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Tag: bitcoin

Is a Lack of Regulation Stifling Bitcoin Growth?

Is a Lack of Regulation Stifling Bitcoin Growth?

  

Imperial College London’s Centre for Cryptocurrency Research and Engineering

Cathy Mulligan, co-director of Imperial College London’s Centre for Cryptocurrency Research and Engineering, believes a dearth of regulation is undermining new financial technologies. Although this might not come as welcome news to libertarian-minded bitcoiners, she believes uncertainty over regulations has stifled growth. “We have the situation in the UK where many startups are chasing the regulator to say, ‘How are we going to be regulated?’ rather than the other way round. Bitcoin in the UK is really treated as private money,” she recently opened. London Bitcoin industry insiders told CCN for this interview that they, and others, are anticipating further Bitcoin regulations in the UK in the coming months.

Ms. Mulligan cites confusing oversight, such as when one exchanges Bitcoin for pound sterling, in the UK,  there is no VAT on the value of the Bitcoin, but, rather, the commission. “From the UK perspective, we haven’t seen huge amounts of regulation,” she says. “They aren’t being forced to have AML [anti-money laundering regulations] or ‘know your customer’ regulation just yet. I think what will happen in Japan is, there will be an influx in startups because the business environment is stable and you’ll know how you’re going to regulate it.”

Indeed, regulators are worried about Bitcoin’s potential anonymity. “At Europol [the EU’s law enforcement agency] they don’t like the anonymity of Bitcoin, which I think perhaps is a bit of a misunderstanding because it is not truly anonymous,” said Eitan Jankelewitz, a lawyer at the law firm Sheridans who specializes in blockchain and e-commerce. She believes regulators should have fewer concerns. “You can trace every transaction and follow it all the way through,” she noted. “You can see the life of a penny and see exactly where it’s been. The problem is that you don’t know exactly who controls those wallets.” Much of the confusion circle around determining what, exactly, bitcoin constitutes.

Dr. Mulligan says: “Some countries are taking it as a commodity like we are, other places are treating it like money and others are treating it as unknown, which changes the way you tax things.” The Imperial College London’s Centre for Cryptocurrency Research and Engineering started early in January.

“Blockchain technology is poised to re-engineer the world as we know it,” said Blockchain at the time. “In fact, there is a general consensus that the technology will revolutionize industries as varied as finance, fashion, government, and healthcare, among others. While the technology offers a great deal of promise, it is in its nascent stages and there is still much to explore in understanding the future we’re helping build. It’s that perspective that keeps us committed to research and development. “

Many lawyers advise Bitcoin and blockchain startups to initiate strict AML and KYC policies, generally speaking, to ensure a smooth business process. To be sure, many Bitcoiners believe no new regulations are needed, and any pre-existing regulation can be applied to the digital currency. Oh, and then there’s those who believe there should be no regulations at all.

Chuck Reynolds
Contributor

Alan Zibluk Markethive Founding Member

Geopolitics Bullish for Bitcoin

Geopolitics Bullish for Bitcoin

  

A recent debate about Bitcoin as a safehaven

against geopolitics is supported by consistent buying demand for the digital currency. Furthermore, at key junctures in the War on Terror, Bitcoin has increased precipitously, with its best-known price rises coming during heightened geopolitical conflict. For instance, Bitcoin’s first memorable price increase took place as a military conflict in Libya picked up. Recent events have been no different as, despite consistent discussion about concerns over the bitcoin technology itself, the price has increased. Geopolitical tension is on the rise worldwide, and Bitcoin has consistently reached all-time highs. Russia stopped a Security Council statement brought forth by the U.S. on Wednesday to express disapproval of North Korea’s missile tests. China signed off on the measure.

“Russia is slowing this down, and it is not clear why”. The diplomat told CBS News. “The U.S. wanted to get the message out.” North Korea’s failed missile test launch on Sunday mushroomed geopolitical tensions between President Donald Trump and Pyongyang. U.S. Vice President Mike Pence said Wednesday that the U.S. remained committed to its allies but that it would overwhelmingly respond to any attack. The U.S. military intercepted two Russian bombers in international airspace off Alaska’s coast earlier this week, as two F-22 Raptor aircraft intercepted the Russian TU-95 Bear bombers. Navy Commander Gary Ross, a Pentagon spokesman, called the intercept “safe and professional.” Further, U.S. economic data did little to encourage and confidence in the Trump administration on tax cuts have waned in recent weeks.

All this should be considered bullish for Bitcoin. Two months after U.S. military action in Libya, Bitcoin begins to increase from approx 90 cents to $32. The United Nations called for “an immediate ceasefire in Libya, including an end to the current attacks against civilians, which it said might constitute crimes against humanity … imposing a ban on all flights in the country’s airspace — a no-fly zone — and tightened sanctions on the Qadhafi regime and its supporters.” The price of Bitcoin fell to $4 by the end of 2011, as the U.S. military withdrew from Iraq thus ending the Iraq War on December 18. By the November 2015 Paris Attacks in France, which killed 139 and injured 352, the Bitcoin price had reached the 300 handle.

