Andra: Tokenizing Venture Capital; BatchOverflow: Hacking ERC20 tokens; Reddit: Accepts Bitcoin again


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: U.S. tech fund Andra raises $500 million for new digital coin

Decrypted: This week, Andra Capital raised $500 million for a token called Silicon Valley Coin (SVC), which will provide its investors with access to a portfolio of VC-backed companies.

Andra Capital is a late-stage, technology growth fund that leverages the blockchain through its Silicon Valley Coin, to provide access to US and global investors to an ownership stake in the fund through its regulatory compliant and asset-backed security token.

Our take: Traditionally, pre-IPO investment opportunities in top-performing companies are only available to investment firms.

Andra Capital is breaking the mold of traditional venture capital investing, by paving a way for global investors to access to highly sought-after late-stage pre-IPO investment opportunities.

Their SVC token is built on the Ethereum blockchain, and has already raised $500 million in a pre-sale. The fund is investing primarily in late-stage, high-growth pre-initial public offering technology companies that are each worth at least $500 million. The company mentioned Lyft, WeWork, AirBnB, and SpaceX as potential investment examples.

In the past few months, we’ve also seen some other examples of blockchain use within conventional VC firms, such as Spice VC,  22X Fund and EQUI.

Spice launched its initial coin offering (ICO) for a VC fund that can accept funds from pre-qualified investors, offering immediate liquidity.  Spice uses the Ethereum blockchain to host its token. Its token acts as a digital security, guaranteeing that every investor gets their share of the exits when they occur. The token itself can also be used as a tradable asset, making the investment liquid.

Recently, the 22nd batch from 500 Startups announced the independently operated 22X Fund, which offers access to a portfolio of 30 highly vetted startups, through the purchase of a single token. The token enables investors to invest in and own up to 10% equity in the group of startups.

Scottish billionaire Doug Barrowman and Baroness Michelle Mone OBE have launched EQUI, a  cryptocurrency-powered investment platform that is envisioned as opening up venture capital to a wider audience while providing access to vetted, early-stage high-growth tech companies.

These efforts are alleviating some of the shortcomings in the venture funding model using tokenization. One of the biggest issues with the existing the venture capital model is that funds are not liquid. A typical fund lifecycle is around 10 years. Investing in exciting tech startups is usually reserved for those that can afford to forget their capital for a while.

Also, these tokenized funds decentralize the entire model, connecting technology companies with investors worldwide. Investors potentially can benefit from reduced risk, greater flexibility, and a shorter investment period than traditional venture capital funds.

In an age where ICOs have become commonplace, these venture fund tokens can offer a tangible way to invest in real-world startups that have the potential of delivering a return, providing greater liquidity, and attracting more potential investors. I think we’re going to see venture capital funding go into a full circle, with more examples popping up that will use this type of tokenization in the months to come.

News Item 2: Exchanges Suspend ERC20 Token Deposits After Discovery of Smart Contract Bug

Decrypted: OKEx was the first cryptocurrency exchange to announce that it decided to suspend ERC20 token deposits, after the discovery of a smart contract bug that makes tokens vulnerable to hacking attacks.

The bug, known as batchOverflow, allows hackers to create as many tokens as they want and deposit them into wallet addresses, making it easy for coin trading prices to be taken wildly out of flux. The vulnerability was exploited by one hacker, who was able to obtain large quantities of BeautyChain’s ERC20-based tokens.

As many as a dozen or more ERC-20 smart contracts have been found to contain the batchOverflow bug.

Our take: Researchers say that the bug, which is known as a type of integer overflow error, allowed attackers to manipulate a _value parameter that ensures that the value of the tokens transferred through a transaction is lower than the total number of tokens created by the contract. In short, the attackers managed to print a virtually unlimited number of tokens out of thin air.

What this means is that by flooding the system with a number too large for use an attacker could create an additional supply of tokens that do not exist within the system. For exchanges, this presents an immense attack, as token minting can occur without necessary sanity checks that properly assure issuance of the token. In relevant transactions, this will appear to mint tokens out of seemingly nothing.

The exploit was first observed on the 22nd of April, when 115 octodecillion BEC (Beauty Coin) was created in two transactions. At the time, BEC was trading at $0.32 per token, which makes the total dollar value of the exploit around $3.7 novemdecillion, a truly absurd figure, which is a 1 followed by 60 zeros.

