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.
News Item 1: Read the actual text of the China ICO ban
Decrypted: The hype around Initial Coin Offerings has reached new highs with everyone and their mother jumping on the ICO bandwagon. We are starting to see celebrities like Paris Hilton, Floyd Mayweather endorsing new digital currencies. Already, companies like Crypto Media Group are actively recruiting celebrities to conduct promotional campaigns for upcoming ICOs.
After the SEC published in July an investor bulletin on ICOs, it comes as no surprise that financial regulators in other countries are defining strict prohibitions against ICOs.
In a bold move last Monday, the Chinese government banned initial coin offerings. The People’s Bank of China ruled that these unregulated token sales violated Chinese law and must stop immediately.
Our take: ICOs have become big business. The total amount raised from token sales, surpassed early stage investment spending from traditional VCs during the first half of 2017, according to a Goldman Sachs report. Since in 2014, ICOs worldwide have raised $1.78 billion, driven in part by the soaring value of more established cryptocurrencies, like Bitcoin and Ethereum.
According to a report by the National Committee of Experts on the Internet Financial Security Technology, there were 43 ICO platforms in China on July 18. Sixty-five ICO projects were completed, and raised 2.6 billion yuan ($398 million).
China’s ban will be interesting. Earlier in the week, an article in Forbes came up with seven likely reasons why China may have instituted the ban. In 2013, it banned Bitcoin, not allowing exchanges to make transfers in yuan and putting the brakes on the cryptocurrency. This resulted in a huge price drop. It remains to be seen how China’s recent decision will impact the ICO market overall and possibly influence the SEC and other regulators around the world.
Naval Ravikant makes an interesting point:
“ICOs need regulation, sure, but banning ICOs altogether is a huge gift to Silicon Valley and its resident financiers.”
ICOs are leveling the investment playing field. Startups raising money are no longer limited by geography and can raise enough to compete with companies in Silicon Valley, New York, or Israel. Fred Wilson of Union Square Ventures thinks its possible, that China is looking for a cooling off period.
So, I doubt this ICO ban is permanent move. China cannot afford to be left out of the digital currency market, nor the development of future blockchain innovations.
The ICO market continues to expand, with more money than ever being raised. Yet, this week with all the talk about the ban and its possible impact, Filecoin went live with its own initial coin offering, shattering the previous record sent by an ICO and raising $257 million.
Initial Coin Offerings have changed the investment landscape. They are here to stay and no ban will change that. Governments cannot stop decentralized currencies, as they have no border or nationality. Even though I don’t agree with China’s position, I feel it’s positive they took a stand. Gray areas can only hurt the crypto market. Its always better to know where you stand and what you can’t do, instead of having to deal with surprises later on. Sensible regulation can benefit all participants, both ICO projects and investors alike, by adding a level of protection for everyone involved. Regulations can make it easier to spot ICO scams, and help legitimate projects get the money they need, to actually build something useful.
China’s ruling will likely put pressure on the value of Bitcoin and Ethereum, especially Ethereum as its price is down 17% for the day. ICOs have helped to drive the value of both cryptocurrencies. Users who participate in ICOs typically buy the new cryptocurrencies using Bitcoin or Ethereum. China represents one of the world’s most active crypto communities and has been an important element in the ICO boom, both in terms of companies selling tokens and investors buying them. There is no question that China’s ban will be significant on the ICO market, but it won’t last very long.
Decrypted: Three carriers, including the huge Japanese group SoftBank, have launched the Carrier Blockchain Study Group (CBSG), a consortium to use blockchain to make cross-carrier payments.
Initially in February, SoftBank, Sprint and TBCASoft agreed to jointly collaborate and develop blockchain technology for telecom carriers. Recently Taiwanese telecom, Far EasTone, joined the group which led to the decision to create a consortium and invite other telecom players to join in the development and trials of blockchain services.
