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The Rise of India Blockchain, Cryptos lagging – Mistake or Opportunity?

It’s an emotional week for Indians – for most of them atleast. It’s a week when India crashed out of the cricket world cup, that they were favourites to win. While I was looking for “India news” to cheer myself and my family up, I spotted an important trend worth talking about.

The rise of Blockchain in India doesn’t come as a surprise to me. It is the third most active innovation ecosystem in the world, next to the US and China. 2018 had $35 Billion of PE/VC investment in the country, and that has risen over the years at a rapid pace. However, with Blockchain, most of the initiatives have a public sector organisation driving it.

Blockchain-India-Infographic

Image Source

Most Indians would admit  that public sector organisations in India are super dysfunctional. So, this is indeed a sign of new times. Perhaps, the state governments are taking inspiration from the centre’s initiatives with payments and other technology innovation. Let us look at the three key trends that we have identified across the states.

  • Land Registry – This is such a critical use case for Blockchain in India. The real estate industry is fraught with corruption, and a system to bring integrity to the value chain is most welcome. Blockchain could add so much value to this space.

 

  • Farm Insurance – I am quite glad that this is a key trend. Less than a year ago, I wrote an article asking for exactly this. A violent storm that hit my home state, affected coconut farms and many farmers lost their 10 years of hard work. A smart contract based insurance mechanism is critical for farmers to protect their livelihoods. In a country that depends on two monsoons for agriculture, a flood or a drought could kill the crops.

 

  • Digital Certificates – There is a saying in India – You can’t go wrong with a food or an “education business”. Education has been commoditized in the country so much that, every year there are 1.5 Million engineers being produced. It is also a market where counterfeit certificates and CVs are not uncommon. Blockchain based digital certificates to maintain the integrity of the education process is yet another useful application.

The map also identifies several other use cases like Organ transplants (as the black market in India is thriving), IP Protection and Cybersecurity. I am surprised that there is no line item for Self Sovereign Identity. India has the world’s largest citizens’ database in Aadhaar. Loading it up on a permissioned Blockchain, and providing citizens the ability to share their data in a controlled fashion would be a major building block.

But that initiative needs to come from the central government. It cannot be a state government driven agenda. Also, despite all these developments, the action from the central government around Blockchain initiatives is missing. The central government needs to intervene to standardise state government based initiatives across the country.

The other elephant in the room is the cryptocurrency ban in the country. I believe, this has pushed India behind its global competition by a few years when it comes to Blockchain innovation. The country has a buzzing startup ecosystem. The centre has taken several steps even in the most recent budget to support innovation.

But when it comes to cryptocurrency, the Reserve Bank of India has taken a very binary approach. I spoke to Lizzie Chapman (CEO of ZestMoney) a few weeks ago on lending fintechs in India. During that conversation, she mentioned that the Indian regulators have been quite collaborative in setting policies for the industry. That approach seems to have been lost somewhere with Cryptos.

The challenge that India has is that of talent. With lack of innovation happening in this space, Blockchain skills will start running out pretty soon. Yes, the big tech consulting firms looking to build Blockchain skills can do so. But that doesn’t necessarily translate to leadership within Blockchain innovation.

The other challenge is global competition. China and other top economies have allocated $ Billions towards emerging technologies such as AI, Quantum computing and Blockchain. China and US fight it out for the top place in the world’s patenting charts across these technologies. India is only in 6th position in the world for the number of Blockchain patents, and without private sector innovation, will soon risk being left behind.

In essence, the centre needs to wake up to this new era in the country. It’s time for leadership at the top, much like they did with payments. They should get initiatives kicked off on Blockchain and its standardisation across states. They should ensure that the regulations are clear for the crypto community.

With just those two steps, the country should be back on the map in a much bigger way with Blockchain. The mistake (crypto ban) could be turned into an opportunity. Onwards and Upwards!! Cheer up India!!

Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

 

The post The Rise of India Blockchain, Cryptos lagging – Mistake or Opportunity? appeared first on Daily Fintech.

bitcoin price, Bitcoin, Blockchain, Cryptocurrencies, heuristics, technical analysis, trading

10 heuristics to make money trading 24/7 unregulated crypto markets and still have a life

10 heuristics.001

TLDR. Buy low, sell high is easy to say but hard to do. These are 10 heuristics to make money trading 24/7 unregulated crypto markets and still have a life. These 10 heuristics work independent of how much you have to invest (whether it is 100 or 100 million). These 10 heuristics avoid both extremes – HODL and TA trading. Buy & Hold (or HODL in cryptospeak) is not quite right when you have a such massive bull/bear market swings  (better to sell near peak and buy near bottom of each big cycle). HODL at all times may not be right, but neither is frenetic trading using Technical Analysis (machines and institutional investors will always beat you at this). Whatever your timeframe, remember that a) this is a wild west, scary/dangerous unregulated market and b) YOLO (You Only Live Once) and waking at 3am because that is when the big swings are happening in this 24/7 market is not having a life. Standard IANAFA (I Am Not A Financial Adviser) Disclosure. This is for entertainment purposes only. If this is how you get your entertainment – you need to get a life (my lawyer advised me not to say this last bit). Although the statement that this is only for entertainment purposes sounds like legal boilerplate, the intersection of entertainment and nerdy techno financial media on YouTube is part of this story. Read on for 10 heuristics  to make money trading 24/7 unregulated crypto markets and still have a life.

Heuristic means a practical way to a satisfactory but not optimal solution (aka rule of thumb, educated guess, common sense).

This update to The Blockchain Economy digital book describes the 10 heuristics to make money trading 24/7 unregulated Crypto markets and still have a life:

1. Choose Coins big enough to make pump & dump more difficult.

2. Only invest an amount that allows you to sleep at night.

3. Don’t follow individual TA gurus.

4. Avoid fake valuation science.

5. Assume you only have 10 trades in a decade.

6. Make sure you have “proof of trade” before following.

7. Have some fun with your financial entertainment.

8. Why nearly is a better word than precisely.

9. If you don’t have an edge, don’t trade.

10. Practice safe Crypto.

If you do not understand these points, do more research. If you still do not understand these points after doing more resesarch, stay away from these markets. The old poker rule applies – if you don’t know who the sucker is at the table it is probably you. If you want to trade/invest/speculate in crypto, please read on.

No 1. Choose Coins big enough to make pump & dump more difficult

Pump & dump is a) very profitable for the person pumping & dumping b) a money furnace for everybody else c) totally simple to do with crypto coins that have low trading volume.

Screenshot 2019-07-03 at 19.49.59

Look at the top 3 crypto coins by market cap and then look at 24 hour trading volume. Bitcoin has about 3x trading volume of Ethereum and 20x that of XRP. Bitcoin is a bit safer than smaller coins with less trading volume because a) you need more capital to do pump & dump b) there are more savvy traders/investors/speculators who can counteract the impact of the pump/dump operators.

The trading volume of even the biggest coin (Bitcoin) is a rounding error compared to equities, bonds and sovereign/Fiat currencies and these legacy finance markets are regulated. All crypto investing has pump & dump danger, Bitcoin just has a bit less risk than others.

Despite this risk, Bitcoin has massive upside and trading volatility opportunity, so don’t give up yet and read on to heuristic no 2.

No 2. Only invest an amount that allows you to sleep at night

Bitcoin could go to zero or 10x or 100x higher. Say you bet 100, you could lose 100 (go to zero) or make 900 profit (10x) or 9,900 profit (100x). That is a good bet (known as an asymmetric upside to downside) as long as you only invest an amount that allows you to sleep at night. What that amount is will vary depending on your risk tolerance, which depends on your age and temperament. It will usually be some % of your capital.  A low risk allocation could be 1% and some big money putting in 1% may be driving the current bull market (1% of a Family Office with $1 billion is $10 million). Some high risk players are allocating 50% or more of their capital.

No 3. Don’t follow individual TA gurus.

TA = Technical Analysis, aka charting.

Trading is a zero sum game. Your loss is my gain and vice versa.

