Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 23rd October 2017

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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: Russia to launch the CryptoRuble: Putin call for national version of Bitcoin to ensure cryptocurrency can be taxed

Decrypted: This past week, Russia gave the green light to its own national based cryptocurrency, that will be coming out in coming weeks. Once the CryproRuble is issued, all other cryptocurrencies will be banned in the country.

Not many details are public yet, but from what I’ve read so far, the new cryptocurrency uses blockchain and Russian designed encryption, it will not be mined, but instead issued and tracked just like any other regular currency. The Cryptoruble is designed to prevent people from evading taxes, laundering money for criminal and black market activities or even terrorist funding.

The only resemblance it bears to Bitcoin and other cryptocurrencies, is that it will be using distributed ledger technology and traded online.

Our take: Russia sprinted to announce its new cryptocurrency, in fear that someone else might beat them to the punch. Their Minister of Communications told Russia Today: “I am so confident to declare that we will run CryptoRuble just for one simple reason: if we don’t, our neighbors in the Eurasian Economic Community will do it in a couple of months.”

But the announcement does not comes as not surprise. Russia has been exploring cryptocurrencies and distributed ledger technology for some time now and it was only a matter of time, before the timing was right.

Russian citizens will be able to exchange CryptoRubles for regular rubles. The Russian government plans to control illegal trading, by levying a 13% tax to owners of CryptoRubles that are unable to declare the origin of the coins. The same tax will be applied to any profits earned from price differences, between the purchase and sale of the token.

On the surface the CryptoRuble uses blockchain, just like other cryptocurrencies and one might think that its just like them. But there are several subtle differences between the proposed cryptocurrency and existing cryptocoins. Russia’s decision to make it wholly regulated, controlled, issued and maintained by the government, is big difference to Bitcoin and other coins. The biggest difference is inability to mine CryptoRubles, which highlights a major deviation to decentralized Bitcoin and other cryptocurrencies.

One more time, Jamie Dimon, JP Morgan’s CEO, reaffirmed his rhetoric on cryptocurrencies saying that Bitcoin and other cryptocurrencies are a bubble and will be ultimately crushed by governments.

Maybe he’s right and governments will shut them down.

But, cryptocurrencies were designed with the intent to give people freedom to transact with each other, without government regulation. So to put things in perspective, cryptocurrencies cannot be crushed. These coins are decentralized and they’re code and information. You’d have to shut down the internet, to shut down cryptocurrencies. If a country wanted to ban Bitcoin, the reality is that the network would still be there for people to use. Also, because of the anonymity that blockchain offers, it wouldn’t impossible to stop people from using Bitcoin or other cryptocurrencies and track the transactions.

Now other countries, most likely, will follow Russia’s example. There’s a the growing trend by most central banks, to create a a crypto version of national currencies, without the aspects of decentralization. We’ll have to see how things play out, but this signifies an interesting dilemma between the decentralized nature of cryptocurrencies and fiat cryptocurrencies created by national banks.

While Russia’s recent announcement, is a far cry from Bitcoin’s vision, the announcement of the CryptoRuble is interesting and moderately positive. Having said that, its deviation from other cryptocurrencies, with features that make it traceable, indiscreet and regulated, leaves a big question mark in my mind. One could even go as far as to say that the Russian government is skimming off the top, profiting from speculation. We’ll have to see what happens when the CryptoRuble becomes available, but as I said earlier I have my doubts whether the public will embrace it.

News Item 2: Bitcoin surges above $6,000 for the first time on heavy trading volume

Decrypted: Here we go again. Another week with another record high for Bitcoin prices. This weekend it went past the $6,000 mark and $100 billion market cap. This valuation places Bitcoin above some blue-chip companies, including the likes American Express at $82 billion.

The surge comes just one week after Bitcoin reached another record price, surpassing $5,800. Yet, Bitcoin’s new rally comes despite comments by Ben Bernanke, Federal Reserve former chairman, and guess who… Jamie Dimon, J.P. Morgan’s CEO.

Also this week, Ledgerx, a Bitcoin derivatives trading platform, announced on Friday that it has completed over $1 million Bitcoin derivatives trades within one week of its soft launch. And it looks like we might be closer to a Bitcoin ETF.

