Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 30rd 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: Bitcoin Gold: Cyber attack mars launch of rival cryptocurrency

Decrypted: The Bitcoin Gold (BTG) hard fork happened a few days ago, but its been catching flak from both hackers and investors alike.

Bitcoin Gold was created by Jack Liao, CEO of LightningASIC, one of the largest ASIC miners in China. The basic idea behind Bitcoin Gold is to decrease centralization of the  mining network. When Bitcoin started out, anyone with a computer could mine for Bitcoin, today, mining is the hands of a few large companies with thousands of computers and hash power.

Soon after the Bitcoin Gold fork launch, its website came under a massive distributed denial-of-service attack. The attackers used Botnet, a network of compromised computers, which flood a website’s servers with page view requests, making it impossible for legitimate users to access the site.

Also, investors have been skeptical. The project first appeared in July as an ICO. A post on Reddit claims that the fork is a huge scam and the developers behind it are trying to take advantage of investor greediness, by promoting it as a way to get “free money”.

Our take: Comparing Bitcoin Gold to Bitcoin, the biggest change it introduces is the use of a different mining algorithm called Equihash, that is resistant to ASICs. ASICs are Application Specific Integrated Circuits, and they differ from CPUs because they do only one thing, but they do it extremely well. ASICs have been blamed for the centralization of Bitcoin. Bitcoin Gold will be using CPUs and GPUs to mine for new coins.

The driving force behind Bitcoin Gold is a team of developers, miners, and other contributors led by Jack Liao, the CEO of mining manufacturer LightningASIC. His financial partner in the endeavor is known simply as Wubi, a Chinese mining tycoon and owner of Chinese Bitcoin news portal Jinse.com. The project’s anonymous lead developer goes by the name H4x3rotab, and several other developers and contributors can be found inside the project’s GitHub project and slack channel.

The fact the the project appeared out of thin air, and many people worried about its transparency and trustworthiness. There were lots of questions like: what’s the initial price of the coin? Who is developing it? Why the main developer is anonymous?

And these are normal questions for a startup that’s developing a new product.

But the biggest criticism Bitcoin Gold is faced with, is its developers decision to mine the new blockchain themselves for some time after the fork, keeping all the mining rewards. The community is concerned this will result in an unknown amount of Bitcoin Gold being mined. The Bitcoin Gold codebase contains a private pre-mine of 8,000 blocks (100,000 BTG). When the market does open, there is a possibility that its developers could sell their pre-mined BTG, on the open market. So far the developers of Bitcoin Gold have said that the coins will be used for development.

When looking at the cached data from the Bitcoin Gold website, it is clear that the company tried to do an ICO in the past. It is unclear why the ICO never happened. Up to now its developers have not been forthcoming about it, raising fear that they’re hiding something from the general public.

Adding to this uneasiness, is the fact that Bitcoin Gold does not currently have:

  • Fully formed consensus code
  • Implemented replay protection
  • Adequate code for testing and auditing
  • Publicly known code developers

This is why most exchanges have been hesitated to list Bitcoin Gold. Late last week, Coinbase said it won’t support Bitcoin Gold, because its developers have not made the code available to the public for review. So far, only two exchanges have committed to listing BTG in November: Bitexchange and BitstarOthers are keeping a cautious eye on developments. One wallet service, Uphold, said it would conduct an operational and security review of the new coin, once the code is out.

A day after the Bitcoin Gold hard fork, another hard fork was announced, Bitcoin Silver. I am starting to get dizzy with all these Bitcoin forks.

Hard forks are not black or white, like most things, there’s lots of gray. While hard forks cannot kill Bitcoin, maybe only affect its price, the real issue with hard forks is the community divide they create. Hard forks are about people. The real threat of a hard fork is not a drop in price, but the loss of innovation, that different people and organizations bring to an ecosystem.

Today, Bitcoin Gold is trading around $121, while Bitcoin Cash, which opened in August a little above $200, is worth $495. Time will tell what will happen with Bitcoin Gold and if it has the potential to turn into a significant player in the market. For now, if you have Bitcoin, there may be some free money in it for you.

News Item 2: 15 Firms Leading the Way on Energy Blockchain

Decrypted: Blockchain for energy is gaining traction, and a lot of money is flowing into the space. Energy experts believe that blockchain technology can solve a maze of red tape and data management problems.

Unlike the financial sector, the energy industry has been slower to recognize blockchain’s potential, but its catching on. A growing number of startups are building on blockchain trying to revolutionize the sector, making it decentralized and connected.

Our take: Electricity is one of the cornerstones for a modern society. In order for anything to function in today’s world, we need electricity. Households, hospitals, traffic systems, computers, communication and the Internet are all dependent on electricity.

