Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 16th October 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: $5,800: Bitcoin Price Hits New Record High

Decrypted: In September China’s announcements to ban token sales and Bitcoin exchanges sent Bitcoin’s price tumbling, but a few days ago the cryptocurrency’s price rallied to a new all-time high, hitting more than $5,200 on Thursday and following up with repeat performance on Friday, to break $5,800.

There’s been a lot of speculation as to the reasons behind Bitcoin’s recent price surge. Some speculate the upcoming Bitcoin Gold and Segwit2x hard forks, reports that Goldman Sachs is considering Bitcoin trading and rumors that China might reverse the bans and ease restrictions.

Our take: Last month China’s government, the People’s Bank of China (PBoC) and local financial regulators, imposed a nationwide ban on cryptocurrency exchanges that caused Bitcoin and the entire cryptocurrency market to drop.

But in the past few days, it would looks like the fears caused by China’s bans have been completely shrugged off by the market.

Yet, there’s been plenty of speculation about a Chinese reversal of the bans, and recently there have been reports in Xinhua, a state-owned news publication of China, suggesting that China’s ban is only temporary, until the Chinese government releases a stricter regulations for KYC and AML  for trading platforms.

CnLedger, a cryptocurrency news outlet in China posted on Twitter about the news in Xinhua:

“Xinhua News, official press agency of CN: Virtual currencies have become the top choices of underground economies. We shall adopt ‘0-tolerance policies’ towards crimes hidden underneath and take measures such as record-keeping, licensing, AML processes, real-name, limiting large transactions.”

With the new price high, Bitcoin’s market cap hit $97 billion, up over 480 percent year-to-date. Bitcoin’s new price level also triggered a positive rally for the entire crypto market. Ethereum was up over 5% over the last 24 hours, while Litecoin went up almost 14%. The combined market cap for all cryptocurrencies once again climbed towards the Sept. 1 high of $172.5 billion,  with Bitcoin being over 55 percent of the total market.

Another reason behind Bitcoin’s price increase could be the upcoming hard forks. We are expecting two hard forks for Bitcoin, that will create two new rival clones of the cryptocurrency. The first is Bitcoin Gold and its expected to happen on October 25, and second is Segwit2x in November, when Bitcoin’s block size will increase from 1Mb to 2Mb.

The last time we had a hard fork for Bitcoin was on August 1, when Bitcoin Cash was born. At the time anyone that had Bitcoin, automatically received and equal amount of Bitcoin Cash. Bitcoin holders received one BCH for each BTC they owned.  The same will happen with these upcoming forks. Holders of Bitcoin (BTC) will automatically receive Bitcoin Gold and this is a likely reason why investors are buying BTC, driving the price up. They want to get some “free money” and flip it when it goes up. When Bitcoin Cash opened in August, it was trading around $200 and in three weeks it almost reached $1,000 and a market cap around $16 billion.

There’s also been talk that Goldman Sachs is considering a trading operation focused on Bitcoin and other digital currencies. Smart and forward thinking financial firms are getting involved with cryptocurrencies. Golman Sachs will be joining the ranks of companies like Fidelity, that has been experimenting with Bitcoin and crypto.

Last but not least are the recent comments by Christine Lagarde, IMF’s Managing Director:

“I think that we are about to see massive disruptions. it’s important to look at the broader implications of technologies like digital currencies. My hope is that we can participate in that process because I see that as a very cross-border process.”

Many argue that Bitcoin could reach $7,500 by the end of the year, but plenty of volatility is still ahead, as regulators will be taking positions to control things. While this creates uncertainty around Bitcoin and other cryptos, investing in new things is not for the faint-hearted.

Everything is about perspective. Brisk fall mornings like today, wake up the senses. So did Bitcoin last week, when it hit its new record price. One more time it reminded us that regardless of naysayers and regulators, the real power lies with the people that believe. The price of Bitcoin isn’t going up, but dollars are getting very cheap, and they’ll get even cheaper.

Anyone getting into the crypto space, investing and trading, should be doing it because they believe in Bitcoin and blockchain: “In the world of business, the people who are most successful are those who are doing what they love.” – Warren Buffet.

News Item 2: Bitcoin Competitors Are Being Built in Ex-Google Coders’ Laptops

Decrypted: Since 2013, we’ve seen more than 1,500 cryptocurrencies, with around 800-900 actively traded today, but for now Bitcoin is the king. Several offer certain technical advantages over Bitcoin,  alternatives to digital cash, software development, social media, and other services powered by blockchain.

The better known ones are Ethereum, Litecoin, Ripple, Dash, Monero but there’s more in the woodwork, hoping one day they to dethrone the leader and become king of the hill.

