Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 16th October 2017

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: $5,800: Bitcoin Price Hits New Record High

Decrypted: In September China’s announcements to ban token sales and Bitcoin exchanges sent Bitcoin’s price tumbling, but a few days ago the cryptocurrency’s price rallied to a new all-time high, hitting more than $5,200 on Thursday and following up with repeat performance on Friday, to break $5,800.

There’s been a lot of speculation as to the reasons behind Bitcoin’s recent price surge. Some speculate the upcoming Bitcoin Gold and Segwit2x hard forks, reports that Goldman Sachs is considering Bitcoin trading and rumors that China might reverse the bans and ease restrictions.

Our take: Last month China’s government, the People’s Bank of China (PBoC) and local financial regulators, imposed a nationwide ban on cryptocurrency exchanges that caused Bitcoin and the entire cryptocurrency market to drop.

But in the past few days, it would looks like the fears caused by China’s bans have been completely shrugged off by the market.

Yet, there’s been plenty of speculation about a Chinese reversal of the bans, and recently there have been reports in Xinhua, a state-owned news publication of China, suggesting that China’s ban is only temporary, until the Chinese government releases a stricter regulations for KYC and AML  for trading platforms.

CnLedger, a cryptocurrency news outlet in China posted on Twitter about the news in Xinhua:

“Xinhua News, official press agency of CN: Virtual currencies have become the top choices of underground economies. We shall adopt ‘0-tolerance policies’ towards crimes hidden underneath and take measures such as record-keeping, licensing, AML processes, real-name, limiting large transactions.”

With the new price high, Bitcoin’s market cap hit $97 billion, up over 480 percent year-to-date. Bitcoin’s new price level also triggered a positive rally for the entire crypto market. Ethereum was up over 5% over the last 24 hours, while Litecoin went up almost 14%. The combined market cap for all cryptocurrencies once again climbed towards the Sept. 1 high of $172.5 billion,  with Bitcoin being over 55 percent of the total market.

Another reason behind Bitcoin’s price increase could be the upcoming hard forks. We are expecting two hard forks for Bitcoin, that will create two new rival clones of the cryptocurrency. The first is Bitcoin Gold and its expected to happen on October 25, and second is Segwit2x in November, when Bitcoin’s block size will increase from 1Mb to 2Mb.

The last time we had a hard fork for Bitcoin was on August 1, when Bitcoin Cash was born. At the time anyone that had Bitcoin, automatically received and equal amount of Bitcoin Cash. Bitcoin holders received one BCH for each BTC they owned.  The same will happen with these upcoming forks. Holders of Bitcoin (BTC) will automatically receive Bitcoin Gold and this is a likely reason why investors are buying BTC, driving the price up. They want to get some “free money” and flip it when it goes up. When Bitcoin Cash opened in August, it was trading around $200 and in three weeks it almost reached $1,000 and a market cap around $16 billion.

There’s also been talk that Goldman Sachs is considering a trading operation focused on Bitcoin and other digital currencies. Smart and forward thinking financial firms are getting involved with cryptocurrencies. Golman Sachs will be joining the ranks of companies like Fidelity, that has been experimenting with Bitcoin and crypto.

Last but not least are the recent comments by Christine Lagarde, IMF’s Managing Director:

“I think that we are about to see massive disruptions. it’s important to look at the broader implications of technologies like digital currencies. My hope is that we can participate in that process because I see that as a very cross-border process.”

Many argue that Bitcoin could reach $7,500 by the end of the year, but plenty of volatility is still ahead, as regulators will be taking positions to control things. While this creates uncertainty around Bitcoin and other cryptos, investing in new things is not for the faint-hearted.

Everything is about perspective. Brisk fall mornings like today, wake up the senses. So did Bitcoin last week, when it hit its new record price. One more time it reminded us that regardless of naysayers and regulators, the real power lies with the people that believe. The price of Bitcoin isn’t going up, but dollars are getting very cheap, and they’ll get even cheaper.

Anyone getting into the crypto space, investing and trading, should be doing it because they believe in Bitcoin and blockchain: “In the world of business, the people who are most successful are those who are doing what they love.” – Warren Buffet.

News Item 2: Bitcoin Competitors Are Being Built in Ex-Google Coders’ Laptops

Decrypted: Since 2013, we’ve seen more than 1,500 cryptocurrencies, with around 800-900 actively traded today, but for now Bitcoin is the king. Several offer certain technical advantages over Bitcoin,  alternatives to digital cash, software development, social media, and other services powered by blockchain.

The better known ones are Ethereum, Litecoin, Ripple, Dash, Monero but there’s more in the woodwork, hoping one day they to dethrone the leader and become king of the hill.

Basecoin is one of the contenders, a token with a rules-based monetary policy built into its blockchain system. Bascoin is backed by high profile investors, that include 1confirmation, Andreessen Horowitz, Bain Capital Ventures, Digital Currency Group, MetaStable Capital, Pantera Capital, PolyChain Capital and AngelList CEO Naval Ravikant.

Our take: One of the problems that Bitcoin and other cryptocurrencies face today, is price volatility. All of the cryptocurrency transactions are speculative in nature, with traders simply betting on ups and downs, with almost no use as a medium of exchange. Price volatility makes it difficult for people and merchants to use cryptocurrencies for every day transactions or use them to keep all their life savings, because prices can fluctuate hugely, on a daily basis.

Consider issuing a Bitcoin loan. If the price drops significantly at any point before the end of the loan’s term, the lender is left holding a significantly devalued stream of payments.

The lack of price stability hinders mainstream adoption of cryptocurrencies.

Basecoin, a new cryptocurrency that has all the benefits of traditional cryptocurrencies, privacy, anonymity, decentralization, but with a monetary policy built into the blockchain that keeps the price of each token pegged to a stable asset, for example USD or basket of assets, dynamically adjusting its market price through the creative use of a combination of tokens.

As explained in the white paper, the idea is that the protocol would be set up to mirror an asset or an index, say the U.S. dollar or the Consumer Price Index, at which point it would use oracles (links to trusted, external data sources) to monitor exchange rates. The protocol would then automatically expand or contract its supply of tokens to maintain its value. In that sense, it is the world’s first “algorithmic central bank,” operating without need for human discretion.

Even though the development of efficient blockchains has come a long way since 2009, scalability remains to be a major issue for blockchain. Several companies are working various approaches to solve the scaling question, with many implementing side-chain or off-chain solutions.

Cypherium is another contender that is building a blockchain that wants to handle an expanded workload more easily. Cypherium is creating an entirely new blockchain by combining the strengths of Bitcoin’s Proof-of-Work and Byzantine Fault Tolerance consensus mechanisms. This novel consensus mechanism adopts the idea of decoupling key block mining from micro blocks for faster transaction processing, first pioneered in Bitcoin-NG.

Currently, the Bitcoin blockchain supports an average throughput of 7 transactions per second. The Cypherium chain aims to accommodate thousands of transactions per second.

Bitcoin isn’t going away anytime soon and most likely will remain the top global cryptocurrency, because it has by far the biggest network effect and the Bitcoin network continues to grow much faster than other cryptocurrency. Other cryptocurrencies will take over specific niches (Ethereum  Smart contracts) and we can expect newcomers to offer unique twists, creating solutions that will help the entire market evolve and push cryptocurrencies into mainstream adoption.

News Item 3: First 1GB Bitcoin Block Has Been Mined on Testnet

Decrypted: Bitcoin Unlimited developers working together with researchers from the University of British Columbia and from nChain, mined the first ever 1GB block on a Gigablock Testnet.

Gigablock Testnet, also known as BUIP065, has four specific objectives, including the set-up and maintenance of a global test network capable of supporting up to 1GB blocks and sustained Visa-level transaction throughput (3,000 TPS) on the Bitcoin network.

Any successful scaling milestones by the GigaBlock initiative will first be implemented on Bitcoin Cash.

Our take: Scaling has been one of the biggest issues in the recent history of Bitcoin. While a few years ago, only cents were needed to transfer money to another wallet, today fees are high, sometimes above $10, and can take hours to confirm the transaction. Bitcoin transactions are completed when a block is added to the blockchain, but at present Bitcoin’s blocks are limited to 1MB every 10 minutes.

Currently, Bitcoin is able to process about 3-7 transactions per second. Despite the fact Bitcoin (BTC) continues to be the most followed fork, its 1mb block size, limits the number of transactions that can go inside a block, and the time it takes to generate a new block in the blockchain. When you compare this number with Visa’s 24,000 transactions per second, it obvious that Bitcoin desperately needed changes to improve scalability.

The Gigablock Testnet initiative is backed by Bitcoin Unlimited developers, nChain (blockchain technology research and development) and the University of British Columbia. The goals are to determine how large blocks Bitcoin can handle, as well as identify the bottlenecks that may obstruct the network’s scalability, which currently pales in comparison to Visa’s throughput.

Increasing the network’s block size limit from 1MB is needed to reduce fees and make confirmation times reliable again. Bitcoin Cash has already shown that lower fees are acceptable, although confirmation times can still be skewed due to the current network situation.

The research project is setting up a global network of Bitcoin mining nodes configured to accept blocks of up to one thousand times larger than the current block size (1GB). These nodes are connected with transaction generators, each capable of generating and broadcasting up to 200 transactions per second. To identify bottlenecks and measure performance statistics, a series of “ramps” are performed, where the transaction generators are programmed to increase their generation rate following an exponential curve, starting at 1 transaction per second and concluding at 1000 transaction per second.

The Gigablock scaling initiative has been in the pipeline since July 2017, when both nChain and Bitcoin Unlimited convened at a workshop in Vancouver, Canada. Both groups share a common vision of scaling Bitcoin on-chain.

Bitcoin Core’s reluctance to larger on-chain capacity, pushed supporters of bigger blocks to fork Bitcoin in August. Supporters of bigger blocks and on chain scaling have formed an active community, around Bitcoin Cash. Bitcoin Cash was created on August 1, and now is trading around $300 with a market cap of $5 billion. A couple of weeks after it launched Bitcoin Cash made a bold move of increasing capacity to a default 8MB blocks and scraping away Segregated Witness.

Bitcoin Cash wants to empower merchants and users with low fees and reliable confirmations. The goal of Bitcoin Cash is to increase the number of transactions that can be processed, and supporters hope that this change will allow Bitcoin Cash to compete with the volume of transactions that PayPal and Visa can handle by increasing the size of blocks.

