The Blockchain Bitcoin & Crypto Weekly CXO Briefing is all you need to know, each week, jargon free for CXO level business leaders and investors who will use this technology to change the world. Each week we select the 3 news items that matter and explain why and link to one expert opinion.
Decrypted: As Federal Reserve Chairman Janet Yellen was speaking to the House Financial Services Committee last Wednesday, something interesting happened. Almost perfectly placed behind her right shoulder a sign appeared telling people to buy Bitcoin. A young man wearing a suit and pink tie, the “Bitcoin Sign Guy”, drove news around world and maybe even caused the price of Bitcoin to go up, as a frenzied group of traders did exactly what the sign said, they bought Bitcoin.
Our take: The timing was perfect. As Janet Yellen was saying she would oppose almost any attempt to audit the Federal Reserve, he put up the sign and reminded us that Bitcoin can replace central banks, as the first decentralized global reserve currency.
It was exciting, just like the early days, when someone would post something of reddit and Bitcoiners would rally to support it. It was like the College GameDay sign, that said “Hi Mom Send Bitcoin”, with the QR, and the guy ended up raising $25,000.
The “Bitcoin Sign Guy”, created a huge buzz in the news and drove the price up. But not matter how exciting the fireworks may be, it also showed us you can’t change an overall bearish trend with a cool story in the news. News stories like this can bump up the price for a while against the trend, but ultimately the trend always wins. Now we are back to new price lows with the upcoming possible user activated fork. The “Bitcoin Sign Guy”, was a nice break from the scaling debate that’s been going on.
Since the start of 2017, cryptocurrencies have had a phenomenal rally. But in recent weeks, they have been bleeding, as speculators are jittery, waiting to see how Bitcoin’s scaling debate will conclude on August 1st. The total market cap has dropped by $9 billion, almost 11% percent, with Bitcoin prices dropping below $2,100.
The “Bitcoin Sign Guy” reminded us why everyone got interested in Bitcoin in the first place. I was really happy to see that he did not hold up a sign for some other coin, like when Dennis Rodman wore a t-shirt for PotCoin, and it was Bitcoin.
Bitcoin has the power to replace the archaic, centralized banking system. Bitcoin has turned upside down everything we know about money, how its stored, who should control its production and how it is transmitted and managed.
Now, is the “Bitcoin Sign Guy” an important moment in Bitcoin history or will this kick off a series of aggressive and annoying copycats? Are we going to see a spree of similar events at stadiums, concerts or the next Trump speech? Hopefully not. It would of been better if the”Bitcoin Sign Guy” held up a QR code, instead of an actual Bitcoin address. So far his action has gone viral and spurred several attempts online, with photoshopped versions of the original picture, and copycats changing his address to their address.
News Item 2: uPort Announces Zug Digital Ethereum ID Pilot
Decrypted: Zug is known for being at the forefront of blockchain and crypto innovation, being the home to many companies that are innovating in this space. The most recent step in Zug’s journey, was the announcement to implement blockchain technology for digital identities, in order to offer its citizens innovative access to both local and international services.
Our take: In 2011 the World Economic Forum recognized that personal data had become an important new asset class. Personal data in the 21st century is a valuable resource that will touch all aspects of society. But today, the way we create and manage our digital identities is broken. Digital identity is fragmented between various service providers like Google and Facebook, that require multiple registrations and logins, while most people use the same password for the services they use, in order to remember it. According to BBC News, a typical consumer has 26 different logins but only five passwords. These centralized servers are honeypots of data, making them extremely attractive targets for hackers.
Based on the data from the World Bank, about 2.4 billion people in the world today lack official identification and can’t prove their identity. At the simplest level digital identity is a supplement to the real identity of a person. Digital identity is a set of credentials or attributes that allow a third party to verify the identity of that person. Digital identity, will allow people to own their data and manage their identities. Why should we give our identity to a centralized structure that could be compromised? That is the whole reason why there are so many issues with identity today. When centralized organizations get hacked our details are stolen.
Building trusted and distributed identity networks is a big step towards a whole new world. Blockchain is well suited for managing both consent and control of information. Blockchain technology can empower consumers to control their own identity and share with trusted organizations, using smart contracts that will determine how they can manage and use their data.
Last year, Estonia offered digital identities through their e-Estonia program. Estonians can access public services, financial services, medical and emergency services as well as pay taxes online, e-vote, provide digital signatures, and travel within the EU without a passport. Another country exploring blockchain identity is Australia. In 2016, Australia Post tested a blockchain digital identity platform that allows people to verify their identity in just a few minutes, using biometric data, and apply for a passport or mortgage from their smartphone.
The space is crowded with many solutions, each offering their own flavor of digital identities: Averon, BlockAuth, Blockstack, Bitnation, BlockVerify, Cambridge Blockchain, Civic, Credits, CredyCo, Cryptid, DataCoup, Enigma, Evernym, ExistenceID, Guardtime’s BLT, HYPR, Identifi, Open Identity Exchange (OIX), KYC-Chain, Netki, Pillar project, ShoCard, Tierion, UniquID and uPort.
Digital identity present us with and tremendous opportunity for disruption that can help us solve significant challenges such fraud risk, KYC and AML.
News Item 3: Dispute could mean financial panic in Bitcoin
Decrypted: The clock is ticking, as we are coming closer to August 1st. The Bitcoin scaling debate has reached a climax, and we are seeing the results in dropping prices and market cap. When everyone thought the Bitcoin “civil war” was over and a consensus was reached that would activate SegWit, Bitmain in June announced UAHF (User Activated Hard Fork), a contingency plan in response to UASF, in order to wipeout the risk that comes along with it.