There’s been little to inspire confidence in global relations and economy. Since November 2015, the bitcoin price has increased beyond $1,000 and the gold price, further inspiring confidence in its possibilities as a safehaven medium. Gold and silver have long been considered safehavens by investors, who purchase such assets to protect their investment portfolio from global geopolitical uncertainty. Digital currencies like Bitcoin offer borderless and secure payments. While legacy currencies and payment system are susceptible to capital controls and currency manipulation, many believe Bitcoin is not. This leads to confidence in the digital currency as a potential safe-haven to stave off economic uncertainty.

Chuck Reynolds
Contributor

Alan Zibluk Markethive Founding Member

What is the Willy Bitcoin Trading bot?

What is the Willy Bitcoin Trading bot?

Trading Bot Pushes Bitcoin Price Higher and Higher

When the infamous Mt. Gox exchange was on the verge of collapsing, there was a lot of discussion regarding the so-called Willy trading bot. Although there have been many trading bots ever since now would be a good time to look wat why the Willy Bot made such an impact on this particular exchange before it went bankrupt.

It has to be said, the years 2013 and 2014 were — for some part — quite enjoyable for bitcoin holders. After the price per BTC started to skyrocket, a lot of people suddenly took notice of this cryptocurrency. Mt. Gox was the center of trading activity, as it was one of the very few exchanges dealing with bitcoin at that time. Unfortunately, this price trend could not be sustained, eventually leading to the Mt. Gox collapse, customer funds being stolen, and the bitcoin price crashing to a low triple-digit value once again.

While most people have been focused on Mark Karpeles since Mt. Gox disappeared,  it is important to remember why the bitcoin price was skyrocketing, to begin with. As it turns out, bitcoin security firm WizSec successfully found the culprit behind this massive bitcoin price pump. The culprit goes by the name of Willy, and it is a bitcoin trading bot that only made an appearance on the Mt. Gox exchange. Willy first started its trading spree in September of 2013, eventually leading to the bitcoin price bubble and crash months after.

It is not hard to see how the Willy trading bot affected the Mt. Gox exchange and all of its users. To be more specific, the Willy bot is responsible for buying large amounts of bitcoin on the exchange over a six-week span. Given the low bitcoin price at that time, it appears the bot had access to enough funds to purchase about 250,000 bitcoin. Up until that point, there had never been such a high demand for bitcoin, which sent the price rocketing to its all-time high with relative ease.

In fact, on some trading ways, Willy accounted for 30-50% of Mt Gox’s entire trading volume. That is a significant amount, to say the least, indicating someone was carefully manipulating the bitcoin price in the process. No one will be surprised to learn there was some manual intervention by the person responsible for using the trading bot on the Mt. Gox exchange. Most people still believe Mark Karpeles is the person responsible for manually driving up the bitcoin price, although it is doubtful we’ll ever know the truth.

To this very day, there are still a lot of questions surrounding the infamous Willy bot. No one knows for sure who developed or used it, which is of particular concern given the current fiat currency issues affecting so many bitcoin exchanges. While it is doubtful anyone is using a similar trading bot to carefully drive up the price across multiple exchanges, the current bitcoin price trend shows some correlations with how things unfolded at Mt. Gox. We can only hope Bitfinex and other platforms are not being manipulated in the same manner, although there is no real reason to think that is the case right now.

It is also worth mentioning WizSec released an official Willy Report back in  May of 2014. Although the security firm was unable to provide answers to every question may have, they did a good job at creating a timeline of operations. Trading boats pose somewhat of a risk to bitcoin price stability, although it appears most creations have become a lot smarter over the past few years.

Chuck Reynolds
Contributor

Alan Zibluk Markethive Founding Member

Arbitrage — What it is and how it works

Arbitrage refers to the process of instantly trading one or more pairs of currencies or odds for a nigh risk-free profit.

Usually, this involves two exchanges (this is then called a two-legged arbitrage); although more are, of course, possible.

crypto currency arbitrage

There are several steps when executing an arbitrage:

Find a suitable opportunity
Execute trades
Rebalance accounts

Step 1: Find a suitable opportunity

This step is relatively easy. Simply check the order books of as many exchanges as you like, compare bids vs asks, and check if you can find a negative spread.

A small discourse into what a spread is

I will assume you're familiar with bids, asks and what an order book is — if not, you should definitely look up those first. As for the negative spread, I'll elaborate a bit more on that. The spread is what is used to refer to the difference between bids and asks — lowest ask — highest bid = spread. This should be (and typically is) a positive value, since the best bid at an exchange must be lower than the lowest ask of an exchange — otherwise the matching engine of the exchange would settle these orders automatically.

In a perfect world, all markets and all market participants would have the same information, hence all top bids and all top asks of all exchanges would be the exact same, after fees were applied.

If you've seen the recent US elections, however, you're probably aware that the world isn't perfect, though. Hence, not all participants of a market know the same thing as the others, resulting in bids at exchanges which are higher than the asks at other exchanges — and this is what is called a negative spread.

Step 2: Execute trades

Let's assume you've found an amazing opportunity at exchange A and exchange B — a negative spread of 100$!

Exchange A: Ask 1BTC@450$
Exchange B: Bid 1BTC@550$

Luckily, you have proper funding at both to match these instantly — but how do you go about doing that? Easy! Just place an order on the opposite side at each exchange with the quote's prices!

