Tag: crypto

You are on Candid ‘Scamera’: Top-3 Recent Crypto Scams that Shook the World

The year 2018 ended. Many of experts are summarizing it as one of the most productive and turbulent periods for crypto world. Hardly anyone could agree with that, but that sounds banal, doesn’t it?  I’ve got something special in my store. I can’t call it a gift for you, but still it will be useful. As title reads, today we’ll review ‘The Hateful Trio’ – the biggest scams that managed to hit thousands of naive investors up for money. Modern Tech Vietnam-based Modern Tech promoted two ICOs, Pincoin and IFan, that ripped the world off more than any other. Pincoin was a coin that promised a ridiculous 40% monthly return on investment.  How can anyone be so naive to buy into such an obvious scam?   32k of investors! Yes, you heard it correctly; this couple defrauded more than 30,000 investors by encouraging them to invest in digital tokens. ICOs managed to steel *don’t read this if you have a heart problem* approximately 15 trillion dong ($650 million). Following the information about ‘exit scam’, angry investors besieged the company’s office. However, the building’s owners said Modern Tech had liquidated and cleared out of its office a month ago. Unfortunately, scammers are still not tracked down. However, if they are, they will have more than enough under their rug to answer for.   OneCoin That’s what we call ‘a scam with surprise’. The Founder of OneCoin is actually a Bulgarian businesswoman, Ruja Ignatova. However, although there’s one office in Bulgaria, the company is registered under the jurisdiction of United Arab Emirates’ Government.  The OneCoin scam promoted itself as a cryptocurrency blockchain project. However, it wasn’t’: it deemed itself to be one of the centralized platforms where the crypto funds were stored in a ‘highly secure manner’. Plus, the blockchain project was neither open-source nor decentralized in nature. OneCoin subordinate companies deeply ingrained in dozens of other countries across the globe. After the community realised that OneCoin was nothing more than a scam, the company faced a huge portion of investigations.  In May 2017, the Government of Kazakhstan levied strict regulations on the company and termed it to be one of the Ponzi schemes. Further, in July 2017, the Government of India arrested 23 people involved with the OneCoin scam. Chinese authorities also joined the process and seized $30 million dollars.  Even the Italian government noticed the Ponzi scheme and Italian Antitrust and Consumer Protection Authority (AGCM), imposed a fine on the company of almost €2.5 million. Noteworthy, Mark Scott, one of the key scammers in OneCoin, was officially indicted by a grand jury last year in August, and he was arrested by federal officers on September 5th. After the investments were taken in, Mark and his co-conspirators laundered the investor money through several shell companies. Around $400 million of funds stolen from investors were used to purchase a mansion for Scott and his family in Massachusetts.  Bitconnect  Bitconnect is probably the most notorious crypto scams in the world which caused the great hype around its HYIP (high-yield investment program).  It was launched in 2016 with the goal of allowing users to lend Bitcoin for interest. Though this goal was never realized, BCC acted as an alt-coin but allowed users to earn interest on their own wallet.  In simple terms, users exchanged Bitcoin for Bitconnect Coin (BCC) on the platform, and were promised astronomical returns on their investments. In addition, the company ran a lending program, where users lent BCC out to other users to make interest. Interestingly, underpinning by Ponzi schemes, Bitconnect made it to the top of 20 the most successful cryptocurrencies in terms of market cap. Its ‘kingpins’ fraudulently obtained billions of users’ dollars. For the record, only in India the Bitconnect team allegedly siphoned off about $12 billion from investors. On January 17, 2018, Bitconnect shut down and BCC prices crashed by 92% immediately after. As of September 2018, the token has been delisted from the last exchange that traded it, Trade Satoshi. It would appear that it’s no hard task to identify whether the project is scam or not. But still, fraudsters appear every day and, unfortunately, they succeed in their malicious intentions. For instance, Westland Storage company, real estate investment project, recently made a sudden and shocking exit. Many laud this exit scam as ‘Bitconnect twin’, because it implemented a similar Ponzi scheme.  Many should have noticed that it was a grift since its launch, because it was offering a 1% daily return of investment during the working days and 0.5% daily returns during the weekends. Ringing any bells? Yes, it reminds us of Bitconnect. Investigations are on the way, and most likely Westland Storage will be one of the biggest crypto scams of 2018. As of today, police forces are slow in reacting to crypto scams. That’s what we should wish them for the New Year – to act decisively and promptly. And we wish you, our dear followers, to be careful and not to neglect due diligence while involving into risky projects.  Celebrate responsibly and stay tuned!

