Category: Articles

Seven Stories about Miners and Crypto Dealers that were Sent to Jail

This article is about people that were sent to jail for crimes with crypto in different countries, from China and Japan to the US and Sweden. Everyone knows the story of the Japanese crypto exchange Mt. Gox and its CEO Mark Karpelès. Mt. Gox was once the biggest Bitcoin exchange in the world, but in 2014 it became insolvent after losing 850,000 BTC. Its CEO Mark Karpelès, Bitcoin’s Biggest Villain, as he is sometimes called, was charged with embezzlement and data manipulation and spent several months in jail. This text is not about Bitcoin’s Biggest Villains. We’ll focus on more ordinary people whose mistakes (and sometimes, something more serious than mistakes) cost them freedom for several months or years. 3.5 Years in Jail for Stealing Train Power in China China, which is now not so friendly to crypto traders and miners, does not tolerate even small violations and punishes for them severely. This September, a local named Xu Xinghua was sentenced to 3.5 years in jail for stealing electricity from one of the factories at Kouquan Railway. He needed the power to fuel his BTC operations: he had 50 Bitcoin miners and 3 electric fans. Xinghua was also fined $14,500 and ordered to cover the cost of electricity charges. His mining equipment was confiscated. According to local media, China wants miners to make an “orderly exit” from the country. $9 million of Fine for Crypto Ponzi Scheme The US authorities take a milder approach. In 2014 – 2015, four companies owned by Josh Garza sold investors the rights and access to cryptocurrency mining operations. Investors were also given rights to a portion of the profits from the mining operations. The operations seemed legal, although Garza gave guarantees that should have raised red flags: for example, he promised to prop the price of the cryptocurrency. As a result, investors lost $9 million. Garza was sentenced to 21 months in prison, followed by six months of house arrest, and was ordered to pay the investors restitution of $9.18 million. Lifetime Ban from Finance for Defrauding Investors In 2017, crypto trader Joseph Kim (Arizona) lost on BTC operations more than $1 million – it was bad luck. He tried to rectify those trades and went into debt, which increased his loss. It was the money of his firm and clients, mostly funds. Trading losses do happen, but then Kim did something strange: he illegally transferred some money from the accounts of his firms to his personal accounts and informed investors that he had left the firm to set up his own trading business. The result is a $1.1 million fine from the US Commodities and Futures Trading Commission (CFTC), 15 months in jail for cryptocurrency fraud and a lifetime ban form finance. A Geek and a Mackerel Case Charlie Shrem is a geek who launched BitInstant to make the purchasing of bitcoin faster and more accessible. BitInstant targeted consumers who wanted to buy about $300-500 of bitcoin and charged them a small fee for every transaction. Although there was no other advertising than grapevine, the business grew at the rate of 1.5x per month. At one point its turnover was $1 million a day. The popularity of BitInstant business can be proved by the fact that its seed funding was led by the Winklevoss twins. However, in 2013 it lost its license due to regulation enhancement, and Shrem had to shut BitInstant down. Several months later, when Shrem was returning to New York from a conference in Amsterdam, he was arrested in the JFK airport. It turned out that he facilitated transactions to a re-seller, Robert Faiella, whose customers were using the Silk Road. Shrem did not deny it, and in 2014 he (aged 26) and Faiella were sent to prison. For the record, US prisoners are not allowed to possess cash, and smoking is prohibited in prisons (and the cigarette pack is no longer ‘the gold standard’). The prison economy ran on bartering mackerels. Fish differed depending on the size and expiry date, and one day the guard provoked ‘hyperinflation’ when the confiscated a large number of mackerel and left them for any prisoner to take. It would be a good idea to digitize the prison economy and put it on the blockchain, Shrem thought: then prisoners would have a real-time record of all transactions and the guards will not have the power over the value of the mackerel. Japan Gives Jail Sentence for Using Remote Mining Tool A 24-year-old unemployed in the city of Amagasaki was sentenced to a year in prison for using a remote crypto mining tool. His name is not disclosed, but according to the local media, this is the first case of mining abuse in Japan. The tool in question is called Coinhive, and the man was using it to mine cryptocurrency on other people’s computers without their consent. Coinhive was used in an online game cheat tool, instead of one installed on a website. The police have arrested three more people who are suspected of the same violations. Seven Years in Jail for Crypto Exchange Bombing Attempt Michael Salonen, 43, who lives in Stockholm, in 2017 used to send threats to lawmakers. His letters contained a white power, which was inoffensive. One of such letters was received by the Prime Minister of Sweden, Stefan Lofven. Then Salonen went even further. In August 2017 he sent two packages to the London crypto exchange Cryptopay. The packages were addressed to the Cryptopay’s employees and contained two pipe bomb devices. Fortunately, they did not explode, and the UK police managed to link the case to Salonen using DNA samples. Salonen was convicted to seven years in prison. A Year and a Day in Jail for Selling too Much Bitcoins to Federal Agents Eldon Stone Ross, 24 (Pennsylvania) was used to making bitcoin-to-cash and cash-to-bitcoin transactions. His biography was not crystal clear: in 2014 he was convicted of trafficking heroin, but he was not afraid of being robbed by strangers when trading bitcoin. But now he is going to prison for selling $1.5 million in bitcoin to undercover federal agents. Ross got into trouble with bitcoin because he ignores several rules: he did not ask for any identifying information from the agents, he was not licensed and he did not report transactions to the regulator. (All transactions over $10,000 in cash should be reported to the US Treasury Department). Ross was sentenced to spending a year and a day in federal prison.

