Privacy Pools

Headline:  What Is a Cryptocurrency Privacy pool?

Body:  I have been writing about cryptocurrency issues for a while now, and the debate that I come back to, again and again, is transparency v. anonymity.  On one hand, all of the transactions are transparent, radically so, as they are all on the publicly distributed blockchain.  And yet, the identifications of the wallets involved are known, but the people behind these wallets are usually not known.  Conceptualizing that this duality can exist is tricky given my traditional financial education.

The paper suggests a protocol known as “Privacy Pools,” which can act as a regulation-compliant tool aimed at improving the confidentiality of user transactions.

How do Privacy Pools work?

OK.   A privacy pool is not a pool that is completely shaded by palm trees and other vegetation where people can go sans clothes, as they like.(Ever heard of a “naked option”?)    What it is, is a pool of money that is cryptographically separated from other pools of money, and there is some secret and verifiable attribute that will identify the pool and the owner, without pinning a name to the owner.  I realize this is confusing, so, let’s take an analogy here.   When I was 6 and my sister was 7 or 8, my mom made us memorize a password.  (It was “airplane” as my Dad could fly anything with wings.)  So, whenever somebody needed to pick us up at school, and we didn’t know them, they would use this password.  So, this is an attribute that would only be known by a trusted person, and we wouldn’t have to know them at all.  As soon as they told us “airplane” we knew they were OK, and could safely go with them.    This is essentially what we are talking about here.  

Then, the reader might read about “association sets” and get confused again.  Association sets are a series of wallets within the pool, which have been identified as “good.”  Going back to our example above, the “association set” we might find is that our neighbors and friends from church are within our “pool” and have been pre-selected as “good” meaning that my sister and I could accept rides from them without using a password.  I might not know their names all the time, but, I had seen them before in a trusted place.

So, why are Privacy Pools something to fight for?  Why might they legitimately exist?

Everybody knows that employers ask (sometimes with some leverage) employees to never speak about salaries.  But, it is known that some employees have asked that they get paid only in cryptocurrencies.    Using this method, employers can use cryptographically secured transfers directly from a wallet owned by the company to a wallet controlled by the employee.  If a person doesn’t want their salary remarked upon by others, this use of a privacy pool might be something worth fighting for.

Privacy pools might be just a short-term solution to a problem demanding long-term thought.    Let’s say you’re on a cruise ship that runs aground.    You fall off into the water, and you first look for anything floating to pull you up and out of the water.   Once on something dry-ish, you look around to see if you can find a rescue boat.    Once aboard a small boat, then you can look for land or a larger ship.  To rescue yourself, you have to find that one piece of floating furniture first, to help you survive, and privacy pools might be that thing for cryptocurrency.  For this reason, they might be something worth fighting for.

The Verdict

In readings for this entry, the word I keep running into is “criminality.”    To be clear, nobody wants cryptocurrency to make it easier to launder money or send money to terrorists.  But, the definition of each could be set to limits within individual countries, that are so narrowly defined as to be self-serving, and this is not good either.  For instance, what if Russia were involved, and altered their definition of money laundering as “money sent to political parties outside the Kremlin”  Russia is certainly a powerful nation, are the developers of cryptocurrencies now hackers working for Russia?  I know that it is annoying to read  a law, and the first 60 pages are definitions, but, remember the bumper sticker wisdom.  LET’S EAT, CHILDREN is markedly different from LET’S EAT CHILDREN.  Definitions  and technicalities matter, and that is why it is so difficult to have several individual political power structures (think countries of Europe) sharing one currency (Euro).  This too will take some time to iron  out.

REFERENCES

https://cointelegraph.com/news/crypto-privacy-pools-regulation

https://www.wired.com/story/new-crypto-mixer-promises-to-be-tornado-cash-crime/

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Tanks for the Memories

Body: 

Headline:  Why are members in the military at enhanced risk regarding scammers?

Body:  So, most military members are in pretty good shape physically, and it can be difficult to perceive them as vulnerable to much.  Unfortunately, they can be at significant risk from scammers.  Just put yourself in their fatigues for a moment.    You would be in your early 20s,   You might be married, and your spouse might be living states away.    You might be thinking about buying your first house.  All of these are momentous things, but unfortunately, each also opens you to a variety of scammers.  Now that cryptocurrency is on the menu and moving so quickly,  there are yet another set of scammers waiting to digitally lighten the service-member’s wallet.  So, why do these people have targets on their chests?    Let’s look at that.

Why are the scammers’ gunsights on these Veterans.

When a tick looks for a host to hook on to, it is looking for an organism with a good blood supply, and one unlikely to notice the free-rider or do anything about them.  Applying this to the human parasitism,  the military members are targets because they have a very reliable salary, and are likely so busy they do not have time to investigate any red flags that do arise.

Is this really a big deal?

