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When Shoshana Zuboff returns my call 15 minutes late, it’s because her previous call with an organization in Israel dropped halfway through and it took them a while to reconnect. Such is the peril of functioning in quarantine, even as tech companies exert more power than ever. 

Rather than having time over the summer to reflect and plan her next book as she intended, Zuboff has been very busy with people wanting to speak with her and do virtual events. It’s part of the reason that for the last four months we’ve been trying to schedule a call, only to have the date repeatedly pushed back.

Birds are chirping in the background as we speak over the phone, part of the ambience of Zuboff’s home in the country. She says she’s lucky to be there, given the challenges her friends face balancing COVID-19 and living in cities. The birds beat the dystopian jingle of ice cream trucks as they rove New York City, looking for customers amid a pandemic. 

Related: Human Rights Foundation Funds Bitcoin Privacy Tools Despite ‘Coin Mixing’ Legal Stigma

“Pandemic life just takes so much time,” she says. “Between figuring out how to get groceries and everything else, it is just so painstaking.”

See also: In Trump Versus Twitter, Decentralized Tech May Win

Zuboff is the author of “The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power,” and the Charles Edward Wilson Professor Emerita at Harvard Business School. Zuboff says the book (which is 660 pages long) “synthesizes years of research and thinking in order to reveal a world in which technology users are neither customers, employees, nor products. Instead they are the raw material for new procedures of manufacturing and sales that define an entirely new economic order: a surveillance economy.”

Zuboff and I speak about the framework of surveillance capitalism. But I’m keen to hear her views on the roiling protests in the U.S., and President Donald Trump’s executive order on Section 230, a law that affords social media companies immunity from content liability, with which the president has taken issue. It feels like a good time to think about the context the internet gives to these events,and who controls it. 

Related: Libra Is Ready for the Digital Money ‘Space Race’: Dante Disparte

This conversation has been edited for length and clarity. 

Describe surveillance capitalism and what that means for people who might not be familiar with it. 

Surveillance capitalism was invented at Google between 2000 and 2001 as a response to the financial emergency during the dot-com bust. They were the smartest guys with the best search engine and the swankiest venture capital investors. But even they came under the gun with their investors threatening to withdraw. At that time they decided they had to find a fast track to monetization, and it was going to have to be through advertising, which they’d rejected previously. 

They discovered leftover behavioral data on their servers, called data exhaust, was actually full of rich predictive signals. And those predictive signals were just lying around unused, more than what was needed for product or service improvement. I call these data behavioral “surpluses.” It was by training their already highly sophisticated analytical capabilities on these surplus flows and pulling out those predictive signals, while using them for analysis, that they discovered that they could predict what kind of ad somebody is likely to click on and if they would click through to the website. That became what we now know as the “click-through rate.” 

The click-through rate is a computational product that predicts a fragment of human behavior. It turned out that there was a very substantial market of business customers who wanted to know what customers will do, who wanted behavioral predictions of customer behavior and user behavior. 

So advertisers and their clients surrendered the traditional relationship between a product and its ad, where a company decides where to place its ads based on alignment with its brand values. Even the first years of online advertising maintain that continuity. But Google made them an offer they couldn’t refuse and they agreed to it after quite a bit of debate and conflict. They agreed to buy the product without asking to see what was inside Google’s black box and let the machines decide where the ads go.

How does this model expand to enmesh almost all of the internet?

This is not just an accident that happened at Google. This is an economic logic that was so successful at Google that within just a few years, it became the default model throughout the tech sector and then spread through the normal economy and has become the dominant economic logic in our time. 

Between 2001, when this logic first started being systematically applied, and 2004, when Google went public (the first time we got to see any of their numbers) their revenue increased by 3,590%. That exponential increase represents what I call the surveillance dividend. At that point, they had cracked the code and  many companies found a path to monetization. Now everybody from your TV manufacturer to Ford Motor Company started to say “to heck with the product, we want the data.” Everyone in every sector is chasing the surveillance dividend.

There is a story about the top young folks at Google sitting around in an office in 2001, trying to answer the question: “What is Google?” And nobody had a cogent way to answer that question. Larry Page ultimately began to share things and what he said was if Google had a business, it would be personal information. People are going to produce so much data. There will be cheap cameras and sensors everywhere. There will be so much data about people’s lives that all of human experience will be searchable and indexable. He had the vision that personal information was the game. Surveillance capitalism is an economic logic founded on the unilateral, secret theft of private experience as a limitless source of free raw material, and that free raw material becomes the zero-cost asset [meaning that, after set-up costs, it is free to produce]. It can be translated into behavioral data. That behavioral data is now claimed as proprietary and it’s gathered into new complex supply chain ecosystems.

This is the arc that surveillance capitalism is traveling: Not only to know everything and use it for prediction, but to actuate human behavior.

Everything feeds the supply chain. Not only what you do online, but everything on your phone, all the apps on your phone, and as Page predicted, all the cameras and sensors are gathering data. All of behavioral data is now claimed as proprietary and flows into complex ecosystems before being conveyed to surveillance capitalism’s computational factories, called artificial intelligence. The [output] is computational products that predict human behavior that are sold in markets, just like we have markets for pork belly futures or oil futures.

What does this mean for people’s daily life?

Human futures markets have competitive dynamics. What the actors and the sellers in these markets are competing on is certainty. They’re selling certainty to their customers and the best predictions win. We had some insight into these factory hubs a couple years ago with a leaked Facebook document in 2018. The document revealed that in Facebook’s AI hub, trillions of data points are ingested every day and 6 million predictions of behavior are produced every second. So this is the kind of scale that we’re talking about. When we think about the competition in these prediction markets, and you kind of deconstruct that competition, you begin to see the economic imperatives at work here very clearly. 

The first one is scale. For AI to be effective in producing predictions, it needs a lot of data. The second one is scope. In addition to volume, you need variety. That involves getting people off their desktop, off their laptop, and out into the world and getting  them moving around their house, in their cars, through their cities. Give them a little computer, they can take it in their pocket and it will tell us everything they’re doing. We’ll call it a phone. Those are economies of scope. 

The final discovery was that the very best predictive data comes from digitally intervening in people’s behavior and learning how to tune and herd their behavior in the direction that maximizes the strength of their predictions and therefore maximize customer outcomes. This became a new zone of experimentation. The extraction scale is huge, but conceptually straightforward. The scope is huge but has required a lot of invention. Facebook, for example, is now working on how to translate brainwaves into language. 

How do we actually modify behavior in the direction that optimizes revenue flows? This is not as straightforward. This is a new zone of experimentation and so the companies went to work experimenting with it. Things like Facebook’s massive scale contagion experiments, and things like Google’s Pokemon Go, the augmented reality game which experimented with how to herd people through their cities, towns, and villages to the establishments that were paying Niantic Labs, which made Pokemon Go and which was spun off of Google, for guaranteed footfall. This is exactly the same structure as the online ad market markets who are paying for click through rate and now you have a real world establishment paying for guaranteed footfall. 

See also: Why Bitcoin’s ‘Culture War’ Matters

This is what data scientists call the shift from monitoring to actuation. That’s when you actually have enough knowledge about a machine system to be able to control it remotely and automate it. You can change the parameters or do whatever you need to do remotely because you have so much information now about the system monitoring the actuation. This is the arc that surveillance capitalism is traveling: Not only to know everything and use it for prediction, but to actuate human behavior, social behavior, and individual behavior to drive behavior in the direction that is optimal for revenue. 

We see this in psychologically-based micro targeting. We see this in the real-time use of rewards and punishments, delivered through your phone. We see this through the importation of gamification in order to point people in the direction that satisfies commercial outcomes. Pokemon Go was an example of that. The point is that when people think about these issues, they just think about targeted ads. They think this is just about advertising. It no longer is. This is about your insurance company rewarding and punishing you in real time for the amount of pressure that your foot places on the gas pedal. In real time it can raise or lower your premiums based on your immediate behavior.

So what’s the end game in this scenario? You reference Sidewalk Lab’s previous experimentation with Toronto as a “smart city” that exchanges data for all sorts of privileges. What does that look like?

Such an experiment replaces decisions that citizens make about how they want to live together, which are the building blocks of every democracy. The citizen has no role other than just to be part of this larger system. And these companies say if you agree to give us all your data and make your life completely accessible to us in every way, then you will be eligible for all these cool new services. 

If you choose privacy and anonymity though, you will be excluded from the service offerings. You won’t be able to take advantage of the new transit systems or the new security systems or the food delivery systems. These are the real-time rewards and punishments in action. Google spoke about using data to construct reputation scores. People and businesses that behave within the algorithmic parameters get higher reputation scores and that privileges them when it comes to bank loans or other kinds of services. People who violate the algorithmic parameters are punished because they’re excluded from these kinds of relationships and services, and they can’t advance their lives because they’re excluded. 

See also: Decentralization and What Section 230 Really Means for Freedom of Speech

This is a vision of a future: a private corporation with unaccountable power. It’s a future where we don’t have the great democratization of information that we expected in the digital century, but just the opposite. We revert to a feudal pattern with these huge concentrations of knowledge and this new kind of power. 

This power is not soldiers coming to your house in the middle of the night and whisking you away to the gulag. This is not violence and terror and murder. This is power that operates remotely through the milieu of digital instrumentation. For anyone who thinks that such systems are only the subject of “Black Mirror” episodes, go and read the history of the 20th century where it took the entire Western alliance to fight back another kind of totalizing power that wanted total control over individuals and society and that was totalitarianism. This is different because it tends to come bearing a cappuccino rather than a gun. 

Radical indifference is about maximizing flows of data, not because these are evil people, but because this is the compulsion of this economic logic.

How might Trump’s executive order attacking Section 230 – which absolves companies from civil liability for online content – impact this, if at all?

Disinformation is a routine consequence of the economic logic that we have just discussed. It’s a consequence of the imperatives of economies of scale and economies of scope. All systems have been engineered right from the start to maximize supply chain flows. In the euphemistic language of the surveillance capitalists, it is engagement. There is no room in this economic logic to judge the quality of supply. It doesn’t matter. Scale matters. Scope matters. Actuation that allows us to increase the accuracy of prediction matters. That’s all. 

This is what I call radical indifference. We don’t care if you’re happy or sad. We just care that we can get the data. We don’t care if you have cancer if you’re getting married or if you’re planning a terrorist attack, we just care that we get the data. Radical indifference is about maximizing flows of data, not because these are evil people, but because this is the compulsion of this economic logic. Until we interrupt and outlaw that economic logic, we will have disinformation.

