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The Dark Future Where Payments Are Politicized and Bitcoin Wins

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Satoshi Nakamoto intended Bitcoin to be used for online payments. But it never caught on as a mainstream payments option.

The main hurdle to widespread adoption of bitcoin-as-cash is its wild, and potentially lucrative, price changes. This roller coaster problem isn’t going to disappear. Which means the only way for bitcoin payments to ever go mainstream is if the nation’s reliable payment pipelines, the ones that have knitted it together for decades, stop doing their job. Only then will second- and third-best payments rails like bitcoin be called into play.  

J.P. Koning, a CoinDesk columnist, worked as an equity researcher at a Canadian brokerage firm and was a financial writer at a large Canadian bank. He runs the popular Moneyness blog.

Here’s a short story about how America’s payments infrastructure slowly implodes and bitcoin payments go mainstream.

We all know that America is ideologically divided. This turmoil has already enveloped both the traditional media and social media, with many conservative voices now migrating to Parler while liberals stick to Twitter.

Banks and payments processors have also become venues for conflict. For instance, activists have successfully pressured card processors to cut off white supremacist book seller Counter-Currents, the Proud Boys’ merchandise store and social network Gab, which describes itself as pro-free speech but has high concentrations of toxicity.

Imagine a world in which these divisions were to deepen. Say that some payment processors begin to cut off all customers who are deemed too Republican. In 2023, the Wall Street Journal is de-platformed by its acquirer, the bank that hooks it into the Visa and Mastercard networks. Companies with Trump-supporting executives like Home Depot and Goya Foods are cut off by their banks, too.

See also: JP Koning – The Standard About to Revolutionize Payments

And conversely, Republican activists start to pressure financial institutions to unplug Democrat-aligned businesses. In 2024, several large banks agree to stop connecting abortion clinics to the card networks.

What emerges by 2026 is a divided ecosystem of payments processors. One half specializes in connecting Republican businesses and nonprofits to core payments infrastructure, the other half specializes in connecting Democrat ones. Any bank or processor that tries to stay neutral is shunned – she who connects my enemy to Visa is my enemy.

Even at this level of divisiveness, Republicans and Democrats can still do business together. As long as Mastercard and Visa themselves remain neutral by letting both Republican and Democrat-aligned payment processors hook into their networks, then dollars can flow across the ideological chasm.

But in 2029, Democrat activists pressure Visa to end its neutrality and disconnect all Republican payment processors. Suddenly, Republican businesses can no longer accept Visa cards. The next year Mastercard goes Republican. All Democrat-leaning businesses are exiled from the Mastercard network.

America is now divided into two card fiefdoms. Consumers will need one of each card if they want to shop at both Republican and Democrat stores. Democrat shoppers shamefully hide their Mastercards and Republicans their Visas, lest their friends and family see that they are consorting with the enemy.

By 2031, cracks finally appear at the core of America’s payments plumbing. The neutrality of the Federal Reserve, made up of 12 district Reserve banks, comes to an end. The CEO and Directors of the Federal Reserve Bank of Kansas City, all staunch Republicans, unilaterally decide to stop providing Democrat-leaning banks in their district with access to Fedwire. The Kansas City district includes the states of Kansas, Wyoming, Nebraska, Colorado and Oklahoma.

No one wants to live in a country where bitcoin has become vital for payments.

Fedwire, the Federal Reserve’s real-time settlement system, is America’s most important payments utility. When anyone makes a payment from their bank to another bank, it’ll eventually be settled by a movement of funds along Fedwire. By cutting off Democrat-leaning banks and their customers from this key utility, the Kansas City Fed effectively removes their access to the rest of the U.S. banking system.

The Atlanta Fed, also Republican, follows the Kansas City Fed a month later. In retaliation, the Federal Reserve Banks of San Francisco and Boston disconnect Republican banks from Fedwire, in one swoop unbanking all Republican-leaning businesses located in their districts.

In 2033, the San Francisco Fed halts all incoming payments from both the Reserve Banks of Kansas City and Atlanta. Suddenly, there is no such thing as a universal U.S. dollar. Money held in accounts in Georgia and Florida and Oklahoma can’t move into accounts in California or Washington, and vice versa. The payment tissue that once connected all American has torn.

The collapse of America’s payment infrastructure would be just one theater in a much larger factionalization of American society along ideological lines. Other key bits of American infrastructure would also begin to fall apart: the courts, law enforcement, the education system. There would be large physical dislocations as Republican families migrate to Republican enclaves and Democrats to Democrat enclaves.

But commercial life would still go on. Within their own enclaves, Democrats would still do business with Democrats, and Republicans with Republicans. They would probably rely on local credit-based systems to engage in trade. Credit, which relies on trust, is the most efficient way to carry out transactions.

See also: JP Koning – How Bitcoin Is Like Ham Radio

What about trade between Democrats in one enclave and Republicans in another enclave? Each side will produce goods that the other side needs. With neither side trusting the other, IOUs would be an unacceptable currency. 

