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What are pirateat40 service-level agreements applied to bitcointalk operators? There is no terms of service or contract which explicitly states what Bitcoin is and who controls its development process. Archic chains are not a panacea to everything and they annie certainly not the most exciting thing pirateat40 the invention of the Internet: Both criminal and civil lawsuits will continue annie be filed against issuers and developers of both cryptocurrencies and ICOs. My guess is that as more real value e. Based on the information above, tethers are not bitcointalk or currency and may not necessarily be redeemable for money.

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Will either Tether the company or Bitfinex going to use them to trade? In other words, the reason these exchanges were able to operate and survive while charging zero-fees is partially offset by these exchanges using customer deposits to invest in other financial products, without disclosing this to customers. But about a week later retracted its suit. Contra Ou and Coin Center, it is possible for central banks, and even commercial banks, to issue their own digital currency — and they could do so without using resource intensive proof-of-work. BTC-e is a major Europe-based exchange that has allegedly laundered billions of USD over the span of the past 6 years. With a registered asset, ownership is determined by valid entry in a registry mapping an off-chain identity to the asset. At the time of this writing, itBit, Kraken, and Bitstamp have not publicly commented on this specific fork although they have publicly signaled specific views on other proposed forks in the past.

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Contra Chris Burniske note: Consider this well-crafted title from Pirateat40 last month: This includes lobbying groups involved in disinformation campaigns for their own ideological purposes. Back to topology, each ISP is able to pass along traffic that originated from other networks, even if these external networks and the traffic therein originate pirateat40 foreign countries, because the physical systems can speak to one another bitcointalk standardized transport protocols like TCP and UDP and route via BGP. Tether Limited is also a regulated money service business and has applied to annie in nearly every US state and territory bitcointalk above. BTC-e is a major Europe-based exchange that has allegedly laundered annie of USD over the span of the past 6 years.

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This will be worth re-visiting once the CME and other regulated institutions fully launch their proposed products. Yet by most measures, many bad actors have not left because there are no real consequences or repercussions for being a bad dude or dudette.

Simultaneously, despite the hundreds of millions of dollars raised by VCs and over a couple billion dollars raised through ICOs in the past year or so, not one entity has been created by the community with the power or moral authority to rid the space of bad apples and criminals.

Part of this is because some elements in the community tacitly enable bad actors. This is done, in some cases, by providing the getaway cars coin mixers but also, in other cases, with a wink and a nod as much of the original Bitcoin infrastructure was set-up and co-opted by Bitcoiners themselves, some of whom were bad actors from day one. There are many examples, including The DAO.

BTC-e is a major Europe-based exchange that has allegedly laundered billions of USD over the span of the past 6 years.

Its alleged operator, Alexander Vinnik, stands accused of receiving and laundering some of the ill-gotten gains from one of the Mt. Gox hacks it was hacked many many times through BTC-e and even Mt. In other cases, some entrepreneurs and investors in this space make extraordinary claims without providing extraordinary evidence. Such as, using cryptocurrency networks are cheaper to send money overseas than Western Union.

No, it probably is not, for reasons outlined by SaveOnSend. But those who make these unfounded, feel-good claims are not held accountable or fact-checked by the market because many market participants are solely interested in the value of coins appreciating. Anything is fair game so as long as prices go up-and-to-the-right, even if it means hiring a troll army or two to influence market sentiment.

Bitfinex is a Hong Kong-based cryptocurrency exchange that has been hacked multiple times. Bitfinex eventually painted over these large losses by stealing from its own users, by socializing the deficits that took place in some accounts across nearly all user accounts.

Phil Potter publicly explaining how they handle being de-banked and re-banked:. Yet there is little action by the cryptocurrency community to seek answers to the open questions surrounding Bitfinex.

I wrote a detailed post several months ago on it and the only reporters who contacted me for follow-ups were from mainstream press. The latest series of drama began earlier this spring: About a week later Bitfinex dropped the suit and at least one person involved on the compliance side of a large Taiwanese bank was terminated due to the misrepresentation of the Bitfinex account relationship.

No faces or names of employees or personnel can be found on its site. Bitfinex has also created a new ICO trading platform called Ethfinex and just announced that Tether will be partnering with it in some manner. Tether as an organization creates coins. Which leads to the question: Who is responsible for issuance, and how if at all can they be redeemed?

Are they truly backed 1: Who will have access to them? Will either Tether the company or Bitfinex going to use them to trade? The only reason anyone is learning anything about the project is because of an anonymous Tweeter, going by the handle Bitfinexed , who seemingly has nothing better to do than listen to hundreds of hours of audio archives of Bitcoiners openly bragging about their day trading schemes and financial markets acumen in that order.

Despite myself and others having urged coin media to do so, to my knowledge there have been no serious investigations or transparency as to who owns or runs this organization.

The only superficial things we know about Tether formerly Realcoin is from the few bits of press releases over time. Last month a report from Xinhua found that:. In other words, the reason these exchanges were able to operate and survive while charging zero-fees is partially offset by these exchanges using customer deposits to invest in other financial products, without disclosing this to customers.

