To better understand who invests in crypto and ICOs, why they do it, and how exactly they make trades, in late 2017—at the peak of the crypto mania—I set out to study people behind the billions in investment and speculative trading.
Research Background In the run-up market highs in December 2017, seemingly everyone was getting in on the action. Crypto was making front page news as investors of all stripes rushed into the market thinking it was a once-in-a-lifetime opportunity.
Many were enticed by increasingly easy—and unregulated—onramps, through apps and exchanges trading popular currency pairs. Then came the reckoning, where most lost their investments in a prolonged and protracted bear market. However, do people understand who “invests” in cryptocurrency? Not really.
In this study, I wanted to get behind the news headlines, the drama and trolls, the “market analyses,” and instead speak with real people to see what makes them tick. What follows here is a condensed and edited version of this research, recently published in my comprehensive book, Cryptocurrencies and Blockchains.
Who Trades Crypto? There are many kinds of crypto traders, from every stripe of the Silicon Valley “crypto bros” to “bitcoin moms” and “crypto chicks.” For the purposes of my research, I interviewed six hobbyist traders and six professional traders, who were typically managers of large funds that invest exclusively in crypto.
The results of this study suggest that this investment market presents numerous unique challenges, but that nonetheless, these traders see themselves as pioneers in an exciting new investment class. I also discovered some unethical and borderline illegal activities, but for the most part, I found a community of people seeking greater regulatory clarity and increased professionalization.
Overall, these investors acted much like traditional venture capital investors, who make big, risky bets, with the hope for just a few successes and big payouts. Finance and capital in the world of cryptocurrencies and blockchain technologies present economic and social opportunity and risk, and like a gold rush in the wild west, there are fortunes to be made and lost.
New Exotics of the Second Decade If it is true that high-flying financial instruments were, to borrow a phrase from anthropologist Bill Maurer, the “new exotic” of the first decade of the millennium, then surely cryptocurrencies and blockchains must be the new exotic for the second decade.
Cryptocurrencies and blockchain technologies are part of a larger “fintech moment,” and an important part, as they are increasing the already ongoing algorithmization and obfuscation of financial activities, exemplifying the virtual and performative nature of financial instruments and increasing the social, physical, and moral distance between money and its agents. As such, these global changes present real risks that reach far beyond the individual, perhaps clueless, investor.
Neither inherently bad or good, crypto is a powerful new financial engine for a broader financial technology sector with still largely unknown social and political characteristics and implications. But of course, speculative investing in crypto does pose serious individual financial risks, and sane financial advice would be to caution against it for all but the most risk-tolerant investors.
Huge Risks in Most Aspects Practically speaking, there are huge risks in every part of the investment: exchanges and wallets are frequently hacked or mismanaged (many exchanges have disappeared due to ineptitude or outright criminality, often absconding with investors’ funds), investment scams are rampant, markets and prices are easily and commonly manipulated, many markets are so “thin” that trading is practically illiquid, usability and operations management are complex and error-prone (millions have been lost by simple and irreversible transaction errors), and trading fees are often high (see David Gerard’s hilarious and trenchant account of the many crypto hijinks). And of course, a big part of the reason investment is risky is that the crypto market in most jurisdictions remains largely unregulated, uncertain, and evolving.
Despite the considerable risk, many of the investors I spoke with believe the investment market is a rare opportunity. Of course, several reported making early mistakes, but all more than recovered in the runup to 2018, although in the bear market, some hedge funds have closed and many hobbyists have been unable to earn back their losses.
More generally, it remains to be seen whether the future market is going to be a massive new investment class, as the investors I spoke with believe, or something much smaller. Will the crypto market scale to the size of a mainstream financial derivative, like options (hundreds of trillions), or a subclass like NASDAQ technology stock index (trillions)? Or, perhaps crypto will emerge as a new kind of commodity, trading alongside the palm oil market (billions)?
How Hobbyists and Professionals Differ I found that when hobbyists traded crypto, they characterized their activities in profoundly social terms; professional traders, on the other hand, characterized their activities in a more dispassionate and technical way. In a sense, this is not surprising.
What is remarkable is the degree to which hobbyists saw their “communities” as essential to their investment activities. For instance, many hobbyists reported active engagement in social media, although, importantly, almost never made trade decisions based on these social interactions. Instead, hobby traders actively collaborated in an “ideational” way, alerting each other to new ICOs, changes in software development teams, and new market opportunities. One participant had even formed a kind of “water cooler” group of like-minded individuals at her place of work, leveraging the shared interest in crypto as a way to enter into an all-male in-group.
The professional traders—being fund managers at the top of the staff hierarchy—relied on a cadre of employed researchers, employed largely to do the grunt work of checking on the validity of claims made by organizations and development teams. The professional crypto traders I spoke with seemed to work in a more individualist fashion than traditional hedge fund managers, who use a kind of distributed and social cognition, according to Donald MacKenzie’s longitudinal research. For the professionals, consulting and collaborating with other traders was limited, and in most cases non-existent.
Echoing a general and popular interest in ICOs during my interview period (which has since cooled considerably), hobby and professional traders alike sought ICOs extensively. Nonetheless, I found the investment use of ICOs and post-launch “coins” to be surprisingly diverse.
Hobby and professional traders sought ICOs as venture capital funds do for traditional startups, even in some cases taking leadership and board roles and advising on strategy. This was not exclusive to well-capitalized hedge funds either, several of the more committed hobby traders also expressed some participation in the leadership of ICOs and crypto companies—a surprisingly democratic financial opportunity. Hobby and professional traders also saw ICOs as relatively cheap and high-risk high-reward investments, explaining the need to be well informed about emerging companies and upcoming ICOs.
Indeed, from the outside, the distinction between insider trading, venture capital funding, and crypto trading are very blurry and problematic.
Once in a Lifetime Most traders told me that their participation in the crypto market, despite the risks, was a once-in-a-lifetime opportunity, and a way to create “generational wealth.”
