Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 4th December 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: Global crypto-currency crackdown sparks search for safe havens

Decrypted: Initial Coin Offerings (ICO) have grown to account for more startup funding in blockchain-based companies, when compared to investments from venture capital. Since the beginning of the year, over $3.6 billion has been raised to date in 228 ICOs, with the large majority of that taking place in the first half of 2017.

Nearly half of the cash that has poured into newly issued cryptocurrencies has been raised in Europe, based in research by Atomico. European-based entities have raised $1.76 billion through so-called initial coin offerings, or ICOs, since 2014, representing 46% of funds raised globally.

Initial Coin Offerings have flourished in unregulated markets, where investment capital is scarce. China and South Korea have banned digital coin sales, while the U.S. Securities and Exchange Commission is weighing tougher rules.

Our take: In a recent analysis of 65 of the biggest digital tokens from ICOs as measured by market value, almost 75% were found to have a medium to high probability of being regulated as a security, according to Token Report. The firm looked at factors such as whether issuers made public statements about potential investor gains and whether they had actual working products.

At a minimum, financial watchdogs around the world, have issued warnings to investors about largely unregulated ICOs, highlighting a wide variety of risks.

The U.S. Securities and Exchange Commission warned the industry in July, that these tokens are effectively securities, such as stocks or bonds, and they may need to be registered with the agency. Regulators could require issuers to refund all money to investors, as well as impose fines on the startups.

In November, ESMA altered investors of the high risk of losing all of their invested capital. In Germany, the Federal Financial Supervisory Authority warned about the systemic vulnerability of ICOs to fraud, money laundering and terrorist financing and the risk of investors losing the money invested.

In China, token sales were banned, as they were declared illegal and disruptive to economic and financial stability. After China’s September 4th ban, ICOs have been cooling down. In fear of upcoming regulations, only $516M was raised in October and $486M in November.

While it certainly looks like more governments around the world are going to implement and enforce regulations for token sales, ICO pros speaking “CoinDesk’s Consensus: Invest”, suggested self-regulation to lessen the blows likely to come from enforcement and regulatory actions.

ICOs are still operating in a legal gray area. However, the industry is moving fast to develop standards for a compliant framework for token sales. Projects like the SAFT (Simple Agreement for Future Tokens) help navigate U.S. laws. Blockchain technology is still in its early days, but for now crypto bulls are betting that blockchain will infiltrate every major industry, just as the internet did two decades ago.

News Item 2: Warning over explosion in web browser-based crypto-mining

Decrypted: Cryptocoin prices have been surging. Bitcoin’s price today broke a new all time high, reaching $11,800.  And it not just Bitcoin, but Ethereum, Litecoin and other cryptocurrencies. Its no wonder that people are trying to find ways, to mine coins without having to invest in dedicated hardware.

Hackers and even legitimate website owners are increasingly using JavaScript-based cryptocurrency miners to monetize, by using the CPU power of their visitor’s computers to mine cryptocurrencies.

Our take:  In September 2017, a company introduced Coinhive, which mines the cryptocurrency Monero. Coinhive, is a piece of code written in JavaScript. Website owners can simply embed it in their website.

Effectively, Coinhive introduced a new business model for websites.

It claims that website owners can remove ads from their websites, load Coinhive instead, and while users are simply browsing the website, mine for Monero. In that way, website owners can supposedly still make profit and support their businesses, without bothering their visitors with advertisements.

But Coinhive’s JavaScript increasingly pops up in top 3 million websites. Research shows that over 2,500 of the top 3 million websites (1 in 1,000) are running the Coinhive miner. BitTorrent sites and the like were the main offenders but the batch also included the Ecuadorian Papa John’s Pizza website.

You can even find WordPress plugins that make it a cinch.

However, up to now websites using such crypto-miner services could mine cryptocurrencies, only as long as you’re on their site. Once you closed the browser window, they would lose access to your processor and associated resources, which eventually stopped mining.

Unfortunately, this is not the case anymore.

Researchers from security firm Malwarebytes discovered what they describe as “persistent drive-by crypto-mining”, which goes completely unnoticed by the vast majority of people. In a blog post they explain that a pop-under is used to enable crypto-mining to continue even after a visitor closes or navigates away from a site. To keep itself unidentified, the code running in the hidden browser always takes care of the maximum CPU usage and maintains threshold to a medium level. The blog post says:

“This type of pop-under is designed to bypass adblockers and is a lot harder to identify because of how cleverly it hides itself. Closing the browser using the “X” is no longer sufficient. The more technical users will want to run Task Manager to ensure there is no remnant running browser processes and terminate them. Alternatively, the taskbar will still show the browser’s icon with slight highlighting, indicating that it is still running.”

This technique is a lot harder to identify. There are few ways to block such activities, using browser extensions like No Coin, that automatically block in-browser cryptocurrency miners for you, and regularly update themselves with new mining scripts that come out.

Cryptocoin mining can be good or a bad thing.

It really depends whether the owner of the website and the website visitors are aware of it. There is a lot of potential for the technology, especially if websites were to offer it as an alternative to advertising. Rather than having pictures and videos on the page, the user can offer the computing power of their PC or mobile and mine cryptocurrencies, for the website owner. If the website owner could be trusted to limit the computing power requested, the technology could be added into websites safely and give site owners a new stream of revenue.

