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26Nov

The Impact of Fintech on Central Bank Governance

November 26, 2021 Wael El Ghazzawi Education 26
Fintech and Banking

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.

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19Aug

Impact of Blockchain for Business

August 19, 2021 Wael El Ghazzawi Education 29

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.

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15Jul

Do I Have to Pay Taxes on my Bitcoin?

July 15, 2021 Wael El Ghazzawi Education 28

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.

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04Jun

What are NFTs?

June 4, 2021 Wael El Ghazzawi Education 28

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.

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23May

What is Bitcoin Mining?

May 23, 2021 Wael El Ghazzawi Education 31

We aim to explain bitcoin mining to a non technical person

It’s a good idea to explain the blockchain technology first. then, continue with the mining process.

1. You have one single block (a block is like a page of an account book). This is where people can send money to each other and those transactions will be recorded for ever and ever on that page in a way that is unchangeable.

2. These pages are linked together in a chain of pages (like links of a necklace). That is the blockchain.

3. Miners are like people who check if all transactions do make sense and they record those transactions on these blocks for ever and ever. So no one can go back and change them by making new blocks.

4. The miners are rewarded for this job with a little bit of money after solving a difficult math problem. That is why we call it mining: like gold miners who find gold or oil miners who find oil, bitcoin miners find bitcoins (or fractions of them called Satoshis).

5. But they can only mine bitcoins on a very specific schedule: every 10 minutes 12.5 new blocks will be mined (or created) and with that number of pages added to the blockchain. There is no other way of adding new pages or getting more bitcoins on the system, so they are very valuable.

6. If you want to rent one of those miners for mining your own bitcoins you also have to pay them.

7. The miners can choose which transactions they want to add on a page depending of many criteria like: what’s the fee that people paid for making that transaction.

8. This is why it’s so slow and expensive to send Bitcoin (BTC) from one wallet to another. You will have to pay a fee to the miners for them adding your transaction on one of these pages. They only do it if there is a reward for them: some BTC (or Satoshis).

9. So in the end all transactions are grouped by miners choosing according to this method or that method (depending always on the fee that was paid), and then they are added on those pages in a way that can’t be changed anymore.

10. You can also choose which of these miners you want to include your transaction or no. So it’s very cool because you have some power as well compared with banks where they pick all transactions but you don’t have any power.

11. And also every bitcoin has a history so you can trace them like in an account book, from where they came, to who owns them now, etc.

That’s it! That is the blockchain and mining explained to a non-technical person. easier than i thought?

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02May

Fintech and Banking- What the Future Holds?

May 2, 2021 Wael El Ghazzawi Education 32

Fintech and Banking share something- a common customer segment. Which one is well positioned for the future? Let’s see!The term “fintech” is actually a new word for financial technology. It has been composed from 2 words; financ- which indicates the finance, and techno- which implies innovation. The term was first coined by the venture capitalist group in 2009. This term was made to depict the main element of any company or business that has changed its operating system for better results than before using technology as the main driving force rather than the human capacity. All these opportunities are available on cloud computing and it is rendering many beneficial effects to both small startups and huge corporations present in every segment like retail banking management, personal finance management etc where peoples can gain fast access to their funds and products without visiting physical branches daily because online services have become fast, effective and highly secure.

The impact of fintech and future of banking on the financial industry is going to be huge in the coming years because it’s an expanding market with rapid growth opportunities for businesses, startups, experts, investors etc. Focusing on these areas can lead to diversifying business portfolios while avoiding major risks like the online frauds that have been increasing further by hackers basically using phishing attacks to lure users into clicking malware-laden links or entering account details at spoof sites. In addition, this journey will also provide a new opportunity for all the entrepreneurs because due to its various functions such as providing quality products and services at low prices (affordable price rates), reducing operational costs (reducing staff costs), having faster transactions and withdrawing/depositing funds, reducing paper work by doing away with the manual records etc. These opportunities will lead to a better economy for every individual.

