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By Ari Juels and Eswar Prasad

Blockchain technology and proof of reserves will help to create transparency and build trust

The vertiginous fall of Sam Bankman-Fried, the disgraced founder of the cryptocurrency exchange FTX who was recently convicted of fraud and money laundering in New York, has cast a harsh light on a largely unregulated market. For all the supposed wonders of the blockchain technology underpinning cryptocurrencies, the headline-grabbing events of the past few years indicate an industry in turmoil.

In addition to the criminal activity that led to the spectacular collapse of FTX in 2022 and Bankman-Fried's guilty verdict in early November, U.S. regulators have sued Binance, the world's largest crypto exchange, for allegedly operating a "web of deception." An industry-wide reckoning looms. Will crypto always be a magnet for fraud and malfeasance, or can it eventually transform and democratize finance?

An increasingly obvious paradox has emerged. Satoshi Nakamoto, the pseudonymous creator of bitcoin (BTCUSD), proposed the idea of a purely peer-to-peer version of electronic cash in the wake of the 2008 global financial crisis, when confidence in governments and central banks was at its nadir. Soon after the launch of bitcoin in 2009, Nakamoto wrote that "the root problem with conventional currency is all the trust that's required to make it work." Today, the system that was supposed to eliminate the need for trust between people and in traditional financial institutions is experiencing a crisis of trust.

Cryptocurrencies such as bitcoin and ethereum (ETHUSD) rely on computer code and networks that are not controlled or managed by a central party. Remarkably, such decentralization works. Transactions can be completed in a secure manner, without relying on a bank, credit-card company, or other institution. In principle, this should make financial systems less vulnerable to fraud and manipulation.

Any innovation inevitably attracts speculative mania and chicanery, especially in the early stages.

Unfortunately, grifters and unscrupulous companies have exploited customers and investors enamored with the new technology and, in the process, obscured crypto's most compelling innovation: blockchain-enabled tools that can improve transparency and strengthen the trustworthiness of the financial sector.

Maintained on computers around the world and publicly accessible by anyone with an internet connection, blockchains are digital ledgers that carry an immutable record of all transactions in a system. Their reliance on algorithms, rather than human interaction, creates a robust money trail that traditional financial infrastructure lacks.

So, how did we end up with a crypto industry that often contradicts its founding ethos? One answer is that any innovation inevitably attracts speculative mania and chicanery, especially in the early stages of its development. In the 19th century, banks deceived examiners by padding gold reserves with nails. More recently, the dot-com era gave us the likes of Enron, while a biotech boom brought us Elizabeth Holmes and Theranos.

Another problem is that the industry's consumer-facing platforms have simply grafted old ways of doing business onto a technology designed specifically to do away with them. For example, while FTX was an "exchange" -- a gateway to blockchain-powered cryptocurrencies -- it did not make fundamental use of decentralized technologies. Ironically, most crypto holders today store their assets in exchanges that require high levels of trust and carry many of the risks of traditional financial institutions.

Behind the scenes, the crypto industry has started using technology to shift the balance back toward innovation. One example is the development of proof of reserves, a mathematically-based method that enables institutions to verify their crypto assets. Such tools could help prevent debacles like FTX, where the lack of transparency allowed Bankman-Fried to conceal financial fraud.

Importantly, proof of reserves and similar tools work best for cryptocurrencies, not for ordinary financial assets -- including the U.S. dollar (DX00). These technical advances have therefore prompted traditional financial institutions -- the very ones bitcoin sought to replace -- to embrace crypto. JPMorgan Chase (JPM), for example, has plans to move trillions of dollars of value on to the blockchain, while monetary authorities are exploring central bank digital currencies, which would involve using blockchain technology to issue digital versions of their fiat currencies.

To be sure, the crypto industry faces several daunting challenges: the large environmental footprint of bitcoin mining; its use for illicit transactions; privacy shortcomings, and more. But, as proof of reserves suggests, the crypto community is innovating powerful new ways to harness the inherent transparency and trustworthiness of blockchain technology to create a more secure and flexible financial ecosystem.

