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American Bar Association Business Law Section Committee on Derivatives and Futures Law
American Bar Association Business Law Section Committee on Derivatives and Futures Law Winter Meeting 2018 Naples, Florida Friday, January 19, 2018 10:15 a.m. to 11:30 a.m. NEW PRODUCTS / FINANCIAL TECHNOLOGY Moderator for the Program: Conrad G. Bahlke, Willkie Farr &Gallagher LLP Speakers: Geoffrey F. Aronow, Sidley Austin LLP Debra W. Cook, Depository Trust & Clearing Corporation Katherine Cooper, Law Office of Katherine Cooper Isabelle Corbett, R3 David Lucking, Allen & Overy LLP Brian D. Quintenz, Commissioner, U.S. Commodity Futures Trading Commission ABA BUSINESS LAW SECTION DERIVATIVES & FUTURES LAW COMMITTEE 2018 WINTER MEETING NEW PRODUCTS / FIN TECH PANEL 2017 Developments in US Regulation of Virtual Currencies and Related Products: Yin and Yang January 5, 2018 By Katherine Cooper1 2017 was a year during which virtual currencies began to move into the mainstream financial markets. This generated significant legal and regulatory developments as U.S. regulators faced numerous novel products attempting to blend the old with the new. Although facing so many novel issues, the regulators’ responses tell a familiar story of the struggle to balance the yin of customer protection with the yang of encouraging financial innovation and competition. Below is a summary of 2017 developments from the SEC, CFTC, OCC, FinCEN and the States. I. Securities and Exchange Commission a. Bitcoin Exchange-Traded Products A number of sponsors of proposed Bitcoin exchange traded products had applications for approval pending before the Securities and Exchange Commission at the beginning of 2017. In March 2017, the SEC rejected a proposal backed by Tyler and Cameron Winklevoss.2 The Bats Exchange proposed a rule amendment which would list the shares of the Winklevoss Bitcoin Trust for trading. -
CASP) Software-Only, Ledger Agnostic, Platform Agnostic, Crypto Agile Bank-Grade Security for Crypto Assets
Protect Your Crypto Assets with Unbound’s Crypto Assets Security Platform (CASP) Software-Only, Ledger Agnostic, Platform Agnostic, Crypto Agile Bank-Grade Security for Crypto Assets Mathematically proven security Cryptography is one of the foundational security elements used by guarantee – the key material never organizations to protect sensitive data, transactions, services and identities. exists in the clear throughout its At the core of any cryptography implementation is the management of lifecycle including creation, in-use cryptographic keys and their protection from compromise and misuse. and at-rest With crypto assets, the protection of private keys is top priority, since the Any currency, any ledger, any private key is used to sign each transaction. It is therefore mandatory platform, any client to keep the key secure – not only from compromise, but also from any Programmatically derived malicious usage – as it takes only one fraudulent transaction (i.e. a single sign addresses (BIP 32/44) that are operation, to empty a wallet). cryptographically protected Backed by proven mathematical guarantees of security, Unbound’s Crypto Stronger and more flexible than Asset Security Platform (CASP) provides its customers with a software-only multi-signature – ledger-agnostic support of flexible quorum security platform that is as safe as hardware. With CASP, one can fully manage structures, any number of human the keys’ lifecycle, define cryptographically-based approval policies, while and/or servers, internal and supporting any currency, any ledger, any platform and any client type. external, that are required to sign a transaction Any Currency, Any Ledger, Any Platform Infinite scalability – easily scale capacity when and where it is Traditionally, securing the keys and secrets that guard the organizations’ most needed valuable assets required the use of dedicated hardware, such as hardware Intuitive and easy to use SDK – security modules (HSMs) and smartcards. -
Rev. Rul. 2019-24 ISSUES (1) Does a Taxpayer Have Gross Income Under
26 CFR 1.61-1: Gross income. (Also §§ 61, 451, 1011.) Rev. Rul. 2019-24 ISSUES (1) Does a taxpayer have gross income under § 61 of the Internal Revenue Code (Code) as a result of a hard fork of a cryptocurrency the taxpayer owns if the taxpayer does not receive units of a new cryptocurrency? (2) Does a taxpayer have gross income under § 61 as a result of an airdrop of a new cryptocurrency following a hard fork if the taxpayer receives units of new cryptocurrency? BACKGROUND Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and a store of value other than a representation of the United States dollar or a foreign currency. Foreign currency is the coin and paper money of a country other than the United States that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance. See 31 C.F.R. § 1010.100(m). - 2 - Cryptocurrency is a type of virtual currency that utilizes cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain. Units of cryptocurrency are generally referred to as coins or tokens. Distributed ledger technology uses independent digital systems to record, share, and synchronize transactions, the details of which are recorded in multiple places at the same time with no central data store or administration functionality. A hard fork is unique to distributed ledger technology and occurs when a cryptocurrency on a distributed ledger undergoes a protocol change resulting in a permanent diversion from the legacy or existing distributed ledger. -