The nature of the human being is if you’re driving down a road, and there’s a car accident, you’re gonna stop and look. If you’re driving down the road, and there’s a beautiful willow tree, you’re gonna keep driving. It turns out that violent, contentious, hateful, rabble rousing and mendacious content gets people to stop and look. That’s the car wreck. 

Because the systems are engineered to maximize supply, and because people stop and look at car wrecks, it enables armies of bots and trolls. That’s Mr Trump. 

Section 230 had no way of anticipating surveillance capitalism. There’s no incentive to take down bad stuff and massive incentives to keep the supply chains full. It turns out that the internet is not a bulletin board, as the creators of Section 230 envisioned.  The internet is more like the bloodstream of the global body politic. Thanks to the economic imperatives of surveillance capitalism, the people who own and operate the internet, are incentivized to allow anybody to put any kind of poison into the bloodstream without an antidote. That’s where we are today. 

So does Section 230 need scrutiny? Yes, but it needs scrutiny as part of a larger discussion about  legislative frameworks, regulatory paradigms, charters of rights or the institutions that we need to make the internet compatible with democracy. 

This is the third decade of the digital century. We have to figure this out. Mr. Trump is coming along and shining attention on Section 230, which one might think was a good thing, but now here we have the second whiplash. That whiplash is that Mr. Trump is fighting for the right to put poison at will into the global bloodstream. He’s fighting for the right to lie. He’s fighting for the right to put counterfactual information into the body politic. 

We need to construct a rule of law compatible with democracy that addresses these core questions of surveillance capitalism and who owns and operates the internet. We need to do it so that we make the internet safe for truth. Not safe for lies. There are areas where there’s opinion but there are areas where there are facts. Now we have a global bloodstream in which there is no institutional operation that comes under democratic protection and democratic oversight. This has made our democracies untenable. 

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Despite being created over ten years ago, Bitcoin is still riddled with confusion and uncertainty. While Goldman Sachs just listed five reasons to avoid bitcoin, Bloomberg analysts have predicted its value to double to $20K this year. 

Federal Reserve officials see U.S. inflation as likely to stay below 2% over the next three years, based on a new summary of economic predictions released Wednesday by the central bank.

Prices for personal consumption expenditures are expected to climb just 1% this year, down from a December projection of 1.9%, according to the document. Inflation will average 1.5% next year and 1.7% in 2022, the officials projected.

“Weaker demand and significantly lower oil prices are holding down consumer price inflation,” the Fed’s monetary-policy committee said Wednesday at the conclusion of a two-day, closed-door meeting. 

Related: First Mover: Bitcoin Bulls Might Get Negative Rates From Central Banks, Just Not the Fed

The Fed made no change to its benchmark interest rate, now set in a range from 0% to 0.25%, and officials projected no hikes through the next three years. The officials saw U.S. gross domestic product falling 6.5% this year before a 5% increase in 2021 and 3.5% growth in 2022.

The central bank pledged to continue its purchases of Treasury bonds and other securities “at least at the current pace to sustain smooth market functioning.”

Read more: First Mover: Bitcoin Bulls Might Get Negative Rates From Central Banks, Just Not the Fed

The revised inflation expectations show that officials see little threat of runaway inflation despite the central bank’s trillion-dollar money injections to stabilize markets and heal an economy devastated by the coronavirus and related lockdowns. 

Related: First Mover: As Bitcoiners Eye Inflation Boost, Wall Street Sees Barely Any for Five Years

Bitcoin prices have surged 36% this year, partly on expectations that the largest cryptocurrency by market value might serve as a hedge against inflation. Economists including Steve Hanke of Johns Hopkins University have written that hyperinflation episodes in Zimbabwe, France and elsewhere have historically occurred when “when the supply of money had no natural constraints.” 

The Federal Reserve has expanded its balance sheet by about $3 trillion this year to $7.2 trillion as of last week. Prior to the 2008 financial crisis, the central bank had less than $1 trillion of total assets. 

Yet, so far inflation has remained muted. Rising unemployment tamps down wage growth and flagging consumer demand reduces upward pressure on prices for goods and services.

A report earlier Wednesday from the U.S. Labor Department showed another closely followed inflation gauge, the consumer price index, or CPI, climbed just 0.1% over the past 12 months, partly due to this year’s collapse in oil and other energy-related costs.

Read more: How I Learned to Stop Worrying and Love the Money Printer

Excluding food and energy items, the so-called core CPI climbed just 1.2% over the past year, less than half the rate of just a few months ago.

The core inflation reading is the weakest since 2011, Scott Anderson, chief economist at the French bank BNP Paribas’ Bank of the West unit, wrote Wednesday in an email.

“Our forecast is for core consumer price inflation to continue to moderate year-on-year into early 2021 before turning the corner on reviving growth,” he wrote.

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On one hand, the bitcoin industry has matured to include traditional brokerages and institutional traders. On the other, bitcoin privacy tech is still shrouded in a legal gray zone. 

The Human Rights Foundation (HRF) took a strong stance on bitcoin privacy tech Wednesday by announcing its new Bitcoin Developer Fund. The first $50,000 grant from the fund has been awarded to freelance CoinSwap developer Chris Belcher. 

CoinSwap, a mixing technique originally invented in 2013 by Greg Maxwell, is part of a comprehensive suite of privacy tools being developed by bitcoin advocates. 

Related: ‘Radical Indifference’: How Surveillance Capitalism Conquered Our Lives

“The fund’s next gift, already earmarked for another developer working on strengthening Bitcoin pseudonymity at the network level, will be announced later this summer,” Alex Gladstein, the HRF’s chief strategy officer, said in an email.

HRF will also crowdsource fundraising for such privacy tech, he added, using both dollars and bitcoin, while making it “possible for activists to more safely receive donations, earn income and continue their important work under increased financial pressure.”

Belcher said he hopes to have a primitive testnet available near the end of the year. 

“It will be a bit like Lightning, where there’s never a single day when it’s finished, but it slowly gets more and better features and bug fixes until one day you realize it’s everywhere,” Belcher said of CoinSwap, which he plans to keep as an open source hobby project and not a revenue-producing company. 

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Theoretically, any wallet provider could use the open source code to add the feature to their mobile app or desktop app. Privacy-focused wallets could even use CoinSwap features as another layer to current CoinJoin offerings.

Read more: Samourai Wallet Releases Privacy-Enhancing CoinJoin Feature

“The bitcoin ecosystem could end up in a bad situation where it’s impossible to accept bitcoin as payment without consulting some centralized blacklist … so I talk a lot about privacy but fungibility is important too,” Belcher said. “Centralization also makes the privacy of the software worse, so I’m less interested in going in that direction … it’s all about tradeoffs.”

Adam Fiscor, co-founder of zkSNACKs, said the next Wasabi Research Club will examine CoinSwaps, though he said it would be premature to comment on it further. 

Both CoinSwaps and CoinJoins are a type of non-custodial mixing, which could theoretically be layered as two privacy tools used in the same transaction. CoinSwaps are comparable to atomic swaps, while CoinJoin options typically pool disparate funds together as part of the transaction. 

Read more: 100 Bitcoin Users Perform What Might Be Largest ‘CoinJoin’ Transaction Ever

However, some compliance officers at leading analytics companies and crypto exchanges treat mixed bitcoin as inherently suspicious, which influences how legal authorities view the technology as well. It remains to be seen if CoinSwap features will suffer from the same stigmas as the incumbent method, CoinJoin.

CoinJoin

The technologists working with bitcoin privacy tech walk a delicate line, and tend to pay their lawyers accordingly. 

Attorney Preston Bryne said he would not advise clients to use CoinJoin transactions, which he said is sometimes wrongly associated with money laundering. Many exchanges and wallet companies choose to be safe rather than sorry when it comes to legal battles.

Yet, lawyer Rafael Yakobi said there’s nothing inherently wrong with using this privacy feature, it’s all about how you report it. In the case of wallet providers, this may be possible in non-custodial scenarios where the intermediating startup never controls the assets. 

“I’m quite confident that CoinJoin has not yet been mentioned in any piece of legislation. It’s not even mentioned by name in FinCEN’s guidance,” Yakobi said. “The more appropriate question is whether flagging CoinJoin transactions is implicitly required by the relevant regulations. I’m not sure about Europe, but in the U.S. it’s not an objective yes or no answer. Each business is required to formulate best practices designed to comply with the law.” 

Over in Europe, it appears the law enforcement agency Europol is wary of the privacy-oriented Wasabi Wallet, because the analytics firm Chainalysis estimated $15 million worth of illicit transactions used the bitcoin wallet’s CoinJoin feature. 

Read more: EU’s Europol: Bitcoin Privacy Wallet ‘Not Looking Good’ For Law Enforcement

Critics like Reckless VR founder Udi Wertheimer and Jon Matonis of Cypherpunk Holdings, the latter of which invested in both the privacy-oriented Samourai Wallet and Wasabi-maker zkSNACKs, say blockchain analytics firms are overestimating the amount of illicit transactions when they flag mixed bitcoin. 

“Exchanges, banks and regulators are being sold a false narrative if they believe that this [analytics] technology provides reliable, or more importantly, actionable results,” Matonis said. “It is purely a dangerous game of probabilities and false positives, disingenuously overstated to peddle more forensic services.”

HRF’s Gladstein recently took Elliptic, another blockchain analytics firm, to task for its “surveillance” work.

“The tools you’re building regardless of your intentions will be used for policing bitcoin,” Gladstein said during a panel with Elliptic’s Tom Robinson at an event this month. “At the end of the day what you’re doing is warrantless surveillance against people in other countries.”

Read more: ‘Financial Surveillance’ or ‘Blockchain Analysis’? Human Rights Foundation Debates Elliptic

For his part, Matonis’s investment thesis revolves around the belief the legal community will adopt compliance norms that don’t restrict or criminalize privacy-tech like mixers.

“The concern around mixing technology, or coin hygiene, stems from the flawed thinking that cryptocurrency transactions are identical to bank transfers using fiat currency,” Matonis said. “This is a grand societal battle that must be won by privacy advocates, not because it is a cute feature or a principled position, but because it is an existential economic necessity. A peer-to-peer value transfer system fails without underlying coin privacy at its core, because the entire system would lack fungibility if all coins were not treated equally the way paper cash is today.”

This is why some bitcoiners continue to work on privacy tech, regardless of exchange policies and other hurdles.

Continued growth

Meanwhile, CoinJoin usage continues to increase, with roughly 13,500 new Wasabi Wallet downloads this year.

So far in June, more than 10,000 fresh bitcoin were used in Wasabi CoinJoin transactions for the first time, the highest record since the all-time peak in August 2019 according to the Wasabi team. 