As these innovations proceed, governments around the world are exploring ways to safeguard consumers from the crypto industry's excesses. They would do well to look past the headlines and seek a balanced approach that enables this remarkable technology to thrive.

Ari Juels, a professor at Cornell Tech, is co-director of the Initiative for CryptoCurrencies and Contracts (IC3), chief scientist at Chainlink Labs, and the author of the forthcoming The Oracle (Talos Press, 2024).

Eswar Prasad, professor of economics at Cornell University, is a senior fellow at the Brookings Institution and the author of The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance (Harvard University Press, 2021).

This commentary was published with the permission of Project Syndicate -- Whither Crypto?

Also read: 'Fraudsters, hucksters and scam artists': Gensler defends SEC track record on crypto in wake of FTX scandal.

More: All memes aside, crypto buyers aren't any different from stock investors

-Ari Juels -Eswar Prasad

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

11-16-23 1401ET

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Crypto will overcome the stain of FTX and Sam Bankman-Fried - Morningstar

The COVID-19 pandemic has had a profound impact on the way we live and work. One of the most significant changes has been the rise of remote work, which has allowed many people to move to new locations in search of a better quality of life. This has led to a phenomenon known as pandemic migration.

While the term may suggest a trend of increased mobility, the latest U.S. Census data on mobility during the pandemic shows continuation of long-term decline in the share of households that have moved each year.

Prior to the 1980s, annual migration rates averaged 20% and has fallen to 8.7% recently. But what appears to have changed are the distances that people move, with the median distance more than tripling in 2022 from the decade prior. Also, one-quarter of homebuyers traveled over 470 miles to find their new home.

Increasing numbers of longer-distance moves across counties and states have supported clear population shifts over the course of the pandemic as people have flocked to smaller towns and rural areas in search of more affordable housing and a slower pace of life.

And while there are a host of factors that influenced migration patterns, including politics, monetary and fiscal policies of different regions, the increase and ability of remote work was a significant motivator for many households. In fact, the share of work done from home increased from 8% in 2019 to 30% in 2023 a rate at which remote work appears to be stabilizing.

While it is too early to say what the long-term impact of pandemic migration will be, the migration of workers has important implications for economic outcomes of U.S. cities, wage inequality and housing markets in general.

Following the 1980s, we have seen a trend of clustering of higher-wage, college-educated workers in a select group of super-star cities, such as San Francisco, Seattle, Boston, Los Angeles, which have been cradles of technology and innovation.

However, the economic dominance of a limited number of cities has been a critical driver of income inequality nationally and varying home prices across markets.

In trying to understand what drives migration, several well-known academic papers have argued that migration decisions are largely driven by the following: wages, cost of housing and amenities.

While workers in big cities have higher wages, when accounting for cost of housing (usually manifested in smaller housing and longer commutes), their real wages are lower. but they get to enjoy the big-city benefits.

Despite the excitement that big cities offer, their attractiveness has been compromised in recent years by increasingly more unaffordable housing, long commutes and worsening crime and homelessness. It was not surprising to see households starting to leave large cities during the pandemic when desirable city amenities, such as bars, restaurants and concert venues were not available.

The outmigration led by remote work resulted in an important economic shift currently underway decentralization of higher-wage, college educated talent from very expensive cities such as San Francisco, Los Angeles, Seattle and others, to smaller metro areas which didnt previously serve as economic engines of production and consumption.

As these workers and firms cluster in smaller cities, they develop their own agglomeration economies and positive knowledge spillovers, i.e. co-location of talent and creative workers results in economic and knowledge benefits to local economies and its residents. This can result in increasing income for all residents in the new city, not just the newly relocated worker.

Teleworking also improves access to high-paying jobs for workers who previously didnt have the access if they didnt live in a big city. Over time, redistribution of higher-wage workers to smaller areas can reduce income inequalities between super-star cities and smaller cities.

That doesnt mean absolute wage equalization across metro areas as cities that were already productive continue to offer relatively higher wages (as they remain more unaffordable), but the wage gap between workers in the new location would be reduced.

