by Baraza Dan | Jul 5, 2023 | Regulation
opinion
A sticky situation persists in the crypto ecosystem as regulators pledge to ‘spring clean’ the entire industry. What started as a juvenile attack on crypto is now almost a full-blown annihilation of an industry whose promise at genesis was financial freedom. The beacon of hope for the unbanked is now subject to the unrelenting matching of regulators towards its end.
Born with a great ambition of mimicking and surpassing traditional finance, crypto continues to suffer life-ending attacks from regulators. Is there any end to the onslaught? You tell me!
Exchange exodus from Canada
The genesis of regulatory uncertainty birthed the exodus of crypto exchanges from Canada. The latest in the frenzy of exits is Binance which announced a Canadian market exit in mid-May. The reason per se, Binance says, is the harsh regulatory climate and watchdogs’ tendency to establish unclear crypto legislation.
Binance had cold sweat over regulations around investor limits and stablecoins. The exchange battled with Canadian regulators regarding the new rules— but all efforts proved futile.
The mass exodus of exchanges in Canada was triggered by the rules Binance criticizes in its tweet.
Earlier this year, on Feb 24, Canadian regulators announced a new framework hinting that all exchanges are bound to register with regulators. Also, exchanges must adhere to new stablecoin rules and investor limits.
At the outset, stakeholders expressed disapproval of the new framework. Paxos exchange led the match to exit Canada. What ensued was a period of uncertainty as more exchanges, including OKX and dYdX, followed; the problem of regulatory uncertainty.
Regardless of the ugly departure, Binance maintains that a comeback is possible in case a new regulatory regime comes into place.
Can’t Binance launch a Binance Canada arm akin to Binance US? Well, the question has recurred a couple of times now. Some argue that the Canadian market is too miniature to trigger such a move.
Even as Binance left, the vacancy in the Canadian market was promptly filled with exchanges like Kraken, Coinbase and Crypto.com.
SEC’s ridiculous crypto onslaught
Citing harsh regulations without calling attention to the disease that is SEC against crypto is shoddy work. The watchdog’s pivotal role in steering hostility toward crypto cannot be overlooked.
The regulator’s head, Gary Gensler, is painted (written) as a major villain in the crypto story. Despite already taking the rogue tag last year, it looks like the ombudsman upped his game in 2023.
With the absolute intent of intensifying the misery on crypto, Gary Gensler’s SEC labelled about 68 cryptocurrencies securities. Such include BUSD, ADA, BNB, SOL, MATIC, ATOM, SAND, MANA, Filecoin, etc.
In a recent startling revelation, Filecoin was surprisingly tagged as a security by the SEC. The watchdog was responding to Grayscale’s share registration.
At the dawn of the year, the watchdog ambushed Kraken, alleging that the exchange illegally issued staking and custodial services. The settlement agreed upon was $30 million.
As a consequence of regulatory ambiguity, several top exchange networks contemplated departing the American market. Bittrex is one such exchange whose American exit was steered by impune regulations. Others like Coinbase and Binance have had similar plans.
A bigger war brewing: Coinbase vs SEC
A big war is brewing between the SEC and Coinbase after the former sued the latter for illegal operations. Part of the SEC’s claims includes Coinbase dealing with crypto assets the federal regulator considers security.
Coinbase’s response was not at all shocking. The exchange, through its head Brian Armstrong declared plans to exit the US.
The showdown between Coinbase and SEC has been going on for months. In March, Coinbase came out guns blazing with accusations that the SEC chose to intimidate instead of creating favourable rules.
The initiation of probes on Coinbases major services like earn, prime and wallet was seen as a final blow to an exchange that has been thriving in the US for years.
On the brighter side, this inbred warfare drew the attention of the US Chamber of Commerce. US commerce chambers believe that the attacks are harmful to innovation.
CBDC Tale; A Freedom driver or Regulators’ instrument?
In writing is a new tale, CBDC, born with the promise of financial inclusion. The ideology of Central Bank Digital Currency stems from decades ago in Finland. However, the evolution of financial technologies revived the development of CDBD by leveraging blockchain.
Despite promising inclusivity, the cost of this new development would be financial freedom. UK, US, and Nigerian citizens have been unforgiving as the three countries begin implementing CBDC. Several countries have anti-CBDC demonstrations.
Florida’s governor, Ron DeSantis, invested much of his political goodwill to fight CBDC promotion in the US. In another uprising, residents of the UK took to the streets to complain about CBDCs. Most residents noted that the tech is implemented to control people’s finances.
The worst is China’s CBDC which allegedly discourages people from saving. In general, two tales a being told, one of inclusivity and the other of rejection.
ISO20022: The Dawn of crypto inclusivity?
As turmoil and uncertainty continue to be reported, a new concept was recently born to standardize high-value payments. ISO20022 is already being used in over 70 countries.
