Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 21st August 2017

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.

For the intro to this weekly series, please go here.

News Item 1: Bitcoin Cash Price Nears $1,000 as Breakout Continues

Decrypted: Three weeks ago we had Bitcoin’s hard fork, that resulted in the creation of Bitcoin Cash. This week we have Bitcoin Cash reaching a record high near $1,000 and market cap of around $16 billion.

While Bitcoin’s price has rallied to new highs since the hard fork, reaching $4,500, Bitcoin Cash appears to be finding some support with significant gains this week. Bitcoin Cash has showed its potential for significantly increasing transaction speeds and it looks like miners have found it increasingly profitable to mine Bitcoin’s new offspring.

Our take: Bitcoin Cash (BCH), an alternative version of the original Bitcoin (BTC) that was launched by a minority of developers on August 1st, climbed to $972.55, according to CoinMarketCap. This is the highest Bitcoin Cash has ever reached in less than three weeks, a jump of almost 374% from its first day of trading.

Bitcoin Cash differs from the original Bitcoin. It supports an 8 MB block size, but does not address the malleability issue, which is supported by Segregated Witness.

When Bitcoin Cash became available, most investors started dumping what they considered to be free coins. The current price surge shows that investors are betting on faster processing speeds, and miners demonstrated that the new digital currency can support an 8MB block size, a huge advantage over the current 1MB block size of Bitcoin.

Miners often switch their mining power between different currencies depending on their profitability. Currently, Bitcoin Cash is more profitable for miners. Bitcoin Cash is now 69% more profitable to mine than the original Bitcoin. The rising price and reduced difficulty to mine the digital currency has created the incentive for miners to dedicate more horsepower to the new digital cash. The Bitcoin blockchain charges higher fees for transactions, in comparison to Bitcoin Cash that has very low fees.

Today, Bitcoin Cash does not have Bitcoin’s reach and only a few major exchanges are supporting it. In this recent price surge, more than half of the trading volume came from three South Korean exchanges, Bithumb, Coinone and Korbit. This growth indicates confidence that the price will keep moving up and could be a sign that more exchanges will soon see a value in mining Bitcoin Cash.

More and more investors, banks and institutions are adopting Bitcoin and providing methods for investing in cryptocurrencies. Only time will tell if this is a battle with only one potential winner or whether both versions of Bitcoin can coexist.

Right now its still be too early to compare Bitcoin Cash to other digital currencies like Bitcoin and Ethereum, yet traders are proving it might have staying power.

News Item 2: Twitter Investor Helps Develop Blockchain-based Social Media Platform

Decrypted: Last year, Naval Ravikant tweeted“Today’s social media, payment, identity, & application platforms will ultimately be replaced by distributed, uncensorable, open source ones.”

A few days ago, he revealed a plan to sponsor a prize to create a Blockchain-based alternative to Twitter, using the Blockstack platform. With this plan the co-founder of AngelList, proposed an edition of Twitter that will have no central authority and the users will be able to monetize their contributions.

Ravikant is not the only one with plans to support new blockchain content platforms. Albert Wenger, a partner with Union Square Ventures has revealed plans to fund a new prize aimed to incentivize blockchain-powered blogging platform.

Our take: Blockchain is the most disruptive idea since the Internet. The disruptive potential of Blockchain has proven to be limitless, not just to currencies like Bitcoin, but to every industry around us. The potential applications of blockchain will be disrupting everything, and one the industries that is ripe for disruption is social media.

Today’s social media are centralized networks, made up of users that give up their personal privacy, data protection and ownership of the content they create. Most social networks collect information, interests and habits of their users in order to monetize the data through advertising. They heavily guard this data and many of the big social networks, like Google, Facebook, Twitter and Linkedin, act as identity providers for other sites and apps that use OAuth-based authentication and single-sign-on mechanisms.

Facebook’s algorithms control the news that reaches 2 billion people, in many ways creating censorship and potential bias that prevents people from encountering new and interesting ideas.

The content on social networks produces a massive financial gain for the platform, rather than the user that creates it. Users produce quality content, but their work is consumed by the platform, leaving them with no real financial gain. Also users have no control over the ads that appear with their content, and many feel that advertising may diminish the value of their work.

Blockchain technology can provide a more democratic and secure way to share content, preventing many of the problems that social networks have been criticized for in the past. The use of blockchain technology can enable users to control their data, escape the censorship imposed by platforms like Facebook and Twitter and get paid for the content they create.