Articles/January 10, 2019

Crypto Taxation around the World: from Germany to Japan

Do you pay taxes for using crypto? Or let’s better rephrase the question: do you know that you must or must not pay taxes for using crypto in your country?  If you do – and we are confident you do, still, this article is something you should not skip. Taxation is becoming one of the principal issues, when it comes to cryptocurrencies, as every country differs in its policies and approaches. Today we’ll examine which countries could be lauded as ‘tax havens’ for crypto owners and in which ones you will be taxed for a full ride. Buckle up, ladies and gentlemen, our trip across taxations is in high gear. Germany  Federal ministry of finance Germany Source:  Federal Ministry of Finance, photo: Ilja C. Hendel Germany is positioning itself as one of those European countries that have business-friendly tax policies. It has become a true shelter for both mid-term and long-term crypto investors. Here trading crypto is considered as a private sale under the rule 23 EStG which implies tax-free benefits. According to this document, trading cryptocurrencies is totally tax exempted, provided that your capital gains are not more than 600 EUR. The punch line is that in Germany digital currencies are not considered as a commodity, a stock, or any kind of currency. Instead, since 2013 they are recognised by the German Finance Ministry as private money in a way that’s similar to foreign currency. Interestingly, profits made through any kind of operation with crypto (e.g. mining, trading, exchanging) are subject to a capital gains tax (which is 25-28 percent, by the way) including a solidarity surcharge. According to the German Income Tax Act, if the assets are held for more than one year, they become tax exempt. Poland  President of Poland Andrzej Duda Source: Profil Prezydenta RP Andrzeja Dudy   A legal framework in Poland has been dramatically changing so far. In April 2018, the government decided to tax crypto investors on each and every crypto transaction they were involved in. The country’s government bound citizens to declare all their crypto and exchange gains. This far-fetched tax was too heavy for crypto owners. That’s why the government decided to backtrack it and commenced the establishment of a new well-thought-out one. Polish community had to wait for almost 3 months. In August, regulators in Poland have come forward with a long-promised Crypto Bill. This regulation, as government believes, will enable it to keep a strong focus on the illegal activities which are carried out in the guise of cryptocurrency transactions. The crypto taxation was officially released on 24th August 2018. Additionally, in mid-November, the Income Tax Department of the country has suggested President Andrzej Duda’s government to levy a steep tax of 19% on income from using crypto. If enacted, the taxation is expected to come into force from January 2019. USA  Internal Revenue Service Building on Constitution Avenue in Washington, D.C. Source: Wikimedia  The whole story with crypto-taxes in the US began in 2014 when the Internal Revenue Service (IRS), the country’s government agency that collects taxes and enforces tax laws, issued the general guidance on how cryptos are taxed. According to the guidance, in the US “virtual currency is treated as property”. It also says that crypto-taxes are calculated individually for every taxpayer who uses crypto and they depend on the coin’s value as of the date it was traded: A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in dollars, as of the date that the virtual currency was received” As of today, by the look of things, Internal Revenue Service is not going to be soft with crypto owners. In February 2018, Coinbase, a San Francisco-based digital currency exchange, sent an official notice to about 13,000 customers, informing them that their data is being handed over to the IRS per their request. The IRS is also famous for using software designed to track crypto tax cheats.  Agency periodically sends emails to crypto holders, reminding them to pay their taxes and even published a memo, highlighting the “inherently pseudo-anonymous aspect” of crypto transactions. Japan  The Ministry of Finance Japan Source: Japan Times  Japanese crypto holders seem to be operating in a crypto-paradise, but it’s not that simple. Although country recognises the crypto as a legal means of payment, the main reason behind this move to legalization is to ensure tighter oversight from the Financial Services Agency of Japan over the virtual economy.   In Japan, cryptocurrency investors must pay between 15 and 55 percent taxes on their profits declared on their annual tax filings by the end of the year. Judging from the statistics which shows that the trading pair BTC/YEN is one of the most popular, we can safely say that the country will receive large revenues from taxing crypto. Speaking of the latest news, in early December, Japan’s government announced that it prepared a new system that would allow the National Tax Agency (NTA) to obtain data from transaction intermediaries – crypto exchanges. A new regulation is expected to come into force in late 2019.  According to several sources, this will be the case for those crypto owners who earned over 10 mln yen ( ̴$88,700) from crypto transactions.

Articles/December 18, 2018

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

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 ETH...one 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 bitcoin.com'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

The US: Mining Superpower or Land of Ambiguity?