Based on conversations with investigative reporters and former insiders, it appears that many, if not most, mid-to-large exchanges in China used customer deposits without disclosing this fact to purchase other financial products. This is not a new story Arthur Hayes first wrote about it in November , but the absence of transparency in how these exchanges and intermediaries are run ties in with what we have seen at BTC-e.

While there were likely a number of legitimate, non-illicit users of BTC-e like this one Australian guy , the old running joke within the community is that hackers do not attack BTC-e because it was the best place to launder their proceeds. Many exchanges, especially those in developing countries lacking KYC and AML processes, directly benefited from thefts and scams. In its most current incarnation it has raised and liquidated its earnings via bitcoin.

As a result, the volume on the new exchange in South Africa outpaced the others that remained compliant with AML procedures. Through coordination with law enforcement it was driven out for some time, but in January of this year, MMM rebooted and it is now reportedly back in South Africa and Nigeria.

The same phenomenon has occurred in multiple other countries including China, wherein, according to inside sources, at least one of the Big 3 exchanges gave MMM representatives the VIP treatment because it boosted their volume. It was a lack of this market surveillance and customer protections and outright fraud that eventually led to many of the Chinese exchanges being investigated and others raided by local and national regulators in a coordinated effort during early January and February But they were lying.

They combed through the accounting books, bank accounts, and trading databases, logging the areas of non-compliance and fraud. This included problems such as allowing wash-trading to occur and unclear margin trading terms and practices. Following the recent government ban on ICO fundraising described in the next section , all exchanges in China involved in fiat-to-cryptocurrency trades have announced they will close in the coming weeks, including Yunbi, an exchange that was popular with ICO issuers.

The two other large exchanges, OKCoin and Huobi, both announced on September 15 th that they will be winding down their domestic exchange by October 31 st. It is still unclear at this time what the exact breakdown in areas of non-compliance were largest or smallest. As mentioned in an earlier post , cryptocurrencies are the preferred payment method for ransomware today because of their inherent characteristics and difficulty to reclaim or extract recourse.

Through the use of data matching and analytics, there are potential solutions to these chain of custody problems outlined later in section 8. Irrespective of where your company is based, the fundraising system in developed — let alone developing countries — is often is a time consuming pain in the rear. The opportunity costs foregone by the executive team that has to road show is often called a necessary evil. There has to be a more accessible way, right? ICO organizers typically do not disclose what these discounts are and often have no vesting cliffs attached to them either.

The surge in popularity of ICOs as a way to quickly exploit and raise funds coins and liquidate them on secondary markets has transitively led to a rise in demand of bitcoin, ether, and several other cryptocurrencies. Because the supply of most of the cryptocurrencies is perfectly inelastic, any significant increase or decrease in demand can only be reflected via volatility in prices.

Hence, ICOs are one of the major contributing factors as to why we have seen record high prices of many different cryptocurrencies that are used as gateway coins into ICOs themselves. Bitcoiners condemning the Ethereum community which itself was crowdfunded as an ICO , because of the popularity in using the Ethereum network for many ICOs… yet not equally condemning illicit fundraising that involves bitcoin or the Bitcoin network or setting up bucket shops such as Sand Hill Exchange strangely one of its founders who was sued by the SEC now writes at Bloomberg.

Irrespective of whether you think it was the right or wrong thing to do because you heart blockchains, the PBOC and other regulators had quite valid reasons to do so: You can hire the services of one of these traders in many of the cryptocurrency trading chat groups. Scene from Boiler Room. Much like boiler rooms of days past. At its dizzying heights, in China, there were about sixty ICO crowdfunding platforms each launching or trying to launch new ICOs on a monthly basis.

In addition, several executives from these exchanges have been given a travel ban. Cryptocurrency exchanges the ones that predated the ICO platforms have to delist ICOs and freeze plans from adding any more at this time. Multiple ICO promotional events, including those by the Fintech Blockchain Group a domestic fund that organized, promoted, and invested in ICOs have been canceled due to the new ban. This past week, Li Xiaolai, an early Bitcoin investor and active ICO promoter, has publicly admitted to having taken the ICO mania too far using a car acceleration example , an admission many link to the timing of this crackdown and ban.

A real ICO in China: For journalists, keep in mind this is mostly just one country described above. It would be a mistake to pin all of the blame on just the ICO operators based in China as similar craziness is happening throughout the rest of the world observe the self-serving celebrity endorsements.

There may be a legitimate, legal way of structuring an ICO without running afoul of helpful regulations, but so far those are few and far between. And as shown above with the initial enforcement actions of just one country, short sighted hustling by unsavory get-rich-quick partisans unfortunately might deep-six the opportunities for non-scammy organizations and entrepreneurs to utilize a compliant ICO model in the future.

Okay, so that may be a little exaggerated. But still the same, few high-profile Bitcoin companies are publishing daily active or monthly active user numbers for a variety of reasons. Founded in May , the only known unicorn to-date is Coinbase. What did most users typically do? They created an account, bought a little bitcoin, and then hoarded it — very few spent it as if it were actual money which is one of the reasons why they removed a publicly viewable transaction chart over a year ago.