Even without widespread adoption, the concept of in-browser cryptocurrency mining, highlights the potential cryptocurrencies have in peoples’ lives. It will be interesting to see whether how things develop and if popular websites adopt it. One thing is certain, it won’t be the last of these mining scripts, we’ll see plenty more in the future.

News Item 3: Sidechains Project Pushes Ahead with Bitcoin BIP Submission

Decrypted: It is always good to keep an open mind, when it comes to scaling Bitcoin. For while now, there have been solutions in planning and plenty of debate, about how to scale Bitcoin to millions or billions of users. Some of the proposals out there include Core, Unlimited, Extensions Blocks, and BIP 100. The ideas that mostly frequently come up, are proposals like Lightning Network and Sidechains.

Sidechains are some of the most interesting Bitcoin Improvement Protocols (BIPs) in the blockchain space. A sidechain allows you to use a blockchain’s token as the underlying asset for another blockchain, so that Bitcoin users can take advantage of the properties of these separate chains.

Our take: The Bitcoin scaling debate is far from decided. With regards to sidechains, there have been various proposals  and all have different security models.

Sidechains are supposed to make it possible for users to move Bitcoins between different Bitcoin-based blockchains, with different rule sets. In this way, new techniques for preserving the privacy of transactions or a smart contract system similar to Ethereum’s, could be added to a Bitcoin blockchain, without changing the Bitcoin blockchain.

As an architecture, they allow to build semi-decentralized products and services for Bitcoin, that was impossible before. The sidechain idea allows the native cryptocurrency to compete and win out over other competitors, as they are faster confirmed.

Earlier in November the Drivechain project, made a couple of proposals seeking responses on the project’s code, associated with the technology. Drivechain is a two-way peg for interacting with the sidechain.

Sidechain principles, like Drivechain, have been positioned as a way to take a look at new functionalities for Bitcoin, without actually integrating them inside of the cryptocurrency’s code. If carried out, they would efficiently constitute interoperable blockchains, that are pegged to the Bitcoin blockchain.

Would sidechains affect other altcoins? Potentially yes!

Monero, Litecoin and other altcoins could be Bitcoin sidechains, as there’s no additional value to having standalone blockchains. Also its possible that their market caps will all move into Bitcoin. Regardless of the value of any altcoin, the value of Bitcoin could grow substantially, if sidechains become a reality, because of all utility they add.

Whether sidechains will ever be a part of Bitcoin, remains to be seen. However, they would give users more options to support whatever they believe, while they remain an integral part of the main Bitcoin ecosystem. No matter what happens, its an interesting concept.

Opinion: Bitcoin Is Hot, But Good Luck Using It

In 1994, the World Wide Web was the wild, wild west.

There were 10,000 websites and two million computers connected to the Internet. Small potatoes compared to today’s 45 billion web pages and roughly four billion web users. In 1994, Amazon, Yahoo! and Netscape were just starting. Netscape Navigator was the first commercial web browser launched that year, two years before Internet Explorer and 10 years before Firefox.

Until the mid-’90s, the Internet was mostly used by scientists and scholars. Computers were becoming more commonplace at home, but they still used floppy disks and required telephones to literally dial up a connection through America Online (AOL) or Compuserve. Sites had to tell users to “scroll down” and “click here” because, well, no one knew what they were doing.

E-commerce also launched in 1994. The first online transaction was for a pizza from Pizza Hut. In reality no one was selling anything yet. Few retailers had their own websites or Internet pages, and people had no clue where or how to buy stuff.

There were also tons of concerns about security, fraud, hackers, and porn, as well as predictions that as online shopping grew, advertising would absolutely ruin the Internet.

But from the get-go, many people realized that Internet and e-commerce would revolutionize shopping, by making it cheaper, more convenient, and more customizable than traditional shopping in physical stores.

And that’s were we are with Bitcoin and cryptocurrencies today. We’re in the wild wild west stage. While Bitcoin is primarily used for speculative purposes, we all know and understand that the technology works and it will disrupt everything, just like the Internet did.

We should also understand that we are just starting and things will take time to mature.

For now, especially in the Western world, it’s already pretty darn easy to pay for stuff with fiat, thanks to debit cards, the internet and smartphones.

But, digital currencies are revolutionizing payments, making the whole process is instant, secure, without the need of a middleman (banks/financial institutions). Small businesses will be able to engage in global eCommerce with Bitcoin. Digital currencies allow smart contracts and programmable money. This is a good way to ensure that business transactions are carried out safer.

Why isn’t e-commerce accepting Bitcoin yet?

Because Bitcoin is still extremely volatile. Lack of liquidity is the main reason for the cryptocurrency’s volatile nature. And for now that’s the primary reason, that’s keeping most e-commerce sites from accepting Bitcoin.

With Bitcoin futures around the corner, the floodgates are opening for institutional investors. Futures and the options on them will give investors safer opportunities to short Bitcoin. The advent of futures trading on mainstream futures exchanges will reduce Bitcoin volatility and provide shorting opportunities for Bitcoin bears.

With more and more money pouring into Bitcoin, from people that are speculating on its ups and downs, e-commerce will gravitate towards cryptocurrencies, just like things happened at the dawn of the Internet.

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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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