2019 April 08 - Volume.3 Issue.10

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2019 April 08 - Volume.3 Issue.10

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Fungibility Woes Threaten to Unravel Bitcoin’s Throne

Diar sits down with Bitcoin advocator and educator Andreas M Antonopoulos at the Deconomy Conference in South Korea and discusses the potential as well as the challenges that the cryptocurrency faces. Mr Antonopoulos is of the mind that while ease of use will slowly be addressed, no threat might be greater than the insufficient levels of privacy and fungibility Bitcoin currently offers. And while developers have tabled numerous possible solutions, delays in the introduction of the proposals into the base layer could be detrimental to the major.


Bitcoin supporter Andreas M Antonopoulos sat down with Diar in a frank and sober discussion about the predictable, and the unpredictable paths that the king of cryptocurrencies could see as adoption has yet to pick up more allure despite falling onto the world stage in recent years.

Failed-state regions meet the criteria for the necessity of Bitcoin’s propositions as a transferable censorship-resistant store-of-value due to political instability and financial infrastructure failures that constrain fund movement and devastate savings due to hyperinflation, Mr Antonopoulos argues.

But while development continues its attempt in addressing key areas that would assist Bitcoin in adoption beyond the investment mentality, all of the cryptocurrency’s benchmark propositions remain problematic for real and embedded use in the developed world.

“The ease of use has not reached parity with other financial services so there is no motivation to use cryptocurrency. Adoption remains, for the most part, limited to disaster countries where the difficulty of using cryptocurrency is less than the difficulty of not using it because of crisis. So, it finds a niche.”

|| BREAKING BITCOIN

While usability and private key management complexities are certainly a hindrance to adoption today, Mr Antonopoulos frets larger problem areas. The possibility of Bitcoins being blacklisted due to the fact that they have been part to illicit and nefarious activities could result in parallel markets breaking the cryptocurrency’s parity from within. “Tainted coins are very destructive. If you break fungibility and privacy, you break the currency.”

“If [fungibility] is not fixed, it is possible to attack Bitcoin in ways we haven’t seen yet and that could prove very effective. You could see a rapid evolution of Bitcoin in a privacy direction or even replacement by other privacy cryptocurrencies” Mr Antonopoulos added.

Zcash, Monero and other privacy geared coins already on the market have the necessary codebase to avert the possibility of a fractured supply.

|| POWERPLAY CONCERNS

“There is a whole series of solutions. The question is will we be able to get those introduced into the base layer without another political rift.”

But even if politics proves to be moot in adopting new privacy elements into Bitcoin, time might certainly be a concern. It was only a short few weeks ago, over 10 years on from Bitcoin’s release, that Blockstream, one of the companies active in Bitcoin’s development, released public code for testing of a possible solution that would increase privacy. How long it will take to implement a stable version into the base layer could take years.

|| TAINTED LIES IN THE EYE OF THE BEHOLDER?

Chainalysis, one of the largest on-chain cryptocurrency analytics firms in the space that has secured multiple government contracts and cryptocurrency exchanges look at “dirty” Bitcoins quite differently in their own effort to avoid such a stigma.

Chainalysis’ Chief Economist Philip Gradwell tells Diar at the sidelines of the conference that when “a high-risk account goes through regulated services that conduct KYC & AML, the Bitcoins are effectively labeled as safe. The taint is not at the level of the coin, it’s at the level of the service. The risk is about the people you’re dealing with, rather than the coins you happen to hold.”

|| WHO DECIDES?

But definitions are certainly different from practice. Should the Bitcoins users own end-up at the negative judgment of exchanges for illicit activities that they were not party too, the ability to transact with the option of settlement finality into fiat effectively disintegrates any desire to use the cryptocurrency.

Bitcoins that have had exposure to gambling have proven to be problematic with reports of major US-based exchanges closing accounts. Chainalysis numbers estimate nearly $1Bn in gambling activity for 2018 - approximately 136k Bitcoins on the lower bound.

And Bitcoins that have been stolen mark north of 10% of the circulating supply, although, some Bitcoins have been "cleaned" following auctions of seized coins by authorities.

|| SAFE, BUT FOR HOW LONG?

