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When is Centralization Helpful in the Decentralized World?

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Lately, we witnessed an episode of confrontation between supporters of different approaches and views on centralization and decentralization. Ethereum’s co-founder, Vitalik Buterin, in an interview with TechCrunch, spoke for complete decentralization, saying he hopes centralized exchanges go “burn in hell.” According to him, The Ethereum Foundation tries very hard to be a decentralized organization, but it faced a challenge in a decentralized user authentication implementation. Buterin remarked, that if all user authentication methods wound up, they’d use Coinbase, but they’d prefer not to. In his view, the primary purpose of centralized exchange is to serve as an interface between the fiat world and cryptocurrencies. While it’s still early days for crypto-to-crypto exchanges, generally, he thoroughly disapproves centralization.

On the other hand, Changpeng Zhao, CEO of Binance – currently the world’s second largest cryptocurrency exchange, by means of 24-hour trade volume, disagrees with Vitalik. On Twitter, he answered Buterin’s complaints. Zhao suggested Vitalik appreciate the fact that centralized exchanges are part of an ecosystem, not independent parties. According to his tweet, fiat had a significant impact on the development of decentralized digital coins. If it wasn’t because of fiat currency and centralized exchanges, the liquidity would have been lesser and the scale of the industry would have been smaller.  Zhao noted that people choose centralized solutions for a number of reasons. Among them is the fact that there’s no absolute decentralization, projects having a core team means there’s still an element of centralization. He also pointed out that decentralization is not safer by default, and reminded everyone about the situation involving Ethereum Classic and the Ethereum DAO. In that situation, the decentralized organization suffered because of a security problem which led to a hard fork on the original network. Zhao noted that the primary goal isn’t decentralization itself but freedom and keeping options open.

This conflict of opinions shows the differing perspectives between centralized exchange and decentralized exchange supporters. Supporting decentralization is a sort of a fad nowadays. People either equate decentralization to complete freedom without a deep understanding of how it really works or speculate on the idea just because “decentralization” sounds hype. But is decentralization of exchanges better in reality? Let’s take a look.

Decentralization is Not the End Goal

When comparing centralized exchanges and their decentralized counterparts, it becomes fairly evident that most cryptocurrency exchanges cannot compete with more traditional equity trading platforms in terms of speed of execution, sophistication of order management, quality of API, efficacy of risk control, etc. Decentralized platforms provide direct exchange between transacting participants, meaning they bring in no profits, hence, their growing opportunities are considerably limited. Their trade mechanisms are usually slow and they don’t offer so many market tools. Centralized exchanges, on the contrary, provide a more significant number of market tools and their performance is usually more stable.

It’s a bit paradoxical, but for those who value safety, centralized exchanges are the better choice. Many of today’s popular exchanges lack the most basic licenses and haven’t been audited by internationally recognized agencies. While the ideals of freedom and independence are a driving force in the crypto community, such an approach also results in a growth of manipulative trading tactics and requires too much trust for an industry that is meant to be trustless. Licensing is essential for any business involved in trading digital assets.

Decentralized blockchain solutions are expensive and difficult to develop. The blockchain doesn’t give its processing power for free; each operation requires a fee. If developers create a smart contract that performs 20% better, it results in a 20% higher fee.  At the same time, there are centralised exchanges that work without fees and remain profitable. Decentralised exchanges have no other means of generating revenue and would be at a loss if they had taken this approach.

On decentralized exchanges, the speed of trading is slower. The blockchain is merely a chain of machines located all over the world and a ping inside of it is slower than a ping to a server or even to a group of servers. It may not be crucial for ordinary traders, but it is for high-frequency trading (HFT) which at this time can only be implemented on traditional centralized exchanges.

Hybrid Solutions: Taking the Best from All Technologies

As always, both centralized and decentralized exchanges have advantages and disadvantages, and the choice would depend on traders’ needs and requirements. Nowadays a new form of hybrid exchanges are showing up. Such exchanges can be called semi-decentralized: they prefer high performance to full decentralization and also use the blockchain only when necessary, opting for centralized solutions elsewhere; this helps to decrease development and operating costs.

“Hybrid semi-decentralized exchanges take best from both centralized and decentralized solutions and aim to solve their typical problems. Hybrid exchanges are working to make their solutions transparent and trustful but don’t follow the hype trends blindly. For instance, the blockchain is an ultimately useful technology for some cases, but it is enormously expensive to use, especially when dealing with large chunks of data. So it’s wise to choose the blockchain when it is crucial and opt for cheaper centralized solutions when possible” – says Rayan Goutay, CTO Gatex – an upcoming professional hybrid semi-decentralized exchange.

How Exchange Listings Affect Token Prices

Exchanges are needed not only as a trading facility; they’re essential for the success of new digital coins. The cryptomarket is still considerably young and volatile, new coins show up constantly, and many of them never get in front of investors because they fail to get listed on exchanges. Moreover, listing on top international digital asset exchanges usually results in a price boost for the cryptocurrency as when a token is listed on an exchange, the number of interested investors increases. Furthermore, the asset becomes more liquid and the intrinsic value is greatly affected. The effect of exchange listing is most visible right after, but it has a positive impact for the long-term perspective: the more the coin is before the public, the higher its value will be in future.

