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: Bancor Bounce Back? ICO Is Winning Adoption
Decrypted: Bancor, one of the most successful initial coin offerings in the short history of digital tokens, raising $153 million in a matter of hours in June 2017.
Bancor is a cryptocurrency and decentralization protocol startup out of Switzerland. The protocol wants to solve liquidity issues with smaller market cap tokens that rely on current centralized and regulated exchanges to be liquid.
The intention is to generate a platform that anyone can use to generate peer-to-peer trades through a smart token system. Smart Tokens will allow this by being held with a reserve and contract supply of each ERC-20 compatible token available.
What does that mean? Each of these tokens will allow the supply of other tokens to become greater or less depending on whether the user chooses to hold or liquidate the smart tokens.
Our take: Cryptocurrency liquidity can be defined as the process by which an asset is converted into fiat currency based on demand.
For any tradable asset, liquidity is paramount. Liquid markets are smoother and deeper when compared to illiquid markets, which can put traders in a position from which it may be difficult to get out. If an asset has low liquidity, then the market will be highly volatile as a result, and the opposite scenario is also true: higher liquidity leads to low volatility because the prices do not fluctuate significantly.
It is widely assumed that cash is the most liquid asset because the market will most likely be able to absorb transactions involving cash and the value of the dollar, or the currency used, will likely not change much, if at all.
Yet, if a transaction is completed used Bitcoin or one of the several hundreds of altcoins now available in the market, the effect on its value will be felt considerably because the market has almost no liquidity: each crypto has a determinate amount of tokens available in a certain trading platform, so it could run out and cause the buyer to pay a higher percentage just to complete the transaction.
Bancor is a decentralized liquidity network that promotes and allows automatic price assignments and a liquidity mechanism that is autonomous for cryptocoins on smart contract blockchains. The Bancor Network provides an on-chain solution for conversions between tokens.
The Bancor Protocol is built on top of Ethereum. On the front end, it provides a clean user interface and experience, similar to a social network, for people to:
- Create community currency tokens on Ethereum
- Perform a crowdsale
- Make token baskets (pools of tokens that are represented by one token)
- Deploy single-party token exchange mechanisms like token changers
The Smart Tokens are connected to a broader network holding balances of other cryptocurrencies, allowing the instant purchase or liquidation of Smart Tokens to any of the connected assets while directly making use of the smart contract. The price is continuously calculated to keep up with the market behavior, and this process is completed by using a formula that balances buy and sell volumes.
Over 50 projects have already announced adoption of the Bancor Protocol, which networks tokens to each other through their smart contracts, and standardizes an open source formula to continuously calculate prices between them, according to real-time buy and sell volumes.
Twelve tokens have activated their BNT connectors, which allow them to become continuously convertible to and from any other token in the network: ETH, BNT, STX, GNO, ENJ, BMC, IND, OMG, STORM, AIX, KIN, and WISH. The Bancor Network offers low fee, automated token conversion through blockchain-based smart contracts, without needing to match buyers and sellers in an exchange.
Bancor could be the ultimate liquidity protocol, because all tokens are liquid all the time, no matter how much interest is present on the buy side of an order book. The price of the token rebalances with every block in relation to the amount stored in reserves and the reserve ratios.
BNT is the hub token that connected all tokens in the Bancor Network, allowing them to be easily convertible to each other thanks to their liquidity to BNT. BNT holds a connector balance in ETH, making all the network’s tokens convertible to and from ETH, as well as any other token in the network.
You can think of these connectors like modules, programmed into a token’s design, and these modules are like accounts, owned by the Smart Token itself. Smart Tokens can be bought and sold for any of their connector tokens, and can issue new units when purchased while destroying units that are sold.
By holding a shared connected token balance in BNT, Smart Tokens in the Bancor Network are all purchasable and sellable for each other. These conversions happen directly through the Smart Token contracts, at continuously calculated rates, without needing to match buyers and sellers as in traditional or even decentralized exchanges.
Decentralized exchanges represent the present of trading and assets exchange, and projects like Bancor, without a doubt are the future. In a world dominated by digital coins and tokens, it is imperative to have a reliable network to receive, send, convert and manage funds from distinct tokens. We are far from the days in which Bitcoin was the one and the only cryptocurrency widely accepted.
