CBDCs will be the leading digital currencies of the future, and only the competition between various models will determine the winner.
Real innovations and breakthroughs don’t happen in the blink of an eye. Bitcoin (BTC) took many years to get to mainstream users since its inception in 2009. The bull market run in 2017 drastically improved crypto market volumes, but institutions still regarded it as another “dot com” bubble.
Later, when distributed ledger technology, or DLT, was more widely accepted, a new type of digital asset aimed at bringing stability to the crypto market gained full recognition. Stablecoins had been (and still are) issued by private firms, but many failed to operate successfully for various reasons in 2020.
Now, governments are exploring ways to not lose their grip on global finance via technology, developing stablecoins and central bank digital currencies, or CBDCs. What will prevail over time, private initiatives or state?
Trusting the blockchain
The latest research from Big Four audit firm Deloitte indicates that nearly 40% of the firms surveyed have already implemented blockchain in their business ventures. However, the commercially viable immutability of DLT has both pros and cons. An evident benefit with this technology is that no one can retroactively forge crucial data or alter vital information. Blockchain is a perfect demonstration of the trust quantification model gone live.
As to the tech’s downsides, even parties who can’t afford any chance of error still make mistakes from time to time: judges, prosecutors as well as various governmental bodies at large. Moreover, all the official services or banking structures experience certain issues and database errors, which they often try to cover up. The blockchain has no preferences, as no user is able to change data or record there, and making a mistake would bring more negative consequences than ever before.
Benefits of stablecoins
Stablecoins’ benefits create significant room for these assets in financial systems. Clients would get faster transactions with lower costs and improved security of their payment systems. Credit risk would also be stabilized. Moreover, simplified cross-border transfers would further drive global financial market development, resulting in a significant decrease in the number of shadow operations. Cash will become obsolete as soon as digital assets are transformed into mainstream and primary methods of payments. The COVID-19 pandemic only incentivized the transition to a cashless society and further discussions about stablecoins and CBDC models, but people’s trust for the technology can’t be built in a day.
At the same time, a disruption of traditional banking may result in the loss of competitiveness among digital payment systems, with increased Anti-Money Laundering and Know Your Customer measures implemented into financial activities likely hampering the way companies do business. Finally, the involvement of the state in technological implementation disrupts the initial vital aspect of Bitcoin and cryptocurrencies — decentralization.
A stablecoin on a public blockchain frees the system from mandatory AML checks for each transaction. Excessive regulation and globalization have made the supervision function of the payment intermediary totally commercially unprofitable. The risks and potential fines that banks must pay in the event of a money-laundering scandal strongly outweigh the benefits of processing some payments. Since the regulation field has become much more complicated over the past 20 years, banks’ response to this trend is simply denying economic agents the constitutional right to move their honestly earned money and acquire goods or services globally. It is cheaper for a bank to refuse a transaction than to spend resources understanding the details. Therefore, one of the functionalities of stablecoins is their AML-free layer.
From private to official level
Since the United States Securities and Exchange Commission, among other watchdogs, went on high alert lately, things promise to get hot in the legal field. After the decay of Telegram’s TON and many ongoing problems for Facebook’s Libra ecosystem, it became evident that private companies will face countless challenges in the future. Is there a way for Libra and global stablecoins to survive in 2020 and beyond?
The chances are high, but only if they won’t mix different monetary policies of the U.S. dollar and euro zones. Why? The primary target for the Federal Reserve is unemployment, while for the European Central Bank, it is price stability. Going back in history to 2008, the Fed lowered interest rates, while the ECB, in turn, raised them.
Meanwhile, the topic of central bank digital currencies has been of major interest as stablecoins gained more popularity in the crypto world. Even before the notorious winter of 2019 occurred, more and more market participants and institutional clients became excited about the stablecoin’s model benefits. World governments and large companies surely noticed the trend and started to experiment in this area, but there had never been any common direction to follow.
What is the main challenge of creating a CBDC? Misconceptions about it have only increased, despite numerous discussions, conferences and articles written on the topic.
Nothing is arcane about the idea, but the global perception is a bit misguided, since a clear point of view must be taken to understand the CBDC model differences. From a technical, architectural point of view, there are two models: a wholesale CBDC in which central bank reserves can only be accessed and used by a small number of certain financial institutions, or a retail CBDC model in which non-banking institutions can get direct access to digital central bank funds. Many economists and central banks do not support any idea of a universally accessible digital central bank currency. The critical stumbling stone here is that CBDC implementation will result in financial instability and even worse consequences for commercial banks.