Now this latest breakthrough, makes the 1MB blocks look so 1980s. If the Gigablock initiative is able to increase the Bitcoin block size, making it reliable and workable, it could make Bitcoin even more viable for mainstream adoption in the future.

OpinionBitcoin’s price bubble will burst under government pressure

Bitcoin is a decentralized, denationalized digital currency operating outside the traditional banking and governmental system.

The biggest advantage that Bitcoin brings to the table is the ability to by-pass the conventional payment models. It connects buyers and sellers across national borders at minimal transaction costs. One doesn’t need to have a bank account to hold Bitcoins, and certainly, payments are a lot faster compared to traditional payment methods.

The price of Bitcoin has soared this year, from $1,000 to over $5,800 a few days ago. And it not only Bitcoin. Ethereum started the year at $8 and has traded as high as $400. In 2017, every week new tokens are issued, and Initial Coin Offerings have raised close to $2 billion in the first two quarters, so far this year.

While there are many other cryptocurrencies available today, Bitcoin has become synonymous with the word “cryptocurrency.” Anyone who has traded Bitcoin has come across the volatility and price fluctuations.

This has kept Bitcoin in the news.

The current price of Bitcoin has a 91% correlation with the volume of Google searches for bitcoin-related terms, according to a study by SEMrush, a search engine marketing agency. Google searches for “Bitcoin” go up and down, with the price of Bitcoin.

It has also made Bitcoin a lot of enemies.

It is no wonder then that both government agencies and financial institutions have remained skeptical of Bitcoin. Regulators are at odds over how to regulate Bitcoin and other cryptocurrencies,. Regulators in the U.S., Singapore, Japan Russia and China are looking at regulatory measures to control the growth of digital tokens and how to tax them.

China recently made it illegal for companies to raise new funds by issuing virtual tokens and shutdown exchanges. Japan is ready to introduce regulatory oversight on cryptocurrency exchanges in October. Meanwhile, the U.S. Securities and Exchange Commission (SEC) provides guidelines on its website for investors to consider before participating in token sales.

One of the reasons that people think Bitcoin is a bubble, is because its just so new for most. Bitcoin has come to the forefront, surpassing the performance of other financial assets. Earlier this year the price of a Bitcoin surpassed that of an ounce of gold for the first time. Currently, all the Bitcoin in the world is worth close to $80 billion.

Blockchain has found its way into financial markets, but for many Bitcoin is the black sheep. Jamie Dimon, JP Morgan’s CEO,  just might be Bitcoin’s biggest hater. A couple of days ago he said “governments around the world will crush Bitcoin,” regulating digital currencies out of existence. He admitted that the Bitcoin could reach $100,000 before it “goes to zero” and pointed that speculators are the biggest driver behind a recent rally.

But some factors have been working to Bitcoin’s advantage: economic and political uncertainty in several countries, increased inflow of institutional money and mainstream momentum by more and more people.

Some of the world’s biggest central banks have been running programs on adopting digital currencies. From the PBoC to the MAS and E-Estonia, many are looking to have their currencies go digital. In Sweden, they have already declared cash dead and India recently had a massive demonetization drive, part of which was driven by the need to make cash transactions digital.

Through a digital currency, central banks can trace funds more easily, hence be able to tax them. It also reduces the costs of printing and maintaining paper currencies, which according to some estimates costs up to 1.5% of GDP. Additionally, the cost of handling physical cash reduces for banks consequently reducing the need to operate physical bank locations.

Are fiat currencies going crypto? Yes, they certainly will be.

Will Bitcoin replace digital fiat currency? Is it a bubble? Will governments “crush” Bitcoin and altcoins? Your guess is as good as mine.

Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.

 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 9th October 2017

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: SEC Asks For Two New Bitcoin ETF Applications Withdrawal

Decrypted: Several companies have attempted to launch Bitcoin derivative products, but up to now the SEC has been reluctant, issuing rejections in the past and more recently suggesting to applicants to withdraw their applications for Bitcoin ETFs.

VanEck has backed down on its proposed Bitcoin ETF application, at the request of regulators. Rex Shares LLC, is another financial services company that withdrew its application to create Bitcoin exchange-traded futures, indicating in a letter that officials at the SEC don’t want to weigh in on such products until the underlying instruments become available for investment.

Also, the Intercontinental Exchange had hoped to launch Grayscale Investments LLC’s Bitcoin Investment Trust (GBTC), but reportedly withdrew its application once it ran into difficulties with the SEC.

Our take: Currently, there are no U.S. exchange-traded Bitcoin derivative products on the market. Earlier this year, the SEC denied requests made by the Winklevoss brothers and SolidX for Bitcoin ETFs.

The Chicago Board Options Exchange is planning to launch cash-settled Bitcoin futures in the coming months, but no official launch date has been announced. The futures, which would be supported by market data from the Gemini digital asset exchange, could come to market as soon as Q4 or early 2018, according to the CBOE. Also, Bitcoin options have already been approved by the CFTC, but they too have yet to launch. LedgerX is expected to bring them to market soon.

A Bitcoin ETF would be a major step and have a positive impact on the price of the cryptocurrency. The listing of a Bitcoin ETF on a major U.S. exchange, would put Bitcoin on track to rival other commodities such as gold, silver and oil. It would allow for institutional investors, funds and individuals to add Bitcoin to their portfolios.

When it comes to the Bitcoin EFTs, the U.S. government isn’t the only one that’s been treading lightly. However, other governments around the world have been adopting different stances. Bitcoin investment products are already available in Europe and regulators in Canada are considering a Bitcoin ETF.

There are exchange-traded Bitcoin products in Europe, ETNs (Exchange-Traded Notes), but they’re not ETFs. The Stockholm-based XBT Provider was the first company to offer Bitcoin Exchange Traded Notes, COINXBE and COINXBT, which are listed on the Nasdaq Nordic.

In Canada, Evolve Funds Group Inc. recently announced that it filed a preliminary prospectus with the Canadian securities regulators for Canada’s first cryptocurrency ETF, Evolve Bitcoin ETF (“BITS”). This new Evolve ETF is designed to provide Canadian investors with indirect exposure to the world’s first decentralized currency.

Everyone recognizes the need for a cryptocurrency-tracking fund. Institutional investors could easily buy and sell shares in the ETF, or use as hedge, allowing them to speculate on Bitcoin’s price movement, without the need to actually own the digital currency. A Bitcoin ETF would basically be the first time institutional money could really flow into Bitcoin in a meaningful way.

We can expect compnies to continue with the applications for a Bitcoin ETF, in hope to be the first to list a cryptocurrency-tracking fund.

News Item 2: Indian Self-Drive Car Rental Firm Beats Uber in Bitcoin Adoption

Decrypted: Drivezy, an Indian peer-to-peer car and bike sharing platform, has been busy. The startup was launched earlier in 2017 and has grown to a fleet of 1,000 cars and 300 bikes across four cities in India.

Recently, the company raised $10 million in debt and equity from American and Japanese investors. Companies including Das Capital, Axan Partners and IT Farm, took an equity stake in the company for $5 million. Also, a group of banks and financial companies, including Mahindra Finance, ICICI Bank, Cholamandalam Finance and Shriram Financ, invested $5 million in debt in Drivezy.

Later this month, the company is planning an ICO in Japan, with the goal to raise another $5 million to expand its peer-to-peer sharing marketplace for cars and bikes.

Our take: Drivezy, an alum of both Google’s Launchpad Accelerator and Y Combinator formerly known as JustRide, pivoted from a car-sharing marketplace to being a peer-to-peer aggregator.

Drivezy’s platform enables micro-ownership of personal cars. It connects vehicle owners with passengers looking for a ride. Passengers get access to a car at a fraction of what it would cost them to own it. For car owners it provides an opportunity to generate revenue or share the cost of owning the car.

Drivezy has also announced that will be launching its Initial Coin Offering at the end of October. AnyPay, a Japanese fintech company, is advising Drivezy for its upcoming ICO. Investors in Drivezy’s token sale will be able to purchase cryptographic tokens that will give them a share of the revenue generated by rentals from its platform. The company will making available 12.5 million tokens for sale and plans to create a fleet of collaboratively owned vehicles that shall be accessible to all.

The startup has already integrated Bitcoin as a payment option, and so far processed over 150 Bitcoin transactions.

While Bitcoin has had explosive growth since last year, most merchants have been hesitant to adopt it as a payment option. The lack of governmental backing and the thinness of its trading volume, creates the kind of volatility that been keeping most merchants away. Even overnight settlements can result in businesses losing a lot of money. Also, most owners of Bitcoin are unwilling to let go of their holdings to pay for goods, because they expect the price of Bitcoin to go up.

To accept Bitcoin for payments and manage the risk with price volatility, Drivezy has partnered with Unocoin. While customers pay in Bitcoin, Drivezy receives the rupee equivelent of these Bitcoins and is guarded from volatility. When a customer requests a refund, the amount of Bitcoins they’ll get back, may be less or more than the Bitcoins originally paid, depending on the Bitcoin’s price at the time of the refund.

Cryptocurrency needs major merchants and retailers to come on board. While no one doubts Bitcoin’s transaction value, a small percentage of this money is effectively used to pay bills and purchases today. Smaller companies, like Drivezy, can be more versatile about accepting cryptocurrencies for payment. On the other end for huge companies like Amazon and Uber, that sell their products in multiple geographies around the world, it can be extremely hard.

According to a report from Internet Retailer, merchant acceptance of Bitcoin is at an all-time low. Out of the leading 500 internet sellers, just three accept Bitcoin, down from five last year.

Before major merchants can start accepting cryptocurrencies, they need to make sure that regulators are on board, providing a legal framework for accounting and taxes. For now service providers, like Coinbase and BitPay, are filling the gap, acting as intermediaries, and accepting Bitcoin from the customer and providing dollars or some other fiat currency to the merchant.

While the number of purchases with Bitcoin will probably increase, as the sheer volume of transactions continues to increase, the bulk of the growth will most likely come from trading or investing in Bitcoin. For now Bitcoin continues to go mainstream, but as an asset rather than a transaction method.

News Item 3: Bitcoin Exchanges Coinbase, Bitfinex Issue Guidance Before SegWit2X Hard Fork

Decrypted: Segwit2x was ratified at the New York Agreement (NYA) in May, and was intended to create compromise in Bitcoin’s long-raging scaling debate. To activate Segwit using BIP 91 (which happened in July), and then to hard fork the base block size to 2 MB, ninety days later.