With over thousand of different ever-expanding interpretations of uses for blockchain and cryptocurrency, it’s not surprising that many governments are showing a keen focus to the digital currencies and associated operations. Today we are going to take a broad look at cryptomining in the US – one of the most discussed tech pioneer in the world. So, it’s time to ‘Make Americans Mine Again’!   In March 2018, the United States Joint Economic Committee issued a report which officially endorses cryptocurrency and blockchain. However, for a layman miner, the US is one of the most complicated countries for getting involved in crypto mining. As we’ve already mentioned in our recent post, the US is mired in the ambiguity of legal system. It means that each of the state has its own ‘crypto legislation’. Literally, give an inch here – your mining process flourishes, give an inch there – it’s feasible and forbidden. Thus, it cannot be said whether the process is completely dead in the country or not. It depends on the state one is going to deal with crypto in.  To show the difference in the attitudes, let’s review several states. For instance, according to the variety of sources and rates, the most appropriate state for mining cryptocurrency in the US is Louisiana. Sandwiched between Mississippi and Texas, Louisiana has never been considered to be a safe haven for crypto miners, or indeed for anyone from the fintech sector.  Nevertheless, Louisiana has the cheapest energy rates in the entire country, when compared to other attractive regions including Idaho, Washington, Tennessee, and Arkansas. Unfortunately, a fertile environment for mining makes many people lose their heads. Recently, Louisiana Attorney General Jeff Landry opened a criminal investigation into his own office's information technology department, including its recently ousted director, amid allegations that former staffers tapped state resources to mine Bitcoin. Among the terminated employees were a systems administrator, a help desk manager, a litigation support coordinator and a human resources employee. Despite the above, crypto still has a legal status in the state. However, not every ‘Louisiana-like region’ in the US takes advantage of cheap energy rates. For example, Plattsburgh, New York, has become the first city in the US to ban cryptocurrency mining. A city council unanimously voted to impose the 18-month moratorium on Bitcoin mining to prevent miners from using the city’s cheap electricity. With accordance to Plattsburgh mayor’s words, Plattsburgh has the “cheapest electricity in the world” where residents pay only 4.5 cents per kilowatt-hour. For the sake of comparison, the US average is a little over 10 cents per kilowatt-hour. Industrial enterprises, including mining companies, pay even less - just 2 cents per kilowatt-hour. Nevertheless, the US attracts many large players on the mining market. The best evidence of this is the fact that 2 out of 5 largest mining facilities in the world are located in the US. Among them are $65-million Bcause LLC and Washington State-based Giga Watt mining facilities. The latter has more than 20k GPUs hosted. Noteworthy, team at Giga Watt designed so-called Giga Pods, a groundbreaking solution which takes advantage of mining hardware’s extremely high power density, avoids active cooling consumption, and saves power for high-efficiency computing. The US legal framework is far from ‘united’ when it comes to crypto regulation. It’s true: while some ban, others endorse, and there’s no common logic about it. One thing is clear: the harmonization and unification of regulations across the country would create a stable and conducive environment for private users and crypto-related businesses. That’s what the US government needs to focus on.  Next time we’ll take a closer look at the country’s most powerful rival in the mining market – China. Stay tuned for that!

Articles/November 13, 2018

Fiat to Crypto: A Once in a Lifetime Paradigm Shift (Part 2)