You can see the results in the numbers. The Federal Trade Commission (FTC) Consumer Sentinel Network Data Book 2021 found that the median loss for all fraud reports was $500. But military members report a median loss of $600, and active-duty service members report median losses of $881.  This suggests that the “too busy to notice” is a major portion of this vulnerability.

Are there some particular types of scams that prey upon the military members?

Yes, there are some kinds of scams that prey selectively upon military members.   One, is the Romantic scam.    In this one, the scammer builds up a relationship with the member (sexual or not) then asks them for amounts of money or cryptocurrency to help them deal with a “family emergency” or some such exigency.  Money in hand, they disappear.  Largely, these military members are younger adults and looking to develop relationships, so this scam is laser-focused upon somebody like them.  Another scam that seems hyper-focused upon military members is the “tech support” scam.  In this scam, you get a notification  that your computer is infected.   When you call “tech support” you speak with one of the actual scammers, and they are able to “walk” through your entire system.     Identification information and digital assets are likely to be compromised.  Given that these younger people are in the largest group most likely to appreciate cryptocurrency, this too is focused directly upon them.

So, what can be done to help defend these patriotic military members?

We can legislate some protection for these patriotic Americans.   In fact, in June 2022, Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) introduced S. 4356 – the Responsible Financial Innovation Act (RFIA). This bill outlines a comprehensive regulatory framework for digital assets that attempts to address a number of the key issues (a section-by-section summary can be found here).    But, it does circle around 2 attributes:

1. It requires disclosures concerning the digital assets and  provides funding for a variety of reports to be done, concerning the distributed  digital assets. 
2. Puts the Stablecoins on a 1:1 basis with USD.

The Verdict

One would not even consider sending out a soldier without his or her rifle, extra ammunition, hunting knife and perhaps a sidearm.  So, it seems strange to me that these young people are given their first real paycheck, they have no choice but to contact the enemy.  The potential enemies are numerous; credit card companies and others who want to take advantage of this young adult who has been “armed” with a paycheck, but not fore-warned with intelligence information that they need.  It is an entirely new type of jungle

REFERENCES

8 Military and Veteran Scams to Watch Out For – Experian

Federal report finds more service members are reporting identity theft (yahoo.com)

The Opportunity Before Congress on Crypto Legislation – Chainalysis

2024 U.S. defense bill drops crypto rules from legislation (cryptoslate.com)

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Coin Cloud Got Caught in a Storm?

Headline:  What happened to Coin Cloud and what can we learn from it?

Body:  I still remember being 5 years old, and thinking just how modern and high-tech our bank is.   We were able to drive our 1981 Honda Civic thru the DRIVE-THRU!!!  Mom didn’t even have to get out of the car, the teller just handed her the cash she requested.   There was even a cool plastic tube that jetted the little capsule to the teller.  In 1981, this WAS modern, this WAS the future.  Then there were ATMs that eschewed the teller totally.  Now, there are ATMs where you can trade cash, directly from your account, for a digital asset that you can put in your digital wallet.  One of the first such services was Cash Cloud, and they recently declared bankruptcy.  The question is, what can we learn from them?

Where did they start?

They got their start in, surprise, Las Vegas, Nevada.  Zappos aside, the commercial successes in Vegas are thin on the ground.  But, when they do blow up, they blow up FAST!!!  That can actually lead to the problems.

What actually happened?

Yes, this is foreshadowing.  Over a 2-3 year period, Coin Cloud had 1,100 ATMs nationwide that would trade cryptocurrency.  The company website claims to have had just about 5,000 ATMs at its zenith.     But, what they didn’t count on was that current ATM owners would upgrade the existing machines to offer BOTH cryptocurrency and fiat currency.  So, like the “foolish seedling” disease in rice plants, they shot up, before developing enough of a base to support their own weight.  In February, the CEO spoke to Cointelegraph, “We are announcing today that our company has  filed for Chapter 11 reorganization.   This decision will allow us to rework our debt, protect the interests of our creditors and emerge as a stronger, more financially stable company.”  We shall see.

What is most interesting to me is that nobody can seem to agree upon elementary attributes.   The company has between 5,000 and 10,000 creditors and only has between $50 and $100 Million in assets to service between $100 Million and half a Billion dollars of debt.  Before your eyes swim away, the bottom line is that it’s a LOT of debt, and a commensurate amount of doubt.  This is not a good combination.

OK, haven’t we seen these characters before?

We have seen many of these characters before.  By far, the largest creditor is Genesis Global Capital, which, in turn, is a subsidiary of the Digital Currency Group.  We have seen both of these characters over and over again (FTX, anybody?)  At present, Genesis too is bankrupt.

Another thing we’ve seen before is the security or lack thereof being a telling attribute.    A group of hackers claim to have stolen personal information on 300,000 customers of these ATMs.

The Verdict

What was most telling in this situation was the sheer lack of information.   Nobody is sure how to count the debt, and even the number of creditors is unclear.  Even Enron knew how many creditors it was cheating on.  But, we have seen this pattern too, over and over again.   Many of the cryptocurrency firms that run afoul of the government are cited for having insufficient recordkeeping functions.  This also seems to apply to Coin Cloud.  Given all of this, I guess we can learn a lesson that it is highly risky to invest a lot of hard-earned money into an industry or sector who doesn’t yet have agreed upon rules.