Basecoin is one of the contenders, a token with a rules-based monetary policy built into its blockchain system. Bascoin is backed by high profile investors, that include 1confirmation, Andreessen Horowitz, Bain Capital Ventures, Digital Currency Group, MetaStable Capital, Pantera Capital, PolyChain Capital and AngelList CEO Naval Ravikant.

Our take: One of the problems that Bitcoin and other cryptocurrencies face today, is price volatility. All of the cryptocurrency transactions are speculative in nature, with traders simply betting on ups and downs, with almost no use as a medium of exchange. Price volatility makes it difficult for people and merchants to use cryptocurrencies for every day transactions or use them to keep all their life savings, because prices can fluctuate hugely, on a daily basis.

Consider issuing a Bitcoin loan. If the price drops significantly at any point before the end of the loan’s term, the lender is left holding a significantly devalued stream of payments.

The lack of price stability hinders mainstream adoption of cryptocurrencies.

Basecoin, a new cryptocurrency that has all the benefits of traditional cryptocurrencies, privacy, anonymity, decentralization, but with a monetary policy built into the blockchain that keeps the price of each token pegged to a stable asset, for example USD or basket of assets, dynamically adjusting its market price through the creative use of a combination of tokens.

As explained in the white paper, the idea is that the protocol would be set up to mirror an asset or an index, say the U.S. dollar or the Consumer Price Index, at which point it would use oracles (links to trusted, external data sources) to monitor exchange rates. The protocol would then automatically expand or contract its supply of tokens to maintain its value. In that sense, it is the world’s first “algorithmic central bank,” operating without need for human discretion.

Even though the development of efficient blockchains has come a long way since 2009, scalability remains to be a major issue for blockchain. Several companies are working various approaches to solve the scaling question, with many implementing side-chain or off-chain solutions.

Cypherium is another contender that is building a blockchain that wants to handle an expanded workload more easily. Cypherium is creating an entirely new blockchain by combining the strengths of Bitcoin’s Proof-of-Work and Byzantine Fault Tolerance consensus mechanisms. This novel consensus mechanism adopts the idea of decoupling key block mining from micro blocks for faster transaction processing, first pioneered in Bitcoin-NG.

Currently, the Bitcoin blockchain supports an average throughput of 7 transactions per second. The Cypherium chain aims to accommodate thousands of transactions per second.

Bitcoin isn’t going away anytime soon and most likely will remain the top global cryptocurrency, because it has by far the biggest network effect and the Bitcoin network continues to grow much faster than other cryptocurrency. Other cryptocurrencies will take over specific niches (Ethereum  Smart contracts) and we can expect newcomers to offer unique twists, creating solutions that will help the entire market evolve and push cryptocurrencies into mainstream adoption.

News Item 3: First 1GB Bitcoin Block Has Been Mined on Testnet

Decrypted: Bitcoin Unlimited developers working together with researchers from the University of British Columbia and from nChain, mined the first ever 1GB block on a Gigablock Testnet.

Gigablock Testnet, also known as BUIP065, has four specific objectives, including the set-up and maintenance of a global test network capable of supporting up to 1GB blocks and sustained Visa-level transaction throughput (3,000 TPS) on the Bitcoin network.

Any successful scaling milestones by the GigaBlock initiative will first be implemented on Bitcoin Cash.

Our take: Scaling has been one of the biggest issues in the recent history of Bitcoin. While a few years ago, only cents were needed to transfer money to another wallet, today fees are high, sometimes above $10, and can take hours to confirm the transaction. Bitcoin transactions are completed when a block is added to the blockchain, but at present Bitcoin’s blocks are limited to 1MB every 10 minutes.

Currently, Bitcoin is able to process about 3-7 transactions per second. Despite the fact Bitcoin (BTC) continues to be the most followed fork, its 1mb block size, limits the number of transactions that can go inside a block, and the time it takes to generate a new block in the blockchain. When you compare this number with Visa’s 24,000 transactions per second, it obvious that Bitcoin desperately needed changes to improve scalability.

The Gigablock Testnet initiative is backed by Bitcoin Unlimited developers, nChain (blockchain technology research and development) and the University of British Columbia. The goals are to determine how large blocks Bitcoin can handle, as well as identify the bottlenecks that may obstruct the network’s scalability, which currently pales in comparison to Visa’s throughput.

Increasing the network’s block size limit from 1MB is needed to reduce fees and make confirmation times reliable again. Bitcoin Cash has already shown that lower fees are acceptable, although confirmation times can still be skewed due to the current network situation.

The research project is setting up a global network of Bitcoin mining nodes configured to accept blocks of up to one thousand times larger than the current block size (1GB). These nodes are connected with transaction generators, each capable of generating and broadcasting up to 200 transactions per second. To identify bottlenecks and measure performance statistics, a series of “ramps” are performed, where the transaction generators are programmed to increase their generation rate following an exponential curve, starting at 1 transaction per second and concluding at 1000 transaction per second.