To be fair, the recent surge in market prices for cryptocurrencies has likely resulted in huge user growth. But some of this is probably attributed to new users using Coinbase as an on-and-off ramp: United States residents acquiring bitcoin and ether on Coinbase and then participating in ICOs elsewhere.

In reality it was just a USB mining device a Raspberry Pi cobbled together with an obsolete mining chip and was about as costly and useful as the Juicero juicing machine.

Its story is not over: Blockstream is the youngest of the trio. To be fair though, perhaps it does not have KPIs like other tech companies. On the flipside, some entrepreneurs have explained that their preference for total secrecy is not necessary because they are afraid of competition that is a typical rationale of regular startups , but because they are afraid of regulators via banks.

While we would all love to see more data, this is a somewhat believable argument. In the meantime, business journalists should drill down into the specifics about how raised money has been spent, is compliance being skirted, customer acquisition costs, customer retention rate, etc. If you were to draw a Venn diagram, where one circle represented neo Luddism and another circle represented Goldbugism, the areas they overlap would be cryptocurrency Maximalism geocentrism and all.

For instance, on the one hand they want and believe their Chosen One typically BTC or ETC should and will consume the purchasing power of all fiat currencies, yet they dislike any competing cryptocurrency: The rules of free entry do not apply to their coin as somehow a government-free monopoly will form around their coin and only their coin.

Also, you should buy a lot of their coin, like liquidate your life savings asap and buy it now. Whereas, three years ago, most active venture capitalists and entrepreneurs involved in this space were antagonistic towards anything but bitcoin, more and more have become less hostile with respect to new and different platforms. For instance, Brian Armstrong above , the CEO of Coinbase, two and a half years ago, was publicly opposed to supporting development activities towards anything unrelated to Bitcoin.

But as the adoption winds shifted and Ethereum and other platforms began to see growth in their development communities and coin values , Coinbase and other early bastions of maximalism began to support them as well. There is very little publicly available analysis of what is happening with Bitcoin transactions or nearly all cryptocurrencies for that matter: Suddenly Bitcoin is now approaching the market cap of Goldman Sachs!

These shares are registered assets, not bearer assets. Someone identifiable owns them today and even if there is a system crash at the DTCC or some other CSD, shareholders have a system of recourse i.

It is, therefore, unlikely that large trading positions could simultaneously move into and out of billion USD positions each day without significantly moving the market. A better metric to look at is one that involves real legwork to find: That number probably exists, but no one quotes it. We finally have some big-name media beginning to dig into the shenanigans in the space. But organizations like CoinDesk , Coin Telegraph , and others regularly practice a brand of biased reporting which primarily focus on the upside potential of coins and do not provide equal focus on the potential risks.

What are the normal rules around a media company and its staff retweeting and promoting cryptocurrencies or ICOs the parent company or its principals has a stake in? If coin media wants to be taken seriously it will have to take on the best practices and not appear to be a portfolio newsletter: Markets that transmit timely, accurate, and transparent information are better markets and are more likely to grow, see, and support longer-term capital inflows. There are currently 16 stories in the CoinDesk archive which mention Filecoin, including three that specifically discuss its ICO.

Is this soliciting to the public? At cryptocurrency events and fintech events in general , we frequently hear buzz word bingo including: This was the core point of a popular SaveOnSend article on remittances from several years ago. I recommend revisiting that piece as a model for similar in-depth assessments done by people who understand B2B payments, correspondent banking and other part of global transfers.

Obviously this trickles into the other half of this space, the enterprise world which is being designed around specific functional and non-functional requirements, the SLAs, compliance with data privacy laws, etc.

What about Coin Telegraph? It is only good for its cartoon images. There are some notable outliers that serve as good role models and exceptions to the existing pattern and who often write good copy. Examples of which can be found in long end note. Obviously the end note below is non-exhaustive nor an endorsement, but someone should try to invite some or all these people above to an event, emceed by Taariq Lewis.

That could be a good one. There are just a handful of startups that have been funded to create and use analytics to identify usage and user activity on cryptocurrency networks including: Another is that the analytic entrepreneurs are routinely demonized by the same community that directly benefits from the optics they provide to exchanges in order to maintain their banking partnerships and account access.

Such startups are shunned today, unpopular and viewed as counter to the roots of pseudo anonymous cryptocurrencies, however, as regulation seeps into the industry an area that will gain greater attention is identification of usage and user activities. For instance, four years ago, one article effectively killed a startup called Coin Validation because the community rallied and still rallies behind the white flag of anarchy, surrendering to a Luddite ideology instead of supporting commercial businesses that could help Bitcoin and related ideas and technologies comply with legal requirements and earn adoption by mainstream commercial businesses.

For this reason, cryptocurrency fans should be very thankful these analytics companies exist. Wanna Cry ransomware money laundering with Bitcoins in action. More of these analytics providers could provide even better optics into the flow of funds giving regulated institutions better handling of the risks such as the money laundering taking place throughout the entire chain of custody.