Exchanges are like casinos. They make money when you trade, whether you win or lose. Casinos will happily give away books on “how to beat the casino”. If Exchanges offer free TA courses, be wary. It is only slightly better than paying your own hard earned money for those TA courses.

TA is a mugs game for retail traders for the simple reason that professional institutional traders working will beat you every time because they:

  • can trade 24 hours by “moving the book” around the globe. A big swing that happens while you are sleeping, is not a problem for professional institutional traders.
  • have better access to data and analytics that cost money.
  • have better access to data from exchanges that they can use to front run your orders; this happens even on regulated legacy finance markets.
  • can automate strategies to minimise losses during down markets. They can program stop losses but also use manual override if needed, particularly if they can see where Retail have programmed their stop losses by using data from exchanges.
  • use large sums of money to move markets at the precise times when the TA crowd makes that price point vulnerable. Let’s say the TA crowd says that 11,650 is a line that if crossed will lead to a big crash. Professional traders working for institutions will deploy large sums of money to short the market to ensure we fall below 11,650 and then buy in later.

You can find plenty of TA gurus who got one or two big calls just right. If you think you found one who is consistently right, look at heuristic no 6.

Following an individual TA guru is usually a mugs game, but you can look at aggregated TA sentiment as one signal (but only one) to help you make the big calls in heuristic no 5. A good source for this is Trading View, with a simple dashboard view (snapshot below).

Screenshot 2019-07-03 at 15.45.19

No 4. Avoid fake science around valuation FA

FA = Fundamental Analysis.

Many have tried to come up with fundamental valuation models. They want to be known for creating something like PE for Bitcoin. Nobody has got this right yet, which is why there are so many different fundamental valuation models. Looking at all of them is one signal to making the big calls described below, for the simple reason that many investors/traders look at these models.

No 5. Assume you only have 10 trades in a decade.

You could simply HODL (Hold) through all the wild bull and bear swings. That is certainly better than frenetically trading every little nervous tick of the market.

Yet look at the Wall Street Cheat Sheet image. How great if you could sell near peak and buy near bottom of each big cycle. There have already been a few wild cycles like this for Bitcoin. 2017 was only the latest, not the biggest in % terms and this cycle is unlikely to be the last.

Wall-St-cheat-sheet.png

Today we could be at Disbelief (= buy signal) or Complacency (= sell signal). We probably were at Capitulation around January 2019 but if today we are at Complacency then Capitulation is still ahead of us. Personally I think we are at Disbelief today.

Key to this strategy is:

  • not allocating all your capital at once (whether it is 100 or 100 million).  For example in the current market (early July 12019), don’t bet it all at once in the hope that we are at Disbelief.  Keep some powder dry in case it is Complacency. Then you can celebrate if the market crashes and buy more later at lower prices.
  • sitting on your hands unless it is a big one. This is where the mental habit of assuming you only have 10 trades in a decade helps you. For example in the current market, did you waste one of your 10 precious trades as if this was one of the big swings? Although Bitcoin trading is fairly low cost, the more you trade the more likely you will be to get it wrong occasionally. Only gurus claim to get it right all the time (see heuristic no. 3).

If it goes to zero, remember heuristic no 2

The key word is“near”. This deliberate imprecision is explored further in heuristic no 8.

This very occasional trading is a lousy way for brokers and exchanges and content sellers to make money, so it won’t be a popular topic on social media. 

All you want to do is decide if the market is at Capitulation or Disbelief (= buy signal) or Complacency (= sell signal). To make this call:

  • have a point of view in what range you think the top and bottom of this cycle will be. Start buying/selling as you get into this range. You are only looking for a range not a precise top or bottom This takes fortitude as everybody will be shouting exactly the opposite at this stage.
  • Look at signals from both TA and FA to guide how aggressively you sell. The key is to a) avoid emotional herd following b) avoid truing for accuracy and getting the precise top.

No 6. Make sure you have “proof of trade” before following.

Many trading gurus appear on media telling tales from the time they got it right. Unless they offer you a simple “proof of trade” that allows you to follow their trades (and profit from your follow), assume they are only offering financial entertainment.

No 7. Have some fun with your financial entertainment

There is nothing wrong with financial entertainment, but make sure it is actually entertaining. The great comedian John Cleese (who is also scientifically minded and a great educator) has pointed to research that shows that  when you laugh is when your mind opens up to new information. So make sure your financial entertainment is actually entertaining. One that I find entertaining is the Max & Stacey Keiser Report double act.


Two types of financial entertainment that don’t cut it for me are crypto trading gurus who:

  • do their travelogues.If I want a travel show I will choose a travel show

– parade in front of rented richistan toys (houses, cars, boats, planes) to prove how rich they are (and you will be if you listen to them).

No 8. Why nearly is a better word than precisely

The idea of precisely hitting tops and bottoms means somebody maybe picking your pocket. Hunting for magic tops and bottoms is a mugs game. It leads you to follow trading gurus who got it right once (somebody is bound to get to right occasionally given a big enough sample size of gurus). 

No 9. If you don’t have an edge, follow don’t lead.

Lead, follow or get out of the way. If you are not totally comfortable that you know what you are doing, look at heuristic no 6, find a trader to follow, pay the fees and enjoy the time you just won back.

No 10. Practice safe Crypto

Don’t lose you hard earned Bitcoin through one of these dangers:

  1. The Exchange where you hold your Bitcoin is hacked, your money is stolen and the Exchange will not refund your money.
  2. A government does not like you or wants your money and orders the Exchange to give it to them.
  3. You keep your Bitcoin in a safe protected by secure private keys on a hardware wallet but you are robbed or lose it by doing something stupid. Remember, Bitcoin is a bearer instrument.

Despite the mantra of “not your private keys = not your Bitcoin”, practicing safe crypto may mean trusting an institution like Coinbase or Fidelity.


Until and unless you are really comfortable with what it takes to keep your Bitcoin in a safe protected by secure private keys on a hardware wallet, a trusted institution maybe a better solution for you.

Trading, investing & speculating are just words; don’t define what you do by words. Trading is investing with a short holding period. Is holding for 1 year trading or investing? Speculating is just a pejorative word for trading.

Follow these 10 heuristics to make money trading 24/7 unregulated crypto markets and still have a life and then follow the 11th one:

Be Lucky!

———————————————

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Bitcoin, Blockchain, Cryptocurrencies, CBDC, CentralBanking, Consumer Banking, cross-border, CryptoValley, DID, digital identity, Fintech General, libra, money, regulation, stablecoins

Convergence or clash of non-natives & natives going Stable – #CVC19

2019_crypto_valley

The 2019 Cryptovalley Conference remains true to its nature. Three days, three stages, and overweight technical and economics content. I attended for two days and became A cool kid on the Blockchain. 

The narrative has clearly changed. Lots of evidence around us. Yesterday the BIS, the umbrella organization, announced the launch of a global innovation hub in Basel,Hong Kong, and Singapore to help Central Banks to “identify relevant trends in technology, supporting these developments where this is consistent with their mandate, and keeping abreast of regulatory requirements with the objective of safeguarding financial stability”.

The EU is very serious about supporting Blockchain technology. Tom Lyons announced the Convergence conference this coming November sponsored by the European Commission, the EU blockchain observatory & Forum, Consensys, Alastria, and INATBA[1].

Several speakers and panelists participated at the Cryptovalley Conference from Central banks around the world. Of course, they repeatedly stated that they share personal opinions and not the CBs official position. Between the BOE, the Fed, the SNB, and the Bank of Italy, the conversations went deeper.

We were reminded that unconsciously we are going back to the 19th century when multiple entities issued money. I like to add to that observation that we are also going back to bearer instruments. Tomaso Atse, director of the UCL Center for Blockchain Technologies, pointed out that what is new in our era is programmable money and the creation of hybrid types of value (like combining digital identity with money or some other value) and the ability to exchange it).

