Many companies ignore the stringent privacy laws in Europe. This is possible, because it is too complicated and expensive for individual users to claim their rights. noyb will close the gap between law and the reality by collectively enforcing your rights, so that your rights become reality.
In the FT, Mehreen Khan and Aliya Ram report that MasterCard and IBM plan to create a “data trust” to allow businesses with EU customers to meet the strict General Data Protection Regulation (GDPR) provisions that come into effect by the end of May. “Truata” will be based in Dublin.
The independent company, called Truata, will manage, anonymise and analyse vast amounts of personal information held by companies such as travel agents and insurers in a way that is compliant under the EU’s General Data Protection Regulation (GDPR). …
Truata will strip data sets of key details such as a person’s name, contact details or email address so they cannot be re-identified from the information. It will also offer analytical services to allow a business to extract valuable information from the data.
On Alphaville, Kadhim Shubber reports that just a few marketplaces handle the vast majority of illicit drugs-vs.-bitcoin trades.
In short, the illicit bitcoin ecosystem is centered around a small number of services that could be subject to scrutiny, regulation and co-option by law enforcement.
It’s a wild west, but luckily for the police all the bad guys are hanging out at a single saloon.
The Economist reports that according to estimates,
undoing identity fraud can take an average of six months and 100 to 200 hours of a person’s time.
In addition there is the risk of substantial financial losses due to identity fraud.
Suppose a data breach exposes personal information of 1 million people. As a consequence, 0.1% of the affected persons suffer financial costs of $100 each, and all affected persons spend 100 hours to undo the damage. Suppose the average wage of the affected population is $15 per hour. The data breach then costs $100’000 + $1’500’000’000, of which the latter component is a pure social loss.
Why do we move in the direction of more and more centralized data storage? Why do customers accept this? Why do some institutions, including “virtual” companies and specific government authorities do not manage to provide the same security as traditional banks which have been doing relatively well in this respect? Is differential data security priced?
On Wired, Andy Greenberger discusses Monero, Dash, and Zcash, krypto currencies that provide more privacy than bitcoin and its derivatives.
Unlike commercial services like PayPal, Bitcoin allows anyone to spend money online without providing identifying details. But if someone’s Bitcoin address is linked with their real identity, any transaction from that address is entirely visible on the public blockchain … Hiding those transactions requires taking extra steps, like routing bitcoins through “tumblers” that mix up coins with those of strangers—and occasionally steal them—or using techniques like “coinjoin,” built into some bitcoin wallet programs, that mix payments to make them harder to trace. “If I pay my rent in Bitcoin, it wouldn’t be that hard for the landlord to figure out how much money I earned if I don’t take extra precautions” …
Monero … implements a few features that Bitcoin still can’t offer. It uses a technique called “stealth addresses” to generate addresses for receiving Monero that are essentially encrypted; the recipient can retrieve the funds, but no one can link that stealth address to the owner. It employs a technique called “ring signatures,” which means every Monero spent is grouped with as many as a hundred other transactions, so that the spender’s address is mixed in with a group of strangers, and every subsequent movement of that money makes it exponentially more difficult to trace back to the source. And it uses something called “ring confidential transactions,” which hides the amount of every transaction.
Monero isn’t the first cryptocurrency designed to offer a financial privacy panacea: Dash, formerly known as Darkcoin, integrates the “coinjoin” technique that allows bitcoin users to mix their transactions with a few other spenders in what Todd calls a weaker form of anonymity than Monero offers. More recently, Zcash debuted with the strongest anonymity promises yet—it uses cryptographic tricks designed to make tracing a transaction not only unlikely, but mathematically impossible. Zcash has yet to be integrated into dark web markets, though, and still requires wielding the command line to use.
The blockchain technology opens up new possibilities for financial market participants. It allows to get rid of middle men and thus, to save cost, speed up clearing and settlement (possibly lowering capital requirements), protect privacy, avoid operational risks and improve the bargaining position of customers.
Internet based technologies have rendered it cheap to collect information and to network. This lies at the foundation of business models in the “sharing economy.” It also lets fintech companies seize intermediation business from banks and degrade them to utilities, now that the financial crisis has severely damaged banks’ reputation. But both fintech and sharing-economy companies continue to manage information centrally.
The blockchain technology undermines the middle-men business model. It renders cheating in transactions much harder and thereby reduces the value of credibility lent by middle men. The fact that counter parties do not know and trust each other becomes less of an impediment to trade.