Our take: Support for SegWit2x has reached high levels with mining pools, not seen with previous proposals. The majority have already pledged to activate Segwit2x, thus activating the long-awaited Segregated Witness (SegWit). But Bitcoin’s UASF isn’t backing down from the August 1st deadline. A sizable group of Bitcoin users remains mistrustful, and still plans to move forward with the BIP 148.
Both sides have a lot to gain by reaching a consensus, but the lack of a central authority has made it difficult. While support for SegWit2x is high, the biggest concern the UASF side has is that SegWit2x seems rushed, mostly driven by anxiety that Bitcoin might loose its dominant position to Ethereum.
Fear and uncertainty have plagued the entire cryptocurrency market. In fact as Bitcoin prices have been dropping, we’ve also seen the prices of most cryptocurrencies suffer. The Bitcoin rocket has helped create value not just for Bitcoin, but for the entire cryptocurrency market. If Bitcoin forks, the resulting chaos will hurt the entire industry.
We’ll have to wait and see what happens. If 80% of the Bitcoin community adopts SegWit, everything should be fine. If it doesn’t, most likely UASF will be activated on August 1st. In this future, one I don’t want to imagine, its likely to have two bitcoins on August 1st. A Bitcoin Core coin (BCC) and a Bitcoin Unlimited coin (BTU). A hard fork would create two copies of the Blockchain, two networks and two versions of the software. This would leave it up to the miners and users to determine what version of the Blockchain they will support.
If the hard fork happens and the Bitcoin blockchain splits, users are at risk of losing their Bitcoin, which is why Bitcoin.org is urging everyone, to take a “bank holiday”. Bitcoin.org posted an announcement suggesting to take a few days off before the proposed changes take place and to wait for confirmation that the situation has been resolved, before users start trading again.
SegWit2x, UASF, UAHF… What’s going to happen?
I don’t think anyone knows how this will play out. For the time being, we can expect market volatility to continue, with prices dropping. This could be the best time to get in the market, with prices going low, while staying vigilant and ready to act once a clear outcome emerges and prices begin to surge again.
In 2016, $73 billion in venture capital was invested in U.S. startups, compared with $45 billion at the peak of the dot-com boom. A few days ago, Tezos hit a new record with its ICO, raising $232 million. Before that Block.One’s EOS raised $185 million and Bancor $153 million. These three ICOs racked in a whopping $570 million. So far the ICOs have had a phenomenal run.
ICOs are changing that way startups are raising money. They are letting startups from anywhere in the world raise money to fund their new innovative ideas. They give small investors the opportunity to get a seat at the grown-ups table and invest in new technology at the ground floor. But, just like any investment, there’s always a level of risk. Fraud is not new in tech and the hotter the business, the more scam artists will flock to it. And ICOs are super hot. But, in most cases, small investors don’t have technical knowledge or the understanding of the market dynamics for the startups they invest in, and very often they fail to see the difference between legitimate ICOs and those that are scams.
I don’t think the problem with ICOs has to do with the fact that people are paying upfront for a products that haven’t been built yet. By definition, entrepreneurship is about promoting the heck out of things that don’t exist yet, and convincing investors, staff, and customers to believe in the future they are describing. I think the problem lies with the lack of process, specifically the lack of a vetting process. Unlike IPOs or startups that go through the normal venture capital route, ICOs have not gone through a process where someone has evaluated the opportunity based on specific standards, to make sure that the ICO meets some basic requirements before it can start to take in investment capital. Unlike VC funded startups, ICOs don’t raise money from professional investors that spread risk across a portfolio, but from regular folk that want to make a buck. These smaller investors, need a level of protection. The lack of regulation, coupled with the fact that ICOs can raise all the money they need in a single round, removes any kind of accountability and allows scam artists to take the money and run. Historically, Silicon Valley forgives, even celebrates, failure. I am not sure how forgiving small investors will be, after they get scammed. In the end, who loses when someone get scammed? We all do! The entire ecosystem loses.
With ICOs surging in recent months, the Securities and Exchange Commission is taking a closer look at such offerings. The ruling in the recent case of SEC vs Traffic Monsoon, was very clear. Sellers beware! The federal courts authorized the SEC to take action against the Internet advertising company. Even though the Traffic Monsoon case did not involve an ICO, but a similar offering, it was indicative of how the SEC might approach ICOs.
Regulation cannot stop scam from happening. Even if the SEC or other organizations put in place regulations for ICOs, stupid day traders and ICO junkies will still get crushed. We still need to do our homework, understand what we are investing in, and be aware of potential signs of scam. A recent post in Fintech Genome, mentions a few signs, that investors should be aware of before investing in an ICO:
- Short window to decide. This is a FOMO tactic.
- Uncapped raise. Imagine a traditional fund raise where investor asks “how much are you raising?” and the answer is “we won’t tell you”.
- Minimum Viable White Paper (MVWP). Term coined (sic) by Andreas Antonopolous. An empty GitHub is a bad sign.
- Lots of buzzwords and breathless hype on social media. You know the pitches that look like they were created by a random buzzword generator.
Initial Coin Offerings have unlocked a better way to raise money and create a network effect. Just like the dot-com bubble there is risk, but we can expect ICOs to give us the next Google’s and Amazon’s of the world.
Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.
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