ISO 20022 is fashioned as a system that supports secure payment data. In simple terms, this system offers a flexible standard for financial messages, creating interoperability of financial institutions, key infrastructure and customers.
The banks must accept this standard for the institutions to continue making payment processing services. This new standard affords better-structured transaction data, especially for payment messages.
This system offers compatibility with some crypto blockchains, including Ripple, Hedera, Quant, Stellar, IOTA, Algorand, Cardano and XDC network. Most compatible blockchains, including Ripple and Stellar, are only compatible because of their strong interest in banking technologies.
Will the compatibility of blockchains with ISO 20022 help foster regulatory inclusivity for crypto? Well, it is possible. However, it all comes at a cost. The price is freedom. ISO20022 is designed to give more oversight over digital transfers to banks, a functionality that has been seen to be too good after all. Ask ECB’s Christine Lagarde whether their policies led to inflation, and she will say no, inflation came from nowhere.
Keep watching Fintech Express for more updates on regulation and other fintech-related developments.
by Baraza Dan | May 13, 2023 | Cryptocurrencies
Bitcoin was created in the aftermath of the 2008 financial crisis and was meant to be a digital monetary system that is independent of centralized control. However, as the mining rewards are getting squeezed due to multiple halvings and most of the coins being mined new BTC ‘products’ like Ordinals NFTs and BRC-20. But what are the implications of the new ‘innovation’ on the network
Tick tock tick!
It’s May 7, Binance, the largest cryptocurrency exchange network, goes to Twitter to announce a halt of BTC withdrawals citing network congestion. Binance reinstates the withdrawals about 1.5 hours later.
A few hours later, Binance halts BTC withdrawals again, citing the same reason as before, network congestion. This is the first time that the largest crypto exchange halted withdrawals of the largest crypto asset. But why is this ‘impossible occurrence’ happening now?
Blameshifting began, with some even selling some FUD about the Binance exchange. However, the biggest share of this blame was against new technologies arising on Bitcoin. What new technologies?
The Dawn of Bitcoin Ordinals
Ordinals NFTs are a unique class of non-fungible tokens based on the BTC blockchain. Since its launch in early 2023, Ordinals NFTs have received massive hype within social networks.
Ordinals leverage a protocol that numbers Satoshis with unique serial numbers helping trace them amid transactions. The creator of Ordinals discovered that it’s possible to inscribe some data, including images, videos, and others, on Satoshis.
Simply put, Ordinals are NFTs based on the Bitcoin network. Ordinals reside fully on the blockchain and do not require a sidechain or separate token.
BRC-20: A New Token Standard
When you see BRC-20, what rings in your mind? You probably recall a popular Ethereum standard, ERC-20. But no, it’s BRC-20. What is BRC-20?
BRC-20 includes DeFi-like tokens on the Bitcoin network. Essentially, BRC-20 stands for ‘Bitcoin Request for Comment’ and introduces a new class of tokens inscribed on Bitcoin’s Satoshis.
Domo, an anon on-chain data specialist, first pioneered this system. The user claimed that the general idea of BRC-20 was derived from a Twitter conversation.
Satoshi Dream: Creating the Future of Finance
It’s impossible to 100% visualize what Satoshi thought when creating BTC. However, the whitepaper paints a slightly blur picture of BTC as the future of finance.
The practical applications of Bitcoin in the past indicate that Satoshi wanted a decentralized, peer-to-peer, and transparent yet anonymous payment system. At the heart of Bitcoin’s creation was empowering true value exchanges.
Satoshi invented the Bitcoin network with the ultimate aim goal of ensuring there is complete financial freedom. With this system, the rich and poor would have equal chances of storing funds and making payments.
However, Satoshi’s dream also included providing an efficient operating network. So, the real question is, how will new technologies like BRC-20 and Ordinals NFTs affect Satoshi’s original dream?
New sub-Technologies Killing Satoshis Dream?
The new technologies have created a risky scenario on the Bitcoin network leading some to speculate that doom is facing BTC. The risky scenarios are as below;
Overcrowding Issues Face the Future of Money
Satoshi’s money for the future has been suffering slow settlements. Bitcoin’s decentralized nature indicates that Satoshi wanted users to enjoy unfathomable speed. However, owing to possibly a slight miscalculation, BTC could only deal with seven transactions every second. The lightning network was later introduced to improvise BTC’s transaction processing mechanism.
The emergence of new technologies has been a source of congestion in Bitcoin. How? Owing to the rise of these technologies, there has been a massive increase in transactional activities in Bitcoin. The surge has caused congestion within the network.
As mentioned earlier, between May 7 and 8, 2023, Binance halted BTC withdrawals twice. This is because of congestion.
Data from Mempool indicated that the number of unconfirmed transactions stood at over 454 thousand. This number ranged between 400k and 500k pending transactions at a time.
