In order for central banks to help maintain an effective financial system it is important that technological changes are considered and analyzed as they happen. Fintech is particularly disruptive because of the speed with which it has taken hold in today’s world of finance, where we expect instant access to all forms of information. It has become increasingly apparent that many of the systems that underpin the financial system are not immune to disruption. The aim of this article is to provide an understanding of how fintech may impact central banks’ governance, specifically in terms of its capabilities and resilience.

Governance in central banking covers a broad range of responsibilities covering management, structure, accountability and culture. A key aspect of governance in central banking is that the bank operates independently from government, this helps maintain its political independence and ensures it serves solely public interest. This prevents governments from using the central bank as an instrument of short-term economic management. It also allows the central bank to make objective decisions without fear or favour.

Central banks have a broad mandate which includes the provision of payment services, ensuring monetary and financial system stability and supervision of credit institutions. They have tools that allow them to implement their remit such as changing interest rates, conducting open market operations (the purchase or sale of government securities by a central bank) and setting banking capital requirements. In recent years it has become increasingly clear that many institutions in the financial sector are becoming exposed to cyber-related risks. The reason for this is that an increasing number of transactions and operations have a reliance on technology, as such there is a need for central banks to ensure that they are suitably prepared.

The impact of fintech on central bank governance has been felt in three key areas; resistance, capability and risk. First of all the financial system is becoming exposed to cyber related risks; over the last few years we have seen central banks and commercial banks being hit by ransomware attacks which are costly and disruptive. Central Banks need rigorous governance in place to ensure resilience is kept at a high level. Secondly, fintech has impacted central bank governance by becoming an ever-greater part of the financial system and this trend looks set to continue; in order for central banks to maintain their independence they must make sure they invest in technology that enables them to operate efficiently and effectively. This can prove challenging as technology is advancing at a rapid pace, it is therefore important that central banks have the capability to keep up with evolving technology. The last element of impact fintech has had on central bank governance is financial stability. If fintech developments are causing certain types of transactions or operations to be exposed to increased risks, this can end up having a negative impact on financial stability. Therefore central banks need governance in place to monitor risks and take appropriate action to minimize these threats, this can be achieved by putting in place effective operational risk management.

From a business point of view you can look at what Blockchain means :

Removing middlemen: Imagine an energy trading platform where two parties could exchange energy without the need for a middleman to facilitate the transaction. They can deal directly with each other through smart contracts and avoid any fees or central control. This is quite an obvious one but it would take away billions in losses every year and save time in transactions

Transparency: If decentralised, blockchain could be a source of truth about various aspects of business processes that today are managed within opaque walls. It would give trust back to users who don’t necessarily know who they are dealing with when they start transactions online –this applies especially in financial services where KYC/AML (Know Your Customer / Anti Money Laundering) regulations are very high on everyone’s agenda due to recent global events which have shaken confidence in these types of transactions

Security: In a decentralised world, there is no single point of failure, which means blockchain-based networks are far more resilient to attacks. With a distributed ledger technology (DLT) every node has the same version of truth –unlike today where we have different databases all over the place with different versions being accessed by employees and customers based on how they log in –with Blockchain you only need one source of truth. This security does not come without problems as it would mean that all nodes will need to be online 24/7 making them vulnerable to cyberattacks; however, plans for mitigating this vulnerability are already underway e.g. through “light” clients or “smart” contracts

Transactions costs: With blockchain a transaction is sent to everyone on the network. The nodes, called “miners” will run complex algorithms to validate the transactions and for completing their task of running the software they are rewarded in cryptocurrency. They can also set up machines that mine cryptocurrencies along with validating transactions –a process which is quite expensive but very profitable as we have seen lately (one person has even made $400 Million this year from mining Bitcoin). This means that because miners receive rewards for running the network, they are incentivised to participate and continue doing so even if no one else is buying or selling

Smart Contracts: The idea behind smart contracts is that you program them once and they execute automatically when certain conditions are met; so if you have a system of smart contracts and they are all tied to each other on the Blockchain you can then program the business logic for your organisation. This means that in theory, if the computer code is written well enough, you should never need an employee again and everything would automate itself according to certain rules –now we’re getting into artificial intelligence…but probably not that far just yet

However, there are also risks or consequences to using blockchain :

Adaptation: Currently most people do not know about Blockchain; there will be no easy ride until everyone has adopted it as a standard practice. Nevertheless, this mass adoption will happen because it simply makes sense –companies are already investing significant amounts of money in blockchain initiatives and those who do not follow will arguably be left behind. It has been said that the internet’s original protocol, TCP/IP (Transmission Control Protocol / Internet Protocol) took about 10–15 years to become a standard worldwide; today you can go into any café or restaurant and they have free WiFi… but that was not always the case

Inefficiency: Distributed ledgers need to be accessed by all participants, which means everyone needs to contribute in real time –this may lead to delays in processing transactions or other events. In order for this to work properly it is necessary that each node has an identical copy of the ledger so any change made must be done on every node in real time; if one fails, then we have a problem. So for example if you were to buy a large house in the country, it could take a long time for this transaction to complete –this is because every node on the network would need to approve the transaction before it becomes final

Cost: If we are going off of Blockchain 1.0, then there will be significant costs involved as all nodes have to maintain their computational power and remain online 24/7 . This means that each node must cover data centres or servers which can potentially cost millions of pounds per year; some estimate that by 2021, blockchain technologies will cost businesses $60–70 million a year (Source)

Scalability: Currently with existing technology blockchains capable of handling 10s or 100s of transactions per second are being tested; however as it stands, blockchains cannot match the transaction speeds of the major credit card companies which can handle processing of thousands of transactions per second. This makes blockchain networks slow and therefore not scalable –if you want to conduct a transaction on a blockchain network you would have to wait for many other transactions to be processed first

