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After the US Senate Pros and Cons on Digital Money — What Do We Do With It?

The COVID-19 pandemic has certainly accelerated the digitalization of economies across the globe, opening up discussions on the future of digital financial services and whether our economy should advocate for the financial inclusion of Bitcoin (BTC) and other digital assets.

Yet, despite the horror we have been seeing as our industries continue to suffer, the digital payments industry is expected to thrive, based upon recently reported data from the Consumer Confidence Index. Reaching a three-month high last month, consumer confidence data revealed a 12.1 jump from 85.9 in May to 98.1 in June.

Last month when the United States Senate Committee on Banking, Housing, and Urban Affairs held its virtual meeting, dubbed “The Digitization of Money and Payments,” the conversation primarily revolved around stablecoins and whether our economy is ready for a U.S. central bank digital currency.

In case you missed it, it all came down to these two points, with committee chairman Senator Mike Crapo, a Republican from Idaho, explaining that our financial sector needs “rules of the road,” while Senator Sherrod Brown, a Democrat from Ohio, presented the question of: “Why on earth we would trust big tech with our banking system?”

The “rules of the road”

When it comes down to whether we need a digital dollar or not, I examined some of the discussion points throughout the hearing while diving into my continued belief that decentralized finance only emphasizes a need for a CBDC. 

Digital dollar, for the uninitiated, is an electronic credit that would only exist on computers, but like a traditional, physical fiat dollar, consumers and businesses could use it to pay one another.

The opening statements of June’s hearing kicked off with Senator Crapo inviting witnesses to discuss why a CBDC is necessary now more than ever.

In short, he wanted answers to:

  1. Efforts being undertaken by different groups in the development of digital money and payments.
  2. Design, operational and risk considerations in their development.
  3. What specific problems a CBDC should resolve that are not currently being or cannot be addressed by the litany of payments innovation already completed or underway.
  4. What the rules of the road should be.

However, Senator Brown followed up with skepticism on entrusting big technology companies with managing our financial system, even in a digital world. Recognizing digital advancement, Senator Brown identified his concerns surrounding consumer protection and providing equal access to financial services, bolstering support for his own proposed legislation alternative: Banking for All Act. 

This alternative, according to Senator Brown, would allow all Americans to open zero-fee bank accounts at U.S. post offices, banks or online and connected directly to the Federal Reserve’s system. He said:

“Banking for All means no more check-cashing fees, no more paying to use the money you already earned, [and] no more waiting until Wednesday to use money you were paid on Friday.”

Brown added that friendlier technologies like a digital dollar would be a valuable tool as well.

What we can learn from international markets

While the country’s economy has one of the highest penetrations of digital payment systems when compared to other economies, China, for example, seems to be taking the lead in legitimizing digital money and cryptocurrency in its economy. 

You can’t question its latest law after the Thirteenth National People’s Congress and Chinese People’s Political Consultative Conference passed a new civil code designed to protect the civil rights of inheritance, marriage, property, personality, contract and infringement.

Going into effect on Jan. 1, 2021, the new inheritance law not only identifies Bitcoin as one asset that could be inherited but it also allows China’s citizens to pass on their cryptocurrency and other digital assets to their heirs.

The government has also rolled out a digital coin that looks to challenge the digital offerings of Alibaba Group and Tencent Holdings. The reason is that it would enable better control of financial systems that are currently not possible with the yuan. Large-scale implementation of the coin would go live in 2022.

If to compare, the complexity of the European Union’s economy and its legislation process tend to hamper the rolling-out of any common law, putting China ahead of the game. Attempting to address and minimize the chances of missing out on potential opportunities, many member states have already started to develop CBDCs separately.

Back in June, the Italian Banking Association revealed, or ABI, it would be willing to support and pilot the implementation of a digital currency from the European Central Bank. On June 18, the ABI website shared that it had approved guidelines governing its position on digital currency and CBDCs.