Back in part one we spoke about the importance of money in allowing human societies to scale (if you missed part one of this post, and would like to start at the beginning, click here).  A monetary system that can facilitate trade between parties who don't necessarily trust each other is one which can support a society as it grows. The more barriers it removes, the larger such a society can scale, and the more complex its economy can become. We also spoke about how, in order to function properly, money needs to be hard. It must be hard to devalue either through increasing the supply or through it becoming worn down over time through use. Part two of this post seeks to explore how all of this applies to the present day and, more specifically, to crypto.  We cannot understand crypto without taking a look around ourselves at the context out of which crypto has burst forth into the world. The macro-economic context of the present day is important, because it's this that helps us to understand crypto as an answer to a number of current problems as opposed to something that's just cool, new and different. First of All, Hard Money Matters... Hard money is not just important in a theoretical or macro-economic sense - it actually changes the average person's day to day behaviour in a way they likely don't realize. Hard money incentivizes people to become more future-focused, to save and to create real value in order to accumulate wealth. When money is easy it incentivizes people to spend and consume, and even to try to 'game' the system by becoming wealthy without contributing. “Whether in Rome, Constantinople, Florence, or Venice, history shows that a sound monetary standard is a necessary prerequisite for human flourishing, without which society stands on the precipice of barbarism and destruction” - Saifedean Ammous, author of The Bitcoin Standard. Unfortunately, you're reading this at a time when money is not hard, but easy. Arguably very easy. Easy Money and Fiat Currencies You're likely already familiar with what fiat is, as the crypto community is rather scathing of it. Fiat currencies are those created and backed by nation-states, unpegged from any 'hard' asset and therefore free to fluctuate in value against one another. In a nutshell, fiat is problematic because it's easy money. Governments like fiat because it’s flexible and allows them to be reactive, adapting to the needs of the day by either raising interest rates or issuing more money. The latter - quantitative easing - is what many governments did after the financial crisis in 2008 in order to stimulate the growth they desperately needed. But the crypto community isn't angry about fiat for no good reason. Fiat currencies are very problematic too. As opposed to an economy based on the gold standard, in which creating new money is necessarily hard, 'forcing' people to create value in the world in order to be compensated, a fiat economy can create new money from thin air through 'government magic'.  The past 45 years since fiat currencies took over have been characterized by continued inflation, rising inequality and increasing national debt burdens. The devaluation of currency forces people to put their money into more stable assets, which creates a monetary premium, inflating the value of an asset beyond its utility and often creating unsustainable bubbles.  Take real estate, for example. House prices are still rising because people will keep paying more and more for a house. Why? Because real estate is one of the only assets they have access to that has for the last few generations has proven to be a stable store of wealth. Kyle Samani of Multicoin Capital explains further: "Since President Nixon took the USD off the gold standard, investors have increasingly stored their wealth in all kinds of non-money assets to escape fiat inflation...The assets that have absorbed these flows away from inflationary fiat are real estate, debt, and equities...As such, a massive amount of the world’s wealth is being stored in debt, equities, and real estates specifically as a way to avoid fiat inflation." The assets that have absorbed these flows away from inflationary fiat are real estate, debt, and equities. As central banks have printed exorbitant amounts of money over the last decade since the financial crisis, they’ve primarily purchased debt. This artificially raises the price of debt and lowers yields, which then causes investors to allocate even more capital to other asset classes, primarily real estate and equities. As such, a massive amount of the world’s wealth is being stored in debt, equities, and real estates specifically as a way to avoid fiat inflation. This would not be the case if our currencies were hard. To put the problem with easy money simply: Easy money changes people's conception of value and their financial behaviour, encouraging short-term thinking, spending and consumption. A system which people know the money they earn now will be worth less next year - because it's a feature of the system - is one which incentivizes spending and consumption over saving. For those that nevertheless do save, a system which disincentives putting one's capital to work productively by creating value in the world instead of just trying to beat inflation, is a dysfunctional system. The problem for you and I is that in a world of fiat currencies, we're forced to play a speculative game of investment in order to protect the value of our money and allow our wealth to accumulate. It's not an option to simply keep cash because its value will deteriorate over time.  