Blockchain Research and Insight - Kapronasia

North Korea's growing nuclear program has long been a point of contention between the U.S. and China. Beijing prefers to handle its mercurial neighbor with kid gloves while Washington favors a tougher approach, namely economic sanctions. To evade sanctions in the digital age, Pyongyang has upped its hacking game. Both banks and cryptocurrency exchanges are victims. Digital currency offers North Korea a way to raise funds and do business outside the US dollar led global financial system. North Korea stole more than US$2 billion from both traditional financial institutions and crypto exchanges - including South Korea's Bitthumb - the United Nations said in an Aug. 2019 report.

The Trump administration has not shown much enthusiasm for a sovereign digital currency so far. With China's advances in the area, however, Washington's stance could be set to change. In early February, a member of the United States Federal Reserve Bank board of governors said the Fed is researching and experimenting with distributed ledger technologies and their virtual-currency applications. Among the applications being explored is a central bank digital currency (CBDC).

Lael Brainard, who chairs multiple Fed committees, made the remarks at a speech during an event on payments held at Stanford University. Brainard noted that 80% of central banks globally are researching CBDCs. However, she stopped well short of endorsing a full-throated campaign to create a digital dollar, devoting considerable attention to the challenges and risks posed by digital fiat currencies.

Much like its anti-corruption campaign, China's crypto crackdown is relentless. Beijing views decentralized digital currency as a conduit for money laundering and capital flight. In contrast, Beijing sees crypto's underlying blockchain technology as useful. Blockchain can help China boost its tech prowess, improve supply-chain integrity and surmount bottlenecks across many industries, particularly financial services. 

It can be hard to cut through the hype surrounding Facebook's cryptocurrency project and evaluate it objectively. Facebook champions the Libra stablecoin as a powerful vehicle for financial inclusion which would be easily accessible to its many users in developing countries without a bank account. To advance the Libra project, Facebook chief executive Mark Zuckerberg has been playing up its nationalist credentials. If U.S. regulators fail to greenlight Libra, then Washington will cede digital currency ground to Beijing, he says.

"China is moving quickly to launch a similar idea in the coming months," Zuckerberg told the House Financial Services Committee in October. "If America doesn't innovate, our financial leadership is not guaranteed."

Misunderstanding of China's blockchain aspirations remain widespread. Virtual-currency enthusiasts once thought the Middle Kingdom would be crypto central. They were wrong: China doesn't want to be a hub for all things crypto, but it does want to harness the underlying blockchain technology to boost its technological prowess, improve the integrity of supply chains and overcome bottlenecks across many industries - notably the financial services sector.

It was with those goals in mind that Chinese President Xi Jinping recently called for a larger role for blockchain in China's economic development. According to state-run Xinhua, Xi urged "deep integration of blockchain with the real economy," which he said could help SMEs get better access to credit as well as strengthen risk management in banking and the supervision of government agencies. He further said that China has a "solid blockchain foundation" and called for the nation to accelerate the development of blockchain technology and strengthen related basic research.

Japan's biggest brokerages are moving to tap opportunities in the forthcoming security tokens market. From April 2020, Japan will permit fundraising through security token offerings, which have already been launched in the U.S., Singapore and Taiwan.

Australia Post is the first industry service provider to join the Australian government’s digital identity program and the second organization to be accredited under the Trusted Digital Identity Framework (TDIF) after the Australian Taxation Office. Alongside TDIF is the Australian government’s GovPass program. It allows individuals to verify their digital identity, which then can be used to access a range of government services. If success, the government's digital identity programs may be expanded to the financial services sector in the future.

The Japanese government is leading a global effort to develop an international cryptocurrency payment network similar to the SWIFT system used by banks, according to a recent Reuters report. Citing an anonymous source, the report said that the purpose of the crypto payment network would be to combat money laundering. No details have yet emerged about how the network would function, but it was reportedly approved by the Financial Action Task Force (FATF) in June.

Facebook's plans to launch its cryptocurrency Libra in the first half of 2020 have prompted a new round of discussions in China about the merits of virtual currency. If Libra, which is aimed at the enormous global market of 2.38 billion Facebook users (not including China, where Facebook is blocked), were to succeed and China had nothing comparable, it could be left behind in the next wave of digital financial innovation.At the same time, Beijing worries that Libra will further entrench the hegemony of the U.S. dollar. “If the digital currency is closely associated with the U.S. dollar, it could create a scenario under which sovereign currencies would coexist with US dollar-centric digital currencies,” Wang Hexin, research chief of the People's Bank of China, was quoted as saying by The South China Morning Post in a July report.

With the launch of its cryptocurrency Libra, Facebook is diving headfirst into digital banking. The U.S. social-media giant can draw on its massive global network of 2.3 billion users as it forays into finance. Yet Facebook will not be introducing Libra to China, which has the world's largest number of internet users. China blocked Facebook a decade ago and has moved to cripple crypto to control systemic financial risk and discourage capital flight. If Libra is a success, being excluded from it could have major ramifications for China's fintech development. At the very least, Beijing's own fintech system would be further isolated from the rest of the world.