Articles/December 13, 2018

Central Banks Think Crypto will Fail – This is Why They’re Wrong

We typically think of crypto as a threat to the traditional financial system, and therefore to the current industry incumbents and institutional players - from JP Morgan and HSBC to Central Banks and the Federal Reserve. However, this over-simplified perspective ignores the fact that the current industry incumbents are actually among the blockchain technology's biggest investors, and that some Central Banks have been inspired by crypto to explore the possibility of Central Bank-issued  digital currencies. So, is crypto a threat or an opportunity for these giant companies and institutions? The answer is both. Blockchain technology is an opportunity for traditional players because it has the potential to eliminate bottlenecks that exist within the current financial paradigm. Visa is exploring blockchain as a way to facilitate faster cross-border transfers, while Deutsche Bank believes they can aid faster clearance of securities trades. With few exceptions, the opportunities that traditional players see in adopting blockchain technology are those which would improve back-end processes, creating monetary savings. The position of traditional incumbents who see blockchain technology as an opportunity rather than a force of disruption feels a little similar to the position of Blockbuster CEO Jim Keyes in 2008, who famously said: "Neither RedBox nor Netflix are even on the radar screen in terms of competition." Ten short years later, Netflix is worth $118 billion and Blockbuster is largely out of business. Incumbents limit their perspective to what they can imagine within the current paradigm, in a way that tends to leave them flat-footed in the face of disruption. They can imagine new technologies as complimenting their existing services, but not disrupting them. But blockchain and crypto-native startups, like Netflix and the Internet, are a genuinely disruptive force and they're not going away. However, the fact that crypto is a threat does not mean that traditional institutions necessarily view it as such. In fact, many of them remain very sceptical. Earlier this year, the research bureau of the People's Bank of China published a paper written by one of its employees on "What Blockchain Can Do and What it Can Not". The paper's central conclusion was that cryptocurrencies will not replace the fiat monetary system, but that blockchain technology itself holds promise. In other words: Blockchain, not Bitcoin. Sound familiar? More recently, Nic Carter - Cofounder of - took to Twitter to publish his account of the sentiment of talks held at DC Fintech week at the International Monetary Fund (IMF). One panel was made up of central bankers - Nic summed up their sentiment like this: "- they are laser focused on central bank digital currency - they have 0 concern about BTC/crypto threatening dominant monetary regimes - general view that everything can be regulated  - do not hate crypto, just indifferent" This echoes the sentiment of the paper from The People's Bank of China - central banks are confident in the superiority of fiat and aren't worried about the potential of cryptocurrencies to topple it. If this position sounds overconfident, that's because it is. The fiat monetary system is failing, and it's not clear if things can be made better within the system. John Hopkins University economist Steve Hanke believes that prices in Venezuela are doubling every 52 days, having risen by 12,875% during 2017.  Inflation and quantitative easing - flooding the economy with more cash to stimulate growth, as was done throughout the West in the early 2010s - cause asset price bubbles, an upwards transferral of wealth from the many to the few and steal wealth from savers and wage workers. The national debt of the US is $21.6 trillion, and it's ordinary workers who will have to pay this off as the the value of their salary is inflated away. Fiat is failing, and crypto is offering a genuine alternative. The positive thing for crypto believers is that what central banks think probably doesn't matter too much. Disruptors don't need permission from incumbents. Disruptors innovate to better meet people's needs, and incumbents simply see their relevance decline as the new world is created around them.