White Paper of Bitcoin Ultimatum Introduction
White Paper of Bitcoin Ultimatum Introduction 1. Problematic of the Blockchain 4. Bitcoin Ultimatum Architecture industry 4.1. Network working principle 1.1. Transactions Anonymity 4.1.1. Main Transaction Types 1.2. Insufficient Development of Key Aspects of the 4.1.1.1. Public transactions Technology 4.1.1.2. Private transactions 1.3. Centralization 4.1.2. Masternode Network 1.4. Mining pools and commission manipulation 4.2. How to become a validator or masternode in 1.5. Decrease in Transaction Speeds BTCU 4.3. Network Scaling Principle 2. BTCU main solutions and concepts 4.4. Masternodes and Validators Ranking System 4.5. Smart Contracts 2.1. Consensus algorithm basis 4.6. Anonymization principle 2.2. Leasing and Staking 4.7. Staking and Leasing 2.3. Projects tokenization and DeFi 4.7.1. Staking 2.4. Transactions Privacy 4.7.2. Leasing 2.5. Atomic Swaps 4.7.2 Multileasing 4.8. BTCU Technical Specifications 3. Executive Summary 4.8.1. Project Stack 4.8.2. Private key generation algorithm 5. Bitcoin Ultimatum Economy 5.1. Initial Supply and Airdrop 5.2. Leasing Economy 5.3. Masternodes and Validators Commission 5.4. Transactions Fee 6. Project Roadmap 7. Legal Introduction The cryptocurrency market is inextricably tied to the blockchain – its fundamental and underlying technology. The modern market is brimming with an abundance of blockchain protocols, algorithms, and concepts, all of which have fostered the development of a wide variety of services and applications. The modern blockchain market offers users an alternative to both established financial systems and ecosystems/infrastructures of applications and services. -
Linking Wallets and Deanonymizing Transactions in the Ripple Network
Proceedings on Privacy Enhancing Technologies ; 2016 (4):436–453 Pedro Moreno-Sanchez*, Muhammad Bilal Zafar, and Aniket Kate* Listening to Whispers of Ripple: Linking Wallets and Deanonymizing Transactions in the Ripple Network Abstract: The decentralized I owe you (IOU) transac- 1 Introduction tion network Ripple is gaining prominence as a fast, low- cost and efficient method for performing same and cross- In recent years, we have observed a rather unexpected currency payments. Ripple keeps track of IOU credit its growth of IOU transaction networks such as Ripple [36, users have granted to their business partners or friends, 40]. Its pseudonymous nature, ability to perform multi- and settles transactions between two connected Ripple currency transactions across the globe in a matter of wallets by appropriately changing credit values on the seconds, and potential to monetize everything [15] re- connecting paths. Similar to cryptocurrencies such as gardless of jurisdiction have been pivotal to their suc- Bitcoin, while the ownership of the wallets is implicitly cess so far. In a transaction network [54, 55, 59] such as pseudonymous in Ripple, IOU credit links and transac- Ripple [10], users express trust in each other in terms tion flows between wallets are publicly available in an on- of I Owe You (IOU) credit they are willing to extend line ledger. In this paper, we present the first thorough each other. This online approach allows transactions in study that analyzes this globally visible log and charac- fiat money, cryptocurrencies (e.g., bitcoin1) and user- terizes the privacy issues with the current Ripple net- defined currencies, and improves on some of the cur- work. -
Crypto-Asset Markets: Potential Channels for Future Financial Stability
Crypto-asset markets Potential channels for future financial stability implications 10 October 2018 The Financial Stability Board (FSB) is established to coordinate at the international level the work of national financial authorities and international standard-setting bodies in order to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies. Its mandate is set out in the FSB Charter, which governs the policymaking and related activities of the FSB. These activities, including any decisions reached in their context, shall not be binding or give rise to any legal rights or obligations under the FSB’s Articles of Association. Contacting the Financial Stability Board Sign up for e-mail alerts: www.fsb.org/emailalert Follow the FSB on Twitter: @FinStbBoard E-mail the FSB at: [email protected] Copyright © 2018 Financial Stability Board. Please refer to: www.fsb.org/terms_conditions/ Contents Executive Summary ................................................................................................................... 1 1. Introduction ......................................................................................................................... 3 2. Primary risks in crypto-asset markets ................................................................................. 5 2.1 Market liquidity risks ............................................................................................... 5 2.2 Volatility risks ......................................................................................................... -
Blockchain Law: the Fork Not Taken