The renewable energy market is developing fast, due to increasing energy demands and greater awareness of climate changes. This consequently opens new and interesting opportunities. Research by Bloomberg New Energy Finance shows that by 2040 more than 60% of total investment into the energy sector will go into renewables, which means that the total global investment will be $11.4 trillion of which $7.8 trillion will go into renewable energies and only $3.2 trillion into fossil fuel energy. This is a significant increase of investments into the renewable energy sector,

But for a long time, the energy market has been heavily centralized and regulated, leaving consumers with few or no options, when it comes to choosing an energy provider. Usually, we use a central grid, we pay the prices set by energy corporations, without the ability to choose the type of electricity we want to consume.

The current global electricity market is estimated at $2 trillion, controlled by a handful of large players. Energy companies are incentivized to sell more energy and at the highest possible price. But the market is facing challenges because of centralized conventional power stations, that often require high costs to transmit energy over long distances. In its current state, the energy market will not be able to cope with the increasing demand for electricity, which is expected to more than double by 2050.

The existing model in the energy marketplace, has four main challenges:

  • Centralized : A small number of large energy companies supply billions of customers, who are price takers.
  • Transparency:  Markets are illiquid and in the hands of financial brokers. Electricity is traded Over-The-Counter (OTC) between energy companies or banks and therefore there is no transparency to energy users.
  • Lack of incentives to use less energy : Energy companies make money from selling more energy, so consumers are not incentivized to change behavior.
  • Lack of competition: The barriers to entry are high, due to cost and the complexity of regulations, the two primary reasons that monopolies operate all major power markets globally.

But why is blockchain important for energy?

In a recent report, Lux Research tried to give an answer:

“Power is a logical use case for a few reasons: units of power and energy are a strong fit for so-called smart contracts based on blockchain, and meters can feed data directly into blockchain logic. Power also relies on cumbersome trading and clearing systems to support complex markets, and blockchain can help create a leaner distributed system that can cut out intermediaries and associated fees”.

Several startups and utilities around the world are already developing pilots. For example, Brooklyn Microgrid is developing an app that enables energy trading between consumers in a neighborhood. Similarly, Grid Singularity is focusing on the exchange of granular and private data between different parties within the energy market.

Even large energy firms are jumping into the action. British Petroleum and Austria’s Wien Energy are among the firms that participated in an energy trading platform trial earlier this year.

Another use case for blockchain within the energy industry is use of cryptocurrencies for payments. Marubeni accepts cryptocurrency payments in some regions of Japan.

But the utility of blockchain can go far beyond payments. Bankymoon, a South Africa-based blockchain startup, partnered with Usizo to enable cryptocurrency payments for Bitcoin-compatible smart meters located in remote areas.

Blockchain could lead to further changes within the energy ecosystem.

Electricity prices are currently traded via exchanges or over the counter (OTC). In many markets, over 75% of volumes are traded OTC. This means that bids/offers are left with financial brokers, and this is often done outside of exchanges. Visibility and transparency is one of the major features lacking in the current market. Peer to peer trading will allow consumers to choose the best option, purchase it, consume it, using  smart contracts and blockchain.

This is only the start.

The use of blockchain could trigger some important changes in the electricity sector, the same way that mobile networks enabled emerging economies to leap-frog dominant markets. Given the fact that 1.2 billion people live without electricity and many emerging economies are working towards electrification, a truly decentralized model can offer a lot of value, steering clear of some of the challenges and limitations that plague the existing models for energy. The rise of smart meters, smart homes and smart grids is the perfect environment for blockchain to potentially thrive in. Imaging a world where generators sell electricity directly to the consumers.

News Item 3: Ethereum Stepping Stones: Constantinople And Casper

Decrypted: For the past few weeks, the Blockchain community has been abuzz with the news of Ethereum Metropolis upgrade. On October 16, Ethereum’s Byzantium hard fork went into effect. Byzantium is the first of the two Metropolis updates. The second, Constantinople will follow.

Consequently, the price of Ether surged by over six percent surpassing the $340 mark. Historically, Ethereum hard forks have been positively adopted by community, because the Ethereum Foundation and its open-source development community perceives hard forks as an efficient way to update the protocol.

Our take: Despite the growth of investment that Ethereum has witnessed this year, Byzantium is part of a series of improvements to the protocol that has been in development since 2015.

Metropolis is the 3rd stage in the 4-stage process, planned in Ethereum’s development. This stage includes two hard forks: Byzantium and Constantinople. Byzantium is occurring at block number 4.37mil. Constantinople does not currently have a release date, but is expected in 2018.

The Byzantium hard fork provides significant improvements to the Ethereum blockchain network, in terms of privacy, scalability, and smart contracts efficiency.