One professional trader expressed regret about missing the 1990s dot com boom—although, apparently not concerned that the boom led to a bust that ruined many investors—and saw the crypto boom as his generation’s big investment opportunity. Several traders also described the spirit of the market in terms of a “wild west,” and that their roles were as “pioneers.” Expectedly, all traders spoke of crypto investing with considerable enthusiasm and commitment.
It seems nobody gets into this game half-way.
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Category: coinreport
Navigating FUD and Fake News in Crypto Journalism
In an industry that’s flooded with money, it’s sad to see some crypto media outlets succumb to the perils of so-called fake news, not to mention misinformed readers falling for scams during the ICO craze.
2018 was a controversial year in the crypto media sphere. Disappointingly, it was uncovered that stories people may have read on certain crypto news outlets had been paid for without any “sponsored content” labels.
On the flip side, we’ve seen quality media publications cover the rise and fall of the Initial Coin Offering (ICO) craze, the bull and bear crypto market and heard from global financial regulators about their reserved stance on the industry, as well as the traditional financial world’s perspectives about it.
Media sentiment on cryptocurrencies is ever evolving and often fluctuates with the volatility of the cryptocurrency market. In 2018, media reports on the industry have had its ebbs with enthusiastic coverage of emerging startups promising to revolutionize a particular sector, as well as FUD stories about exchange hacks and funds disappearing from exchanges.
To get to the heart of where the industry is heading in 2019, it’s important to understand how to read past the media headlines. It’s time enthusiasts and newcomers alike become more informed about the leaders and companies that are truly building real projects and shaping discourse in the crypto sphere.
Beware of Speculative Bias Content The media narrative surrounding the cryptocurrency and blockchain industry has the potential to shape crypto user behavior. Often the media’s narrow focus on price movements can be detrimental to the industry as it incentivises users to treat cryptocurrencies as a way to get rich quickly, rather than used as an everyday currency. So be wary of speculative articles that make predictions on whether the price of bitcoin is about to go up or down. Before reading an article, put it to the test and ask: is this a story about biased market speculation, or is merely recounting facts?
It’s not news that the cryptocurrency market is volatile and unpredictable. There’s also not very many real world and tangible ways to predict where the market is going to go. A story about the price of bitcoin going up in the morning can change in the space of a day or a matter of minutes. For instance, the figures in this story about the price of bitcoin “struggling to stay above US$4000” is already irrelevant today and only really serves to inform interested investors. It has little impact on a new privacy protocol that a privacy coin is going to introduce or a new cryptocurrency wallet feature integration.
2018 has already proven that the market can soar into the green and then dramatically drop by US$18 billion in a matter of three days (October 2018). Yes, it’s a shocking figure, and large figures often capture reader attention. But it should be read in the context of the bigger picture because earlier in the year in May 2018, it was reported that cryptocurrency wealth dropped by US$52 Billion during Blockchain Week.
While these stories are timely and informative, it’s important not to get too caught up in watching the prices of cryptocurrencies go up and down but, rather, look at them in the wider context of the developments that have taken place in the industry. After all, Satoshi’s white paper described Bitcoin as a “Peer-to-Peer Electronic Cash System”—not an investment vehicle.
Real Use Cases Build Credibility Once the ICO madness started to simmer down by mid-2018, it gave the media more room to pay attention to the projects that are already building tangible use cases. But 2018 taught us not to just take stories about these use cases at face value, even though they have the power to build credibility. As a former journalist, I was taught to question a story from all angles and ensure I use various sources to verify a fact. This is what I encourage readers to do as well.
In March 2018, it was widely reported that Sierra Leone ran the first blockchain election with the help of the blockchain voting system Agora. However, not long after the story came out, the National Electoral Commission of Sierra Leone put out a statement denying the use of blockchain technology in their national election for their next President. Agora only manually recorded the tallies on a private blockchain.
It turned out reporters were misinformed and credible media publications, like CoinDesk, maintained their journalistic integrity by acknowledging what went wrong with the story. Meanwhile, the point Coindesk made in its explanation article is an important one— “exaggerating [blockchain technology’s] real-world accomplishments can only sow public distrust and set the industry back.”
Several months later in November 2018, Thailand’s Opposition Party actually held a blockchain vote for its primary election. The story covering how more than 120,000 votes were cast using the Thai-developed Zcoin blockchain during the 1-9 November vote made the front page of Thailand’s Broadsheet English-language daily newspaper, The Nation. This front page story was significant recognition of blockchain technology and its ability to transform national voting systems in the future.
When reading future stories about blockchain technology use cases, ensure credible sources are cited before taking a story as a fact—whether it be a national body, a real user, or the blockchain itself. It’s time to forget about who is the “first” to an achievement and instead pay attention to what was achieved and how.
Go-to Sources that Measure the Pulse of the Industry Readers have a number of options on where to get their information about blockchain and cryptocurrencies. While there are several credible news sources to choose from, there were also plenty of not-so-credible sources— especially in the blockchain and cryptocurrency industry with questionable journalistic ethics.
Let’s look at some trustworthy resources you can rely on moving into 2019. You can expect niche publications such as CoinDesk, CCN, CryptoSlate, CryptoBriefing, and Coin Journal to continue to cover stories that measure the pulse of the blockchain and cryptocurrency industry. Readers of these publications are also more crypto literate and therefore can expect the articles to be more technical and in depth.
To see where the cryptocurrency industry fits in the technology sphere, publications like TechCrunch, Quartz, The Next Web and Fortune do a good job at covering the industry.
And to check what the traditional finance and crypto-finance worlds have to say about the cryptocurrency and blockchain sphere, mainstream top-tier finance and business outlets like Bloomberg and CNBC are growing their crypto reporting sections. Additionally, the Financial Times and the Wall Street Journal cover developments in the industry. It’s encouraging to see these newsrooms dedicating resources to covering this beat. Of course, to hear from the cryptocurrency leaders and developers themselves, Medium, Hacked and Crypto Twitter is the place to go.
