Group items tagged

"The UTXO design of Bitcoin exhibits partially characteristics of a token-based system and partially characteristics of an account-based system. A discussion on the difficulty to implement the economic notion of tokens in the digital domain, along with an exposition of the design of UTXO, is given in order to discuss why UTXO-based systems should be viewed as account-based according to the classical economic notion. Besides, a detailed comparison between UTXO-based systems and account-based systems is presented. Using the data structure of the system state representation as the defining feature to distinguish digital token-based and account-based systems is therefore suggested. This extended definition of token-based systems covers both physical and digital tokens while neatly distinguishing token-based and account-based systems."

Classifications can be a powerful tool to organize and communicate ideas. The main allure of distinguishing between account-based and token-based is to highlight a defining feature of certain new, emerging forms of digital currency. But if a digital currency can be both token-based and account-based, then the classification loses its power to meaningfully distinguish between new and existing methods of digital payments. Furthermore, it may slow down progress in understanding intrinsic differences between the growing set of digital payment options and technologies. Future classifications could modify the definitions of the terms account-based and token-based to more clearly distinguish them. In the meantime, perhaps these terms should be retired to avoid further confusion.

The IMF published a paper that presents a practical legal-analytical framework to assess how private law rules can be designed to support the wide circulation and safe holding of token-based central bank digital currency (CBDC) primarily intended for retail use. It follows a previous IMF working paper that examined the legal foundations of CBDC under central bank law and its treatment under monetary law-the main public law aspects of CBDC. A private law framework is also needed, because unlike account-based CBDC, token-based CBDC constitutes from the legal perspective a new form of money and hence raises a lot of challenges under private law. This legal nature will shape how token-based CBDC can be transferred, held in custody, "deposited" with commercial banks, and pledged. It is also be crucial that private law rules establish with certainty how ownership and other rights in token-based CBDC can be transferred between economic agents. In most jurisdictions, the private law regime for token-based CBDC will likely need to be augmented by a comprehensive legislative intervention to provide a sufficiently robust and predictable legal foundation for this new digital currency. In designing such a legislative framework, countries will need to consider carefully whether to anchor it in a broader framework for digital money or assets.

Crunchfish and Lipis Advisors pubished a guide to offline payments design, providing insights to how offline payments relate and can interoperate with online payment system. It provides a way of categorizing offline payment solutions by three design choices which provides the payment ecosystem with a better understanding of the nuances of offline payments: -Online Payment Rail: (i) distributed ledger technology (DLT) based or (ii) centralized account-based. (The paper incorrectly labels DLT-based as token-based (see the 20xx New York Fed article on this misnomer). -Offline Security Protocol: (i) native (layer-1) or (ii) non-native (layer-2) tokens security protocol, described in relation to the underlying online payment rail. -Offline Trusted Environment: (i) hardware-based or (ii) software-based.

People's Bank of China (PBOC) Deputy Governor Fan Yifei provided a progress report on the PBOC's e-CNY central bank digital currency (CBDC) pilot project. So far there have been no technical glitches, but the PBOC is working to support the connection between e-CNY and traditional payment systems and the connection between e-CNY digital wallets and bank accounts. He also mentioned that regulations need to be improved and optimized. For example, setting the boundaries between account- and value-based transactions may need to be refined (account-based transfers are large-scale transfers, while value-based transfers are smaller offline P2P payments). According to Richard Turrin, a Shanghai-based fintech consultant who recently published Cashless: China's Digital Currency Revolution, "One big issue... would be what limit to put on value-based transfers to make them cash-like especially for rural users.

The Financial Action Task Force (FATF) published guidance for applying a risk-based approach to anti-money laundering (AML) and countering the financing of terrorism (CFT) supervision. The guidance is intended to support supervisors in the transition from rules-based supervision to risk-based supervision. Among other things, it provides high-level guidance on risk-based supervision, which explains how supervisors should assess the risks their supervised sectors face and prioritise their activities.

This BIS working paper advocates regulating bigtechs using an entity-based rather than a "same activity, same regulation" activity-based regulatory approach. It argues that there is only limited scope for harmonizing the requirements for different players in specific market segments without jeopardising higher-priority policy goals. The regulatory framework should incorporate entity-based requirements for big techs in areas such as competition and operational resilience that would address the risks stemming from the different activities they perform. This strategy would not only help regulation to achieve its primary objectives, but would also serve to mitigate competitive distortions. However, in some policy domains, such as consumer protection or AML/CFT, an activity-based approach may well be adequate enough to achieve primary objectives.

Singapore-based BondEvalue today announced that it has been approved to enter the Monetary Authority of Singapore's (MAS) Sandbox Express to launch a blockchain-based bond exchange. The platform will offer a unique proposition to reduce the minimum investment amount of bonds to US$1,000 via BondbloX.