Alexander Lipton, the EPFL visiting professor and founder of SILAmoney, poked and provoked and defended his point of view. In a nutshell, he is the godfather of the DLT version of Narrow Banking concept. This is a way for Central banks to deploy DLT technology by issuing a fiat-backed digital coin (FBDC). The idea is that the central bank will allow and work (indirectly) with a consortium of validators that manage the issuance of the FBDC. It is worthwhile reading about this concept `Narrow Banks and Fiat-backed digital coins` by Alexander Lipton, Alex Pentland, Thomas Hardjono (MIT). What jumps out of it is that right now, we are faced with Facebook intending to implement this kind of concept through the LIBRA association. While each Central bank is doing its in-house due diligence, concerned only with its local country monetary policy and reserves; there is a clear need for Central banks to get together. They should be designing a Central bank coordinated narrow bank consortium.

This is a wakeup call to nightmares of whether Central banks will be able to control reserves and rates on reserves if LIBRA scales. LIBRA`s adoption in countries with currency instability, is troublesome if it really scales. Can LIBRA create hyperinflation in Venezuela? Alexander Lipton, says yes.

The narrative has clearly changed, and we are shifting in a phase where understanding monetary economics is becoming important.

When I raised the question last week about the governance of the LIBRA association (see  here) and whether there could be collusion; I didn’t mean in the DAO technical sense (i.e. more 50% of validators collude and validate an invalid transaction). I meant collusion in terms of decisions about, for example, the management of the LIBRA reserve fund. Which currencies will be included, will the fund become a significant holder of US debt, how much government debt versus currencies, why share the interest of this cash cow by accepting new members, how to deploy the profits of the reserve?

Once the LIBRA reserve scales to $100billion (Ant Financial`s money market fund is currently $168billion down from a high of $250billion), the interest will be in the order of $1.5billion (assuming an average 1.5% interest rate). That is huge for an association with no reporting requirements.

We live in very interesting times.

Monetary policy issues need to be understood better.

Moral hazards are lurking everywhere.

Those that have been working on financial inclusion, self-sovereign identity, P2P protocols are feeling looted.

  • Why didn`t Facebook join the Decentralized Identity – DID- project (media report that they were invited and rebuffed an invitation)?
  • Why isn’t Facebook`s Calibra, the ID part of the LIBRA ecosystem, respectful of the open standards for verifiable credentials developed already by DID under the auspices of the World Wide Web Consortium (W3C)? Why do they want to design new ones?
  • Will this world domination-ish attitude, shoot them in the foot[2]?

Back to the native people, Lisa Nestor from the Stellar foundation, shared a great overview of the global P2P network that can be used by banks to work directly with each other, without the need for correspondent banks. Stellar is decentralized and open with 28 nodes currently. Their aim is to optimize cross-border payments and work with all currencies. They launched in 2014. In 2016 they had 9,000 accounts and today they have 3.2million. Their daily volume has reached $350k with a total cost of processing of $1.50! During the conference, they reported that the first Swiss node was launched.

Bitcoin Suisse announced that they are seeking a banking license and they will be expanding in Europe. Ficas, a Swiss crypto asset management group for HNW, was a platinum sponsor. They are based in Zug with presence in Turkey, Greece, Spain, and Australia.  Flovtec and Ovrium shared the award of the best Swiss Blockchain company at the SICTIC investor event during the conference. Orvium is a decentralized scientific collaboration platform for deploying blockchain and artificial intelligence technology. Flovtec is a liquidity provider for tokenized assets.

My opinion is that we will be seeing an explosion of stable coin issuance. CNNmoney Switzerland was at the Cryptovalley conference taking a pulse on  LIBRA (watch here).

The GOSCI  – Global Open Source Currency Index- is a novel independent volatility benchmark for Stablecoins. Launched by Bernard Lunn the same day the LIBRA white paper hit the market. Become part of it.

The Stablecoin.foundation was launched in October 2018 with 25 Stablecoin issuers from 16 countries. Its mission is to represent the collective interests of Stablecoin issuers to unify the industry.

Closing remarks

The narrative is now, about financial stability with privately issued coins. Several factors are forcing everyone to the table. These conversations are hard and consensus is not given.

Stable coins are creating a very collateral hungry market situation.

[1] INATBA is the new International Association for Trusted Blockchain Applications, offers developers and users of DLT a global forum to interact with regulators and policy makers and bring blockchain technology to the next stage.

[2] “That’s very world domination-ish of them,” said Kaliya Young, a co-author of “A Comprehensive Guide to Self Sovereign Identity” and co-founder of the Internet Identity Workshop. “Some of us have been working on that problem for a really long time. You already have a set of open standards for verifiable credentials that are basically done and working.” From the article `Buried in Facebook`s LIBRA paper, a Digital Identity Bombshell`

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

 I have a commercial relationship with Flovtec. I have no positions or commercial relationships with any other company or the people mentioned. I am not receiving compensation for this post.

 Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Bitcoin, Blockchain, Cryptocurrencies

Prices continue to rise. Is Bitcoin going mainstream?

tenor

Last week our theme was “Facebook’s Libra looks and smells like a cryptocurrency, but it really isn’t”. Our theme for this week is “Is Bitcoin a bubble? Why does it continue to rise?”

TLDR. Bitcoin’s trajectory has been eye-catching. Most of last year it hovered below $4,000, and earlier this week its price reached $14,000. While still very explosive and volatile, many predict that it will soon go past $20,000, the highest price it ever reached, at the end of 2017.

Bitcoin’s phenomenal rise has made it hard to ignore, with many debating the potential of Bitcoin and cryptocurrencies.

chart (1).png

Some have called Bitcoin a fraud and many have suggested that cryptocurrency prices are in a bubble, that will eventually burst. While claims like these have sidelined many investors from getting into the market, they are not the only reason. Volatility and lack of safeguards that other financial assets have also been critical for investors.

But, do bubble claims really hold any water?

Well, since it was launched in 2009, Bitcoin has had over 8,000% ROI, according to CoinMarketCap.

Screen Shot 2019-07-01 at 3.31.42 AM.png

If Bitcoin was a bubble, we do we see it keep coming back, rising from the dead?

Several factors are affecting Bitcoin’s price: Increased institutional involvement, Facebook’s Libra launch, Bakkt has been cleared to test it’s futures products in July, bringing us closer to a BTC ETF.

People are HODLing

The adoption of Bitcoin is increasing, but people are still not utilizing this coin to buy an asset. Research reveals that in the year 2019, above ninety percent (98.7%) Bitcoin transactions are contributed by exchanges and the remaining 1.3% from merchants. Its involvement in payment system around the globe is still negligible, and most people just hodl Bitcoin.

bitcoin-holders-diar-860x608.png

Diar revealed a 26% increase in the number of Bitcoin addresses holding 1-10K BTC, specifically after the cryptocurrency established $3,200 as its bottom on December 15 last year.

Upcoming Halving

Bitcoin prices could be rising because of a “halving” next year. When Bitcoin started 10 years ago, the payout to Bitcoin miners for verifying new blocks was 50 Bitcoins and in May 2020 it will be 6.25 Bitcoins.

The halving is a very positive for Bitcoin. It increases the scarcity of Bitcoin, since the number of Bitcoins created is less. The more scarce it becomes, is the greater the demand will be, which will likely lead to a price increase.  This decrease in rate of supply growth, means less downward pressure on the price of Bitcoin over time.

Institutional Investors

Demand for Bitcoin by institutional investors appears to be increasing. Institutional investors are investing in cryptocurrencies like Bitcoin.

JP Morgan Chase has been leading the way, having announced JPM Coin earlier this year, the first cryptocurrency issued by a big international bank.

Grayscale Bitcoin Trust (GBTC), a $1.4 billion closed-end fund that invests exclusively in bitcoin, serves as perhaps the best indicator of institutional investment in Bitcoin. Data is showing an uptick in the institutional demand. By the end of April 2019, GBTC held 225,638 Bitcoins or just under 1.3% of bitcoin’s total circulating supply. Bitcoin inflows, or the amount of bitcoin added to GBTC’s holdings, have reached an all-time high in April signaling an increase in institutional demand. Nearly $58.2 million was added to GBTC’s holdings in April, which is almost as high as $60.8 million at the height of the bull market in December 2017. This shows a shift of the sentiment in the market.