REFERENCES

https://cointelegraph.com/news/coin-cloud-crypto-atm-operator-files-for-bankruptcy-owes-over-100m-to-genesis

https://cointelegraph.com/news/coin-cloud-data-hack-united-states-brazil

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Hey, Leave the French a Loan.

Headline:  What is France doing to become a leader in cryptocurrency?

Body:  Oh, la la!!  France is trying mightily to become tres chic in the eyes of crypto bros all over.  So, beyond the Royale with cheese, how are they doing this? 

Europe learned a lesson when different kingdoms were run very differently.

In Europe, there is a framework to deal with cryptocurrencies.  This is called Markets in Crypto Assets (MICA).  The advent of MICA standardizes the European approach to cryptocurrency and the standardizing of rules tends to encourage more cryptocurrency firms.  This framework is being trotted out now and should be fully executed by the end of 2024.  But, why France?

1.  Collaborative regulation of cryptocurrency.
2. Broad and deep talent pool.
3. Healthy capital flows.

A Collaborative regulation regime.

Mr. Macron sees cryptocurrency as something to be fostered in France, and committed 30 Billion Euros to create the” high tech champions of the future.”   Toward this end,he has lowered taxation on cryptocurrency profits and simplified registration requirements.  (It might not have hurt that a soft approach would be the antithesis of what the UK is trying to do.)  Already, Societe Generale has been licensed.  This is summed up nicely by one business executive.  “When you are an entrepreneur, the worst that can happen to you is to set up your business where there is no regulation, to see an adverse regulatory framework later imposed that jeopardizes your whole business,” said Frederic Montagnon, the co-founder of LGO, a New York-based cryptocurrency platform that chose to launch an ICO in France.

In a related issue, France has offered to certify certain cryptocurrencies, and this certification should help boost sales. (As a part of this certification, the firm has to have a plan to hand cash back in case their project fails.)  And, if sales are so good that there is a profit, the government can tax this profit.

A Broad and Deep Talent Pool.

There are 3 crypto firms (including Binance) that have headquarters in France, and Paris was the site just last year, for a major Ethereum conference.

There are Healthy Capital Flows

One of the articles mentions that France is the home of 32 unicorns (private companies worth over a Billion dollars.  These companies do not professionally grate cheese or stomp grapes.   Most often, the term unicorns refers to venture capital firms.  So, these are essentially huge pots of money, looking for a good project to invest in.

There are other opportunities as well.  Just recently, 2 crypto firms partnered up with the objective of funding of projects related to Web 3.0.  In a separate move, the Ministry of Culture is offering 150 million Euros to promote “French cultural sovereignty” in virtual environments.    Sacre Bleu!!!  That’s a lot of money.

So, what’s the proof so far?

The proof is mixed.   In France, there have been 15 ICOs, raising 89 million Euros.  “The different regulators have been hyper, hyper-proactive,” said Paul Allard, chief executive of the Canada-based company, which intends to raise 400,000 euros via its French offering.  But, the questions about taxation remain, especially related to the value added tax (VAT).   The VAT is in question when a raw material is brought in, and a new material (a more produced, material) is shipped out.   For instance, if bauxite is shipped in, and aluminum is shipped out, there has been value added to that raw material, and they will be taxed upon that added value.  The question is,does “value added” apply to cryptocurrency?

The Verdict

Liberte’, Egalite’, Fraternite’!!!  The words of a resilient France seem to be pulled directly from the soul of one who is involved in Decentralized Finance.  France is  a robust, developed nation, and we will see what they do with the opportunities and perils offered by cryptocurrency.

REFERENCES

https://www.coindesk.com/consensus-magazine/2023/07/26/why-france-is-emerging-as-a-european-crypto-hub/

https://www.reuters.com/article/idUSKCN1NK1ZQ/

https://cointelegraph.com/news/crypto-leads-2023-fintech-investments-france-germany

https://www.csmonitor.com/World/Europe/2019/0716/France-the-first-major-economy-to-regulate-cryptocurrencies

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Peddle to the Medal

Headline:  What is the Cointelegraph accelerator?

Body:  I don’t know if you have ever played any iteration of Grand Theft Auto, but they have radio stations wherein they parody 2 geeks being interviewed about the advantages of Web 3.0.   Although meant to be funny (and it is) it does display just how enthusiastic people are about the potential benefits of Web 3.0   Cointelegraph developed its own business accelerator to help entrepreneurs with a plan and a passion, to ground their ideas in good plans and sufficient funding.  This is really the aim of any business accelerator, but especially the ones focused on Web 3.0.  But, different from the accelerators of the past, they don’t have to co-habitate in the same building. (In a normal accelerator, several new-stage businesses in the same sector have offices in one building with access to support services, like financial resources and “brown-bags” which are lectures given at a lunch session, topics being those of interest to starting businesses.  In this accelerator, the HQ is in Estonia, while many of the other staff live in Bali.) This accelerator is virtual, and can stretch worldwide.