With the upcoming Segwit2x hard fork scheduled this November, the scaling debate continues to heat up. Once more, supporters and detractors of SegWit2X have turned social media into a political and philosophical battleground. Some are even engaged in a protest movement on Twitter, under the banner of “NO2X.”

Since early September, Bitcoin price has struggled to recover beyond $4,500, due to uncertainty surrounding the Chinese cryptocurrency exchange market and SegWit2x.

Our take: Several business have pulled out from the SegWit2x NYA agreement, the plan led by the Digital Currency Group, to carry out a hard fork in November. This uncertainty around the upcoming SegWit2x hard fork is continuing to hold back the momentum of Bitcoin in the short-term.

An updated list of companies that did not sign or dropped out from the NYA can be found here on the NO2BX site. For those that have not kept up with the debated, here are the points each side is making:

2X says “yes” to:

  • Lower transaction fees and/or faster confirmations.
  • Compromise.
  • Keeping their word.
  • “Firing” Bitcoin Core client and switching to the BTC1 software client.
  • Miners being the deciding factor.

NO2X says “no” to:

  • More security tradeoffs.
  • “Backroom deals”.
  • “Firing” Bitcoin Core client.
  • Contentious hard forks.
  • Rushed hard forks.
  • Lack of replay protection.
  • Brand confusion.
  • Keeping a broken agreement.
  • Miners being the deciding factor.

Charlie Lee, Litecoin’s creator, when discussing the issue on social media said it was not as easy for industry players like Coinbase and Bitfinex, to take sides on the next fork, as when Bitcoin Cash came into play:

In other words, they can’t just choose one fork and ignore the other fork. Choosing to support only one fork (whichever that is) would cause a lot of confusion for users and open them up to lawsuits. So Coinbase is forced to support both forks at the time of the hardfork and needs to let the market decide which is the real Bitcoin.

Two months ago, Bitcoin experienced a hard fork, that created a new cryptocurrency, Bitcoin Cash (BCH). BCH disagreed with SegWit2x and hard forked August 1st, so that block sizes could be variable, up to 8mb. The aim for BCH is to become an everyday means of payment.

Recently another hard fork was announced called BTC GPU, also known as Bitcoin Gold. Bitcoin Gold developers declared that 25th of October will be the day when BTG coins are created through the hard fork. Bitcoin Gold wants is aiming to democratize mining, and to see at-home enthusiast miners back in control.

Yet, with SegWit2x fork in November, by 2018 we could see four different Bitcoin chains in operation.

So are these hard forks going to kill Bitcoin? No.

The reality is that things are never black or white, instead they are very much shades of grey. When hard forks happen, it simply means that of a part of the community is not happy with the existing blockchain protocol and its better to separate and create something new, instead of continuously debating and remaining at a standstill.

OpinionRising fees have bitcoin users rethinking practicality

With the growth of Bitcoin’s value, a few more things have been going up. The number of Bitcoin transactions and the fees to process the transactions. The transaction fees have gone up exponentially, because the miners are taking advantage of the numerous transactions happening, selecting to give priority to those that have a higher transaction fee.

Fees for sending money over Bitcoin’s blockchain have risen from 13 cents per average transaction in the second quarter of 2016, to $2.40 in the same quarter of this year and to $8.90 on Aug. 22.

The transaction fee is received by the Bitcoin miner. Transaction fees are voluntary on the part of the person making the Bitcoin transaction, as the person attempting to make a transaction can include any fee or none at all. On the other hand, nobody mining new Bitcoins necessarily needs to accept the transactions and include them in the new block being created. The transaction fee is therefore an incentive on the part of the Bitcoin user, to make sure that a particular transaction will get included into a block.

The rise of transaction fees, elevates doubts about the Bitcoin’s original promise and perceived benefit, over different ways of payment. The negligible cost of transaction was one of the main points that attracted new users to Bitcoin. Bitcoin has been pitched as the future of global economy, the digital currency that can bank the unbanked, enable micro-transactions and make remittance a walk through the park. That seems to be a thing of the past and all these claims have now stumbled on the once upon a time, negligible transaction fees.

Today, Bitcoin has turned into a “fee market”. A user that wants to transact on the blockchain must bid for inclusion, effectively turning block space into a scarce commodity, driving up fees and increasing average transaction confirmation times. The block size and scaling issues of Bitcoin have never been as important as they are these days.

Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 2nd October 2017

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: Zen blockchain hopes to strengthen, broaden Bitcoin

Decrypted: Recently, the Zen Protocol came out out of stealth mode hoping to create an alternative to Ethereum and solve the “running out of gas” problem that can happen with Ethereum based smart contracts.

The Zen Protocol is a solution for decentralized, automatic contracts that runs in parallel to Bitcoin, just like a sidechain. The Zen Protocol eliminates some of the problems associated with Ethereum smart contracts. Zen allows its miners get to know the amount of computation a contract requires, before actually executing it. This makes it possible for contracts to execute extremely fast.

Our take: Smart contracts are one of the key innovations of Ethereum. The basic idea is programmable, self-executing contracts that are recorded and executed on the blockchain. Smart contracts run on the Ethereum Virtual Machine (EVM), that uses  resources for computation and data storage.

All transactions, from simple transfers to ICO smart contracts, require resources to execute. Each of these resources has an associated cost in “gas”. Gas is the metering unit to use EVM and the way miners are incentivized to process the transactions.

When a transaction is sent to EVM, it will start to execute, but if it does not have enough gas, it will eventually stop. When this happens, the amount of Ethereum spent on gas is not returned, but since the transaction did not actually complete on the blockchain, the main funds remain in the wallet.

Zen is a decentralized financial platform, built from scratch with the goal of providing people with a secure, scalable and useful infrastructure for creating their own financial instruments, and trading them directly without intermediaries.

Zen enables everyone anytime anywhere in the world to create and trade financial products. The platform creates an open marketplace where users can operate various types of financial instruments, including options, futures, digital currencies, ETFs. This makes this new chain a more fully fledged financial system compared the others.

Zen can be utilized with real world assets, and not just blockchain related assets, as in the case of Ethereum. Because its a Bitcoin side chain, it’s part of the Bitcoin blockchain and all Zen nodes are also Bitcoin nodes. Its close connection with Bitcoin makes it possible to sell assets for BTC or to create Bitcoin-backed assets.

The Zen blockchain is secured by multiple proof-of-work algorithms, with token-holder voting on the balance between them. Multi-hash mining creates robust incentives for miners to deliver efficient, reliable security.

Zen smart contracts are written and secured by a subset of the F* functional programming language, allowing users to prove:

  • The amount of resources a contract will consume and provide the necessary fees for running the contract to miners, removing the need for a “gas” based system.
  • Their contracts meet a given specification, meaning they can prove the contract will definitely do (or not do) something given a specific set of parameters.

The Zen Protocol eliminates the problems with Ethereum smart contracts, when they run out of gas. The protocol utilizes contracts that never exhaust network resources and are always correct. In advance, miners know exactly how much computing power will be required to verify a contract. This allows for contracts to execute and transact faster.

News Item 2: Prime Minister’s Son to Head Barbados Blockchain Startup

Decrypted: Rawdon Adams, Bitt’s new CEO, takes the helm of the Barbados-based fintech company, a few months after the company revealed a plan to develop a pan-Caribbean settlement network, built on blockchain. The plan is to create a way to better connect the region and create a new type of digital currency: a regional cross-border blockchain currency.

While many solutions are being talked about, the problem of de-banking in the Caribbean is enormous. Its clear to everyone that something needs to happen. Leveraging Blockchain technology can lead to economic transformation in the region. The appointment of Adams adds clout to the startup’s regional plans. Rawdon is the son of Tom Adams, who served as the prime minister of Barbados between 1976 and 1985.

Our take: Smaller, poorer countries are being abandoned by big banks in an exodus commonly referred to as “de-risking” or “de-banking.” In the Caribbean, where many small countries with poorer populations reside close to each other, the problem is getting so bad that local businesses regularly have a hard time receiving remittances and paying suppliers outside of their own country, even when their trading partner is just the next island over.

When traveling between islands in the Caribbean, dealing with currencies has always been complicated. With 7,000 islands comprising 12 dependent territories and 13 sovereign island nations, trading and travel is complex, especially in terms of having the right money or making conversions when paying by card.

The growing trend in the Caribbean was the topic of a 2016 report by the IMF. No one knows exactly how much of the population is “unbanked,” or financially underserved, in Latin America and the Caribbean. However, estimates put the number as high as 70%, or more than 400 million people.

The UN Economic Commission for Latin America and the Caribbean, when examining the use of digital currency technology in the Caribbean, released a report with the goal of drawing attention to the opportunities and liabilities related to the technology.

The UN’s report noted that in March 2014, the Central Bank in Trinidad and Tobago issued public awareness information about digital currency, warning that “potential users of the product must be aware of the risks involved in investing in virtual currencies as regulators seek to establish appropriate frameworks to ensure the continued safe operation of the payments system and the smooth conduct of monetary policy.”

The report also stated that Trinidad and Tobago have the potential to become a hub of digital currency activity given its relatively low cost of energy, making it an attractive location for digital currency mining. Moreover, the research into Koblitz Group revealed two subsidiaries: Bitt, a digital currency exchange and ASICBLOCK, a hosted digital currency mining service.

In early 2014, the Koblitz Group was working on an initiative to establish a digital currency exchange to serve the Caribbean, with a launch in Barbados and then an expansion into Trinidad and Tobago.

Bitt was founded in 2013 in Barbados. Its a digital asset exchange that owns and operates a trading platform for Bitcoin and other fiat currencies. The company focuses on providing access to cryptocurrencies in emerging markets. Bitt has developed a high frequency trading platform, boasting military grade security, that includes a digital asset exchange, a mobile money wallet, a remittance platform, and merchant payment processing tools.

In 2016, Bitt launched the Barbadian Digital Dollar, the Caribbean’s first blockchain-based digital money. The Barbadian Digital Dollar is equivalent to one dollar issued by the Central Bank of Barbados. To create the digital dollar, Bitt took advantage of the Colored Coins protocol, that allows the creation of new assets on top of the Bitcoin blockchain.

Other central banks in the region are joining the project and Bitt will soon also handle Aruban florins and Bahamian dollars. The Eastern Caribbean Central Bank (ECCB) is engaged with Bitt for a pilot in the Eastern Caribbean Currency Union.