There are numerous reasons behind the slow pace of crypto acceptance in the world. The whole story is quite the same as with video streaming back in the 90s: Emerging technologies are developing faster than the actual market or the target audience is ready. Infrastructure is of critical importance. In Europe, for example, countries such as Greece and Italy need to install the needed tech infrastructure fast so that users can pay for goods or services if crypto goes mainstream.
To gain needed access to the markets and financial services of the crypto industry, the problem of institutional and technological capacity first needs to be solved, but this is unlikely to happen in the near future due to a lack of required infrastructure. It is still unclear when blockchain will scale adequately and whether CBDCs should run on a permissionless one.
Unraveling the set of global questions
What is the leading digital currency of the future? Is it digital dollar or digital euro? Or digital yuan, perhaps, as China is currently spearheading this direction. Moreover, the latest news suggests that the Italian Banking Association is also willing to pilot a digital euro. Japan has also joined the club of countries willing to research and experiment with a CBDC.
Why are we seeing so much talk and no walk so far? Apart from China, where the digital yuan has made its way from concept to development quite fast, many other government initiatives are often discussed, but no real project by central banks has made its way towards launch. Stablecoins are true die-hard assets of crypto, as out of hundreds of privately run projects, only a few have survived and continued operations in 2020 — Tether (USDT), TrueUSD (TUSD), Paxos (PAX) and EURS.
After all, all bets are on for the euro, ultimately. Macro-wise, it’s the only freely convertible currency with almost 500 million of natural populations and a positive current account.
Judging by today’s perspective, CBDCs will likely follow a wholesale variant route, which will cut off its accessibility for the retail segment. But there is still a piece of pie for private companies: The imminent launch of wholesale CBDCs and their further existence will not likely hamper the popularity of leading stablecoins.
However, a survey made by the Bank for International Settlements clearly indicates that we can expect central banks to issue a retail CBDC within the next few years. Introducing such a retail CBDC poses risks for the data privacy of clients and for financial stability. If retail CBDCs ever become a reality, the commercial banks will suffer heavy losses, since people will run to withdraw their deposits and move it to the central bank accounts. What’s the point of holding savings with commercial institutions that have their own credit risk and are fractionally reserved?
Will such a solution prevail over private projects like Tether at some point? If implemented successfully, it will be inaccessible to the general public, but rather become a wholesale asset invisible to John Citizen. Can CBDCs kill Bitcoin and other cryptos if launched successfully? Of course not, since the money supply policy will be completely different. Bitcoin supply is like digital gold, capped at 21 million, while CBDCs or stablecoins will closely correlate to the M2 money supply.
The competition between various models will ultimately determine the winner. But the legalization of stablecoins for private companies is crucial now, as allowing them to have a legal account in a state bank or government bonds will widen the market and ultimately benefit the development of the next stage of the digital economy.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Gregory Klumov is a stablecoin expert whose insights and opinions appear regularly in numerous international publications. He is the founder and CEO of Stasis, a technology provider that issues the most widely used euro-backed stablecoins with a high transparency standard in the digital-asset industry.
Connext, Chainsafe, Sygma, LiFi, Socket, Hashi, Across, Celer, and Router issued a joint statement criticizing the new token.
A new bridged token from cross-chain protocol LayerZero is drawing criticism from nine protocols throughout the Ethereum ecosystem. A joint statement from Connext, Chainsafe, Sygma, LiFi, Socket, Hashi, Across, Celer, and Router on October 27 called the token’s standard “a vendor-locked proprietary standard,” claiming that it limits the freedom of token issuers.
The protocols claimed in their joint statement that LayerZero’s new token is “a proprietary representation of wstETH to Avalanche, BNB Chain, and Scroll without support from the Lido DAO [decentralized autonomous organization],” which is created by “provider-specific systems […] fundamentally owned by the bridges that implement them.” As a result, it creates “systemic risks for projects that can be tough to quantify,” they stated. The protocols advocated for the use of the xERC-20 token standard for bridging stETH instead of using LayerZero’s new token.
Lido Staked Ether (stETH) is a liquid staking derivative produced when a user deposits Ether (ETH) into the Lido protocol for staking. On October 25, LayerZero launched a bridged version of stETH, called "Wrapped Staked Ether (wstETH)" on BNB Chain, Avalanche, and Scroll. Prior to this launch, stETH was not available on these three networks.
Since any protocol can create a bridged version of a token, LayerZero was able to launch wstETH without needing the approval of Lido’s governing body, LidoDAO. In addition, both BNB Chain and LayerZero announced the token’s launch on X (formerly Twitter), and BNB Chain tagged the Lido development team in its announcement. Members of LidoDAO later claimed that these actions were an attempt to mislead users into believing that the new token had support from the DAO.
