Regulation and Altcoins: from Facebook to Failure

After a few years of trying to fight the regulators, The Diem Association (of the Meta/Facebook) group has given up on their ambitious project. 

The privately-backed stablecoin which was to be issued by the Diem Association in Switzerland, has finally succumbed to regulatory scrutiny.

They are now exploring ways to sell their assets and dissolve the project. 

How did it all come crashing down? Well, it was always inevitable but maybe the inability for these obtuse technologists & VCs to see the reality right in front of them was their ultimate downfall.

Central Banks control money and will fight to the bitter end to prevent private initiatives from owning the supply of money. This is pure fact and thousands of projects across the globe such as Ripple, are unwilling to accept this. I have written about Central Bank Digital Currencies (CBDCs) before and I don’t want to dive too deep into the technicalities right now, however I do want to cover the goals of what the central banks are trying to achieve. 

I had a long discussion last year with an anonymous key stakeholder who has worked on Project Khokha for 8 months. 

Project Khokha is South Africa’s Central Bank Digital Currency project – initiated by the Reserve Bank. 

They completed phase 1 (a fairly simple cryptocurrency that works on Ethereum’s blockchain) which was a concept to replace Bankserv – where all banks currently settle with one another. 

Now, they are in phase 2 where they are iterating on the above and also focusing on tokenization of securities and most importantly, to prove the concept of wholesale CBDCs. The latter is to improve latency and transparency between interbank settlements. This is all, once again, being built on Ethereum but the next thing this source said, was by far the most intriguing. 

In phase 3, the SARB’s ultimate goal is to move their network to an interoperable private chain – where it still has value but can only be controlled by the SARB. This will be a completely private chain, separate from any public-facing blockchain (Ethereum, Ripple etc.). They aim to achieve this by setting up only a few, non-transparent nodes in strategic positions. Their other goal is to ensure their CBDC can be consumed and settled with other central banks.  

Now, what does that really mean? Well, Ripple (XRP) has been marketing their offering as being the network for central banks. Unfortunately, like Diem/Facebook – they’re not gonna make it.

There is no way central banks will allow the likes of Ethereum, Ripple etc. to determine the issuance of the crypto. Their technology may be used, licensed or segmented. But the central bank’s ledger and private nodes will determine the issuance methodology and supply. The Bank of England and others will almost certainly do the same. 

Gary Gensler, the chair of the U.S. Securities and Exchange Commission has been extremely proactive and transparent on the SEC’s stance on crypto. They basically see all crypto as unlicensed securities, except for Bitcoin. Somehow, most crypto enthusiasts seem not to accept this for what it is. They believe their specific crypto is special and can withstand any regulatory scrutiny or attack. Many crypto founders and teams also think the same. 

Unfortunately, reality, once again, is a cold bastard

These centralised, manipulated, unregistered, premined, vaporware projects are going to be introduced to the might of the law very, very soon. Government wants complete control over monetary collection and issuance as they begin to introduce UBI schemes. Regulators want complete control over financial intelligence. Central Banks want complete control over the ledger and liquidity. Currently, Ripple is in a lengthy court case with the regulators and whatever happens these will be the first steps for the rollout of holistic regulation to all crypto projects and service providers (exchanges etc.) 

If you ever worked with/for a bank, you may know the grand scale of effort and operations around compliance alone (FICA, FAIS etc.). If you have worked for a public company, you may know the seriousness of becoming a publicly traded, registered company/security. 

This is the harsh reality that these ‘technologists’ are about to face and they cannot get around it. All of these altcoins are publicly known teams and their tokens are easily controlled and manipulated. Their initial short sightedness and greed, like Facebook, will be their ultimate downfall. There is a human face to all of these initiatives. This is their biggest point of attack.

Gary Gensler has also been extremely transparent in his stance on Bitcoin. He compl understands that it cannot be deemed a security. It is completely separate from the 15,000 other altcoins and most importantly, cannot be controlled, manipulated or banned. The regulators realise they need to go after centralised crypto first before they even attempt to try and regulate Bitcoin. They will most certainly increase regulation on Bitcoin exchanges over time, but Bitcoin itself will keep evolving and circumventing. This is what it does best. 

Decentralisation is everything. It is the entire point of crypto. But most people fail to realise what this actually means. It is what makes Bitcoin indestructible and thus, so valuable. It is what makes Bitcoin the only competitor to the Plutocrats. 

Bitcoin is Us. Everything else is Them.

Bitvice

Not your keys, not your coins.

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