CBSG will promote research and development for the platform with the aim of providing users various services such as secured clearing and settlement, personal authentication, IoT applications, and other services in the future.
Our take: Since Martin Cooper introduced the first mobile phone was in 1973, the telecommunications industry has grown exponentially. But its continued growth will depend greatly on the adoption of newer technologies, like blockchain.
In today’s increasingly connected world, telecommunications companies are capitalizing on opportunities for growth by improving operations and upgrading their networks, among other strategies. The Blockchain can become one of the tools that will help operators transform to full-fledged digital service providers securing a sound position in the rapidly changing market.
Delloite believes that the Blockchain can make the biggest difference in key governance frameworks and added value services offering opportunities to reduce costs through increased performance of processes and to step up revenues from new offers. Deloitte’s recent Telecommunications Industry Outlook 2017 report clearly states: “telecoms will not be able to achieve rapid growth without upgrading their network infrastructures”.
The telecom industry faces some big questions: what will be the impact of blockchain on existing processes and costs? Are any existing supply chains under threat? What service or revenue opportunities will blockchain open up for vendors or service providers? Can blockchain offer a new path to growth for network operators?
Blockchain will not fundamentally revolutionize telecom service provision itself, but the concept of the blockchain and services built using it offer a range of interesting opportunities to alter business processes and also to underpin some creative service and business model development.
It is a potential platform for innovation in the development of complementary services. It could add new mobile payment capabilities for service provider financial service projects to enable autonomous transactions within IoT platforms being built by network operators and vendors, and to help solve issues of identity and fraud management.
A number of telcos are already adopting blockchain in order to gain a foot hold ahead of competition. As of February this year, Sprint, Du, Testra and Orange to name a few, all have projects in motion with some dating back to 2015.
- In August 2015, Verizon Ventures invested in Filament, a start-up developing connected modules to allow industrial assets to act as autonomous agents. These agents can then communicate via long-range, decentralized mesh networks and transact data using blockchains and smart contracts.
- Orange launched its ChainForce initiative in June 2015 with the intention of encouraging established companies and start-ups to explore new blockchain technologies and use cases. Orange Digital Ventures also invested in US-based start-up Chain, which is developing enterprise-grade blockchain solutions for the financial industry and other transactional services, in September 2015.
- In May 2016, Du announced a pilot programme to facilitate the secure transmission of electronic health records (EHRs) in the UAE. It intends to do this through a blockchain-based solution in partnership with the Global Blockchain Council, which is itself a partnership between industry and government. Additionally, du has established partnerships with Dubai Tourism and Loyyal to provide blockchain-enabled loyalty solutions for tourism (Dubai Points).
Also, earlier this year a major state-owned telecommunications provider in Switzerland joined the open-source Hyperledger blockchain project. In February 2017, Swisscom AG joined the Linux Foundation-led effort. At the same time, the company disclosed several blockchain-related projects it has undertaken since internal research began last year. Specific initiatives include a consumer loyalty concept developed with an unnamed bank and a platform for over-the-counter trading, the latter of which is being pursued in partnership with the Lucerne University of Applied Sciences and Arts, among other parties.
The capabilities of Blockchain are already extensive with further room to develop in the future and those that begin to embrace the technology now will have less problems competing over the next few years as this technology really begins to take hold of the industry.
Even with 5G, blockchain has a part to play. Telecom providers would have the ability to provide reliable 5G services by connecting 3GPP and non-3GPP access networks through blockchain networks where each access point serves to monitor devices within the network. The device can then use these to determine which access point will provide the best service.
Decrypted: With all the money invested in ICOs everyone has been paying attention, including thieves that have made a killing since the beginning of the year.
Cyber criminals have reportedly stolen $225 million worth of digital currencies through phishing scams in 2017, with ICOs amassing about $1.6 billion this year. Chainalysis estimates that more than 30,000 people have fallen prey to ethereum-related cyber crime, losing an average of $7,500 each.