We often need to take a step back and remember that the crypto industry is still very young and not very many people understand it yet. In 2019, I believe we’ll see mainstream news publications like the Guardian or the BBC continue to touch on this emerging industry.
Explainer Pieces Set the Tone Do not underestimate the power of explainer pieces and educational articles about this emerging technology to inform and shape the mainstream public’s perceptions of this industry.
When global, top tier media publications like the Wall Street Journal and the New York Times started to put out explainers about ICOs, the mainstream public started to learn about the technology and take it more seriously. This year we started to see explainer pieces about Security Token Offerings (STOs) emerge.
Moving into 2019, it’s time media publications do away with overused buzzwords like “decentralisation” and “distributed ledger” when explaining how blockchain technology works or what cryptocurrencies are. Rather, it’s time to look at how they can break down the often technical and complex aspects from different angles with case studies and improved illustrations. It’s time for different examples and analogies.
Improved Media Crypto Literacy in 2019 Media coverage of cryptocurrency in 2019 is going to be more in depth and have better quality than in previous years. For starters, audiences are more informed about blockchain and cryptocurrencies than ever before. It’s important that moving forward, quality media cryptocurrency publications start to correct misinformation and better explain the technology and the communities at play.
At the same time, to ensure that mainstream readers are able to understand and keep up with media developments, it’s important for journalist and editors to go back and explain the significant pivotal points in the history of bitcoin and development of cryptocurrencies.
To the audience, remember to question everything you read. View every story with a critical eye. If the sources don’t add up, do your own further research before you invest more time, energy, and money into a project.
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Storm Play Launches Long Awaited iOS App for Microtasks
The popular gamified microtask platform, StormX, has launched their long-awaited iOS app. To celebrate the milestone, Storm Play account holders have the opportunity to win prizes worth $10,000 in BTC, STORM, BNB, or ETH via the company’s Twitter competition.
Cryptocurrency Freelancing Storm Play leverages blockchain to “empower the global workforce.” Storm Play lets users earn STORM tokens, bitcoin, and ether for trying games, products, services and performing other microtasks—similar to Amazon’s Mechanical Turk program.
The Storm Play platform brings together Storm Makers and Storm Players. Storm Makers include sellers, advertisers, and companies who are looking for the services of freelancers to complete tasks of different levels. Storm Players include consumers, viewers, and freelancers who complete these tasks.
Storm has an in-app ledger system for rewards called bolts. The tasks by Storm Players are rewarded with bolts. These tokens can be redeemed for STORM Tokens or sold and exchanged for other cryptocurrencies.
Since the Storm Tokens is compatible with all ERC20 token cryptocurrency wallets, they can be stored in hardware wallets like Trezor or Ledger as well as in cloud wallets like MyEtherWallet and MetaMask.
The Long Awaited iOS Launch Image courtesy of Stormx.io Up until now, Storm Play has only been available via Android and has kept iOS users waiting for almost a year. A recent announcement shows that Storm Play is now finally available on iOS.
CryptoSlate reached out to Storm CEO Simon Yu for comment. He had the following to say about the launch:
“It took longer than we estimated but we’re excited to launch our iOS platform. We started back in 2014 and the environment was very similar. Right after Mt. Gox and Silk Road incidents people were afraid to buy Bitcoin but the technology was still really interesting. Our platform (Storm Play) allows people all over the world to be able to get their hands on cryptocurrency without having to risk their money. That includes the 1.7B people currently without a bank account and it’s exciting to have the ability to tap into a new group of people.”
Potential Rewards To celebrate the launch, Storm is facilitating a Twitter competition for those interested in trying Storm Play. The planned campaign promises $10,000 delivered in BTC, STORM, or ETH a lucky winner, assuming they’re willing to jump through some social media hoops.
So far, Storm has made some tangible progress in terms of gaining market recognition. After raising over $30 million in its ICO in December of 2017, the company has made solid progress towards improving their app and expanding its user base.
The simple premise around Storm Play is attractive, and the campaign is likely to highlight that. Already boasting 2.4 million downloads and 250,000 active users, Storm is positioned to continue to gain traction through the bear market.
The future looks promising for Storm, or at least according to CIOReview in its “20 Most Promising Blockchain Solution Providers of 2018.”
The contest for the $10,000 prize is set to conclude Feb. 4th at 17:00 PST, with winners, announced three business days afterward. May the odds be in your favor.
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Going Beyond Blockchain with Directed Acylic Graphs (DAG)
If organizations could only augment blockchain’s strengths—its immutability, security, and decentralization—while addressing its latency and scalability issues, it could become the vaunted enterprise tool it was initially intended. That day will soon come courtesy of Directed Acyclic Graphs (DAGs).
Blockchain’s premise is straightforward, utilitarian, and more lucrative than that of any other new technology to recently emerge. This distributed ledger system promises near real-time updates of transactions between remote parties for trustworthy, impenetrable peer-to-peer networks, eliminating the need (and expense) of middlemen.
Unfortunately, realizing that promise has proved decidedly difficult, especially in the cryptocurrency world in which blockchain has struggled with issues of scale. Due to its linear nature, the larger a particular blockchain becomes, the longer it takes to validate transactions. Notable cryptocurrencies have experienced inordinate delays verifying transactions, resulting in unwieldy fees and deflated expectations.
That day will soon come courtesy of Directed Acyclic Graphs (DAG). Their non-linear approach ensures that the larger their networks grow, the quicker they validate transactions.
Moreover, by endowing them with triple-attribute permissions and uniform semantic standards, they become even more trustworthy and globally interoperable. Confining their resources to private networks renders them the most capable platform for smart contracts and instant, distributed transactions between partners.
What are DAGs? The cardinal means by which acyclic semantic graphs redress blockchain’s latency is in expediting the validation process. Blockchain requires each of its previous transactions to validate new transactions. Furthermore, this process doesn’t begin for one transaction until the one before it’s completed.