I’d say overall, its been a pretty good week.

Our take: Since last week, Bitcoin has surged almost 25%. Despite the fact that bigwigs, banks and governments are knocking Bitcoin, the bulls seem unfazed.

The latest rally comes a few days after Russia announced the CryptoRuble, the possible ban of all other cryptos in the country, and comments from a top government official saying that “Bitcoin Is Worse Than Casinos.”

The SEC is getting closer to approving the first Bitcoin ETF. If this happened it would be big news, very big news, because the digital asset would traded on the regular stock exchange, making it available to a broad range of investors. For now the Digital Currency Group, said it was still in talks with the SEC about launching its own Bitcoin ETF product, despite withdrawing its application last month.

Everyone seems to agree that the upcoming hard forks are driving the price up. Investors see them as an opportunity to end up with two currencies for the price of one. Last time it happened in August, Bitcoin Cash was created, and both the price of Bitcoin and Bitcoin Cash surged. On Oct. 25 we’ll have the first hard fork, Bitcoin Gold. Bitcoin Gold will address challenges of Bitcoin mining. Then on Nov. 18, SegWit2x will happen, to increase block size from 1Mb to 2Mb.

After all, it looks like China won’t be banning cryptocurrency exchanges after all, another reason that Bitcoin is going up. According to recent reports, Chinese regulators will require a license to operate Bitcoin platforms, instead of completely banning them, as many originally expected.

And last but not the least, Fear Of Missing Out (FOMO). Various analysts and articles are coming out saying that Bitcoin prices just might go even higher, anywhere from $7,500 to $10,000 in the short-term. An online survey was conducted by CNBC asking “Where does bitcoin go from here?.” Out of 23,118 people who voted, 49% said above $10,000. No doubt this is attracting more investors, that want ride the wave.

I don’t know if Satoshi is out there, but I am sure he has a big smile on his face. Not just because he created a technology that is changing the world in profound ways, letting people transact easily without intermediates, but also because according to Quartz, Satoshi owns roughly 980,000 Bitcoins, which are worth around $5.9 billion, making him the 247th wealthiest person on the planet.

Dear Mr. Dimon, I am certain he’s laughing all the way to the bank!

News Item 3: Pirate Bay Now Mines Cryptocurrency in Your Browser Without Consent

Decrypted: There was a story in the news that websites are mining for cryptocurrencies when people visit their web pages. The Pirate Bay experimented this way, hoping to make money, by hijacking visitors’ web browsers in order to mine cryptocurrencies. The piracy site used a piece of software that would stealthily take over the processing power of vistors’ computers, to make some extra cash for the site.

Instead of trying to get you to install a piece of software on your computer, they used Javascript when a web page loaded. Most people can’t even tell if the web page contains a hidden mining component and probably won’t even notice any impact on their computer’s performance.

Our take: Over the years, mining has become very competitive requiring huge investments to purchase thousands of computers with fast  processors, that work ceaselessly, trying to solve difficult mathematical puzzles. In this competitive landscape, one of the keys to the game isn’t just computers with fast processors, but finding the cheapest possible source of electricity.

With the rising prices of Bitcoin and other cryptocurrencies, browser-based crypto-hijacking has exploded in popularity over the past few weeks. More and more people are looking at mining and trying to see how they can make money.

The idea for crypto-hijacking surfaced in mid-September, after Coinhive published a script that could mine for Monero, when a webpage loaded. The Pirate Bay site incorporated the script on its pages, and within weeks, copycats started to appear.

Even hackers found ways to inject the script into websites, like Politifact.com and Showtime, without the knowledge of their ownders and mine cryptocurrencies for themselves, using someone else’s site traffic.

But browser-based mining could actually be a positive thing. It could generate a new revenue stream for websites, potentially providing a complimentary or even an alternative revenues to display ads. Coinhive that started all this, has always said that it intends its product to be a new revenue stream for websites.