Exchange A: Place Bid of 1BTC@450$
Exchange B: Place Ask of 1BTC@550$

Since your placed order match an order on the opposite side of the book, the trading engine matches them and the trade is settled, leaving you with a theoretical profit of a smooth 100$! Why theoretically, you ask? I'll get to that point further below.

Step 3: Rebalance Accounts

Unfortunately, you were only able to trade once today, but hey! Tomorrow's another day — but in order to be able to properly trade, you need to even out your balances. Right now, your accounts look like this:

Exchange A: 2 BTC | 50$
Exchange B: 0 BTC | 1050$

Hence, you go about and send 1 BTC from Exchange A to Exchange B, and 550$ dollars to Exchange A from Exchange B. No magic here — all accounts are re-balanced and you're ready to make a fortune again, tomorrow.

Exchange A: 1 BTC | 550$
Exchange B: 1 BTC | 550$ 

Arbitrage — Why everyone's not doing it

This all sounded wonderful? That's exactly what I thought when I first set out with my own arbitrage bot. However, there a some technical aspects that can really turn a sunny day into a poopy rain on your parade.

Caveats and risks

1. It needs to be as close to real-time as possible

This is possibly one of the hardest things to get right, and also the most underestimated aspect of arbitrage in crypto currency. The markets, compared to ForEx trading, are ridiculously slow — at busy exchanges, there may be a couple of dozen trades executed. Which gives the illusion, that polling data for bots via the most common API type, RESTful, is enough to trade risk-free. This is a misconception. Maybe for today this may appear to be enough — but what if markets picked up the pace? just 1 trade (or simply a placed order) within one second can change your opportunity from profit to loss.

2. Always trade limits, never market orders

Under the aspect of being the fastest, it might seem like a good idea to use market orders in order to be settled asap — you'd be terribly wrong. As discussed above, your data could be as old as 1 second (with above mentioned one order messing up your opportunity) — perhaps someone cleared the entire top level and all you're left with is a bid for twice the price you intended. Yikes.

3. REST API call rates make your life hard

Many exchanges employ a API call rate limit — that is, you're allowed to query data at the exchange X times every Y seconds. The differences are wide and nearly every exchange does its own little thing when it comes to limits. The problem with them is, they severely limit your actions. If you don't constantly keep an eye on how often you send a request, you might run into the limit when it seriously counts — for example when you have to cancel an order, because you couldn't place its counter part at another exchange. Unfortunately, websocket APIs are still rare and their brother on steroids, FIX sockets, even rarer — leaving you stuck with the turtle of programmable interfaces.

4. Integration with APIs can be a nightmare

There is no unified, standard definition for what an exchange API can do, or what data it returns. Which technically wouldn't be a problem, if they were documented properly. Incidentally, the exchanges with seemingly many opportunities also have the worst documentation (take btc-e.com's Documentation for example — heresy!). Of course, also the opposite is true — GDAX, Kraken, Bitfinex all have excellent documentation. But nonetheless you have to dig through them to understand how they work, what their rates are, how they handle data types, authentication and so forth. That is, if they even mention anything about that.

5. Fees will minimize, if not eliminate your profits

In my above step-by-step guide, I purposely omitted fees of all kind. But of course, they're essential to successfully arbitraging. The most commonly known fees, are trade commission fees — these range anywhere from 0.1% to 0.6% and need to be considered in Step 1: Find a suitable Opportunity. On top come fees for deposits and withdrawals during Step 3: Rebalancing Accounts. Depending on your preferred pair, these may range from feasible (transferring crypto currencies usually is cheap enough) to quite steep. For example, a deposit / withdrawal at Bitfinex entails the following fees:

Bank wire withdrawal & Deposit: 0.1% of amount deposited/withdrawn, 20$ minimum
And this does not include processing fees of your house bank — for me, for example, that's an additional 10€ for deposits, plus a 1% conversion fee. If you do the math you'll quickly realize that you don't even have to bother starting to trade at Bitfinex, unless you have a really big stack to trade with.

But this does not just apply to BTC-Fiat pairs. Alt-coins suffer a similar fate. In order to make arbitraging worthwhile, you will have to have enough funds at as many exchanges to make trades AND re-balancing worthwhile. And this quickly gets to a point where you realize your last month's savings aren't equipped to get the job done.

To give you a further example on how fees affect your profits, let's take a look back at the example from step 2, this time factoring in all fees. I'll walk you through it. For the argument's sake, we'll pretend to be a european trading BTCUSD at Bitfinex (Exchange A) and Kraken (Exchange B).

Bitfinex: Ask 1BTC@450$
Kraken: Bid 1BTC@550$ These prices are raw- they do not include trade commission fees, not transaction fees. Let's add those….

We'll define a taker fee of 0.25% at both exchange — the taker fee applies whenever you remove liquidity from the order book. Next, let's add deposit & withdrawal fees to the mix. At Bitfinex, we pay a minimum of 20$ for each fiat withdrawal & deposit, or 0.1% of the moved amount (if its more than 500$). At Kraken, we pay 0.09€ per fiat withdrawal, deposits are free. In addition, btc withdrawals cost 0.0005 BTC at kraken, while Bitfinex charges no fees for this. Deposits cost nothing at both exchanges. Furthermore, we can't transfer fiat directly from exchange to exchange — an additional 10€ fee per sent out transaction needs to be facotred in, as well as 1% conversion fee whenever we receive or send fiat from our bank account (2 times total).

