Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 26th June 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 1Suddenly, Bitcoin to Be Officially Legal in India

Decrypted: Last November, when the government in India announced the demonetization of the 500 and 1000 rupee notes, it shocked its citizens. Rising demand for Bitcoin in India was just a matter for time. While the government made it difficult to use cash, raided those it suspected of concealing gold and assets in forms other than cash, it was inevitable that people would turn to Bitcoin and other cryptocurrencies. Now the Indian government has made a 180 degree turn, from never wanting to do anything with Bitcoin to legalizing it. This is huge news, especially because it comes from an emerging market and one of the world’s fastest growing economies.

Our take: The stories in the news are somewhat misleading. They are implying that Bitcoin was illegal in India up to now and that the Indian government decided to make it legal with its recent announcement. Well, that is not exactly true. The fact is, that buying, selling, trading or mining Bitcoin was not illegal in India under any law. Several Bitcoin exchanges operated in India (Unocoin, Coinsecure, Zebpay and others). Some politicians, mostly in the ruling party, were against Bitcoin. What really remains to be seen, is if the Indian government will recognize Bitcoin as a currency or not. If it does, then there will be restrictions imposed under the FEMA (Foreign Exchange Management Act) laws. The Indian government wants to give Bitcoin a legal status in the country. They want laws so they can levy taxes on it, and when people get returns for Bitcoin investments they can be taxed. They want laws so local talent can thrive and innovate in the space.

The increased adoption by the Indian people in the past few months, decisions in other countries around world like Japan, Australia and upcoming crypto adoption in Russia, certainly affected the Indian government’s thinking. They did not want to be left behind in a world were technology is transforming money and how people exchange it.

This is an extremely sound decision and India will emerge as a strong cryptocurrency market. Today, when you compare Bitcoin trading volumes in India to that of other Asian and world markets, they are very modest. But, the vast majority of India is still unaware of Bitcoin. According to the United Nations in July 2016, the population was 1,326,801,576 and is expected to surpass China’s population by mid-century. And lets not forget, India is one of the largest remittance markets with a total value of more than $70 billion. This is where Bitcoin’s true potential lies.

With India’s +1 announcement, we will see more countries getting on board and at a faster rate. We can also expect the United States to continue to dragging its feet and staying away from Bitcoin, as the dollar remains the world’s top reserve currency. But, there is an ancient greek saying that says “It’s impossible to escape from what is destined.” Either from inside, as more US. States legalize Bitcoin or from outside, like Russia embracing crypto, the United States will eventually join the rest of the world.

News Item 2Ethereum Slides as Network Backlog Points to Growing Pains

Decrypted: Ethereum’s network experienced extreme congestion as a result of Status and Civic ICOs last week, delaying transactions and frustrating users as several exchanges announced delays and halted withdrawals. Just like with the Bancor ICO, the Ethereum network chocked, creating a huge backlog, delays and people claiming their transactions were not carried out.

Our take: On June 20, the Ethereum recorded 300,000 transactions, reaching Bitcoin’s transaction levels. Ethereum has caught up to Bitcoin, going from $17 million dollar crowdfunded project to market with a $30 billion dollar market cap and competing with Bitcoin head to head. Ethereum’s smart contracts have also attracted significant interest, helping it carved a niche with ICOs and token sales. Essentially, organizations are able to issue assets and tokens on the blockchain that are tradable and very liquid.

Moreover, everyone is worried about a possible bubble and that the ICO gold rush won’t last forever. Many companies are racing to get their share of the pie, before the novelty wears off. I spoke with a VC last week, that has participated in several ICOs, and he said it will be all over in the next six to nine months. I don’t agree. It will just get harder for new ICOs to get attention. The ICO buzzword will not longer be a passport to easy money. Also, regulations and accountability mechanisms must be established. The market is very liquid and people are willing to switch one token for another. Trading stock is completely different from buying and selling cryprocurencies. Many traders jump on these ICOs without any intention of long term ownership, but only to flip them and gain more ETH.