Asset manager Fidelity has begun buying and selling Bitcoin for institutions, online broker TD Ameritrade rolled out trading of Bitcoin futures in December, and securities brokerage E*Trade is close to introducing cryptocurrency trading on its platform.

Libra

Facebook is one of the largest companies in the world, worth billions. Its recent launch of Project Libra has received the attention of digital and traditional media outlets. Everyone is talking about Facebook’s entrance into the cryptocurrency market. This is an amazing development for Bitcoin and other cryptocurrencies. On one hand it means that Bitcoin may face possible competition – and competition is always good because it moves things forward, it also means that huge numbers of retail investors through Facebook will get into the market. Facebook’s Libra Coin will introduce millions to the idea of cryptocurrencies. This lowers the chance of the crypto market vanishing, as some have predicted in the past.

US and China

The trade tensions between China and the United States have been good news for Bitcoin. The value of the cryptocurrency soared, as investors bought Bitcoinmto diversify their portfolios, as a hedge on investments.

A new study from Coinbase shows that 58% of Americans say they’ve heard of Bitcoin. The researchers point out key factors that indicate a rising interest in cryptocurrencies in the US, and an openness among more people to participate in a new global economy.

Well, Bitcoin didn’t die after the “last bubble.” Granted BTC fell over 80%, it has since recovered back to just 45% in the past few months. Since its bottom of $3,200 in mid-December, Bitcoin has made over 250% to current levels and it doesn’t look like it will stopping there. It has come back and with the market more mature, it’s stronger than it was before. IMHO the price of Bitcoin and cryptocurrencies are here to stay and prices will rise even more this year. The sky remains the limit.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday and has no positions or commercial relationships with the companies or people mentioned and is not receiving compensation for this post.

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

bitcoin mixers, Bitcoin, Blockchain, Cryptocurrencies, confidential transactions, data privacy, Freenet, I2P, mimble wimble, monero, Nym, Tor, zcash

Privacy at lower levels of the Bitcoin & Internet stack is not good news for tokenomics funded privacy coins 

tor-privacy-001.jpeg

 

TLDR Privacy was not part of Satoshi Nakamoto’s white paper. This gives credence to the idea that the author was a fallible human being. Nor was privacy built into the Internet, as Facebook, NSA and others have taught us. Privacy is now being  built into the lower levels of the Bitcoin stack and into the Internet stack; this is not good news for tokenomics funded privacy coins such as Monero and ZCash. Read on to learn about Freenet, I2P, Tor, Nym, Confidential Transactions & MimbleWimble.

This update to The Blockchain Economy digital book covers:

  • Tokenomics Funded Privacy Coins

 

  • Independent Bitcoin Mixers

 

  • TOR

 

  • I2P

 

  • Freenet

 

  • Nym

 

  • Confidential Transactions

 

  • MimbleWimble

 

  • Context & References

Tokenomics Funded Privacy Coins

The two best known tokenomics funded Privacy Coins are Monero and ZCash

The market has not been kind to them compared to the recent market price action for Bitcoin BTC.

This is one of 5 reasons why I am an economic Bitcoin maximalist – any single feature of an Altcoin can be copied:

“Altcoins as a sandbox for experiments and a donation to the community is cool, but it is not compelling as an investment thesis.”

This is one reason why BTC dominance is so high in this bull market. 

Independent Bitcoin Mixers

Before we get to Freenet, I2P, Tor, Nym, Confidential Transactions & MimbleWimble, lets look at the independent Bitcoin mixer (or tumbler)  services; these are something that you add onto Bitcoin if you want a bit more privacy. There are so many of these that there is now a site dedicated to them.

This is now an arms race, with governments and companies paying well funded analytics vendors to track transactions. This is why many think this was a design error in Satoshi Nakamoto’s white paper, which some of the lower level privacy solutions aim to overcome.

TOR (The Onion Router)

TOR, the first anonymity network, uses a volunteer overlay network to conceal a user’s location and usage.

You can see that somebody is using TOR even if you cannot see who it is; so some websites restrict access through TOR.

TOR uses “onion routing”, which uses encryption in the application layer of a communication protocol stack, nested like the layers of an onion. TOR encrypts the data, including the next node’s IP address and sends it through a  randomly selected set of TOR relays.

In the arms race, those seeking to de-anonymize the user may do so using vulnerable software on the user’s computer.

TOR was funded initially through the Office of Naval Research and DARPA.

I2P (Invisible Internet Project)

I2P aims to overcome TOR’s big problem, which is speed,  by loading dark web services faster.

In many cases it is not TOR or I2P. It is TOR and I2P.Some dark web service hidden by TOR have I2P mirrors.

I2P is peer-to-peer friendly. TOR  discourages heavy downloading, but many I2P users are also BitTorrent users.

Freenet

Unlike Tor and I2P, Freenet is totally decentralized across thousands of hard drives. Freenet users store encrypted files on their hard drive without knowing the contents of the file.

In the most secure/private mode, Freenet users can choose to only connect to explicitly trusted friends of the user.

Freenet is widely used as an anti-censorship tool in China.

Nym

Nym’s CEO, Harry Halpin, is clearly going after the privacy coins such as Monero and Cash with this quote:

“peer-to-peer traffic is actually capturable/recordable by any enemy who is watching the network”

Nym has been added to TOR to as Halpin puts it to protect against big cyber savvy governments and corporation, as opposed to those “which can only see a small portion of the internet” .

Nym uses the mixing/tumbling technology mentioned above bu adds it to TOR and Halpin asserts that Nym does not take grants from the US government. Like most of the privacy solutions profiled here, Nym is open source software, run by volunteers on a non-profit basis.

Confidential Transactions.

Confidential Transactions is a mixer in Bitcoin Core that lets senders encrypt the bitcoin amounts in transactions with random strings of numbers called “blinding factors.” This is decrypted by the receiver.

Mimble Wimble

Mimble Wimble (named after a Harry Potter curse) is another mixer in Bitcoin Core that does the opposite to Confidential Transactions as the the receiver (not the sender) generates the blinding factor. Although primarily designed for privacy, MimbleWimble also enhances scalability (because it gets rid of the need to track transaction history per coin).

Context & References

https://dailyfintech.com/2018/04/14/347Ai48/

———————————————

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Bitcoin, Blockchain, Cryptocurrencies, Consumer Banking, facebook, governance, libra, nodes, Payments, stablecoin

Who bought a seat at the table of the Libra Association

 Governance, Financial Inclusion, India, Tier 3 economies, remittances, payments, currencies, tokens, coins,…

These and more terms have been tossed around over the past few days, as we consumed facts and interpretations, triggered from the Libra white paper and all the related communications around it. As the dust settles down from the initial reactions, there are several overlooked aspects of the LIBRA plan that merit looking into.

Confession No. 1

There has been an explosion of cynical, partisan, and hyped threads of discussion. I include myself in the humans that reacted rather emotionally to the communication of the LIBRA plan. My `button` was pushed when the `financial inclusion` intention seemed to be the branding and PR storyline.

Dr. Cathy Mulligan and her collaborators called for caution in their Digital Cooperation report for the UN High-level panel  (UNHLP) about using vulnerable communities to experiment on with #digitaltechnologies. Of course, `experimenting` is subject to interpretation and in the case of Facebook, maybe they can argue that this will be their second attempt in financial inclusion – as they did attempt to launch in the booming Indian market to offer seamless, cheaper payments like in any messaging app. Admittedly,  payments are the very heart of any economy and we do live in a world that customers expect payments to be like WhatsApp messages[1].

Confession No. 2

We are not ready yet for DAOs. Thomas Power, rightly says that we need a Face to each and every scalable unicorn (every system needs a Face, at 8:30 BloxLiveTV). And the truth is that there is a problem with the Face behind Facebook, even though #DeleteFacebook led nowhere.

However, sentiment is not on our side, on this one. We, the ones that don’t forget Cambridge Analytica, fake News, propaganda, and what Chris Hughes or Sean Parker or Chamath Palihapitiya said; we are outnumbered. Let’s admit it.