Also, earlier this year, Bitt parnered with PwC to offer central banks and other institutions, access to PwC’s deep global expertise in blockchain research and knowledge, marketplace strategy, operational readiness and technology services.

Looking at the bigger picture, it seems like we have a new type of digital currency in the making, that will potentially span across several countries. With the appointment of Rawdon Adams, its likely that support from the Barbados government and other governments in the Caribbean region, could turn Bitt’s project into an initiative that potentially could impact the entire region.

News Item 3: Fidelity Investments Is Mining for Cryptocurrency 

Decrypted: Fidelity Investments is one of the largest investment firms, managing $2.3 trillion in assets. In May, during the 2017 Consensus conference, Abigail Johnson, Fidelity’s CEO, said that the company was in the business of mining Bitcoin.

The firm has been experimenting internally with Bitcoin and is now bringing some of those features to its broad customer base. Now, through the Fidelity website, cryptocurrency balances are visible to customers that hold an account with Coinbase.

Our take: Fidelity is one of the few US. financial firms that have taken a proactive approach to cryptocurrencies, speaking publicly about its cryptocurrency operations, while most of the big banks have been hesitant to adopt Bitcoin and are only now starting to explore blockchain technologies.

Fidelity has a small operations team in charge of mining Bitcoin, trying new wallets, and even experimenting on innovations to further augment cryptocurrency.

One of Fidelity’s projects is mining Bitcoin and Ethereum, which started for educational purposes, but now turns a nifty profit. Abigail Johnson said “We set up a small Bitcoin and Ethereum mining operation, that miraculously now is actually making a lot of money”.

Fidelity is reported to have purchased its mining equipment from the company 21 Inc.  It is unclear how many units they purchased or what type of mining power Fidelity has, but we can only assume their mining operation is still limited in power, considering it was only set up for educational purposes.

Additionally, Fidelity has updated its website to display cryptocurrency balances for a customer’s Coinbase account. Earlier this year, Fidelity began testing the view balance feature with employees who own digital assets on Coinbase. During testing, Fidelity found strong internal support for the partnership and ability to view digital asset holdings within their portfolio.

Fidelity Labs, the company’s research group, has made venture investments in a handful of Bitcoin businesses as well as partnering with university efforts, including the MIT Digital Currency Initiative.

Fidelity employees can pay for their lunch or coffee using Bitcoin in the cafeteria at its Boston headquarters. The firm’s charity arm also began accepting Bitcoin donations in 2015 and the company received $7 million worth of Bitcoin donations last year.

In 2017, the market cap for cryptocurrencies has grown significantly, especially Bitcoin and Ethereum. Despite the acceptance of the underlying blockchain technology, regulators and financial firms in the US have diverged from implementing cryptocurrencies in their daily business operations. But maybe the winds are changing and now we’ll start seeing more big financial services firms becoming more proactive with cryptocurrencies, contrary to some of the statements we heard in the past weeks.

Even though J.P. Morgan chief executive, Jamie Dimon, called Bitcoin a fraud, the bank’s traders were buying shares of an exchange traded fund that tracks cryptocurrencies. In a recent article on CNBC, James Gorman, CEO of Morgan Stanley, took a different stance saying that Bitcoin and other cryptocurrencies were certainly “more than just a fad.”.

Along with JPMorgan, more than a dozen banks, including Morgan StanleyGoldman Sachs Group Inc and Credit Suisse Group AG, have acted as brokers for buying and selling Bitcoin XBT on Nasdaq’s Stockholm-based exchange, according to Swedish online bank Nordnet AB.

It is good to see Fidelity Investments showing confidence in cryptocurrencies. This very public Bitcoin recognition makes Fidelity just one of a handful of big investment companies that have decided to integrate cryptocurrencies and  putting it in direct opposition to many others including the likes of J.P. Morgan, that continue to ignore what they can’t control.

OpinionIt’s Political: Why China Hates Bitcoin and Loves the Blockchain

Some governments love blockchain technology, but hate Bitcoin. Some governments are in panic, because they understand they can’t stop Bitcoin from becoming an alternative to their monopoly on money. Deep down, most governments understand the underlying value of blockchain, which is primary reason they are considering and are experimenting with their own versions of fiat digital currencies.

Bitcoin is largely an American invention. While no one knows who Satoshi Nakamoto really is, it is believed that he primarily spoke and worked on Bitcoin in English and eight years ago he refined his protocol with the late Hal Finney.

Yet, China and Russia have both shown interest in pursuing their own national cryptocurrencies, as part of their strategies to disrupt US. economic dominance. The Chinese government is speeding up investment in cryptocurrency technology to replace paper money with digital currency. The Ministry of Industry and Information Technology (MIIT) recently approved nine products that meet the country’s “trusted blockchain standards”, including Tencent Blockchain developed by online payment system Tenpay, and a platform from Chinese telecom conglomerate ZTE.

The US dollar’s position as the world’s dominant reserve currency gives the US enormous leverage over the world’s economy. The high demand for dollars in many different countries, allows the US. to constantly print more, making buying imports and borrowing money cheaper for the United States.

But the US. is holding on too tight. This is the primary reason the US. has not been pro-cryptocurrency. And this is potentially its down fall.

In such a globally connected economy, the impact of transitioning to blockchain will be profound and will likely turn any nation and industry on its head. Amazon dominates as a marketplace. Facebook dominates as a social network. Google dominates as a search engine. Airbnb dominates renting rooms. Blockchain, the distributed database that powers Bitcoin, could disrupt everything.

In an article on Bloomberg that Vlad Martynov, an adviser for the Ethereum Foundation said:

“Blockchain may have the same effect on businesses that the emergence on the internet once had — it would change business models, and eliminate intermediaries such as escrow agents and clerks. If Russia implements it first, it will gain similar advantages to those the Western countries did at the start of the internet age.”

The winners of the blockchain era, will be the countries and businesses that embrace it and Michael J. Casey sums it up perfectly:

“Given the current policy priorities of the Trump administration, the U.S. won’t likely be the winner in this. But neither will China if it continues on its present course. The age of cryptocurrency will deliver the spoils to countries, businesses and individuals that operate within a system of open access, property rights and free trade – the principles upon which U.S. hegemony was originally built”.

Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 25th September 2017

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: YC wants to let people invest in its startups through the blockchain

Decrypted: Sam Altman, the president of Y Combinator, expressed his interest in adopting blockchain for investment purposes, while speaking at the recent TechCrunch Disrupt conference. Altman said that he wants to democratize the process: “We are interested in how companies like Y Combinator can use the blockchain to democratize access to investing”.

Y Combinator wants to give people another way to invest in startups that it works with, using the blockchain and cryptocurrency to offer wider access.

Our take: Y Combinator has helped numerous Silicon Valley giants get started. In recent years it has also invested in several startups in the crypto space: Coinbase, Blockstack, Serica, Bitaccess, Shift Payments, Buttercoin, TradeBlock, SFOX, Filecoin, Zenbox.

Now, Y Combinator is looking at ways they can leverage the power of cryptocurrency and blockchain, to get investors to back their startups and broaden the investment pool. The accelerator has shown interest in adopting blockchain and is currently working out legal factors that need to be taken into consideration before such a system can be put in place.

While Y Combinator showed interest in blockchain, when Alman talked about ICOs, he expressed reservations: “Do I think ICOs are silly, bordering on scams? Yes, they are, but, there are a few that are important, and the blockchain is more important than not… ICOs need to be regulated.

Y Combinator is not the only one looking at blockchain for investments. Sequoia and Andreessen Horowitz and other large VCs have backed Polychain and MetaStable.

In recent weeks ICOs have been in the eye of the storm, with China’s ban on ICO funding in early September. Several regulators around the world have commented and issued warnings and are looking at ways to control ICOs: Japan, Singapore, Canada, South Korea, Hong Kong, Russia, England, and the United States,.

Everyone is taking a closer look at ICOs. Canada wants to create a middle ground that allows ICOs to exist within current regulatory structures, while countries like the Isle of Man and Gibraltar want to create frameworks that allow ICOs to be legally compliant.

In May of 2017, Gibraltar’s Digital Currency Summit explored ideas to grant legal status to companies with a focus on blockchain, as well as to companies conducting ICO’s. In early September, the Isle of Man opened up its doors to entrepreneurs looking to launch Initial Coin Offerings. In 2014 and 2015, it outlined rules and legislation for businesses that handle or exchange digital currencies and continued to develop a regulatory framework which will allow token sales to be compliant with anti-money laundering (AML) and know-your-customer (KYC) regulations. Having completed an ICO test case launched by Adel, a fintech incubator which incorporated on the island, the Financial Services Commission has put their principles of regulation into action.

But competition may also come into play between regulators. We already saw an example of cantonal competition in Switzerland, where the municipality of Chiasso recently announced it would be accepting Bitcoin for some tax bills, as the mayor hinted at competition with the nearby Swiss canton of Zug. Another example are the statements made by the Isle of Man’s Department of Economic Development, where one official was quoted as saying “Our understanding and analysis of the ICO market is that it represents a massive vertical market for us”.

Its clear that cryptocurrencies, blockchain and ICOs have tremendous potential and can drive economic development. We can expect to see further regulatory development and competition between nations, regions, and municipalities, as everyone tries to get a better grasp of things.

News Item 2: Raiden Release: Simpler Micropayments Go Live on Ethereum’s Testnet

Decrypted: The Raiden Network has now entered live testing, the final stage before it’s deployed into production. The Raiden Network is an essential part of the Ethereum ecosystem and one of the most important scaling solutions.

The Raiden Network is similar to the Lightning Network. It’s an off-chain scaling solution, enabling near-instant, low-fee and scalable payments. It’s complementary to the Ethereum blockchain and works with any ERC20 compatible token.

Also, its been posted that the Raiden Network plans to launch an Initial Coin Offering (ICO) this October, to further fund the development of the payments protocol.

Our take: As the market cap for blockchain assets is around $130 billion, blockchain platforms have been plagued with scaling problems.

Blockchains don’t scale well because they need a global consensus on the order and outcome of all transfers. Every participant needs to know about all the updates to the shared ledger. Hardware and bandwidth constraints set a limit on the number of updates per second, that can be shared in a decentralized network. The basic idea of the Raiden Network is to avoid the blockchain consensus bottleneck. This is done by leveraging a network of payment channels which allow to securely transfer value off-chain, without involving the blockchain for every transfer.