Articles/December 11, 2018

Fantastic Four: Top 4 ‘Crypto-Cities’ in the World

Crypto adoption had made significant leaps since it emerged roughly a decade ago. That’s why it’s unsurprising that many countries are doing their best to establish regulations regarding crypto.  Alas, there are stills some ‘crypto-naysayers’ (some of them you can remember from our recent articles) that decided to refrain from adopting digital currencies. Interestingly, even in such ‘red zones’ there are several cities which we call ‘crypto-partisans’.   Today we’ll review best cities for crypto enthusiasts that have become more eager and have made it to the list of the top 4 crypto-friendly cities in the world under the version of Cryptonomos. Get ready and pack your bags (full of crypto, of course). We are shoving off right now! Hong Kong comes in at number 4 Hong Kong’s authorities are not determined, when it comes to crypto regulations, and even claimed recently that Bitcoin was not a legal tender. Nevertheless, they follow considerably more positive position towards crypto in comparison to mainland China. Many retailers in the ‘city of skyscrapers’ (for the overall development, Hong Kong has the largest number of skyscrapers in the world) are accepting cryptocurrencies.  Noteworthy, Hong Kong has become an ideal crypto haven for Chinese enthusiasts. Hong Kong is basically an autonomous territory of China and has a separate political system from the rest of the country, which has its effect on the local economy as well. Therefore, the city does not inherit the Chinese severe approach towards crypto. A general attitude to cryptocurrencies could be revealed in the statement of the head of fintech at the state economic agency InvestHK Charles d’Haussy: “Blockchain is a very high priority for us. There is hype, and there is the fast grab of money with ICOs in some cases. But what we are looking at building here in Hong Kong is an infrastructure for new businesses and existing businesses, to make sure the technology and innovations remain a key enabler for financial sector growth” 3rd place goes to New York, USA Lauded as a financial capital of the world, New York is now so confident about supportive crypto and blockchain regulations, that perhaps there’d soon be a national monument in its name – ‘A Statue of Crypto-Liberty’.  The city has hosted a number of large conferences so far, including the 4th Annual Blockchain Conference, the North American Digital Commodities Summit, the Consensus 2018 and the Blockchain Summit New York.  There are over 100 merchants that accept Bitcoin and more than 120 crypto ATMs across the cosmopolitan city. Many crypto startups were initially established in New York. For instance, Coinsetter, one of the oldest Bitcoin exchanges, was launched in New York in 2012. By the way, the city even has its own cryptocurrency - the 'New York Coin' (NYC). Buenos Aires, Argentina, takes argentum and the 2nd place There are plenty of reasons to visit Buenos Aires: architecture, specific food, and electric atmosphere at the stadiums during football matches. However, few know that Buenos Aires is home to the second biggest number of crypto-related businesses (around 140) in the world. When the hoopla around Venezuela’s cryptocurrency finished, the hype about crypto was removed to Argentina. Many in Latin America name Buenos Aires as a ‘Bitcoin capital’ because many local individual professionals like photographers, professors, designers, technicians, psychologists and even taxi service providers are reportedly accepting Bitcoin for their services here. Bitcoin’s success in Argentina could be attributed to the inflation of the national currency. Such economic situation forced many citizens to get involved into cryptocurrencies. It should also be noted that there’s a Buenos Aires Institute of Technology located in the city. This private university offers a diploma course in blockchain and cryptocurrencies. Buenos Aires becomes a great point of destination not only for investors, but for those who want to learn more about the crypto world.  And the 1st place goes to… *drum roll*… Zug, Switzerland! For the common tourists of Switzerland, it would be hard to imagine this picturesque lakeside town as anything more than just that.  Zug is considered to be one of the most technologically advanced in the world. Thanks to low corruption, clear legislation and harmonized policies, Switzerland became the number one country in the world in terms of personal and economic freedom. Gladly supporting the title of “Crypto Valley”, the town is a real hotbed of crypto- and blockchain-related companies and foundations. Here you’ll find an entire ecosystem developing around blockchain businesses. For instance, the Ethereum foundation has been located here since 2014 and new companies are moving in with each passing day. Zug is an ideal place for avid travelers who are keen on using digital coins instead of cash. Here you can operate with numerous Bitcoin ATM machines and pay the restaurant bills in crypto. The only disadvantage, or to be accurate, the consequence of high standard of living, is that Zug is an expensive place. Living costs here are exorbitantly high. But still, as the practices of different businesses have shown, it’s worth it.     Cover: Photo by Marvin Ronsdorf on Unsplash Hong Kong Photo by bady qb on Unsplash New York Photo by Colton Duke on Unsplash Buenos Aires Photo by Andrea Leopardi on Unsplash

Articles/December 6, 2018

In November Bitcoin Lost 36% of its Value, but It Is Here to Stay

The bloodbath on the crypto market that we all witnessed last week swept away several hundred dozens of dollars of capitalization. The market sell-off and “hot news”, including the articles about Chinese crypto miners that are selling mining equipment ‘by kilo’, brought to life all kinds of speculations. Last week we wrote about the possible reasons for the crypto capitulation. Now let’s talk about what to expect next. Take a deep breath and relax, this is a long story. I do not know how much Bitcoin will cost by the end of this year or by the end of June, 2019. But some people seem to know: they expect the price to be anywhere from $2500 to $25,000. You can read their predictions here, here and here.  I am not so brave to make my own forecasts, but I would like to remind you several well-known stories. The first is about the tulip mania in the Netherlands when fortunes were lost after the bubble burst. Still, the Netherlands remains the biggest market of tulip distribution.  The second story is about the first banknotes that were issued in Stockholm also in the 17th century. The idea belonged to Johan Palmstruch, founder of Stockholms Banco. Unfortunately, the printed banknotes were not secured, and Stockholms Banco issued too many. Palmstruch was sent to prison, but soon was reprieved as the acknowledgment of the significance of his invention. The other two cases are more recent: the bubbles on the dotcom and mortgage markets. In all the four cases the bubbles burst, people and corporations lost money, but after some time a new market emerged which is still flourishing. I would dare to propose that the developments on the crypto market will be similar. There will be several months (let’s hope that not years) of crypto winter, and then a new reality will emerge. There might be some bad news on the ICO market in this new reality. “The ICO market is dead — over,” says Barry Silbert, the founder of crypto investment fund Digital Currency Group. But Bitcoin and cryptocurrency market are here to stay despite the bear market: “We’re 5, 6, 7, times through this now. The first couple of times you see your balance sheet drop by 80 percent, it’s kind of rough on the stomach. By the third or fourth time, you get used to it. Now we view this as a fantastic opportunity.” “Somehow bitcoin has lived in a swamp and survived,” Jeff Sprecher, chairman of the NYSE and CEO of its parent company, Intercontinental Exchange. “The unequivocal answer is yes [crypto will survive].” Institutional investors are knocking on the door While crypto investors are nursing their wounds, a lot of interesting things are happening below the surface. According to Silbert, institutional investors have not slowed down, and “behind the scenes companies are being built that will provide infrastructure for them. Massive on-boarding might happen as early as in 2019, he says. One of the game-changing developments was in October 2018 when Harvard, Dartmouth, MIT, Yale, and Stanford announced that their university endowments had started investing in cryptocurrencies.  And the University of Basel made the creator of ethereum, Vitalik Buterin, an honorary doctor. Here are some examples of infrastructure that will soon be in use: In January 2019 Bakkt, the cryptocurrency trading exchange owned NYSE’s parent company, opens a futures market that delivers physical Bitcoin to its investors. Its biggest rival, NASDAQ, will do the same in Q1 2019. One of the biggest US crypto exchanges, Coinbase, has launched over-the-counter (OTC) trading for institutional customers. “We launched our OTC business as a complement to our exchange business because we found a lot of institutions were using OTC as an on-ramp for crypto trading,” - Christine Sandler, head of sales at Coinbase, said. Fidelity Investments, one of the biggest asset managers in the world, is expanding its institutional crypto asset platform to include trading services for the top five to seven cryptocurrencies by market capitalization.  Fidelity has 13,000 institutional clients, and they are interested in bitcoin and ether because they make up a large part of the current market cap, explained Fidelity Digital Assets CEO Tom Jessop. Goldman Sachs, the biggest investment bank, has been clearing Bitcoin futures contract for its clients since June, said its CEO David Solomon. However, Goldman Sachs is not able to hold cryptocurrencies for its clients, because it needs regulatory approval to do this. Bitcoin technology blockchain is also making gradual advance to the new sectors. The South Korea is completing its voting system on distributed ledger technology.  And the United Arab Emirates want to conduct half of its government’s transactions on a blockchain platform by 2021. And just one more figure to conclude. In November, when the trading volume was high, Bitcoin made over $8 billion a day, which is comparable of $12 billion per day for Mastercard, the second largest credit card network in the world.