The masses that send and receive remittances, and the masses that spend online to buy inexpensive items – micropayments – value access and convenience. While we, the ones that have a problem with the Face, are in another phase altogether, with more choices and the luxury of discussing governance, social responsibility, public scrutiny etc.

We have to acknowledge that foundations and associations (two different legal entities) setup in Switzerland have credibility and thus, the registration choice for LIBRA association. However, we need to also admit that this Swiss branding that has been deployed in another `alternative` use case – to accommodate legally the needs of blockchain startups to launch ICOs – still has to prove itself in the governance field and in the ways it links to the for-profit businesses that are their raison d` ȇtre.

As Kathryn Haun, general partner at Andreessen Horowitz (one of the 28 founding members) pointed out[2], the Libra Association, will focus on governance issues debating decisions around how the new digital currency will be overseen etc. Swiss associations and foundations are not legal structures that were meant to spearhead such large business initiatives and that is the reason that Kathryn Hauna says “I think of it as a constitutional convention; you have all these different states coming in trying to form this union.” Dianne Schepers, a legal executive, explained to me that foundations are supervised by the Swiss Federal Supervisory Board for Foundations (ESA) and are required to be registered in the commercial registry and provide an annual report. Associations are not subject to any of these requirements.

As the 28 founding members will be discussing governance and much more about LIBRA, I feel that the composition of this association was overlooked (as other more basic items needed tending). It was actually – and rightly so – welcomed and the sentiment was positive because it has a decentralization flavor to it.

Confession No. 3

One of my first emotional reactions while reading the facts reported from Verum Capital – Your guide to Libra – on the day it hit the market, was to ask three questions:

Q1: For how many of the 28 founding members has financial inclusion been their business?

Q2: How many of the founding members have unsuccessfully experimented at scale in financial inclusion?

Q3: Which organizations were invited to consider being a founding member? And who decided this?

I share with you today my initial findings (more research and patience is needed to address them all) from looking closer to the founding members that each `coughed up` $10million

There are 7 members from the financial sector and most of them need no introduction.

  1. Visa
  2. Mastercard
  3. Paypal
  4. Stripe
  5. PayU has a large footprint in Latam and India that goes beyond payments.
  6. Mercado Pago, is the financial arm of MercadoLibre an Argentian company incorporated in the US (NASDAQ: MELI) running various online and ecommerce businesses. MercadoPago is a tech enabler with a significant footprint in Latam, for online retailers to provide their customers with payment solutions to pay in installments
  7. Calibra – is the startup, separate Facebook, wallet and dashboard entity

Discussing the composition of the founding members with Verum Capital, it became clear that none of the top 5 remittance players were invited. Xoom ranks 6th and was bought out by Paypal in 2015. LIBRA has included the 6th global remittance player as a founding member.

saveonsendSource: SaveOnSend.com

There are 4 members from the Blockchain space. Coinbase and Xapo, need no introduction. I do confess that I had to check out the others. BisonTails was only setup in Oct 2018 in the US to focus in blockchain interoperability and has only $5.3mil in seed funding[4]. Anchorage is a US start-up launched in 2017 focused on digital asset custody for institutional investors with a Series A funding completed (total funding $17mil).

  1. Coinbase
  2. Xapo
  3. Anchorage
  4. Bison Trails

Where did Bison Trails find the $10million membership fee to participate in the LIBRA association? Why did Anchorage decide to spend 60% of its total funding up to date, on its LIBRA membership?

There are 4 members from the VC world, which a priori seems a sector weight that I cannot rationalize (help is welcome; please comment).

  1. Andreessen Horowitz
  2. Union Square Ventures
  3. Ribbit Capital; a US early stage VC with the most fintech unicorns in the portfolio
  4. Thrive Capital another US VC more focused in tech investments and is well known for raising capital from institutional investors, like Princeton University, Wellcome Trust. According to a profile in Forbes, Thrive was one of three firms (joining Sequoia Capital and Greylock Partners) to invest in Instagram’s $50 million Series B round at a valuation of $500 million. Forbes wrote that after Instagram sold to Facebook, “Thrive had doubled its money in 72 hours.

Picture1.png

Source: Ribbit, A16Z Lead Fintech Unicorn Hunters, CB insights

Andreessen Horowitz is an investor in Bison Trails (one out of seven) and a lead investor in Anchorage. Thrive is family to the Facebook family. USV is family to Coinbase, and on and on.

Three out of the five top VC are founding members of the LIBRA association. Top VCs can be measured in several ways. What is more relevant here is their Fintech footprint.

There are 3 members from the e-commerce space. Ranging from travel, to luxury fashion.

  1. Booking Holdings
  2. eBay
  3. Farfetch is the online luxury fashion e-commerce business, publicly traded NYSE: FTCH

Two online hailing businesses and one music unicorn

  1. Lyft
  2. Uber
  3. Spotify

Two telecoms with Iliad being a founding member that is losing clients and revenues but has a founder and still majority shareholder (billionaire Xavier Niel) who loves challenging the corporate establishment and is the founder of the StationF, one of the biggest startup campus.

  1. Iliad is a troubled French telecom whose stock price has been in a steady bearish trap over the past 2yrs (-47% yoy). It has launched discount services and expanded recently in Italy.
  2. Vodafone

There are 5 members that are non-profit organizations:

  1. Kiva, Kiva Microfunds is a 501 non-profit organization founded in 2001 in San fransisco that has arranged  $1.3 billion of loans in 78 countries. They have a 96.9% repayment rate which makes them one of the most successful microloan NGOs.
  2. Mercy Corps is another US NGO focused on humanitarian aid launched in 1980s it boasts over 5,500 volunteers members.
  3. Women’s World Banking a US based NGO supporting microfinancing institutions
  4. Creative Destruction Lab; is a seed-stage program in North America launched in 2012 by the Rotman School of Management (the business school of the University of Toronto)for massively scalable, science and technology-based companies.
  5. Breakthrough Initiatives is a scientific non-profit launched in 2015 with several programs that aim to answer big  questions, like life beyond earth, through scientific and technological exploration, probing the big questions of life in the Universe. The Board has two members: Yuri Milner, who funded the initiative and Mark Zuckberg. Stephen Hawkins is still listed.

Wrap up

Confession No. 4

I continue to look into the issues raised by the boldness and the potential of the Libra coin (which has huge regulatory risk). LIBRA has actually a huge PR and branding problem, as even the MIT Tech Review article and many more, refer to the LIBRA Stable coin as the `Facebook coin` Facebook’s Libra: Three things we don’t know about the digital currency.

David Marcus, spearheading the Libra project for Facebook, had to denounce rumors that the $10 million buy-in got the validating firms access to transaction data (Decrypt).

There are 28 seats around the LIBRA table for now (similar to the way Stellar started off with 30 nodes). The LIBRA coin is not a Facebook coin. However, governance in an association is legally non-existent. So, for now we need to be clear that it is in good faith and only by giving the benefit of the doubt, that the LIBRA association has a dream and we should be watching their execution closely.

David Siegel through his new endeavor Cutting through the noise shared several facts and insights on LIBRA, as he is excited about the potential of a Stable coin  that can scale fast as it will be launched in established markets. LIBRA will be offered to all users on Facebook, Booking, Lyft, Paypal, Farfecth, …..

During his webinar on Saturday (recording on youtube) I learnt that 60% of votes are needed in order to make a change in LIBRA. I like to think of this as the 60% attack nightmare.

Can Facebook pull off a 60% attack?

As Bernand Lunn said to Swissinfo.ch the day after,  in What does Facebook’s Libra cryptocurrency aim to achieve?: “Facebook has been hugely successful making money from accumulating people’s data and then selling it. It’s hard to see them completely changing their stripes.”

How will the LIBRA association untaint the LIBRA coin so that it is not thought of as a Facebook coin?

