Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 19th February 2018


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: Worldpay and Visa are reversing duplicate transactions for Coinbase users

Decrypted: Coinbase and Visa are at odds over unauthorized money withdrawls. Coinbase lets customes can use a card and buy Bitcoin immediately. But users have been experiencing duplicate charges, which in many cases drained customers’ bank accounts.

An increasing number of users posted on Reddit and other social media to complain about duplicate transaction charges that sometimes drained the bank account to zero, with overdraft fees.

The cryptocurrency exchange pointed the finger at Visa, claiming the Visa was responsible for the duplicate transactions. Initially, Visa denied these allegations. In a statement Visa said: “Visa has not made any system charges that would result in the duplicate transactions cardholders are reporting. We are also not aware of any other merchants who are experiencing this issue.

But in a second statement, Visa made it clear that Coinbase was not at fault: “Over the last two days, some customers who used a credit or debit card at Coinbase may have seen duplicate transactions posted to their cardholder accounts.

Our take: Coinbase users that purchased cryptocurrencies via credit card, started getting hit with multiple charges for purchases they made.

Coinbase said that Visa had retroactively and without any warning, reversed and resubmitted myriad Coinbase charges under a new payments code, as demanded by the big banks, earlier this year. The so-called merchant category code (or MCC) now in effect treats Visa purchases on Coinbase as cash advances, which come with high fees from banks of as much 10%.

As everybody is interested in investing and earning money from cryptocurrencies, Bitcoin’s price has finally rising again, breaking above $10,000 for the first time in a month after a protracted crash.

The credit and debit card issues on Coinbase came after a slew of major banks around the world, in the United States, United Kingdom, Australia, Canada and Europe, banned credit card purchases of cryptocurrencies, and in some cases debit card purchases. There have been a number of reasons behind the ban, with most banks opting that they are trying to protect their customers from a risky unregulated market.

For the most part, banks have been against the concept of cryptocurrency. Many banks fear that the instability cryptocurrencies bring, will result in people losing their money and they having been taking steps to protect consumer safety and well-being. Banks blame money laundering and higher volatility, to play down the use and legitimacy of Bitcoin and other cryptocurrencies.

However, there is no denying the obvious threat that cryptocurrencies pose on many banks. Many financial institutions are aware that they are losing control and they’ve made it clear that banning the trade of cryptocurrency is an attempt to regain some of that control.

While all this is happening, a positive outcome from the recent SEC/CFTC hearing has eased some the fears. Also, another positive statement has also given hope.  Mario Draghi, president of the European Central Bank, stated: “Recent developments, such as the listing of Bitcoin futures contracts by US exchanges, could lead European banks too to hold positions in Bitcoin, and therefore we will certainly look at that.

The popularity of cryptocurrencies’ has been rising very quickly, so that the champions of the old system can’t ignore it anymore. Change in the monetary system is here, and the only thing that remains to be seen is how decentralized and which parties will have control over it.

News Item 2: Blockchain Hires Google Vet in Bid to Take on Coinbase

Decrypted: Coinbase is getting some competition. Blockchain, a popular provider of digital Bitcoin wallets, recently launched a U.S. cryptocurrency exchange service that aims to compete with Coinbase.

As part of that push, London-based Blockchain announced that it has hired Peter Wilson, a veteran of Facebook and Google, as its first vice president of engineering.

The hire is meant to reinforce Blockchain’s efforts to position its new exchange as a reliable and secure alternative to Coinbase, which has suffered debilitate hacks and website crashes.

Our take: Blockchain, one of the best known cryptocurrency wallets in the market, will offer a service to buy and sell cryptocurrencies in the United States. The company located in the United Kingdom allows British investors to buy different digital coins. In the United States it will challenge Coinbase, one of the most famous cryptocurrency platforms in the world.

According to Blockchain’s website, the company has more than 22 million wallets of which 1 million are active daily. Besides that, it has processed more than 100 million transactions. Between 30 and 40 percent of Blockchain users are in the United States, making of it one of the most important markets for the company.

Coinbase, has been adding new users at incredibly high rates, and according to its website, it has over 10 million users and has made over $1 billion in revenue. Coinbase offers the possibility to buy and sell Bitcoin, Ethereum, Litecoin and the recently and controversially added Bitcoin Cash.

This is driving the more and more exchanges, both home grown and foreign to take a better look at the US crypto market.

It comes as no surprise that bitFlyer, a Japanese cryptocurrency exchange and the world’s biggest cryptocurrency exchange by trading volume, will now support US-based residents interested in the legal trade of digital currencies. The company already has the approval of 42 U.S states.

Also, Robinhood announced that it is gearing up to launch zero-fee cryptocurrency trading in an effort to increase its user base. The company has a $1.3 billion valuation and has processed more than $30 billion worth of stock trades during its seven-year history. It differs from traditional brokers in that it does not charge commission fees. It intends to bring this model to its new cryptocurrency trading service, Robinhood Crypto, which will launch next month with support for Bitcoin and Ethereum, although the firm intends to add at least fourteen more cryptocurrencies in the future.

Cryptocurrency exchange Coinsquare, which is headquartered in Ontario, announced that it will hold an initial public offering on the Toronto Stock Exchange (TSX) later this year, and it aims to raise $150 million CAD to finance expansion into the US and UK.