Articles/December 4, 2018

China: The World’s Biggest Blockchain and Mining Hub

China, the Asian fintech giant, has been through a real ‘crypto whirlwind’ since 2013. Judging by the fact that Chinese regulators banned ICOs and cryptocurrency exchanges last year, many now think of the country as rather unfriendly to blockchain tech. However, that’s easy to contradict. Today we’ll shed some light on China’s attitude to crypto, particularly to cryptocurrency mining, and its future plans in relation to it.  ‘Ambiguity’ is China’s middle name. In 2013 the People’s Bank of China issued a warning notice on the risks of Bitcoin and prohibited financial institutions from engaging in crypto-related activities. Three years later however the Chinese government apparently forgot about this and added blockchain to its five-year technology plan instead.  Then, a real ‘hardcore’ crackdown began in 2017. In September, the Chinese government imposed regulation banning all ICOs and crypto-to-fiat exchanges. Three months later, in January 2018, China imposed regulations banning P2P sales and over-the-counter markets. Later, China finished crypto enthusiasts off by blocking access to foreign crypto exchanges and ICO websites. Despite the fact that the country’s government did not manage to eliminate crypto-related operations for good, its crackdowns made the community skeptical about China’s environment. Before the aforementioned bans were enacted, crypto mining in China had been flourishing and had attracted dozens of giant players from all over the world who wished to locate their facilities in the ‘red superpower’. China was and, perhaps surprisingly, still is home to the world’s largest mining manufacturers, including Bitmain, Canaan, Ebang, to name a few.  To prove how vital the country’s role in the mining market has been, at its peak China accounted for three quarters of the world’s Bitcoin mining operations and over 95% of the Bitcoin trading volume.  Two years ago China was the obvious, if not the only, choice for mining enthusiasts. Low electricity costs were the true temptation for miners, along with an accessible, low-cost and high-efficiency mining hardware. Provincial governments are happy to welcome crypto-based entrepreneurs as they use excessive electricity, meaning more revenue for the local grid. However, recent statistics show that mining in China indeed requires too much electricity (to compare, it requires the equivalent of the power of three nuclear reactors). When the government’s attitude toward crypto became hostile, several large mining entities unsurprisingly began to look elsewhere for places to base their operations. One of those is Bitmain, a somewhat notorious mining company, which decided to expand its activity to Europe, North America and the Middle East in order not to be affected by a possible request to make an ‘orderly exit’ from the country.  Nevertheless, many still remain bullish on blockchain and crypto in China, based on recent statements made by the country’s President, Xi Jinping. In late May, he mentioned blockchain as a “new generation” technology: “The new generation of information technology represented by artificial intelligence, quantum information, mobile communication, internet of things, and blockchain is accelerating breakthroughs in its range of applications.” Following this statement, on June 4, the country's leading state-run broadcaster - China Central Television (CCTV) - issued an hour-long special about the ledger. During the show, it was said that blockchain is "10 times more than that of the internet" in terms of economic value.   Now it’s time to stop here and ask ourselves: How on earth do these severe crypto-bans coincide with a truly supportive attitude to blockchain? That can be easily explained. China's policies suggest a “Blockchain > Crypto” attitude. In other words, the government is much more interested in the underlying technology rather than in cryptocurrencies themselves.  China sees the enormous potential of blockchain, as it always does when it comes to the adoption of innovative new technology. Dominating the blockchain development industry can bring a lot of economic wealth to the region.  And this process has already begun. For instance, Hangzhou, the home city of Alibaba, has committed $1.6 billion to blockchain company investments. Plus, the People’s Bank of China (PBoC) is currently developing a blockchain-based digital currency. 'Decentralized' power in the hands of centralized giants is a hell of an idea - a terrifying idea. If such a blockchain-based digital currency were to be adopted, the PBoC could easily access all kinds of information about the economic activity of its citizens, thus becoming not a decentralized financial institution, but a veritable dictator.  Blockchain is still a unique and unprecedentedly traceable instrument which can allow the financial authorities of all countries to monitor small-scale transactions and reduce fraud, counterfeiting, and money laundering. By all accounts, we should expect China to be one of the leaders of a new blockchain-based economy in the nearest future. Photo by Henry & Co. on Unsplash