Overall, usage has more than tripled since May 2019, when roughly 9,764 total bitcoin were used in Wasabi’s CoinJoin transactions, compared to 35,697 total bitcoin used in May 2020, they said. 

And that’s not even to mention the few thousand bitcoin sent using other CoinJoin tools since the coronavirus began, including Samourai Wallet and JoinMarket. Generally speaking, usage appears to be up across the sector.

Matonis said as long as companies and public individuals focus on non-custodial, open source software, he believes privacy-tech projects will actually bear less compliance costs over time as the tools become normalized. For example, mixing protocols could become a “standard default feature” in bitcoin wallets. 

“Both the bitcoin industry and law enforcement need to resist falling for the myth of blockchain forensics as perpetrated by the blockchain surveillance firms,” Matonis said of companies that routinely flag mixed coins as suspicious. 

“Law enforcement methods will undoubtedly have to evolve beyond simply using money as an identity tracking device or simply relying on metadata through non-targeted driftnet surveillance,” he added. “This means employing real and sometimes cumbersome police work that doesn’t violate the rights of any individuals.”

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An unknown wallet holder mistakenly, it seems, sent a $2 million transaction fee on the Ethereum blockchain, Elrond is testing its network in a “trial by fire” and Libra’s Dante Disparte thinks governments entering the stablecoin race is good for Libra. Here’s the story:

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Top shelf

Libra’s Future
Libra’s initial prospectus and subsequent redesign has left its imprint on the world. Some 70% of central banks are researching a national digital currency, a fact that Dante Disparte, head of policy and communications at the Libra Association, thinks is good for the Libra project and its mission. “I think there would be nothing better for the world and for poverty alleviation if, in fact, we started to trigger a bit of a space race on compliance to address the 1.7 billion people who are unbanked and underbanked,” he said. “So from my point of view, there is no monopoly on this work. Let others enter this process and let the race begin.” CoinDesk’s Ian Allison takes a deep dive into where Libra stands in midst of the “digital dollar space race.”

Related: Blockchain Bites: ‘Bitcoin Billionaires’ and Buying a Coke With Crypto

Institutional Investors
Fidelity Digital Assets found the number of U.S. institutional investors buying crypto derivative products jumped significantly in 2020. In a survey the subsidiary found “22% of U.S. respondents invested in digital assets have exposure via futures, which is a substantial increase relative to 9% of U.S. investors surveyed in 2019,” while 80% of investors surveyed have found “something appealing about the asset class.” Separately, Bakkt and Galaxy Digital plan to partner to offer a “white glove” trading and custody solution targeting institutional investors this year. Galaxy will provide all the trading services and functionalities, while Bakkt will repurpose part of its Bakkt Warehouse as the service’s custody solution.

Building Blocks
Elrond, a proof-of-stake blockchain, is offering up to $60,000 to node-runners and white-hat hackers to find bugs and vulnerabilities in a trial-by-fire test of the network. Separately, Band Protocol 2.0 launched Wednesday with its mainnet oracle solution, BandChain, leveraging the Cosmos SDK. The project’s revamp comes 10 months after listing as an initial exchange offering (IEO) on Binance Launchpad and a $3 million 2019 seed round led by Sequoia India. 

Investments
Hacker Noon, a tech publication with 4 million monthly readers, has closed a $1 million strategic investment from micropayments firm Coil, a blockchain-agnostic product built on the Interledger protocol and headed by former Ripple CTO Stefan Thomas. The publication will integrate Coil’s Web Monetization technology to pay Hacker Noon writers based on their screen time. 

Financial Products
London-based investment firm ETC Group plans to list a bitcoin-backed exchange-traded product (ETP), called the Bitcoin Exchange Traded Crypto (BTCE), on Deutsche Borse’s Xetra market. This would be the world’s first centrally cleared derivative crypto asset. Meanwhile, Bitwage, a crypto payroll provider, has added USDC support to its platform.

Related: First Mover: Crypto Broker Voyager’s Stock Has Doubled This Year, Beating Bitcoin

Ill-Gotten Gains?
Just before 10:00 UTC Wednesday, an unknown wallet holder sent 0.55 ether (around $133) with a 10,666 ETH transaction fee – currently worth just under $2.6 million. The fee went to Chinese mining group Spark Pool – which ordinarily would have averaged around $0.50 – that now says it has frozen the payout to miners in its pool. Elsewhere, a 20-year old California resident was charged Monday by the U.S. Department of Justice with allegedly participating in a SIM-swapping scam that defrauded Apple and stole an unknown amount of cryptocurrency from one victim.

Movers & Shakers
Brian Brooks sold $4.6 million Coinbase stock options when he left the exchange to become interim head at the Office of the Comptroller of the Currency (OCC). Since taking office Brooks has already publicly suggested a federal payments charter for fintech companies, asked state and local governments to consider lifting COVID-19 lockdowns to protect the banking system and published a request for public input on how banks look at crypto. In an interview with CoinDesk’s Nikhilesh De, Brooks said, “My job here is not to protect incumbents, and it’s not to preserve the status quo.” He also thinks DeFi is the most exciting corner of crypto today. 

Blockchain Voting
Residents of Moscow will have the option to cast votes electronically in Russia’s upcoming national referendum on its constitution, and have their votes recorded on Bitfury’s open-source enterprise blockchain, Exonum. Sources close to the matter say Moscow’s Department of Information Technologies tapped Kaspersky Lab, an anti-virus software vendor turned blockchain consultant, to build this technical solution.

Opinion

The Crypto Community Needs to Stand Up and Fight Racism
Robert Greenfield, CEO of Emerging Impact, takes a moment to reflect on the crypto industry’s response to the death of George Floyd and subsequent protests around the country. Whereas other corporations and public figures working in the broader tech industry have taken a stance against police brutality and economic injustice, the crypto community has been mostly silent. “The crypto community is conveniently selective about what aspects of society it wants to change,” Greenfield said.

Bitcoin Doesn’t Take Sides: Why Apolitical Solutions Are the Internet’s Future
Preston Byrne, partner in Anderson Kill and a CoinDesk columnist, sees another side of the culture war. In an op-ed examining censorship and the future of Section 230, Byrne thinks the winners will likely be apolitical. “Companies that build politics-free solutions will be the future of the internet. Not because such products have the right opinions about their users, but because they have no opinions at all,” he said. 

Market intel

Profitable Coins
Over 16 million BTC out of the total circulating supply of 18.4 million, or 87%, is currently making gains. The metric, an obscure data point called percentage of bitcoin’s circulating supply in profit, is calculated by looking at the ratio of coins with a value that is higher now than when they were last moved, and signals a coming bull run. “Historically, levels of 90% and higher have clearly marked pronounced bull markets,” Glassnode said in a weekly report. 

Playing it Loose
Officials in the U.K., Europe and New Zealand may push interest rates below zero as a form of economic stimulus. And bitcoin might be a beneficiary of looser monetary policy outside the U.S., even if the Federal Reserve never joins its foreign counterparts. While central banks’ dalliances with negative interest rates in the mid-2010s didn’t seem to affect bitcoin’s price, a current market capitalization roughly 20 times levels in 2014 and an increasing correlation with the broader market may see people turning to bitcoin as a hedge against increasing consumer prices. Get the full First Mover analysis in your inbox.

Strictly Not Stifled
LocalBitcoins’ ban on cash transactions and stricter identity verification has not appeared to stifle the peer-to-peer exchange’s business. LocalBitcoins’ volume is down 27% over the past 12 months and up almost 40% for the year to date. Compared to reported volumes of 12 months ago, OKEx and Coinbase have seen volume drop by approximately 30% and 45%, respectively, according to data from Nomics. Since January, however, the two exchanges’ volumes have grown by roughly 2,500% and 800%, respectively. 

The Breakdown

What the Stock Market’s ‘Robinhood Rally’ Means for Bitcoin
The largest 50-day rally in stock market history and even shares of bankrupt companies are up more than 100%. NLW asks and answers: What is going on?

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Microsoft’s Bitcoin-based decentralized identity tool, ION, went live with a beta version on mainnet Wednesday as one of many efforts by members of the Decentralized Identity Foundation (DIF) to fast-track tools anyone can use for COVID-19 crisis response programs. 

Microsoft and ConsenSys’s uPort project are both leading DIF members. Separately, Microsoft is also collaborating with the bitcoin startup Casa to create a user-friendly interface for managing multiple digital identities. 

“We’re excited to help ION take full advantage of technology like Bitcoin to vastly improve authentication, security and privacy on the internet,” Casa CEO Nick Neuman said in a press release.

Related: Human Rights Foundation Funds Bitcoin Privacy Tools Despite ‘Coin Mixing’ Legal Stigma

“We are thrilled to have Casa collaborating on ION with us, which showcases the potential of building real-world applications that leverage the strong foundation Bitcoin provides,” Microsoft project lead Daniel Buchner said in a statement.

First announced last year, ION is meant to enable user-controlled logins that suit independent companies or services, rather than having system-providers (like Facebook) owning a user’s login credentials. ION can be used for many use cases that aren’t strictly related to health certificates or contact tracing, though the continued spread of coronavirus has influenced its potential usage. 

Read more: Microsoft Launches Decentralized Identity Tool on Bitcoin Blockchain

“Almost every group in the blockchain industry is coming up with use cases,” said ConsenSys employee and DIF leader Rouven Heck, referring to potential partnerships with government agencies. 

Related: First Mover: Bitcoin Bulls Might Get Negative Rates From Central Banks, Just Not the Fed

“There are conversations happening at the moment but it’s not a formal agreement,” Heck said. 

“Everybody wants to move fast and has a high interest in demonstrating this technology can be very powerful.”

The race is on for companies to work with governments on such high-tech emergency ID measures. There are generally two approaches, contact tracing and digitized medical records, while some Asian governments combine them. For example, dozens of blockchain startups joined forces to start creating an “immunity passport” approved by the World Wide Web Consortium (W3C) Verifiable Credentials standard. 

However, some people see both approaches as controversial, even dangerous. 

In May, attorney Elizabeth Renieris resigned from her advisory role at the ID2020 consortium for decentralized ID (DID) creators, including Microsoft, saying she “cannot be part of an organization overly influenced by commercial interests that only pays lip service to human rights.”

Read more: ‘Decentralized ID at All Costs’: Adviser Quits ID2020 Over Blockchain Fixation

Microsoft would not make executives available for an interview, though the company did provide a statement.