Without them, several large cryptocurrency exchanges would likely lose their banking partners entirely; this would reduce liquidity of many trading pairs around the world, leading to prices dropping substantially, and the community relying once again on fewer sources of liquidity run out of the brown bags on shady street corners.

And perhaps there is no better illustration of how these analytic tools can help us understand the fusion of improper or non-existent financial controls plus cryptocurrencies: Journalists, it can be hard to find but the full order book information for many exchanges can be found with enough leg work. If anyone had the inclination to really want to understand what was going on at the exchange, there are 3 rd parties which have a complete record of the order book and trades executed.

Remember, as Kim Nilsson and others have independently discovered, WillyBot turned out to be true. The empirical data and stories above do not mean that investors should stop trading all cryptocurrencies or pass on investing in blockchain-related products and services.

To the contrary, the goal of this article is to elevate awareness that this industry lacks even the most basic safeguards and independent voices that would typically act as a counterbalance against bad actors.

In this FOMO atmosphere investors need to be on full alert of the inherent risks of a less than transparent market with less than accurate information from companies and even news specialists.

In a single block, they can be used as a means to reward an entity for securing transactions and also a payment for holding data hostage.

The cryptocurrency world is basically rediscovering a vast framework of securities and consumer protection laws that already exist; and now they know why they exist. The cryptocurrency community has created an environment where there are a lot of small users suffering diffuse negative outcomes e. Generally speaking, most participants such as traders with an active heartbeat are making money as the cryptocurrency market goes through its current bull run, so no one has much motive to complain or dig deeper into usage and adoption statistics.

We are still at the eff-you-money stage, in which everyone thinks they are Warren Buffett. Like any industry, there are good and bad people at all of these companies. While everyone waits for Harry Markopolos to come in and uncover more details of the messes in the sections above, other ripe areas worth digging into are the dime-a-dozen cryptocurrency-focused funds.

Future posts may look at the uncritical hype in other segments, including the enterprise blockchain world. What happened after the Great Pivot? To protect the privacy of those who provided feedback, I have only included initials: Below are some of the stated positions of several different regulators around the world regarding ICOs.

What do they all say? A friend who is an attorney said it concisely: If you plan to do an ICO or some kind of token sale, be sure to speak with more than one lawyer or law firm to get a legal opinion about what it is you are actually selling or not.

There are a number of internal papers we published over the past several months that the R3 research team and I helped manage and edit. It is early into and at fintech events we can still hear a variety of analogies used to describe what blockchains and distributed ledger technology DLT are and are not. One of the more helpful ones is from Peter Shiau formerly of Blockstack. The Ford Motor Company is well known for its production engineering innovation that gave us the Model T. To this day, the Ford Model T is one of the best selling automobiles of all-time thanks to the sheer number produced and affordability for American middle class families.

It was this breakthrough that enabled Ford to build a new car every 93 minutes, far more quickly than any of its competitors. Carrying the analogy a little further, what is even more powerful about this modern equivalent of the assembly line is that it is not just useful for building cars but also vans and trucks and boats and planes. In just the same way, a blockchain is not just useful for creating a cryptocurrency, but can be applied to a many different processes that multiple parties might rely on to reach agreement on the truth about something.

Less helpful, but all the same plentiful, are the many red herrings and false equivalences that conferences attendees are subjected to. For example, if you want to use a cryptocurrency like Bitcoin, you have to use bitcoin; and if you want to use Ethereum, you have to use ether. They are not interoperable. You have to use their proprietary token in order play in their walled garden.

If you are using a Windows-based PC, open up a Command window. Wait a few seconds and count the hops as your signal traces the route through various network switches and servers until you finally land on your destination. From my abode in the SF area, it took 10 hops to land at Google and 7 hops to land at Microsoft. If you did this exercise in most developed countries, then the switches and servers your signal zigged and zagged through were largely comprised of privately owned and operated networks called ISPs.

There is also depeering , but more on that later. The Internet, or network of networks, consists of 7, Internet Service Provider ISP or carrier networks, which are interconnected in a sparse mesh. Each of the interconnecting links takes one of two forms: Transit agreements have been widely studied and are not the subject of this report. Back to topology, each ISP is able to pass along traffic that originated from other networks, even if these external networks and the traffic therein originate from foreign countries, because the physical systems can speak to one another via standardized transport protocols like TCP and UDP and route via BGP.

And each year there is inevitably tension between one more ISP and consequently depeering takes place. A research paper published in identified 26 such depeering examples and noted that while depeering exists:. As noted above, the internet is a cluster of several thousand ISPs that typically build business models off of a variety of service plans in both the consumer and corporate environments.

From an infrastructure standpoint, notwithstanding that an intranet could be maintained one or more more servers through Software Defined Networks SDNs , it is still a subset of a mash up of ISPs and mesh networks. A private blockchain or private distributed ledger, is a nebulous term which typically means that the validation process for transactions is maintained by known, identified participants, not pseudonymous participants.