In addition, outmigration from urban areas means that demand for housing and home prices in centers have been challenged while demand for housing in suburban and smaller cities has intensified.

As a result, in San Francisco metro, the epicenter of pandemic outmigration, home prices have only increased 6% from the onset of the pandemic, while in the cities in the South (such as Tampa, Austin, Nashville, Raleigh, Austin to name a few) that grew notably due to pandemic migration, home prices have risen 40%, and as much as 70% in some markets, during the same period.

While these stark differences in home-price changes reflect some equalization of housing markets, the differences in their median home prices are still wide. More expensive cities, such as San Francisco, still hold median home value at about $1.4 million, while median price in Tampa is about a third of that at $450,000.

In addition to inter-metro convergence of home prices, the demand resulting from remote work has led to narrowing of intra-metro home prices as prices in suburbs and exurbs of large cities saw relatively higher appreciation over the last few years compared to the urban center.

Again, while San Francisco metro (which encompasses San Francisco city/county and San Mateo County) saw an increase, home prices in San Francisco city alone were down 1% since the onset of the pandemic, while they were up 32% in suburban Contra Costa County.

And while home prices are unlikely to fully converge, slower growth of home prices (and decline) in urban centers of large cities offers improved affordability, particularly to lower income workers who can now move closer to the city and save on commuting cost and housing.

On the other hand, there has been a growing concern that affordability in fast-growing smaller cities leads to gentrification of households who are being priced out by high-income migrants. And there is some truth to that too as recent migration data shows relative outmigration from cities with outsized home price growth in recent years.

Where are those households moving then? They are moving further out to urban fringe and more affordable towns and with it extending the boundaries of cities but also urban sprawl.

Decentralization of income across cities could lead to a more balanced demand across regions and smaller dispersion of home price both across cities and within a city.

High-cost cities would see some declines, while more affordable markets see higher home price gains. Given the overarching trend of migration to more affordable regions where it is easier and less costly to build, overall impact on home prices may result in a slight decline of national home prices long-term, or a slower rate of appreciation.

What does this mean for super-star cities?

Although big cities are at an important historical juncture, a demise is not a threat particularly as many large cities see population return post-pandemic. But, while some perks that made cities attractive may follow remote workers out of urban centers, fewer commuters would reduce pollution and congestion which would help boost desirability of urban centers.

Demand for commercial space may decline (further) and drag down its prices, but commercial real estate will likely be creative in finding new uses for the space, which may drive more creativity, mixed-use developments and incubate 24-hour-cities that will spur demand for urban living again and overall utilization of commercial space.

There are other implications to consider. For example, decentralization of workers also means fewer transit riders and erosion of tax base. Large cities are already struggling with decline of ridership and the impacts of transit budgets.

As for loss of tax base, while urban centers will lose the revenue, smaller towns where remote workers are moving to will see improvement in their tax base and capital to improve public services, education and institutions that have been in decline for decades.

Dr. Selma Hepp, PhD, is Chief Economist at CoreLogic.

This column does not necessarily reflect the opinion of HousingWires editorial department and its owners.

To contact the author of this story: Selma Hepp at [emailprotected]

To contact the editor responsible for this story: Deborah Kearns at [emailprotected]

Originally posted here:

Opinion: CoreLogic's Selma Hepp on the effects of 'pandemic ... - HousingWire

Sergey Nazarov, co-founder of Chainlink, has reignited the longstanding debate on decentralization within the crypto industry.

According to Nazarov, the term decentralization is often misused to attract investment rather than to describe a networks actual structure. During an interview with Decrypt, he argued that only three projectsBitcoin, Ethereum, and Chainlinkcan be considered meaningfully decentralized.

Nazarovs comments come in the wake of recent security breaches in various crypto projects, including Celsius, Voyager, FTX, and Mixin Network. He refers to these incidents as examples of decentralization theater, where the term is used more as a marketing gimmick than a factual descriptor. Nazarov sees decentralization not just as a buzzword but as a critical security feature. He cites Chainlinks four-year track record without hacks and the secure transfer of $8.5 trillion in value as evidence of the benefits of a decentralized system.