The Raiden Network has been in development for almost two years. Along with the Raiden Network, there have been a few other innovative projects attempting to ensure that decentralized applications can run as easily and at scale, as centralized apps run today. Truebit and Plasma have emerged as innovative ways to solve Ethereum’s scaling problems.

Plasma, which is the brainchild of Joseph Poon (co-author of Bitcoin’s Lightening Network) and Vitalik Buterin (founder of Ethereum), is trying to solve the scaling problem, using “baby” blockchains”. The system connects child blockchains to the main blockchain, with something called fraud proofs. This concept is similar to the Lightning Network, an idea Poon described a couple years ago for Bitcoin.

While Raiden’s ICO hasn’t been officially announced yet, a couple of days ago on their blog, Raiden Network developers announced that they decided to create a special token (RDN), that will be used for fees paid on the Raiden Network. The existence of this Raiden Network Token means that for most users, every transaction on the Raiden network will require the users to pay a fee that that can only be paid using these special tokens.

The Coindesk article says that the funds raised by the ICO in October, will be used to further develop the network. The ICO will be performed in a dutch auction manner, similar to Gnosis, meaning the price of the tokens would decline in cost over the course of the token sale.

Scalability remains the holy grail of blockchain technology and one of the main challenges faced by distributed ledger technology. The transaction throughput of blockchain technologies is still orders of magnitude behind that of mainstream financial networks. This hinders their widespread adoption. In order to challenge traditional payment networks and assume a key role in the decentralized future, blockchains must find ways to radically improve their throughput, measured in number of transactions per second.

We need to be working more on protocol layers for both scaling transactions and also scaling security protocols. Technologies like Raiden and Lightning can help change that.

News Item 3: Russian Prosecutor’s Office Summons Burger King for Issuing Cryptocurrency

Decrypted: The prosecutor’s office in Russia summoned Burger King to explain the issuance of its cryptocurrency, the Whoppercoin. A month ago, the fast food giant launched its blockchain token with a supply of 1 billion Whoppercoins. Customers receive one Whoppercoin for every ruble they spend. With 1,700 Whoppercoins, they can buy a Whopper burger.

While the Whopper cryptocurrency is a bit of a gimmick, customers can still trade and transfer the coins, just like any other cryptocurrency.

Our take: The WhopperCoin concept is an out-of-the-box approach to a rewards program but not without some risk. A proposed Russian legislation last year included possible jail time for Bitcoin users. Within the territory of the Russian Federation the turnover of any currency other than Russian rubles is banned.

Burger King in Russia issued a cryptocurrency called Whoppercoin in August, entering crypto market with a blockchain loyalty program, that allows customers in Russia to earn a coin for every ruble spent at BK. The cryptocurrency is hosted on the Waves blockchain platform and lets users trade the token with other users on a peer-to-peer exchange, for other cryptocurrencies as well as fiat currencies.

A study by Colloquy suggests, US consumers alone held 3.8 billion memberships in customer loyalty programs. More than 75% of adults in the United States participate in customer loyalty programs, like those offered by credit card companies, hotel chains and retailers and more than $50 billion in reward points and miles are issued by businesses annually. Loyalty programs are one of the most effective ways for merchants to boost customer retention.

While part of the WhopperCoin initiative seems like a fun and clever marketing ploy, cryptocurrency offers the perfect use case for reward tokens. It has the potential to be truly disruptive and reshape the way brands interact with consumers and consumers interact with each other. These tokens can effectively become private currencies issued by businesses or non-profit organizations, that would reward people’s loyalty.

Building a loyalty program on blockchain means anyone can send to someone else, the tokens they have received from the brand, potentially opening up a secondary market. You could trade on an exchange the tokens you’ve received from Brand A, with anyone willing to buy them, for tokens from Brand B or for fiat currency. In a sense exchanging your Burger King tokens, for Starbucks tokens, BTC, altcoins or US. dollars.

Applications like this present serious potential for building long-term loyalty, as these token can then be easily exchanged with other customers, creating repeat purchases of products. Blockchain can streamline the execution and administration of loyalty rewards programs, giving all participants near-real-time transparency, within the permissioned constraints set by the program provider. And besides integrating with, and enhancing, legacy systems that currently operate loyalty rewards programs, loyalty rewards providers can control exactly how they and their customers interact in the interlinked network to which blockchain provides them access.

There are several platforms out there that anyone can use to create their own coins on top of their existing blockchain, saving all the trouble from building your own. These include platforms like NXTCounterparty or Waves.

Burger King Russia is calling their coin a cryptocurrency: “Now Whopper is not only burger that people in 90 different countries love – it’s an investment tool as well. According to the forecasts, cryptocurrency will increase exponentially in value. Eating Whoppers now is a strategy for financial prosperity tomorrow“.

I’d probably end up dead long before, if I had to eat my way through all these whoppers to ensure financial prosperity with WhopperCoins. However, crypto loyalty programs can certainly offer unique opportunities, not just to incentivize customers to spend more money with a brand, but to also give them genuine rewards.

OpinionHere’s why the crackdown on bitcoin in China is ‘not a real problem’ for the digital currency

China’s actions reflect views that cryptocurrencies have no intrinsic value backing them, operate without any kind of government control and pose a risk of destabilizing the entire financial sector.

Jamie Dimon’s recent prose could have been written in China. His beef is with Bitcoin, not blockchain. He believes that Bitcoin and other cryptocurrencies are a fraud that will potentially hurt trusting investors. A couple of days ago, in another statement while in New Delhi, Dimon was quoted saying about cryptocurrencies: “It’s creating something out of nothing that to me is worth nothing“.

He’s not alone in this rhetoric. In the UK, Schroders, an investment company, backed China’s decision days after the ban was announced. Its strategist Huw van Steenis wrote “Why central banks should clamp down on cryptocurrencies“: “We should expect more central bankers to look to outlaw or crimp their use. This will be most acute in markets which are worried about capital flight and organized crime“.

China is a key center for cryptocurrencies and the home to the vast and lucrative cryptocurrency mining operations for Bitcoin, Ethereum and other altcoins. Chinese exchanges, Bitfinex, OkCoin, and BTCC, made up over 45% of the global market share over the last 30 days. Also, Bitmain, the largest manufacturer of Bitcoin mining equipment, is a Chinese company.

China is important. The extreme decisions by Chinese regulators are not a real problem for Bitcoin and other crypto in the long run.

The reality is:

  1. Large financial hubs around the world are supporting Bitcoin and other digital currencies (Japan, South Korea, Singapore etc).
  2. A day after China announced the ban on ICOs, Bitcoin’s price dropped from $4900 to below $4200 and prices of Ethereum and other cryptocurrencies also dropped. But, the impact was short-lived. Within two days of the announcement, prices climbed above $4600, suggesting that the market had brushed off the likelihood of a regulation-triggered tumble in prices.
  3. The global Bitcoin exchange market is adjusting. The vast majority of trading volume from the Chinese market has moved to Japan and South Korea. Earlier this week, the South Korean Bitcoin exchange market officially overtook China to become the third largest bitcoin market in the world, behind Japan and the US.
  4. China isn’t shutting down exchanges, they’re forcing them to get licensed and adhere stricter guidelines.
  5. The PBOC wants to introduce a digital yuan that will serve as a CNY tether.

Charlie Shrem, an early Bitcoin entrepreneur tweeted about China’s long-term impact on the crypto market:

“This China FUD is playing on all your fear, uncertainty and doubt. China has no real effect on the future of Bitcoin. Bitcoin is about censorship free and an alternative non government controlled financial system. China’s relevancy is diminishing by the day. They overplayed their hand and there is a reason they are being ambiguous. The only power they have over Bitcoin is the power you give them. Bitcoin puts a financial system back in our control”.

The reality is that China, understands the potential of cryptocurrency. The Chinese Government wants to know how its currency flows through the market, through regulated exchanges, and make crypto work in their own market.

Yes, China is an important market and the news about exchanges shutting down and ICO funding being banned, certainly has a short-term negative effect on the prices. While Internet businesses like Google and Facebook have been banned in China, they are still doing well. Bitcoin and digital assets are a global phenomenon. We can expect Bitcoin and the entire cryptocoin market to do well, regardless of the words and actions of the small-minded, that are trying to halt change.

Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 18th September 2017

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: Bitcoin at crossroads after shedding more than $27 billion in value

Decrypted: Announcements over the past couple of weeks have set off Bitcoin’s price tumble. After its all-time high in the beginning of the month, China notified local Bitcoin exchanges to cease and desist. China ordered Bitcoin exchanges to shutdown, because they operate in the country without an official license

The shutdown of the exchanges coupled with the pressure that was created another announcement by China’s central bank earlier in the month, to ban Initial Coin Offerings (ICO), triggered huge price drops to the entire crypto market.

Our take: Chinese regulators have dealt a huge blow to the cryptocurrency market. These announcements have sent the cryptocurrency markets into a free fall. Early in the month the total value of cryptocurrencies was over $170 billion, while all this news caused panic and pushed it below $100 billion.

One of China’s largest Bitcoin exchanges, BTC China, announced that it will shutdown its operations at the end of the month, after considering the announcement made by Chinese regulators in early September. The BTCChina announcement was followed by OkCoin and Huobi that said they were shutting down their yuan-based trading operations by Oct. 31.

Investors in China have been using Bitcoin as a way to protect themselves should the yuan fall in value. Trading their yuan in for Bitcoin can allow Chinese investors to move funds outside of the country. Traditionally, China’s government has set a $50,000 annual limit on how much its citizens can move outside of the country. Buying Bitcoin was a way to bypass those rules.

The news has sent Bitcoin’s price plummeting. Last Thursday, the cryptocurrency dropped about 9% trading just below $3,500. That’s a significant drop from its all-time high of $5,013.91 on September 2. Along with Bitcoin, all crypto’s were affected. Ether dropped by 11% to around $240, Bitcoin Cash crashed by 17% to $417, Ripple fell 10%, Litecoin dipped to $46, while Dash and Monero each fell about 10%. So far, Bitcoin has lost more than 20% of its value since the Chinese regulators announced the ban on ICOs on September 4.

It is likely that panic-driven traders in China, South Korea, US and Japan caused the sell-off and the sudden price drop. But, I think its important to note that the ultimate plan of the PBoC and Chinese regulators is to provide and offer a licensing program for exchanges, not ban trading platforms. China’s central bank has been testing a prototype digital currency with mock transactions between it and some of the country’s commercial banks. China is seriously exploring the technical, logistical, and economic challenges involved in deploying digital money, something that could ultimately have broad implications for its economy and for the global financial system.