Articles/November 29, 2018

What Universities Offer Blockchain Education

It is very, very silly to say that the crypto market is dead. And I will tell you why. All CEOs and startup founders know how painful talent shortages can be for business. For fintech and blockchain startups, a lack of qualified professionals is one of the main reasons for startup failures. And hardly a day passes without some media or Blockchain bloggers harping on about the imminent decline of blockchain and crypto currency-related businesses. True, the last several months have been difficult for the sector and the bear market has been rather harsh and exhausting. We are tired too, but we're also defiant. So today we're going to look into a phenomenon that's developing under the very nose of those who take pleasure in the supposed decline of crypto. It's been estimated that around 1% of the global population owns cryptocurrencies. In the US this figure rises to 9% and among students is as high as 18%, as shown by a recent Coinbase survey. In 3 to 5 years these young people will roll their eyes when asked a simple question about crypto for the hundredth time - just as their parents did 25 years ago when Internet became widespread. A recent Cointelegraph article quotes a doctoral student at Stanford Benedikt Bünz who says that “if you’re an expert in cryptocurrencies and cryptography you’ll have a difficult time not finding a job.” And little wonder: the best blockchain engineers can command a salary above $250,000, says Jerry Cuomo, IBM’s vice-president of blockchain technologies. Universities understand this. Many are investing heavily in creating curriculums around blockchain that reflect the fact that blockchain technology is a fundamentally interdisciplinary topic related to business, economics, computer science and law, reports CoinDesk. In October, Coindesk published its ranking of the top-10 US universities offering blockchain education. The ranking takes into account the University’s access to the blockchain technology industry (5 percent), the number of blockchain clubs on campus (25 percent) and the number of blockchain-related courses (70 percent). The names on the list are impressive: Stanford University (94%), the University of California, Berkeley (88%), New York University (84%), Massachusetts Institute of Technology (MIT) (68%), Cornell University (65%), Georgetown University (50%), Harvard University (47%), Duke University (41%), Carnegie Mellon University (35%), and the University of Pennsylvania (33%). This goes to show that blockchain is not a marginal but a mainstream discipline, firmly on the radar of the best universities in America. South Korea went even further. This summer it opened the Walton Blockchain Institute that plans to cultivate 10,000 blockchain talents. Currently, Walton offers a six-month educational program; upon its completion, the institute will offer students job recommendation as well as support for startups. In Europe it is the UK that offers most blockchain courses. Oxford, Cambridge, LSE, The University of Edinburgh, Imperial College London and more offer courses covering subjects from fintech and blockchain to cryptocurrencies and digital disruption.  The University of Oxford also offers an online blockchain course.  There are chances to study blockchain in Switzerland, Cyprus, Singapore and Australia. China is planning to establish a blockchain research center, and several top-tier Chinese universities are stepping up their efforts to patent blockchain applications developed on campus. China hosts at least eight top universities that offer blockchain courses. In three to five years there will be thousands of people who bought their first bitcoins in their late teens and for whom having several crypto accounts is as normal as having accounts in US dollars, euros and yuans. This young generation will help the world to meet its needs by providing the expertise to facilitate more and more blockchain and tokenized projects. For investors, there is still time to find good projects that will become the new blockbusters in some 8-10 years.

Articles/November 27, 2018

Crypto Capitulation – Why are Prices Falling?

A number of narratives have emerged to explain the recent violent downwards movements in prices across the cryptoasset market. Today we'll examine a few of them. First up: Prices are declining because ICO projects are being panicked into selling all of their ETH reserves. Let's explore this one in more detail.   ICO projects raised funds in Ether. Those who conducted their ICOs early in the run saw the value of their treasuries climb throughout the bull market. ICOs still need to pay the bills in fiat, so at some point they need to sell large portions of their ETH reserves. But crypto's market volatility put ICO projects in a difficult spot: Should we sell our ETH on completion of our ICO? Or should we hold onto some of our treasuries in order to sell at the highest possible price? Twitter is full of anecdotal evidence that this is true for some projects, such as this from Ran NeuNer, a crypto fund manager: “Spent the morning with an ICO (not to be named) they raised $30m usd with a solid roadmap, they raised when ETH was $1200. They panicked and sold their remaining ETH last night – they have $4m left.” However, closer inspection of the evidence suggests that this isn't the case at all. Larry Cermack, Head Analyst at @TheBlock_, explains why: "Despite the decline in ETH price, the selloff hasn’t been as drastic as many analysts anticipated. In the past two months, treasuries of projects that held ICOs liquidated (or moved) 172,00 ETH, or ~4.6% of total holdings...Out of the 57 companies I tracked, 50% didn't move any can assume that most projects have significant enough cash reserves that they haven't had to sell cryptocurrency reserves yet" So, it's unlikely that this is creating the current downwards move. However, some thinkers believe that ICO projects will eventually capitulate - selling their ETH reserves - and that this will create downward pressure on price in the future. Meltem Demirors, of @coinshares, MIT and Oxford University, explores why: "(In view of the state of the current crypto market) what’s an issuer likely to do? Sell the assets they can and hoard cash like it’s going out of style. What’s an investor likely to do? Sell the assets they can, take the hit, and free up mental and emotional energy to focus on generating a return for their investors. Add these two up, and we get capitulation — the action of surrendering or ceasing to resist an opponent or demand." So, this could happen yet. But it probably hasn't so far. The second narrative we'll examine, and a more likely candidate, is the recent Bitcoin Cash hard fork. Bitcoin Cash is the result of a scaling dispute within the Bitcoin community that led to a hard fork of the main Bitcoin blockchain in August 2017. The most notable change that BCH implemented was an increase in the block size limit, aimed towards improving transaction capacity that proponents said more closely aligned Bitcoin with its original vision. Just over one year later, the Bitcoin Cash community is now splitting into two camps again. First there's Bitcoin Cash ABC, which is the original Bitcoin Cash client that split away from Bitcoin. BCH ABC main proponents include's Roger Ver and Bitmain's Jihan Wu.  Second there's Bitcoin Cash SV (Satoshi's Vision), led by Dr Craig Wright - the controversial Australian computer scientist who claimed (likely falsely) to be Satoshi Nakamoto and was later called a fraud by Vitalik Buterin. Wright wants to restore Bitcoin to its original protocol, increasing its block size limit and even perhaps bringing "lost" coins back into circulation. The Bitcoin Cash hard fork matters because it's creating a hash war. While most service providers, social media and crypto exchanges favour BCH ABC, Bitcoin SV is supported by all of the biggest Bitcoin Cash mining pools. Hashpower, conferred by miners, is an important indicator of security - and therefore legitimacy - in the cryptocurrency space. Craig Wright has explicitly stated that the BCH SC community will use any hash power under their control to 51% attack the BCH ABC chain "If we see an exchange sell (BCH), we will reject the transaction. Miners vote with hash. We will run ABC and we will make sure no trade ever happens, so there won't be anything. You want to know what (BCH) is? It's a corpse." This has led to an expensive hash war in which each chain is trying to outspend the other in terms of hashpower until one of them runs out of money. This has led some to speculate that some large players are selling their BTC reserves in order to fund their mining activities, creating downward pressure on prices that has resulted in the most recent downturn. For others the effect of the BCH hard fork on market prices is a less direct one, and has more to do with the resulting uncertainty at a time when there's already pressure on ICOs from SEC enforcement. For those less invested in crypto, now simply doesn't feel like a good time to deploy one's capital within the space. So, ICOs selling their ETH reserves probably isn't causing the recent price drops but the Bitcoin Cash hard fork may well be.  The third narrative we'll examine relates to the wider macro-economic picture. When one takes a step back from crypto to look at the broader picture, it becomes clearer that the current bear market may have little to do with crypto at all. The US and China are entering a lose-lose trade war, tech stocks are down 20-40% from their all time highs and many analysts are warning of impending debt crises.  From the depths of the financial crisis in 2008 to late-summer of 2018 represented the longest bull run in the stock market ever seen. Events within the crypto community can move the needle and determine exact timing of price moves, however, the broader macroeconomic context has a far larger effect. Returning to Meltem Demirors for a moment for an explanation of the wider investment context: "We are starting to see the fraying around the edges of the global investment community. Blackrock, the world’s largest asset manager with $6.4 trillion in AUM, just experienced its first quarter of net outflows in three years." With that being the case, it's likely that the bear market continues for some time. Things could get worse before they get better. Investors must stay focused on the long term vision for the space, and stay tuned with Cryptonomos to keep on top of the latest developments!