However, Ethereum, one of the projects Nazarov considers decentralized, is currently grappling with its own centralization issues. The Lido Finance cartel is perceived as a significant threat to Ethereums network. Despite this, Nazarov maintains that decentralization serves as a security mechanism, safeguarding the network from various vulnerabilities.

According to Decrypt, Chainlink itself has not been immune to scrutiny. Critics point out that the projects price oracle has a 4-of-9 multi-signature access, which could have unintended consequences in the decentralized finance (DeFi) space. DeFi security expert Chris Blec expressed concerns about the lack of transparency regarding who controls these signatures. He emphasized that the potential for these signers to manipulate Ethereums price could pose a risk to DeFi protocols relying on Chainlinks price feeds.

Nazarov also told Decrypt that he agrees with the idea that decentralization is a spectrum but accuses many blockchain projects of falsely presenting themselves as decentralized. He called for an end to the misuse of the term and urged both developers and consumers to focus on building and supporting systems that offer genuine security and reliability.

Yesterday, during an interview on CNBCs Crypto World, Nazarov explained what can help prevent another crypto firm failure ahead of the trial of the bankrupt crypto exchanges Co-Founder and former CEO Sam Bankman-Fried (SBF)

Nazarov emphasized that the collapse of FTX should not be viewed as a failure of blockchain technology. According to him, FTX was more of a traditional financial institution that happened to deal in crypto assets. The failure was due to mismanagement of assets by the institution, rather than any inherent flaw in blockchain systems.

Nazarov highlighted the importance of proof of reserves in the wake of the FTX collapse. Chainlabs is the largest provider of this service, which validates the balance sheet of financial entities dealing in crypto assets. Proof of reserves offers real-time, cryptographically verified information about an institutions solvency, which is a significant step up from traditional annual audits.

While proof of reserves is crucial, Nazarov acknowledged that it only provides a snapshot of an entitys financial health. He mentioned that the industry is moving towards other types of proofs like proof of liabilities and proof of solvency to offer a more comprehensive view of an institutions financial standing.

Nazarov noted that although crypto crime has decreased, it is mainly because the industrys growth has slowed down. He stressed the need for genuine decentralization to prevent hacks and scams. According to him, many platforms claim to be decentralized but are not, which makes them vulnerable to attacks.

When asked about the factors hindering mass adoption of crypto, Nazarov cited a combination of eroding trust due to institutional failures, security issues, and lack of regulatory clarity. He emphasized that the crypto industry is cyclical and that its crucial for the infrastructure to be robust enough to handle the next wave of interest and investment.

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Sergey Nazarov: Only Bitcoin, Ethereum, Chainlink Truly ... - CryptoGlobe

Concerns about increased centralization on the Ethereum network have intensified, following Blocknatives decision to discontinue its MEV-boost relay on Tuesday.

Relayers play a pivotal role in settling transactions on Ethereum. They ensure timely and efficient processing, bridging the gap between users and the blockchain by batching and broadcasting transactions. With the exit of Blocknative, the relayer landscape is becoming increasingly concentrated. At time of writing, only four relayers remain active on the network.

Following Ethereums transition to proof-of-stake, the roles of block proposing and block building became distinct processes. MEV-boost software was developed to facilitate an efficient market between these proposers, which submit transaction bundles to validators, and builders, which organize the transactions in a specific order.

Following the Merge, a group of well-resourced Ethereum block builders, formerly including Blocknative, began running their own relays.

Today, nearly all Ethereum transactions use MEV-boost relays. 93% of Ethereum blocks created in the past 14 days made use of MEV-boost, according to data compiled on mevboost.pics. At the time that data was compiled, five entities were responsible for relaying 98% of the MEV-boosted transactions, per relayscan.io.

According to Blocknative, it dropped its MEV-boost relay because continuing was no longer economically viable. The four remaining relayers collect no fees for their services, making this core piece of Ethereum infrastructure unprofitable for its operators. A recent Flashbots community proposal aims to start a PBS Guild which would solicit Ethereum community donations in part to reward relayers.