As for member nations such as Germany, Spain and France, which are also members of the Financial Stability Board, have appointed regulators to oversee the cryptocurrency market in their respective regions. The board is an international body comprising financial institutions, such as central banks and regulators that issues regulation recommendations.

There is still a gap that can be filled here, however. If the EU can follow in China’s footsteps, there can still be room for a coherent law governing the region that would help reduce this regulatory uncertainty. The United Kingdom seems to have a measured approach when compared to its peers in the region. While there is no law governing cryptocurrencies, Her Majesty’s Revenue and Customs has published guidelines on the tax treatment for cryptocurrencies.

In a recent development, Valdis Dombrovskis, a member of the European Commission, advocated the use of digital finance by European countries.

What’s our next move? The DeFi bubble is certainly growing

Currently, the state of our financial industries seems to remain in this “hesitancy” in realizing the “first-mover” advantage by regulators. Nobody wants to be the first to launch a CBDC and face the mistakes; it’s no different than our legal court system wanting to rule on a particular case in fear of being judged for botching what could be a landmark decision.

But it is due to our regulators’ own fear that has prevented our financial sector and digital money’s landscape to realize its true potential. I’ve said it before and will continue to say that the digital money and blockchain space will continue to remain highly fragmented unless there are definite guidelines and educational resources made available so authorities of different economies can make the most appropriate decisions ahead of 2021.

Recent developments seem to favor the acceptance of digital assets, and big players like Facebook have shown significant interest in entering the market with its Libra project. And, yes, Libra still has a long way to go before it can be considered a digital currency. Nonetheless, it is heartening to see the likes of China and the U.S. making headwinds that would prompt other countries to follow suit.

But what has me most excited about the DeFi space? In my opinion, the growing acceptance has been bolstered by the fact that DeFi interfaces remained robust during March and did not require intervention by federal authorities to remain solvent.

Remarkably, this financial landscape has thrived ever since the momentary crash recorded at the peak of the COVID-19 pandemic. A new report by Dune Analytics revealed that the total number of users engaging with some form of a DeFi protocol has increased by 140% since the start of the year. Fortunately, the spike in usage has also translated to a rise in worth.

The total value of capital locked in the DeFi landscape has doubled to $2 billion in under three weeks. This growth pattern is even more impressive if we consider that fewer than five DeFi platforms account for a large chunk of the market share.

Until recently, MakerDAO was the poster child of the DeFi landscape — only to be leap-frogged by Compound thanks to the unprecedented impact of the launch of its governance token.

Both DeFi ecosystems are currently the main drivers of the DeFi narrative as they account for over 60% of the value of assets locked in the DeFi market. Kava, a cross-chain DeFi platform, was launched to challenge the likes of Compound and Maker. Its recently proposed Uber-like blockchain model is one I highly suggest familiarizing yourself with.

Without a doubt, the concentration of market shares to a handful of platforms highlights the nascency of the landscape and the sort of growth potential that could thrust more projects and tokens into the limelight.

Another token-based DeFi ecosystem positioned to capitalize on this growth trend is Level01. Although the lending niche remains the most attractive use case of DeFi technology, Level01 has introduced its token as a viable decentralized financial tool poised for mainstream success.

The peer-to-peer derivative trading platform exposes traders to a wide array of markets, including forex, gold, oil, stocks, cryptocurrencies and so on, by providing a transparent trading infrastructure with advanced risk/reward functionalities.

However, regardless of the DeFi hype and the promising stints of selected tokens, the biggest obstacles for players taking the sideline continue to be price volatility, concerns around market manipulation and lack of fundamentals to gauge appropriate value. These concerns could be mitigated if larger institutions started showing interest and considered it as a regular form of investment.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Andrew Rossow is a millennial attorney, law professor, entrepreneur, writer and speaker on privacy, cybersecurity, AI, AR/VR, blockchain and digital currencies. He has written for many outlets and contributed to cybersecurity and technology publications. Utilizing his millennial background to its fullest potential, Rossow provides a well-rounded perspective on social media crime, technology and privacy implications.

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