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.
News Item 1: Bitfury Enters Bitcoin Crime-Fighting Business
Decrypted: Bitfury Group today released Crystal, a new, all-in-one Bitcoin Blockchain investigative tool designed for use by law enforcement organizations and financial institutions. Crystal provides a comprehensive view of the Bitcoin Blockchain and uses advanced analytics and data scraping to map suspicious transactions and related entities.
Our take: Law enforcement is concerned that virtual currencies like Bitcoin, already known to be used for illegal transactions, including sex and drug trafficking, will play an even bigger crime role as more investors use it as their preferred payment choice.
Public blockchains have the potential to fundamentally improve our day-to-day lives and be strong forces for social good. Unfortunately, there are people who exploit public blockchains and take advantage of their pseudonymity to commit crimes.
Crystal, Bitfury’s tool will make it much easier to identify and track criminal activities on the blockchain. Crystal, provides a critical step toward ensuring that the Bitcoin Blockchain and other public blockchains have a safe and secure future.
While Bitcoin users can withhold their identities, they can’t avoid revealing other information that can be useful to investigators. Every Bitcoin transaction is recorded on its blockchain, a publicly accessible record of all transactions made using the currency. Blockchains provide a really useful source of truth.
Another company, Chainalysis, develops software tools for analyzing blockchain data. Its products can help investigators draw inferences about how people are using the currency. Chainalysis combines its analysis with other publicly available information to identify users through the unique strings of numbers they use on the blockchain, called addresses, and then map how they move funds around. This technique can be used to do things like identify the Bitcoin exchanges where the users of a gambling site are converting their bitcoins into dollars.
As Bitcoin has skyrocketed in value and popularity over the last year, so has the attention given to the digital currency by law enforcement agencies, making it a less attractive method of payment in the criminal world. Newer cryptocurrencies, like Zcash and Monero, are designed to conceal the information that Chainalysis, BlockSeer, and others use to follow the money.
Criminals are switching to more obscure cryptocurrencies such as Monero. The European Union’s law-enforcement agency, Europol, raised alarms three months ago, writing in a report that other cryptocurrencies such as Monero, Ethereum and Zcash are gaining popularity within the digital underground. Online extortionists, who use ransomware to lock victims’ computers until they fork over a payment, have begun demanding those currencies instead. On 18 December hackers attacked up to 190,000 WordPress sites per hour to get them to produce Monero. Privacy coins such as Monero, designed to avoid tracking, have climbed faster over the past two months as law enforcers adopt software tools to monitor people using Bitcoin.
As with any disruptive technology, many of the initial use cases revolve around illicit activities. But as everyday people grow concerned about privacy and surveillance, there is utility in these currencies that go beyond just a means of exchange for illicit goods.
Decrypted: Facebook has banned all advertising for cryptocurrencies because they are “frequently associated with misleading or deceptive promotional practices”. The company added the rule to its advertising policies on Tuesday, in an update to its list of “prohibited content”.
Our take: It seems like Facebook is actually blocking any ads, that contains keywords like “crypto”, “ICO”, “Bitcoin” etc.
The problem is many of these ICOs are fake. Individuals will put up a website and promote a digital currency with no intention of actually developing the product. Once the funds are raised, they’ll take the money and disappear into the abyss of the internet. Since millions can be raised through an ICO it’s worth it for these fraudsters to spend tens of thousands on Facebook ads promoting their products.
The misconception here is that Facebook is against all cryptocurrencies. That is simply not true. Earlier this year, Mark Zuckerberg said in a blog post, “There are important counter-trends to this, like encryption and cryptocurrency, that take power from centralized systems and put it back into people’s hands. But they come with the risk of being harder to control. I’m interested to go deeper and study the positive and negative aspects of these technologies, and how best to use them in our services.”
Facebook is merely trying to better understand these technologies so they can ultimately create a safer experience for their users. In order to do so the ban needs to be intentionally broad so they can gain total control.
The new ban is likely to be a kick in the gut for many ICOs and companies aiming for it. This could very well lead to yet another slowdown on the ICO market and it is not unlikely that sooner or later Twitter, Instagram and other social media will be forced, one way or another, to follow the example set by Facebook.
