valued at US$220 trillion. So why the fascination with cryptocurrencies? Supporters of Bitcoin claim it to be a superior store of value to fiat money issued by central banks because its supply is limited by design and therefore cannot be debased. In addition, the technology behind bitcoin, called the Blockchain, provides anonymity to its players. That is why it is a favourite with money launderers, tax evaders, terrorists, drug smuggler, hackers, and anyone who wants to evade the rule of law. Many people who use cryptocurrencies assert that they pay minimal transaction costs mainly because it avoids the cost of financial intermediation.

Still, there is large potential for capital gains because of the wide volatility of its price movement. This is the main driving force behind the popularity of cryptocurrencies like bitcoin. However, there are high risks involved including extreme volatility and opaque, unregulated exchanges that are prone to cyberattacks.

Authorities and regulators worry about bitcoin because they fear it is a bubble. In the event of a bust, investors in bitcoin – they are many, spread over various continents and countries – will be hurt; and they exert pressure on governments to regulate this business in order to protect investors.

In addition, they worry about the impact – in the event that cryptocurrency trading becomes a significant element in maintaining financial stability – in terms of the impact on the transmission of monetary policy and on its effects on the banking system, and most of all, on systemic risk, if any.

Authorities have responded in different way. In South Korea, new regulations today require banks and exchanges to identify who their customers are, imposing greater transparency in the conduct of the cryptocurrency business. On the other hand, Japanese authorities are more liberal. They only require the registration of companies engaged in this business at this time.

Many other authorities, including those in the US, are adopting a wait-and-see attitude while studying the issues, recognising that there may be a role for them to introduce some regulatory measures in the event that the volume and price volatility of cryptocurrency transactions become more and more significant.

In the meantime, government and tax authorities feel uneasy about the impact on revenue collection. Other regulators are worried about crowdfunding through ICOs (initial coin offers). Authorities in a number of countries, including the US, have introduced measures to regulate the issue of new ICOs to ensure that investors are provided with the necessary information before making such investments.

At the same time, central banks in many countries are looking into the desirability and possibility of issuing their own digital currencies, including to counter privately-issued cryptocurrencies.

Recommendations:

1. Bitcoin came into prominence because of an apparent lack of confidence in fiat currency. It is imperative that governments and central banks continue to give priority to (i) protecting the integrity of their currencies; (ii) designing policies to contain inflation to prevent it from debasing the currency; and (iii) strengthening their mandate to promote financial stability over financial development, if needed (including ensure fintech development does not undermine confidence). Also, in cases where authorities do not have the power to regulate the cryptocurrency business, they should actively seek such authority where appropriate.

2. Monetary authorities should be open to creating digital currencies rather than confining their money supply to notes, coins and deposits. But they should do so in a transparent manner and only after careful consultation and study.

3. It is the role of government to warn their citizens and investors about the high risk involved, and ensure transparency in bitcoin activity, and not to unduly introduce more and more regulations that will stifle innovative initiatives. Blockchain technology, for example, does have other useful applications apart from the issue of its use in the creation of digital currency.

Investor protection

As we see today, bitcoin and the other cryptocurrencies are not currencies. Mostly, they reflect speculative activity. Hence, investing and transacting in them involve high risks. It is imperative that investors realise this and approach investing in cryptocurrencies with great caution and with as much information as is available to help them manage these risks.

Investors must fully understand that cryptocurrency prices need not necessarily always rise, particularly because they have no intrinsic value, they could just as easily fall. So investors beware: Caveat emptor.”

Update

The following developments are noteworthy:

> Columbia’s Prof N. Roubini (Dr Doom) claims bitcoin is not a currency. Few price anything in bitcoin. Not many retailers accept it (even bitcoin conferences don’t accept it as payment). And it’s a poor store of value because its price can fluctuate 20%-30% a day. Worse, he labelled it “the mother of all bubbles” because its claim of a steady-state supply is “fraudulent”.
It has already created thee similar currencies: Bitcoin Cash, Litecoin and Bitcoin Gold. Together with the hundreds of such other currencies invented daily, this creation of money supply is debasing the currency at a much faster pace than any major central banks ever did. Furthermore, bitcoin’s claimed advantage is also its Achilles’s heel – for, even if it actually did have a steady supply of 21 million units, it is not a viable currency because the supply won’t track potential nominal GDP growth; hence, prices will become deflationary – the kind of phenomenon that economist Irving Fisher believed caused the Great Depression.