However, beating the markets is a rich man's game. The barriers to entry on things like accredited investor laws, up front and setup fees on mutual or index funds, the costs of financial advisors etc. means that our current fiat financial system basically amounts to an organized upward transferal of wealth from the many to the few. Enter Bitcoin It's in this context that, on January 3rd 2009, the Bitcoin genesis block was mined. You'll likely already know that Satoshi encoded the words of a headline from a U.K. newspaper into that first block: "Chancellor on brink of second bailout for banks" and, in doing so, cemented Bitcoin's mission as an alternative to the worst over-exuberances of the fiat system. Bitcoin represents perhaps the hardest money that has ever existed.  As we said in part one, money is hard if it cannot be devalued through either increasing its supply or wearing it down through use. From a supply perspective, Bitcoin's supply schedule is fixed and transparent - we know exactly how many new bitcoins will be minted, hour by hour, from now until the end of its life. From a durability perspective, Bitcoin is a digital asset that cannot be destroyed by any central entity - its main vulnerability is a 51% attack, which is arguably very unlikely. That Bitcoin is hard is profound because the barrier to entry is so low. Bitcoin represents an opportunity for hundreds of millions of people to move their money into a hard asset for the first time - something that many simply can not do because the barriers to entry (e.g. the size of a house deposit) are too high. Let's return to Kyle Samani, in his blog post titled '$100 Trillion', to explain the potential impact of this: "Although it’s come to be accepted that many assets can act as a store of value to hedge fiat inflation, I assert that on a long enough time scale, we’ll look back and think it was crazy that non-money assets ever gained a monetary premia that’s measured in the tens of trillions of dollars. Now that we have objectively better state-free money, capital will slowly flow out of these non-money assets into money-assets, of which cryptocurrencies are by far the best option." The effect of such democratization of access could be a mass-scale societal shift in mindset - from spending, consumption and debt to saving money and creating wealth. From a short-term to a long-term focus. Easy Exchange = Greater Societal Scale... It's not just that Bitcoin is hard either. Bitcoin represents the potential for a money that lives natively on the internet, being transported as easily as information is now. Consider the changes that the internet has had on the world over the last 20 years through removing the barriers to free and permissionless exchange of information. That communication and information now lives on the internet has made for open source, open access conditions have changed the world. Blockchains can do this for money. Crypto can facilitate trade and exchange between people across national borders in a way that the traditional financial system cannot. By doing so we're likely to see a reorganization of human society that sees nation-states become less relevant. Conclusion To sum up, greater Bitcoin adoption could represent a move towards hard money. This could lead to a difference in society's conception of value that sees a greater emphasis on saving and creating value than on spending and consumption. This is a profound shift because we're arguably living within a monetary paradigm that is almost exactly the opposite of this. Bitcoin and crypto are also pioneering a kind of money that lives natively on the internet, which will remove many barriers to exchange and facilitate easier trade. Whenever this has happened through history, it has resulted in humans organizing in larger groups - nation-states could become less relevant as a truly global economy emerges. It's important at times, particularly during bear markets, to take a step back and remember just why we became so interested in this space in the first place. Crypto is a rabbit-hole that many never want to emerge from, and that's a fantastic thing. Keep up with the Cryptonomos blog to stay up to date with the latest developments, as well as exploring some of the more timeless themes within crypto. See you again soon! Resources for Further Exploration: Shelling Out - Nick Szabo (essay) $100 Trillion - Multicoin Capital (blog post) Invest like the Best - Saifedean Ammous (podcast) The Quiet Master of Cryptocurrency - Nick Szabo - The Tim Ferriss Show (podcast) Saifedean Ammous - The Bitcoin Standard (book) The History of Money - Jack Weatherford (book) Debt: The First 5000 Years - David Graeber (book) Yuval Noah Harari - Sapiens (book)