On the same day that LayerZero launched wstETH, they proposed that LidoDAO should approve the new token as the official version of stETH on the three new networks. They offered to transfer control of the token’s protocol to LidoDAO, relinquishing LayerZero’s administration of it. In response, some LidoDAO members complained that this move was intended to create a fait accompli to pressure the DAO into passing the proposal when they otherwise wouldn’t have.
“There appears to have been a coordinated marketing effort between Avalanche, BNB, and LayerZero with a series of twitter posts and slick videos implying that LidoDAO has already officially accepted the OFT standard,” LidoDAO member Hart Lambur posted to the forum, adding “How is this possible when this is just a proposal?”
Some members also argued that the new token could pose security issues. “Layer Zero is a super centralized option that exposes Ethereum’s main protocol to an unprecedented catastrophe,” LidoDAO member Scaloneta claimed, arguing that a hack in the protocol’s verification layer “would imply that infinite wsteth will be minted.”
Cointelegraph reached out to the LayerZero team for comment through Telegram and email, but did not receive a response by the time of publication. In April, LayerZero raised over $120 million to help build more cross-chain functionality into the Web3 ecosystem and partnered with Radix to bring cross-chain functionality to the Radix Babylon network.
Bitcoin is taking a breather after this week’s strong rally, but select altcoins may be getting ready to breakout over the next few days.
Bitcoin (BTC) has been trading above $33,600 for the past two days, indicating that the bulls are not rushing to the exit. After a sharp rally, if the price does not give up much ground, it may cause FOMO and ignite another round of buying.
That could push the markets further into overbought territory. However, such rallies are rarely sustainable. They eventually turn down and retest the breakout levels. Hence, Bitcoin’s drop to $32,000 can not be ruled out.
The rally of the past few days pushed Bitcoin’s dominance to 54%, its highest level in 30 months. The rise in market dominance shows that Bitcoin is leading the charge higher, which is a positive sign. This suggests that traders are favorably viewing the cryptocurrency space and select altcoins may join the party soon.
Veteran trader Peter Brandt said in a post on X (formerly Twitter) on Oct. 26 that Bitcoin’s bottom is in but he warns that new all-time highs may not happen until the third quarter of 2024. Meanwhile, Brandt predicts Bitcoin to enter a “chop fest.”
Will Bitcoin enter a corrective phase over the next few days or continue its upward march? Will altcoins join the party higher?
Let’s analyze the charts of the top 10 cryptocurrencies to find out.
Bitcoin price analysis
Bitcoin is facing resistance at $35,000 but the bulls have not given up much ground. This suggests that the buyers may soon try to resume the up-move.
The risk to a further rise is that the relative strength index (RSI) remains in the overbought area. This indicates the possibility of a minor correction or consolidation in the near term. If the price slides below $33,679, the BTC/USDT pair could retest $32,400 and then $31,000.
However, it is not certain that the overbought levels on the RSI will cause a correction. Sometimes, during a trend change from bearish to bullish, the RSI tends to remain in overbought territory for a long time. That is because the smart buyers continue to accumulate on every intraday dip.
In this case, if the price turns up from the current level and breaks above $35,280, it will signal the start of the next leg of the uptrend. The pair may then skyrocket to $40,000.
Ether price analysis
Ether’s (ETH) long wick on the Oct. 26 candlestick shows that the bears are aggressively protecting the minor overhead resistance at $1,855.
The rising 20-day EMA ($1,674) and the RSI near the overbought zone indicate that bulls have the upper hand. If the price turns up from $1,746, the bulls will again try to shove the ETH/USDT pair above $1,855. If this level is surmounted, the pair may skyrocket toward the psychologically important level of $2,000.
If bears want to prevent the up-move, they will have to quickly send the price back below the breakout level of $1,746. The pair may then tumble to the 20-day EMA.
BNB price analysis
BNB (BNB) turned down from $235 on Oct. 24, indicating that the bears are active at this level. The sellers tried but failed to sustain the price below the strong support at $223.
This indicates that buyers are fiercely attempting to defend the support at $223. If the price rebounds off this level with strength, the BNB/USDT pair could once again try to rise above the overhead resistance at $235. If that happens, the pair may climb to $250 and subsequently to $265.
Contrarily, if the price once again turns down from $235, it will suggest that bears continue to sell at higher levels. A slide below $223 will tilt the advantage back in favor of the bears. The pair may then oscillate between $203 and $235 for a while longer.