New transactions in acyclic graphs require validation from only two other transactions to ensure the trust of the first to the present one. Thus, the deployment of multi-master acyclical semantic graph databases enables parties in decentralized locations to readily verify transactions in which the latest contains the entire history of all parties.
These decentralized databases are synced together to describe all facets of a smart contract, for example, or the history of transactions between participants in the network—including the last transaction.
Since they’re widely perceived as acyclical in nature, semantic graphs are built for such use cases. Additionally, by deploying them in decentralized networks between known partners (such as supply chain networks, or in corporate IoT implementations), they’re not susceptible to a 34 percent attack in which one party has more than 34 percent of the network’s compute power and falsifies transactions. By using these graphs in private (not public) settings, parties can readily see any trust breaches.
Triple-Attribute Permissions Triple-attribute permissions are another means by which global acyclic semantic databases outperform blockchain. Since the foundation of these databases is the triples describing the various transactions or contracts they support, users can manipulate them as needed to enable or prevent access to different parts. Even though each party has a copy of the entire history of contracts or transactions, triple-attributes can effectively control the information each user can see. Access is configurable according to role, contract, transaction type, use case, or virtually any other factor an organization deems relevant.
Therefore, even though these multi-master databases are connected around the world, the information viewers can see is tightly controlled according to a particular organization’s policies as dictated by governance or security protocols. The granular nature of these permissions is the key distinction between those and blockchains—triples are ingrained within databases, describing every aspect of the data they contain. Using triple attributes to control access to transactions or smart contracts enables a much more fine-tuned, yet flexible approach to permissions than other permission mechanisms.
Semantic Standards The use of semantic standards is another advantage for facilitating decentralized, trustworthy peer-to-peer networks with DAGs. Initially, Blockchain’s lack of uniform standards was largely considered a caveat for adopting it. Semantic databases, however, are underpinned by globally identifiable standards that substantially aid deployments of multi-master acyclical graph databases. Uniform Resource Identifiers (URIs), which consist of a string of characters used to identify a computer resource, are the basis of semantic standards and are the identifiers of the most widely populated and interoperable system of data: the World Wide Web.
The vertical industry standards typically used in blockchain are superseded by interoperable semantic standards, which can enable users to exchange information between networks ( or between Blockchains) as needed. There are also data provenance benefits for tracking different data elements or aspects of transactions which are unsurpassable with uniform standards. URIs allow partners to readily lookup product types and descriptions and contribute to understanding their lineage. These boons are especially valuable in verticals lacking international standards.
DAGs Augment Blockchain’s Strengths Blockchain is responsible for popularizing distributed ledger systems and creating fundamental use cases. Multi-master acyclic semantic graphs extend that utility by accelerating the validation process while delivering granular permissions with triple-attributes and interoperability via semantic standards.
IOTA is perhaps the most notable project leveraging DAGs in the current cryptocurrency space. It is a platform that relies on DAGs for rapid data transactions between devices and for payments between parties with purportedly low fees. Although IOTA is far from perfect, it’s a good example of how DAGs can improve upon blockchain.
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Interconnecting Blockchain Project ICON Makes a Push Towards Decentralizing Its Nodes
ICON recently announced its major decentralization initiative. The plan will elect twenty-two node operators that will produce blocks, verify transactions, and participate in consensus.
History of ICON ICON aims to design an “interconnecting blockchain network.” ICON (ICX) is engineering a solution to connect independent blockchains without the use of third-party intermediaries. This is done by connecting a community to other communities through ICON Republic and Citizen Nodes. By connecting siloed blockchains, ICON aims to become the “largest” network of blockchains in existence.
ICX, the project’s token, is currently ranked 43rd by market capitalization at $116 million. Each ICX, at the time of writing, is trading for $0.245 per token. According to Track ICO, the project raised $42.75 million through its ICO at an offer price of $0.11 per token.
Launch of Public Representatives On Jan. 17th, ICON announced the opening of its Public Representative (P-Rep) application process. A P-Rep is a community-elected node operator that facilitates consensus on the blockchain, performing activities like verifying transactions and voting on policy proposals.
The application process concludes in September 2019 and will be followed by an on-chain election where all ICON community members can vote for their candidate of choice. Following the election, the ICON network will move into its first phase of decentralization with 22 elected community P-Reps.
Understanding ICON Consensus ICONSENSUS is ICON’s journey to attempted mainstream adoption through network decentralization. The cryptocurrency plans to implement incentives to support dApp development and other ecosystem-building projects.
The on-chain election and onboarding of the 22 P-Reps is the first step in this process. Subsequently, the community plans to establish Ecosystem Expansion Projects (EEPs) and dApp Booster Programs (DBPs) to “allocate a portion of block rewards to specific decentralized application[s].”
ICON also plans to hold another election process. The cryptocurrency plans to use participants called Community Representatives (C-Reps) to act as liaisons for external blockchains that wish to connect to the ICON blockchain conglomerate.
Following network decentralization, ICON’s goal is to establish a governance structure that mirrors a representative democracy, where ICON holders can delegate votes to candidates of their choice.
Community and Enterprise Focused? ICON also made a recent announcement of ICON LAP100, an ICON Loopchain Alliance Program, in an effort to develop “enterprise-specialized blockchain solutions with… companies and startups in various fields.” The South Korean blockchain company has expressed on multiple occasions its drive for enterprise-level blockchain integrations. Consequently, the project is screening for technical prowess and consistency for its node operators to achieve this aim.
According to ICON’s yellow paper, a P-Rep should be a community member “who has made a significant contribution to the ICON network” and who “shall meet the minimum technical specifications necessary to generate blocks in the ICON network.”
The P-Rep application highlights the importance of these two statements. In the P-Rep application, candidates are required to submit a “detailed proposal” on how they plan to “enhance the ICON network” along with the specifications of the computer hardware they plan to use to produce blocks and verify transactions.
With consumer and big business use in mind, it’s understandable that ICON has placed a high emphasis on consistent block production, which is directly correlated to network uptime. However, producing a cohort of conscientious, engaged, and reliable block producers is a tall order for ICON.