Indeed, the head of the European Central Bank had since declared to the European Parliament that cryptocurrencies are unregulated and “very risky assets. Their price is entirely speculative”. That’s not what we want or need. It’s a pity the FOMO (fear of missing out) of many retail investors will end them in a wild goose ride!

> Over its nine-year history, bitcoin has had five-peak-to-trough falls of more than 70% each. The recent decline offers a dose of reality to new investors – bitcoin dropped to a low US$7,850 on Feb 2 for the first time since November 2017 – crashing 60% from the high of nearly US$20,000 in mid-December. Sentiment has shifted dramatically this year.

On Feb 5, it fell another 4% to US$7,524. Also, the fledging market has taken a number of blows: Facebook has since banned advertisements on it (for being misleading); US Securities and Exchange Commission has accused some latest ICOs as “outright scams”; US and UK largest banks have put up “road-blocks” to financing bitcoins; and the recent Japanese hack theft of 523 million crypto-XEM (worth US$500mil) brought back memories of Mt Gox, which collapsed after a similar hack in 2014.

> Arbitrage traders (buying where it’s cheap and reselling where it is dear) have been active – taking advantage of price differentials in multiple places and different times. They call it “capturing the arb”. Hedge funds, high frequency traders and even amateur enthusiasts are giving it a shot. Price divergences can be due to glitches or network traffic jams. In South Korea, exchanges quote abnormally wide prices reflecting high investors’ demand for bitcoin in the face of strict capital controls – giving rise to a “Kimchi premium” (of as high as 50% above US price; now down to 5% as price disparities are swiftly traded away).

> Concern over cryptocurrency activity is spreading beyond China, Japan, South Korea and India. This prompted the governor of the Bank of England, who also chairs the Global Financial Stability Board, to voice his unease over the anonymity embedded in blockchain technology underlying their use, especially for illicit activity (including money laundering). He disclosed that it would be on the agenda at the next G20 meeting. Tax authorities have also expressed concern over the under-reporting of capital gains tax.

> Bitcoin futures trading on Chicago’s CME and CBoE exchanges have been slow to catch fire – at the pace of a “slow walk”.

What then, are we to do

Reality check: Bitcoin is proving that cryptocurrencies can erase wealth as fast as they create it. In January 2018 alone, it wiped off US$45bil from its US$200bil in market value generated in all of 2017 – the biggest one-month loss in US dollar terms in its short history. Since then, more value is being lost. For most economists and finance experts, they don’t represent an investable asset – there are liquidity issues, safety issues, exchange issues; most of all, they have no intrinsic value.

Can’t realistically put a fix on their fair value. They are for speculators who are prepared to lose everything. Of course, its something else for those who use them for illicit activity (home to criminals and terrorists), including money laundering. Anonymity means you are potentially closing a chain, while at somewhere along it had some illicit activity that cannot see the light of day.

Fair enough, these concern regulators. But we shouldn’t lose sight of the huge range of opportunities presented by the underlying technology – a view shared by many in relation to raising the efficiency of payment systems. Regulators are right to want to regulate crypto but also, continue to encourage innovation on blockchain. As I see it, so far in 2018, bitcoin has been a total dud. The list of factors driving its decline is growing, especially rising regulatory clampdown occurring around the world.

So, the cryptocurrency market has fallen on tougher times. For sure, Bitcoin has been highly profitable for many investors. Indeed, there continues to be strong interest among millennials.

Bottom line: the year so far has been terrible for bitcoin. But the fundamental positive story for crypto appears to remain intact. Protecting consumers should make it harder for charlatans to sell digital dust. There is a point where it goes from “buying on the dip” to “catching a falling knife”. Only time will tell. So, beware!

NB: Following global regulatory crackdown, bitcoin’s price has on Feb 6 fallen to a low of US$5,947, wiping out over US$200bil so far this year. Bitcoin’s market cap is now US$109bil, about one-third of the total crypto market (that’s down from 85% this time last year). The Bank for International Settlements (banker to central banks) has now condemned bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster” (refers to huge amounts of electricity used to create it) and warns it can even become a “threat to financial stability”.


By Lin See-yan - what are we to do?

Former banker Tan Sri Lin See-Yan is the author of The Global Economy in Turbulent Times (Wiley, 2015) and Turbulence in Trying Times (Pearson, 2017). Feedback is most welcome.

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