In fact, as I read about it, it seems that this program was aimed precisely at tech-savvy younger people who are likely to respond well to video-game references, as the program is referred to as a “booster” for startups.

Is this REALLY a big deal?

Yes.  Even in the midst of bad economic fortunes of 2022, $36 Billion was spent on developing Web 3.0 businesses.  This is on top of the $30 Billion spent in 2021.  This is a big deal and getting bigger.  As for the businesses themselves, this is a very big deal, as cointelegraph staff provide a plethora of media products for the businesses to enclude educational materials, advertorials and much more.  In return for these services, Cointelegraph will either take an equity stake or acquire a certain number of their tokens.  The program normally lasts from 9 to 24 months and the networking done here will continue to have benefits for much longer.

Are there other examples of cryptocurrency accelerators?

There are a few, and they basically work in a similar manner.  Pop Social, is one such example, and it has to interweave a few very challenging attributes.   They have to be Web 3.0 friendly (largely meaning that if one of their firms go big, they have to be able to have resources to support merchandise development.)   /They also have to have a facility with social media as that is the  most relatable form of marketing in many cases.   Connected with this, the accelerator needs to have some connections with resources for social financing, so that it can serve as a virtual broker, putting together a sort of underwriting syndicate if an idea really breaks through  Finally, they also have to have some ability to use AI tools to help members do research and move quickly on to rapid prototyping.    To support all of this activity, accelerators like Pop Social use  a subscription model, augmented by sales of NFTs and other digital assets.

One other thing that accelerators like Pop Social and the Coin Telegraph accelerator do is offer “awards.”  Now, I was likely to be kind of cynical at first blush, but upon reflection, this could really do some good.  On one hand, the cash infusion will do wonders for early stage ventures.  But, the awards also accomplish another goal: credibility.   In the future, when they go for more funding, the alums of these accelerators can point out any awards they have won, and get some credibility from the seal of approval by an external party.  This could be helpful when negotiating with banks or venture capitalists.

The Verdict

One word that I read over and over in this research was “eco-system.”  It’s entirely possible that this is done to cater to the high-ideals of many young entrepreneurs who are truly striving to make the world a better place.  Kudos to them, in all authenticity.  But, here’s the thing.  There is not one eco-system on this Earth that doesn’t have predators on it.  And when these predators migrate (naturally) across arbitrary borders, there can be problems.   (Like the wolves in Yellowstone.)  So, my question is this: what is to stop somebody with bad intentions from learning what they can about fleecing as many people as possible, and using the accelerator as a sort of finishing school for their fraudulent career?  I suspect that the honest answer is, “nothing.”  And we, as a society, have to determine whether or not this is an acceptable answer.

REFERENCES

Cointelegraph’s Accelerator Program launches and is seeking Web3 startups

Web3 social media to disrupt a $100B market: Pop Social joins Cointelegraph Accelerator

TradFi-friendly crypto portfolio management: MC² Finance joins Cointelegraph Accelerator

Community-powered crypto trading: CryptoRobotics joins Cointelegraph Accelerator

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

COPA Helps us Cope, A Lot.

Headline:  What is the Crypto Open Patent Alliance (COPA)?

Body:    Have you ever heard of FINRA?  They oversee training and compliance of many financial professionals, so this is a very powerful government agency.   Oh, wait, it’s not a government agency.   It’s actually a not-for-profit (NFP), still, it’s VERY powerful.  COPA is similar in that it is organized as an NFP, but it is in fact quite powerful in shaping the narrative around cryptocurrency.

What is COPA?

To be most efficient here, don’t think about COPA as an NFP.   Rather, think of it as membership to a very exclusive club.  I am told that there are clubs that have climate-controlled garages full of exotic cars.  The member would walk in (or more likely, send their “person”) points to a car that they want to reserve for the next week, and then roll out with a classic limousine.   COPA is similar, only, instead of a collection of exotic cars, they have a collection of members’ patents.   If you belong to COPA, you have the obligation to turn over a copy of your patent file, but in return, you get the  right to inspect any and all patents you wish within the membership of COPA.  Further, if your IP is attacked from outside the membership, you get access to massive resources to help guide you to a legal win.

In the area of cryptocurrency, one main concern is inflation. Given the artificial currency attributes given to cryptocurrency, inflation has to be thought about from beginning to end. Many systems have protocols to “destroy” a portion of the currency from time to time, to ensure that inflation doesn’t become a problem. These protocols would most likely be protected by patents, and these would be searchable for the members of the COPA organization.

Why is COPA needed?