Some of the main benefits of fintech are that it provides fast services, low-cost products and offers round-the-clock services around the world. Therefore, these factors have brought people from all kinds of banks, backgrounds and customs to participate in this technique which has become more popular than ever before so that they can win their customers’ trust back or at least get some attention towards themselves through providing these facilities to them such as linking bank accounts with social media (Facebook), having mobile payment apps (Zelle) , building virtual communities where users can discuss financial topics about loans, debt management, student loans etc. On the other hand, traditional banking services have changed noticeably as well because it has moved from conventional face-to-face branches to mobile and web applications due to these new emerging services like online music streaming that uses banks’ APIs to connect with users’ bank accounts in order to create a direct relationship between customers and their financial service providers is one of the main reasons for fintech’s increasing popularity through which consumers get access to banking services directly through third party.

An important thing about this technology is that it has made business easier by providing automated software solutions so that companies can freely monitor all their activities such as payment transactions , funds transfers around different locations easily without any issues. This gave birth to the first fintech application in 2009 known as automated clearing house (ACH) that makes use of banking services to transfer funds from one bank account to another bank account.

Accordingly, this technique has gained more popularity among startups because a majority of these companies focus on providing financial services like insurance, online loans and investment management etc with the help of data analytics, machine learning and artificial intelligence software’s so that they can tackle automation issues for their businesses rather than manual processes which were taking too much time. This is why most banks have shown their interests towards acquiring or investing in fintech companies instead of developing new technologies themselves. For example: In 2014, American Express acquired 37% stake on Stripe for $200 million in order to utilize its payment processing services around the world.

One of the biggest advantages of this business strategy is that it has a huge customer base that is increasing rapidly so companies can easily target more customers for their products and services which consequently leads to increase revenues as well. For example: In 2016, PayPal had about 184 million active customers in addition to 17 million merchants while Zelle had 56 million users after only 5 months in its operation (since 2017). That means there are lots of opportunities for companies dealing with financial transactions (e.g loans) by targeting these customers on daily basis or they can even form virtual communities within themselves where investors can invest money through these platforms without any risk because this path will lead them towards new and capacities that allow them to handle these matters on their own.

On the other hand, banks have started using these technologies to improve their business strategies and capabilities as well which resulted in increasing demand for fintech companies such as Ripple that has created a software solution for cross border payments between different banks all across the world . The main benefits of this tool include fast transactions with low fees because it takes only about 3 seconds for each transaction while traditional systems need sometimes more than 10 minutes until they verify one single payment. Moreover, its blockchain technology is beneficial for banks that aim at integrating it into their daily processes because it provides them a secure way of making transactions , especially important ones, throughout the world without having to worry about frauds theft or charge-backs since every transaction is recorded and can not be altered afterwards.

In conclusion, high demand for fintech companies and their products along with banks’ increasing interest towards them can be considered as one of the main reasons for achieving a rapid growth in this industry which is expected to keep growing over time . Thus, I believe that it is necessary to continue doing researches on these companies and technologies in order to introduce new ways for improving financial transactions all around the world.

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02Apr

Blockchain and Smart Contracts

April 2, 2021 Wael El Ghazzawi Education 33

Blockchain is a tamper-proof distributed database that enables permanent, transparent and secure storage of all kinds of transactions. It records data across a network in real time, without central ownership or control. Blockchain allows information to be shared amongst a community and creates an immutable record that cannot be changed. Information held on blockchain exists as shared and replicated ledger, visible to anyone with access privileges who also can verify the authenticity of the information. Once entered into the database it cannot be altered or removed.

What are smart contracts?

A smart contract is used to exchange money, property, shares, or anything else of value in a transparent way without involving a middleman — legal standard conditions are embedded within the contract itself rather than being provided by a third party. Due to the nature of Blockchain, smart contracts actually run on a computer that is distributed across the Internet thus removing any single point of failure.