Decrypted: While the broader financial world has been slow to recognize cryptocurrencies as a viable investment vehicle, that hasn’t stopped some hedge fund managers. In fact, as cryptocurrency interest among investors has soared over the past year, the number of cryptocurrency-focused hedge funds launched has also skyrocketed.
Autonomous Next, the fintech practice wing of Autonomous Research based out in London recently revealed that the number of cryptocurrency hedge funds have doubled in the last four months. Staring from 37 at the beginning of 2017 and 55 in August 29th, cryptocurrency hedge funds have surely come a long way to managing assets worth $3.5 to $5 billion presently
It was also reported by Eurekahedge, an independent hedge fund data provider that cryptocurrency hedge funds lost about 4.6% following the market correction in January. Reuters noted that:
“Some invest in just bitcoin, taking both long and short positions, some buy a basket of cryptocurrencies and others exploit the arbitrage between different exchanges’ prices.”
Nine hedge funds holding collective assets worth $1 billion are currently being tracked by Eurekahedge and made an average of 1,477.85 percent in 2017.
Our take: The rise of Initial Coin Offerings (ICOs) has driven blockchain startups around the world to launch their own cryptocurrencies to raise money. At present, at least 1,500 tokens have been created.
The surge in funds comes at a volatile time for the cryptocurrencies they trade in. After hitting a record high close to $20,000 in December, Bitcoin 70 percent of its value to slip below $6,000 in January, posting its worst monthly performance in three years.
The term “hedge fund” is derived from the strategy of increasing gains and offsetting losses , by hedging investments using a variety of sophisticated methods, including leverage. Hedge funds originated to help the investors minimize risks and achieve reliable returns over the time, leveraging diversified investment portfolios. Through the years, hedge funds have evolved from merely an investment vehicle for the rich and affluent, to a robust financial tool for the university endowments, state and corporate pensions, non-profit foundations, institutional investors and other individual investors. The first hedge fund was created in 1949, by Alfred Winslow Jones, with investable assets of $100,000. Today Renaissance Technologies, one of the world’s largest hedge funds, manages north of $45b of investor capital.
What is a crypto hedge fund? Unlike a cryptocurrency index fund, an ETF, or an exchange, a hedge fund is a different way for a person to invest in a large group of underlying securities. These are managed by teams of expert investors, re-balanced on occasion, and endlessly analyzed. Investors receive profits from these experts’ market maneuvers.
For inexperienced or first-time investors, setting up a wallet to hold cryptocurrency, knowing what to invest in, and navigating the dizzying number of tokens can be challenging. Most people want to invest in crypto but they do not know how to get started. That’s where crypto hedge funds come into the picture and help investors buy Bitcoin and other altcoins.
Currently, there are two kinds of cryptocurrency hedge funds. Those that manage portfolios containing exclusively cryptocurrency, and those that have added some cryptocurrency to a mix of other asset types.
Many of the new cryptocurrency hedge funds have adopted an approach familiar to venture capital firms. In these cases, hedge funds look to fund new entries into the cryptocurrency space, lending their support and financial backing to new coin offerings or startups which help to enhance the industry or make use of the new technology.
With the impressive performance of crypto hedge funds, and the increasing adoption of cryptocurrencies, that provide decentralized monetary exchanges without the involvement of traditional banking systems and government regulations, a large number of millennial are now opting to unbank themselves.
While no one can predict value of cryptocurrencies in the future, more and more people are willing to invest, which is a positive sign for continued price growth. Investors who believe in the technology and are ready to use their money, but do not want full exposure to the young and often volatile market, will find a perfect compromise in a safe crypto hedge fund.
If 2017 was the year that ICOs surged, we can expect to see the meteoric rise for crypto hedge funds in 2018.
News Item 3: Announcing SegWit support on Coinbase
Decrypted: At long last, Coinbase, the popular US-based crypto exchange and wallet provider, now supports SegWit transactions on the Bitcoin network. And Coinbase is not the only one, Bitfinex also announced full support for SegWit for their customers.
SegWit , short for Segregated Witness , is an important soft fork upgrade to the Bitcoin network which makes transactions significantly more secure and efficient. When sending transactions with SeqWit, the main part of the transaction is effectively segregated from the portion which authorizes it. In turn, this makes Bitcoin transactions even more secure.