While patents may at times be useful for defensive purposes, offensive and misguided use of patents threatens the growth and adoption of emerging technologies, such as cryptocurrencies. Cryptocurrency adoption is still relatively at a nascent stage and we do not want patents locking up foundational technology and stifling growth and adoption. Additionally, meritless or abusive litigation and threats require a joint communal response.  Per their own website, with COPA in the mix, barriers to entry in the cryptocurrency space are very low.

This is not Sesame Street.

This might sound like the beginnings of a utopian society where girls in long flowing robes dance with flowers in their hair.  No.  This forces us to speak of “patent trolls.”  These are firms (the lowest of the low) who patent such things that are a necessary part of something else, so that they get a  piece of the vig, each time we do something.  For instance, envision that we are building a version of  WORD and our vision is to eviscerate their business model, only, oh, no, the “blocking” function so important to our code, is actually held by a different company.  Now we have to pay them off before we can launch.  They are what is known as a “patent troll” and avoiding these pesky miscreants is a major portion of COPA.  On inspection, though, I have to say that I could understand a very real  possibility of COPA becoming  a terrorizing patent troll as well.

Who can join and what is the cost?

The article is somewhat cagey here, and no firm number is mentioned.  But, they do offer an e-mail address if one is serious about joining.  COPA says on their site that they “will only collect dues as necessary for the functioning of the organization.”  This statement might be doing a lot of heavy lifting, but, given that you have cash for the membership fee, anybody can  join, either as an individual or as an enterprise.  The enterprise that recently moved into COPA was Meta, and yes, the FB code was a huge addition to the COPA library.  After 3 years, the enterprise is qualified to voluntarily withdraw.

OK, so who’s involved now?

Square was a large part of setting up the organization.  Coinbase and Kraken have been involved for quite a wile.  Meta appears to be very excited about joining.  This is a’ rather powerful assemblage of groups.

Let’s take this on a case-by-case basis…

OK, so COPA  is deeply involved in this case.  In essence, an Australian inventor, a Mr. Craig Wright, tried to copyright Bitcoin’s foundational whitepaper in 2021 by claiming that he is Satoshi Nakamoto.

“COPA is still in the preliminary stages of its mission of bolstering technological development in the blockchain industry. The organization appears to be working on building a solid reputation and establishing its presence among big names in crypto and beyond which will enable it to facilitate tangible contributions to blockchain in the future.”

The Verdict

Cryptocurrency is a new business venue, so things are taking some time to shake out.  The UAW is vital to the story of car production in the U.S., but Ford rolled the first model in 1907, and the UAW didn’t form until 1935.   So, the bottom line is that I think we’re going to have to wait and see.   But, given that hospitals are NFP (usually) and quite a lot of money runs through them, COPA could become quite powerful.  It will be interesting to see.

REFERENCES

https://www.opencrypto.org/faq/

https://cointelegraph.com/news/crypto-patent-sharing-marks-a-step-in-democratizing-knowledge-ownership

https://www.usnews.com/news/technology/articles/2024-03-14/self-proclaimed-bitcoin-inventor-did-not-invent-bitcoin-uk-judge-rules

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

The Deep Web? The Dark Web? Is there a Dork Web?

Headline:  What is the Dark Web?

Body: 

Headline:  What is the Dark Web?

Body:  We’ve spoken at some length about the  difficulties you can get into when surfing the web.  You might get ensnared by a heartstring attack or fall for what becomes a “rug pull.”  So many scams and schemes, and now, we are told that there is something called the Dark Web?   What is it?  How does one avoid any emanations coming from it?  Is there, perhaps, a positive side of it, and what can we learn here?

I haven’t seen so many Webs since SpiderMan!!

Just quickly, there is a key distinction within the Web.   So, let’s start there.  First, there is the surface web.  These are all of the websites you are likely to use on a daily basis.   All of these websites are discoverable within search engines like Google.  Then, the sites that are not discoverable, are called the deep net.   The deep web contains the dark web.  (These are often used interchangeably, but the dark web seems to involve some sort of criminal activity, usually.  For instance, on the deep web, there might be a site that has TV shows that are not shown in some country.  On the dark web, there will be movies that have not been released yet.)

What is the Dark Web?

When people picture the dark web, it is usually a dark urban streetscape with a variety of drug and gun pushers pressuring them amidst a background of Porno theaters and gun shops.  This is not so.  “Dark Web” resources are encrypted online content that is not indexed in the normal way.  Give me a moment and I’ll get out my English-Geek dictionary.  “Not indexed in the normal way” means, you will not find these in a Google search.  Encrypted often means that you need a key or a token to enter the site.  Sometimes, a professional society will have a website on the dark web because they want to be able to enable use of medical or legal databases.

People often confuse the Dark Web with cryptocurrency.   And, yes, they are often used for similar reasons  Both allow for a higher degree of anonymity.   But, cryptocurrency is a form of payment, and the Dark Web often uses fiat currencies to pay for goods or services.

So, how do you access the Dark Web?

You can access the Dark Web by using special browser called Tor.  Tor stands for “The Onion Router” and came online in the early 2000s, and was funded by the U.S. Naval Research Laboratory.  In 2011, there was a major website (Silk Road) in 2011 that was shut down by U.S. authorities.