Articles/November 8, 2018

Crypto is a Brand New, Once in a Lifetime, Monetary Paradigm (Part 1)

Those who've been interested in Crypto for a while will have heard the following before, probably multiple times:  In order to understand the significance of Bitcoin as a technological and societal innovation, one must first understand the history and function of money. What follows over the next two Cryptonomos blog posts is: In part one: A short summary of the successive monetary paradigms that have existed throughout human history An exploration of the ways that monetary paradigms shape human society and behaviour In part two: How this all applies to crypto, using Bitcoin as a case study The intention is to provide an understanding of the fundamentals, as well as a few jumping off points for further exploration of the best thinking in the space.  It's easy for HODLers and bag holders to let themselves feel down during bear markets, so hopefully these posts will encourage investors to take a step back and remember the bigger picture and why they became interested in the space in the first place. Money at its Best Money can work well for people, facilitating greater exchange and increasing the wealth of the population it serves. It can also work badly, creating harmful inequality and limiting productive co-operation. Money works best when it is a stable store of value that is easy to exchange. Each successive monetary paradigm shift throughout history has represented a move towards greater optimization of one or both of these factors. Let's go back in time. Primitive Societies - Money and Larger Groups Some believe that primitive societies were barter societies, in which goods and services were exchanged directly for one another - e.g. three chickens for a goat, you help me build my house and I'll help you build yours.  The idea of the barter society is a useful thought experiment but there's little evidence that it ever actually existed. Primitive societies had complex cultural phenomena guiding interaction and etiquette around the exchange of goods and services, including marriage, tribute and rituals.  “The real origins of money are to be found in crime and recompense, war and slavery, honor, debt, and redemption...in fact, our standard account of monetary history is precisely backwards. We did not begin with barter, discover money, and then eventually develop credit systems. It happened precisely the other way around...Barter, in turn, appears to be largely a kind of accidental byproduct of the use of coinage or paper money: historically, it has mainly been what people who are used to cash transactions do when for one reason or another they have no access to currency.” - David Graeber, Debt: The First 5000 Years Others contend, therefore, that money was invented as a means of keeping track of peoples' debts. Either way, in pre-money society the problem of the double-coincidence of wants - two people each needing to have something that the other wants at the same time in order to trade - set too high a barrier for trade and limited the number of people whom one could exchange with solely to those whom people could trust. The Grandfather of Bitcoin himself, Nick Szabo, explains why this was problematic in his essay, 'Shelling Out': "Just the stone tool-kit of even early Paleolithic man that has survived for us to find was in some ways too complicated for brains of our size. Keeping track of favors involving them – who manufactured what quality of tool for whom, and therefore who owed whom what, and so on – would have been too difficult outside the boundaries of the clan...If cooperation occurred between clans and even tribes, as the archaeological record indicates in fact occurred, the problem gets far worse still, since hunter-gatherer tribes were usually highly antagonistic and mutually distrustful." Whether the barter or debt hypothesis holds more truth, the problems inherent in trade led people to invent money as a superior means of storing wealth and facilitating trade. This in turn led to changes in the organization of society through greater incentives for productive co-operation and less trust needed between parties in order to exchange. Money solved the problem of the double coincidence of wants and allowed people to productively cooperate in larger numbers and to accumulate wealth over time. The invention of money led humans to be able to co-operate with more people in a way that fundamentally reorganized society around larger and larger groups. Towards Gold - Harder Money Money was invented in numerous places, independently and consistently around the world. Humans in the Rift Valley in Kenya for example appear to have used shells, while Native Americans used clam shells, teeth and furs. People's choice of material here is revealing and, perhaps surprisingly to some, has important consequences for crypto. To put it simply, people have always chosen to use for money a material that is both rare (hard to increase supply) and durable (hard to wear down through use). A store of value which fails on either of these counts is not fit for purpose. Saifedean Ammous, author of The Bitcoin Standard, explains why: “I like to call this the easy money trap: anything used as a store of value will have its supply increased, and anything whose supply can be easily increased will destroy the wealth of those who used it as a store of value” For these reasons from the moment that money was invented and for as long as it remained a physical item, humans were arguably on an inevitable path towards using gold as money.  Gold represents the end of a continuum - it is one of the most chemically stable metallic elements, and one of the most scarce physical materials on earth. Because gold does not ruin, it's stock has accumulated over thousands of years. The gold that we began using for money thousands of years ago is still around, so the gold that is newly mined each year can only ever represent a tiny fraction of the whole. In other words, gold is a reliable store of value because it is hard to devalue it either through increasing its supply or through wearing it down. Easy to exchange - Towards coins and paper In order to fulfil its purpose as a store of value, money needs to be hard and durable. But this isn't money's only function.  In order to fulfil its purpose as a medium of exchange, money also needs to be easy to transport and exchange. This is precisely the reason that coins and, subsequently, paper money - in which paper notes were circulated that were redeemable for a given amount of gold - were invented. These successive innovations created conditions in which exchange became easier with little to no tradeoff in terms of the 'hardness' of money.  Hardness and ease of exchange shaped the monetary paradigm of many of the world's largest economies for around 300 years, beginning in 1619 with the formalization of the Gold Standard - formalized in 1619. Gold fulfilled its purpose for a period during which the human population swelled from 500 million to 5 billion people. Gold isn't the sole reason for this population explosion, but it was probably a pre-requisite. Necessary but not sufficient. However, it wasn't without its problems. Throughout the 20th Century, beginning shortly after World War 1 when government finances deteriorated, gold ceased to fulfil the needs of the world's biggest economies.  Proponents of the Gold Standard would suggest that this means the priorities of the world's biggest economies were wrong. Nevertheless, the 20th century saw those economies unpeg their currencies from gold one by one until, in 1971, President Richard Nixon hammered the final nail into the Gold Standard's coffin. This ended the U.S. governments promise of the direct convertability of U.S. dollars into gold, and thus began the era of fiat money. Conclusion Money facilitates exchange, allowing more people to productively co-operate through trade. This creates wealth. Money that works well creates more wealth. Greater wealth can support larger populations and more complex societies and economies. The move away from gold towards fiat was a move from away from hard towards easy money. This is why one must understand the history of money in order to understand the technological and societal significance of Bitcoin, which represents a significant improvement in terms of both hardness and ease of exchange. We are where we are today, a population of over 7 billion people, directly or indirectly, because of successive innovations in monetary paradigms. Monetary paradigm shifts have profound effects for the way that human society is organized, facilitating the productive exchange and co-operative between more and more people, which increases the wealth of society.  Crypto potentially represents one such monetary paradigm shift - it's more than just a speculative investment. Part 2 of this blog post will explore why.

Articles/November 6, 2018