Blockchain Law The fork not taken Robert A. Schwinger, New York Law Journal — November 24, 2020 I shall be telling this with a sigh Somewhere ages and ages hence: Two roads diverged in a wood, and I— I took the one less traveled by, And that has made all the difference. — Robert Frost Is the token holder — often the holder of some form of digital currency — always free to choose which branch of the fork to take? A blockchain is often envisioned as a record of a single continuous Background: ‘Two roads diverged in a sequential series of transactions, like the links of the metaphorical chain from which the term “blockchain” derives. But sometimes yellow wood’ the chain turns out to be not so single or continuous. Sometimes situations can arise where a portion of the chain can branch off A blockchain fork occurs when someone seeks to divide a into a new direction from the original chain, while the original chain blockchain into two branches by changing its source code, which also continues to move forward separately. This presents a choice is possible to do because the code is open. For those users who for the current holders of the digital tokens on that blockchain choose to upgrade their software, the software then “rejects about which direction they wish to follow going forward. In the all transactions from older software, effectively creating a new world of blockchain, this scenario is termed a “fork.” branch of the blockchain. However, those users who retain the old software continue to process transactions, meaning that But is the tokenholder—often the holder of some form of digital there is a parallel set of transactions taking place across two currency—always free to choose which branch of the fork to different chains.” See generally N. -
Aggregate Cash System: a Cryptographic Investigation Of
Aggregate Cash Systems: A Cryptographic Investigation of Mimblewimble Georg Fuchsbauer1,2, Michele Orrù2,1, and Yannick Seurin3 1 Inria 2 École normale supérieure, CNRS, PSL University, Paris, France 3 ANSSI, Paris, France {georg.fuchsbauer, michele.orru}@ens.fr [email protected] Abstract. Mimblewimble is an electronic cash system proposed by an anonymous author in 2016. It combines several privacy-enhancing techniques initially envisioned for Bitcoin, such as Confidential Transactions (Maxwell, 2015), non-interactive merging of transactions (Saxena, Misra, Dhar, 2014), and cut-through of transaction inputs and outputs (Maxwell, 2013). As a remarkable consequence, coins can be deleted once they have been spent while maintaining public verifiability of the ledger, which is not possible in Bitcoin. This results in tremendous space savings for the ledger and efficiency gains for new users, who must verify their view of the system. In this paper, we provide a provable-security analysis for Mimblewimble. We give a precise syntax and formal security definitions for an abstraction of Mimblewimble that we call an aggregate cash system. We then formally prove the security of Mimblewimble in this definitional framework. Our results imply in particular that two natural instantiations (with Pedersen commitments and Schnorr or BLS signatures) are provably secure against inflation and coin theft under standard assumptions. Keywords: Mimblewimble, Bitcoin, commitments, aggregate signatures. 1 Introduction Bitcoin and the UTXO model. Proposed in 2008 and launched early 2009, Bitcoin [Nak08] is a decentralized payment system in which transactions are registered in a distributed and publicly verifiable ledger called a blockchain. Bitcoin departs from traditional account-based payment systems where transactions specify an amount moving from one account to another. -
Gold Standard for Passive Income on the Blockchain
Anchor: Gold Standard for Passive Income on the Blockchain Nicholas Platias, Eui Joon Lee, Marco Di Maggio June 2020 Abstract Despite the proliferation of financial products, DeFi has yet to produce a savings product simple and safe enough to gain mass adoption. The price volatility of most cryptoassets makes staking unfit for the vast majority of consumers. On the other end of the spectrum, the cyclical nature of stablecoin interest rates on DeFi staples like Maker and Compound makes those protocols ill-suited for a household savings product. To address this pressing need we introduce Anchor, a savings protocol on the Terra blockchain that offers yield powered by block rewards of major Proof-of-Stake blockchains. Anchor offers a principal-protected stablecoin savings product that pays depositors a stable interest rate. It achieves this by stabilizing the deposit interest rate with block rewards accruing to assets that are used to borrow stablecoins. Anchor will thus offer DeFi’s benchmark interest rate, determined by the yield of the PoS blockchains with highest demand. Ultimately, we envision Anchor to become the gold standard for passive income on the blockchain. 1 Introduction In the past few years we have witnessed explosive growth in Decentralized Finance (DeFi). We have seen the launch of a wide range of financial applications covering a broad range of use cases, including collateralized lending (Compound), decentralized ex- changes (Uniswap) and prediction markets (Augur). Despite early success and a robust influx of brains and capital, DeFi has yet to produce a simple and convenient savings product with broad appeal outside the world of crypto natives. -
Coinbase Explores Crypto ETF (9/6) Coinbase Spoke to Asset Manager Blackrock About Creating a Crypto ETF, Business Insider Reports