TOR is admittedly, a bit slower than other browsers, but it is more secure because it uses a randomly selected number of computer “nodes” to get you to the portion of the Web that you wish to see.

To be sure, TOR has some advantages and disadvantages compared to other browsers.

So, after I download TOR, I’m all protected, right?

It’s certainly a good start.  But, to be truly careful, you probably want to have coverage from a company that does identity theft monitoring.  You also want to have up to date antivirus software and  anti-malware software.

The Verdict

It’s a scary world we’ve been thrust into, and it’s really up to each individual as to how to cope.  If you take these commonsense precautions, you will likely be alright. 

REFERENCES

What Is the Dark Web and Should You Access It? (investopedia.com)

What is Deep and Dark Web? How to Access it Safely (kaspersky.com)

What is the dark web? How to use Tor to access the dark web | WIRED

What is the Tor browser and is it safe? (kaspersky.com)

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Are we Cleaning up Money Laundering?

Headline:  What is the Digital Asset Anti-money Laundering Act?

Body:  I remember a pizzeria when I was young with a bunch of video games where you could earn tickets to get prizes.  (There was a plush rat that was the mascot, if you recall.)  One of the games involved holding a ridiculously large mallet, and in front of you were 10 wooden disks which would randomly pop up, and you then had to hammer them down.  The constant struggle between law enforcement and those who would take advantage of new technologies to scam people, is not much different.  When cryptocurrency began to appear, criminals noted that it was an exceptional method to move large amounts of value internationally in an untraceable manner.   It was Christmas and birthday for a decade, all wrapped up in one package.  It was just a matter of time before the regulators got involved, to tamp down the worst of the abuses.  Hence, the Digital Asset Anti-Money Laundering Act of 2023.

OK, so is this REALLY a big deal?

Yeah, yeah, it is a big deal.  Last year saw $20 Billion of illicit use of cryptocurrency.  The Act would do some commonsense things like extending the KYC requirements in the Bank Secrecy Act.  Let’s unpack that one a bit.   KYC stands for Know Your Customer requirements and these include basic information like name, proof of address and proof of date of birth, among other information.    The Bank Secrecy Act (BSA) requires banks to report on cash transactions exceeding $10,000 and reporting other “suspicious” transactions.  They also have to have a board-approved Anti-Money Laundering procedure.  Most importantly, the AML Act would re-cast purveyors of digital assets to be equivalent to banks, and subject to their requirements.  (In your research, you might come across a term, “Money Service Businesses.”   These are financial firms like check cashing services and the like, who are not banks, but per the IRS, transact in amounts exceeding $1,000 per person per day.   The abbrieviation MSB  isn’t so scary now, is it?)

So, this is good, right?

It depends upon your point of view.    The author brings up the point that the lion’s share of money-laundering involves good olde-fashioned fiat currency, not crypto.  He suggests that this is because the blockchain allows all to see the flows of all currency, and if dealing with regular currency, much can be hidden between national borders.  This is almost right, but he misses a few things.    First, the blockchain does allow for people to witness the flows of cryptocurrency, but the identity of persons and groups who own that particular wallet are hidden.  Further, though much confusion can be sowed, using fiat currency, it has been used for hundreds of years and law enforcement is very good at “following the money.”  It is much easier for countries to unwind a fiat currency transaction than one involving cryptocurrency.  The crux of the author’s argument is that by requiring KYC regulation like a bank, the onerous restrictions will entirely constrict the use of any cryptocurrency.   I would argue that if a person or group is so concerned about these KYC regulations, the crypto firm should be equally reticent to transact their business.

The authors did make a good point, though.  Not too long ago, some politicians tried to make a certain medical procedure illegal.  One effect was to push these most desperate people into horrific examples of back-alley operating rooms, and this significantly raised their risk.   In a similar way, if regulation goes too far, some desperate people could go to some unscrupulous people in a desperate effort to find a buyer for a very illiquid asset.  This could spawn a whole new set of problems.

What is this FBAR business I keep hearing about?

Take a breath, it’s not that bad, really.  FBAR would require all people who have $10,000 or more in a foreign bank account to declare it.  The current Act would extend this requirement to include the value of digital assets.  See, easy.

So, what’s the status right now?

It is important to note that, though sponsored by 2 Senators from different sides of the aisle, this Act has not been signed into Law.  The politicians pushing it, are beating the drum of national security, but many consider this a false narrative.  Further, almost all politicians are paying all attention to the Presidential election in 2024.    It seems unlikely that this Act will make it to the President’s desk.

The Verdict

The people against passage of this Act seem to be loudest in their action.  But, maybe we should pay more attention to the many more people who could get hurt if this Act doesn’t pass.  Even if this attempt comes to naught, I am  confident that there will be other attempts, as there are senators from both sides who are co-sponsoring this bill.  This level of co-operation has to mean something.   I think we would be foolish not to pay attention.