Let's list these fees to try and maintain an overview

  1. Profit from arbitrage (bid — fee — ask + fee )
  2. Withdrawal Fee Bitfinex (20$)
  3. Deposit Fee Kraken (0.0$)
  4. Miner Fee for withdrawal at Kraken (0.0005BTC)
  5. Transaction Cost of our house bank (10€) (Bank to Bitfinex)
  6. Conversion Fee of our house Bank (1% of transfer amount x 2)

Let's put some numbers to these:

  1. (550 — 550*0.0025) — (450 + 450 * 0.0025) = 97.5$
  2. Move ~497$ to House bank = 20$
  3. 0.0$
  4. 0.0005BTC * 500$ = 0.25$ # Assuming this is the end of day price of the coin
  5. 10€ * 1.05 = 10.05$
  6. (497 * 0.02) = 9.94$

Which brings us to net profit of: 57.26$ This translates to 42.74% reduction of your originally seen profit.

This is neither a worst, nor a best case scenario — it's merely designed to show you how many hidden fees are involved in an arbitrage. Also, keep in mind that a 22% arbitrage opportunity is practically non-existant.

As a matter of fact, had the spread been anything less than 40$, the fixed fees of our house bank and Bitfinex alone would have made our supposed arbirtrage opportunity a loss.

6. Volatility of coins is your enemy

"No matter where the market goes, arbitrage makes a profit anyway!"

This is true — if your currencies don't tend to drop or rise by 50% within 24 hours. Ideally, both currencies you trade in should be relatively stable, while still showing a certain volatility — no volatility would mean the chart is a flat line, resulting in no opportunities for you.

The problem with pure crypto currency arbitrage (LTCBTC), however, is that Alt-coins can go completely fubar — as opposed to a fiat-based crypto arbitrage (i.e. BTCUSD). A personal anecdote:

When ZEC launched, I was instantly fascinated at the terrible market efficiency and arbitrage opportunities of almost 5% regularly. Hence, I bought in at 1ZEC@1.2BTC, thinking this is probably where market will stay at (at least it's not as bad as the guy who bought a ZEC for 3k BTC). I started arbitraging and immediately increased the amount of ZEC I was holding — completely oblivious to the fact that since I started trading, the price had fallen to 1ZEC@0.1BTC. My ZEC was worth 90% less, and I lost almost half a bitcoin worth of money.

Some volatility is great for arbitrage — too much volatility isn't.

7. Exchanges aren't as technically robust as they ought to be

Most of the time, you will find that smaller exchanges offer opportunities more often than big exchanges. This is in part due to the previously mentioned slow movement of information, but also their (often significantly lower) trading volume. Initially, this may appear like a steal — but there's usually a reason that particular exchange only has the low volume it currently does.

In a time where any one in the world can open up an exchange running on his raspberrypi and Ethereum, trading on the more alternative exchanges can be a serious risk to your investment.

From things like DDOS attacks and overloaded matching engines not matching your orders, to more serious issues like stuck withdrawals due to too low miner fees, or even theft — and the latter is a very omnipresent issue not exclusively affecting small exchanges, as the Bitfinex Heist has shown this summer; the list of potential technical failures is long and you should be aware of these at all times.

Conclusion

I'm aware this answer is overtly negative — this was intentional. Arbitrage, as well as crypto currency in general, is not the quick buck everyone on forums and dubious sites advertising trading bots make you believe. While its inner mechanisms and workings are still quite cryptic* to even the most professional traders (sorry for the pun), even the fabled cryptographic adheres to some basic principles, afterall. The 'quick way to wealth' usually will just end up quickly making you wealthless.

Start by opening up some of the well known exchanges … do not use ones such as localbitcoins .. far too risky. A good one is OKCoin.com as they have a good verification system.

(*) Another great myth is that the chinese dictate the BTCUSD market. There is no empirical proven correlation between chinese and american markets. The only defacto correlation that has been found was that of google searches for bitcoin to btc trading volume — but whether this was positive or negative was inclusive.

If you believe that my message is worth spreading, please use the share buttons if they show on this page.

Stephen Hodgkiss
Chief Engineer at MarketHive

markethive.com


Alan Zibluk Markethive Founding Member

Georgia Records 100,000 Land Titles on Bitcoin Blockchain: BitFury

Georgia Records 100,000 Land Titles on Bitcoin Blockchain: BitFury

  

Georgian government and the Bitcoin company BitFury

In April 2016, the Georgian government and the Bitcoin company BitFury initiated a project to record land titles on the Blockchain. Following the project initiation, on Feb. 7th, 2017, in Tbilisi, the government of Georgia signed an agreement to use the Bitcoin Blockchain to verify property transactions.

And on 19th of April 2017, Valery Vavilov, CEO of BitFury during his speech at the Russian Internet Forum in Moscow, said, that since the launch in February 2017, when his company along with the government of the Republic of Georgia implemented the property registration on Blockchain had registered more than 100,000 documents.