There has been lots of talk around the idea of using blockchain to build the social networks of the future and numerous of projects have sprang out. Most of these new services are still their early stages.

Steemit is a content-sharing site where posts are ranked by popularity, similar to Reddit, it allows private messaging and the ability to follow specific users.  It was launched in March 2016 and since its user base has grown significantly. The most interesting feature is the way it rewards users. When users produce or share content, they receive Steem tokens. These tokens can be exchanged for fiat currency or used to vote on how the platform will evolve, giving users power over the future of the platform. The content users see is not filtered or controlled by an algorithm, preventing any form of censorship. Also because the data is on blockchain, Steemit doesn’t control or own any of the data created by its users and cannot use it to sell advertising.

AKASHA is like a decentralised Twitter, that uses the Ethereum blockchain to store the content created by users. The content is broadcasted across Ethereum’s decentralized network and votes are bundled with Ethereum microtransactions. When content gets votes, the content creator can earn some Ethereum from it.

Synereo is another decentralized, next-generation social networking and content delivery platform. Synereo has created tools that lets users monetize original content, get rewarded for sharing quality content with others and also discover the best content on the Internet.

A new breed of social media networks is emerging. Blockchain can radically shift social media to a new level. Its introducing decentralization that encourages free speech and has the power to reinvent the very basics of how content is shared and profitably distributed.

News Item 3: Government Agencies Adopting Bitcoin and Blockchain Technology

Decrypted: Cyber warfare is an emerging new threat that can be used to achieve strategic superiority, destabilize states, and cause large-scale economic damage. Breaches of sensitive data, mass disinformation campaigns, cyber-espionage and attacks on critical systems can affect individuals, businesses and governments.

Until recently, cyber-espionage was mostly used by large corporations with the goal to gain an unfair advantage over their competitors. The main risks, from a business perspective, were intellectual property infringements, disclosure of trade secrets, and economic espionage.

But now government organizations are looking very closely at the potential of blockchain, as a technology to build systems that will prevent data theft and tampering and provide secure communications.

Our take: High-profile attacks, such as those against the German Parliament in 2015, against Chancellor Angela Merkel’s Christian Democratic Union party in 2016, or against the US Democratic National Committee are a clear sign that politically-motivated cyberattacks are gaining in scale, hostility and sophistication. In 2016, the United States accused Russia of cyberattacks against the Democratic National Committee in order to interfere with the outcome of the US. Presidential election, while media reported a record year for data breaches.

Cyberattacks are a growing problem for western countries and the timeline below shows us just how big the problem really is:

  • December 2015 & December 2016 – Power grid in Ukraine: 230,000 people were left without power for up to 6 hours. Its the first time that a cyber-weapon was successfully used against a nation’s power grid.
  • February 2016 – Central bank of Bangladesh: USD 81 million were lost and a further USD 850 million in transactions were prevented from being processed.
  • February 2016 – FBI and Homeland Security: Personal details of over 20,000 employees of the Federal Bureau of Investigation and 9,000 of the Department of Homeland Security were accessed.
  • April 2016 – Philippines’ Commission on Elections (COMELEC): Personal information of every single voter in the Philippines, approximately. 55 million people.
  • April 2016: Democratic National Committee Publication of 20,000 e-mails stolen from the Democratic National Committee.
  • October 2016 – Domain name provider Dyn: A distributed denial of service attack resulted in the break-down of some of the biggest websites in the world including Twitter, The Guardian, Netflix, Reddit, Airbnb and CNN.
  • October 2016 – Australian Red Cross: Personal data of 550,000 blood donators stolen.
  • November 2016 – Deutsche Telekom: 900,000 people suffered Internet outages over two days.
  • November 2016 – Tesco Bank: Around £2.5 million was stolen from around 9,000 customers in this hack, the largest on a UK bank.
  • November 2016 – NHS hospitals: Hospital machines were frozen to demand ransom cash. At least four NHS funds were attacked.
  • November 2016 – Yahoo: Data breach of 1 billion accounts.

The cost of cyberattacks is enormous. A 2014 study estimated the economic impact of cyberattacks in the European Union to be around 55 billion euro, with Germany being most affected. The study forecasts that the economic cost of data breaches globally will quadruple by 2019, reaching 2 trillion euro, almost four times the cost of 2015.