REFERENCES

https://www.warren.senate.gov/imo/media/doc/Crypto%20AML%20One-Pager_7.26.23.pdf

https://www.coindesk.com/consensus-magazine/2023/05/18/elizabeth-warrens-bill-wont-stop-money-laundering-but-it-could-ban-crypto/

https://cointelegraph.com/magazine/crypto-regulations-us-warren-bitcoin/

https://cointelegraph.com/news/elizabeth-warren-surveillance-legislation-help-big-banks

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

A Dimon Knows His Stuff

Headline:  Why is Jamie Dimon so against cryptocurrency investing?

Body:  So, due to physical limitations, I cannot drive.   Therefore, if I confidently told you that Exxon gasoline was qualitatively better than Shell gasoline, I hope that you might second-guess my opinion, as it is not based upon expertise.  But, if the owner of an independent garage told you the same thing, you might be excused for listening to him or her a bit more closely.  The reason is simple; The mechanic knows a lot about cars, and I know nothing.  In a similar way, if your neighbor was repeatedly talking excitedly about exotic kinds of cryptocurrencies, I hope that you might do some extensive research before plunking down a large amount of money.  So, what if a major player on Wall Street, Jamie Dimon, is urging caution about cryptocurrency, I think it might be worth it to hear out his reasoning.

So, who IS Jamie Dimon?

Mr. Dimon is the CEO of JPMorgan-Chase.  He has been working in the financial sector for decades.  His opinion occasionally moves markets.  And his opinion on Bitcoin is negative, calling it a “pet rock.”  Upon reflection, he did say that all useful employments for cryptocurrency were felonies, prosecutable in several jurisdictions.

I thought Bitcoin was used for good… not for evil

Well, no.  Cryptocurrencies have been used extensively in many kinds of schemes, including tax avoidance, money laundering and sex trafficking.  In fact, according to the GAO, 15 of the 27 sex websites they examined accepted digital currencies.  He cites all of these uses of crypto as reasons why it should not even exist.

So, is this a new thing for him?

No, this is not a new thing.  Over the years, he has been known to call investors in cryptocurrency, “stupid” and threaten to fire any employee who invests in it.  Normally conservative BlackRock and Goldman Sachs have both seen the excitement for cryptocurrencies and parted company  with Mr. Dimon on this point.  Mr. Dimon seems to often use language I am uncomfortable to use in print, but, Vanguard seems to agree with his views.   They synthesize their position as follows:

The investment case for cryptocurrencies is weak…Unlike stocks and bonds, most crypto assets lack intrinsic economic value and generate no cash flows.

Are there other reasons that Mr. Dimon dislikes cryptocurrencies?

Yes, there are several other reasons he has pointed to over the past few years.  The first argument that he made is that cryptocurrencies are a terrible store of value.  The main reason is, to be a good store of value, the valuation has to be relatively stable, and crypto certainly does not qualify here.  With prices changing thousands of dollars per day, his argument appears to hold water.  Second, he referred to Bitcoin as a fraud.  To a point he is right.    When you buy Bitcoin, what do you get in return?   Ones and zeroes on a computer screen, that’s it.  But, I might take a bit of issue with his thesis here, because cryptocurrencies are not the first new investments.  Imagine showing a stock certificate to a poor farmer in the 1930s.  I suspect what they might be thinking is, “If I eat that paper, will my stomach be full?”  Perhaps a similar thing might be going on here.

So, it’s a hard pass for him, huh?

Well, not quite.  During his time in the big chair, JPMorgan has begun to use blockchain technologies, most notably, to administer their JPM Coin.    Today, this coin is used to make trades of more than $1 Billion every day.   In point of fact, in 2017, he was quoted as saying, “God Bless the Blockchain.”  Blockchain is very attractive to Mr. Dimon, especially the smart contracts that are supported by the Ethereum blockchain.

The Verdict

In researching to write this entry, Mr. Dimon seems to be of 2 minds about cryptocurrencies.  On one hand, he abhors the “pet rock” of Bitcoin, but on the other hand, he has great faith in the smart contracts executable on the Ethereum blockchain.  So, it’s left to us to square that circle and reconcile the opposing views of digital assets.  Then, I read in one of the References, that Mr. Dimon’s expressed feelings about the assets might be “intentionally misleading” given his firm’s use of JPM coin and other blockchain technologies.  I have been swirling this in my mind, and would appreciate any of your comments.   But, my one idea is that he wants his firm to continue using these assets for as long as possible, and the key to this is to forestall government intervention.  By appearing to be negative on cryptocurrency, he might be giving the government a signal that it’s OK to go really slowly with regulation. 

Oh, and by the way, for all of you kids out there, a free tip; If the press does elect to interview you, please, please do not casually curse or refer to your potential investors as “stupid.”