"We argue that operating a bearer-based payment system to complement an account-based CBDC in order to gain offline and privacy features is not a good trade-off. Adding permanent, regular offline capabilities via the bearer-based payment instrument constantly exposes the CBDC to the severe issues inherent in offline-capable payment systems. Instead, the offline mode of operation should be restricted to scenarios where it is actually required, which mitigates the risks."

Some blockchains like Bitcoin use something called an unspent transaction output (UTXO) based model. UTXO-based chains are conceptually similar to physical wallets. A wallet with $100 could be composed of any combination of $1, $5, $10 and $20 bills. When purchasing an item, you must use some combination of these bills that is equal to or exceeds the required amount. For example, if you want to purchase an item for 15 dollars but only have two 10 dollar bills, you must use both and then receive 5 dollars in change. Similarly, when a Bitcoin wallet wants to make a transfer, it must choose which of the associated UTXOs (dollar bills) to include in the transaction. Observing this process allows anyone to trace the provenance of individual UTXOs over time. Other blockchains, such as Ethereum, use an account based model, which is conceptually similar to bank accounts. When completing a transaction, the network simply updates the total balance and does not select which incoming transfer to use.

Coinbase launched Base, a layer 2 network built using Optimism's OP Stack, to attract millions of new crypto users in the coming years. Coinbase is joining Optimism as a core developer on the open-source OP Stack, a developer toolkit for the Optimism network, the firm said. However, Base will not be limited to Ethereum, it will also provide easy and secure access to layer 2 networks such as Optimism, as well as other blockchains ecosystems like Solana. See also: https://noelleacheson.substack.com/p/weekly-feb-25-2023?publication_id=1104537&post_id=105030192&isFreemail=true

Chile-based peer-to-peer remittance company CurrencyBird has joined RippleNet, Ripple's global blockchain-based network of payment providers.

Over the past 10 years mobile-based lending has grown in Kenya, but there are concerns about the business model. The most prominent is the debt culture that has become a byproduct of mobile-based lending: borrowers fall into the trap of living on loans and accumulating bad debt.

Telegram is now forcing the U.S.-based Gram token investors to take the 72% refund and exit the TON blockchain project. The encrypted messaging platform has also retracted last week's offer to pay investors in Gram tokens at all. These moves were based on the scheme's uncertain reception from the U.S. regulators.

A group of 11 banks, including NatWest and Deutsche Bank, have been trialling a distributed ledger technology (DLT) based platform for intraday FX swaps. The trial used technology from Finteum, which has been working on a DLT-based intraday FX swaps platform first announced with R3 and Fnality in 2019. During the trial, the banks engaged in simulated trading and discussion sessions. The plan now is to move to live transactions later this year or early in 2022.

The European Blockchain Observatory and Forum (EUBOF) published a report identifying and evaluating eight alternative design architectures for the digital euro against the core principles and requirements set by the ECB. It considers how the digital euro will differ based on whether it will account-based or token-based, or whether it's implemented atop existing eurozone-wide payment rails or atop novel technological architectures, such as blockchain. The paper also explores whether a digital euro should be exclusively coordinated by the central bank or distributed and managed in collaboration with Europe's commercial banks and other financial institutions. It addresses interoperability and programmability features, regulatory aspects and end-user experience, along with potential financial stability implications.

The Dubai Land Department, the real estate arm of the Executive Council of Dubai, has partnered with UAE-based Mashreq Bank to release a blockchain-based mortgage platform.

Saudi Arabia's International Islamic Trade Finance Corporation (ITFC) partnered with the Bangladesh-based City Bank to execute the world's first Shariah-compliant cross-border blockchain transaction. A letter of credit was issued on behalf of a Bangladeshi exporter Debonair group to import textile-related accessories from Apparel Link, a trading company based in Hong Kong. Contour, a network build by R3's Corda blockchain technology, executed the transaction.

UK-based L3COS has submitted a proposal to the Bank of England for a blockchain-based operating system to power a central bank-issued digital currency (CBDC). The L3COS platform uses a triple-layer consensus system which has the laws and regulations of each sovereign authority built into the technology. https://www.prnewswire.com/news-releases/l3cos-proposes-to-build-the-worlds-first-regulated-blockchain-based-operating-system-for-the-bank-of-england-301075011.html

New York-based Signature Bank announced a new client service - a blockchain-based digital payments platform called Signet, with Fireblocks. Fireblocks is an enterprise-grade platform that settles digital security transfers between members and exchanges. Fireblocks serves digital asset exchanges, custodians, banks, trading desks and hedge funds like SWIFT serves the currency markets. Signature Bank can now enable their commercial clients to access its blockchain-based, real-time payments platform through the Fireblocks network.