Maybe my VC friend is right. The ICO craze that’s driven by Ethereum’s smart contracts, has blurred the line between virtual currencies and securities. Bitcoin is no stranger stock exchanges. In the past with GLBSE, BTC-TC and Bitfunder and more recently with Crypto Stocks. The principal cause for their shutdown appears to be legal problems. Sooner or later ICOs will likely run into regulatory problems.

One thing is certain. Businesses with real value will come out of this. There will be winners and there will be losers. When you look back at the late nineties, companies like Google emerged out of the dotcom era, while many others that were well funded, just died. Investors will become more selective about where they invest their money. When organizations raise money, whether its from VCs or ICOs, what happens to the money that flows into those organizations, differs. It depends on the quality of the organization and the people.

The second thing that’s certain is that there’s a real issue with Ethereum’s scalability. It has become obvious that there is a serious issue with the current gas payment structure. Network congestion is something we often see with Bitcoin. Over the last year Bitcoin’s scaling issues created similar problems, with slow transactions and higher fees. With upcoming ICOs, its possible this will happen again and again. This poses serious questions about Ethereum’s scalability and possible vulnerabilities to DDoS attacks. Ethereum will have to address the congestion issues in order to retain users and value.

News Item 3SegWait Is Over! Bitcoin Network Shows 80 Percent Support For SegWit2x

Decrypted: Big news. It looks like SegWit2x is going to be locked in on July 31st. Bitcoin mining pools at the New York Consensus agreed on SegWit2x, and a few days ago 80% of the miners signaled their support. SegWit2x is a Bitcoin scaling compromise that includes the activation of Segregated Witness and the inclusion of the 2 megabyte hard fork to increase the block size altogether.

Our take: On a decentralized platform, when you have people with different opinions, reaching a consensus can be hard. This has been the case for Bitcoin and the scaling debate. The SegWit2x proposal is a bridge between two big opposing camps. Bitcoin Core that wants SegWit, and Bitcoin Unlimited that wants to increase the block size. It looks like Bitcoin will definitely get SegWit, but its still remains to be seen if the hard fork will go through in the coming months.

Despite 80% support by the mining community, many feel the UASF (aka BIP148) is the best solution. The BIP148 proposal has raised a lot of questions and caused some panic. BIP148 is based on the idea that if the economic majority agrees, then miners that don’t will be forced to activate SegWit. In effect the BIP148 proposal is a hard fork, even though it was suppose to be a soft fork. Although SegWit2x and the UASF are not mutually exclusive, Bitmain has proposed contingency plan to protect users in the case of BIP148. Segwit2x requires Segwit and thus, if Segwit is locked in on the network, BIP148 won’t do anything. And it looks very likely that SegWit2x will be activated on July 31st, a day before UASF.

Bitcoin’s new climb comes as the community becomes more convinced that SegWit will activate on the network at the end of July.

The price of Bitcoin went up because of SegWit optimism, while Litecoin down.  Many believe that Ethereum will overtake Bitcoin, but Bitcoin should be wary of a different coin, and its not Ethereum. Ethereum has it’s own scaling issues. Anyone that has participated in any of the recent ICOs knows. Even though earlier this month it got a big thumbs up from Russia, I think the main potential competitor to Bitcoin is Litecoin and its partly due to how similar the two coins are.

Even though Litecoin has the best chance of doing this, I personally think that nothing will replace Bitcoin. I think Naval Ravikant said it well in this tweet: All Bitcoin has to do to become the premier store of value is survive.

Bitcoin will go even more mainstream after the 2nd activation and scaling issue is solved. In the meantime we can expect the prices of altcoins to go up. In the fiat currency world we have many currencies and the same goes for cryptocurrencies. Today there are 800+ in existence and new cryptocurrencies can only bring innovation, new approaches and technical solutions.

OpinionWhy Putin endorsed Ethereum by meeting Vitalk Buterin?

This week we’ll be discussing an opinion posted on our own Fintech Genome, by Bernard Lunn:

“Putin clearly wants to disrupt American power any way he can. Disrupting the US$ as a reserve currency is part of this. He knows that the Russian Ruble is not a contender. So why not promote an alternative, however far fetched? Decentralization will disrupt the power of the corporate giants of the Centralized Internet era, most of whom are American and none of whom are Russian. So why not promote a leading platform for Decentralization? Russia has a lot of people with crypto expertise who will benefit as this grows.”