It’s possible that silver and gold would become popular again, as they were in the 1600s and 1700s. Or perhaps bitcoin would become America’s favorite medium for conducting inter-factional trade. The nice thing about bitcoin, like gold, is that it doesn’t rely on a trusted counterparty. Suspicious traders needn’t worry about the IOU-issuer welching.

But if America’s electrical and telecommunications infrastructure has crumbled, would it even be possible for people to use bitcoin? 

It’s a stretch, but we can imagine distributed solar power solving the electricity problem. As for accessing the bitcoin network, tinkerers could try to connect old fashioned ham radios to Blockstream’s bitcoin satellite. If the remnants of AT&T and Verizon can only provide patchy internet service, so-called decentralized mesh networks might offer an alternative way to access the web.

This dystopian future probably isn’t going to happen. For now, bitcoin has found a role as a popular way for Americans to speculate, sort of like gold. Let’s hope it stays that way. No one wants to live in a country where bitcoin has become vital for payments.





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Coinbase Will Suspend All Margin Trading Tomorrow

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Crypto exchange Coinbase plans to end all margin trading effective Nov. 25, 2020, due to recent regulations by the Commodity Futures Trading Commission (CFTC).

The San Francisco-based trading platform announced Tuesday that it would prevent customers from placing new margin trades beginning at 2 p.m. PT (22:00 UTC) on Wednesday, while simultaneously canceling any open limit orders. 

Coinbase will end the margin trading feature entirely next month, once existing positions expire. When customers trade on margin, they’re effectively borrowing funds from the exchange or broker to cover the cost of an investment in an asset such as a security or a cryptocurrency. This allows traders to leverage their positions, thus amplifying profits – or losses.   

The exchange pointed to “recent guidance” from the CFTC, referring to the Commission’s March guidance around “actual delivery” of digital assets as the reason for this decision, but didn’t specify which aspect of the guidance led to the move.

That guidance, which has its roots in a 2016 enforcement action against Bitfinex, sought to provide rules around when a customer can be said to have legally taken control of a cryptocurrency, including when the customer acquires the crypto through a margin or leveraged product.

Assets purchased through leverage or a margin contract cannot be liquidated, according to the guidance.

‘Actual delivery’

Coinbase appears to be saying that it is difficult, if not impossible, for it to comply with a CFTC requirement that neither it nor any affiliated entity can have any sort of control over a cryptocurrency once it’s been delivered in accordance with the terms of a margin contract.

Under the terms of the CFTC’s guidance, “actual delivery” has occurred when a customer controls the cryptocurrency purchased, including if it was acquired via a margin or leveraged product, and the seller has no control over the cryptocurrency in question.

Coinbase has taken issue with this point in the past. In a comment letter to the CFTC discussing the then-proposed guidance, it wrote that affiliates of the seller should be able to hold the cryptocurrencies. 

“Requiring unfettered ability to transfer digital assets would effectively mean that U.S. entities and regulated entities, or entities using cold storage or other asset protection methods, could not hold digital assets acquired through margined transactions,” then-Chief Legal and Risk Officer Mike Lempres wrote in 2018. 

The final guidance approved in 2020 said that the offeror, seller or affiliated entities cannot have any interest, legal right or control over the commodity.

Essentially, Coinbase would have to register with the CFTC as a commodities exchange if it wants to continue offering leveraged products.

Other exchanges in the U.S., like Kraken, also offer margin trading. A spokesperson did not immediately respond to a request for comment on whether Kraken was also looking at the actual delivery guidance.

“We believe clear, common-sense regulations for margin lending products are needed to protect and provide peace of mind to U.S. customers,” Coinbase’s blog post said. “We look forward to working closely with regulators to achieve this goal.”

UPDATE (Nov. 24, 2020, 22:50 UTC): This article has been updated with additional information.



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Tesla CEO Elon Musk Becomes World’s Second-Richest Person as Company Approaches $500B Market Value

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According to the Bloomberg Billionaires Index, Elon Musk’s net worth has gained over $100 billion since the beginning of the year.

The CEO of Tesla Inc (NASDAQ: TSLA) Elon Musk has surpassed Bill Gates to become the world’s second-richest person. According to a Bloomberg report, Musk’s net worth reached a new milestone on the 23rd of November, jumping by $7.24 billion to $128 billion. 

As Tesla stock has continuously increased since the beginning of the year, the net worth of the company’s CEO has also been rising. As noted in the Bloomberg report, the increase in Musk’s net worth can be tied to the steady surge in Tesla stock. Tesla has been recording gains over the past year. Approaching a $500 billion market value, the Electric Vehicle (EV) company is currently up 4.18% to $544.41 at premarket trading. This shows an increase over its previous close of $521.85. 