The blockchain may lend credibility to a plethora of transactions, including payments denominated in traditional fiat monies like the US dollar or virtual krypto currencies like Bitcoin. An advantage of krypto currencies over traditional currencies concerns the commitment power lent by “smart contracts.” Unlike the money supply of fiat monies that hinges on discretionary decisions by monetary policy makers, the supply of krypto currencies can in principle be insulated against human interference ex post and at the same time conditioned on arbitrary verifiable outcomes (if done properly). This opens the way for resolving commitment problems in monetary economics. (Currently, however, most krypto currencies do not exploit this opportunity; they allow ex post interference by a “monetary policy committee.”) A disadvantage of krypto currencies concerns their limited liquidity and thus, exchange rate variability relative to traditional currencies if only few transactions are conducted using the krypto currency.
Whether blockchain payments are denominated in traditional fiat monies or krypto currencies, they are always of relevance for central banks. Transactions denominated in a krypto currency affect the central bank in similar ways as US dollar transactions, say, affect the monetary authority in a dollarized economy: The central bank looses control over the money supply, and its power to intervene as lender of last resort may be diminished as well. The underlying causes for the crowding out of the legal tender also are familiar from dollarization episodes: Loss of trust in the central bank and the stability of the legal tender, or a desire of the transacting parties to hide their identity if the central bank can monitor payments in the domestic currency but not otherwise.
Blockchain facilitated transactions denominated in domestic currency have the potential to affect central bank operations much more directly. To leverage the efficiency of domestic currency denominated blockchain transactions between financial institutions it is in the interest of banks to have the central bank on board: The domestic currency denominated krypto currency should ideally be base money or a perfect substitute to it, directly exchangeable against central bank reserves. For when perfect substitutability is not guaranteed then the payment associated with the transaction eventually requires clearing through the traditional central bank managed clearing mechanism and as a consequence, the gain in speed and efficiency is relinquished. Of course, building an interface between the blockchain and the central bank’s clearing system could constitute a first step towards completely dismantling the latter and shifting all central bank managed clearing to the former.
Why would central banks want to join forces? If they don’t, they risk being cut out from transactions denominated in domestic currency and to end up monitoring only a fraction of the clearing between market participants. Central banks are under pressure to keep “their” currencies attractive. For the same reason (as well as for others), I propose “Reserves for All”—letting the general public and not only banks access central bank reserves (here, here, here, and here).
In the NZZ, Axel Lehmann offers his views on the prospects of blockchain technologies in banking. Lehmann is Group Chief Operating Officer of UBS Group AG.
- Higher efficiency; lower cost; more robustness and simpler processes; real-time clearing;
- no need for intermediaries; information exchange without risk of interference
- automated “smart contracts;” automated wealth management;
- more control over transactions; better data protection;
- improved possibilities for macro prudential monitoring.
- Speed; scalability; security;
- smart contracts require new contract law;
- interface between traditional payments system and blockchain payment system.
Lehmann favors common standards and he points out that this is what is happening (R3-consortium with UBS, Hyperledger project with Linux foundation).
Related, Martin Arnold reported in the FT in late August that UBS, Deutsche Bank, Santander, BNY Mellon as well as the broker ICAP pursue the project of a “utility settlement coin.” Here is my reading of what this is:
- The aim seems to be to have central banks on board; so USCs might be a form of reserves (base money). The difference to traditional reserves would be that USCs facilitate transactions using distributed ledgers rather than traditional clearing and settlement mechanisms. (This leads to the question of the appropriate interface between the two systems posed by Lehmann.)
But what’s in for central banks? Would this be a test before the whole clearing and settlement system is revamped, based on new blockchain technology? Don’t central banks fear that transactions on distributed ledgers might foster anonymity?
Key figures from The Panama Papers.
The Economist reports about initiatives by commercial and central banks that aim at adopting the blockchain technology.
For commercial banks, distributed ledgers promise various advantages—but they also cause problems:
Instead of having to keep track of their assets in separate databases, as financial firms do now, they can share just one. Trades can be settled almost instantly, without the need for lots of intermediaries. As a result, less capital is tied up during a transaction, reducing risk. Such ledgers also make it easier to comply with anti-money-laundering and other regulations, since they provide a record of all past transactions (which is why regulators are so keen on them).
… Yet … [o]ne stumbling block is what geeks call “scalability”: today’s distributed ledgers cannot handle huge numbers of transactions. Another is confidentiality: encryption techniques that allow distributed ledgers to work while keeping trading patterns, say, private are only now being developed. … Such technical hurdles can be overcome only with a high degree of co-operation …
Meanwhile, central banks plan digital currencies built around the same technology.