[1] Excerpt from `Money is a claim on an Institution and the reason for change`, Efi Pylarinou

[2] Andreessen Horowitz: How Facebook’s Libra Cryptocurrency Will Be Governed

[4] Source from Crunchbase

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

 I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. 

 Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Bitcoin, Blockchain, Cryptocurrencies

Facebook’s Libra looks and smells like a cryptocurrency, but it really isn’t

facebooklibra.jpg

Last week our theme was “The FOMO crowd is back in town. Will Bitcoin have a blockbuster comeback?”. Our theme for this week is “Facebook’s Libra looks and smells like a cryptocurrency, but it really isn’t”

TLDR. Facebook finally released their much anticipated white paper on Project Libra. Facebook’s entry into the cryptocurrency market means that companies around the world are now considering their cryptocurrency strategy. There isn’t a big company in the world that isn’t going to join the cryptocurrency market. Thousands of centralized stablecoins are on the way.

Lately, every week I am on the edge of my seat, wondering what will happen next. It’s been another big week… While its not clear yet how Libra will affect the future of other cryptocurrencies, for now it looks like they are responding positively. Bitcoin hit new highs this weekend.

Early last week, Facebook the world’s largest social media company published a white paper about Libra, and over this weekend Bitcoin broke back to back records, reaching $11,000 in less than 24 hours, after blowing past the $10,000 mark.

In ancient Rome, Libra was a unit of weight, equivalent to 12 ounces. It was the forerunner of the pound. On Tuesday, Facebook unveiled it’s own a unit of money, Libra, a digital currency pegged to a basket of major currencies.

Weighing in on Libra, many questions come to mind. If Facebook’s 2.5 billion users adopt Libra, to pay for things and send money to each other, Facebook could disrupt banks, governments and everyone that’s involved the money business.

Is Libra a cryptocurrency?

Well, its being presented as one, but Libra doesn’t really follow the basic principles that other cryptocurrencies adhere to. Its not open, public, neutral, borderless, and censorship resistant. It lacks the decentralization that makes cryptocurrency enthusiasts, so faithful and loyal to Bitcoin. When thinking about Libra, it might be better to compare it with traditional peer-to-peer payment networks, like PayPal, Venmo, Square or even Western Union.

Like these networks, Libra is layer on top of the existing financial system. Each coin is backed by traditional currencies, to eliminate volatility and ensure its price is stable. But its also very different. Because of Facebook’s enormous reach, Libra could unify payments on a global scale and lower transaction costs.

Will Libra’s launch motivate other big tech companies follow Facebook’s suite?

Facebook’s Project Libra could motivate big competitor’s to create their own cryptocurrency. Amazon, Google Yahoo and many others are making moves, that indicate cryptocurrencies will soon become a bigger part of their platforms. Forbes has published a great list entitled “Blockchain 50: Billion Dollar Babies.”

There isn’t a big company in the world that isn’t going to join the revolution.

While Amazon hasn’t made any official announcements, it has already registered a number of new crypto-related domains, including AmazonEthereum.com, AmazonCryptocurrency.com, and AmazonCryptocurrencies.com. This has raised speculation that Amazon could be getting ready to make its move into the cryptocurrency market. Recently, Amazon was granted a patent for various techniques to build a proof-of-work (PoW) cryptographic system similar to those used by Blockchains such as Bitcoin.

Google is working on displaying cryptocurrencies in a friendly way, showing relevant information that include top news and other suggested cryptocurrencies, when a user performs a search. Its also invested in several blockchain startups, including Veem, a payments platform that lets enterprises instantly send and receive payments in different currencies, using Bitcoin.

Yahoo owns 40% of the Japanese crypto exchange, Taotao, which it bought in April 2018 for $19 million The platform allows trading for Bitcoin and Ethereum, and for margin trading for Litecoin, Ripple, and Bitcoin Cash.

Libra is not really a cryptocurrency.

Its looks and smells like a cryptocurrency, but the truth is, it’s an operating system for moving fiat money around the world. According to the whitepaper, developers will be able to build on top of Libra their own payment applications.

The authors of Libra’s white paper write: “Imagine an open, interoperable ecosystem of financial services that developers and organizations will build to help people and businesses hold and transfer Libra for everyday use.”

While in theory everything sounds open and transparent, ofter the reality is very different. The channel always wants to own the consumer advantage. Big tech companies have always developed strategies to capture the majority of the created value and in the case of crypto we can expect exactly the same. This is how Apple, Google, Amazon, Microsoft and Facebook became so huge and retain their positions. The argument has always been simple, “join or die.”

But, it’s important to see through the hype. We need to consider the who and why. Whose best interests do they have in mind. Big tech companies have huge numbers of customers and know everything about them. They push advertising and encourage customers to shop through their platforms. They understand that decentralization and blockchain can potentially shift the ownership of their livelihood, user data. Moving data from them, into the hands of the users. The ownership of data is the reason they are trying to figure out how to morph cryptocurrencies and blockchain for their own purposes. Its the only way to make sure they keep control.

Facebook’s entry into crypto could be a double edged sword. Facebook could setting the model of what crypto is and it’s not. While the Lightning Network is showing great promise, it might be too little too late. Libra might be the first digital currency to capture the payments market. We could be seeing cryptocurrencies morph into centralized stablecoins and not the decentralized cryptos we’ve known and loved for the last 10 years. The trump card for cryptocurrencies, but its uncertain if they can capitalize on it, is Facebook’s irresponsible past privacy practices and the whole debate about control vs. freedom and centralization vs. decentralization. Would you trust Facebook with your money? IMHO, most people won’t care about it and just want an easy and cheap way to send and receive money.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday and has no positions or commercial relationships with the companies or people mentioned and is not receiving compensation for this post.

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

Bitcoin, Blockchain, Cryptocurrencies, calibra, facebook, gosci, libra, stablecoin

10 Takeaways from the Facebook Libra announcement

LIBRA.001


TLDR. Will the Blockchain Economy be acquired by the Facebook Economy? Tuesday’s announcement by Facebook ranks as the 3rd big event in the 10 year history of the Blockchain Economy (the first two being the Bitcoin and Ethereum white papers in 2009 and 2014).

This update to The Blockchain Economy digital book covers:

  • The biggest losers will be global banks

 

  • Move will get a lot of traction with developers (despite many negative technical reviews)

 

  • We have all contributed a lot of free brainstorming and market testing for their future product.

 

  • Libra is a stablecoin with unknown constituent parts

 

  • Facebook’s delicate dance with regulators

 

  • They have brilliantly coopted the regulated Legacy Finance world as Nodes

 

  • Facebook will ignore all the early adopter howls of protest because they are going direct to the mainstream

 

  • The Calibra wallet will probably drive mainstream adoption of Bitcoin 

 

  • There are lots of opportunities for agile entrepreneurs but never forget who owns this playground

 

  • XRP just became a lot more risky and be careful investing in ETH 

1. The biggest losers will be global banks

Facebook Libra will obliterate the bank’s advantages in three ways

  •  A Stablecoin switchboard is vastly more efficient than today’s interbank foreign exchange market. What I mean by a Stablecoin switchboard is that all currency prices are quoted against the Libra Stablecoin price. Oops DB!! This comes at a horrible time for Deutsche Bank (DB) which many think will be the next Lehman due to their massive derivatives exposure. One area of strength for DB amid all this turmoil is their dominant position in the today’s interbank foreign exchange market which will now be disrupted by the Libra Stablecoin switchboard.

 

  • Facebook has a global footprint without any of the overheads of global banks. I observed how global banks were replacing the correspondent bank network at SIBOS Geneva 2016. If you have invested lots of money over many decades building a physical branch network around the world, Facebook’s global reach looks hugely threatening. This is big threat to banks such as HSBC and JP Morgan. The latter created JPM Coin specifically for payments across the JPM network. 

 

  • Libra eliminates the need to use the banking system to move money. You move Libra and then either pay in Libra or convert to your local currency via the Stablecoin switchboard. 

David Marcus, the very smart leader of this part of Facebook, has been super articulate and on message in interviews. The only point where he looked a bit uncomfortable was when asked why no banks participated. Grab your popcorn folks, this one will be epic.