Applying to Become an ICON P-Rep For those interested in participating, or simply learning more about the process, visit ICON’s recently created community portal. Those applying should be prepared to provide a proposal containing team member information, technical server specifications, and a pitch on how the team plans to “enhance the ICON network.” These details will be made publicly available through the community portal for all ICON members to access.
Since its inception, ICON has made progress as a blockchain project. It has secured a number of promising customers with Samsung, LINE, SK-Plant, and the Korea Customs Service. Furthermore, it has the backing of some well-known partners including Pantera Capital and Kinetic Capital, and it has expanded to 142 team members worldwide while boasting strong ties to the global enterprise sector.
Now, it has also kicked off 2019 on a positive note with progress towards greater decentralization. That said, the success rate of blockchain projects in aggregate is still slim. If ICON can maintain its momentum, maybe it can be one of the exceptions.
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How to Put Crypto In Everyone’s Pocket in 2019
In the same way all economic movements have done throughout history, blockchain finance challenges our traditional conceptions of ‘value,’ and, in turn, our ideas about identity and freedom. The new digital economy is now being built by a worldwide community who share common goals of decentralization, transparency, and financial inclusion.
My first real job was at Bank One Corporation in the Research and Recovery department, taking pictures of checks saved on spools of microfilm and mailing them out to customers. Flash forward a couple of decades, and technology has obviated and remade my old job many times over. Now I work in the latest iteration of that cycle—cryptocurrency.
Copying checks was my first peek behind the curtain of the global financial system, and it felt empowering. Cryptocurrency—and the fascinating blockchain technology behind it—has the potential to bring that feeling of empowerment to so many others. However, it is still perplexing to the average consumer with most not understanding why it even has value, let alone how to use and secure it. With over half the world’s population online, less than one percent is said to own or use cryptocurrency, signaling that mainstream adoption is not yet within reach.
As teams continue to build the tools and platforms that will redefine the global economy, there are four simple truths we should all keep in mind: keep it transparent, accessible, secure, and human.
Transparency Will Redefine Global Finance When you break down the barriers to entry for both traditional and blockchain-powered finance, the barriers for the latter currently seem higher. But blockchain financial products only seem more complex, simply because we are witness to its inner mechanics, which is unfamiliar to most because of intricate code and cryptography.
Traditional finance hides similarly complex processes behind easy to use banking apps and ATMs. We can deposit money in a local branch with real people, an interaction that feels familiar and safe. But all of these interactions carry a far greater cost to our financial lives—monthly fees, transaction costs, crippling interest rates, contracts, passive data collection, and, most worryingly, financial exclusion and corruption.
The 2008 financial crisis nearly sank the global economy. However, after ten years, most people are still mystified by terms like “Credit Default Swap” and “Mortgage-Backed Securities” with no idea what role banks and bankers played in the collapse. Banks have barriers made of glass, with the curtains voluntarily drawn.
Blockchain’s transparency, however, enables individuals and businesses to see—in real time—what is happening with every single transaction, investment, fund, and credit, and exactly where they are stored and sent. This transparency, when combined with open source tools, not only has the potential for enhancing technological innovation, but also for elucidating the underlying economic principles of blockchain based financial products.
Maker is one of the most popular and well-respected platforms in the ecosystem precisely for these reasons. Want a loan but don’t understand what a Collateralized Debt Position is? The MakerDAO CDP portal provides a concise explanation. Follow the steps to generate Dai currency and fully understand your interest rate and the terms of repayment. There is no negotiation or contract to sign. A person should not need to be a banker to understand how their loans work, and that is one of the reasons why platforms like Maker are so compelling.
Make Crypto-Finance Easier Than Traditional Finance One of the greatest barriers to the mass adoption of any groundbreaking new technology is its accessibility—both through its purchase cost and its usability.
But blockchain is not inherently free to run or to use. To be an active user of the blockchain is to pay for it in some way, like through transaction fees. But utilities themselves should be free, otherwise, we sustain a barrier to entry that is too high. Users need to be free to experiment—to learn by doing. As blockchain businesses, we can make our consumer tools free, making cryptocurrency more accessible. Builders of crypto platforms and tools can easily finance themselves through mechanisms such as transactions fees, micropayments, or B2B models.
The process of buying, storing, and transacting in crypto also demands a steep learning curve, so usability and user experience cannot be underestimated. The UX has to be simple and elegant enough to parallel how simple and elegant the blockchain really is, to interact with it, and observe its core functions.
Developing solutions that are intuitive to use and can be integrated with existing technologies, such as mobile phones, will help the world become crypto literate and, by extension, drive its widespread use. In the developed world, 82 percent of adults have both a mobile phone and access to the internet. In developing economies, the number is 40 percent. We can put cryptocurrency in their hands through mobile apps or customized crypto-finance mobile services that are simple to use.
From Security to Safety The inherent security and immutability of blockchain technology are what makes it superior to traditional finance. But, as some critics have pointed out, what constitutes “security” is subjective. Ethereum Foundation researcher and Casper Protocol project lead, Vlad Zamfir, has said it’s Ethereum’s secure properties that can make it unsafe for users. Immutable and irreversible, blockchain transactions are perilous for naive crypto holders. It’s said that without significant hand-holding, onboarding new cryptocurrency users is “ethically dangerous.”
We need to be those hand-holders. As we develop our blockchain tools, built-in security should be a priority, helping to break the current stigma of the cryptocurrency industry as the ‘Wild West’ of finance.
As we’ve seen time and time again—nothing is unhackable, there are bugs in every system, and various forms of malfeasance cannot be avoided. Fraud is rising in cryptocurrency, and cybercrime evolves as fast as blockchain technology, playing to the biggest weakness of new users—their inexperience. While we must all commit to proactively educating our new users, our core responsibility lies in safeguarding them as the first line of defence.
We can integrate the best security measures proven to mitigate risk, providing as many layers of protection as necessary. This includes hardware functionality, two-factor authentication, MetaMask compatibility, and never requiring users to enter private keys into their browser.