Why did the Russia make a U-turn? What does it see now that it did not see last year, when people that traded cryptocurrencies could be jailed?

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.”

Hoping to maintain its currency dominance, the US is introducing new regulations that will make Bitcoin even more difficult for Americans to use, in the name of combating terrorism and money laundering. In a blockchain world, where the US is still dragging its feet in terms of regulations, this could be the way to reduce its dominance on the global financial system.

Innovation has been moving to places that have been more progressive in setting up crypto regulations. Places like Crypto Valley in Switzerland or Singapore, where they just started tokenizing fiat currency. Ethereum is headquartered in Switzerland. How do you make sure that an asset like Ethereum with cap of 30-40 billion is not created in another part of the world? You create a legal framework that will allow businesses to operate and innovate within the rules. India wants to be one of these places and so does Russia.

The space race in on, and some are still wondering if the moon is there. Bitcoin and Blockchain are going to change the world in profound ways. Change is inevitable.

What you think? Do you agree with Bernard Lunn, that Russia is trying to disrupt American dominance by embracing cryptocurrencies? Go to this thread on the Fintech Genome to tell us what you think.

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 19th June 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.

Editor’s Note: I know the purists say we should use bitcoin (lc) for the currency/store of value use and Bitcoin (uc) for payment rail/technology. As bitcoin and Bitcoin are going more mainstream, I think it makes sense to capitalise everything because it is a word in common use and it is now common to refer to Blockchain or DLT when we want to only talk about technology.

For the intro to this weekly series, please go here.

News Item 1: Is There Blockchain-Related Talent Bubble? LinkedIn Adverts Surge

Decrypted: Bitcoin and cryptocurrencies are seeing spectacular gains, but that is not only thing that’s in huge demand. Companies are hunting for people with blockchain skills, according to data from LinkedIn. Over the last week, 1,000 blockchain jobs were posted on LinkedIn and 9,945 people on the site listed blockchain as a skill. Blockchain jobs are on the up and blockchain engineers are commanding six figure salaries.

Our take: The blockchain job market is booming. At least 1,876 people are working full-tme in the cryptocurrency industry, and the actual total figure is likely well above two thousand if we include large mining and other organizations based on research from the Centre for Alternative Finance at Cambridge University. This is just the beginning, as huge growth is expected in the enterprise blockchain business over the next 10 years. Ameri Research predicts that the global enterprise blockchain market is expected to reach $16.3 billion by 2024, from around $2.3 billion in 2016. Also with “ICO Fever” and more than 850 different cryptocurrencies in the market, no stone will be left unturned. Blockchain will practically infest everything. Every day we read about another story about a new blockchain application, ranging from finance and cybersecurity to government services, education, health care, advertising and entertainment. Today, cryptocurrency dominates blockchain, but with all these other industries making use of blockchain, people with right skills will have plenty of room to maneuver in sectors outside of Fintech.

Demand is up, but supply is still low. The current situation drives two things. One is the pay for those with the skills and on the other end the opportunities for organizations that can teach people these skills. The demand for blockchain developers exceeds by far what is available out there and corporations are struggling to find blockchain expertise, as most of the people with these skills are already working at blockchain startups that emerged over that last few years. Everyone is scrambling to get a blockchain team in play, and this driving the blockchain education market.

If blockchain platforms do their job well, some of these skills will become commoditized. Think back to when being able to read and markup HTML was a premium skill. It should be as easy to deploy to the decentralized network, as it is today to deploy to a centralized cloud service. There will always be need for a few people who understand how it works below the covers, but they will be a small minority.

More and more universities, workshops, grass root efforts, bootcamps and online training are popping up everywhere, teaching the basics and offering hands-on training in Blockchain, Bitcoin and Crypto. But one of the problems they are facing, especially at the university level, is the chicken and egg problem. Its hard for them to find qualified people to teach blockchain-related subjects.

It will be interesting to see how things develop. It will take time and the joint efforts of all the players in the ecosystem to build a blockchain talent force that will create future blockchain innovations.