Crypto Week in Review (9/1-9/7) Goldman Sachs CFO Denies Crypto Strategy Shift (9/6) GS CFO Marty Chavez addressed claims from an unsubstantiated report earlier this week that the firm may be delaying previous plans to open a crypto trading desk, calling the report “fake news”. Coinbase Explores Crypto ETF (9/6) Coinbase spoke to asset manager BlackRock about creating a crypto ETF, Business Insider reports. While the current status of the discussions is unclear, BlackRock is said to have “no interest in being a crypto fund issuer,” and SEC approval in the near term remains uncertain. Looking ahead, the Wednesday confirmation of Trump nominee Elad Roisman has the potential to tip the scales towards a more favorable cryptoasset approach. Twitter CEO Comments on Blockchain (9/5) Twitter CEO Jack Dorsey, speaking in a congressional hearing, indicated that blockchain technology could prove useful for “distributed trust and distributed enforcement.” The platform, given its struggles with how best to address fraud, harassment, and other misuse, could be a prime testing ground for decentralized identity solutions. Ripio Facilitates Peer-to-Peer Loans (9/5) Ripio began to facilitate blockchain powered peer-to-peer loans, available to wallet users in Argentina, Mexico, and Brazil. The loans, which utilize the Ripple Credit Network (RCN) token, are funded in RCN and dispensed to users in fiat through a network of local partners. Since all details of the loan and payments are recorded on the Ethereum blockchain, the solution could contribute to wider access to credit for the unbanked. IBM’s Payment Protocol Out of Beta (9/4) Blockchain World Wire, a global blockchain based payments network by IBM, is out of beta, CoinDesk reports. -
A Survey on Volatility Fluctuations in the Decentralized Cryptocurrency Financial Assets
Journal of Risk and Financial Management Review A Survey on Volatility Fluctuations in the Decentralized Cryptocurrency Financial Assets Nikolaos A. Kyriazis Department of Economics, University of Thessaly, 38333 Volos, Greece; [email protected] Abstract: This study is an integrated survey of GARCH methodologies applications on 67 empirical papers that focus on cryptocurrencies. More sophisticated GARCH models are found to better explain the fluctuations in the volatility of cryptocurrencies. The main characteristics and the optimal approaches for modeling returns and volatility of cryptocurrencies are under scrutiny. Moreover, emphasis is placed on interconnectedness and hedging and/or diversifying abilities, measurement of profit-making and risk, efficiency and herding behavior. This leads to fruitful results and sheds light on a broad spectrum of aspects. In-depth analysis is provided of the speculative character of digital currencies and the possibility of improvement of the risk–return trade-off in investors’ portfolios. Overall, it is found that the inclusion of Bitcoin in portfolios with conventional assets could significantly improve the risk–return trade-off of investors’ decisions. Results on whether Bitcoin resembles gold are split. The same is true about whether Bitcoins volatility presents larger reactions to positive or negative shocks. Cryptocurrency markets are found not to be efficient. This study provides a roadmap for researchers and investors as well as authorities. Keywords: decentralized cryptocurrency; Bitcoin; survey; volatility modelling Citation: Kyriazis, Nikolaos A. 2021. A Survey on Volatility Fluctuations in the Decentralized Cryptocurrency Financial Assets. Journal of Risk and 1. Introduction Financial Management 14: 293. The continuing evolution of cryptocurrency markets and exchanges during the last few https://doi.org/10.3390/jrfm years has aroused sparkling interest amid academic researchers, monetary policymakers, 14070293 regulators, investors and the financial press. -
Segwit2x –
SegWit2x – A New Statement The Overwhelming power of SegWit2x In order to safeguard the community from an undesired chain split, the upgrade should be overwhelming, but it’s not enough. It should also ‘appear’ as overwhelming. People, businesses and services needs to be certain about what is going to happen and the risks if they won’t follow. My impression is that still too many speaking english people in the western world think the upgrade will be abandoned before or immediately after block 494784 is mined, thus they are going to simply ignore it. That could lead to unprepared patch up and confusion, while naïve users risk to harm themselves. For this reason and for the sake of the Bitcoin community as a whole, we need to show again, clearly and publicly the extent of the support to SegWit2x. We also need to commit ourselves in a widespread communication campaign. I know this is not a strict technical matter, but it could help a lot avoiding technical issues in the future. What we have to do First, we need a new statement from the original NYA signers and all the business, firms and individuals who joined the cause later. That statement should be slightly different from the original NYA though, and I am explaining why. We all know that what Bitcoin is will be ultimately determined by market forces, comprehensive of all the stakeholders involved: businesses, miners, users, developers, traders, investors, holders etc. Each category has its own weight in the process, and everybody has incentives in following the market.