Link

Digital Currency Standards Heat Up

There is an ongoing debate as to which central banks will launch digital currencies, by which date, and how currencies will be interoperable with one another. Simon Sharwood, writing for The Register, is reporting that China’s Digital Yuan is taking big steps to answering many of those questions:

According to an account of the meeting in state-controlled media, Fan said standardization across payment systems will be needed to ensure the success of the Digital Yuan.

The kind of standardization he envisioned is interoperability between existing payment systems – whether they use QR codes, NFC or Bluetooth.

That’s an offer AliPay and WeChat Pay can’t refuse, unless they want Beijing to flex its regulatory muscles and compel them to do it.

With millions of payment terminals outside China already set up for AliPay and WeChat Pay, and the prospect of the Digital Yuan being accepted in the very same devices, Beijing has the beginnings of a global presence for its digital currency.

When I walk around my community I very regularly see options to use AliPay or WeChat Pay, and see many people using these options. The prospect that the Chinese government might be able to take advantage of existing payment structures to also use a government-associated digital fiat currency would be a remarkable manoeuvre that could theoretically occur quite quickly. I suspect that when/if some Western politicians catch wind of this they will respond quickly and bombastically.

Other governments’ central banks should, ideally, be well underway in developing the standards for their own digital fiat currencies. These standards should be put into practice in a meaningful way to assess their strengths and correct their deficiencies. Governments that are not well underway in launching such digital currencies are running the risk of seeing some of their population move away from domestically-controlled currencies, or basket currencies where the state determines what composes the basket, to currencies managed by foreign governments. This would represent a significant loss of policy capacity and, arguably, economic sovereignty for at least some states.

Why might some members of their population shift over to, say, the Digital Yuan? In the West this might occur when individuals are travelling abroad, where WeChat Pay and AliPay infrastructure is often more usable and more secure than credit card infrastructures. After using these for a while the same individuals may continuing to use those payment methods for ease and low cost when they return home. In less developed parts of the world, where AliPay and WeChat Pay are already becoming dominant, it could occur as members of the population continue their shift to digital transactions and away from currencies controlled or influenced by their governments. The effect would be, potentially, to provide a level of influence to the Chinese government while potentially exposing sensitive macro-economic consumer habits that could be helpful in developing Chinese economic, industrial, or foreign policy.

Western government responses might be to bar the use of the Digital Yuan in their countries but this could be challenging should it rely on common standards with AliPay and WeChat Pay. Could a ban surgically target the Digital Yuan or, instead, would it need to target all payment terminals using the same standard and, thus, catch AliPay and WeChat Pay as collateral damage? What if a broader set of states all adopt common standards, which happen to align with the Digital Yuan, and share infrastructure: just how many foreign and corporate currencies could be disabled without causing a major economic or diplomatic incident? To what extent would such a ban create a globally bifurcated (trifurcated? quadfurcated?) digital payment environment?

Though some governments might regard this kind of ‘burn them all’ approach as desirable there would be an underlying question of whether such an effect would be reasonable and proportionate. We don’t ban WeChat in the West, as an example, in part due to such an action being manifestly disproportionate to risks associated with the communications platform. It is hard to imagine how banning the Digital Yuan, along with WeChat Pay or AliPay or other currencies using the same standards, might not be similarly disproportionate where such a decision would detrimentally affect hundreds of thousands, or millions, of people and businesses that already use these payment systems or standards. It will be fascinating to see how Western central banks move forward to address the rise of digital fiat currencies and, also, how their efforts intersect with the demands and efforts of Western politicians that regularly advocate for anti-China policies and laws.

Link

Bitcoin Malware Emerges

So, in line with my previous writing on why I’m skeptical of digital currencies like Bitcoin, Ars Technica has a piece of the newest malware hitting digital currencies:

In another example of the security mantra of “be careful what you click,” at least one Bitcoin trader has been robbed in a forum “phishing” attack designed specifically to ride the hype around the digital currency. The attack attempts to use Java exploits or fake Adobe updates to install malware, and it’s one of the first targeted attacks aimed at the burgeoning business of Bitcoin exchanges.

(…)

This type of attack is de rigeur in the financial world, according to George Waller, the executive vice president of Strikeforce Technologies, a security software firm specializing in two-factor authentication and anti-keylogging software for the financial industry. “Driving people to a site to download malware is one of the most common attacks today,” he told Ars. “You go to a site from a forum and get prompted for Java or Adobe updates—and in the majority of those updates they drop in a keylogger. Since they’re written to get around antivirus scans, AV software is useless against this sort of pervasive malware today.”

To be clear: such attacks are common against a host of perceived high-value targets. They also, however, underscore the real value in linking names, activity-types, purchase behaviour, and other distinctive characteristics to persons’ online economic activity to defray fraud made possible by malware.