The Gigablock scaling initiative has been in the pipeline since July 2017, when both nChain and Bitcoin Unlimited convened at a workshop in Vancouver, Canada. Both groups share a common vision of scaling Bitcoin on-chain.

Bitcoin Core’s reluctance to larger on-chain capacity, pushed supporters of bigger blocks to fork Bitcoin in August. Supporters of bigger blocks and on chain scaling have formed an active community, around Bitcoin Cash. Bitcoin Cash was created on August 1, and now is trading around $300 with a market cap of $5 billion. A couple of weeks after it launched Bitcoin Cash made a bold move of increasing capacity to a default 8MB blocks and scraping away Segregated Witness.

Bitcoin Cash wants to empower merchants and users with low fees and reliable confirmations. The goal of Bitcoin Cash is to increase the number of transactions that can be processed, and supporters hope that this change will allow Bitcoin Cash to compete with the volume of transactions that PayPal and Visa can handle by increasing the size of blocks.

Now this latest breakthrough, makes the 1MB blocks look so 1980s. If the Gigablock initiative is able to increase the Bitcoin block size, making it reliable and workable, it could make Bitcoin even more viable for mainstream adoption in the future.

OpinionBitcoin’s price bubble will burst under government pressure

Bitcoin is a decentralized, denationalized digital currency operating outside the traditional banking and governmental system.

The biggest advantage that Bitcoin brings to the table is the ability to by-pass the conventional payment models. It connects buyers and sellers across national borders at minimal transaction costs. One doesn’t need to have a bank account to hold Bitcoins, and certainly, payments are a lot faster compared to traditional payment methods.

The price of Bitcoin has soared this year, from $1,000 to over $5,800 a few days ago. And it not only Bitcoin. Ethereum started the year at $8 and has traded as high as $400. In 2017, every week new tokens are issued, and Initial Coin Offerings have raised close to $2 billion in the first two quarters, so far this year.

While there are many other cryptocurrencies available today, Bitcoin has become synonymous with the word “cryptocurrency.” Anyone who has traded Bitcoin has come across the volatility and price fluctuations.

This has kept Bitcoin in the news.

The current price of Bitcoin has a 91% correlation with the volume of Google searches for bitcoin-related terms, according to a study by SEMrush, a search engine marketing agency. Google searches for “Bitcoin” go up and down, with the price of Bitcoin.

It has also made Bitcoin a lot of enemies.

It is no wonder then that both government agencies and financial institutions have remained skeptical of Bitcoin. Regulators are at odds over how to regulate Bitcoin and other cryptocurrencies,. Regulators in the U.S., Singapore, Japan Russia and China are looking at regulatory measures to control the growth of digital tokens and how to tax them.

China recently made it illegal for companies to raise new funds by issuing virtual tokens and shutdown exchanges. Japan is ready to introduce regulatory oversight on cryptocurrency exchanges in October. Meanwhile, the U.S. Securities and Exchange Commission (SEC) provides guidelines on its website for investors to consider before participating in token sales.

One of the reasons that people think Bitcoin is a bubble, is because its just so new for most. Bitcoin has come to the forefront, surpassing the performance of other financial assets. Earlier this year the price of a Bitcoin surpassed that of an ounce of gold for the first time. Currently, all the Bitcoin in the world is worth close to $80 billion.

Blockchain has found its way into financial markets, but for many Bitcoin is the black sheep. Jamie Dimon, JP Morgan’s CEO,  just might be Bitcoin’s biggest hater. A couple of days ago he said “governments around the world will crush Bitcoin,” regulating digital currencies out of existence. He admitted that the Bitcoin could reach $100,000 before it “goes to zero” and pointed that speculators are the biggest driver behind a recent rally.

But some factors have been working to Bitcoin’s advantage: economic and political uncertainty in several countries, increased inflow of institutional money and mainstream momentum by more and more people.

Some of the world’s biggest central banks have been running programs on adopting digital currencies. From the PBoC to the MAS and E-Estonia, many are looking to have their currencies go digital. In Sweden, they have already declared cash dead and India recently had a massive demonetization drive, part of which was driven by the need to make cash transactions digital.

Through a digital currency, central banks can trace funds more easily, hence be able to tax them. It also reduces the costs of printing and maintaining paper currencies, which according to some estimates costs up to 1.5% of GDP. Additionally, the cost of handling physical cash reduces for banks consequently reducing the need to operate physical bank locations.

Are fiat currencies going crypto? Yes, they certainly will be.

Will Bitcoin replace digital fiat currency? Is it a bubble? Will governments “crush” Bitcoin and altcoins? Your guess is as good as mine.

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

 

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