Not every ERC20 token was open to this vulnerability, as the flaw is not part of the ERC20 standard itself.

Many exchanges, including OKEx, Changelly, and Poloniex, initially suspended ERC20 deposits across the board while they investigate the issue and rolled back some trades involving the fraudulently-created tokens. Both Poloniex and HitBTC have already restarted deposits.

Large exchanges, like Binance did not suspend ERC20 activity. Recently, Binance audited ERC20 tokens listed on exchange and found out that all of them are safe and not affected by the recent vulnerability that was found in most of the ERC20 tokens.

In early March, Binance, the biggest exchange by trading volume, announced a group had managed to hijack users’ accounts and place large orders on a VIA/BTC trading pair that manipulated prices and would, had they been successful, made them big profits from increasing margins.

It is not easy to develop an Ethereum based token that is completely free of bugs. In a research published last year, some researchers claimed that they had discovered that 34,000 of the Ethereum smart contracts were vulnerable to bugs.

While the hacker behind the exploit has been unsuccessful in this specific case, the presence of this exploit in the market is a clear sign that the extremely broad spectrum of ERC20 tokens, must be more rigorous with the manner in which smart contract functionality is implemented.

With billions of dollars worth of cryptocurrency going through different exchanges every day, exchanges are natural targets for hackers and criminals. Anyone that has ever coded knows that software is never bug free, but blockchain bugs could be a very expensive proposition. A bug like this in the future, when economies and industries across the board use blockchain, could potentially disrupt the world’s economy and cause everything to come to a full stop.

News Item 3: Reddit Plans to Take Bitcoin Once Again—Along With Litecoin and Ethereum

Decrypted: In March, Reddit stopped accepting Bitcoin as payment for its Gold membership. The reasoning behind the March decision to remove the Bitcoin payment option stemmed from two major factors, including issues related to Bitcoin’s transaction fees, as well as problems with accessing Coinbase’s API.

Chris Slowe, the company’s Chief Technical Officer revealed that cryptocurrency payments will soon return to the site.

The company is actively working with Coinbase to properly integrate Bitcoin, Ethereum and Litecoin.

Our take: Recently, Reddit had deactivated Bitcoin as a payment method without prior notice, leaving customers the option to pay with PayPal and credit cards.

The site began accepting Bitcoin as a payment for the perk since 2013. Users would often use Bitcoin as payment for the site’s Reddit Gold premium membership program, which lets users disable ads, customize their avatar and access a private subreddit for about $30 per year.

When the news about the ban reached the first page of Bitcoin Subreddit, a Reddit administrator responded to the decision to eliminate the currency, stating that they had problems with the Coinbase payment platform, which led to the complete disablement of the currency.

Another reason behind the decision were Bitcoin network fees. Payment requests would end up getting stuck in the network which developed into pick-and-choose transactions for miners and higher fees which meant for some smaller transactions the cost was not worth the transaction. The CTO says that during times of high fees, the $10 fee on a $4 transaction was a “hard proposition to users.”

Reddit is the largest web community in which cryptocurrency enthusiasts meet and discuss technology. Reddit was one of the earliest gathering spots for Bitcoin enthusiasts, dating back to when a Bitcoin traded for just a few pennies. The Bitcoin subreddit community has 816,000 subscribers, and the subreddit of cryptocurrencies has more than 663,000 subscribers. There are many subreddits that discuss the various cryptocurrencies and nuances behind mining, investing in different currencies, accessing the dark web, and even posts by Ethereum founder Vitalik Buterin and Litecoin founder Charlie Lee on updates to the currencies.

The banning seemed odd, given the fact that Reddit is a platform for cryptocurrency enthusiasts, and given its nature as an anonymous open-discourse forum.

Coinbase had made changes to Coinbase Commerce which allowed merchants to accept Bitcoin Payment, a the change required merchants to make a significant upgrade, and Reddit chose not to make the upgrade at the time, disabling Bitcoin as a payment method. Its expected that Coinbase’s migration of past merchants to its new platform will continue through May 31. Assuming Reddit continues to work with Coinbase, we’ll probably soon when cryptocurrencies will be accepted on the site for payments.

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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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