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: Plan B? Ethereum Innovators Are Reviving the Fight for Net Neutrality
Decrypted: The Trump administration wants to destroy net neutrality and hand over the free and open Internet to a small handful of big corporations. On on Thursday, the Federal Communications Commission (FCC) overturned net neutrality, passed during the Obama administration, rolling back crucial protection for the Internet
Net Neutrality ensures that large corporations and Internet Service Providers (ISPs) did not control the internet. It treats access to the Internet as a basic and essential service like the telephone, electricity, water, sewer, and the other utilities we have in our lives. It forces ISPs to treat all Internet traffic and content equally, preventing companies like Comcast and Time Warner, from giving preferential treatment to some content providers, over others.
Without net neutrality, ISPs would become gatekeepers, picking winners and losers, charging unreasonable fees, stifling competition, and limiting consumer choices.
Our take: The Internet is great. It has music, videos, all kinds of other content and you can make transactions using Bitcoin and other cryptocurrencies. However, the Internet is only as good as it is, because it is open and free. Anyone can access the Internet and everyone can contribute. Unfortunately, the new ruling by the FCC is changing all that.
Effectively, ISPs now have the ability to block certain websites from their customers or even charge more to use them. ISPs could potentially have the power to control access to cryptocurrency exchanges, the speed of transactions, and even prioritize transactions for their own cryptocurrencies.
The lack of net neutrality could potentially affect blockchain transactions and could kill all cryptocurrencies. An ISP could decide to effectively end cryptocurrency, by shutting down access to make deposits or withdrawals, from exchanges that are not approved.
ISPs could decide to issue their own coins and prioritize these transactions, over others, by running them through approved exchanges. There’s already some research on how ISP’s can interfere with blockchain. Basically, when a crypto transaction goes through an ISP, that ISP can interfere with it and do a partition attack (separate the network) or a Delay Attack (delays the block). This interference would destroy any attacked blockchain.
Looking at token sales, many blockchain companies are running or considering running operations on smart contracts. If a competitor was able to tamper with these transactions in any way, it would be disastrous.
Essentially this looks like a way shutdown Bitcoin and other cryptocurrencies. ISPs, under the pressure of governments or other large institutions, could stop access to cryptocurrency exchanges.
Also advocacy groups are considering lawsuits to try and stop the repeal, one of the largest of which is the Internet Association, which includes internet heavy hitters like Alphabet (Google’s parent company), Netflix, Facebook, and Microsoft.
And they are not alone in this fight. Cryptocurrency developers aren’t taking any of this lying down. In fact, they’re considering ways to use the blockchain to fight against net neutrality dismantling.
The Ethereum community, has started planning out how to leverage the blockchain ledger that tracks transactions to bypass potential traffic shaping measures. An Ethereum-based system could run in the background, which would allow users to set up nodes and provide unrestricted Internet access through back channels.
While Trump and his merry band can’t completely ban cryptocurrency transactions in foreign countries, the US with its power and influence can shape global policy. The Internet has become an unparalleled economic engine, generating millions of new jobs while providing even the smallest businesses with access to a global marketplace. We should not be taking steps that undermine its core purpose. This is as critical as freedom of speech.
News Item 2: SEC shuts down Munchee ICO
Decrypted: The U.S. Securities and Exchange Commission (SEC) halted the initial coin offering (ICO) for a project that had intended to raise up to $15 million to improve its mobile restaurant reviews application.
The SEC served Munchee Inc., privately-owned Delaware corporation based in San Francisco, with a cease and desist order to halt the offering on grounds it was an unregistered security. According to the order, in the course of the ICO, the company and other promoters emphasized that investors could expect that the company’s growth plans, would increase the value of their token.
Munchee tried to sell MUN tokens, a form of digital currency that would be used by both reviewers and restaurants to unlock premium features in the app and to buy advertisements. Munchee was seeking to raise $15 million to grow its business and recruit more users, increasing the value of the MUN tokens in the process and allowing the investors to resell the tokens for a profit.
Our take: Proceeds from Initial Coin Offerings (ICO) have topped $4 billion this year, despite escalating warnings from U.S. officials of rising risks and fraud.
The SEC has begun cracking down on non-compliant token sales, causing organizers to take a more careful approach when launching ICOs. The U.S. Securities and Exchange Commission (SEC) recently formed a Cyber Unit to fulfil this task.
The SEC stopped the Munchee ICO because it found that violated sections 5(a) and 5(c) of the Securities Act, by not registering as a security or obtaining an exemption, and by offering to sell an unregistered security via a public medium. Last week, the SEC froze the assets of PlexCorps, a company that was running a coin offering for its own cryptocurrency called PlexCoins, and filed civil charges against Dominic Lecroix, the Canadian who was allegedly running it.