Mempool’s data showing Bitcoin’s unconfirmed transactions
The congestion in Bitcoin is mainly attributed to the new technologies, i.e., BRC-20 and Ordinals. Bitcoin receives thousands of transactions every minute based on Mempool data. Bitcoin maximalists have similar sentiments about the current source of BTC congestion.
Bitcoin Fees Jump Higher Than The Daily Wage of Over 4 Billion People
The new techs on Bitcoin have caused a fee surge on the network. Of course, Bitcoin fees have been troubling for years, especially in times of bull markets. The highest Bitcoin fee was reported in 2021 at over $60 when the coin’s value was over $60k.
It’s surprising that the recent fee upsurges are occurring amid a bear market— or is it really surprising? The recent flooding of transactions created a fee problem. Reports indicate that Bitcoin’s transaction fees surged to a 2-year high.
Blockchain.com data on historical Bitcoin fees
There have been reports of fee issues in countries like El Salvador, which use BTC as a legal tender. A crypto enthusiast posted a tweet noting how the Bitcoin fees affect the average user.
In this tweet, Marce Romero mentioned that she witnessed a transaction where a user paid $20 in fee for a transaction of $100 BTC. The average monthly salary in El Salvador is $350. If someone has to pay $20 per $100 transaction, an average El Salvadoran uses 20% of their salary as a fee.
Another article on Ethereum fees indicates that the average daily wage for about 4.2 billion people globally is $21. If someone has to pay $20 per transaction on Bitcoin, they spend all their wages on transaction fees. Well, can anyone do that? Of course, No! So, where does this leave mainstream crypto adoption? It’s ultimately slowed.
Are Miners Extraordinarily Benefiting at the Users’ Expense?
As the fees surge, a small group of Bitcoin stakeholders becomes the biggest beneficiary. Who? Miners
Mining companies have been major beneficiaries of network congestion. The stocks of Bitcoin mining companies effectively surged in the days preceding and following the BTC fee surges. Hopes of higher fees drove all this. The mere fact that miners are now benefiting extremely at the expense of average users exposes the crisis in Bitcoin.
Note: The Bitcoin dream was to foster fairness and equality, not enrich some at the expense of others.
Harper from Luxor Technologies, a mining company, noted that the BRC-20 standard doubled their miner revenue. He also noted that the fee would eventually revert to their original averages. Based on Harper, investors should expect to see similar occurrences in the future when new mints and inscriptions use Bitcoin.
Another mining company spokesperson Nazar Kan of TeraWulf mentioned that BTC fees would slow down in the long term.
The CEO of MicroStrategy, Michael Saylor, even publicly said, “If I was a miner I would be ecstatic.”
Another Bitcoin maximalist, Clark Moodie, highlighted that “high fees are good for Bitcoin.” However, many respondents claimed that high fees only benefit Bitcoin miners.
The positive: Developments create a Decentralized Economy
Despite having a dark side, the recent developments on Bitcoin have a lighter side too. The Bitcoin network can now be home to a new decentralized economy.
Now, Bitcoin is earning more use cases in NFT and DeFi. DeFi and NFT are what mainly constitute a decentralized economy in Ethereum. As we see the rise of DeFi-like tokens in Bitcoin, this is great for the future of this network.
Den Held, a Bitcoin enthusiast, recently tweeted that “Bitcoin DeFi is just getting started,” highlighting examples like Ordinals, DLCs and Lightning.
The growth of NFTs and DeFi tokens will dawn a world of opportunities within the Bitcoin network. Creators in the artistry industry can use Bitcoin’s technology and reputation to build trustworthy NFTs.
Another fascinating aspect of the new technologies in Bitcoin is the possibility of the emergence of layer two solutions. Several Bitcoin network enthusiasts lightly highlighted this.
Muneeb.btc, a Bitcoin network enthusiast, highlighted that recent events that triggered high fees could drive the creation of layer two solutions for the network.
When Ethereum faced such a crisis, several layer two solutions like Polygon, Arbitrum, and more were created. As the largest crypto network, Bitcoin’s developments will likely attract attention faster, creating layer two options.
Another Bitcoin enthusiast, the Wolf of all Streets, had similar sentiments about recent developments within Bitcoin. The user highlighted the vitality of L2s, especially when L1 blockchain fees become unbearable.
Calls to increase Bitcoins blocksize have also been quite prevalent within the blockchain ecosystem owing to recent problems. Some community members believe boosting the blocksize will help cater to the ordinals’ inscription data. However, the technological adjustment has already been tested in BTC, leading to the rise of Bitcoin Cash.
Finally
This guide has looked into the new technologies on the Bitcoin blockchain, including BRC-20 and Ordinals NFTs. It is clear that while the tech has some negative impacts, it’s also great for ascertaining the future of BTC by adding new use cases and more developments.