Like bitcoin, these would be built around a database listing who owns what. Unlike bitcoin’s, though, these “distributed ledgers” would … be tightly controlled by the issuers of the currency.
The plans involve letting individuals and firms open accounts at the central bank …
Central banks … could save on printing costs if people held more bits and fewer banknotes. Digital currency would be tougher to forge, though a successful cyber-attack would be catastrophic. Digital central-bank money could even, in theory, replace cash. …
Better yet, whereas bundles of banknotes can be moved without trace, electronic payments cannot. … The technology first developed to free money from the grip of central bankers may soon be used to tighten their control.
In the FT, Murad Ahmed and Richard Waters report about Microsoft’s strategy to regain customer trust in cloud services in light of widespread US government surveillance. According to the report, Microsoft outsources data storage to a German company. The idea is that
T-Systems will act as a “trustee” of the facilities, with Microsoft insisting its employees will have no access to the data held at the facilities without the German company’s permission. The companies believe this arrangement means Microsoft will not have to respond to governmental demands for information held in these data centres, forcing official requests to go through German authorities instead.
VoxEU, January 21, 2015. HTML.
New proposals to phase out cash are set to revive an old debate. Contributions to this debate focus on two related but independent issues: granting the general public access to central bank reserves; and phasing out cash.
Abolishing cash is neither necessary nor sufficient. But allowing the public to hold reserves at the central bank could have substantial benefits. Technical questions need careful consideration.
Morten Freidel reports in the FAZ about six links (recommended by Cloud Fender) that allow users to get a sense of their Google user profile.
Willem Buiter argues in favour of negative nominal interest rates in his FT maverecon blog. He identifies the bearer security nature of currency (whose owner remains anonymous) as the fundamental cause of the zero lower bound on nominal interest rates and discusses three possible strategies to relax the lower bound.
First, to abolish currency. As a consequence, central bank seignorage might fall and criminals would need to find new stores of value that guarantee anonymity. Limited privacy could be preserved by ‘cash-on-a-chip cards’ and for practicality reasons, small denominations could be kept. The price of the remaining cash expressed in terms of electronic money would fluctuate, however.
Second, to tax currency. Since cash can be held anonymously, this poses difficult incentive problems. It could be done but would be complicated and costly.
Third, to unbundle two functions of money, namely the medium of exchange/means of payment function on the one hand and the numéraire/unit of account function on the other. Suppose that there are two dollars, one unit of account dollar or “dollar” and one medium of exchange dollar or “m-dollar” (Buiter talks of “rallods” rather than m-dollars). Central bank reserves constitute dollars and might pay positive or negative interest while cash constitutes m-dollars and does not pay interest (or at least not negative interest). Monetary policy is conducted as usual by setting interest rates on dollars. In addition, the stock of m-dollars is fixed by the central bank, letting the market determine the exchange rate between dollars and m-dollars; or the central bank fixes an exchange rate between the dollar and m-dollar and elastically supplies m-dollars at this rate. In either case, the exchange rate will typically differ from unity and vary over time, in contrast to the current situation. Zero interest on the m-dollar and non-zero (positive or negative) interest on the dollar are consistent with no-arbitrage as long as the appreciation or depreciation of m-dollars relative to dollars compensates for the interest rate differential. For instance, if the central bank sets a negative interest rate on dollars, then the price of m-dollars (which pay zero interest) expressed in terms of dollars must fall over time that is, m-dollars must depreciate relative to dollars.
According to Buiter the third strategy suffers from just one possible problem: If for some reason, the numéraire ‘followed the currency’ and people started to quote prices in m-dollars then nothing would have been gained. But he argues that the government has means to coordinate society on using a specific money as unit of account, for instance by requiring taxes to be paid in that money (that is, in dollars rather than m-dollars).
Buiter refers to contributions by Eisler (1932), Goodfriend (2000), Buiter and Panigirtzoglou (2001, 2003), Davies (2004), Buiter (2004, 2007) as well as Mankiw’s blog post (April 19) on a graduate student proposal to depreciate cash by means of a lottery.
In another blog post a few days later, Buiter offers further discussion and a rather sarcastic comment on option two:
Taxing currency will, I am afraid, remain rather intrusive and administratively cumbersome. This may of course recommend it to some of our leaders.
He also notes that Charles Goodhart has been talking for years about the lottery proposal by Gregory Mankiw’s graduate student. And he points out that this proposal is not fool proof: Even when a lottery rendered bank notes with a specific last digit in their serial number “officially” worthless people might still continue to value them; confiscation threats etc. might therefore be needed in addition to the lottery in order to sustain the scheme.