Our take: Regulators are issuing warnings and bans, yet, ICOs are showing no signs of slowing down, with millions being amassed daily.
The ICO frenzy has become ripe territory for scammers. Almost 10% of all the money invested in initial coin offerings this year, using Ethereum, has fallen into the hands of thieves. It looks like the cryptocurrency hackers are doing pretty good against all the other types of criminals that are out there. The amount of wealth that has fallen into the hands of cyber criminals is approaching $390 million, the losses incurred by robberies in the U.S. for all of 2015, according to statistics released by the FBI.
In mid-July, CoinDash lost $7 million during its ICO, after a hacker altered the address on its website and investors ended up sending funds to a malicious digital wallet instead of CoinDash. Days later, at least three ICOs were affected by a bug in Parity’s cryptocurrency wallet, that allowed thieves to steal $30 million. Another hacker managed to compromise Enigma’s ICO during a fake, hacker-staged coin pre-sale, getting away with $500,000. Veritaseum, claimed that 36,000 of its tokens were stolen and exchanged for Ether.
Most high-profile attacks have been hacks and exploits. Most involve creating websites that mimic the real ICO project, while others lure victims using fake social media account, Twitter posts, Slack messages, and targeted email campaigns. They solicit prospective investors to send money to their address using these fake accounts.
Cyber criminals were also able to steal money by tapping into project loopholes. A bug in the (DAO) project, which was aimed at democratizing how Ethereum projects were funded, allowed cyber criminals to steal $55 million and cause a fork in Ethereum.
Chainalysis provides several security tips to help investors avoid becoming a victim. They advise users to be wary of direct messages from companies since most reputable businesses communicate with contributors on a public, rather than individual level. Also, one should never forget that it’s important to keep control of their private keys, rather than permanently storing them on third-party wallets or exchanges.
Its scary when you consider how easy it is for hackers to acquire huge amounts of Ethereum in a short period of time. While regulators don’t regulate technology, but conduct, its understandable that they are taking steps to add some layers of protection for the ICO market and small investors.
Opinion: The Cryptocurrency Singularity
Since its creation in 2009, Bitcoin has generated a lot of debate in the media. There have been plenty of economic arguments equating it to a bubble that’s about to collapse. Yet, its price value has proven to be more durable than many have predicted.
Why after so many ICO scams, cyber-thefts, sharp price drops, issues of scalability and forks is the value of Bitcoin and cryptocurrencies rising?
Historically, governments always connected the nominal value of fiat money to the commodity value of gold or silver. Today, dollars and other fiat currencies are free-floating and their value is decided by the market, just like Bitcoin.
Gresham’s law says that “bad money drives out good.” Good money is money where there is not much difference in its nominal value and its commodity value. If a coin is worth $1 and the metal is melted down, that metal should be worth about $1 as well. This is good money. Bad money is the exact opposite, when commodity value of the money is worth far less than the nominal value. Paper currency is a very good example of bad money.
Bad money is spent, while good money is saved for later, when its value has increased. When comparing digital currencies and fiat currencies, it is quite clear that digital currencies are very undervalued at this time. Fiat money is slow, inefficient and chained to economic ideas that are not applicable in today’s markets. Bitcoin and other digital currencies present an existential threat to all forms of state fiat money.
When we look at Bitcoin’s value, the only reason that it does not trade for $100k a coin, is because most people either haven’t heard about it or don’t understand it yet. When they do, there will be a rush from people afraid of missing out. Banks and governments around the world already understand it and are racing to get in, but are carefully trying to control everything in the process.
In the long term, as more people view Bitcoin as a currency, it will be hard to reverse this trend without some catastrophic event that brings Bitcoin to a halt.
Over the next decade we are going to see one of the greatest transfers of wealth the world has ever seen, as fiat money fails and digital currencies take over. When we look back at 2017 it will seem amazing that digital currencies didn’t immediately take over fiat money. Its not a question of if, but when.
Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.
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