“Microsoft is continuing to work on the ION project, which has always included considerations on functionality for a wide range of use cases,” a Microsoft spokesperson told CoinDesk. “While there could be relevant software solutions inspired by new needs and current market demands, Microsoft believes in empowering people and protecting privacy and is committed to growing the open source community and industry standards.” 

Layered privacy

Microsoft’s open source ION project uses the Bitcoin blockchain for something comparable to a coat-check ticket.

Rather than include all the data about the coat (or person), which would be hard to scale, it offers a Bitcoin-ledger reference number to the data’s chronology. The heavy data is actually stored between ION nodes using the InterPlanetary File System (IPFS). Whoever is anchoring the data pays a small fee to bitcoin miners to record the reference number.

“The focus is to make things highly interoperable,” Heck said, referring broadly to the urgent work being done on solutions across the space.

Part of the reason why organizations involved with DIF are working to make their technologies compatible across use cases and systems is interoperability might, at the very least, make it easier to build privacy features that apply across the spectrum. 

“Uport at ConsenSys are also working on projects,” Heck said. “Microsoft’s ION stack or Uport’s stack should be compatible.”

Even so, some privacy advocates say the project’s safeguards are lacking.

Read more: Israeli Bitcoiners See Surveillance as Unavoidable During Coronavirus Crisis

Former W3C employee Harry Halpin, now CEO of the privacy-tech startup Nym, said some of these efforts are simply repackaging previous work. 

“ID2020 is just the latest attempt to violate people’s privacy using feel-good rhetoric. It’s also part of a larger business plan. Microsoft and IBM’s entire bottom line is to build identity systems,” Halpin said. “Governments need to establish identities of who owns these keys, so they say, ‘OK, we’ll have an open standard, call it decentralized, and make it mandatory.’”

In the face of such harsh criticism, blockchain advocates are working to identify and minimize the ethical risks of the tools they continue to build. 

According to W3C member and nonprofit Blockchain Commons founder Christopher Allen, it’s not clear the contact tracing like Google and Apple are offering will work unless the vast majority of all Americans use them. Since it’s hard to get enough people on board for contact tracing to work, he worries the most salient result may simply be accelerated data collection.  

“Probably the most dangerous type of information, out of all types of personal information, is location data,” Allen said, explaining contact tracing would require privacy tech at multiple layers, from the app level on the phone to the internet infrastructure someone uses. 

“It’s incredibly hard to protect,” he said.

In reference to an open source emergency app in Israel, which does have privacy measures yet was operated in cooperation with various government entities, Allen said it’s clear “this data is already out there being collected and [location data] correlation is happening.”

Government partners

Zcash Foundation researcher Henry de Valence agreed such systems are not the best use case for distributed ledger technology, or really any software. 

“I don’t think people should build those systems and I don’t think they would be effective at preventing the spread of disease,” he said, adding he does not see so-called immunity passports as any better. “There’s no cryptographically strong way to prove immunity one way or another.”

Read more: Immunity Passes Explained: Should We Worry About Privacy?

Some countries, like Honduras, have already implemented some type of blockchain solution for certificates that give people a type of ticket for medical services or free movement outdoors. 

However, in these cases, the government generally came up with a policy and found a startup to create the relevant tooling, rather than tech startups coming to policymakers with prospective offerings. One exception, which isn’t widely adopted so far and didn’t use blockchain technology, was NSO Group pitching surveillance technology to American police. Despite the societal risks, crypto companies are taking NSO Group’s proactive approach. 

Blockchain certificates

Allen is slightly more optimistic about decentralized identity tools for self-sovereign medical records. 

“This architecture is ripe for solving this particular problem,” Allen said, warning this is only in reference to the digital certificate itself. (Whether the medical tests actually prove immunity is a different matter entirely.)  

As someone who collaborates with both immunity passport teams and companies involved with the DIF, he said they are taking disparate approaches based on their own evaluations of the tradeoffs. He’s not sure which will be better and hopes the market will decide. 

“We don’t know what the best answer is and we don’t have a strong rubric for what the best level of decentralization means,” Allen said of the immunity passport coalition. “Parties like DIF, with Microsoft and ConsenSys … [have] a different set of rubrics to decide the answer to their solution.”

On the other hand, Zcash’s de Valence remains skeptical.

“It’s the duty of technologists to ask what types of systems we’re creating and what kinds of social structures do those things create,” he said. 

Although Allen warned no technology offers a panacea, especially with regards to government overreach or recurring outbreaks, he expects some type of new “verifiable credential” technology will probably emerge from this crisis.

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Microsoft’s Bitcoin-based decentralized identity tool, ION, went live with a beta version on mainnet Wednesday as one of many efforts by members of the Decentralized Identity Foundation (DIF) to fast-track tools anyone can use for COVID-19 crisis response programs. 

Microsoft and ConsenSys’s uPort project are both leading DIF members. Separately, Microsoft is also collaborating with the bitcoin startup Casa to create a user-friendly interface for managing multiple digital identities. 

“We’re excited to help ION take full advantage of technology like Bitcoin to vastly improve authentication, security and privacy on the internet,” Casa CEO Nick Neuman said in a press release.

Related: First Mover: Bitcoin Bulls Might Get Negative Rates From Central Banks, Just Not the Fed

“We are thrilled to have Casa collaborating on ION with us, which showcases the potential of building real-world applications that leverage the strong foundation Bitcoin provides,” Microsoft project lead Daniel Buchner said in a statement.

First announced last year, ION is meant to enable user-controlled logins that suit independent companies or services, rather than having system-providers (like Facebook) owning a user’s login credentials. ION can be used for many use cases that aren’t strictly related to health certificates or contact tracing, though the continued spread of coronavirus has influenced its potential usage. 

Read more: Microsoft Launches Decentralized Identity Tool on Bitcoin Blockchain

“Almost every group in the blockchain industry is coming up with use cases,” said ConsenSys employee and DIF leader Rouven Heck, referring to potential partnerships with government agencies. 

Related: Another Data Point Suggests Bitcoin Close to Prolonged Bull Market

“There are conversations happening at the moment but it’s not a formal agreement,” Heck said. 

“Everybody wants to move fast and has a high interest in demonstrating this technology can be very powerful.”

The race is on for companies to work with governments on such high-tech emergency ID measures. There are generally two approaches, contact tracing and digitized medical records, while some Asian governments combine them. For example, dozens of blockchain startups joined forces to start creating an “immunity passport” approved by the World Wide Web Consortium (W3C) Verifiable Credentials standard. 

However, some people see both approaches as controversial, even dangerous. 

In May, attorney Elizabeth Renieris resigned from her advisory role at the ID2020 consortium for decentralized ID (DID) creators, including Microsoft, saying she “cannot be part of an organization overly influenced by commercial interests that only pays lip service to human rights.”

Read more: ‘Decentralized ID at All Costs’: Adviser Quits ID2020 Over Blockchain Fixation

Microsoft would not make executives available for an interview, though the company did provide a statement.

“Microsoft is continuing to work on the ION project, which has always included considerations on functionality for a wide range of use cases,” a Microsoft spokesperson told CoinDesk. “While there could be relevant software solutions inspired by new needs and current market demands, Microsoft believes in empowering people and protecting privacy and is committed to growing the open source community and industry standards.” 

Layered privacy

Microsoft’s open source ION project uses the Bitcoin blockchain for something comparable to a coat-check ticket.

Rather than include all the data about the coat (or person), which would be hard to scale, it offers a Bitcoin-ledger reference number to the data’s chronology. The heavy data is actually stored between ION nodes using the InterPlanetary File System (IPFS). Whoever is anchoring the data pays a small fee to bitcoin miners to record the reference number.

“The focus is to make things highly interoperable,” Heck said, referring broadly to the urgent work being done on solutions across the space.

Part of the reason why organizations involved with DIF are working to make their technologies compatible across use cases and systems is interoperability might, at the very least, make it easier to build privacy features that apply across the spectrum. 

“Uport at ConsenSys are also working on projects,” Heck said. “Microsoft’s ION stack or Uport’s stack should be compatible.”

Even so, some privacy advocates say the project’s safeguards are lacking.

Read more: Israeli Bitcoiners See Surveillance as Unavoidable During Coronavirus Crisis

Former W3C employee Harry Halpin, now CEO of the privacy-tech startup Nym, said some of these efforts are simply repackaging previous work. 

“ID2020 is just the latest attempt to violate people’s privacy using feel-good rhetoric. It’s also part of a larger business plan. Microsoft and IBM’s entire bottom line is to build identity systems,” Halpin said. “Governments need to establish identities of who owns these keys, so they say, ‘OK, we’ll have an open standard, call it decentralized, and make it mandatory.’”

In the face of such harsh criticism, blockchain advocates are working to identify and minimize the ethical risks of the tools they continue to build. 

According to W3C member and nonprofit Blockchain Commons founder Christopher Allen, it’s not clear the contact tracing like Google and Apple are offering will work unless the vast majority of all Americans use them. Since it’s hard to get enough people on board for contact tracing to work, he worries the most salient result may simply be accelerated data collection.  

“Probably the most dangerous type of information, out of all types of personal information, is location data,” Allen said, explaining contact tracing would require privacy tech at multiple layers, from the app level on the phone to the internet infrastructure someone uses. 

“It’s incredibly hard to protect,” he said.

In reference to an open source emergency app in Israel, which does have privacy measures yet was operated in cooperation with various government entities, Allen said it’s clear “this data is already out there being collected and [location data] correlation is happening.”

Government partners

Zcash Foundation researcher Henry de Valence agreed such systems are not the best use case for distributed ledger technology, or really any software. 

“I don’t think people should build those systems and I don’t think they would be effective at preventing the spread of disease,” he said, adding he does not see so-called immunity passports as any better. “There’s no cryptographically strong way to prove immunity one way or another.”

Read more: Immunity Passes Explained: Should We Worry About Privacy?

Some countries, like Honduras, have already implemented some type of blockchain solution for certificates that give people a type of ticket for medical services or free movement outdoors. 

However, in these cases, the government generally came up with a policy and found a startup to create the relevant tooling, rather than tech startups coming to policymakers with prospective offerings. One exception, which isn’t widely adopted so far and didn’t use blockchain technology, was NSO Group pitching surveillance technology to American police. Despite the societal risks, crypto companies are taking NSO Group’s proactive approach. 

Blockchain certificates

Allen is slightly more optimistic about decentralized identity tools for self-sovereign medical records. 

“This architecture is ripe for solving this particular problem,” Allen said, warning this is only in reference to the digital certificate itself. (Whether the medical tests actually prove immunity is a different matter entirely.)  