A ban on crypto exchanges won’t necessarily mean the end of trading in digital currencies. Major Chinese exchanges could make significant changes to their trading and offer peer-to-peer trading, instead of centralized exchange services.

Even though Bitcoin’s prices sharply dropped this week, Bitcoin has climbed more than 250% year to date, outpacing many other assets. Also over the weekend the price was relatively stable and rebounding to around $3,580.

News Item 2: Broken Hash Crash? IOTA’s Price Keeps Dropping on Tech Critique

Decrypted: IOTA’s price fell by double-digits due to cryptographic vulnerabilities found by researchers at Boston University and MIT.

Specifically, the researchers claim they were able to break the homegrown hash function “Curl” that IOTA was using as part of its digital signature scheme to secure user funds. The researchers were able to demonstrate how an attacker could forge a user’s digital signature and use it to steal funds.

IOTA in a blog post did not deny its Curl hash function was breakable, and the company has already issued a patch to the cryptocurrency’s code.

Our takeIOTA is a revolutionary new transactional settlement and data integrity layer for the Internet of Things. Its a new cryptocurrency that is focused on Machine-2-Machine (M2M) transactions. The main purpose of IOTA is to serve the machine economy by enabling M2M payments without fees.

The technology behind IOTA is based on a new distributed ledger architecture called the Tangle, which overcomes the inefficiencies of current Blockchain designs and introduces a new way of reaching consensus in a decentralized peer-to-peer system. For the first time ever, through IOTA people can transfer money without any fees. This means that even infinitesimally small nano-payments can be made through IOTA.

Currently IOTA with a market cap of approximately $1.4 billion, counts among its partners VW, Bosch, Innogy and Microsoft, has ambitions of becoming a standardized protocol that becomes embedded into the everyday life activities of users. IOTA also recently made its way into the cryptocurrency casino arena, with BitDice choosing IOTA’s Tangle for its platform.

But IOTA’s price suffered a heavy blow, after Boston University and MIT researchers claimed to have found vulnerabilities to IOTA’s proprietary hash function. DCI Director Neha Narula explained the findings in a post on Medium. She says the DCI reviewed the IOTA source code in July and were concerned when they found that IOTA developers had invented their own hash function:

“We found that IOTA’s custom hash function Curl is vulnerable to a well-known technique for breaking hash functions called differential cryptanalysis, which we then used to generate practical collisions. We used our technique to produce two payments in IOTA (they call them “bundles”) which are different, but hash to the same value, and thus have the same signature. Using our techniques, a bad actor could have destroyed users’ funds, or possibly, stolen user funds.”

The IOTA developers had written their own hash function, Curl, and it produced collisions, when different inputs hash to the same output. Cryptographic hash functions are important for cryptocurrencies because usually a transaction is hashed before it’s signed. If you can break a hash function, you can potentially break signatures as well, meaning that the mechanism used to determine if a transaction is a valid and authorized spend is broken. The mathematical integrity that cryptocurrencies provide hinges on this relationship being secure.

The cryptocurrency is still new, making it vulnerable, and creating price volatility especially when news like this break. But despite the price drop, on a monthly basis, it is still up 16%. Considering that the error was detected and reported by reputable researchers, and the flexibility and speed the IOTA team shown in fixing the bug, will eventually boost confidence. In the long run, robust and useful technologies will emerge from the use of IOTA.

News Item 3: Bitcoin in the Browser: Google, Apple and More Adopting Crypto-Compatible API

Decrypted: Initially conceived in 2013, the World Wide Web Consortium (W3C) has been working with Microsoft, Google, Facebook, Apple and Mozilla, to create a currency-agnostic web payment standard.

The new browser crypto API will allow browsers to easily support cryptocurrencies directly in the browser.

Our take: These days the majority of online shopping is happening on mobile devices and more than 66% are through mobile browsers, not native apps. This is a pain for most users, because each web site has its own flow, and most require users to manually type in their information (addresses, contact information, and payment credentials) over and over again. In most cases, people don’t complete their purchases, and conversion rates on mobile are much lower when compared to desktop purchases. Also, on the development side, its difficult and time-consuming to create and maintain checkout pages that support various payment methods.

With W3C’s Payment Request API, online merchants will be able to use simple standard ‘in-browser API’ to initiate payments from their checkout pages, regardless of what payment method consumers may prefer to use from their side. This exciting browser innovation clearly simplifies merchant-side integration requirements, but at the same time, it completely changes the dynamics on the consumer side as well. W3C’s Payment Request API streamlines the checkout process, making the experience consistent and faster for users.

How does it work? Its pretty simple. The browser saves the user’s personal information, billing address, shipping address and payment information in a safe way. When a shop requests the data the user gets prompted to allow transfer of data. This is done on the client side, meaning there is no communication to third-party providers needed and the data , once approved by the user , is just passed from the browser to the site. A website using Web Payments can request the user’s stored data, provide a list of accepted payment methods, process that data and send it to its server , entirely  skipping the checkout.

The new payment API supports several currencies and browsers. On the currency side it will support Bitcoin, fiat digital currencies and other cryptocurrencies, and for browsers all the big ones: Google Chrome, Microsoft Edge, Apple Webkit, Mozilla Firefox, Samsung Internet Browser and Facebook in-app browser.

The long term potential of this API is exciting, because it will eventually allow users to ditch card numbers, for new, secure and open payment methods. It drastically decreases the steps from adding products to the basket to confirmation of the purchase. In the best case the user only has to grant access to the data, and in the worst case, when no data is stored yet, the user needs to be entered it  once, just the first time, and then never again.

OpinionJamie Dimon: Bitcoin Is a ‘Fraud’

“Frenemy” is an oxymoron of “friend” and “enemy”. It refers to someone that combines the characteristics of a friend and an enemy. Someone with whom we are friendly and at the same time we dislike or rival. The term is used to describe personal, geopolitical and commercial relationships both among individuals and groups or institutions. 

For banks, Bitcoin and other cryptocurrencies are frenemies. On one end banks and governments are exploring and experimenting with cryptocurrencies and blockchain, because they see the innovation and disruptive transformation they bring to the table, but on the other end they see them as a huge rival that can jeopardize their core businesses.

So here comes the head honcho of a major bank, that basically said Bitcoin is a fraud, not a real currency, and that he would fire any employee trading Bitcoin for being “stupid.” Jamie Dimon, JPMorgan’s CEO, has been a long time critic of Bitcoin, dismissing the digital currency’s survival, back in November 2015.

Not long ago, in February this year, JP Morgan Chase, joined a group of 30 big banks, tech giants, and other organizations to create a group, called the Enterprise Ethereum Alliance to demonstrate a pilot of the financial technology and show off a spot trade on the foreign exchange market for global currencies, using an adaptation of Ethereum as the settlement layer.

Banks seem to be far more interested in blockchain, the technology behind Bitcoin. The reason they are so interested in distributed ledger technology, is because they think its a way to respond to the competitive threat that Bitcoin poses to traditional money. Banks and the governments that regulate fiat currencies, recognize that cryptocurrency is one of the few innovations that can securely and efficiently create and handle money, far beyond their control.

Banks want to adopt the efficiencies without the decentralization, the global nature and the low cost without loosing control. But you can’t have Bitcoin’s revolutionary nature, while removing all the things that make it innovative. I think Andreas Antonopoulos explains it best when he talks about why you can’t separate Bitcoin from blockchain:

“The big invention behind Bitcoin is not the currency, but it’s also not the blockchain. The blockchain, as a hash-chain set of blocks, is really not that novel and not that interesting. What is really interesting is the combination of all four things together, and the important thing we haven’t mentioned is the Nakamoto Consensus. The Nakamoto Consensus being the ability to agree on a set of consensus validation rules for transactions and blocks that are then implemented through a competition using proof of work”.

The belief that you can separate Bitcoin and blockchain is flawed. If you remove the reward, Bitcoin, and the Nakamoto consensus mechanism, what you have left is a slow database that needs central control and oversight to work. So how is this different from what is in place today? Sounds to me like an existing centralized system, where you need to trust someone, because they say you should trust them, and not the math (known as a proof-of-work calculation).

Sometimes it’s hard to tell true innovation from fraud. In 1903, the president of Michigan Savings Bank told Horace Rackham, an early stockholder in Ford, that the “the horse is here to stay but the automobile is only a novelty.”

The Internet has forever changed the world, and continues to transform our lives. Bitcoin and blockchain will restructure finance, even though most banks today see it as a big threat that can wipe out how they make money. Banks want to transform their industry, but in reality they can’t imagine disruption that changes the fundamental principles of what they do. Those that embrace change instead of fighting and calling it a fraud, will be the one’s that thrive in the new and emerging financial system.

Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 11th September 2017

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: Read the actual text of the China ICO ban

Decrypted: The hype around Initial Coin Offerings has reached new highs with everyone and their mother jumping on the ICO bandwagon. We are starting to see celebrities like Paris Hilton, Floyd Mayweather endorsing new digital currencies. Already, companies like Crypto Media Group are actively recruiting celebrities to conduct promotional campaigns for upcoming ICOs.

After the SEC published in July an investor bulletin on ICOs, it comes as no surprise that financial regulators in other countries are defining strict prohibitions against ICOs.

In a bold move last Monday, the Chinese government banned initial coin offerings. The People’s Bank of China ruled that these unregulated token sales violated Chinese law and must stop immediately.

Our take: ICOs have become big business.  The total amount raised from token sales, surpassed early stage investment spending from traditional VCs during the first half of 2017, according to a Goldman Sachs report. Since in 2014, ICOs worldwide have raised $1.78 billion, driven in part by the soaring value of more established cryptocurrencies, like Bitcoin and Ethereum.

According to a report by the National Committee of Experts on the Internet Financial Security Technology, there were 43 ICO platforms in China on July 18. Sixty-five ICO projects were completed, and raised 2.6 billion yuan ($398 million).

China’s ban will be interesting. Earlier in the week, an article in Forbes came up with seven likely reasons why China may have instituted the ban. In 2013, it banned Bitcoin, not allowing exchanges to make transfers in yuan and putting the brakes on the cryptocurrency. This resulted in a huge price drop. It remains to be seen how China’s recent decision will impact the ICO market overall and possibly influence the SEC and other regulators around the world.