Earlier this year, Tomicah Tillemann, Trust Accelerator co-founder and New America director of the Bretton Woods II program, commented about Georgia’s decision to use the public Bitcoin Blockchain:

“If you think about this happening at a time when a lot of people are struggling to separate what’s real from what’s fake, this is a powerful tool to prove what’s real. Especially when you’re dealing with something as fundamental as your home or property, it’s important to have that added layer of security that’s provided by Blockchain validation.”

Vavilov also said, that there is going to be more services to follow. Since Blockchain implementation, there is no possibility to manipulate the property registration data. It is not only a government implementation deal for BitFury, on April 13, the Bitfury Group has announced its partnership with the government of Ukraine, to bring a variety of Blockchain solutions to the electronic services of the latter.

Chuck Reynolds
Contributor

Alan Zibluk Markethive Founding Member

Blockchain Is Helping to Build a New Kind of Energy Grid

Blockchain Is Helping to Build a New Kind of Energy Grid

Using the technology behind Bitcoin, participants in the Brooklyn Microgrid are buying and selling locally generated renewable energy over a peer-to-peer network.

If you have solar panels

that produce more energy than you need, you can sell the excess to a utility company. But what if you could sell it to your neighbor instead? A company called LO3 Energy has developed a system that lets people buy and sell locally generated solar energy within their communities. The system uses blockchain—the electronic ledger technology that underpins the digital currency Bitcoin—to facilitate and record the transactions.

Distributing energy this way is more efficient than transmitting energy over distances, said LO3’s founder, Lawrence Orsini, and would make neighborhoods more resilient to power outages, as well as helping meet demand when energy needs exceed expectations. It’s also in line with growing public support for renewable energy, distributed and decentralized energy systems, and “buy local” programs in general. At Business of Blockchain, a conference organized by MIT Technology Review and the MIT Media Lab, Orsini said that 69 percent of consumers told the technology consultancy Accenture that they were interested in having an energy-trading marketplace, and 47 percent said they planned to sign up for community solar projects.

LO3 Energy launched its peer-to-peer energy transactions system, which it calls the Brooklyn Microgrid, about a year ago. The miniature utility grid connects people who have solar panels on their roofs in several parts of Brooklyn with neighbors who want to buy locally generated green energy. Like other microgrids, it operates alongside, but separate from, the traditional energy grid. Blockchain makes the Brooklyn Microgrid possible, Orsini said. Participants install smart meters equipped with the technology, that tracks the energy they generate and consume. Records of the automatic “smart contracts” that enable neighbor-to-neighbor transactions are also tracked using blockchain. LO3 Energy hired the software maker ConsenSys to build the system, which is based on the blockchain-based distributed computing platform Ethereum.

“Blockchain is a really good communications protocol for what we want to do,” Orsini said at the conference. “This isn’t just about settling energy bills,” he added. “It’s about self-organizing at the grid edge, which can’t be done with normal databases.” Could microgrids like this shake up the energy industry? At the moment, Brooklyn Microgrid consists of only 50 physical nodes, but Orsini signed a partnership with German conglomerate Siemens in November and is talking to regulators in the U.S., Australia, and Europe about expansion. He is also willing to collaborate with utilities. “We’re not putting the utilities out of business, but we want their business model to evolve,” he said.

Chuck Reynolds
Contributor

Alan Zibluk Markethive Founding Member

What Blockchain Is, And Why Some Experts Say It’s As Revolutionary As The Internet

What Blockchain Is,
And Why Some Experts Say It's As Revolutionary As The Internet

  

IBM Blockchain user interface designers

Dante Guintu, left, and Andrea Lee work on secure blockchain apps at IBM San Francisco in February 2016. (George Nikitin/Feature Photo Service for IBM, via AP) Tech experts say it's the next major revolution that could change our lives as drastically as the internet once did. (I know, it's hard to fathom, but try to think back to card catalogs.) It's called "blockchain" and was the subject of a recent event organized by the MIT Technology Review. If you're not familiar with the concept, read on. We hope to answer some basic questions.

What is the blockchain?

If you've ever tried to run a business, you're probably familiar with the idea of a ledger — a written list of transactions (think Excel or an old-school balance sheet in a binder). Essentially every multinational corporation or small Mom and Pop business uses ledgers to track sales and expenses.

In the most basic form, a blockchain refers to a shared digital ledger. "It's a global ledger that can record any transaction, and it'll keep that transaction and all the details associated with that transaction secure," explained Jalak Jobanputra, who runs Future Perfect Ventures, an early-stage venture capital fund that focuses on investments in blockchain technology. And by having this system digital and public, blockchain advocates say it makes it easier to prove, track, trust and audit transactions.

The Buzz Behind 'Blockchain'

Blockchain got its start as the underlying technology behind Bitcoin, a decentralized digital cryptocurrency created in 2009. But while Bitcoin has had ups and downs over the years, for Neha Narula, who leads the Digital Currency Initiative at the MIT Media Lab, Bitcoin proved it was possible to send payments from one person to another securely without a "trusted third party." "We just quite simply hadn't seen that before," Narula said. "We'd never seen digital money transfer without a bank being involved and now we see it. And it's pretty cool and it's given us a lot of ideas for other things we could do."

Why is this tech considered so revolutionary? 