As someone who collaborates with both immunity passport teams and companies involved with the DIF, he said they are taking disparate approaches based on their own evaluations of the tradeoffs. He’s not sure which will be better and hopes the market will decide. 

“We don’t know what the best answer is and we don’t have a strong rubric for what the best level of decentralization means,” Allen said of the immunity passport coalition. “Parties like DIF, with Microsoft and ConsenSys … [have] a different set of rubrics to decide the answer to their solution.”

On the other hand, Zcash’s de Valence remains skeptical.

“It’s the duty of technologists to ask what types of systems we’re creating and what kinds of social structures do those things create,” he said. 

Although Allen warned no technology offers a panacea, especially with regards to government overreach or recurring outbreaks, he expects some type of new “verifiable credential” technology will probably emerge from this crisis.

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New York congressional candidate Jonathan Herzog hosted a live YouTube broadcast with Ethereum creator Vitalik Buterin on Monday, along with author and activist Glen Weyl. 

Herzog is a Democrat who previously worked on Andrew Yang’s failed yet crypto-savvy presidential campaign earlier in 2020. 

These three white men talked about the protests erupting across the United States. To his credit, the Russian-Canadian Buterin spoke broadly instead of attempting to comment on inequality in American politics. He said the current generation is facing a global “crisis of legitimacy,” concerning both corporations and “many types of governments.” 

Related: ‘Whale’ Just Sent $130 in Cryptocurrency With a $2.6M Transaction Fee

“The challenge here is can we create systems that allow some groups of people to cooperate without that downside of a centralized or trusted actor having to be in the middle,” Buterin said. 

Buterin skillfully framed his software project as it relates to the current economic and political crisis. Yet this YouTube broadcast on Herzog’s campaign trail was hardly Buterin’s first brush with politics. 

Read more: The Crypto Community Needs to Stand Up and Fight Racism

Buterin met with Russian President Vladimir Putin in 2017 because the Ethereum movement is – as a threat to incumbent systems – inevitably political (as Ethereum developer Vlad Zamfir often tweets). Former Ethereum Foundation employee Virgil Griffith, Buterin’s American mentor, is even on trial for allegedly violating sanctions related to North Korea. Token evangelism is a type of diplomacy, for better or worse.

Related: ConsenSys Muscles Into Compliance With New Regulatory Product for DeFi

None of this is to say these men will achieve their vision, nor that they have the “right” vision for political reform. But as this underdog democratic candidate in New York revealed, it would be naive at this point to overlook how crypto pioneers have gone from trading magic internet money to influencing politicians around the world. 

Herzog literally asked for Buterin’s perspective on policy issues as part of this campaign broadcast. 

Thought leaders

Buterin’s philosophical compatriot, Glen Weyl, is the Ethereum community’s latest ideological godfather (after both Griffith and Ethereum co-founder Joe Lubin). 

Weyl charmed diplomats and bankers at the World Economic Forum 2020 and inspired an activist movement promoted through the RadicalxChange Foundation. He takes Ayn Rand’s hyper-individualistic ideology and reshapes it to fit liberal morality. Equality can be achieved through free market auction, he argues in his economic manifesto “Radical Markets.” An organizer said more than 900 people are signed up for the upcoming RadicalxChange virtual conference starting June 19, where Buterin is also a headliner. 

“More than ever, in the time of COVID-19, the problems we face are collective, not individual. And if we each try to protect ourselves, rather than some notion of the public,” Weyl said on Monday. “It’s like trying to replace the military with a bunch of guards protecting individual buildings.”

Read more: How a Crypto Guru Shaped Harvard’s Roadmap for Reopening the US Economy

The key, he continued, is distribution mechanisms that come from pre-determined, historic hierarchies, aka structural bias. Together, the charismatic economist and crypto pioneer joined forces to argue in favor of quadratic funding and Ethereum governance, which Herzog compared to opportunities for American legal reform. 

In short, quadratic funding means a certain amount of money is committed to a cause or project then future donors can vote on how money is spent while increasing or matching funds. The donor engagement vehicle is seen as a way to encourage online donations.

For example, Weyl said, a government or philanthropist can match smaller donations, or eventually even an automated smart-contract managing funds. (CoinDesk experimented with quadratic funding during Consensus: Distributed, raising more than $107,000 for COVID-19 charity efforts.) 

Growing adoption

Buterin said he was interested in ideas like socialism, libertarianism and bitcoin, which initially inspired his continued work on Ethereum. 

While he remains an active member of the bitcoin community, Buterin said he is moving Ethereum away from proof-of-work (PoW) mining to reduce the environmental harms of electricity consumption. Ethereum critics would argue there are environmentally friendly ways to mine bitcoin. Either way, the Ethereum creator uses both bitcoin and ether tokens as part of his activism. He’s experimented with quadratic funding, both academically and diplomatically. 

See also: The Unsolved Mystery of How to Fund Public Protocols 

Buterin’s Ethereum Foundation donated $150,000 to the United Nations Children’s Fund (UNICEF) in 2019. During the broadcast on Monday, Buterin said he’s fascinated with the quintessential question of politics: “how to fund public goods.” So far, the UNICEF donation is one such answer. 

As for Herzog, he asked the crypto pioneer to recommend a “path forward” in the “context of liberal democracy.” Regardless of whether Herzog wins a congressional seat in New York, Buterin’s political influence doesn’t appear to be fading any time soon.

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The Russian economy ministry is pushing back against the nation’s planned ban on cryptocurrency. 

In a letter to the country’s parliament, the nation’s Ministry of Economic Development criticized a package of draft bills recently introduced by lawmakers. If passed, Russia would at last have its first regulatory regime for crypto and digital assets – but would also effectively ban any businesses facilitating crypto transactions. 

According to the Russian newspaper Kommersant, which obtained the letter, the ministry points out that people will still be able to buy crypto assets elsewhere, but the current version of the bills would not allow the government to protect their rights. Crypto-oriented businesses would also be driven outside of the country, harming the economy.

Related: Libra Is Ready for the Digital Money ‘Space Race’: Dante Disparte

Instead, the new rules should take a different approach and work on creating a “controllable cryptocurrency market” in Russia, the ministry argues, according to the report.

The regulatory landscape around cryptocurrency has been quickly shifting across the world in the last year, with authorities and regulators paying closer attention to the industry, and the industry looking for ways to comply (or occasionally not). Yet, while Russia is a significant crypto market and the motherland of many blockchain developers, it has opted for an ultra-conservative approach, led by the country’s central bank. 

The more conciliatory stance on cryptocurrency from a government ministry, however, might be a sign Russia could yet tone down its hostile approach, which recently led to a loud outcry from the local crypto industry.

‘Marijuana treatment’

The draft legislation, introduced in late May as a supplement to the previous bill on digital assets, deems illegal any activities facilitating the issuance of, and operations with, virtual currencies and if Russian servers or websites registered by Russian providers are used. 

Related: Moscow Said to Hire Kaspersky to Build Voting Blockchain With Bitfury Software

This includes purchasing crypto for fiat currency and accepting it as a payment. However, owning crypto is legal if it’s inherited, transferred as a result of bankruptcy proceedings or seized as a result of a court decision. Also included is the potential to issue digital securities, but that must be done under the full control of the central bank.

“The Bank of Russia does not understand how to control crypto. Rule number one: if you can’t control something, ban it,” a source in the cryptocurrency mining industry, who participated in the working group drafting the bill and asked not to be named, told CoinDesk.

For many crypto businesses, the bills would not actually change much, the source added, as even now, exchanges and over-the-counter services with Russian origins prefer to register in other jurisdictions. And large amounts of cryptocurrency in the country are often purchased for cash. 

Sarkis Darbinyan, an IT-focused attorney at Moscow-based law firm the Digital Rights Center, believes that if the law is passed inits current form, cryptocurrency in Russia is going to go from the grey zone “into the darkness of the digital underground.” 

“In fact, bitcoin gets the same status as marijuana. You can use it in a limited fashion under the close eye of the state, but can’t talk or write about it,” Darbinyan said. 

Under the draft law, he continued, crypto owners would have to report their holdings for tax purposes, and that information would be readily available for the country’s law enforcement agencies. “In the Russian reality, only a crazy person would choose to keep the police posted about the state of their crypto accounts,” Darbinyan said. 

Threat to miners

The proposed regulation looks problematic for Russia’s crypto miners, too. While mining is not explicitly mentioned in the draft, the draft bills’ ban on the digital asset “issuance” is likely to cover the sector. 

“This draft has been in the works for three years. We suggested some options to legalize crypto mining back in 2019 that was a lot of work, but it all got thrown out the window,” the industry source said,. The mining industry in Russia is yet not big enough to have strong lobbyists to help push their case, they added. 

Compounding matters, miners can’t be as nimble as over-the-counter brokers in shifting to other jurisdictions because relocating a building full of mining machines is a much greater logistical problem than moving an office.

However, bigger mining entities in Russia, which tend to keep their businesses secret, might have a quick and easy fix for their pending legal troubles. “You register a company abroad, say, in Hong Kong. This company puts the miners in a data center in Russia, and the Russia-registered company is not issuing crypto,” the source said.  

But not everyone can afford such tricks, and small miners may be forced to close or operate illegally. “Everyone who has less than $50,000 worth of mining equipment will be swept out of the market into the black – not even grey – zone,” they warned.

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Algorand and Blockstack are collaborating on a new smart contract programming language that moves the two startups toward direct, inter-blockchain communications.

Called Clarity, the project will ultimately allow developers to write smart contracts that execute across their two blockchains – and others that might decide to join the open source initiative – without involving third-party interoperability protocols like Polkadot, executives at both companies told CoinDesk. 

The potential for direct inter-chain communications is likely as boundless as the ideas of the developers deploying smart contracts across the two very different platforms. Algorand’s proof-of-stake blockchain often caters to financial use cases, while Blockstack’s upcoming Stacks 2.0 “proof-of-transfer” blockchain looks more broadly at decentralized computing.

Related: Bug in ‘Timelocked’ Bitcoin Contracts Could Spur Miners to Steal From Each Other

“We believe it’s a multi-chain world,” said Steve Kokinos, chief executive at Algorand. “People are going to use different chains for different purposes and interoperability is going to be critical.”

Less-buggy smart contracts

Blockstack CEO Muneeb Ali said it was the similarity of his and Algorand’s smart contract design philosophies that brought them together. 

“We were already looking at the same properties,” Ali said.

Both are acutely interested in deploying “non-Turing complete” languages. Algorand 2.0’s TEAL smart contract language is non-Turing complete, as is Blockstack’s eponymous Clarity, already planned to debut on Stacks 2.0. Ali estimated the two languages had “80-90%” in common at the outset.