Naval Ravikant makes an interesting point:

“ICOs need regulation, sure, but banning ICOs altogether is a huge gift to Silicon Valley and its resident financiers.”

ICOs are leveling the investment playing field. Startups raising money are no longer limited by geography and can raise enough to compete with companies in Silicon Valley, New York, or Israel. Fred Wilson of Union Square Ventures thinks its possible, that China is looking for a cooling off period.

So, I doubt this ICO ban is permanent move. China cannot afford to be left out of the digital currency market, nor the development of future blockchain innovations.

The ICO market continues to expand, with more money than ever being raised. Yet, this week with all the talk about the ban and its possible impact, Filecoin went live with its own initial coin offering, shattering the previous record sent by an ICO and raising $257 million.

Initial Coin Offerings have changed the investment landscape. They are here to stay and no ban will change that. Governments cannot stop decentralized currencies, as they have no border or nationality. Even though I don’t agree with China’s position, I feel it’s positive they took a stand. Gray areas can only hurt the crypto market. Its always better to know where you stand and what you can’t do, instead of having to deal with surprises later on. Sensible regulation can benefit all participants, both ICO projects and investors alike, by adding a level of protection for everyone involved. Regulations can make it easier to spot ICO scams, and help legitimate projects get the money they need, to actually build something useful.

China’s ruling will likely put pressure on the value of Bitcoin and Ethereum, especially Ethereum as its price is down 17% for the day. ICOs have helped to drive the value of both cryptocurrencies. Users who participate in ICOs typically buy the new cryptocurrencies using Bitcoin or Ethereum. China represents one of the world’s most active crypto communities and has been an important element in the ICO boom, both in terms of companies selling tokens and investors buying them. There is no question that China’s ban will be significant on the ICO market, but it won’t last very long.

News Item 2: Sprint and SoftBank Back New Blockchain Consortium for Telecoms

Decrypted: Three carriers, including the huge Japanese group SoftBank, have launched the Carrier Blockchain Study Group (CBSG), a consortium to use blockchain to make cross-carrier payments.

Initially in February, SoftBank, Sprint and TBCASoft agreed to jointly collaborate and develop blockchain technology for telecom carriers. Recently Taiwanese telecom, Far EasTone, joined the group which led to the decision to create a consortium and invite other telecom players to join in the development and trials of blockchain services.

CBSG will promote research and development for the platform with the aim of providing users various services such as secured clearing and settlement, personal authentication, IoT applications, and other services in the future.

Our take: Since Martin Cooper introduced the first mobile phone was in 1973, the telecommunications industry has grown exponentially. But its continued growth will depend greatly on the adoption of newer technologies, like blockchain.

In today’s increasingly connected world, telecommunications companies are capitalizing on opportunities for growth by improving operations and upgrading their networks, among other strategies. The Blockchain can become one of the tools that will help operators transform to full-fledged digital service providers securing a sound position in the rapidly changing market.

Delloite believes that the Blockchain can make the biggest difference in key governance frameworks and added value services offering opportunities to reduce costs through increased performance of processes and to step up revenues from new offers. Deloitte’s recent Telecommunications Industry Outlook 2017 report clearly states: “telecoms will not be able to achieve rapid growth without upgrading their network infrastructures”.

The telecom industry faces some big questions: what will be the impact of blockchain on existing processes and costs? Are any existing supply chains under threat? What service or revenue opportunities will blockchain open up for vendors or service providers? Can blockchain offer a new path to growth for network operators?

Blockchain will not fundamentally revolutionize telecom service provision itself, but the concept of the blockchain and services built using it offer a range of interesting opportunities to alter business processes and also to underpin some creative service and business model development.

It is a potential platform for innovation in the development of complementary services. It could add new mobile payment capabilities for service provider financial service projects to enable autonomous transactions within IoT platforms being built by network operators and vendors, and to help solve issues of identity and fraud management.

A number of telcos are already adopting blockchain in order to gain a foot hold ahead of competition. As of February this year, Sprint, Du, Testra and Orange to name a few, all have projects in motion with some dating back to 2015.

  • In August 2015, Verizon Ventures invested in Filament, a start-up developing connected modules to allow industrial assets to act as autonomous agents. These agents can then communicate via long-range, decentralized mesh networks and transact data using blockchains and smart contracts.
  • Orange launched its ChainForce initiative in June 2015 with the intention of encouraging established companies and start-ups to explore new blockchain technologies and use cases. Orange Digital Ventures also invested in US-based start-up Chain, which is developing enterprise-grade blockchain solutions for the financial industry and other transactional services, in September 2015.
  • In May 2016, Du announced a pilot programme to facilitate the secure transmission of electronic health records (EHRs) in the UAE. It intends to do this through a blockchain-based solution in partnership with the Global Blockchain Council, which is itself a partnership between industry and government. Additionally, du has established partnerships with Dubai Tourism and Loyyal to provide blockchain-enabled loyalty solutions for tourism (Dubai Points).

Also, earlier this year a major state-owned telecommunications provider in Switzerland joined the open-source Hyperledger blockchain project. In February 2017, Swisscom AG joined the Linux Foundation-led effort. At the same time, the company disclosed several blockchain-related projects it has undertaken since internal research began last year. Specific initiatives include a consumer loyalty concept developed with an unnamed bank and a platform for over-the-counter trading, the latter of which is being pursued in partnership with the Lucerne University of Applied Sciences and Arts, among other parties.

The capabilities of Blockchain are already extensive with further room to develop in the future and those that begin to embrace the technology now will have less problems competing over the next few years as this technology really begins to take hold of the industry.

Even with 5G, blockchain has a part to play. Telecom providers would have the ability to provide reliable 5G services by connecting 3GPP and non-3GPP access networks through blockchain networks where each access point serves to monitor devices within the network. The device can then use these to determine which access point will provide the best service.

News Item 3: Almost 10% of all money invested in initial coin offerings using cryptocurrency Ethereum has been stolen

Decrypted: With all the money invested in ICOs everyone has been paying attention, including thieves that have made a killing since the beginning of the year.

Cyber criminals have reportedly stolen $225 million worth of digital currencies through phishing scams in 2017, with ICOs amassing about $1.6 billion this year. Chainalysis estimates that more than 30,000 people have fallen prey to ethereum-related cyber crime, losing an average of $7,500 each.

Our take: Regulators are issuing warnings and bans, yet, ICOs are showing no signs of slowing down, with millions being amassed daily.

The ICO frenzy has become ripe territory for scammers. Almost 10% of all the money invested in initial coin offerings this year, using Ethereum, has fallen into the hands of thieves. It looks like the cryptocurrency hackers are doing pretty good against all the other types of criminals that are out there. The amount of wealth that has fallen into the hands of cyber criminals is approaching $390 million, the losses incurred by robberies in the U.S. for all of 2015, according to statistics released by the FBI.

In mid-July, CoinDash lost $7 million during its ICO, after a hacker altered the address on its website and investors ended up sending funds to a malicious digital wallet instead of CoinDash. Days later, at least three ICOs were affected by a bug in Parity’s cryptocurrency wallet, that allowed thieves to steal $30 million. Another hacker managed to compromise Enigma’s ICO during a fake, hacker-staged coin pre-sale, getting away with $500,000. Veritaseum, claimed that 36,000 of its tokens were stolen and exchanged for Ether.

Most high-profile attacks have been hacks and exploits. Most involve creating websites that mimic the real ICO project, while others lure victims using fake social media account, Twitter posts, Slack messages, and targeted email campaigns. They solicit prospective investors to send money to their address using these fake accounts.

Cyber criminals were also able to steal money by tapping into project loopholes. A bug in the (DAO) project, which was aimed at democratizing how Ethereum projects were funded, allowed cyber criminals to steal $55 million and cause a fork in Ethereum.

Chainalysis provides several security tips to help investors avoid becoming a victim. They advise users to be wary of direct messages from companies since most reputable businesses communicate with contributors on a public, rather than individual level. Also, one should never forget that it’s important to keep control of their private keys, rather than permanently storing them on third-party wallets or exchanges.

Its scary when you consider how easy it is for hackers to acquire huge amounts of Ethereum in a short period of time. While regulators don’t regulate technology, but conduct, its understandable that they are taking steps to add some layers of protection for the ICO market and small investors.

OpinionThe Cryptocurrency Singularity

Since its creation in 2009, Bitcoin has generated a lot of debate in the media. There have been plenty of economic arguments equating it to a bubble that’s about to collapse. Yet, its price value has proven to be more durable than many have predicted.

Why after so many ICO scams, cyber-thefts, sharp price drops, issues of scalability and forks is the value of Bitcoin and cryptocurrencies rising?

Historically, governments always connected the nominal value of fiat money to the commodity value of gold or silver. Today, dollars and other fiat currencies are free-floating and their value is decided by the market, just like Bitcoin.

Gresham’s law says that “bad money drives out good.” Good money is money where there is not much difference in its nominal value and its commodity value. If a coin is worth $1 and the metal is melted down, that metal should be worth about $1 as well. This is good money. Bad money is the exact opposite, when commodity value of the money is worth far less than the nominal value. Paper currency is a very good example of bad money.

Bad money is spent, while good money is saved for later, when its value has increased. When comparing digital currencies and fiat currencies, it is quite clear that digital currencies are very undervalued at this time. Fiat money is slow, inefficient and chained to economic ideas that are not applicable in today’s markets. Bitcoin and other digital currencies present an existential threat to all forms of state fiat money.

When we look at Bitcoin’s value, the only reason that it does not trade for $100k a coin, is because most people either haven’t heard about it or don’t understand it yet. When they do, there will be a rush from people afraid of missing out. Banks and governments around the world already understand it and are racing to get in, but are carefully trying to control everything in the process.

In the long term, as more people view Bitcoin as a currency, it will be hard to reverse this trend without some catastrophic event that brings Bitcoin to a halt.

Over the next decade we are going to see one of the greatest transfers of wealth the world has ever seen, as fiat money fails and digital currencies take over. When we look back at 2017 it will seem amazing that digital currencies didn’t immediately take over fiat money. Its not a question of if, but when.

Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 4th September 2017

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: $5,000: Bitcoin Price Hits Historic New Milestone

Decrypted: When a plane exceeds the speed of sound it is said to be supersonic. Following a record-setting month in August, primarily fueled by optimism for faster transaction times, on September 2, Bitcoin went supersonic and blasted through the $5,000 milestone, hitting a new high of $5,013.91.