Tech experts say the blockhain can be used for so much more than Bitcoin. For example: It's being used by a startup called Everledger to track diamonds (so fake rocks and blood diamonds can be found more easily); it's being used by Walmart and IBM in China to track pork (so recalling contaminated food would be easier to handle); and it could be used in our modern banking system (so that you could more easily and securely transfer money between bank accounts).

It's the potential to cut out the middleman and create a digital record, more than the current reality of Bitcoin, that excites tech experts. "In a world where we trust our institutions less and less, having technologies that help us conduct business and get things done without needing to depend on central third parties seems ever more important," said Brian Behlendorf, the director of hyperledger, an umbrella project for open source blockchains.

Many companies and startups compare the blockchain world to the early days of the internet — it's decentralized and permission-less. "It's in some ways a little less sexy, a little harder to understand [than the internet], but for the people who get it, this suddenly becomes exciting," said Behlendorf, who believes this technology will revolutionize transactions the way the internet revolutionized communication.

OK, so if this is akin to the early days of the internet, where are we in that timeline? 

I asked this question to a few different people working in the blockchain arena, and here's what they said.

Behlendorf:

I'd say it's '95/'96, we're still before seeing a lot of return on the investments people are making in this space … but the value is becoming evident … but even in those early days, there was still this — why should we bother? Why should we make this happen?

Amber Baldet, who leads blockchain efforts at JP Morgan:

I don't think it's the '90s, I think it's closer to the late '60s. I keep a diagram behind my desk of ARPANET in 1969 … the proto-internet of these kinds of closed networks at the time that were completely academic. And those architectural diagrams look remarkably similar to the pilot … diagrams that are connecting a couple of banks [in a blockchain]. So I think we're really in that early of a days of the internet. But if you accept that the rate of technological change has increased … we'll probably see an explosion of innovation within the blockchain space over the next five, 10 to 20 years.

Narula:

I think we're actually in the '80s, we've got a ways to go. And what I mean by that is we're still figuring out some really basic underlying protocols. … This is the stage where there's a bunch of nerds sitting at Berkeley and MIT and CMU and UCLA who are sending each other emails, that's the stage we're at.

But for Narula, there's one key difference that makes this moment kind of "weird" and "scary." "Back then it was a bunch of scientists, you know, working in universities and government-funded research labs. No one was paying attention," she said. "Now, you've had all this attention … every major bank has people focusing on a blockchain." Experts say roughly $1 billion of venture capital money went toward blockchain startups in 2015. And Narula's not sure what that investment money means for the technology.

Blockchain bubble? 

Back in 2014, Felix Salmon, a financial journalist, and a high-profile Bitcoin skeptic, made a bet on NPR's "Planet Money" that bitcoin was a bubble that would burst. It hasn't popped yet, but it also hasn't become commonplace. According to the 2015 Survey of Consumer Payment Choice by the Federal Reserve of Boston, less than half of Americans had heard of any form of virtual currency. (Here's more from the Boston Fed on awareness of virtual currencies.) Still, even if Bitcoin fails, it's the underlying technology that could be resilient and revolutionary.

But how revolutionary is the question? Earth-shattering or just merely important. "The Bitcoin client is about 30,000 lines of code," Emin Gün Sirer, a professor at Cornell University, said at the MIT Tech Review conference. And he points out that in general code is "buggy." Gün Sirer has been researching ways in which the blockchain can fail. And while he believes blockchains "offer a completely different way of looking at the world and completely transforming it," he's also concerned some of the million-dollar VC funding is hype.

Chuck Reynolds
Contributor

Alan Zibluk Markethive Founding Member

European Commission Backs Blockchain Pilot With €500k Budget

European Commission Backs Blockchain Pilot With €500k Budget

  

The European Union’s executive branch

is establishing an "observatory" focused on blockchain as part of a wider pilot project. Unveiled earlier this week, the initiative, according to the European Commission, seeks to to "gather opinions and to voice concerns around Blockchain and DLT". The Commission plans to solicit proposals from possible partners during the second quarter of this year.

Late last month, the Commission revealed that it would seek to improve its institutional knowledge through the pilot, operating in tandem with a task force created by the European Parliament last year. The announcement includes some new details about the pilot, including its two-year duration and its €500k budget. And while the scope of the project centers primarily on education, there do appear to be some practical elements, including a plan to "build and animate a platform for the European blockchain community".Ultimately, the pilot could lead to new policies in the EU centered around blockchain.

As the Commission explained:

"The purpose will be to inform and assist the European Commission in understanding what role — if any — European public authorities should play to encourage the development and up-take of these technologies and to formulate related policy recommendations."

Whether any of the tests translate into actual applications of the tech by the Commission remains to be seen. However, according to the announcement, the body said it wants "explore possible use cases with a value added at EU level" — indicating that such approaches are possible.

Chuck Reynolds
Contributor

Alan Zibluk Markethive Founding Member

Blockchain: A Technology Whose Time Has Come

Blockchain:
A Technology Whose Time Has Come

  

They thought I was nuts…

It was 2003. I was moving from my retail money-management business to managing an exclusive hedge fund. My parting gift to my retail clients was Apple (AAPL). But not everybody was on board. When I told them about Apple, they thought I was crazy… Many of my clients were skeptical. I understood why. At that time, Apple was trading at the same price it had been in 1982. The stock price had done nothing in 21 years.