2. Move will get a lot of traction with developers (despite many negative technical reviews).

Move is the programming language on the Libra blockchain. There is much commentary that it is not as flexible and open as programming on Ethereum or other similar open consensus networks. Despite these negative technical reviews, I predict that Move will get a lot of traction with developers for two reasons:

  • Move is safer. An inexperienced developer is less likely to make a rookie mistake using Move that costs a lot of money (eg a DAO like hack).

 

  • Move brings you scale aka more users today. Why do you program mobile apps in IOS? Technical excellence is less important than the fact that Apple sells a lot of mobile phones.

3. We have all contributed a lot of free brainstorming and market testing for their future product. 

Myself included – no, Facebook did not pay me for this analysis.

Tuesday was the start of  Step 3 in a 5 Step dance

Step 1. Recruit David Marcus. This happened in 2014. I wrote about Facebook Ambitions in Fintech at that time and correctly identified the direction of travel ie where the puck was headed. How long they spent in planning took me by surprise but now, seeing how well they have planned it and the scale of the ambition, it makes sense.

Step 2. Create a plan. Facebook has spent 5 years on this plan. It is a) very well thought through b) existentially critical to a $500 billion market cap company. 

Step 3 Run it up the flagpole. This what they did on Tuesday. All of us have given Facebook a ton of well considered feedback aka free market testing and brainstorming and we will continue to do so in the weeks and months ahead. 

Step 4. Adapt based on this feedback.  The feedback already includes howls of protest from privacy advocates. Crypto folk are certainly privacy advocates; so we can expect this phase to be very, very noisy. Facebook will have planned for this. Based on past Facebook launches, we can expect them to:

  • first, take one step back. Facebook issues a sort of apology and it appears as if privacy advocates win. 

 

  • then, take two steps forward. A little later, Facebook quietly does what it intended to do in the first place, tweaking it to allow for the step back.Watch the $FB stock price – that will be the signal among all the noise. If investors believe that Facebook has no control over private data, they will sell the stock.

Step 5. Launch & execute in 2020

4. Libra is a Stablecoin with unknown constituent parts.

Critical to their very well thought-through plan is the use of a stable cryptocurrency in the Stablecoin switchboard that I described in Takeaway 1. Interestingly enough, considering how critical this is to their plans and how much detail there is in other parts of the white paper, critical details, such as what Fiat currencies are in the Libra currency basket, are missing from the white paper.

That is why Daily Fintech created the GOSCI – Global Open Source Currency Index as an independent volatility benchmark for Stablecoins. If a Stablecoin claims low volatility, one should be able to measure that volatility against other Stablecoins.

5. Facebook’s delicate dance with regulator

Facebook’s delicate dance with regulators has three clever pieces:

  • Self sovereign ID.  Page 9 of the white paper says “We believe that a decentralized and portable digital identity is a prerequisite to financial inclusion and competition”. Governments have historically controlled Identity artefacts such as passports, work permits and drivers licenses. The Facebook deal with Governments  might be to allow Facebook ID if that meant that only real ID people can use Libra (and acceptable to users if the ID is controlled by user ie it is self sovereign ID).
  • Giving regulators control of the on and off ramps. This is a trojan horse for regulators. If Libra becomes an independent Unit Of Account (get paid in Libra and pay in Libra) the on and off ramps will become relics of history.
  • Using regulated entity partners to provide customer facing services (such as on and off  ramps). This means Facebook does not need to become regulated as a financial entity itself.


Facebook’s delicate dance with regulators over Libra needs to be seen within the wider context of Facebook being regulated as a dominant social media platform. They can now say “see, we are not dominant within the wider market of financial services, so a break up should not be on the cards”. 

6. Facebook will ignore all the early adopter howls of protest because they are going direct to the mainstream.

Like most crypto early adopters I am a bit of a “privacy nut” but I am under no illusions that my opinion will matter to Facebook. They know they cannot meet the 5 five pillars of open blockchains as defined by Andreas Antonopoulos: 

  • open
  • public
  • neutral 
  • borderless 
  • censorship resistant.

Without those 5 pillars you will never win over the crypto early adopters. With most launches that would be game over, as the only route to market is via the early adopters. Facebook is taking Libra direct to the mainstream users who don’t give hoot about those 5 pillars.

The irony today is seeing crypto early adopter cypherpunk libertarian types happily saying that Libra will be stopped by regulators.

7. The Calibra wallet will probably drive mainstream adoption of Bitcoin

I say “probably” because this is dependent on Calibra wallet allowing coins  other than Libra. I think this will happen because a single coin wallet will not be popular unless Libra is the only currency/coin we ever use. If Calibra wallet allows coins other than Libra, it will introduce millions of new users to Bitcoin.

8. They have brilliantly coopted the regulated Legacy Finance world as Nodes.

The list of partners leads people to a conclusion that Facebook can only win, that it is game over. Yet many of the partners have more to lose than to gain. For example credit card networks will lose if payments moves to crypto and VCs will lose if Facebook has too big a hold on crypto innovation and value creation. It remains to be seen if these are PR partners or real partners. In a PR partnership, both parties get something but don’t have much skin in the game.

9. There are lots of opportunities for agile entrepreneurs but never forget who owns the playground.

Libra is like Apple creating the Apple Store, a defining moment full of opportunities for agile entrepreneurs. As long as you never forget who owns the playground, your business won’t be obliterated when/if Facebook changes the rules.

10. XRP just became a lot more risky and be careful investing in ETH 

Ripple wants to enable cross border payments via banks. Some banks will run into the arms of Ripple because they are scared of Facebook, but what was a risky speculation pre Libra (can Ripple persuade banks to use XRP) just had another layer of risk added (if banks can be persuaded, can they beat Facebook?).

The ETH Ethereum story is more nuanced. The total openness of Ethereum means that there maybe use cases nobody ever dreamed of (ICOS and CryptoKitties was not part of Ethereum plan in 2014). Yet a platform like Libra can attract lots of less experienced developers who want to win over Facebook’s 2.4 billion users.

Context & References

Investing in Payment Tokens and Stablecoins (aka new currencies).

Why StableCoins are so important (but also so hard to get right)

Facebook Ambitions in Fintech (note, from October 2014)

The Facebook GlobalCoin stablecoin won’t kill Bitcoin but many companies should be worried.

What the rise and fall of Basis Stablecoin tells us about the future of corporate Stablecoins such as Facebook GlobalCoin

———————————————

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Bitcoin, Blockchain, Cryptocurrencies

The FOMO crowd is back in town. Will Bitcoin have a blockbuster comeback?

bitcoin-rally

Last week our theme was “Are you buying BTC? How safe is your Bitcoin?”. Our theme for this week is “The FOMO crowd is back in town. Will Bitcoin have a blockbuster comeback?”

TLDR. Bitcoin and cryptocurrencies  are on the rise again. Over the last 10 years Bitcoin has been tested against all kinds of foes, ranging from hacks and scams to hostile governments, and showed its resilience every time. This time around it might have the opportunity to replace fiat currencies.

On Sunday, the price of Bitcoin (BTC) hit a 13-month high, above $9,300. This is the highest price Bitcoin has seen, since May 10, 2018. Trading volume peaked with over $19 billion worth of Bitcoin traded across cryptocurrency exchanges. BTC is dominating the market share for cryptocurrencies, rising up from 55% to 57%.

Screen Shot 2019-06-17 at 3.57.20 AM.png

Will Bitcoin have a blockbuster comeback?

Its looks like the FOMO crowd is back in town again and they are showing in hordes. According to CoinMetrics.io, there are now over one million daily active addresses, a number that is defined as the number of unique “from” or “to” addresses used per day. This is a number we haven’t seen, since November 2017. Bitcoin market cap has jumped almost 3x, going from around $60 billion in December 2018, to $170 billion now.

