The Weekly Wrap: AFI conference in El Salvador, Cloudflare to support Ethereum, Portugal to change tax laws on digital assets
May 20, 2022
- El Salvador hosted 32 central banks and 12 financial authorities of emerging nations at the annual meeting of the Alliance for Financial Inclusion (AFI) to discuss Bitcoin.
- The three-day event also covered topics such as the digital economy, banking the unbanked, and the benefits El Salvador has obtained from adopting Bitcoin as legal tender.
- Among the attending countries were Paraguay, Haiti, Honduras, Costa Rica, and Ecuador in Latin America, Angola, Ghana, Namibia, and Uganda in Africa, and Bangladesh, Palestine, and Pakistan in Asia.
- Just last week, El Salvador added another 500 Bitcoin worth USD 15.5 million to its balance sheet, its largest purchase since it first began adding the digital currency as the first country to adopt bitcoin as legal tender in Sept. 2021.
Why it’s important:
- While it took 12 years for El Salvador to become the first country to adopt Bitcoin as legal tender, it only took 8 more months for the second – being the Central African Republic, and if Panama signs their recent Bitcoin bill into law, it will be the third country to do so.
- What started as an experiment in El Zonte, may lead to a Bitcoin standard as inflation rages globally.
- If successful, El Salvador will, for the first time be ahead of the U.S. in financial and technological innovation.
- The conference was held after a dispute with the International Monetary Fund (IMF) in January, where the IMF asked El Salvador to ditch Bitcoin as legal tender due to financial stability, financial integrity, and consumer protection, as well as the associated fiscal contingent liabilities.
- Peter McCormack’s recent Follow The Money #1 - Bitcoin in El Salvador documentary is showcasing how the move led to protests against Bitcoin in the country and to believers that seek freedom.
As we begin to rebuild UST, we will adjust its mechanism to be collateralized.
Do Kwon on Terra’s flawed peg mechanism (via Twitter)
- Cloudflare, the internet security and content delivery network, announced on Monday that it is further embracing web3 and PoS consensus of Ethereum by launching validator nodes on its global network over the next few months.
- No specification on how many nodes they aim to run or how many ETH were purchased was made.
- A stake in ETH is necessary as validator nodes on the Beacon Chain require a stake of 32 ETH and Cloudflare plans to run validators with their assets in the first stage.
- Moreover, Cloudflare is also diving deeper into researching the next-generation consensus model.
Why it’s important:
- After Cloudflare's first experiments with their InterPlanetary File System (IPFS) Gateway four years ago and their Ethereum Gateway experiment three years ago, they yet again show commitment to web3, digital assets, and especially Ethereum to push maturity and stability of emerging technologies.
- The news come amidst the PoS transition inching closer than ever with the Ropsten Merge scheduled for June 8th and the mainnet Merge expected to happen in August as everything is almost ready to go.
- As Ethereum researcher Justin Drake states that they have a “strong desire to make this happen before difficulty bomb in August” and that “stars are aligned”.
- Portuguese Minister of Finance Fernando Medina stated that digital assets will be subject to taxation soon, reversing its previous hands-off stance.
- The new policy will include a capital gains tax, it is not yet specified how staking or yield farming might be affected.
- Portugal was previously considered a tax haven for digital assets, as for instance, an effective capital gains rate of 0% applied to digital assets while the capital gains tax for financial investments is a flat rate of 28%.
- Personal income tax ranges from 14.5% to 48% and corporate income tax is a flat rate of 21%, alongside local and state surtaxes.
Why it’s important:
- Susana Duarte, an associated partner at a law firm in Lisbon, stated that "There is no specific law, it is just a lack of regulation that led to the zero taxation in Portugal”.
- Portugal's shift therefore aligns with the approaches of many other countries, such as the UK, the U.S., and Australia, that warned investors on Monday that they need to report capital gains and losses on crypto each year.
- As Portugal based a lot of legislation on attracting people to the country both individual and corporate entities now seeking clarification on the government's proposal.
- The new legislation will likely reinforce the advantage of other crypto hubs such as Madeira or Switzerland.
China’s share of global Bitcoin hashrate after its mining ban
In other news
- Grayscale aims to roll out first ETF in Europe (via The Block)
- Algorithmic stablecoin DEI running on Fantom depegs (via Decrypt)
- China back to being the second biggest mining hub globally (via Cointelegraph)
- UK inflation hits 9% (via BBC)
- Legal team of Terraform Labs resigns after UST and Luna implodes (via The Block)
- Coinbase app now offers direct access to web3 (via Coinbase)