At the end of the day, if we want the average person to move toward crypto-finance and store their rainy-day fund in a crypto wallet, those funds should be respected by offering the best possible security.
Technology Is Inherently Human Beyond all of these design concepts, it is important to remind ourselves that a blockchain—as a global, decentralized network—is made up of real people. If it’s destined to survive and reshape our global economy, diverse populations should consider the blockchain a place where they belong.
For blockchain to have anything resembling that sentiment, it’s necessary to understand that every node run, every transaction sent, and every contract executed, has its roots in a fundamental human impulse. It means that someone out there is just trying to buy a home, raise a child, get a job, or just relax at the end of the day.
The different ways people are drawn to crypto and blockchain are continuously growing as new use cases tap into the imagination of those who see beyond technical aspects, or beyond the investment opportunities that enticed early adopters. Serving and incorporating diverse and marginalized voices in the creation of this ecosystem is essential to its longevity and broader adoption.
Some rules are not meant to be broken. As the global economy slowly turns digital, hopefully, the teams at the forefront driving this transformation will create new rules which help place cryptocurrency in everyone’s pocket, as well as break some old rules that no longer serve us all.
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Custody or Convenience: BitGo Offers Cold Storage Cryptocurrency Trading
There are tradeoffs between centralization and convenience in cryptocurrency trading. BitGo has partnered with Genesis Global Trading Inc. to introduce a new method for exchanging funds offline that could offer greater flexibility and security, but it may come at the cost of custody.
In partnership with @GenesisTrading, “BitGo Inc.’s customers will be able to buy or sell Bitcoin, Ether and other digital assets without the coins ever leaving cold storage.” @mattleising via @technology https://t.co/bXsqCSysfl #custody #digitalcurrencies
— BitGo (@BitGo) January 16, 2019
Mainstream investors have shied away from cryptocurrency investment. Not only because of the volatility, but because of rampant hacking and theft—as demonstrated by the recent Cryptopia hack and the infamous Mt. Gox heist of 2014.
BitGo wants to provide a way to mitigate some of these risks. The service will soon provide the ability to buy and sell bitcoin, ether, and other coins without the need to remove them from cold storage. This has the potential to provide peace of mind and could be one factor that institutional investors are looking for.
In a blog post citing the first exchange hack of 2019, @MandalaEx CEO @CryptoFlanders explains why they chose BitGo for custody: “to mitigate risk.” https://t.co/o6OYDY87C0
— BitGo (@BitGo) January 16, 2019
BitGo is a blockchain security company founded in 2013. The company claims to be a market leader in institutional and cryptocurrency financial services, touting the slogan “modern custody for modern assets.”
According to the company’s website, BitGo processes “15% of all global Bitcoin transactions, and $15 billion per month across all cryptocurrencies [supporting] over 100 coins and tokens, and has over $2 billion in assets in wallet.”
BitGo is partnering with Genesis Global Trading Inc., an over-the-counter (OTC) digital currency trading company serving institutional clients.
Examining the Partnership According to the company’s blog, BitGo announced its partnership with Genesis, claiming that it demonstrates a “commitment to developing institutional-grade cryptocurrency infrastructure” and will provide a “one-of-a-kind, full-scale solution” for its clients:
“BitGo has developed a seamless integration to easily connect trading platforms with our industry-leading cold storage custody solution. Through this platform, Genesis [will] provide BitGo Trust clients with a deep liquidity network and access to competitive pricing and same day settlement.”
Accordingly, BitGo’s clients will have access to real-time pricing for buy and sell orders without the need to manage keys. Cryptocurrencies available through Genesis Global Trading include Bitcoin Cash (BCH), Ethereum Classic (ETC), Litecoin (LTC), XRP (XRP), and Zcash (ZEC).
Storage and Compliance Cold storage is the process of storing cryptocurrency in a medium that’s disconnected from the internet. Such separation means fewer points of contact with the outside world, and consequently, fewer opportunities for hackers to steal those funds. In an article on Bloomberg, BitGo’s co-founder and CEO Mike Belshe had this to say about the storage method:
“Being able to buy or sell in offline-mode means coins aren’t sent to exchanges, cutting the risk of theft [and] human error.”
In addition to alleged liquidity and security, the newfound partnership also offers compliance. Genesis is a FINRA and SEC regulated company—and for many institutional investors compliance is a hurdle to speculating on cryptocurrency, and is especially so considering that the SEC has suggested that trading cryptocurrency—and any associated criminality—is not beyond the agency’s purview.
Institutional investors who may be hesitant to personally manage wallets and deal with exchanges (like Coinbase) will be relieved to transact in a “familiar way” through Genesis. If an investor, for instance, wants to buy or sell bitcoin from a BitGo wallet, then Genesis will act on behalf of the client—much the same way that a stock exchange does.
BitGo hopes that this familiarity, coupled with the security of cold storage, are the incentives needed to encourage institutional investors to commit to cryptocurrency.
“Partnering with Genesis underscores our commitment to developing institutional-grade cryptocurrency infrastructure and represents the first of many trading integration partnerships.”
In addition to a purported “seamless experience” and “smooth user interface,” there will be no fees for the service—a rare perk in an industry with relatively high fees when compared to traditional finance.
Questions Around Custody The premise behind BitGo’s cold storage trading provides another layer of abstraction with potential for abuse. Once funds are taken offline and represented via BitGo’s databases, it becomes much more difficult, if not impossible, to trace where those funds are moving via the blockchain.
This is the antithesis to the recent “Proof of Keys” movement, an initiative by HODLers of Last Resort to encourage people to “take control of their monetary sovereignty” through regular, coordinated withdrawals of cryptocurrency to prove that the coins are accessible and not just fractional like the fiat banking system.