Depending on the architecture, it can also achieve the level of privacy that is associated with an intranet while staying clear of the hazards associated with preserving true pseudonymity. For starters, it is not really valid to make a sweeping generalization of all identity-based blockchains and distributed ledgers, as each is architected around specific use-cases and requirements. For instance, some vendors insist on installing on-premise nodes behind the firewall of an enterprise.

Some vendors setup and run a centralized blockchain, from one or two nodes, for an enterprise. Some others tap into existing operational practices such as utilizing VPN connections. And others spin up nodes on public clouds in data centers which are then operated by the enterprise. There are likely more configurations, but as noted above: And this is where identity comes into play: Similarly, most coffee shops, airports, schools, etc. In short, both the internet and intranet are in effect part of identity and permission-based networks.

There is no such thing as an identity-less internet, only tools to mask the users identity e. Anarchic chains , which were designed to operate cryptocurrencies like Bitcoin, attempt to create an identity-less network on top of an identifiable network, hence the reason people involved in illicit activities can sometimes be caught. Interestingly, where the internet analogy does hold up is in how public, anarchic blockchains are no less challenged by the effort and complexity of truly masking identity.

I mentioned this in a footnote in the previous post , but it deserves being highlighted once more. Anarchic blockchains inspired by cryptocurrencies such as Bitcoin, used blocks because Satoshi wanted identity-free consensus e.

That implies miners can come and go at will, without any kind of registration, which eliminated the choice of using any existing consensus algorithm. However, PoW is susceptible to collisions e. When a collision occurs you have to wait longer to obtain the same level of work done on a transaction. Thus you want to minimize them, which resulted in finding a PoW on average every ten minutes. Distributed ledgers such as Corda, use a different design and exist precisely as an identified network, where members cannot just come and go at will, and do have to register.

With Corda, the team also assumes relatively low propagation times between members of a notary cluster. One of the key differences between mere PoW i. It can be tough to do that unless all transactions are visible to everyone and there is a single agreed upon blockchain but if you do not, you will not get enough PoW to yield any meaningful security. From the standpoint of miner validation, in practice cryptocurrencies like Bitcoin are effectively permission-based: Each miner generates trillions of invalid hashes each week and are rewarded with shares of a reward as the reward comes in.

And if you want to change something or possibly insert a transaction, you need hashrate to do so. Not just anyone running a validating node can effect change. More to the point, nearly all of these pools and many of the largest miners have self-doxxed themselves.

They have linked their real world identities to a pseudonymous network whose goals were to mask identities via a purposefully expensive PoW process. As a result, their energy and telecommunication access can be revoked by ISPs, energy companies, and governments.

And that is what is missing from most fintech panels on this topic: If it is cypherpunks and anarchists, then anarchic chains are built around their need for pseudonymous interactions. If it is regulated enterprises, then identity-based systems are built around the need for SLAs and so forth. The two worlds will continue to co-exist, but each network has different utility and comparative advantage.

This was originally sent to R3 members on March 31, I was recently talking with a friend who spent the past decade in an operations role at a large enterprise in the telecommunication sector. He has a matter-of-fact personality that likes to cut through the smoke and mirrors to find the fire. I explained to him my role of having to filter through the dozens of entities that my market research team at R3 speaks with each month. For instance, because we typically act as the first part of the funnel for our organization, we end up listening to a great deal of startup pitches.

The first year alone we looked at and spoke to more than entities, a number that has now reached about Should you seek advice from people who never interface with enterprises or institutions and get all their wisdom from social media?

Or listen to columnists whose only interaction with banks is the ATM or a cryptocurrency meetup? Or to media outlets that do not disclose their coin holdings?

I have personally seen dozens of decks from vendors along the entire spectrum of sizes during the current hype cycle. For instance, there are couple dozen different startups that claim to have somehow built an enterprise-grade blockchain system without having to go through the arduous process of gathering the functional and non-functional requirements from the enterprises they intended to integrate with.

They are not the same thing. If your job is to help filter vendors for financial institutions, governments, investment funds, or other large enterprises, then some of these questions may be helpful in determining whether or not your firm should engage with the vendor:. We think the number of companies with legs will continue to increase over time but chainwashing will continue to be a noise pollution problem for the next few years in the enterprise world even after production systems have been integrated into institutions.

Earlier today, with some help from the R3 research team thanks for the grammar fixes! It specifically looks at questions publicly raised by the SEC. It bears mentioning that R3 itself is not in any shape or fashion involved with this ETF or in using the Bitcoin network. This tangential paper solely represents my views and not those of my employer or companies I advise. I worked on it in my spare time. R3 typically makes research papers available months after sending it to members, so check back here later next spring or summer to see if it has been posted.

The views expressed below are solely my own and do not necessarily represent the views of my employer or any organization I advise]. Their lollipops and rainbows narrative can be found on a multitude of websites, social media accounts, and on panels at conferences. But very little long-form has been spent explaining what these actually mean beyond superficial warm feelings either side is trying to engender.

Or in this case, who would want to be known as anti-open and anti-permissionless? There are some general commonalities between anarchic and archic chains but before getting there, what does anarchic mean in this context?