Last November, payment processor Square began a bitcoin brokerage pilot program, and it has steadily rolled out the beta to more users over the ensuing months. In December, meanwhile, UK fintech startup Revolut added support for cryptocurrency trading in its mobile banking app.

Up to now, the few alternatives through which retail investors can buy and sell cryptocurrencies, has enabled Coinbase to maintain a dominant foothold in the market. But with Coinbase experiencing problems due to high-demand, it will be interesting to see how well these competitors fair in the U.S.

Whether new entrants like Blockchain, BitFlyer and Robinhood will become viable alternatives that can challenge Coinbase, is yet to be seen. But with more companies competing for the big US market, the most important thing that will come out of this is that the bar will rise even more and consumers will have access to better products and services.

News Item 3: Silent No More: Ethereum Users Spurn Recovery Code

Decrypted: As the price of Ethereum has soared in 2018, one thing is constant: Users continue to lose money due to hacks, faulty code and human error. There have been countless cases that have often led to the loss of enormous amounts of funds.

It’s an issue that has split the platform into rival forces and heated debates. Yoichi Hirai, an Ethereum developer who had been acting in the capacity of Ethereum Improvement Proposal (EIP) editor, stepped away from this role on February 14 following a contentious debate surrounding EIP867.

Our take: Again, Ethereum developers are at crossroads, concerning the fund recovery improvement proposal EIP 867. This proposal could eradicate the loss of funds and enable stolen funds to be returned to their rightful owners, after being taken.

The proposal seeks to establish a procedure for the recovery of lost or frozen Ethereum tokens, that is significantly more streamlined than the process currently in place, which is, generally speaking, ill-defined.

The main idea behind EIP 867 is to reverse transactions in the affected blocks. The purpose of EIP867 is to provide a standardized format for Ethereum Recovery Proposals (ERPs), which relate to recovery of certain classes of lost funds. While the basic notion behind the blockchain is to make transactions irreversible, EIP 867 could potentially harm the level of trust in the network and create precedence and defeats the purpose of a blockchain.

Hirai challenged a number of aspects of the proposal and even questioned the integrity of the system that tasked him with approving it. But the issue that ultimately kept him from reversing his decision to block EIP867, was his concern that he would be violating Japanese law.

The law in question states that a person who, with the intent to bring about improper administration of the matters of another person, unlawfully creates without due authorization an electromagnetic record which is for use in such improper administration and is related to rights, duties or certification of facts, shall be punished.

Hirai explained, “I have concerns that if the proposal is applied in practice, it will be a crime. Aiding a crime by not acting is also a crime, and I suspect this applies if I dismiss my blocking review, or recuse myself. Some EIP editors do not seem to be asking themselves about the legal consequences of this proposal. But I warned them, and more I can not do anything. I’m leaving my post.”

It should be noted that his fears are not groundless, since this innovation may well violate the law of Japan on the unauthorized creation of electromagnetic records. Moreover, the developer noted that he does not think that anyone has the right to implement such changes, since Ethereum users, as a rule, do not know and can not authorize the process.

The Ethereum community has already been divided once over such a dispute, when a hard fork was implemented in the aftermath of the DAO hack, leading to the split between Ethereum (ETH) and Ethereum Classic (ETC) — with ETC maintaining the Blockchain with the stolen money still with the hackers.

Opinion: US government is nowhere close to regulating bitcoin, White House cybersecurity coordinator says

Big things have been happening in the cryptocurrency world over the past few months, which brought it into the limelight of central banks and regulators again.

One of the biggest issues facing the cryptocurrency and blockchain industry today is how this new economy works with the traditional economy, particularly in terms of regulation and integration with existing financial institutions. The difference between fiat money and digital currencies is that fiat money is issued by central banks, while issuers of digital currencies are decentralized.

The cryptocurrency community ought to be celebrating their victory at a congressional hearing on Feb. 6, 2018. The Securities and Exchange Commission (SEC) Chairman Jay Clayton and the Commodity Futures Trading Commission (CFTC) Chairman Christopher Giancarlo testified before the Senate Banking Committee, mapping out the future of cryptocurrencies. To the surprise of many, the hearing was surprisingly optimistic and lacked the ominous undertones many anti-regulators had worried about prior to it.

Cybersecurity coordinator for the White House and special assistant to Mr Trump, Rob Joyce, said the US is still studying the pros and cons of cryptocurrencies before launching any regulations. Speaking at the Munich Security Conference in Germany, Mr. Joyce made it clear that there needs to be a better level of understanding of cryptocurrencies risks and benefits before the authorities attempt any form of regulation.

There has been increased regulatory pressure on Bitcoin and the entire cryptocurrency market recently, which has been felt across the board. Countries around the world are trying to figure out what to do with Bitcoin. The “State of Global Cryptocurrency Regulation (January 2018)” gives us details analysis about wha’s going in the major markets across the globe.

One thing is for sure, the sooner governments moderate this space and adopt open and inter-operable standards for cryptocurrencies, crypto assets and ICOs, the smoother the ride will be. The race to ban or regulate may well be the wrong race, at least for the time being.

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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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