Trace Mayer, one of the leaders in the movement is the host of the Bitcoin Knowledge Podcast with degrees in law and accounting. According to him:
“Anyone who wants you not to hold your own private keys or not do your own network consensus, they’re your monetary enemy. They do not want you to be free and independent with your money.” [emphasis added]
Andreas Antonopoulos, the author of Mastering Bitcoin and vocal digital currency advocate iterated the anthem. “Not your keys, not your bitcoin,” he stated over Twitter. He also adheres to the idea of regularly withdrawing currency to a hardware wallet that the user has physical control over.
As asserted by Mayer, if people don’t hold their keys and perform their own network consensus, then:
“…if there’s anything that history in this space has taught us, it’s that they’re going to get wrecked.”
The proof of keys movement seems to run at odds with what BitGo is trying to accomplish. With the additional layer of cold storage, it may be even harder to track and withdraw cryptocurrency funds.
That in mind, it will be interesting to see how the cryptocurrency community and institutional investors respond to the service. Do institutional traders even care? To some, perhaps it’s worth the tradeoff to delegate control over private keys to companies like BitGo and Genesis.
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Venezuela Could Set New Precedent for Bitcoin as a Medium of Exchange
Hyperinflation in Venezuela is estimated to have reached a boggling 1.3 million percent in 2018. To reconcile runaway prices, the wealthy and the technologically savvy have turned to the stock market and cryptocurrency.
Venezuela’s Deteriorating Economy Turns People to Cryptocurrencies Fueled by rich oil reserves, the country was once one of the fastest growing in South America during the 1990s and was an economic powerhouse in the region. Today, decades of corrupt and neglectful policies have put Venezuela on a road to economic disaster, and it’s accelerating.
The IMF estimates that Venezuela’s inflation stands at around 1.3 million percent, meaning that prices double in less than a month. This has caused country-wide shortages of basic necessities, such as food and medicine, adding to the hardships endured by Venezuelan citizens. Conditions have become so bad that ten percent of the country’s population has fled the country, according to The Economist.
The country’s national currency, the Bolivar has plummeted in value. To combat the issue, Maduro knocked five zeros off the currency by issuing new Sovereign Bolivar. Forbes called the move “a scam” and a mere “facelift” to the issue.
In desperation, the local people have taken to volatile (and oftentimes difficult to use) cryptocurrencies. On social media, Bitcoin, Dash, and Zcash are often cited as the number one choices for Venezuelans looking to weather hyperinflation.
And, people from around the globe are helping the country find its way to cryptocurrency. For example, AirdropVenezuela is facilitating donations to tens of thousands of verified Venezualans.
According to crypto statistics hub Coin Dance, the trading volume for Bolivars on LocalBitcoins has surged in 2018. The weekly trade volume for bitcoin rose from 170 to 2000 BTC in 2018.
Adjusting for Bitcoin’s 75 percent fall in value since the beginning of the year, weekly trading volume in Venezuela still increased from $2.5 million to $7.3 million, over a 190 percent increase.
Values in bitcoin. Chart courtesy of Coin Dance. Cryptocurrency Replacing Stock Market Hedging Although the poor in Venezuela have been hit the hardest by inflation, rich Venezuelans have other options to combat the problem. In the past, many have used the stock market as a sort of inflation-linked bank, buying shares to deposit cash, and selling them to withdraw it, as said by the Economist in July of 2018.
According to Barron’s, stocks in Venezuela have done a better job of keeping up with inflation, increasing in value (in Bolivar terms) by 73,000% in the past year. Banco Mercantil, one of South America’s largest banks—which operates outside of Venezuela—is the most popular stock among the rich, understandably.
However, despite the astounding growth of the Venezuelan stock market, its trading volume adjusted to dollars is minuscule. Data from Bloomberg suggest that the Caracas Exchange (index) had a daily trading volume that fluctuated between $50,000 and $3.9 million in the month of December, numbers rivaled by the growing bitcoin trade.
The LocalBitcoins figure is also an estimate, which doesn’t account for bitcoin traded outside of the platform. And, with weekly volume consistently upwards of $500,00 in USD terms, it seems that the country’s appetite for some digital currencies is significant.
Although conditions in Venezuela are grim, the natural and spontaneous use of Bitcoin at such a scale hasn’t been seen before. The nascent digital currency could actually start behaving like peer-to-peer digital cash in the country, one of Bitcoin’s original aspirations. As things unfold in the troubled economy of Venezuela, it will be interesting to see if the country sets a new precedent for cryptocurrencies.
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Wyoming Paves the Way in Blockchain Legislation–Issues New Bill for Tokenizing Stocks
Wyoming continues to spearhead blockchain adoption with House Bill 0185. The bill, scheduled for July 1st if passed, permits corporations to issue blockchain-based stock certificate tokens. This bill is just one in a string of new legislation, cementing Wyoming’s position as the pro-crypto state.
Tokenization is the process of representing ownership of real-world assets digitally on a blockchain. The tokenization of assets such as stocks, real estate, or art is already happening. Some companies are even making headway into tokenizing shares of Nasdaq traded stocks.
Tokenizing Stocks in Wyoming Proposed on Jan. 16th, the new HB0185 bill would allow companies to make distributions, authorize shares, and make amendments—and make those actions legally binding—even if conducted via blockchain technology. As stated in the current draft of the bill:
“A BILL for AN ACT relating to corporate shares and distributions; authorizing corporations to issue certificate tokens in lieu of stock certificates as specified; making conforming amendments; and providing for an effective date.”
These new rules would replace the formerly cumbersome and manual processes around corporate governance with a more efficient digital solution. This has the potential to make the process more transparent and more cost-effective.
The tokenized certificates would also be authorized via network signatures–unique identifying hashes of two officers or directors of a corporation, allowing parties to take advantage of the unique properties of blockchain-facilitated cryptography.
The bill, if passed, would become effective on July 1st. And, based on Wyoming’s voting history, the bill is quite likely to pass. The bill is sponsored by the representatives Olsen, Brown, Hunt, Lindholm, Western and Zwonitzer—and Senators Driskill and Rothfuss.