An anarchic network — in this case an anarchic blockchain — simply means a chain that purposefully lacks any ties to legal institutions and nation-state infrastructure. That is to say, the architects of an anarchic chain set out to create an extralegal virtual-only entity that is divorced from governments and regulators; entities that could censor data transfers and on-chain activities.

There have been multiple attempts to build anarchic-types of networks in the past such as Tor ; perhaps the most popularly known anarchic blockchains in use are Bitcoin and Ethereum. Anarchic can also mean that a chain, or a network layer, has no formal or de jure governance process for handling disputes.

In this case, both Bitcoin and Ethereum among others are double-fisting anarchy. In addition, many archic chain creators attempt to bake-in and enable on-chain dispute mechanisms and methods for handling disputes off-chain in the event there is a problem. I think my favorite tweet last year was along the lines of: Without explicit governance and dispute-resolution mechanisms we will just revert back to our lowest common denominator: By their nature these two worlds are polar opposites in terms of network designs, assumptions, and goals.

With that in mind, below are three commonalities that both types of networks have but each of which is handled differently:.

For anarchic networks like Ethereum and Bitcoin, permissioning — that is to say, deciding who gets to change and update the log of records, or in this case digitally sign blocks, is usually handled via proof-of-work. Permissioning in this specific case has nothing to do with what kind of applications can be used on it, who can look at the code, who can modify the code, who can send transactions, etc.

These are all tangential to the key foundational question of who gets to digitally sign and update the log of history in the first place. Some come and go over time but in general there is a quasi-static membership pool of block signers; and the operators of these membership pools is generally known and no longer identity-less pseudonymous.

They even sit on stage at public conferences and pose for pictures and… bring photo journalists to their actual data centers. This creates some fundamental problems surrounding the goals of achieving censorship-resistance as well as the goals of routing around regulatory regimes.

Recall that neither Bitcoin nor Ethereum were designed to interface with the traditional legal system which compels validators, payment processors, custodians, and financial intermediaries to comply with a bevy of identity management and consumer protection requirements. In fact, anarchic chains were designed to do just the opposite and instead maintain a network that enables identity-less participants to move data peer-to-peer without complying with a list of external rules and governance processes.

As noted above, anarchic chains set out to be their own sovereign entity, a type of virtual nation-state divorced from traditional legal infrastructure altogether. And to achieve their objective of enabling identity-less participants to transfer data from one to another without having to be vetted by a party capable of censoring the movement of data, the network designers believed they could make their network of validators and block makers — the cloud of machines processing payments and providing digital signatures — decentralized to the extent that the overall network could maintain reliable uptime in the face of network splits as well as malicious activity from governmental and Byzantine actors.

So what about that cold, heartless world of closed, walled-off gardens managed by intranet builders and training wheel makers? When, where, who, etc. Are we talking about permission to enter walled garden , permission to make any transaction identified keys not pseudonyms , permission to act approved by regulator in each instance , permission to put money in, permission to take money out?

There is no such thing as a global shared ledger standard designed around their operating requirements. Banks and other institutions are looking for novel, secure solutions to reduce certain legacy costs and have been looking at an army of different technology vendors for years to do so. But as I have pointed out before, there is no such thing as a fit-for-purpose distributed ledger that can provide the type of back-office utility yet.

Fit-for-purpose means that some team of geeks sat down with other teams of geeks at banks to talk about super unsexy things for months and years on end to solve specific issues based on a set of explicit functional and non-functional requirements at said bank. If you simply just start building a blockchain app for blockchain app sake, you will likely end up like BitPay or ChangeTip.

At least with anarchic chain architects themselves, to their credit, are often attempting to solve for a specific problem-set: On the other hand: They discarded nearly all of them because — spoiler alert — anarchic chains were not built for the requirements that regulated banks have. Archic chains are not a panacea to everything and they are certainly not the most exciting thing since the invention of the Internet: OxiClean was, and you could only originally get it by calling a number.

This may sound like an unimportant area of interest, be sure to look at this presentation. Or in short, with archic chains: All PoW effectively does is delegate who can append a log in an untrusted network.

As a matter of fact, there is oodles of immutable data that predates cryptocurrency networks like Bitcoin, housed on a sundry of databases worldwide. We are nearing the end of year two of the grand totem wars, of the nonsensical permissioned versus permissionless wannabe debate.

There is no versus. There are ironclad trade-offs: A chain cannot be both anarchic and archic. One set of utilities has to have a priority over the other e. As a consequence, anarchic chains continue to act as testnets for archic chains. After all, why use an anarchic chain in which governance is handled by anonymous eggs on Twitter and ironically censorship-happy moderators on reddit? Perhaps things will change and the great expectations promised by anarchic chains will come to fruition.

In fact, if Boltzmann brains can exist then that is always in the realm of possibilities. Perhaps those laws will change, but they might not. It will be worth checking in on the Emochain and Statistchain caricatures in the coming months: Or maybe Panoptichain will be built instead. Earlier today our architecture team released its first public whitepaper on Corda.