But I knew Apple had a new technology in the pipeline… It was the iPod. Up until then, you could only use the iPod on an Apple Mac. In 2002, Apple announced that it was finally rolling out a PC version.

This was a huge shift…

All of a sudden, the hottest music player in the world would be available to the biggest pool of technology buyers in the world. This was a no-brainer investment. Why didn’t everyone jump on it? The reason is simple: Apple was deeply misunderstood. People saw the iPod as a niche product. I saw the iPod as the next generation’s Walkman. (The Walkman was a personal cassette player made by Sony. It dominated the 1980s.)

The clients who believed in me had the chance to make a small mint.

Over the next decade, a $10,000 investment would have ballooned to nearly a half-million dollars. The iPod was once a disruptive technology. It almost single-handedly killed off the compact disc (CD). It was one of those rare opportunities to make a fortune on a truly groundbreaking idea. Now, I don’t recount this story to brag… I want to show you why it’s so important to get into a revolutionary idea as early as possible.

The results can be life-changing…

For a while now, I’ve been on the soapbox preaching the virtues of cryptocurrencies. I’ve been so bullish on them that I’ve even received letters from my subscribers calling me “obsessive.” And that’s fine. I understand why it may seem that way to you.

But consider this…

I had to drag my retail clients kicking and screaming into Apple back in 2003. If I wasn’t so “obsessive” then, they would have missed out on the iPod 49:1 money train. So there’s a reason for my bullishness. I don’t want you to miss today’s opportunity before it slips away. And time is running out… The game-changing technology I’m referring to is called the blockchain. The blockchain is the backbone of the cryptocurrency industry. It tracks the transactions of digital money like a traditional ledger tracks bank transactions.

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Here’s why the blockchain will be so revolutionary…

Today, it’s the transaction system for the burgeoning digital currency industry. But soon, you’ll be able to conduct all kinds of other transactions on the blockchain — from trading stocks to buying real estate. And you’ll be able to do it in a fraction of the time and cost that it takes to do them today. Here’s an example of what I’m talking about… Last September, I told my readers about the first international trade deal ever conducted over the blockchain. The trade was facilitated by Barclays Bank. It involved the purchase of $100,000 in butter and cheese.

What’s so amazing about this rather mundane trade?

Normally, trades like this take an average of 10 days to complete. They require hundreds—sometimes thousands—of documents to be signed. But Barclays completed the trade using the blockchain in a mind-blowing four hours. The finance trade industry conducts $2 trillion in transactions each year. It’s more than 400 years old. And the blockchain completely changed the game in four hours. Think of all the savings (and reduced paperwork) this new technology will create for the industry.

That’s what a disruptive technology looks like.

But not everybody recognizes it yet. Just like they didn’t recognize how disruptive the iPod would be. The mainstream media hasn’t picked up on the blockchain yet. And few in the public even know what it is. (Ask your family and friends if they’ve ever heard of it; the answer is likely “no.”) So now is the perfect time to get in: when the technology is about to take off… but right before the herd comes storming in. If you wait too much longer… you’ll be too late.

Not convinced this technology is set to explode?

Well, there’s more… Events are unfolding quickly. In addition to the Barclays trade in September:

  • The Depository Trust & Clearing Corporation (DTCC) announced that it would start replacing its databases with bitcoin-based blockchain technology. (DTCC handles $11.7 trillion in credit swaps alone.)
  • Global accounting firm KPMG has launched blockchain services for banks and other financial institutions.
  • The Sydney Stock Exchange has declared its intention to move to blockchain settlement.

And that’s just a small sampling of what’s going on right now, “hidden in plain view.” The writing is on the wall, as they say. The blockchain is rapidly becoming a reality. Soon, the mainstream media and public at large will be hip to it. But by then, the upside will be gone… So the timing is urgent. That’s why I’ll continue to pound away until more investors like you realize this opportunity… Just like I did with my clients back in 2003 until they saw the light about Apple.

If you’d like to play this trend, I recommend you buy a small amount of bitcoin. Many of the blockchain technologies arising today are based on Bitcoin’s technology. But Bitcoin isn’t the only blockchain I’m currently bullish on. There’s another one that’s poised to become the “next Bitcoin.” It runs on a new blockchain — a “blockchain for everything” — created by a former Bitcoin programmer.  And major tech titans IBM, Samsung, and Microsoft have bought in (Microsoft “greenlighted” millions of developers to work on it).

Chuck Reynolds
Contributor

Alan Zibluk Markethive Founding Member

What’s keeping Cryptocurrencies from mass adoption? — Part 2

 

What’s keeping Cryptocurrencies from mass adoption? — Part 2

Official Local Exchanges

Having to look other users in the eye can make a world of difference. Face-to-face exchanges at trusted locations means that the sale of a coin can be more easily limited, and this can act as a throttle to gauge demand. People on the “front lines,” seeing the real demand for the coin in person, can then vote to increase the price. Having stable locations to exchange the currency also creates consistency. It removes the guessing game of wondering where you can buy and sell your coin.

The advantages are not just purely economic, either. Cryptocurrencies don’t exactly have the best reputation thanks to their penchant for attracting unscrupulous people. Unethical or illegal businesses will tend to be voted out of cooperative networks with face-to-face exchanges, however, which can go a long way towards legitimizing the currency. It would still be possible to run such enterprises of course, but they would never be part of the co-op.