Related: Enigma Blockchain Has a New Name and a Privacy Boost in the Works

Non-Turing completeness means, in part, that a language’s programs cannot in theory run forever – and that, in practice, means its programs are somewhat more restrictive than ones written in a Turing-complete language.

But non-Turing complete languages are also far less prone to bugs than their computationally complete brethren because of that same property. Their smart contracts don’t need to be manually audited, Ali said. 

Read more: Who Will Pay for Turing-Complete Smart Contracts?

“Everything can be precise, everything can be verified,” Ali said, contrasting Clarity with potentially error-prone alternative languages that could put “hundreds of millions of dollars” of smart contract user funds at risk. 

The infamous DAO hack is perhaps the best-known example of the potential perils of buggy smart contracts written in a Turing-complete language. That 2016 heist cost users $50 million in ether, all because of a bug. 

“The number question for these smart contracts is actually just: Are they precise and secure?’ So the language has to be just focused on that, which  is what we have done here,” Ali said. 

Kokinos said Clarity provides a “philosophically different approach to smart contracts.”

Clarity will also make for simpler developer experiences, he said. “We’re providing people tools to make it less necessary for them to learn a lot about how the blockchain works and about the underlying parts of the system and just enable people to get their work done.”

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Two New York-based crypto companies hope to scoop up growing institutional demand for physical bitcoin.

Announced Wednesday, Galaxy Digital’s trading arm and regulated bitcoin futures provider Bakkt said the service will offer asset managers and other institutional investors a “white glove” trading and custody solution.

As part of the collaboration, Galaxy will provide all the trading services and functionalities, leveraging its existing plugins to 30 different exchange venues. Meanwhile, Bakkt will offer custody services through its Bakkt Warehouse, which it currently uses to facilitate physically settled bitcoin contracts.

Related: Number of Institutions Buying Crypto Futures Doubled in 2020: Fidelity Report

Designed to work around the clock, the idea, according to Tim Plakas, Galaxy Digital Trading’s head of sales, is to offer a “safe, efficient and well-regulated route into physical bitcoin access, one that has been already proven successful in the macro hedge fund space.”

“We designed this partnership to service the uptick in demand our two firms have received from traditional asset managers seeking access to physical bitcoin,” Plakas added.

See also: Novogratz’s Crypto Investment Firm Galaxy Digital Shrinks Workforce 15%

While the idea of two big-name companies teaming up like this may seem like a titillating prospect, both Bakkt and Galaxy Digital have struggled to make much headway this year.

Related: Bitfinex Spin-Out Says Funds Are Lining Up for Its New Decentralized Exchange

As a merchant bank that invests in crypto companies as well as trades digital assets, Galaxy Digital has failed to make much, if any, revenue since it first launched in January 2018. It reported a net loss of $32.9 million in the final quarter of 2019 and warned further losses from the coronavirus.

It was Galaxy Digital Trading, the branch now hooking up with Bakkt, that was responsible for pretty much wiping out Galaxy’s other revenue streams, losing a total $32.1 million in Q4.

See also: Bakkt CEO Mike Blandina Steps Down 4 Months After Taking Role

Bakkt, on the other hand, has struggled to attract much footfall. Launching in September 2019 after more than a year of delays, the exchange’s volumes have remained low.

For example, there was a week in January, and two weeks in late February, where not a single one of its options contracts traded. That contrasted with a broader derivative space that reported record volumes during the same timeframes.

So far this week, for instance, Bakkt’s total volume for monthly options contracts was stuck at zero. Bakkt’s futures have seen more volume, reaching record levels last month during Bitcoin’s halving, though it’s now returning to more typical levels.

UPDATE (June 10, 2020, 20:30 UTC): This article was updated for clarity.

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Two New York-based crypto companies hope to scoop up growing institutional demand for physical bitcoin.

Announced Wednesday, Galaxy Digital’s trading arm and regulated bitcoin futures provider Bakkt said their new service – which has yet to be named – will offer asset managers and other institutional investors a new “white glove” trading and custody solution.

As part of the collaboration, Galaxy will provide all the trading services and functionalities, leveraging its existing plugins to 30 different exchange venues. Meanwhile, Bakkt will repurpose part of its Bakkt Warehouse, which it used to facilitate physically settled bitcoin contracts, as the service’s custody solution.

Related: Number of Institutions Buying Crypto Futures Doubled in 2020: Fidelity Report

Designed to work around the clock, the idea, according to Tim Plakas, Galaxy Digital Trading’s head of sales, is to offer a “safe, efficient and well-regulated route into physical bitcoin access, one that has been already proven successful in the macro hedge fund space.”

“We designed this partnership to service the uptick in demand our two firms have received from traditional asset managers seeking access to physical bitcoin,” Plakas added.

See also: Novogratz’s Crypto Investment Firm Galaxy Digital Shrinks Workforce 15%

While the idea of two big-name companies teaming up like this may seem like a titillating prospect, both Bakkt and Galaxy Digital have struggled to make much headway this year.

Related: Bitfinex Spin-Out Says Funds Are Lining Up for Its New Decentralized Exchange

As a merchant bank that invests in crypto companies as well as trades digital assets, Galaxy Digital has failed to make much, if any, revenue since it first launched in January 2018. It reported a net loss of $32.9 million in the final quarter of 2019 and warned further losses from the coronavirus.

It was Galaxy Digital Trading, the branch now hooking up with Bakkt, that was responsible for pretty much wiping out Galaxy’s other revenue streams, losing a total $32.1 million in Q4.

See also: Bakkt CEO Mike Blandina Steps Down 4 Months After Taking Role

Bakkt, on the other hand, has struggled to attract much footfall. Launching in September 2019 after more than a year of delays, the exchange’s volumes have remained low.

For example, there was a week in January, and two weeks in late February, where not a single one of its options contracts traded. That contrasted with a broader derivative space that reported record volumes during the same timeframes.

So far this week, for instance, Bakkt’s total volume for monthly options contracts was stuck at zero. Bakkt’s futures have seen more volume, reaching record levels last month during Bitcoin’s halving, though it’s now returning to more typical levels.

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• Galaxy Digital
• Behind ‘Prime Broker’ Buzzword Lies a Complex Strategy Game for Crypto Firms

Hacker Noon’s 4 million monthly readers are about to get a taste of crypto-powered micro-tipping firsthand. 

The tech publication has closed a $1 million strategic investment from micropayments firm Coil, a blockchain-agnostic product built on the Interledger protocol and headed by former Ripple CTO Stefan Thomas. 

The terms include a three-year partnership between the Colorado and San Francisco-based startups, including the use of Coil’s Web Monetization technology. 

Related: Bitcoin’s Lightning Becomes Latest Protocol to Court Publishers With Micropayments

“Avoiding something like a paywall with a microtransaction is extremely valuable,” Hacker Noon founder and CEO David Smooke said in a phone interview with CoinDesk. 

“Hacker Noon is home to an incredibly dedicated community of technologists and software developers,” Coil Chief Growth Officer Jonathan Greenglass said in a statement. “We’re thrilled to be working with Hacker Noon to provide its community with a simple way for readers and writers to participate in the value exchange between one another.”

Read more: Bitcoin’s Lightning Becomes Latest Protocol to Court Publishers With Micropayments

With a simple web tag, the Coil integration lets readers pay Hacker Noon writers based on their screen time, Smooke said. Coil memberships start at $5 per month which readers autostream payments from, Smooke said. Funds not directed toward individual writers will be pooled for charity, he added. 

Related: Hacker Noon Is Storing Content on a Blockchain After Ditching Medium

At first glance, microtransactions seem like an apt solution for journalism or any online publication: a happy compromise between subscription and ad-based revenue models. Yet to date, the tech has received little love.

Smooke, who founded Hacker Noon in 2016 with his wife, Linh Dao Smooke, and business partner, Jay Zalowitz, said it’s still too early to write off the option.

Read more: Hacker Noon Is Storing Content on a Blockchain After Ditching Medium

The Hacker Noon micro-tipping feature comes after the blogging platform left Medium in 2019 following managerial disagreements. Medium allocates portions of subscriber fees to writers based on its “claps” feature. 

Moreover, both Hacker Noon and Coil have pledged to support user privacy with the new payments feature. Smooke said Hacker Noon doesn’t “want to do the New York Times thing” and “collect social graphs” of its readers.

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Hacker Noon’s 4 million monthly readers are about to get a taste of crypto-powered micro-tipping firsthand. 

The tech publication has closed a $1 million strategic investment from micropayments firm Coil, a blockchain-agnostic product built on the Interledger protocol and headed by former Ripple CTO Stefan Thomas. 

The terms include a three-year partnership between the Colorado and San Francisco-based firms, including the use of Coil’s Web Monetization technology. 

Related: Bitcoin’s Lightning Becomes Latest Protocol to Court Publishers With Micropayments

“Avoiding something like a paywall with a microtransaction is extremely valuable,” Hacker Noon founder and CEO David Smooke in a phone interview with CoinDesk. 

“Hacker Noon is home to an incredibly dedicated community of technologists and software developers,” Coil Chief Growth Officer Jonathan Greenglass said in a statement. “We’re thrilled to be working with Hacker Noon to provide its community with a simple way for readers and writers to participate in the value exchange between one another.”

Read more: Bitcoin’s Lightning Becomes Latest Protocol to Court Publishers With Micropayments

With a simple web tag, the Coil integration lets readers pay Hacker Noon writers based on their screen time, Smooke said. Those funds are first pulled from ad revenue generated by Hacker Noon sponsors. Funds not directed toward individual writers will be pooled for charity, Smooke said. Coil advertises memberships starting at $5 per month.

Related: Hacker Noon Is Storing Content on a Blockchain After Ditching Medium

At first glance, microtransactions seem like an apt solution for journalism or any online publication: a happy compromise between subscription and ad-based revenue models. Yet to date, the tech has received little love.

Smooke, who founded Hacker Noon in 2016 with his wife, Linh Dao Smooke, and business partner, Jay Zalowitz, said it’s still too early to write off the option.

Read more: Hacker Noon Is Storing Content on a Blockchain After Ditching Medium

The Hacker Noon micro-tipping feature comes after the blogging platform left Medium in 2019 following managerial disagreements. Medium allocates portions of subscriber fees to writers based on its “claps” feature. 

Moreover, both Hacker Noon and Coil have pledged to support user privacy with the new payments feature. Smooke said Hacker Noon doesn’t “want to do the New York Times thing” and “collect social graphs” of its readers.