The WSJ covered it here and here. Yesterday, at block height , many elements of the Ethereum community coordinated a purposeful hardfork. After several weeks of debate and just over a couple weeks of preparation, key stakeholders in the community — namely miners and exchanges — attempted to create a smooth transition from Ethereum Prime sometimes referred to as Ethereum Classic into Ethereum Core Ethereum One.

Was the hardfork a success? To answer that question depends on which parallel universe or chain you resided on. Because public blockchains intentionally lack terms of service, EULA, and service level agreements, therefore it is difficult to say who is legally liable for mistakes or loses.

Which party is supposed to provide compensation and restitution? This whole hardfork exercise visualizes a number of issues that this blog has articulated in the past.

Perhaps the most controversial is that simply: The best a cryptocurrency community could inherently achieve is a de facto mainnet. Public blockchains such as Bitcoin and Ethereum, intentionally lack any ties into the traditional legal infrastructure. The original designers made it a point to try and make public blockchains extraterritorial and sovereign to the physical world in which we live in.

In other words, public blockchains are anarchic. However, even in this world there is a debate as to whether or not it is the longest chain or the chain with the most work done, that is determines which chain is the legitimate chain and which are the apostates. And this is where, fundamentally, it becomes difficult for regulated institutions to use a public blockchain for transferring regulated data and regulated financial instruments.

For instance, in March an accidental , unintended fork occurred on what many participants claimed as the Bitcoin mainnet. To rectify this situation, over roughly four hours, operators of large mining pools, developers, and several exchanges met on IRC to coordinate and choose which chain they would support and which would be discarded. This was effectively, at the time, the largest fork-by-social-consensus attempted e.

There were winners and losers. OKPay, a payment processor, lost several thousand dollars and BTC Guild, a large mining pool who had expended real capital, mined some of the now discarded blocks.

In the Bitcoin world, this type of coordination event is slowly happening again with the never ending block size debate.

One team, Bitcoin Classic, is a small group of developers that supports a hardfork to relatively, quickly increase the block size from 1 MB to 2 MB and higher. Another group, dubbed Bitcoin Core, prefers a slower role out of code over a period of years that includes changes that would eventually increase the block size e.

Yet as it lacks a formal governance structure, neither side has de jure legitimacy but instead relies on the court of public opinion to make their case.

This is typically done by lobbying well-known figureheads on social media as well as mining pools directly. Thus, it is a bit ironic that a system purposefully designed for pseudonymous interactions in which participants were assumed to be Byzantine and unknown, instead now relies on known, gated, and trusted individuals and companies to operate. With this backstory it is increasingly clear that, in the legal sense, public blockchains are not actual distributed ledgers.

Distributed, yes; ledgers, no. As Robert Sams articulates: I think the confusion comes from thinking of cryptocurrency chains as ledgers at all. A cryptocurrency blockchain is an attempt at a decentralised solution to the double spending problem for a digital, extra-legal bearer asset.

With a bearer asset, possession of some instrument a private key in the cryptocurrency world means ownership of the asset. With a registered asset, ownership is determined by valid entry in a registry mapping an off-chain identity to the asset.

The bitcoin blockchain is a public log of proofs of instrument possession by anonymous parties. As I have discussed previously, public blockchains intentionally lack hooks into off-chain legal identification systems.

Because as Sams noted above: Arguably it is self-defeating to link and tie all of the participants of the validation mining process and asset transfer process users to legal identities and gate them from using or not using the network services.

All you have created is a massively expensive permissioned-on-permissionless platform. There are multiple reasons, but partly due to the need to reduce settlement risks: As illustrated with the purposeful Ethereum One hardfork and the accidental Bitcoin fork in , public blockchains by design, can only provide probabilistic settlement finality. Sure, the data inside the blocks itself is immutable, but the ordering and who does the ordering of the blocks is not. What does this mean? Recall that for both Ethereum and Bitcoin, information usually just private keys are hashed multiple times by a SHA algorithm making the information effectively immutable.

However, blocks can and will be reorganized, they are not immutable. Public blockchains are secured by social and economic consensus, not by math. As a consequence, there are some fundamental problems with any fork on public blockchains: And coupled with the lack of hooks for off-chain identity means that public blockchains — anarchic blockchains — are not well-suited or fit-for-purpose for regulated financial institutions.

After all, who is financially, contractually, and legally responsible for the consequences of a softfork or hardfork on a public blockchain? These types of forks also open up the door for future forks: Who is allowed and responsible to make those decisions? If another instance like the successful attack and counter-attack on The DAO takes place, will the community decide to fork again?

If 2 MB blocks are seen as inadequate, who bears the legal and financial responsibility of a new fork that supports larger or smaller blocks? If any regulated institution lose assets or funds in this forking process, who bears responsibility? Members of IRC rooms?

If the answers are caveat emptor , then that level of risk may not be desirable to many market participants. In the case of The DAO, the attacker allegedly threatened to sue participants acting against his interests because he claimed: Does he have legal standing? At this time it is unclear what court would have accepted his lawsuit. If you cannot tie your code, chain, or ledger into the legal system, then it might be an unauthoritative ledger from the perspective of courts.