Solutions: The best way around this is achieving scalability through off-chain solutions such as Lightning Networks (which involves channels between nodes). The idea behind this is that most transactions do not require real-time verification e.g. downloading an app does not need real-time validation, so what we can do is move these transactions off chain while still having the main interactions running on chain. The idea is that most users will be doing simple things like sending money to each other, or checking state updates and the more complicated tasks such as stock trading could happen off chain (Source)

*It is worth pointing out though that the Blockchain networks are extremely secure compared to banks; they use a system known as Byzantine Fault Tolerance which means that if one node goes down it doesn’t affect the network meaning that outside of natural disasters your transactions should always go through*

Another solution which is being tested right now in Ethereum for example is called sharding; sharding means partitioning data across multiple servers. The goal with this method however, isn’t to increase transaction speeds but rather to reduce them by spreading the computational load among many nodes. So each node does not have to process the entire blockchain but instead can simply verify its own region of it; this prevents them from having to carry out excessive amounts of computations and overloading their hardware (Source)

While we are still a long way off being able to handle the necessary volume of transactions which will come with mass adoption, these solutions will almost definitely get us there sooner rather than later

Conclusion: Blockchain technology is still in its infancy and while there are clear obstacles to overcome before it can be adopted on a global scale, there are also strong incentives for businesses willing to invest time and resources.

This is a question that every Bitcoin owner in the US should be asking themselves at one point or another. The short answer to this question is “yes”, you will have to pay taxes once you sell your Bitcoin for fiat money (e.g. real-world currency such as USD). However, there are some special exceptions and deductions that the IRS (Internal Revenue Service) has created over time and it can be complicated to figure out when you’ll need to pay taxes on your Bitcoin.

For example, if you acquire Bitcoin by mining then you don’t have to worry about paying taxes until the moment that you convert your mined coins into fiat money (e.g. USD) or use them to buy something. However, if you are using your coins speculatively in order to make a profit then you will need to pay taxes on any profits that you make. This article will go over the basics of paying taxes with Bitcoin and how this is different from other types of income sources.

What Do I Need To Know Before I Start Earning Bitcoins?

The first thing that you should know is how to keep track of your Bitcoin transactions. If you want to pay taxes on your Bitcoin then you will need to know what the cost basis was for each transaction that you make with your coins. This means that if you buy 1 BTC from a friend for $500, then you will need to know what the purchase price was for this coin in order to calculate your capital gain. The same goes for selling coins as well because if you sell 1 BTC for $800 then the cost basis that you’ll report is $500.

The other thing that you should do before even starting to earn or pay taxes with Bitcoin is to make sure that you have a basic understanding of how the IRS taxes people. The IRS has special rules and deductions for crypto-currency and these things can change at any given moment so it’s important that you stay up to date with the latest developments in the Bitcoin world.

What happens if I don’t pay my taxes?

The last thing that you’ll want to do is figure out what will happen if you don’t pay your taxes and how the IRS will find out about this. There are some very serious penalties for not paying your taxes on time including jail time for more serious cases of tax evasion. That being said, most people who are caught evading their taxes are never actually put in jail because it’s too expensive for the government to do so.

If you want to avoid stiff penalties when dealing with Bitcoin and taxes then you will need to make sure that you learn all of the material before you start earning or spending money. This way, if you ever get audited by the IRS then you will be prepared to answer any questions that the government may have about your Bitcoin transactions.

To conclude, you can use our very own cryptocurrency accounting tool to calculate your capital gains and track the transactions for free.

Non-fungible tokens (NFTs) are a specific type of cryptographic token. They represent an asset or item that is unique, unlike cryptocurrencies such as Bitcoin which function as a fungible unit of currency.

What’s the difference between fungible and non-fungible?

Fungibility is the quality of a good or commodity whose individual units are essentially interchangeable. As an example:

Fungible: 1 BTC is always equal to 1 BTC, and so on. Non-fungible: like your house, one house can vary greatly from another (size, location, etc.).

NFTs represent ownership over digital or physical assets. The token associated with the asset is assigned a unique identifier and an NFT represents the ownership of this token.

As each token can be uniquely identified, these tokens allow for proof of ownership over specific items like: Digital collectibles (digital cats, rare artwork) Digital art (a custom drawing from an artist) Gaming items (in-game currency, weapons, armor) Physical property (vehicles, property titles/deeds)/

NFTs may also include metadata about who owns them or who has access to use them. They are more than just a transferable form of currency, but rather a representation of unique digital or physical assets. The NFT is created, stored and managed in an off-chain container using a traditional database such as MongoDB or CouchDB. This allows for scalability benefits over the Ethereum blockchain itself.The most familiar examples of NFTs are CryptoKitties and Etheremon. Both of these applications use NFTs to represent ownership over virtual pets that can be stored and transferred on multiple platforms and devices for trading purposes.

What is ERC-721?

ERC-721 is the standard interface that defines a set of rules and events (functions) for interacting with non-fungible tokens (NFTs) on the Ethereum blockchain. It provides developers with a reference implementation for working with unique tokens.

It is a free, open standard that describes how to build non fungible or unique token on the Ethereum blockchain. It provides a definition for contracts and tokens that want to be compatible with other applications, wallets and libraries dealing with non unique tokens. 

 Why do we need ERC-721? The ERC-20 token standard has become a de facto interface for tokens on the Ethereum blockchain. However, fungible tokens do not describe any ownership details and do not provide an easy way to distinguish one from another. As we move towards real world adoption, we need a token standard that allows us to unambiguously identify unique token.