Diar sources who operate mining hosting services in China and Washington State say that while some requests for newly minted coins do happen, they are seldom and inline with market prices with little to no premium on the “clean” coins (Diar, 12 February 2018).

But past events don’t dictate future outcomes. “The concern already exists, although it has yet to translate into broad market impact” Mr Antonopoulos concluded.


Institutional Bitcoin Trading Volumes Move Back into Growth

A recent report by asset management firm Bitwise has dropped ice water on the reported trading volumes of cryptocurrency exchanges. While long has this been known, its official delivery to the US Securities and Exchange Commission (SEC) marked an important turning point in the perception of how liquid markets really are.

Institutional products have now moved into growth for the 4th month in a row hitting new highs against US-based exchanges as a % of total trading volume. Currently, this is almost 8% more than when Bitcoin hit its price peak in December 2018.

While CBOE is by and far this biggest loser, Grayscale's Bitcoin Investment Trust (GBTC) traded on the OTCMarkets has also lost its dominance. At the start of 2018, GBTC accounted for over 50% of the market share across the three institutional products, now standing at under 24%.

CME Makes Gains as CBOE Delists Bitcoin Futures (% Share)

While a decline in price hasn't translated in new demand overall ($)...

...Institutional Products are on the rise month-on-month (%Share)


TrustToken Pegs Brexit Hopes

The stablecoin bonanza has yet to deliver even a glimpse of the adoption promises made when investors poured in over a quarter billion dollars into multiple projects last year (Diar, 25 July 2018). But Rome was certainly not built in a day and awareness only really came along last October when Gemini, Centre, and Paxos all launched their fiat-backed stablecoins almost in unison following a confidence crisis in Tether.

TrustToken which was one of the few options available during the start of 2018 has now released a stablecoin pegged to the British Pound. Funds remain however in a US-based escrow account, not in the United Kingdom.

|| CAPITAL CONTROLS BACKDOOR?

Should the UK who is on the brink of a bitter divorce with the European Union place any capital controls to avoid deposit flight in the case of a No-deal Brexit, there could be a small window of opportunity for the stablecoin to find an audience facilitating trade as cryptocurrencies prove relief in areas facing financial difficulties (see top story).

Iceland, Cyprus and Greece, all members of the European Economic Area (EEA), have faced capital controls in recent years grinding international trade to a near halt. Banks saved, but economies felt the recession.

This is, however, conjecture. Without such a pressing event, and the required guerilla marketing tactics highlighting the option, the addition of GBP into the token issuer’s portfolio is unlikely to bring any benefits in the short-term as stablecoins remain, for the most part, a trading tool. And the British have yet to become avid fans of cryptocurrency based on global trading volumes.

|| BUILDING BLOCKS

More fiat-pegged cryptocurrencies are inevitable and TrustToken's GBP seems timely and opportune. With all things being equal, however, the addition will only serve as the base-architecture that could appeal to traders when and if TrustToken is able to follow through on its vision of issuing more interesting world-class assets that the blockchain is hungry for such as stocks and precious metals. That though does require the slow moving green light by regulators.

Asia's Muted Return with IEOs

No country has been as back-and-forth on their cryptocurrency regulatory outlook than South Korea when it banned Initial Coin Offerings (ICO) all the while having lawmakers push for its legitimization at the very same time. But exchanges in the country have found themselves a technical loophole with Initial Exchange Offerings (IEO) eyeing several rounds, raising smaller amounts across multiple exchanges.


Last year South Korean regulators sowed cryptocurrency market havoc as regulators issued competing statements on whether or not the country would ban trading (Diar, 22 January 2018). The regulators ultimately took a timid approach like counterparts abroad requiring exchanges to comply with strict Know-Your-Client and Anti-Money Laundering requirements.

This was the second step after the nation had banned ICOs in 2017 following China’s anathema to the crowdfunding method.

But both countries, China and South Korea, currently seem lax on the prospect than regulations propose. South Korean exchange ProBit launched their fundraising platform in February 2019 and have now raised over $2Mn across over 20 Initial Exchange Offerings (IEOs).

|| SMALL CAP, LESS PRYING EYES?