Related Stories

• Bitcoin Lightning Network Specs Pass First ‘Formal’ Security Test
• You Can Now Buy Lightning-Powered Bitcoin With a Credit Card

As Federal Reserve Chair Jerome Powell steers U.S. monetary policymakers away from negative interest rates, he risks becoming increasingly isolated among the world’s top central bankers. 

Officials in the U.K., Europe and New Zealand are reportedly considering the once-unthinkable strategy of pushing interest rates below zero, seen as a form of economic stimulus. And bitcoin might be a beneficiary of looser monetary policy outside the U.S., even if the Fed never joins its foreign counterparts. 

You’re reading First Mover, CoinDesk’s daily markets newsletter. Assembled by the CoinDesk Markets Team, First Mover starts your day with the most up-to-date sentiment around crypto markets, which of course never close, putting in context every wild swing in bitcoin and more. We follow the money so you don’t have to. You can subscribe here.

Related: Another Data Point Suggests Bitcoin Close to Prolonged Bull Market

The divergence over the issue shows just how challenged central bankers are as they struggle to find consistent strategies for healing economies devastated by the coronavirus and related lockdowns. The World Bank on Monday forecast that global output will tumble by 5.2% this year, the worst recession since World War II.

With the situation so dire, more central bankers are willing to consider negative interest rates, which encourage people to spend money by making it more costly to deposit money in a bank account, as a viable monetary-policy tool. U.S. President Donald Trump joined the chorus last month, tweeting that “as long as other countries are receiving the benefits of Negative Rates, the USA should also accept the ‘GIFT.’”

It’s unlikely that Powell will change his tune now, with Federal Reserve policymakers scheduled on Wednesday to announce the outcome of this week’s two-day, closed-door meeting. So far, the Fed’s response to economic crisis has been to cut interest rates to zero, roll out emergency-lending programs and inject trillions of dollars of new money into the financial system via asset purchases. 

As recently as month, Powell said that top Fed officials “do not see negative policy rates as likely to be an appropriate policy response here in the U.S.”

Related: Market Wrap: DeFi Is Helping Ether Outpace Bitcoin This Year

Bitcoin prices do appear to have risen in sync with this year’s announcements of new stimulus measures. According to the cryptocurrency research firm Delphi Digital, bitcoin began to “flirt” with the psychological $10,000 price threshold last week as the European Central Bank and Bank of Japan ramped up their asset-purchasing programs by a combined $1.5 trillion. 

And now the drumbeats are starting for negative rates. 

Last month, Bank of England Governor Andrew Bailey raised hackles when he told a parliamentary select committee that negative interest rates were under “active review” for the very first time in the bank’s 324-year history. The week before, he had explicitly ruled out the possibility. 

The U.K. central bank already has cut its base interest rate to a record low of 0.1%. 

Then there’s the European Central Bank, led by President Christine Lagarde, which opted last week to expand its stimulus measures by 600 billion euros. 

But central bank analysts still forecast an 8.5% contraction in the euro area this year, and ECB board member Isabel Schnabel said Tuesday that cutting rates below zero “remains an option.”

“Our experience with negative interest rates has been positive,” the German economist said in a Twitter Q&A, according to Reuters.

The Reserve Bank of New Zealand said last month that negative rates could “become an option in future,” possibly as early 2021.

Central banks’ dalliances with negative interest rates in the mid-2010s didn’t seem to affect bitcoin’s price. But the digital asset has grown since then, with a market capitalization that’s roughly 20 times where it stood when the ECB went negative in 2014. 

And while analysts in the past claimed that bitcoin was uncorrelated with most traditional assets, recent price action has shown an increasing connection between the cryptocurrency and broader economic and market developments. 

Bitcoin is now increasingly regarded as a hedge against inflation, and negative rates represent an aggressive form of monetary-policy easing that could ultimately help to push up consumer prices.

Another school of thought says that if banks try to set deposit rates at negative levels, many customers would just pull their money out to avoid charges. And rather than keeping cash under the mattress, some might instead decide to store the value as bitcoin in a digital wallet. 

More broadly, negative rates might simply highlight how experimental monetary policymaking has become in the coronavirus era, Stack Funds, a bitcoin index provider,  wrote in a report last month.

“By being in bitcoin, you’re opting into transparency,” Lewis Harland, founder of analytics site Formal Verification, told CoinDesk.

Tweet of the day Bitcoin watch

BTC: Price: $9,759 (BPI) | 24-Hr High: $9,838 | 24-Hr Low: $9,637

Trend: Bitcoin has rallied by nearly 150% in the last three months, but a long-term bullish breakout is yet to arrive.

That’s because the cryptocurrency is still contained within a 2.5-year long descending triangle represented by trendlines connecting the December 2017 and July 2019 highs and the December 2018 and March 2020 lows. 

According to the weekly chart, the triangle resistance (upper edge) is currently located at $10,260. A weekly close Sunday (midnight, UTC) above that level would confirm a long-term bearish-to-bullish trend change and open the doors for a rally to $20,000 by the year’s end. 

Bloomberg analysts expect the cryptocurrency to challenge record highs this year on the back of increased institutional participation and rise in haven demand. 

While $10,260 is the level to beat for the bulls, the June 2 low of $9,136 is key support currently. A breach there would invalidate a bullish lower-highs setup on the daily chart. Acceptance under $9,136 would likely yield a deeper decline to $8,630 (May 25 low).

The bearish divergence of the three-day chart’s relative strength index (RSI) suggests scope for a drop to $9,136. At press time, bitcoin is changing hands near $9,750, representing a 0.3% decline on the day. 

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UPDATE (12:29 UTC): Spark Pool says it has frozen the payout to miners in its pool.

Slip of the finger? Sadist? It’s not yet known. But at just before 10:00 UTC Wednesday, an unknown wallet holder sent 0.55 ether (around $133) with a 10,666 ETH transaction fee – currently worth just under $2.6 million.

The fee went to Chinese mining group Spark Pool, which processed the transaction and may distribute the millions to its members. A normal transaction fee would likely be up to $0.50 or so, but can be manually set higher by a sender if they want to push a transaction through more quickly.

Related: ConsenSys Muscles Into Compliance With New Regulatory Product for DeFi

The identities of both the sender and receiver are not yet known. But the sender has an ETH wallet balance worth more than $11 million – even after spending $2.6 million in transaction fees. In comparison, the receiver’s wallet is now empty, with past funds transferred out to other wallets.

Strangely, the sender’s wallet has been sending out transactions every minute in recent hours and with attached fees worth less than a dollar. As such, it’s possible the whale accidentally reversed the figures for this odd transaction.

See also: Bitcoin Transaction Fees Decline as Network Congestion Eases

This isn’t the first time Spark Pool has been on the receiving end of a transaction fee windfall.

Related: Crypto Derivatives Exchange OKEx Launches Options on Ether

Last year, the company froze a mysterious 2,100 ETH payment (then worth $300,000) it made for mining just one block – 600 times the average block reward at the time. After tracking down the sender, a South Korean blockchain firm, Spark Pool agreed to split the reward 50/50.

Regarding this latest transaction, Spark Pool spokesperson told CoinDesk it was following up and welcomed any potential leads about the identity of the sender just “in case it was sent by mistake.”

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Bitcoin could be on the verge of breaking into a multi-month bull run, according to a lesser-known data metric.

The percentage of bitcoin’s circulating supply in profit is currently hovering at 87%, according to data provided by blockchain analytics firm Glassnode. The metric is calculated by looking at the ratio of coins with a value that is higher now than when they were last moved. 

Essentially, over 16 million BTC out of the total circulating supply of 18.4 million is currently making gains. More importantly, the 87% level is close to that seen at the onset of the previous long-term bull markets.

Related: First Mover: Bitcoin Bulls Might Get Negative Rates From Central Banks, Just Not the Fed

“Historically, levels of 90% and higher have clearly marked pronounced bull markets,” noted Glassnode in its weekly insights report. 

For instance, the percentage of circulating supply in profit rose above 90% in October 2016 as the cryptocurrency rallied from the August low of $470 up to record highs above $1,100 in the first quarter of 2017.

Bitcoin continued to gain altitude and ultimately reached a record high of $20,000 in December 2017. Throughout the meteoric rally, the non-price metric hovered largely in the range of 80 to 99%.

Looking further back, the percentage of supply in profit crossed well above 90% in January 2013 and remained above that level for three months as bitcoin rose to clock highs near $250 in mid-April. A similar pattern was seen as prices rose to record highs above $1,000 in mid-November the same year. 

Related: Market Wrap: DeFi Is Helping Ether Outpace Bitcoin This Year

So, if history is a guide, bitcoin may embark on a stellar bull run if and when the percentage of supply in profit rises above 90%.

Bitcoin will likely cross that key level if prices rise above $10,000, reinforcing the argument put forward by analysts that $10,000 is the level to beat for the bulls. 

At press time, bitcoin is changing hands near $9,740, marginally down on the day. The cryptocurrency has rallied by nearly 150% over the past three months, lifting the percent supply in profit from 43% to 87%. 

The metric may be of help in identifying major price tops and bottoms. In the past, readings near 40% have marked bear market bottoms, while highs above 95% have coincided with market tops. 

Disclosure: The author holds no cryptocurrency at the time of writing.

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Coinbase’s former top legal advisor sold over $4 million in stock options when he left to take the helm at the U.S government’s banking supervisor.

Brian Brooks, who was the cryptocurrency exchange’s chief legal officer from late 2018 until last month, sold his stock options to become interim head at the Office of the Comptroller of the Currency (OCC) – a 3,600-person bureau in the U.S. Treasury Department.

Financial disclosures seen by Bloomberg show Brooks sold $4.6 million stock options in Coinbase, earned on top of a $1.4 million salary, to take up his new role as acting comptroller – a position that earns less than $300,000 a year.

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Brooks had joined the OCC back in March as chief operating officer and first deputy controller, but assumed the position of acting comptroller following the sudden departure of his predecessor, Joseph Otting, halfway through a five-year term, in May.

Brooks was confirmed as acting comptroller on May 29.

The OCC’s primary role is to maintain the integrity of the U.S. banking system, encourage greater competition and innovation as well as ensuring full regulatory compliance.

In the past, the OCC has been accused of becoming too cozy with the financial institutions it is supposed to watch over. In late 2017, in his second week in the job, Otting scrapped longstanding plans to move hundreds of OCC staff out of the Manhattan offices of JPMorgan, Citigroup and other large-scale lenders. At the time, he said the move was “not practical.”