Tesla Elon Musk Becomes The World’s Second-Richest Person

According to the Bloomberg Billionaires Index, Elon Musk’s net worth has gained over $100 billion since the beginning of the year. Back in January, Bloomberg ranked Musk the 35th richest person in the world. Notably, Tesla shares make up about three-quarters of Musk’s net worth. 

TSLA has gained 675.78% in the last twelve months and 523.73% in its year-to-date record. Over the past three months, the company surged 29.54%. In addition to recent gains, the EV company added over 24% over the past month. Also, Tesla stock has jumped 27.88% over the past five days. 

Since the debut of the Bloomberg Billionaires Index daily ranking in 2012, this is the second time Bill Gates has been ranked lower than the world’s second-richest. Gates, the co-founder of Microsoft Corporation (NASDAQ: MSFT), was ranked number one on the billionaire index for years before Jeff Bezos surpassed him in 2017. 

Bloomberg Billionaires Index noted that Amazon.com Inc (NASDAQ: AMZN) CEO Jeff Bezos is the world’s richest person with a total net worth of $182 billion. Since the beginning of 2020, Bezos has added $67 billion to his net worth. 

The Gates Foundation

The Bloomberg report further said that Gates’ net worth would have been higher if he has not been donating to several charities over the years. In 2000, Bill Gates and his wife Melinda Gates founded the Bill & Melinda Gates Foundation. Since then, the billionaires and philanthropists have donated billions of dollars to charities. 

Bill Gates private foundation has been committing funds in support of the creation and distribution of an effective coronavirus vaccine. Similarly, several individuals, organizations, and the government have been making significant efforts to fight the global health crisis. 

Coinspeaker earlier reported that the Gates Foundation committed an additional $70 million for the COVID-19 vaccine. As of the 13th of November, the private foundation has pledged a total of $156 million to counter the unprecedented pandemic. 

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Ibukun is a crypto/finance writer interested in passing relevant information, using non-complex words to reach all kinds of audience. Apart from writing, she likes to see movies, cook, and explore restaurants in the city of Lagos, where she resides.



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Coinbase Ditches US Customer Tax Form That Set Off False Alarms at IRS

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Cryptocurrency exchange Coinbase has decided to discontinue sending customers 1099-Ks, the U.S. tax form which led the Internal Revenue Service (IRS) to mistakenly think traders had underreported their gains. 

The exchange will instead use the 1099-MISC form, at least for customers who earn interest on lending and similar products, it said in a Tuesday blog post, The post appeared to suggest that traders who do not meet the criteria for the 1099-MISC will likely not receive any kind of forms from Coinbase to help prepare their returns. When asked for comment, a Coinbase spokesperson simply sent CoinDesk a link to the post.

Coinbase said in the post that it will not issue IRS form 1099-Ks for the 2020 tax year. Used by some crypto exchanges to report transactions for eligible users, the 1099-K form can often be confusing because it reports only the gross proceeds of crypto transactions, without taking the base price into account.

Hence, the forms can sometimes show all transactions as generating revenue even if some may have actually caused a loss. If you bought a coin for $1 and sold it for 50 cents, your 50 cent loss would appear to be a gain, for example. This in turn may lead to exchanges reporting a significantly inflated tax burden for the user. 

This scenario seems to have played out recently when the IRS sent at least dozens of crypto users notices warning that they had underreported their holdings. Such warning letters had also been sent to crypto users last year. 

In its blog post Coinbase said that it will not issue form 1099-Bs either. The crypto exchange’s post added that 1099-MISC forms will be sent to users who earn “$600 or more in crypto from Coinbase Earn, USDC Rewards, and/or Staking in 2020.” These are income-generating products, similar to bank deposits.

But the post also did not indicate whether in the absence of a form 1099-K, regular crypto sales would be recorded on the 1099-MISC forms as well. Customers who don’t receive any forms from Coinbase and sold or converted crypto in 2020 are still responsible for reporting to the IRS and should consult a tax professional, Coinbase said. 

If the 1099-MISC became standard for traders, “a lot more people are gonna get it because the threshold for getting a 1099-MISC is very low” said Shehan Chandrasekera, head of tax strategy at CoinTracker, a portfolio monitoring service. Whereas a 1099-K is strictly for payees receiving more than 200 transactions a year worth over $20,000, the 1099-MISC would capture everyone getting $600 and up. 

While switching to the 1099-MISC is “not a perfect solution” to problems faced in crypto tax reporting, it could help Coinbase improve its compliance status by subjecting more users to reporting requirements, Chandrasekera said.

He pointed out that the switch to a new form doesn’t solve the “cost basis issue,” because the 1099-MISC form also has no place to report the price a cryptocurrency may have been purchased for. Even if there were a place in the form, Coinbase wouldn’t necessarily be able to find the information, therefore making it the user’s responsibility to keep track of the price for which they bought the assets, said Chandrasekera, who is a certified public accountant (CPA).



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