The positive effect of exchange listings is augmented with an additional trust which a community gives to a digital coin. The wider the project’s community, the more the credibility it gets. As a result, the better its proper asset looks on a global economic level. New coins appear frequently, and one of the primary challenges for developers is to build a well-informed community and have loyal users. Here is when the role of exchanges cannot be overestimated.

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MARKET DAILY: Nike and the ECB Are Thinking With Tokens

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With markets continuing their slide, today we’re looking at Nike’s recent shoe patent and the ECB’s digital currency discussions. Later, we’re joined by CoinDesk analyst Galen Moore for some insight into exchange fees, token listings and more…

Having trouble with the embedded player? You can download the MP3 here.

Tune in as CoinDesk podcasts editor Adam B. Levine and senior markets reporter Brad Keoun run down recent action, track interesting longer-term trends, and highlight the best “thinking with tokens” and some of the most important crypto industry developments of the day.

Topics for December 11, 2019:

  • Crypto and traditional markets update
  • Alleged Mining Ponzi Arrests, Nike & the ECB are thinking with tokens
  • Crypto Liquidity Takeaways from our recent conversation with Binance.us and FTX
  • A bad week for MATIC

Join us again on Thursday, for the next Daily Markets from CoinDesk.

If you have any thoughts or comments on the Daily Markets show so far send an email to [email protected]

source:coindesk

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China Crypto Insider Lifts Lid On What’s Really Going on in Beijing

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Last Updated on December 10, 2019

There has been a lot of news out of China in recent weeks buffeting the markets – both to the upside and downside.

The “Xi put” in the shape of President Xi Jinping’s blockchain-friendly pronouncements in November got the juices going.

And yesterday we heard that the People’s Bank of China is supervising the rollout of a yuan-backed digital currency in Shenzhen and Suzhou.

However, it was the initial euphoric response in the marketplace to Xi’s speech to the Chinese Communist Party’s powerful Politburo, and the subsequent supposed renewed clampdown on cryptocurrencies that followed, that has been moving markets.

Western media reporting on Chinese crypto matters is often inaccurate or confusing. The crypto ban is a case in point. Although China did ban crypto exchanges operating in the country in 2017, it didn’t stop Chinese citizens trading offshore – a fact that is often overlooked. Also, over-the-counter business still allowed those who wished to buy bitcoin.

Also, in some ways Xi’s speech was nothing new as blockchain technology was previously identified as a key technology by state planners.

To get behind the headlines and to glean some insights into what China’s leaders in government and tech are up to, we spoke to Randolf Zhao, vice president operations at crypto derivatives exchange BaseFEX.

We began by considering some of the issues raised in a recent major South China Morning Post article on Chinese crypto developments and how blockchain was likely to affect governance in China.

Randolf Zhao, vice president operations at BaseFEX
Randolf Zhao, vice president operations at BaseFEX

RZ: The thing that I see commentators in the SCMP article haven’t touched on is, some use cases of blockchain in China’s government services might not be as revolutionary as they thought. Instead, it could just make complicated things much simpler, thanks to the distributed nature of blockchain technologies.

A pain-killing application could be an inter-departmental-blockchain of all levels of all administrative departments.

The databases of different government departments in China are NOT shared. It is not because they refuse to do so. It is because it is such a lengthy, expensive, and complicated process for different departments to connect their cloud databases with each other.

I still remember how painful that was back in 2015 when the city government of Beijing was syncing the Business License, Corporation Code Certificate and Tax Registration databases all together, which was called ‘3in1’  (三证合一) back then. For four weeks, all paper-based processes in Beijing came to a halt until the syncing was completed. And this entire process took the three departments half a year to prepare for.

And now, what if they want to sync more databases – for example with the Social Insurance database – to the system they have? It will be another half year in preparation for all government departments involved.

An inter-departmental blockchains at different levels of all administrative departments could be a perfect pain-killer for situations like this. Data can be immediately visible to different departments and to local layers of all government agencies.

These blockchains will be semi-private – what the community usually calls ‘consortium blockchain’ or ‘permissioned blockchain’ – in which authorised personnel can access and update different info, with different types and levels of authority on the blockchain.

And on top of this mega inter-department blockchain, different departments and agencies can develop a variety of complex, blockchain-based applications, for example social benefits calculations, anti-financial crimes, anti-corruption, or fugitive hunting. Of course, these can all be artificial intelligence-based as well.

As a matter of fact, this is happening now. Some provincial and municipal governments in China are already pioneering these use cases, such as Zhejiang province, where Alibaba helped with development, and in Xiongan and Shenzhen where Tencent was involved.

So what about the reported crackdown on bitcoin mining and exchanges?

RZ: We all know it is pretty much an open secret that although the Chinese government regulations banned cryptocurrencies and crypto and bitcoin trading, it gave implicit consent to local operations that are not involved in Ponzi schemes or other forms of fraudulent behaviour.