News Item 2: Bitcoin’s soaring price means bankrupt Mt. Gox may soon be able to pay its creditors

Decrypted: In 1978 the famous $6 million Lufthansa heist went down. In 2014 the infamous $450 million Mt. Gox heist went down, the biggest in Bitcoin history. By all accounts, 850,000 Bitcoins were stolen. Since, 202,185 Bitcoins were recovered, while 650,000 are still missing. You can find an interesting timeline of events surrounding Mt. Gox on CoinDesk.

Now with Bitcoin prices skyrocketing, it has surfaced that Mt. Gox might be able to pay back all its customers, using the recovered Bitcoins. With last week’s value of Bitcoin, these Bitcoins could be worth anywhere between $550-$600 million, leaving some pocket change after everyone is paid back.

Our take: Like many others, Mt. Gox launched in 2010 with a simple idea in mind. It wanted to provide a single place to connect Bitcoin buyers and sellers. It became the world’s most popular Bitcoin exchange, handling over 80% of all Bitcoin transactions around the world. Eventually it failed, causing a tidal wave to hit an entire market.

The Mt. Gox claim was that they lost the money because of a problem with Bitcoin known as transaction malleability, “a bug in Bitcoin.” It’s a great excuse. But Mt. Gox was not a victim of transaction malleability and it’s certainly not the explanation for its epic failure. Actually, there were several failures before the final collapse. Its failure was a combination of several things ranging from lack of standards to pure incompetence.

Many if not most of the entrepreneurs in the digital currency industry come from a technology background with no real understanding of the compliance requirements for financial institutions. As a result, most of the time, compliance gets the shaft.

Can it happen again? The short answer is yes, it can. It has happened. Since the Mt. Gox breakdown, there have been several hacks that resulted in loss of customer funds. The largest incident was Bitfinex. In August 2016, Bitfinex was hacked for 120,000 Bitcoins, worth north of $60 million.

What needs to be done to minimize the risk of loss? Well, let me start by referencing a past BBC post:

“In 2016, Japan passed a bill that mandates that virtual currency exchange operators have to register with the Japanese Financial Services Agency and submit to on-site inspections and KYC practices. This level of regulation encourages insurance companies to step up the plate and offer insurance to Bitcoin exchanges.”

This piece of legislation prompted Mitsui Sumitomo Insurance of offer insurance coverage to Bitcoin exchanges. Insurance is a strong component of the puzzle that could help Bitcoin community, but more needs to be done before an insurance company has to cover the losses due to a breach.

The Bitcoin industry needs an FDIC like organization. The FDIC’s most important role in the banking system is the standards it creates.  An idea that has been floated in the past, suggested that experts should police each other. Bitcoin exchanges should create a “common risk pool fund”, that would insure customer funds in case of theft and set standards for Bitcoin exchanges that choose to participate.

A FDIC-like organization for Bitcoin would set standards in accounting and security for Bitcoin exchanges. Unlike the banks protected by FDIC, the Bitcoin exchanges would not be legally required to abide by these standards. If a Bitcoin exchange doesn’t agree with the standards, they would be free to continue to operate under their own guidelines. Now if we were to couple standards and audits with insurance protection, then Bitcoin exchanges would be in a much better place.

The history of Bitcoin exchanges is marked by failures triggered by security breaches. Things breakdown, things get hacked. But there is light at the end of the tunnel and ways to minimize the risk of loss when and if it happens.

Before we close, it looks like Mt. Gox’s creditors will be getting back the the money. With the ruling of the Japanese court to liquidate Mt. Gox, now its the trustee’s job to convert Mt. Gox’s recovered Bitcoins into cash and pay back the creditors, at the value when Mt. Gox shutdown. DRW offered to help liquidate and four hedge funds are already buying or offering to buy claims from thousands of former Mt. Gox customers who lost their Bitcoins.

News Item 3$150 Million: Tim Draper-Backed Bancor Completes Largest-Ever ICO

Decrypted: Initial Coin Offerings (ICO) are driving a wedge in the startup investment landscape. They are changing the way founders raise money, outside the traditional venture capital world. In the most recent ICO last week, Bancor set a new record high raising $153 million.