Local Exchange Dominance

This kind of approach can only work if there are dramatically more local exchanges than online exchanges. It would mean that the local exchanges would dictate the pricing of the currency.

Marketing Early Can Be Disastrous

Marketing is a powerful force, and as such it needs to be handled with care. On the one hand, founders naturally want to attract investment early on. This will raise the price of the coin and help pay for infrastructure, as well as boost the growth of the coin. On the other hand, historically the earliest investors in cryptocurrency have been extremely low quality—they are the speculators who doom the currency in the long run and scare away mainstream users.

With speculation, capital infusion is needed to keep the currency stable, which can be a significant task. Take Bitcoin for instance: With a market cap of roughly $20 billion, it would need a huge amount of capital to have a stable floor.

low and Steady Wins the Race

Cryptocurrencies are still in their infancy, and it’s hard to tell where the path for most of the major currencies is headed. What is the “finish line” that they are aiming for? What will the end game be?

Most cryptocurrencies have little direction besides the whims of the market, so there’s no telling where they will end up. However, there are a handful of interesting coins that have invested in strategies that nudge them in a specific direction.

The Central App Coin Method

This is a strategy that is centered around creating value with unique products and services that are associated with the currency. In this way, you could say that the currency is backed by something that people actually want.

For example, the MaidSafe network incentivizes users to provide something of value to the network (storage space), and offers the use of apps and services in return for coins. This naturally leads to better cooperation. People want to create value and channel their efforts towards the growth of the currency that they have in common.

The Setup and Switch Metho

Similar to the central app strategy, this method establishes a user base first, and then introduces the currency. Bitshares and its array of associated startups is a good example of this. Several networks with varying currencies—Steemit and their STEEM currency, Peerplays and their tokens, for instance—slowly built their user base and value exchange system, and now they plan to adopt a central currency with Bitshares. This allows them to create a stable base first before pooling their resources.

The Grassroots Movement

Finally, the best way for a currency to create that all-important foundation of true users is through bootstrapping. Just like a business startup, a currency like this would need a user base that believed in a common mission. It would need everyone in the system to be able to see the inherent value of the coin, and to understand that it could be worth much more than the value it is traded for in its early stages.

An example of one of these grassroots efforts is FairCoin. It’s a currency established and led by FairCoop, whose strategy is to build an ecosystem where businesses cooperate to give users maximum value. It is a currency built from the ground up to incentivize the long-term interests of users instead of their short-term greed—not just because it’s the right thing to do, but because it makes sense.

FairCoin focused from the beginning on building infrastructure for everyday users. Because of the strong relationships among members of the co-op, they can have thousands of ATM’s, debit cards, and exchanges that make mass adoption much easier.

An approach like this allows the currency to slowly build itself in the background without the need for a spotlight and the barrage of speculators that come with it. This offers the huge advantage of stability from the very beginning, though it does pose the problem that FairCoin has to bootstrap with less capital than most coins. Unlike other cryptocurrencies, they can’t rely on CoinMarketCap to sing their praises by displaying artificially rising prices (the effects of speculation).

In other words, FairCoin traded the excitement of volatility and greed for a quiet, long-term stability. The only problem is that people might not notice! Drama catches the human eye, after all.

Hard Forks

Let’s take a look at the hard fork that looms in the horizon for Bitcoin. As if things weren’t complicated enough, now there could be two competing chains for the currency. There are already many technical barriers to Bitcoin’s adoption among mainstream users, and this is yet another one. This makes the price even more uncertain, and uncertainty is like poison for a currency.

On the other hand, if you have a large community and a co-op on top of an immutable blockchain, then a hard fork is extremely unlikely—and unnecessary. Cryptocurrencies like MaidSafe, Bitshares, and FairCoin all represent solid communities that are incentivized to cooperate instead of speculate. This means that the coin can be worth more than its market price; it has a high inherent value within the system itself.

This makes it so that users have very little reason to defect from the existing community. A hard fork would mean giving up many benefits of the co-op, so people stay loyal to the original vision of the currency. When something deeper than just greed ties a community, hard forks don’t occur as often.

Conclusion

Stable prices don’t just happen by accident. They are not a miracle of the market—they require a carefully constructed foundation. A stable currency needs a stable ecosystem first.

While it’s tempting to market the currency too soon because capital injection can do a lot to raise prices in those critical early periods, it’s better to wait. Advertising is like opening up Pandora’s box and inviting the world to look inside. Some of those users will be interested in the actual currency, but others will be undesirable speculators that just leech off the system. For a currency to be stable, it needs to be used by “the 99%,” not just a handful of investors.

A currency needs to grow with the people, not past them. Look at the state of Bitcoin and its inflated prices. The everyday person can no longer either mine the coin or expect to use the coin in everyday transactions without high fees or risk. It has been given up to the speculators.

With a truly stable currency, on the other hand, you can have currency conversion, remittance, ATM withdrawals, and other financial services with lower fees than fiat systems. In other words, it can be used as intended—as money. This is what will ultimately attract a mainstream audience and will actually incentivize them to make the switch to cryptocurrency.

David Ogden
Entrepreneur

Alan Zibluk Markethive Founding Member