XRP price analysis
XRP (XRP) has been witnessing a tough battle between the bulls and the bears near the overhead resistance of $0.56.
The bears are trying to pull the price to the 20-day EMA ($0.52) which is an important level to keep an eye on. If the price sharply rebounds off this level, it will suggest that every minor dip is being bought. The bulls will then again try to kick the price above $0.56.
If they succeed, it will signal the start of a new up-move. The XRP/USDT pair could then soar to $0.71. This positive view will be negated in the near term if the price turns down and plunges below the 50-day SMA ($0.51). That will indicate a range-bound action between $0.46 and $0.56 in the near term.
Solana price analysis
Solana (SOL) has been trading near the pattern target of $32.81 for the past few days. The bulls have not ceded ground to the bears, indicating that they anticipate another leg higher.
The RSI remains in the overbought zone, indicating that the SOL/USDT pair may spend some more time in consolidation or witness a minor dip. If the price stays above $30, the possibility of a rally to $38.79 increases.
On the other hand, if the price skids below $30, the bears will attempt to yank the price to the 20-day EMA ($27.20). If this support gives way, it will signal that the sellers are back in the game.
Cardano price analysis
Cardano (ADA) has been trading above the $0.28 level for the past few days but the bulls haven’t been able to start a strong relief rally.
Buyers tried to start a new up-move on Oct. 26 but the bears sold at higher levels as seen from the long wick on the candlestick. Encouraged by this, the sellers will try to tug the price back below the breakout level of $0.28. If they can pull it off, the ADA/USDT pair may slump to the 20-day EMA ($0.26).
Instead, if the price turns up from $0.28 and rises above $0.30, it will signal that the bulls have flipped the level into support. The pair may then start its northward march toward $0.32. This level may act as a stiff barrier but if cleared, the next stop is likely to be $0.38.
Dogecoin price analysis
Dogecoin (DOGE) has been in a strong recovery for the past few days, indicating aggressive buying by the bulls.
Buyers pushed the price above the nearest resistance of $0.07 on Oct. 26 but the long wick on the candlestick shows selling at higher levels. The bears are trying to pull the price back below $0.07 on Oct. 27. If they succeed, the DOGE/USDT pair could slide to the 20-day EMA ($0.06).
On the contrary, if the price turns up from $0.07, it will suggest that the sentiment has turned positive and every minor dip is being purchased. That could propel the price to $0.08.
That may have attracted selling by the bears who have dragged the price back below the moving averages on Oct. 27. The TON/USDT pair may slide to the crucial support at $1.89. Such a move will suggest that the pair may consolidate between $1.89 and $2.31 for a few days.
Contrary to this assumption, if the price turns up sharply from the current level, it will indicate that the bulls are buying on minor dips. That will improve the prospects of a break above $2.31. The pair may then surge to $2.59.
Chainlink price analysis
Chainlink (LINK) has been facing selling near the $11.50 mark as seen from the long wick on the candlesticks of the past few days.
A minor positive is that the bulls have not given up much ground. This suggests that the buyers are in no hurry to book profits as they anticipate the uptrend to continue. Sometimes, when an asset breaks out from a long consolidation, it may remain in the overbought zone for an extended period. That is a possibility with the LINK/USDT pair.
The important support to watch on the downside is $9.50 and then the 20-day EMA ($8.97). Buyers are expected to defend this zone with vigor.
Polygon price analysis
Polygon (MATIC) broke above the $0.60 resistance on Oct. 22 but the bulls are struggling to maintain the up-move. This suggests hesitation to continue buying at higher levels.
The important level to watch on the downside is $0.60. If the price rebounds off this level with strength, it will signal that the bulls have flipped $0.60 into support. That will increase the likelihood of a break above $0.67. The MATIC/USDT pair may then soar to $0.77.
Meanwhile, the bears are likely to have other plans. They will try to sink the price back below the breakout level of $0.60. If they do that, several aggressive bulls may get trapped and the pair may plummet to the 20-day EMA ($0.57).
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
JMIR Neurotechnology, published by JMIR Publications, welcomes submissions from researchers, clinicians, caregivers, and technologists that explore novel…
JMIR Neurotechnology, published by JMIR Publications, welcomes submissions from researchers, clinicians, caregivers, and technologists that explore novel diagnostic and treatment tools for neurological disorders, particularly those leveraging the potential of neurotechnology.
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JMIR Neurotechnology, published by JMIR Publications, welcomes submissions from researchers, clinicians, caregivers, and technologists that explore novel diagnostic and treatment tools for neurological disorders, particularly those leveraging the potential of neurotechnology.
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