Uri Klarman, CEO of relaying entity Bloxroute, believes that a relayer fee mechanism should be activated, however. He suggests that block validators anticipate this move.

I heard from multiple validators, like, yeah, we dont understand how you [havent charged] us until this point, Klarman told Blockworks.

Klarman said relayer fees would require some level of consensus between the remaining relaying entities and, ideally, the Ethereum community. If the economic incentive problem isnt fixed, though, Klarman thinks the perceived centralization of MEV-boost relays could grow worse.

In a year, if everything stays the same [] I think its very reasonable that there will be [fewer] relays than there are today, Klarman said.

Elias Simos, the CEO of Ethereum data platform Rated, told Blockworks he is ambivalent toward a future where Ethereum continues to rely on its four major relayers.

Theyre demonstrably long-term actors in the space, so they have a lot to lose [if Ethereum is harmed], Simos said. But at the same time, is that enough?

Updated Sept. 28, 2023 at 10:22 am ET: Updated to clarify that Ethereum transactions are now handled by four relayers.

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Ethereum decentralization takes hit as Blocknative discontinues its ... - Blockworks

The SEC has announced it will appeal the decision versus Ripple, and this has investors once more looking towards decentralized projects like Near Protocol (NEAR) and Tradecurve Markets (TCRV). These DeFi operatives remain outside the SECs regulatory clutches, hence why investors are bidding on them.

Decentralization will be the future of finance, and the equation has become time-based. Not if but when. Protocols at the frontier will be some of 2023s top performers, and analysts explored Near Protocol vs. Tradecurve Markets: two projects pioneering the future of decentralization.

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Tradecurve Markets has leveraged the unique properties of blockchain to introduce a fully inclusive trading hub. Traders will be able to access an expansive range of asset classes while remaining anonymous and trading with high leverage up to 500:1.

The next step in on-chain trading has arrived, and Tradecurve Markets leads the movement. Moving away from the crypto-to-crypto pairings, it pioneers the crypto-to-derivatives pairings model. Tradecurve Markets features no KYC and integrated asset classes, including forex, commodities, traditional equities, cryptos, and bonds. Users sign up with an email, retain their privacy, collateralize crypto, and gain deep access to global financial markets.

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— Tradecurve (@Tradecurveapp) September 11, 2023

Including TradFis primary assets puts Tradecurve Markets in a league of its own. Not only because of the vast volume of trading these assets witness but the convenience for traders of being able to jump from market to market following liquidity from a single interface.

Analysts noted that $TCRV ownership is the primary avenue for gaining exposure to Tradecurve Markets growth, and they expect the token to surge by 5,000% before the presale closes.

Tradecurve Markets pushes the boundaries of what is possible through decentralization, and this nascent blockchain ICO could soon rival even established global players like Binance and Kraken.

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Near Protocol is an alternative layer one blockchain that focuses on dApp development. It offers a general-purpose blockchain for application deployment, and the team behind Near Protocol constructed the blockchains native language using JavaScript for precisely this purpose. Developers can dive straight into Near Protocol without learning a new language, which has fostered a growing network of builders on the chain.

A nice addition to the usability of Near Protocol is the introduction of human-readable addresses, and the most recent news surrounding the protocol led analysts to revise their price targets. They now expect the native token of Near Protocol $NEAR to target $2.74 in 2024.

The release of the Polygon zk-EVM dashboard partners Near Protocol with the popular layer two scaling solution, and users can access dApps hosted on Polygon via the dashboard hosted by Near Protocol. A significant step forward for cross-chain development and a favorable tailwind for both ecosystems.

For more information about the Tradecurve Markets (TCRV) presale:

Website: https://tradecurvemarkets.com/

Buy presale: https://app.tradecurvemarkets.com/sign-upTwitter: https://twitter.com/Tradecurveapp

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Near Protocol vs Tradecurve Markets: Pioneering the Future of ... - TechCabal