Related: ‘Inherently Borderless’: Acting OCC Chief Talks Crypto, State Licenses and DeFi

See also: US Bank Regulator OCC Asks for Public Input on Cryptocurrency Use in Financial Sector

In his inaugural statement, Brooks said he planned to foster innovation in the banking sector: “We should support banks’ use of new technology, products, and models that safely and fairly accelerate the velocity of money, create greater financial inclusion, and empower consumers and businesses with more control over their financial affairs.”

In an interview with CoinDesk, Brooks went further: “My job here is not to protect incumbents, and it’s not to preserve the status quo … The job I have is to make sure that the bank charter’s flexible enough to maintain a safe, sound, strong American economy and the shape of banking has to be flexible to accommodate.”

As he is only acting comptroller, Brooks doesn’t yet face the same ethics restrictions he would if he led the regulator permanently. Still, he has assured the OCC’s ethics department he will stay away from any investments that could present any conflict of interest, which include tech firms such as Amazon and Coinbase.

See also: Capitol Controls: From Coinbase to the OCC, How Brian Brooks Is Changing Regulation

In a letter, Sunday, U.S. Senator and former presidential candidate Elizabeth Warren urged Brooks to undo some of the actions from the previous OCC administration which, she said, had been “tainted by Comptroller Otting’s own conflicts of interest.”

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The first Libra white paper published in June 2019 had the temerity to threaten the monetary authority of central banks and governments. The empire struck back.

That’s why an updated white paper from April 2020 has taken a belt and braces approach to regulatory compliance, said Dante Disparte, head of policy and communications at the Libra Association. The new technical document comes replete with buttoned-up hires and a pending payments license through the Swiss Financial Market Supervisory Authority (FINMA).

Libra’s watering-down of its global stablecoin to a series of fiat-backed stablecoins has prompted some commentators to say the project has lost its soul. Meanwhile, Libra has been written off by crypto purists (who didn’t like it anyway) and there is at least one U.S. lawmaker calling Libra’s revamp insufficient. 

Related: Digital Currencies Could Replace Low-Interest Bank Accounts, Says UN-Linked Expert

Whatever you thought of the “unfortunate” positioning of Libra’s first white paper, as Disparte put it, the effort undoubtedly triggered a “space race,” he said, particularly regarding central bank digital currencies (CBDCs). 

And a world where 70% of central banks are exploring CBDCs presents an opportunity, he said.

“When they [central banks] take the leap beyond wholesale, which is where most CBDC work is going, and start thinking about retail applications, then we will be in a better world for the fact networks like Libra exist,” Disparte told CoinDesk in a recent interview. 

According to the updated white paper, Libra hopes that “these CBDCs could be directly integrated with the Libra Network, removing the need for Libra Networks to manage the associated Reserves, thus reducing credit and custody risk.”

Related: New York, French Finance Watchdogs Open Doors for Each Other’s Fintech Startups

Read more: Libra Scales Back Global Currency Ambitions in Concession to Regulators

Further down the road, it would be possible to offer the central bank of Ghana, for example, a way of “creating a cross-chain trading window between you and the currency you issue, and user-level applications that are interoperable,” Disparte said.

As well as shaking up central banks, Libra has spawned some direct competitors such as the Andreessen Horowitz-backed Celo Alliance and the Google- and Gates Foundation-backed Mojaloop Foundation, which aims to interconnect privately siloed forms of mobile money such as M-Pesa in Sub-Saharan Africa and India.

But the elephant in the room is China, said Disparte, where WeChat Pay, Alipay and the People’s Bank of China (PBoC) digital payments efforts are serving hundreds of millions of users.

In this particular race, Libra appears to be extending its hand to the U.S. and offering a way to get a CBDC into the hands of consumers. 

“You can be NASA, [Libra is] telling the Federal Reserve, and we’ll be the Space-X of money,” is how author and digital money expert Dave Birch put it in a recent article. 

“I think there would be nothing better for the world and for poverty alleviation if, in fact, we started to trigger a bit of a space race on compliance to address the 1.7 billion people who are unbanked and underbanked,” Disparate said. “So from my point of view, there is no monopoly on this work. Let others enter this process and let the race begin.”

Unfazed

Cynics have scoffed at Libra’s stated mission to help the planet’s unbanked population. 

But one-size-fits-all compliance regimes that can inadvertently shut people out of the financial system – and regulatory dead zones where users lack verifiable identities to pass know-your-customer (KYC) checks – is where Libra is taking its fight now. 

In such cases, every inch gained helps “expand the perimeter of the formal economy,” said Kiva Chief Strategy Officer Matthew Davie. (Davie is on the board of Libra and Kiva is one of the Libra Association’s founding social-impact partners.)

However, the first phase of Libra’s rollout, which commences in Q4 of this year, Disparate said, will require permission to join the network instead of it being open and relying solely on monitoring, as was promised in last year’s plans. In other words, the phase 1will not move the needle on reaching the unbanked.

The first phase will be closely tied to the licensing of crypto companies in regulated jurisdictions such as the U.S., Europe and Singapore, and will also apply the Financial Action Task Force (FATF) recommendations for regulated virtual asset service providers (VASPs) involving things like the “Travel Rule.”

But Libra knows financial inclusion can only really start to be driven by phase 2, at which time the network will start adding so-called “unhosted wallets,” not connected to regulated VASPs or in countries where that option is not available. 

Libra could not say exactly when the second phase is expected to begin, but allowing unhosted wallets to create accounts directly on the network is “something the project feels very strongly about from a financial inclusion perspective,” said Mandeep Walia, chief compliance officer of Novi, the Facebook subsidiary formerly known as Calibra.

Read more: Facebook’s Calibra Rebrands to Novi, Details Wallet Tie-Up With WhatsApp

“Obviously, there is a certain risk associated with that if there is no KYC done and no real compliance happening directly on that particular account,” said Walia. “There are other controls we have been talking about, such as creating some kind of a protocol-level automated balance limit/transaction limit so that damage from any potential bad activity is relatively mitigated.” 

The FATF Travel Rule’s $1,000 threshold on transactions could be a starting point for discussions around setting a ceiling for limits, and Libra has some ideas in mind, said Disparte, but at the end of the day, the Association is not the rule maker, he added.

In an interview with CoinDesk, Tom Neylan, FATF’s senior policy analyst, said the AML watchdog was open to talking with Libra about tiered customer due diligence, which would include things like limited accounts, where users can transact a certain amount of business in a certain period.

“If you think about the average remittance outflow from many countries around the world, it’s a low amount even on an annualized basis,” said Disparte. 

On the subject of connectivity between participants on the Libra network and users of Facebook services like WhatsApp with its end-to-end encryption, Walia said Novi users will have to perform a standalone KYC check. 

“We are having conversations, data field by data field, with those teams to make sure that we are clear regarding what the stance will be for each of the requirements on both sides,” he said.

In addition, Libra will operate financial investigation units using the capabilities of firms like Chainalysis and Elliptic and a range of tools looking at IP addresses, geo-location and so on.

Cost of identity

Allowing unhosted wallets on the network is an important on-ramp for the financially excluded, said Kiva’s Davie, but it’s only part of the journey. 

Extending the perimeter for KYC checks is the most exciting innovation Libra can offer, he said. This is extremely difficult, especially where people have limited documentation, and it’s expensive for what amounts to a low-value account.

But systems like Libra can dramatically reduce the cost of compliance and enable full KYC inclusion for people who don’t have a national identity or couldn’t pass a KYC check, said Davie.

Read more: Crypto ‘Gray’ Markets Could Be Unintended Consequence of FATF Travel Rule

“We can actually reduce the barrier to bring compliance to where it’s not,” he said. “Because most actors outside the perimeter are very good actors. Kiva has been deploying millions of dollars in the unbanked sector for 15 years. Our default rate is lower than U.S. credit card default, and none of those people have ever passed a KYC check.” 

In places where people may lack a paper ID, they may have access to Facebook. Could that digital credential be combined with something like a $20-a-day transaction limit to get those people into the financial system?

“I would love to see regulators think about it that way,” said Davie. “Setting an appropriate transaction limit is a sovereign decision and a regulator’s decision. But look, 70% of the world’s adult population makes less than $10 a day. So you are not talking about big amounts of money: $10 or $15 or $100 as an account limit and you include a whole bunch of people under that regime.”

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Can build a better blockchain by paying people to burn one down?

Beniamin Mincu, Transylvanian chief executive and founder of the Elrond Network, is in the midst of a 15-day campaign to do just that. Nearly two years after first revealing his “secure proof-of-stake” sharding protocol in a technical white paper, Mincu and Elrond’s now 24-person developer team will offer up to $60,000 to node-runners who can successfully wreak havoc upon their code. 

Mincu’s goal with the so-called “Battle of the Nodes: Unchained” campaign is, of course, to have white hats expose every bug, attack vector, vulnerability and critical breakpoint on Elrond before unsanctioned hackers do so themselves. This testnet trial-by-fire will prove if the network is ready for mainnet launch, he said.

Related: Pentagon War Game Envisioned a Generation-Z Rebellion Funded by Bitcoin

“When we have 15 days without interruption of the network despite this kind of attacks and stress testing, at that point we know Elrond is finally prepared and good – robust enough to go live,” Mincu told CoinDesk.

Elrond’s 15-day clock resets when the “interrupters” manage to take the network down. Nobody has yet: Elrond’s protocol has foiled three attacks so far. Underminers have nevertheless uncovered plenty of lower-level bugs worth fixing, and that’s enough to keep nodes in contention for a slice of the $60,000 plunder, paid out in the ERD token.

“We’re on a daily basis discovering some things that we can improve from the validators,” said Mincu. “We usually do one or two releases per day,” patching the bugs, clarity issues and other pain points that the battle’s 1,700 node participants dredge up.

But the effort is not just about the money and the bugs, Mincu said – it’s also a competition for mainnet validator slots. Some 34% of Elrond’s initial 1,500 nodes (500 for each sharding pool and an additional 500 for the metachain) will go in part to “trusted” parties who helped the hunt for flaws. 

Related: Ukraine Arrests Hacker Accused of Selling Personal Data, Crypto Wallet Info

It also gives Elrond a chance to flex its network specs. By Tuesday, the blockchain – which has a “divide and conquer” consensus mechanism that randomly assigns validator work to members of the two sharding groups – was posting a peak transactions-per-second (TPS) rate of 712. Mincu claimed Elrond can handle 10,000 TPS at full tilt. 

The 1,700 nodes far outstrips Mincu’s original projection of 700-800 participants when he announced the bug bounty battle with hardly a week’s notice. All those eager blockchain breakers are potential developers who can contribute to the project over time, Mincu said.

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