Screen Shot 2019-06-17 at 4.43.13 AM.png

One of the reasons Bitcoin has seen a strong comeback is due to the trade war between US and China. Usually during turbulent times, Bitcoin has always been a very strong safe haven for investors. Another is just natural price discovery. When you understand what Bitcoin really is, then you understand it’s importance. Bitcoin is the most powerful inventions, since the advent of the Internet, introducing digital scarcity in our lives, as we become exponentially digital.

Facebook upcoming roll out of its cryptocurrency, as soon as next week, has also helped fuel Bitcoin gains. With an array of heavyweight backers, that include Mastercard, Paypal, UBER and Visa, its expected that Facebook’s stable coin will make a big slash.

Unlike traditional cryptocurrencies like Bitcoin, Facebook’s cryptocurrency is centralized, and verification is controlled by a select group, rather than the public. The cryptocurrency is pegged to USD, a hard asset, as a way to manage volatile price swings, that have been associated with Bitcoin, Ethereum and other cryptos.

In a recent Q&A on Youtube, Andreas Antonopoulos, said that Facebook’s coin is not a cryptocurrency:

“What Facebook, or companies like Facebook, are proposing is not a cryptocurrency. It doesn’t have any of the fundamental characteristics of cryptocurrencies. It does not stand on the five pillars of open blockchains. In fact, it stands on none of those five pillars. What are the five pillars, that we talked about before? You have probably heard me say this a few times. A cryptocurrency is open, public, neutral, borderless, and censorship resistant.”

Even if Facebook’s Globalcoin ends up failing, the company’s foray in into the market is good news for Bitcoin and other cryptocurrencies. In the past, Facebook attempted to create its own payment system, developing a digital currency called Facebook Credits. but folded it in 2012. Yet, when big players like Facebook enter the cryptocurrency market, it only helps build trust and brings more credibility to the entire market.

Many are still wondering if this rally different from that in 2017 or if its just pump and dump, staged by a few investors.

History never exactly repeats itself, but always shows resemblance. This kind of parabolic rise in prices followed by a dramatic drop, has happened several times in Bitcoin’s lifetime. But, when we look at the of bull runs of 2013 and 2017, they very different and mainly driven by retail investors. This time around, things are different.

Recently, Bitcoin has been recognized as a new asset class, so what we’re really seeing is the mainstream adoption of Bitcoin. Today, the crypto market has attracted more institutional investors. Institutional investors have poured in over $30 billion into building platforms. Also, regulations are taking shape in different countries, which is why we are seeing big players like Facebook, Goldman Sachs, Fidelity and JPMorgan Chase, getting in the cryptocurrency market.

When it comes to digital assets, ICOs, STOs, IEOs, a lot of the new projects are coming up right now, trying to capture the money. Also investors are buying up Litecoin, as its halvening is expected this August. Since the beginning of the year, Litecoin’s price has gone up 300%.

Ultimately, over the next few years we are going to see nations and central banks buying up Bitcoin, as the new gold reserve. The true success of Bitcoin will be achieved, when we don’t have to sell our Bitcoins and convert them to fiat.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG.

He writes the Blockchain Weekly Front Page each Monday and has no positions or commercial relationships with the companies or people mentioned and is not receiving compensation for this post.

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

basis, Bitcoin, Blockchain, Cryptocurrencies, facebook currency, stablecoin

What the rise and fall of Basis Stablecoin tells us about the future of corporate Stablecoins such as Facebook GlobalCoin

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TLDR The brief history of the Basis Stablecoin is that it was founded in Brooklyn in August 2017, announced a $133m round from top tier investors 8 months later in April 2018 and then shut their doors just 7 months later in December 2018. All the news was announced on the Basis site. The ambition was huge – to be the global algorithmic central bank. Despite plenty of cash & brains, Basis failed. Now in the days when we wait for the launch of Facebook’s Stablecoin on 18 June 2019 and witness the stunning growth of Tencent/WeChat in China, we piece together the story of what happened and what it means for the Blockchain Economy. 

This update to The Blockchain Economy digital book covers:

  • Escrow type funding with Regulatory approval trigger
  • Tough borderless SEC
  • Algorithmic Central Bank vs legacy Central Banks
  • $133m is a drop in the bucket if you need to defend a peg
  • Context & References

Escrow funding with Regulatory approval trigger.

This funding strategy is key to understanding the Basis Stablecoin. This is similar to what we saw with Seba bank. Money is wired and held in an escrow type account until regulators give the green light. We may see more of this type of funding. It makes sense because a) there is no chance of getting regulatory approval without a lot of capital b) the prize is big if the venture gets the nod from regulators c) nobody will invest a lot of capital in the hope of getting regulatory approval.

This funding style means the demise of Basis is not a classic venture failure story. The scenario of non-approval by regulators is planned for at time of capital raising. Some capital is burned from funding to non-approval, but only a relatively small % of total capital invested. 

The investors were top tier (such as Bain Capital Ventures, Google Ventures, Stanley Druckenmiller, Kevin Warsh, Lightspeed, Foundation Capital, Andreessen Horowitz, Wing VC, NFX, Valor Capital, Zhenfund, INBlockchain, Ceyuan Ventures, Sky9 Capital) so this structure is hardly a surprise. We can expect this structure as the norm for ventures that plan to be regulated. However as the next section describes, a non-regulated approach of seeking forgiveness not permission might be the takeaway from the Basis story. 

Tough borderless SEC.

The SEC loves cracking down on tokens that they deem to be securities – which is pretty well every token (except ETH, Bitcoin and utility tokens that have zero resemblance to securities).  There is regulatory overlap in America by State and by asset type and the SEC has firmly planted its flag in the camp that says they regulate everything that is crypto. This scares investors and entrepreneurs. The SEC is also not afraid to take action cross border, so a venture anywhere that does any business in America needs to be wary of the SEC.

As Basis CEO Al Naji put it in a Forbes interview: “The SEC generally avoids saying that something will definitely be one way or the other. But from that meeting we got the impression that we would not be able to avoid securities classification.”

There are thee possible takeaways from this:

  • Be Regulated. If you want to be a regulated entity, have a big budget for lawyers and lobbyists and plenty of capital and play within the rules laid down by legacy Finance.
  • Be Unregulated. That means offering a tech service, not a finance service. In an earlier wave of disruption for example, Skype positioned as an unregulated tech service, not a regulated Telecom service.
  • Be Chinese. That is obviously not a real strategy unless you are Chinese, but it is interesting to see how Chinese tech companies such as Tencent and Alibaba have been able to launch and scale financial services.

It will be interesting to see what strategy Facebook unveils on 18 June. Obviously  Be Chinese is not an option for Facebook. They have probably chosen Be Regulated. Given that Facebook has announced a date, they must have already got regulatory approval. It will be interesting to see how this plays out as we are in uncharted territory.

Algorithmic Central Bank vs legacy Central Banks

The Basis white paper, published in June 2017, described Basis as an “algorithmic central bank”.

The Legacy Central Banks won’t give up their power without a fight. 

Like Legacy Central banks, the algorithmic central bank strategy was simple:

  • buy back Basis tokens when the price dropped below the benchmark peg

 

  • Create new tokens when the price went above the benchmark peg

The difference from Legacy Central Banks was:

  • Transactions were done on-chain.

 

  • Transactions were automated and baked into code ie could not be subject to political change.

Despite these two differences, the core strategy was exactly like Legacy Central Banks.

$133m is a drop in the bucket if you need to defend a peg.

Central Banks need a lot of capital to defend a benchmark peg. Just ask the Bank of England after they lost the battle defending the peg of GBP to the European Exchange Rate Mechanism (ERM) to George Soros.

In a history rhyming footnote, Stanley Druckenmiller (who worked with Soros) was an investor in Basis.

Facebook has a big capital base. Whether investors will be happy letting  Facebook use this capital to defend a benchmark peg is another matter.

Grab your popcorn for an epic rumble in the jungle (image source).

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Context & References

Investing in Payment Tokens and Stablecoins (aka new currencies).

Why StableCoins are so important (but also so hard to get right)

Facebook Ambitions in Fintech (note, from October 2014)

The Facebook GlobalCoin stablecoin won’t kill Bitcoin but many companies should be worried.

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Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).