Articles/November 22, 2018

Iran: Crypto Comes to the Fore as ‘Economic Siege’ is Gaining Momentum

What do we know about the Iranian economy? Having survived through turbulent recent decades, Iran is currently facing an unprecedentedly isolated economic situation. Following the US withdrawal from the Joint Comprehensive Plan of Action agreement and the subsequent announcement of new sanctions on November 4, the Iranian rial (national currency) hit a historic low of 138,000 against the US dollar. According to recent calculations, the rial is expected to lose 57 percent of its value by the end of this year due to hyperinflation. Today we are going to examine how the current economic situation affects the cryptocurrency market and crypto-related businesses within the country. Let’s get started.  Firstly, let’s back up a few months. Facing a new set of US-led sanctions, the nation’s financial authorities came up with an ingenious idea – to create their own state-backed cryptocurrency in order to circumvent heavy sanctions. The Central Bank of Iran revealed details of the "indigenous cryptocurrency", stating that the national cryptocurrency could be a solution for the country that’s cut off from international payments networks. Azari Jahromi, the Iranian IT Minister who has frequently made clear his crypto-supportive intentions, told local media:  “A new attitude that has been created in the government is that the digital money does not necessarily pose a security threat and can create opportunities for the country” Additionally, at the beginning of September, the Secretary of Iran's Supreme Cyberspace Council revealed that various ministries of the country’s government have accepted crypto mining as a legitimate industry. IBENA, an Iranian news agency affiliated with the country's central bank, reported as follows: “Secretary of Iran’s Supreme Council of Cyberspace stressed that cryptocurrencies mining like Bitcoin has been accepted as an industry in the government and all related organizations to the mining such as Ministry of Communications and Information Technology, Central Bank, Ministry of Industry, Mining and Trade, Ministry of Energy, as well as Ministry of Economic Affairs and Finance have agreed with it, but the final policy for legislating it hasn’t been declared yet” The Cyberspace Council’s secretary Abolhassan Firoozabadi however, stated that there was not currently an appropriate legal framework for crypto mining. The Iranian National Cyberspace Center has since begun the development of a platform for crypto mining regulation. Let’s stop and make an intermediate conclusion here. It can safely be said that until November, Iran’s crypto market was not flourishing, but stable. This in itself is quite impressive. In the context of the threat of economic sanctions and the lack of financial recognition, the crypto market was one of few sectors in the country that was evolving.  It was, until the US sanctions entered into the force. These sanctions are wide-ranging in their impact and will prevent many from using any of Iran’s major resources, including oil, shipping, and gas market. The financial sector was also affected, which in turn led many crypto-related companies to quit the country. One of the first was Binance, the world’s biggest cryptoasset exchange. The company stated that it will continue complying with US regulations. Recently it emailed the following message to all Binance users from Iran: “If you have an account with Binance and fall into that [sanctions] category, please withdraw your assets from Binance as soon as possible” However, Nima Dehqan - an Iranian researcher - believes that such a move won’t have a dramatic impact on Iran’s crypto community because Iranian users are mostly ‘HODLers’ and miners, not traders.  At the beginning of November the Belgium-based Society for Worldwide Interbank Financial Telecommunication (SWIFT) announced it was cutting off Iran from its financial messaging system.  The disconnection of Iranian banks from SWIFT has put the country in a tough spot, as it is not able to conduct banking services outside its borders. So, what moves should we expect from the Iranian government? Now it seems that there are no traditional economic activities Iran can undertake to evade its current issues. The only way out therefore is not to consider launching a national crypto, but to actually do it. The sooner Iran’s government realises that crypto has become a necessity, the faster the economic life in the country will be right back on track. Photo by Arman Taherian on Unsplash

Articles/November 22, 2018

Ethereum 2.0 – Millions of Transactions Per Second?