Currently, Bitcoin’s market value is around $78 billion and digital currencies collectively are worth over $170 billion. It looks like the entire cryptocurrency is heading for $200 billion market cap, with over 866 coins, 230 assets and trading in 5416 markets.

However, the new record price triggered a $13 billion sell-off, causing the Bitcoin price to drop to its price levels earlier in the week. Its only normal that traders take some money off the table. At the moment there are a lot of buyers and by no means does this represent a significant pullback.

Our take: Since the beginning of the year, Bitcoin has been very volatile, yet prices have climbed more than 400%, generating strong gains for investors and increased visibility for the entire cryptocurrency market. The highest trade volumes for Bitcoin are currently coming from Japan, China, the U.S., South Korea, and India.

All cryptocurrency markets are doing extremely well following Bitcoin’s suit. Ethereum is close to $400, Bitcoin Cash (BCH) at the $600 territory, while Litecoin reached a new all time high at $90.

With all the profits investors have been making, its no surprise that the IRS has put Bitcoin and cryptocurrencies on the radar. While many may think that profits from Bitcoin and Bitcoin Cash are not necessarily taxable, the IRS thinks otherwise. A recent post on Cointelegraph, says that the IRS will be going after profits from Bitcoin and Bitcoin Cash.

Since 2010, Bitcoin has died over 154 times and it keeps coming back like Lazarus, stronger than before. The idea of Bitcoin breaking the $5,000 mark was an unimaginable for most in early 2017. The new price record is likely to trigger more talks that Bitcoin and other crypto are in a bubble and the big collapse is coming.

Critics believe the crypto market cap is a bubble. But forecasters are weighing in on the cryptocurrency, trying to foresee where Bitcoin’s price is headed. Recently, Ronnie Moas of Standpoint Research predicted a $7,500 price target and anticipates that Bitcoin will reach $20,000 by 2020. In early July, Thomas Lee became the first major Wall Street strategist to issue a report on Bitcoin. Lee said Bitcoin could reach $20,000 to $55,000 by 2022.

Bitcoin’s price surge is due to a variety of factors, that include recent technical upgrades, increased interest by institutional investors, announcements by countries exploring the use of cryptocurrencies and a growing number of innovative startups holding Initial Coin Offerings.

News Item 2: Why Big Investors Are Betting Real Money on a Kik Cryptocurrency

Decrypted: Kik, a Canadian social messaging platform valued at $1 billion, plans to launch an ICO in a couple of weeks and expects to raise $125 million.

Kik has already raised $50 million in a pre-sale round from leading crypto investment firms Polychain Capital, Pantera Capital and Blockchain Capital. It wants to raise another $75 million, when the token sale launches on September 12.

Our take: Kik is a free chat and messaging application with about 300 million users. It was founded in 2009 by a group of students from University of Waterloo.

Kik is creating Kin, an ERC20 token on the Ethereum Blockchain, that will be integrated into Kik as the primary transaction currency. Kik will create a decentralized ecosystem of digital services, intended to promote Kin as a common currency.

Users will be able to earn and redeem Kin in a variety of ways, by interacting with chatbots and other services on the platform that are created by brands, publishers and other companies. Brands might find Kin as a useful way to reward people for carrying out various tasks or activities, offering Kin in exchange for posting about them or interacting with an experience. Users can then spend their Kin on interactions with a chatbot or through tipping.

Kik wants to take on Facebook with developer ecosystem built on the blockchain. Kik plans to use the sale proceeds from ICO to develop a monetization system for its messaging app, which will allow app developers to be paid based on attention, rather than relying on advertising or in-app commerce. The cryptocurrency could also make it easier for developers to create businesses outside of walled gardens like Facebook. One of the most prominent failures of a social network attempting to adopt a cryptocurrency and build a user system that incentivized user interactions was Facebook. In 2013, Facebook shutdown its Facebook Credits program after not even two years.

With millions of users, Kik hopes to drive mainstream adoption of Kin, potentially making it the most adopted and used cryptocurrency in the world. The idea is that as more people use Kik, the value of Kin will rise. Also, because Kin is an ERC20 token, it will be possible for to trade on exchanges and redeem it for fiat currency.

Kik’s ICO will be open to US investors. In July, the SEC announced, that in some cases, ICOs could be considered securities and be subject to strict regulations. Up to now, many ICOs have been closed to US investors to avoid regulations.

ICOs have spread like wild fire in the past year, raising more than $1.3 billion for dozens of startups. Now securities regulators around the world are starting to pay attention.

China and Canada are latest countries to issue announcements about ICOs, following in the footsteps of the United States and Singapore. China has issued a warning about the dangers of participating in ICOs, as the companies raising funds could use misleading information, while Canadian regulators issued a notice that Initial Coin Offerings are likely to be securities. These announcements hardly come as a surprise, given the ICO mania we’ve seen in recent months.

ICOs aren’t going away and regulations were only a matter of time. Initial Coin Offerings are changing the way entrepreneurs raise money to fund their work, making it much easier than ever before. Regulations complicate things, but they’re a sign that ICOs are maturing and can be applied to other industries and help them innovate.

News Item 3: Ethereum Founder Strikes Deal with Russian Development Bank

Decrypted: A new entity, Ethereum Russia, will help Russia’s state-owned Bank for Development and Foreign Economic Affairs implement blockchain technology, and establish a training center in Moscow.

Ethereum Russia, is the outcome of the partnership between VEB, Russia’s Bank for Development and Foreign Economic Affairs (Vnesheconombank) and the Ethereum Foundation.

The agreement will foster on a long-term partnership for the implementation of projects using distributed ledger technology and the Ethereum platform, the formation of an expert community on the Ethereum platform, and the joint development and implementation of the educational programs for training specialists in distributed ledger and the Ethereum platform.

Our take: Russia has made no secret of its intention to stay one step ahead of the game when it comes to blockchain.

The launch of Ethereum Russia coincides with Russia’s wider plan to execute digital initiatives that will bring together state-owned companies and government bodies with blockchain engineers, in order to drive the adoption of decentralized technologies within the Russian government.

During the St. Petersburg Economic Forum, Ethereum caught the attention of Vladimir Putin, as a potential platform to diversify the country’s economy. The Russian president personally met Buterin at the forum.

We are already seeing several countries around the world exploring digital currencies and blockchain. But, when comparing Russia to other major global economies, its obvious that its aggressively pursuing blockchain.  China is testing a national cryptocurrency, Estonia has plans to launch a government supported ICO, and there have been reports that the US. Congress will pass a cryptocurrency bill.

In June, the Russian government launched a working group to implement Blockchain technologies in state administrations, assigning a coordinating role to VEB, including the creation of the competence center.

A few weeks ago, the Federal Agency for Technical Regulation and Metrology (Rosstandart) appointed a new technical committee to work on the standardization of software and hardware related to distributed ledger and Blockchain technologies, in coordination with the International Standardisation Organisation.

But, Ethereum has also been making significant strides in various business segments in Russia. Earlier in July, Alfa-Bank and airline S7 teamed up to develop a project to sell flight tickets based on the Ethereum blockchain. This announcement came shortly after the announcement by Russia’s main airline Aeroflot, which considering to accept cryptocurrencies and use blockchain in its operations.

The Russian government is moving towards adopting and regulating blockchain technology, as it believes that crypto and blockchain can shake the country’s economy beyond oil and gas and help them make a major leap in a specific area of technology that hasn’t been dominated by the US. Europe, China or Japan.

These developments, especially in the short term, will have a significant positive impact on Ethereum building investor confidence and driving up the price of the Ether (ETH).

OpinionFinancial Observer Claims Bitcoin is a Bubble Threatening the Larger Economy

People still question whether Bitcoin and the crypto market is a bubble. But the speed of its price growth is unmatched and unlike anything we’ve even seen before. The cryptocurrency has reached an all-time high, breaking the $5000 milestone and it looks like it will continue to blaze along its upward path.

Here are some stats that will put things in perspective:

  • Last year in August, Bitcoin was trading at $576. In 12 months its up by 730%.
  • Bitcoin closed 2016 at $954 and in 2017, it is up 400%.
  • Bitcoin started this August at $2,738 and in one month it surpassed the $5,000 mark.
  • At the current price, Bitcoin has a market cap over $78 billion, larger than such companies like Starbucks and American Express.
  • Ether grew more than 4,600% this year. Its market cap around $36 billion.
  • Bitcoin Cash, that was created a month ago, and already has a market cap around $10 billion.
  • Ripple is up nearly 3,900% this year, with a market cap of $9.3 billion.
  • Litecoin is up over 1,550% since the beginning of this year, when it was trading at just over $4. Its market cap now stands at a little under $3.7 billion.
  • The collective market cap of all cryptocurrencies is over $170 billion, and has grown by more than $20 billion in the past eight days.
  • At current levels, the crypto market cap amounts to nearly one-tenth the value of the physical stock of official gold.

So is Bitcoin a bubble? Investopedia defines a bubble as:

“An economic cycle characterized by rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. When no more investors are willing to buy at the elevated price, a massive selloff occurs, causing the bubble to deflate.”

But the author of a book about identifying bubbles has argued that the rise in Bitcoin price, which has recently overtaken its previous all-time high, is progressing with little signs of being a bubble in danger of popping anytime soon.

Vikram Mansharamani used the framework for identifying bubbles as described in his 2011 book, Boombustology: Spotting Financial Bubbles Before They Burst.

He notes that today’s Bitcoin market exhibits fewer than two of the five major features of a fully inflated bubble. Bitcoin scores 1.5 over five having applied the five lenses that generate a probabilistic assessment of a forthcoming bust

  • Reflexivity: Higher prices increase demand
  • Leverage: Futures contracts and other instruments
  • Psychology: Overconfidence and “religious” conviction
  • Politics: Regulations and moral hazards
  • Maturity: Potential market remaining.

In a LinkedIn post, Mansharamani notes that while short-term price corrections are always possible, there are compelling reasons to believe the long-term outlook for Blockchain-enabled currencies like Bitcoin is bright.

Although Bitcoin’s volatility is high, in its 8 year history it has become the fastest growing asset, as many on Wall Street are only now becoming more interested in the digital currency and the blockchain technology behind it. Bitcoin’s nearly five-fold climb in 2017 looks very similar to tech bubble surge, but, just like the dot-com bubble, companies that were able to utilize the underlying technology went on to become global giants.

Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.