The “Contract” can be coded to handle unlimited numbers of users, automatically executes transactions and provides an audit trail. These smart contracts are stored and replicated in all nodes participating in the network making them transparent to anyone with access privileges. The technology allows individuals and businesses to use blockchain technology for automatic processing of payments –not just currencies but also stocks or other assets– when certain conditions are met

What is Ethereum?

Ethereum (ETH) is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference. In essence Ethereum is a platform that helps to run smart contracts and DApps (Decentralized Applications).

The project started in 2014 with the goal of building upon Bitcoin’s only weakness: its lack of Turing completeness; being unable to run programs developed for other languages. That means there cannot be any complex code on Bitcoin’s main-net blockchain –a restriction which makes many use cases unfeasible.

Smart Contract example on Ethereum:

A simple user story for Smart Contracts could be : Bob wants to sell his car and wishes to receive payment instantly, he could put a “For Sale” sign in the window of his car with a QR code that contains all the information for potential buyers to check (vehicle make, model, year of manufacture etc.) and then automatically receive payments to his bank account when agreed conditions are met. The “Smart Contract” is running on a blockchain network which prevents fraud or any other interruptions to the process from occurring.

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15Mar

Bitcoin as an Investment Asset

March 15, 2021 Wael El Ghazzawi Education 13

Any investment asset, be it stocks or property has some fundamental value that helps drive its overall price. As a mining or development company, the potential for profit determines how much you can sell for and even at what valuation you should do so. Since  Bitcoin or rather crypto currency in general is decentralized, there isn’t just one factor to consider but many

Why Invest?

So why would anyone want to invest in virtual assets? The primary reason is simple, there are gains to made by doing so. When you buy Bitcoin or another crypto currency as an alternative you are looking at two general directions when it comes to appreciation of your currency: #1 Holding – You expect the value of the coin will rise over time which will result in gains. #2 Speculation – You want to trade your tokens in the hope that you can make a profit by buying high and selling higher on an exchange.

Overpayment or underpayment?

The value of Bitcoin has always been justified through its limited supply, which is why it’s historical rise is so impressive compared to any stock market. Its price has increased over time as more people wanted to invest in it due to how well it was performing along with the fact that new coins would be mined over time until its supply finally runs out. When we look at other virtual currencies like Litecoin for example, they have tried to establish themselves by having improved technology and smaller supplies which could increase their overall success rate .   Due to all these reasons, you wouldn’t want to invest in a coin if you knew its supply was infinite which would render it’s value almost worthless.

This is the case with several other alt coins which will be covered later in this article.

Small supply doesn’t mean that it’s value can’t fall significantly overnight though. Speculation is a risky business and no one knows when an accident or country ban is going to happen so you just have to take the risk of buying at a high price hoping that it will drop before you sell. There are good reasons why some people don’t want to buy a currency at its current market price as they are expecting it to go lower. Its also worth noting that most exchanges don’t allow you to short any crypto assets, so your options would be limited if you wanted to bet against their future price unless you had already purchased them or were mining yourself without creating an account.

Who controls the supply?

Another aspect of crypto currency that can’t be ignored is how much control its market has compared to traditional stocks and shares. Traditional assets rely on companies to manage their supply and value based on its success or failure while crypto currencies are managed by miners who have pools which decide their output in order to keep the coins at a stable price . The only way you are able to increase your holding of digital assets is through mining, but if the coin isn’t profitable then it might not be worth it even though new coins are created every day. Litecoin for example uses an algorithm called Scrypt which makes it more difficult to mine than Bitcoin which uses SHA-256 as you would need faster rigs with higher memory. Normally you would be able to increase the performance of your miners by upgrading them but in this case, memory makes more difference than speed as faster hardware is usually specified with a higher amount of threads which can’t always determine its effectiveness. As mining pools get bigger and don’t have any competition from other miners they are able to control the supply until it reaches its maximum cap, resulting in coins being mined way faster than their official schedule.

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