Decrypted: The two largest US banks have announced that they are halting credit card transactions related to purchases of Bitcoin and other cryptocurrencies. The latest firms to direct fire at cryptocurrency investors are JPMorgan Chase and Bank of America, the two largest banks in the US.
The world’s largest financial institutions continue to circle the wagons in response to growing consumer interest in cryptocurrencies, even as startups provide investors with new ways to engage with the booming ecosystem.
The two major banks, released a report stating that they will no longer allow the purchase of cryptocurrencies with their credit cards, citing money laundering as a primary cause. They also say that they are concerned that consumers may purchase more crypto than they can afford to.
Our take: In what appears to be the latest twist in the bank’s war of crypto, several major banks are considering blocking the purchase of cryptocurrency on their bank issued credit cards.
Bank of America is just one bank that recently announced that they will be restricting credit card purchases of cryptocurrency on sites like Coinbase which sell Bitcoin, Litecoin and Ethereum.
JP Morgan Chase recently began assessing fees on both credit cards and debit cards when used to purchase cryptocurrency. The credit card fee was called a cash advance fee and the debit card fee was being charged as a teller assisted transaction fee.
The new limitations and fees have forced Coinbase to send out a letter to their users explaining that the banks changed the codes on their credit card transactions to make these be charged as cash advances. Coinbase, obviously try to quell the rising number of angry customers, has made it very clear that these fees were imposed without notice upon the Coinbase customer base.
It should be no surprise that banks are refusing to lend customers money to invest in their most formidable competition. National bank and centralized financial service providers see the cryptocurrency movement as a threat, and while they recognize the benefits of blockchain in principle, they do not want to lose business to the likes of cryptocurrency exchanges.
Numerous countries are moving to either regulate or ban cryptocurrency, including India and China. Even in the U.S., which has taken a more laissez-faire approach towards crypto, the Internal Revenue Service has begun collecting customer records from major exchanges in a bid to hunt down tax evaders.
Bitcoin’s free-fall from $20,000 shows no signs of slowing down, and the conventional wisdom that the currency was not going to drop below $10,000 hasn’t held up. Bitcoin alone has lost nearly $200 billion, while virtually all of the major cryptocurrencies are also seeing major losses recently.
The recent downturn has come about because of strong threats from regulators around the world, fears of price manipulation, Facebook’s ban on using its advertising system to advertise on cryptocurrencies and now banks ban on credit cards to buy crypto.
Potentially cutting off card purchases has big implications for Bitcoin and other cryptocurrencies, making it more difficult for an enthusiastic public to jump into that market.
Opinion: Dot Com Buble vs. Crypto “Bubble”
Last week I was at the d10e conference on decentralization at the Cayman Islands and during one of the talks a comparison between the dot com bubble and crypto bubble came up.
As the market has been evolving there are plenty of startups in this space that are creating value and solving real problems. The crypto market and DLT have introduced plenty of new innovations, one of them being ICOs, that are changing how people and projects raise money, regardless of where they are and how close or connected they are to large startup ecosystems.
While there have plenty of scams during the dotcom era and now with cryptos, regulations will solve a lot of the problems that exist. For those us that have lived the dotcom bubble, I’d say it was crazier than it is today. Anyone with “Intenet” or “web” in their business plan, regardless of what it said, had a easy ticket to money.
But there is no denying the innovation and disruption that cryptos are bringing to the table. Yet this “bubble” is different from the past.
1. The dotcom bubble was primarily centered in the US. Anyone in the world can buy cryptos, giving them access to a wider pool of capital Bans by China and others were only hiccups.
2. Dotcom dwarfs the crypto market cap and we have not yet reached the point of investor saturation.
3. The dotcom bubble was initially funded by VCs and the public only got in after they IPOed. With cryptos we are seeing the exact opposite. They are funded by early adopters and we are only now seeing big money join in (ETFs, futures etc).
4. Cryptos are only getting started. With things like Lightning Network and Raiden coming to Bitcoin and Ethereum, we will see them used for more things than speculation and their real utility being realized.
Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.
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