A recent memo by the Foundation for Defense of Democracies outlines several potential scenarios in which outside forces attack or infiltrate America’s national security industrial base.

The US. government apparently sees the potential in blockchain technologies. This past May, the Department of Homeland Security (DHS) listed several blockchain companies that received innovation grants.

An article in the Washington Times suggests that the Pentagon and NATO have been exploring blockchain technology as cybersecurity shield.

A few decades ago, the Defense Advanced Research Projects Agency (DARPA) helped create the Internet and now its exploring how blockchain can help create a secure messaging platform, that will eventually be used for communications in the battlefield.

Cybersecurity relies on secrets and trust to maintain security, but neither can be guaranteed. Blockchain operates independent of secrets and trust. Its a shared, distributed, tamper-resistant database that every participant on a network can share, but that no one entity control. Blockchain can preserve the “truth” in couple of ways. First, it ensures that digital events are widely witnessed by transmitting them to other nodes on the blockchain network. But it also use consensus. These events are secured in a database that can never be altered. Blockchain enhances the cyber defense’s perimeter, not by helping to hold up the walls, but by monitoring the walls and everything within them.

Blockchain provides a fundamentally different approach to cybersecurity, potentially improving the defense against cyberattacks, as the it can secure, prevent fraudulent activities through consensus, and detect data tampering based on its underlying characteristics of immutability, transparency and data encryption.

OpinionJohn McAfee: Bitcoin Price Bubble Talk “Absurd”

After a gargantuan leap last week, the price of Bitcoin hit a record high above $4,500 on Thursday and the total value of the cryptocurrency reached an astonishing $74 billion.

The media is once again abuzz with the self-proclaimed experts telling anyone that will listen, that crypto is a classic bubble. This is worrying and fascinating at the same time. Everyone is jumping into the market, fuelling a spectacular bubble that Goldman Sachs predicts will burst within months.

Since the beginning of the year, we’ve seen a lot of volatility, mostly due to the scaling debate that was going on for the past couple of years. With the SegWit activation locked in, good things will happen. It looks like they already are happening, the first being the uncertainty is reduced.

The second important thing that’s happening, is institutional acceptance. Institutions are starting to come into the market. High net worth individuals, fund and assets managers, private funds and institutional investors are one of the main reasons we are seeing the price of Bitcoin rising. They are starting to realize that this is a non-correlated new asset class with very high returns. Since its launch in 2009, Bitcoin has consistently outperformed every stock and currency in existence, by incredible margins. There are so many institutions looking to get into this space, there is a mountain of money ready to come into the market.

The third was the hard fork on August 1, with the Bitcoin network splitting in two, creating the new Bitcoin Cash. Everybody that already owned Bitcoin, got a bunch of Bitcoin Cash, kind of like a dividend. There was plenty of fear that the fork would hurt Bitcoin, but now with the split completed these fears have evaporated.

Perhaps more importantly, the Bitcoin and cryptocurrency markets have matured significantly in a span of 12 months, as the cryptocurrency market cap increased from a mere $11 billion to over $120 billion. Overseas markets have evolved, and an increased number of governments have legalized Bitcoin.

All these factors combined have caused a bull market. But can the market turn into a bear? It certainly can, if for example the government of major economy, lets say the US., passed regulations that are not crypto-friendly.

Bubbles are exhausting and people can easily get hurt, but all bubbles are not bad. Bubbles laid out railroads, built the telegraph and ships, created alternative energy, and brought the Internet to everyone around the world. Bubbles are moving Bitcoin the and cryptocurrency market fast forward.

But what creates a bubble, does not disappear when the bubble goes away. Not tulips, not railways, not the Internet. Nor will blockchain or cryptocurrencies disappear.

Bitcoin has laid out the path for decentralization. Decentralized money is better than fiat money. Decentralized social networks will be better than Facebook and Twitter. Decentralized search engines will be better than Google.

I think John McAfee said it best: “Bitcoin critics will point to temporary Bitcoin price declines as proof of their understanding, but it won’t matter in the end. The blockchain revolution will not be stopped. Those who understand the revolutionary potential of cryptocurrency, will be the leaders of this new world.”

Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.

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    • I have heard about IOTA. It would be interesting to post about it in the next few weeks. Thanks for the suggestion!

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