The capital raise concept, though, has been diluted and tweaked with developers now eyeing smaller amounts and going through the cycle again, or potentially on another exchange entirely.

Esmond Hwee, Strategic Partnership manager at the Seoul-based exchange tells Diar that it remains unclear “how sustainable this is. But what we are looking at right now is a much better regulatory environment than before.”

The same can be said for BW.com, a Chinese based exchange who tells Diar that beyond their mining operation in the country, they too have launched an IEO platform despite the ban from Beijing. The company has over 600 employees and their exchange feeds into the questionable volumes of ZB.com, that also attracts liquidity from OKEx and Huobi.

EDITORIAL BY FADI ABOUALFA - @faboualfa

Token Taunting Takes Top Tab and Stab at Deconomy 2019

Despite seeing nearly 2000 people visit the 2nd Deconomy conference in South Korea, business deals on the sidelines seemed near non-existent. The lack of opportunity unsurprising given the current bear market, plethora of failed projects and the minimal adoption in even the most promising of use cases and applications now on-chain.

Presentations from “shills” needed no label or clear warning as the audience seemed fairly uninterested and quickly understood the poor database-equivalent ‘sleight of hand’ magic they were about to painfully witness.

Panel discussion had a somber tone.

|| ALWAYS IN DECLINE, NEVER HITTING BOTTOM

Seoul may have been in Cherry Blossom bloom, but the long-term fundamental outlook of cryptocurrencies across the board was nothing but clouded, although, exchanges based in the Asian peninsula seem to be chirping a different tune with the resurgence of a banned-but-not-so-much-banned-after-all Initial Exchange Offerings (IEO) (see story above).

|| REWIND, PRESS PLAY

Unlike last year’s bitter-toned debate between bigger block size supporter Roger Ver and Blockstream’s Samson Mow, this year’s highlighted and anticipated debate between Ethereum founder Vitalik Buterin and the outspoken IMF advisor Nouriel Roubini showed no more than a civil and almost gentlemanly discourse of opposing opinions and forward-outlook. Arguments from both sides had been heard before – record, remember, repeat - so to speak.

|| KLASS ACT                                                                                                    

What did make an impression was the presentation of Pitch Token Klassic (PTK), a useless token with no claim otherwise by Colin Platt, one of the project's architects. Mr Platt, now revered as the wealthiest man on earth took to the stage to show the ease of tokenized fraud, market capitalization dreams, price manipulation, and a token supply number likely the result of a pet sitting on the “developer’s” laptop for good measure.

This was a long-orchestrated effort by PTK. Mr Buterin and Dr Doom joined in on the laugh wearing T-shirts by the “PTK Phoundation” from the very first panel at the conference. Even the Financial Times saw ample humor and wrote about the token ribbing.

Project-X Hits $28K - Really...See

wdt_ID Rank Coin Supply "Price"
1 1793 Project-X 0.07826 28230
2 1324 42-coin 42 13376
3 367 Primalbase Token 1250 6933
4 1446 bitBTC 42 4402
5 1438 bitGold 189 1005
6 86 ThoreCoin 86686 755
7 1222 Amoveo 60087 155


Source: CoinMarketCap


|| IN ALL SERIOUSNESS THOUGH

While the presentation was one of jest, the effort was an attempt to wake up retail investors who have found themselves entrenched in gambling with an outcome that will only serve those pawning off the next “revolutionary” idea.

There is truth in every good joke, and PTK was no exception having established in a few short slides the absurdity that calculates the “market capitalization” of the cryptocurrency industry, as well as the white-paper fiction that turns "Lorem Ipsum" into the most awe-inspiring technical thesaurus ever published.


"PTK started out as a fun in-joke amongst a group of us who were sick of watching questionable projects rake in so much money. It was pretty clear that telling people that they were investing in scams wasn't really working, so we decided to try something else, and made PTK to show everyone how incredibly easy it was to game the system. Is PTK dumb? Yes. Should people take the underlying message seriously? Yes, we think that they should. Well, unless you really do think that I am worth Quadrillions of Dollars."

Colin Platt, PTK


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