Vitalik Buterin, founder of Ethereum, used his recent keynote speech at Devcon 4 to provide a warts-and-all account of the development of the Ethereum network since the publication of its Whitepaper in 2014. Buterin's presentation also looked forward, exploring the specifications and implications of the different projects which encompass Ethereum 2.0 - a milestone which is 'really no longer so far away': "Ethereum 2.0 combines a lot of different features that we have been talking about, researching and actively building for several years. They are finally about to come together in one cohesive whole" Those 'different features' include the much-anticipated Casper - the switch from Proof of Work to Proof of Stake, and Sharding - requiring nodes to validate only pieces of the database rather than the whole. Each of these developments is aimed, at least in part, towards achieving greater scalability. The question of scalability is pertinent for investors, as the extent to which Ethereum can scale will have a profound effect on how many decentralized applications (DApps) will be built upon it. This is likely to influence the value of ether - the native token of the Ethereum network. Analysts have for years debated whether Ethereum is capable of achieving the scalability, in terms of transactions per second, that will be needed to run many different types of DApps. In a recent OmiseGo AMA, Buterin suggested that through a combination of Layer 1 and Layer 2 solutions, Ethereum could potentially reach millions of transactions per second: "Sharding is a Layer 1 scalability solution...that makes the blockchain itself have higher scalability. Plasma is a Layer 2 solution. Layer 1 and Layer 2 are complimentary because the scalability gains from Layer 1 and Layer 2 improvements do ultimately multiply up with each other... ...So if you get a 100x from Sharding and a 100x from Plasma, those two give you a 10,000x scalability gain, which basically means blockchains will be powerful enough to handle most applications most people are trying to do with them” Transaction speed has presented a serious bottleneck to scale for blockchains generally, but Ethereum's historical emphasis on security has seen it facing greater concerns than its competitors.  Specifically, the issues that Ethereum has faced have led to an emergent narrative that Ethereum's share of the DApp market will only extend to those that need the greatest level of censorship resistance. This has benefitted competitors such as EOS who instead employ a lesser, 'secure-enough', attitude to censorship resistance in favour of building greater scalability and transaction speed into their model. EOS' 2017 ICO raised $4 billion. The developments which Buterin describes, if all goes to plan, would see them far outstrip the transaction throughput of Visa - 24,000 per second - which is often seen as the benchmark for blockchain scalability. Buterin pushes back on the significance of this milestone however, instead looking forward to the world of the internet-of-things, the needs of which will be on the order of 100,000s per second. What does this mean for investors? The question for investors is two-fold. First: "Which smart contract platform is likely to capture the most use cases and users?" Second: "Will the value that this smart contract platform creates be captured by its token?" There's no simple answer here, and the best thinkers in the space are divided. Multicoin Capital have provided the best exploration of these questions that I know of in two blog posts.  The first, The Smart Contract Network Effect Fallacy, advocates for the idea that smart contract platforms will not benefit from network effects in the same way that platform businesses, such as Facebook or Uber, do. This is because users won’t have to know or care about which blockchain they’re interacting with, and most DApps will be interoperable across chains. This would mean that the native token of smart contract platforms is unlikely to capture much value, regardless of the scale that the network achieves - a bearish stand on ether. The second, Paths to Tens of Trillions, pits founders Kyle Samani and Tushar Jain against each other in a debate which explores what kind of cryptocurrency or token is most likely to become sound money.  In advocating for the utility hypothesis, Tushar Jain believes that the most useful cryptotoken is likely to become the most valuable. This isn't a direct advocation of a smart contract platform's native token, as the argument could extend to a DEx or governance token as well.  However, in a Web 3.0 enabled world, it's hard to envision what kind of token could become more useful than one that enables the smart contract platform itself - a bullish position on ether. So, it's not clear what Ethereum 2.0 means for ether as a potential investment. However, successful blockchain scalability improvements would have wider ramifications than those for ether. The Bigger Picture Ethereum stands at the forefront of what blockchain technology can do. The viability of many potential use cases of blockchain technology will be demonstrated by Ethereum and the specific features, protocols and applications it can support. A scalable Ethereum network would facilitate the operation of thousands of DApps, and succeed in moving more and more financial and online services over to the blockchain. Ethereum 2.0 is therefore an important step along the way toward a decentralized future. One emergent narrative right now is that of Bitcoin maximalism - the belief that Bitcoin, a censorship-resistant store of value outside the reach of nation-states and Central Banks, is the only use-case that blockchain technology will ultimately serve. One central tenet of this thesis is that blockchains are slow and cumbersome, and therefore unsuited to any other application. An improvement to the number of transactions per second that Ethereum can facilitate would therefore provide a powerful refutation of Bitcoin maximalism, and a bullish signal for the viability of a much larger blockchain technology market. Blockchain enthusiasts and crypto investors should therefore be keeping a close eye on the success of Ethereum 2.0.  One reason is that the timing and magnitude of future market bull runs will likely be influenced by it. Another is that it will provide a clue as to 'how deep the rabbit-hole goes', and how much of our future online and financial lives will be decentralized, supported by the blockchain. So, watch this space and stay tuned with Cryptonomos for further exploration of the world of blockchain and crypto.