REFERENCES

https://finance.yahoo.com/news/jamie-dimon-tells-davos-bitcoin-172918767.html#:~:text=Fortune-,Jamie%20Dimon%20tells%20Davos%20that%20Bitcoin%20is%20a%20’pet%20rock,with%20fraud%20and%20money%20laundering&text=JPMorgan%20Chase%20CEO%20Jamie%20Dimon,opining%20about%20the%20crypto%20currency.

https://www.investopedia.com/first-he-hates-it-then-he-s-ok-with-it-now-he-hates-it-again-where-does-jamie-dimon-stand-on-crypto-8411584

https://www.thestreet.com/crypto/innovation/jpmorgan-jamie-dimon-uses-harsh-four-letter-word-for-bitcoin

Onyx Joins the Mix

Headline:  JP Morgan has a system called Onyx.   What does this system do for investors in cryptocurrency?

Body:  JP Morgan has been around for a very long time.   Long enough to see many, many types of market conditions and practice reacting to novel types of investments.  So, it stands to reason that they might have a point of view to see the real value of (or lack thereof) cryptocurrency.  So, they developed a system called Onyx with the mission of helping their investors understand and invest intelligently in cryptocurrency.  So, I think it would behoove us to take a careful look at how it works, and we might learn a valuable thing or two.

What IS Onyx?

Onyx appears to be a payment system, that uses cryptocurrency as the measure of liquidity.  Said one of their experts, “Money is electronic today, but what is missing is programmability,” said the head of coin systems for JPMorgan. “That is the holy grail.”  Programmability suggests that this system will allow investors to structure a trade, and then say, execute this trade if and only if these certain market conditions exist.  Mind you, this is not a minor offshoot.   Onyx already has over 100 employees working full-time on it.

“We are launching Onyx because we believe we are shifting to a period of commercialization of those technologies, moving from research and development to something that can become a real business,” Takis Georgakopoulos said in a CNBC interview.

Are they all out to launch?

Well , yes.  The exciting thing here is that satellites are involved.  This speeds up settlement of international transactions greatly.  Before being announced, the system went thru 2 years of testing.   One of the first tests was to use the satellites to bounce information and consummate a simple transaction.  This was a necessary proof of concept.   The next set of tests asked what would happen if the connection to Earth was to be lost, temporarily.  Computers successfully bridged this issue.   Later, the tests were done using Low Earth Orbit (LEO) satellites which also consummated a transaction successfully.  This was very important because there was significantly less human interaction, suggesting the possibility for truly automated transactions, promising lower costs and much greater speeds.

Another thing that you would read about here is that Onyx represents a way to consummate transactions financially and integrate with the Internet of Things (IoT).  OK, a step back here is in order.   The IoT  is where the internet will plug into many of your devices.  For instance, your fridge cold e-mail you a shopping list, and (my favorite thing in the SkyMall) enable a toaster that will toast the forecast on to your, well, toast.  Now, even in the depths of winter, your outlook can be sunny, with a good possibility of bread.  Well, imagine if you could combine the sanctity of the blockchain with the amazing inventions around the house.  Now, when your bank account sees that your parents’ house was sold, it can immediately start your robotic vacuum in preparation of their arrival.  There are hundreds of less facetious (and less fun) examples, but this is one.

Are they encountering any challenges?

“One of the challenges in working with devices is the memory constraints.  This is amplified on a satellite because much of the memory is reserved as a backup for the satellite itself – not for running blockchain software. So we had to get creative to be able to generate the private keys for new accounts – typically a computationally heavy process.”  So, let’s take a step back here too.  We have spoken many times about the gargantuan power requirements for the cryptocurrency hacking rigs here on earth.  Well, in space, all that they usually have is a very inefficient solar panel to power the satellite.    This greatly limits the computational power too.   So, when on Earth, designers utilized a programming language (Rasberry Pi) known to be very efficient in power usage.

Who else is using these systems?

There is an argument to be made that commercial ventures could most benefit from the new systems that are available 24/7 and so easily pass currencies internationally.  In fact, Siemens is one of the earliest adopters and FedEx and Cargill are following closely behind.  One of the first early-adopter banks is the Bahrain-based Bank ABC, which is engaging in a “limited launch.”   (Remember, there is NO FREE Launch, right?)

The Verdict

Onyx appears to be here to stay.  Perhaps we can take some lessons from this semi-precious stone of a system.  Perhaps we can see how to most effectively use computing power to settle transactions quickly at much lower costs.   This alone would help the cryptocurrency space substantially.  And, J.P. Morgan has the power and size to make it back from a lot of mistakes.  Either way, make some popcorn, it’s going to be an interesting  ride.

REFERENCES

Onyx by J.P. Morgan launches blockchain in space (jpmorgan.com)

Bahrain’s Bank ABC using JPMorgan’s Onyx blockchain for cross-border payments (cointelegraph.com)

How JPMorgan is using blockchain to make B2B payments ‘programmable’ (yahoo.com)

JPMorgan Launches Blockchain Divison Onyx After JPM Coin Use (businessinsider.com)

 Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.