Our take: ICOs are hot. They are here to stay. The amounts they raise will continue to grow, while the time it takes to raise money will drop. But it looks and sounds just like the late 90’s, when too many companies saw their stocks skyrocket, even though they didn’t make a dime.

Are we living a 1999 bubble crypto-style?

It all started in 2013, when Mastercoin raised 4,740 Bitcoins worth approximately $613,000. Fast forward to April 2017, GNOSIS raises $12.5 million in just 12 minutes. Wow!

From a founder’s perspective, ICO is a win-win. Founders have access to fast cash own their own terms, instead of going through a lengthy fundraising process and giving up equity to angels or VCs on their terms. Startups are no longer limited on how much they can raise because of their geography. They can raise enough money to compete with companies that are fundraising in Silicon Valley, New York, London or in other big startup ecosystems with lots of available venture capital. People using the network, the ones creating the value, now have a stake in the project. ICOs combine efficient ways to raise money, build a motivated community and give people a sense of ownership.

But then just like in in the 90’s, when an IPO was more important than profits and was the primary goal of all the stakeholders involved, it just looks to me like too many ICOs have one goal in mind.: how to raise as much money as quickly as possible, overstating a promise and not necessarily building a product. In many cases, they don’t even have a product, they just publish a white paper. Doesn’t sound to you like someone with an idea raising millions? Isn’t that what happened in the nineties and then the bubble popped.

We are now, predictably, seeing traditional funding rounds dressed up as ICOs. These are mostly not scams (some are). Some are good ideas and have good MVP implementations (some are not). The point is that the ICO label is now just a marketing buzzword. In these hyper-speed times, we reached the top of the hype roller coaster in only a matter of weeks.

Yet ICOs are exciting and have real sustainable value if done right. They have all the makings and possibilities to truly drive faster innovation on a global scale. Even though big VC firms, like Andreessen Horowitz and Union Square Ventures, have backed some cryptocurrency hedge funds, traditional investors have stayed away. They have stayed away because because they lack regulations, they have high valuations, over-capitalization and lack of control over financials.

ICOs have a lot of similarities to  securities, but they are also very different. Most ICO’s don’t actually offer equity in startup ventures, instead they only offer discounts on cryptocurrencies before they hit the exchanges. They are global, funded by bitcoin, ether and other cryptocurrencies, not controlled by any central authority or bank.

The ICO trend is still in its infancy, and just like Internet changed everything, ICOs can do the same exact thing. But, real value needs to come out these projects and solve everyday problems of the users that make up their networks. A bubble market can only create bubble companies. ICO will become what we allow it to be. We can only hope that regulators and the community will define a set of rules so it does not turn into a bubble.

OpinionBitcoin is tumbling

What a week its been. With the price going as high as $3,016.30 on Monday and dipping as low as $2,207.77 on Thursday its been a roller coster for Bitcoin and all of us. Then it bounced back. Pity the poor financial journalists who have quickly come up with explanations for the price change and their explanation is often made irrelevant by the time they hit post.

Crypto is a 24/7/365 market. So is FX. However FX does not have 10% daily mood swings on a regular basis. Nor do you have to understand nuances around how exchanges and miners work.

But why is the price fluctuating? Well, there has been a lot of talk about Bitmain’s threat to hard fork. Fork that!

Market sentiment is usually bearish or bullish. When bears are in control, prices go down and when bulls are in control, prices are going up. Markets are driven by sentiment and that’s not always synonymous with value.

This week, almost all the cryptocurrencies experienced lows, so it could be a market correction which happens in financial markets.

In the past, Bitcoin was traded only by the people who have been dealing with cryptocurrencies. This year, regular people started to join, making trading volatile. I don’t think most regular people understand anything about forks and segwit or whether Bitcoin should be viewed as finite digital gold or unlimited digital cash. What they do understand, is sentiment. A “fork just doesn’t sound like a good thing.

Any digital currency at its early stage will experience volatility and fluctuation. We can expect Bitcoin’s price to continue to fluctuate in weeks to come. When you buy Bitcoin, you’re buying a share of BTC blockchain. Blockchain is at a very early stage., but at some point over the next few years, companies and governments will be trading in blockchain.

In the long run, the price can only go up.

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.