Perhaps the most important change that is happening with this upgrade is Account Abstraction, as it will ensure Ethereum’s accessibility to everyone. There are two types of accounts in Ethereum. First, there are external accounts which are controlled by private keys, like the accounts in a wallet. Then there are contract accounts, which are controlled by the code deployed to the blockchain. Account Abstraction is an improvement to make these two types of accounts more similar, and make the logic controlling external accounts as flexible as contract accounts.

Account Abstraction opens up all kinds of other transaction permission management as well. For instance, right now the sender of a transaction needs to pay for it. This is not ideal for all use cases. It is proposed that with abstraction there will be systems where contracts can pay the miners, instead of the transaction sender. This feature will be a big push towards global adoption of Ethereum. It makes a complex technology accessible to the masses, removing the complexities and making it user friendly.

Byzantium also adds native support for certain mathematical operations that developers could use to help verify encrypted transactions, called zero-knowledge proofs. This adds an extra layer of privacy to the network, because you wouldn’t be able to tell a user’s identity or account balance, but only check that a transaction occurred.

Byzantium adds opcodes for supporting future, post-devcon updates to the Solidity compiler, such as sharing data of any size between smart contracts, or accessing data without changing the blockchain state.

Now that this upgrade is completed, the Ethereum team is working to convert the network from a “Proof-of-Work” (PoW) to a “Proof-of-stake (PoS). This will help to significantly decrease the consumption of electricity when mining.

With all these hard forks we’ve been hearing about (Bitcoin Cash, SegWit2x, Bitcoin Gold), people have started to assume that hard forks cause chain splits. But, the reason those forks split the chain, was because the changes they proposed were controversial and not everyone was on board. However, these upgrades have been unanimously agreed upon for a long time.

This, is not the first time Ethereum has upgraded and it certainly will not be the last time. Ethereum was not designed to be, just a mode of currency. It was designed to be a platform for decentralized applications. Byzantium has brought so many changes to Ethereum that it will be fascinating to see how things turn out.

The upcoming year could be absolutely revolutionary for Ethereum and its dream of a decentralized future.

OpinionThe End Of Easy Money Could Crush Bitcoin Prices

Bitcoin was born in 2009, the year after the last big financial crisis of 2008. Since then, its price has rallied from zero to over $6,000, a week ago. During its existence, Bitcoin has enjoyed a low interest rate environment, with many investors seeing it as an opportunity, similar to other assets, like bonds.

The US. Federal Reserve in its last meeting decided not to hike interest rates, but instead maintain rates at 1%-1.25%. But in December the Fed will probably raise interest rates and then again, three or four times over the course of next year.

When interest rates go up, there are real effects on the way consumers and businesses access credit, to make purchases and plan their finances. Usually, some things go up (credit card rates, savings), some stay the same more or less (auto loans rates, mortgage rates), while others go down (business profits, consumer spending, real estate purchases).

Possible interest rate hikes has led to widespread speculation, about what will happen to Bitcoin and the price of other cryptocurrencies. Many have been the voice of doom and gloom for Bitcoin and cryptocurrencies.

When we look at Bitcoin versus the US. dollar, Bitcoin’s price has always shown an inverse relationship to the USD. When the Fed decides to raise interest rates, the USD will benefit greatly with more investment inflow, as strong interests rates indicate a strong economy.

However, due to Bitcoin’s volatile nature, it is likely that changes in interest rates alone, would not be enough to cause significant market changes. There are other more important things that affect Bitcoin’s price. Over these years, Bitcoin’s framework has challenged regulators, as most of them struggled to find ways to control it. This led to some countries banning it or making it illegal, others remaining observant and several working out ways to tax and regulate it. Although there still isn’t a very clear stance by many, a number of countries (eg. Japan) are coming out in support of the cryptocurrency.

Bitcoin is still very reactive to news, and an increase in interest rates will affect its price. But IMHO, this is something Bitcoin will overcome. Anyway, it can give an opportunity to investors to buy at more reasonable levels.

There is always the possibility that interest rates may remain unchanged. There are several reasons that could keep them unchanged, and these include European, Japanese, and Chinese economies and low inflation.

In 2000, I lost some money in the market, and ever since my strategy has been pretty simple. I don’t have time to day trade and closely follow market trends. I put my time and money in things that I think are doing something interesting or will have a significant impact in the future.

Many people say that crypto is in a bubble and that its going to burst, just like the dotcom’s did. They may be right. But, here we are in 2017, and the predictions about the Internet have come true. And not only, there are many things that we couldn’t even imagine in 2000, that exist today because of Internet technology.

IMHO, the same goes for cryptocurrencies and blockchain. They are going to change the world just like the Internet did. So for example, if you think Ethereum will be the backbone of the blockchain universe, then go long, put your money in it and forget about short term price gains. Interest rates will go up and down, good and bad news will surface, but in 10 years time you’ll walk away with a lot more money, than you originally invested.

HODL is a state of mind!

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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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