In short, the bill is laying the legal groundwork for storing, as well as performing, the administrative actions needed to maintain a company via blockchain.
Wyoming’s Other Blockchain Bills HB0185 is only one in a series of bills in Wyoming’s blockchain initiative. Two other bills, HB0062, and HB0057 were recently passed (unanimously) in the state’s legislature.
Bill HB0062, “Wyoming Utility Token Act–property amendment,” established a clearer definition of utility tokens, and specifies that these tokens are more akin to property than securities. This bill allows certain tokens to potentially avoid more stringent federal securities laws.
Bill HB0057, titled “Financial Technology Sandbox,” provides a managed, secure testing environment for corporations wishing to experiment and develop blockchain and crypto-related businesses. The bill would give state agencies the ability to administer waivers to specific regulations, which could otherwise hinder potential innovation within the industry.
Another bill, HB0070, “Open blockchain tokens-exemptions,” would provide special state exemptions for entities who sell or facilitate the exchange of “open blockchain tokens.” These businesses would no longer be subject to specific securities and money transmission laws—provided they get approval from the state secretary and Wyoming’s banking commissioner. Some example of open blockchain tokens, as suggested by William Hinman—the director of the SEC division of corporate finance—might include bitcoin and ether. This bill could make the state more attractive for transactional businesses and exchanges looking to establish themselves in the United States.
People are Taking Notice These progressive crypto bills have not gone unnoticed. Some blockchain-related businesses—such as Cardano’s primary development company IOHK, as declared by CEO Charles Hoskinson—are now planning to relocate their business to Wyoming.
Times are changing, and Wyoming seems to be leading the way with a pro-crypto legislature. Now, whether other states will follow Wyoming’s lead is another question.
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ICO Firms Paid Themselves $24 Billion Absent of Accountability or Much Effort
A BitMex report highlights the egregiousness of the ICO craze of 2017. Cryptocurrency companies were able to raise millions absent of accountability and with little work, and at the expense of likely unsophisticated buyers.
The scathing report, released on Jan. 16th by BitMEX, on the ICO market in 2017-18 concluded token startups raised over $24 billion during the period. These startups cumulatively “paid” over $1.5 billion to team members and saw the total value of their holdings reduced to under $5 billion as a result of the bear market.
The piece is third in a series of ICO-focused research papers. While earlier reports analyzed the interrelationships and treasury accounts of all projects turning to the controversial method of fundraising, the latest tracks $24 billion worth of tokens that teams issued and awarded themselves in 2017-18.
While BitMEX adjusted the price values of the tokens to account for cycles in the market, it states the holdings could have been worth over $80 billion during the cryptocurrency market’s peak in December of 2017. With highs in mind, token projects totaled over $70 billion in unrealized losses—equivalent to the GDP of Myanmar.
Based on illiquid spot prices, current holdings for ICO teams are worth roughly $5 billion. The research refers to these holdings as:
“[It is] money they essentially got from nothing, depending on one’s view. At the same time, the teams may have realized gains of US$1.5 billion by selling tokens, based on coins leaving team address clusters.”
Easiest Route to Becoming a Millionaire BitMEX CEO Arthur Hayes called out teams looking to raise huge amounts of capital through ICOs who at the same time make no meaningful progress on their projects. The research added that $13 billion in profits was “easily” realized by crypto teams, with “very little work, accountability, or transparency.”
When you create poo poo out of thin air, gravity is a bitch. Check out the latest report from BitMEX Research on ICOs. https://t.co/SdlZ7hreTD
— Arthur Hayes (@CryptoHayes) January 16, 2019
Overall, teams profited by selling ether tokens raised from the market—or even issuing project tokens to themselves. Keep in mind that the computed dollar values are “gross estimates,” as the market has far from sufficient liquidity to support billion-dollar sales of obscure tokens.
Breaking Down the Numbers Of all teams, the peer-to-peer capital markets project Veritaseum (VERI) issued the highest amount—over $4.8 billion worth—of its tokens to team members. Smart city project Noah Coin (NOAH) followed closely, with $4.4 billion issued to team members. Third in line is digital ecosystem financier Kin (KIN), which issued $1 billion worth of tokens to its team.
All values for the above mentioned were based on prices at the time of coin issuance. However, if price data from Jan. 19 is considered, Verisatuem and Kin have faced losses of $3.2 billion and $700 million, respectively.
The most unfortunate teams seem to be those from SALT and IoT Chain. Both projects saw a 97 percent decline in “proportional loss of value,” if data from team-controlled address clusters are considered. Other projects losing over 90 percent of their value in this metric include Arcblock (ARC), Metal (MTL), and Po.et (POE)—three of the arguably most ‘hyped’ projects of 2017.
Read: BitMEX CEO Denies Allegations of Trading Against Customers Data suggests team members paid in Huobi Tokens (HT) enjoyed a massive payday. An analysis of coins transferred out of team-controlled address clusters concluded holders sold over $366 million worth in HT tokens. Interestingly, most of this could have been on Huobi’s exchange platform, where the HT is provided as an exchange pair for several cryptocurrencies. Similarly, Qash (QASH) members made over $175 million and presumably sold its tokens on the project’s own exchange.
Meanwhile, an analysis of team-controlled address clusters from Verisateum and Binance (BNB) suggests team members have “strong hands” when it comes to holding their payments. Verisateum employees have yet to move $1.5 billion worth of tokens from their wallets, and $447 million BNB tokens also remain locked in team wallets. HT and QASH holders join this list, with $248 million and $140 million held by its employees, respectively.
Insight for the Next Bubble The research and data are grim for investors expecting another ICO frenzy:
“The ICO cycle now appears to be dying down to some extent and it’s much harder to raise funds than it was in late 2017. But with so much money made and lost, the events of 2017 and early 2018 are not likely to be quickly forgotten.”
Yet, in hindsight, it is clear that 2017 had elements of a speculative mania. Hopefully, lessons learned from the last cycle can mitigate fund misallocation during the next bull market.
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