The action against Munchee, is in alignment with a statement made by SEC boss on Monday, where Jay Clayton warned investors to beware of putting their money into cryptocurrencies, saying trading and public offerings in crypto tokens may be a violation of federal securities law.
While the SEC said it would not seek a penalty against Munchee, because the company shut down the ICO quickly and returned the proceeds to investors without issuing tokens, this action is significant. It shows the the SEC is stepping up to address ICOs for violations, even if there were no claims of fraud.
For a long time now, ICOs have thought that by issuing a utility token they would avoid getting into hot water and could safely raise money with a token sale. Perhaps the clearest takeaway from this, is that mere claims of utility in a white paper and other marketing materials won’t fool anyone, much less the SEC.
As governments around the world start to address the question of cryptocurrency regulations, it is refreshing to see the SEC take a careful look, particularly one that doesn’t just labels every ICO a fraud. This is a sign of growing maturity. It’s also an opportunity for the most innovative projects to stand out, an opportunity to clear a crowded field of fraudulent blockchain projects.
News Item 3: Ethereum Browser Bug Could Put User Funds At Risk
Decrypted: The Mist team warned users of a bug found in Mist Browser Beta and provided a security checklist. According to a recent blog post published by Ethereum Foundation, using Ethereum browser Mist may put cryptocurrency private keys at risk.
This threat stems from the newly discovered vulnerability, which they describe as “high level of significance” and affects all existing versions of the browser. However, the associated Ethereum Wallet is not at risk. As a result, Mist users are encouraged to avoid untrusted websites and use Ethereum Wallet to manage any funds.
Our take: The official Ethereum Wallet, sometimes also called the Ethereum Mist Wallet, is a feature that is built into the Ethereum platform.
Designed by the team behind Ethereum, the Wallet is integrated into the Mist web browser. This browser is an application that, while still under development, can be used to connect to the main Ethereum network and interact with other Ethereum applications.
This new threat has led to a warning to all mist users, to avoid any unknown or mischievous websites and to default to the Ethereum wallet when managing any funds. The security breach seems to be coming from underlying software framework, Electron. The electron has been delaying to upgrade to correct known security issues which have led to increased potential hacking.
The vulnerability by Electron has forced mist to consider migrating to fork of Electron from Brave. The work which is called Muon has a frequent release schedule. According to Mist developer, Everton Fraga Mist is still in its beta mode. He went on to say that those who engage with the browser are doing so without warranty.
In the post, Fraga stressed that Mist is still in beta mode, and users who use the browser do so without a guarantee.
“Due to a Chromium vulnerability affecting all released versions of the Mist Browser Beta v0.9.3 and below, we are issuing this alert warning users not to browse untrusted websites with Mist Browser Beta at this time, The beta version of the Mist browser is provided ‘as is’ and ‘as available’ and there are no express warranties, including but not limited to the warranty of merchantability or fitness for a particular purpose.”
Mist browser users are advised to follow a seven-step checklist to ensure maximum safety:
- Avoid keeping large quantities of Ether or tokens in private keys on an online computer.
- Back up your private keys.
- Do not visit untrusted websites with Mist.
- Do not use Mist on untrusted networks.
- Keep your day-to-day browser updated.
- Keep track of your Operating System and anti-virus updates.
- Learn how to verify file checksums.
In the period following high-profile Ethereum-related security issues, notably Parity’s notorious hack and accidental quarantine of funds, developers are conspicuously keen to highlight their commitment to keeping on top of new problems.
Opinion: Litecoin founder Charlie talks about cryptocurrency risks
We can expect in 2018, the issue of scalability to be one of the hottest topics. Bitcoin will emerge as a full-fledged payment network. We’ll see the solutions being adopted to increase transaction times, to a competitive level. Scaling solutions like the Lightning Network and sidechains will emerge, driving up, both Bitcoin’s utility and price.
Bitcoin and other cryptocurrencies will become water-cooler conversation. Everyone and their mother will want to find out everything about crypto and how they can profit from them. Also with a futures market and options, more institutional investors will finally start jumping in. But with financial instruments finally starting, we could see billions of dollars in institutional money flow in, quadrupling prices.
Tokens for everything. Everything will have its own token. And as our world becomes tokenized, we can also expect to see more regulation. We are already seeing it with the recent crackdowns on some ICOs by the SEC. There will be a shakeout in ICOs and a flight to quality. The ICO industry will continue to grow, but in regulated framework. Entrepreneurs will have to jump through a few extra hoops to get their ICOs launched within a clear legal framework. The increase in regulation, will adds a level of maturity, that will help backers weed out the good from the bad.
This will the last post for this year, and I’ll be catching up with everyone after the New Year. I would like to wish everyone happy holidays with their loved ones!
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