Articles/November 20, 2018

The Best ICO Opportunities – Coming Soon

Token sales in the first nine months of 2018 have hit $12.3 billion. That's over double the capital raised in 2017 - $5.6 billion - according to a report from Fabric Ventures. The ICO phenomenon, as well as the volatility within the wider cryptoasset market, have provided unprecedented opportunities for investors over the last year. These investors now want to know what the outlook is for the next 12 months and beyond. Although it may appear at first glance that the ICO market is continuing to march ahead, the fact is that the vast majority of the capital raised in 2018 was actually raised in the first 5 months alone. Since then, things have tailed off considerably. Note: $billion Chart above pulled from So, is the ICO phenomenon over? Should we all pack up and go home? Should we be looking elsewhere to fill the high-risk, high-return section of our portfolios? No. On the contrary, the 2018 market slowdown is part of a necessary and healthy cycle. The ICO market became way overheated in early 2018 - too many scams, too many poor projects - such that even the good ones were arguably raising far too much capital. Market downturns flush out the bad actors while the best projects get down to building. They also give regulators, many of whom have taken a largely positive stance towards crypto so far, a chance to 'catch up' in order to provide more regulatory clarity to the space. The cyclical nature of markets means that, while the bull market of 2017 and early 2018 is over, it won't be the last one we see in crypto. And while most previous bull markets largely involved one asset - Bitcoin - 2017 established crypto as a whole asset class.  Moreover, ICOs will return with greater legitimacy and investor security, providing more opportunities for investors. Those who invested early in the ICO boom last time saw unprecedented returns. Next time around it's unlikely that we'll see returns on the same scale as say, Ethereum - 66,492% from its ICO in 2014 to 5th November 2018 - but it's very possible that the capital allocated by investors who spot the bear market reversal early and invest accordingly will far outperform that invested in many other asset classes. ICO investors should make investments according to careful consideration of the likelihood of a project's success, however, it'd be foolish to overlook market timing in a space as volatile as crypto. Mainstream eyes were not on ICOs in early 2017, but certainly turned towards them later on, which introduced a lot of new capital and saw many token prices rise astronomically. Later in the boom, ICOs were selling tokens at prices which rendered it harder to achieve ROI on a short timescale. In other words, ICO projects began to capture more of the value than investors.   People shouldn't be investing in ICOs if they don't believe they can last more than one market cycle, but it makes sense to invest in ICOs when there's still runway left in the bull market, in case we see a similar level of over-exuberance and people want to sell their tokens before buying in again. All this to say, market timing is important, and should form a key part of one's decision to invest in an ICO. Getting in ahead of the last ICO boom would've been lucrative, so many investors want to try to predict when the next one might be coming. The Next Bull Market - Three Key Indicators BTC Price - A Decisive Break Upwards It's well-known that the crypto asset class as a whole moves up and down in line with the price of Bitcoin. If there's only one indicator you follow on the health of the market, let it be this one. BTC price has declined around 68% from the top of the bull market but has seen little volatility recently, with some expecting it to go lower still. A decisive break up above $7000 would be a bullish signal, but those who're looking for ICO opportunities needn't worry about following it too closely. A decisive break upwards for BTC should merely be a signal to begin to build capital ready to invest in decent ICOs once the market begins to warm up. To educate oneself about market timing, investors should keep up on Twitter and YouTube with the following people, who've established some credibility for their market-leading predictions over the last 10-12 months: @nasirjones007, @wavesix18, @swenlink, @cryptoamd, @crediblecrypto, @friendscallmeap.   Clearer Regulatory Picture - Meaningful SEC Developments Regulators are still grappling with the implications of the ICO boom of 2017. In the meantime, many potential ICO projects are wary of conducting one right now as they don't want to fall foul of new or existing regulation.  Cryptonomos' very own @Cryptonovich continues to explore the attitudes of different jurisdictions here on the Cryptonomos blog, many of which have been fairly positive. Another ICO boom is probably dependent on regulators providing clarity as to what exactly projects can and can not do and say. In the meantime they're fairly hamstrung. So, stay tuned with Cryptonomos and keep an eye on developments from the SEC - the US Securities and Exchange Commission will probably set the tone globally, so it's important to keep up to date on what they're doing and saying. Reversal of trend towards private presales The prevalence of private presales - ICOs completely selling out among accredited investors before ever releasing their tokens to the public - is arguably a sign of dysfunction in the ICO market.  For a time this was happening because people were wary of regulation around what they could and could not sell to retail investors. Others wanted to create hype by 'selling out of tokens' in their private presale, in order to sell their own tokens at a higher price once they hit exchanges. One of the functions of an ICO should be to achieve a wide initial token distribution, but private presales achieve the opposite of this - centralizing token distribution in the hands of a small number of wealthy investors. More ICOs being open to the public is a bullish signal in itself, and a sign of a healthier market. A healthier ICO market will be one with real sustainability as a funding mechanism, so investors should keep their eyes open for a reversal of this trend. Conclusion The ICO market is cooling down, which means limited opportunities for investors within crypto. However, the ICO phenomenon is here to stay. The cyclical nature of markets means that the ICO investors who achieve the best return will be those who spot the bear market reversal early and invest in the ICO space when there's still plenty runway left in the next bull market. Keep learning and stay tuned with Cryptonomos!

Articles/November 15, 2018