Legitimate projects and exchanges voluntarily moved registration offshore, yet the majority of their teams remain in China, and as long as they don’t play too wild, the local government sees no problem with this. I would say local governments are silently happy with the revenues and employment opportunities we bring to the local economies.

How do you see the government’s crypto/blockchain strategy evolving?

The general idea is, China cannot be absent from the upcoming cryptocurrency financial system, and the Chinese government will not give up the economy’s existing advantages in cryptocurrencies and crypto trading. This is the open agenda of People’s Bank of China (PBOC) and the Ministry of Industry and Information Technology (MIIT), both of which are actively promoting China’s Digital Currency Electronic Payment (DCEP) system.

The main concern is Ponzi schemes and other types of fraud occurring under the name of cryptocurrency or blockchain. Thus, fraud-related exchanges are the targets for crackdowns. Also note I am separating the term cryptocurrencies from the term blockchain. They are being assessed separately.

This hasn’t changed during the recent events. Beijing local government recently raided a few China-focused exchange that were allegedly associated with frauds. But they are by no means targeting everyone.

I, together with most people I know in Beijing’s crypto industry, don’t agree with articles like this [SCMP article] feeding FUD.

When it comes to the question of the party and government using blockchain to tighten control from the top do you think there may be push back from local governments  and other areas of the party who might see it threatening their control?

RZ: I beg to differ.

The recent events, Xi’s blockchain speech and local governments’ anti-fraud raids, strongly suggested an approval in the Politburo’s standing committee for blockchain technologies and crypto initiatives esp. China’s DCEP. [If there was opposition in the provinces and elsewhere then…] provincial governments wouldn’t be doing anything, such as implementing the 2017 ban so swiftly.

It should also be noted that provincial governments report to the Politburo. It seems a general roadmap has already been drafted, but details are still being discussed by relevant ministries so local governments are taking some preventive measures to avoid social instabilities stemming from crypto as camouflage for frauds.

By the way, it would be PBOC and MIIT that first brought the topic to the Politburo’s standing committee – that’s how the internal initiative process goes. They have been researching and promoting the topic for years. The PBOC and MIIT both have working groups researching on blockchain and crypto matters.

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Korean government working on legislation to tax capital gains of crypto in 2020

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  • Legislation is being prepared by the government in Korea to introduce a crypto tax capital gains.
  • It is expected to be released in early 2020 according to the Korea Times. 

The Korean government is undergoing preparation for legal tools to tax capital gains from the sale of crypto assets. 

Specialized legislation to target digital asset deals is expected to arrive from the tax season for 2020. 

The Ministry of Economy and Finance is working on building the measure that will become a tax bill from next year. An official from the ministry said:

“Related discussions have been taking place.“The revised bill will be drawn up by the first half of next year.” 

The Korean National Assembly has also been working on a crypto taxation bill. An eventual bill would increase the transparency on all parts of the process of trading digital coins. But for sure, Korea will try to tax capital gains from the sale of digital assets.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

  • Legislation is being prepared by the government in Korea to introduce a crypto tax capital gains.
  • It is expected to be released in early 2020 according to the Korea Times. 

The Korean government is undergoing preparation for legal tools to tax capital gains from the sale of crypto assets. 

Specialized legislation to target digital asset deals is expected to arrive from the tax season for 2020. 

The Ministry of Economy and Finance is working on building the measure that will become a tax bill from next year. An official from the ministry said:

“Related discussions have been taking place.“The revised bill will be drawn up by the first half of next year.” 

The Korean National Assembly has also been working on a crypto taxation bill. An eventual bill would increase the transparency on all parts of the process of trading digital coins. But for sure, Korea will try to tax capital gains from the sale of digital assets.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

  • Legislation is being prepared by the government in Korea to introduce a crypto tax capital gains.
  • It is expected to be released in early 2020 according to the Korea Times. 

The Korean government is undergoing preparation for legal tools to tax capital gains from the sale of crypto assets. 

Specialized legislation to target digital asset deals is expected to arrive from the tax season for 2020. 

The Ministry of Economy and Finance is working on building the measure that will become a tax bill from next year. An official from the ministry said:

“Related discussions have been taking place.“The revised bill will be drawn up by the first half of next year.” 

The Korean National Assembly has also been working on a crypto taxation bill. An eventual bill would increase the transparency on all parts of the process of trading digital coins. But for sure, Korea will try to tax capital gains from the sale of digital assets.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

  • Legislation is being prepared by the government in Korea to introduce a crypto tax capital gains.
  • It is expected to be released in early 2020 according to the Korea Times. 

The Korean government is undergoing preparation for legal tools to tax capital gains from the sale of crypto assets. 

Specialized legislation to target digital asset deals is expected to arrive from the tax season for 2020. 

The Ministry of Economy and Finance is working on building the measure that will become a tax bill from next year. An official from the ministry said:

“Related discussions have been taking place.“The revised bill will be drawn up by the first half of next year.” 

The Korean National Assembly has also been working on a crypto taxation bill. An eventual bill would increase the transparency on all parts of the process of trading digital coins. But for sure, Korea will try to tax capital gains from the sale of digital assets.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Source: fxstreet

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