SegWit transactions make up about 14% of all bitcoin transactions with a peak of just over 18%.
Our take: Bitcoin has struggled with transaction speeds, ranked at somewhere around seven transactions per second processed globally. When compared to major credit card operators, that can process nearly 50,000 transactions per second, it’s easy to see how this figure becomes tough to handle. Each block, processed every 10 minutes, is around one megabyte in size and adds data to the public blockchain about each transaction so it’s public record. Part of this is the witness data, a third-party confirmation that the transaction took place which avoids spoofing.
Coinbase had stated its plan for a 2018 SegWit adoption on December 15, 2017, and seemingly delivered on the SegWit statements it made on early February 2018. The SegWit adoption objective is to reduce transaction fees and times for transacting in BTC, something that crypto enthusiasts have long awaited during the recent period characterized by slow transaction and rising fees.Coinbase Customers even lodged a petition urging the platform to adopt SegWit that saw over 12,000 signatures.
Bitcoin did not appear to move positively after the news, with the price of $10,715, down nine percent from the previous day. However, Coinbase’s adoption may prove more valuable in the months to come, as the effects of the change start to come into the network.
Bitfinex, a Hong Kong- Based cryptocurrency Exchange, Currently ranked 4th place in Cryptocurrency world ranking by trade volume. Paolo Ardoino – Bitfinex CTO, was quoted in the exchange’s announcement of their SegWit adoption saying:
“SegWit provides not only an immediate benefit for users but also a foundation for future Bitcoin development. By supporting SegWit addresses, Bitfinex is tackling three of the biggest crypto-enthusiast concerns: transaction fees, transaction speed, and total network capacity. We are delighted that through this implementation we can provide our customers with bitcoin withdrawal fees that are up to 20 percent lower, as well as faster-than-ever transaction speeds.”
Enabling SegWit for Bitcoin transactions on Coinbase and Bitfinex. is a step will not only lead to an improved user experience on their side, but as well be a huge benefit for the whole crypto community.
Opinion: Why Decentralization Matters
Chris Dixon has written an excellent piece about the importance of decentralization.
“Decentralized networks aren’t a silver bullet that will fix all the problems on the internet. But they offer a much better approach than centralized systems. In short, cryptonetworks align network participants to work together toward a common goal — the growth of the network and the appreciation of the token. This alignment is one of the main reasons Bitcoin continues to defy skeptics and flourish, even while new cryptonetworks like Ethereum have grown alongside it.”
Decentralization is a concept in politics, business, technology, and other fields. In a nutshell, it means a central authority doesn’t have control over a system, but control is distributed among the participants in the system.
Fortunately, there is an emerging movement to bring the web back to this vision. It’s called the Decentralized Web or Web 3.0, and it describes an emerging trend to build services on the internet which do not depend on any single “central” organization to function.
The original purpose of the web and internet was to build a common neutral network which everyone can participate in equally for the betterment of humanity.
The centralized approach allows for more rapid and decisive decision-making, as well as giving participants in the system a sense of clarity about the rules and their own role within it. It also sets up a structure to enforce those rules.
Unfortunately, one of the primary drawbacks of centralized systems is the power the central authority holds, that can allow them to act in ways that are harmful to the participants in the system. Decentralization avoids the abuse of power from central authorities. However, this comes at the cost of every participant taking on some responsibility themselves.
Bitcoin is an important development in technology, as important as the internet itself. It represents the beginning of a new way of connecting, creating and sharing value online. Its the advent of a new internet. It has also spawned many offshoots that are basically ideological playgrounds for what public ledger technology can really do.
Blockchains and tokens represent two crucial pieces of the puzzle for enabling the rise of the decentralized internet.
Tokens and blockchains enable coordination and organization like never before. They allow us to create private economies around open platforms. They allow many different people to come together without having to trust each other and work towards a common cause.
In the past, the Facebooks and the Googles of the world had the ability to out-incentivize and out-organize all the smaller and more open competition. In the future, the greatest capacity for incentives and organization will rest with the open tokenized systems that are powered by the blockchain.
We want to live in a world with fewer barriers, where people can build what they want and complement each other’s work. Even if Bitcoin and blockchain were to fail in the future, they represent a clear vision and have paved the way to our decentralized future.
Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.
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