There are a few more companies working on in this space. Nimiq is building a browser-based Blockchain protocol that combines elements of Bitcoin and Ethereum, streamlined for the web platform. Nimiq is using JavaScript, which means the only software users need is a web browser. All it takes to start mining Nimiq is the click of a button. The platform has an built-in browser wallet and will have a web-based peer-to-peer exchange allowing users to easily turn Nimiq tokens, into fiat currency.

Also, another project tackling browser-based mining is Jsecoin. But this one, pushes browser-based mining past webmasters and app developers, letting anyone with a browser, mine for cryptocurrency and make money. Anyone with web browser and an Internet connection can log into Jsecoin’s platform and start mining and earning their share of the digital currency.

As I see it, the biggest problem with browser-based mining today, is the way its done, basically without the end-user’s knowledge or consent. For years, applications like SETI asked users to opt-in and donate spare CPU cycles, to support their research. Websites using browser-based mining should to be transparent to their visitors, making sure they know about it, maybe even donating some of the money they make to charity. And if not opt-in, they should definitely offer a way for people to opt-out.

 OpinionVinay Gupta On Why Ethereum Is The Future

Over the years, people have debated whether Ethereum is better than Bitcoin. Many people feel they need to choose between the two, because one of them has to be better than the other. IMHO, this is not the case, because both ecosystems approach the same problem in different ways and depending on where you stand, both can be referred to as being better than the other.

Both ecosystems have made completely different choices and because of this, each choice opens some opportunities, while it closes others. They’re both fruit, but they’re also very different. Its like trying to compare apples and oranges.

Here are some of the main differences:

  • Purpose: Bitcoin is a currency / Ethereum is a platform
  • Supply: Bitcoin is deflational / Ethereum is inflational
  • Security: Bitcoin is limited / Ethereum uses a rich built-in programming language
  • Adoption: Bitcoin is the first cryptocurrency / Ethereum is younger and less known

While Bitcoin commands the lion’s share of attention and the largest valuation, when compared to any other cryptocurrency, Bitcoin is a cryptocurrency, while Ethereum is a public blockchain platform for the execution of decentralized smart contracts. They have been designed to do different things. While Ethereum adds some interesting pieces to the puzzle from a technological perspective, Bitcoin’s limited supply, makes it more valuable as a store of value.

Ehereum was initially proposed by Vitalik Buterin in 2013 and went live with its first beta version in 2015. Its blockchain is built with a turing-complete scripting language that can simultaneously run smart contracts across all nodes and achieve verifiable consensus without the need for a trusted third party. This means anything can be done with it, given enough time and enough computing power.

Smart contracts is revolutionary technology. While, the same concept will be part of Bitcoin’s protocol, Bitcoin lacks when it comes to decentralized applications, which makes Ethereum seem better. Ethereum has a technological edge over Bitcoin, yet until it is used by the masses, its superiority is theoretical.

The main technical differences between the two are:

  1. The block time in Bitcoin is 10 minutes, while for Ethereum, the block time is 12 seconds. Bitcoin transactions take a few minutes to be cleared, and transactions on Ethereum are cleared almost instantly, in matter of seconds.
  2. Ethereum uses a Turing Complete programming language and a Turing Complete internal code owing to which almost anything can be calculated by just providing sufficient computing power and a particular time period.
  3. Both Ethereum and Bitcoin use different hashing algorithms. While Bitcoin uses SHA-256 algorithm that produces a number in hexadecimal format, Ethereum uses Ethash algorithm.
  4. Ethereum uses a Ghost Protocol that fends off the use of centralized pool mining. Whereas Bitcoin still employs the pool mining concept.

Now, when we look at them from a currency perspective, Bitcoin is scarce. With a little over 16 million coins in circulation, Bitcoin has as a hard supply cap of 21 million BTC. On the other had, Ethereum already has over 92 million coins in circulation, with more being mined every day.  Ethereum does not have hard supply cap and over time this could be an issue. In this regard, Bitcoin is better.

All things being equal, Bitcoin is better at currency transactions and Ethereum is better at executing smart contracts.

In the end it boils down to one thing: What do you want to use them for? They’re not competitors. They coexist and solve different types of problems. Ethereum is better than Bitcoin and Bitcoin is better than Ethereum, at the same time.

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

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