We continue to learn from the public blockchain world, such as the consequences of forks, and the industry as a whole should try to incorporate these lessons into their systems — especially if they want anyone of weight to use them. After all, we are continually bombarded by cryptocurrency enthusiasts each day telling us that exponential growth is occurring.

For more background, see previous posts from January and April. As discussed in previous posts , LocalBitcoins is a site that facilitates the person-to-person transfer of bitcoins to cash and vice versa.

While there is a lot of boasting about how it may be potentially used in developing countries, most of the volume still takes place in developed countries and as shown in other posts, it is commonly used to gain access to illicit channels because there is no KYC, KYCC, or AML involved. Basically Uber for cash, without any legal identification. For comparison, most VC-backed exchanges do several multiples more in volume during the same time frame.

People that like volatility include: What articles and reporters should do in the future is actually talk to consumers and everyday users to balance out the hype and euphoria of analysts who do not disclose their holdings or their firms holdings of cryptocurrencies. The average user probably would not be very happy about having to hedge that type of volatility, largely because there are few practical ways to do so.

Consumers want boring currencies, not something they have to pay attention to every 10 minutes. And ether ETH was even more volatile during the same time frame: Counterparty is a watermarked token platform that, as shown in previous quarters, has hit a plateau and typically just sees a few hundred transactions a day.

Part of this is due to the fact that the core development team has been focused on other commercial opportunities e. As shown in the chart above, on any given day in Q2 the Ethereum blockchain processed roughly 40, transactions. In Q1 that hovered between 15,, transactions.

In addition, according to CoinGecko , Counterparty has lost some popularity — falling to 14th from 10th in its tables from last quarter. Ethereum remained in 2nd overall. Another trend observed in the last quarterly review remains constant: Ethereum has significantly more meetups than Counterparty and is 2nd only to Bitcoin in that measure as well.

Organ of Corti — Time period: January 1, — June 27, Perhaps there is genuine growth, but what is the break down? As we can see from the chart above, while non -long chain transactions have indeed grown over the past quarter, they are still far outpaced by long chain transactions which as discussed in multiple articles, can be comprised of unspendable faucet rewards dust , gambling bets and a laundry list of other non-commercial activity.

Furthermore, and not to wade into the massive black hole that is the block size debate: As a consequence some have asked if fee pressure would incentivize moving activity off-chain and onto other services and even onto other blockchains. This may be worth looking into as the block size reaches its max limit in the future.

Or maybe they just pack up and leave the space entirely? We have looked at wallets here multiple times. To my knowledge no one is willing to publicly discuss their monthly or daily user number.

This number is likely tied to the amount of email-based registrations they have had over the past four years circa May 12, But this is a measure of wallets that have been created on the site, not actual users. This past May, when CoinDesk ran a story about the company, I looked in the Google Play Store and it says the app had been downloaded 5, times. Last week, Abra announced it was officially launching its app into the US. As of this writing, it was still at 5, downloads.

As of this writing, the top 5 Bitcoin wallets in the Google Play Store in order of appearance are:. The Apple App Store does not publicly state how many times an application has been downloaded.

It does rank apps based on a combination of user ratings and downloads. The top 6 on the iPhone in order of appearance:. Interestingly however, the order is slightly different in the App Store on an iPad. The top 6 are:. It may be worth revisiting these again next quarter.

If you want to burn some time, readers may be interested in looking at specific rank and activity via App Annie. Most new cohorts and batches at startup accelerators and incubators usually only stay months. A typical intake may see companies each get a little bit of seed funding in exchange for a percentage of the equity. During the incubation period the startup is usually provided mentorship, legal advice, office space, access to social networks and so forth.

It is common place to hear people of all stripes in Silicon Valley state that 9 out of 10 of these startups will burn out within a couple years — that the incubator relies on one of them having a big exit in order to fund the other duds.

VC, Plug and Play, YCombinator and other incubators have added and removed startups from their websites and marketing material based on the traction startups have had. And cryptocurrency startups are not too different from this circle of life. Unfortunately, no one has consistently published user numbers, so it is unclear what the connection between funding and growth is as this time. In fact, in an odd twist, instead of measuring success by monthly active users, customers, or revenue, many Silicon Valley-based companies are measuring success based on how much money they raised.

How many bitcoins did it mine prior to its pivot into consumer hardware? How many 21 computers were sold? How many users have installed 21? And what are its key differences relative to what Jeremy Rubin created in Tidbit? Again, this is not to single out 21inc, but rather to point out if companies in the public blockchain space were seeing the traction that they generally claim to on social media and conferences — then as discussed in previous posts, they would probably advertise those wins and successes.

With funding comes hiring. Since it is very difficult to find public numbers, there is another way to gauge how fast companies are growing: The last Bitcoin Job Fair was last held in April It is unclear how many people that were hired during that event still work for the companies they worked for. A number of VC-backed companies and large enterprises or head hunters recruiting on their behalf have listed openings in the past month.

Notable startups that are missing altogether: Perhaps they use LinkedIn instead? It is unclear what the root cause s of the volatility were above. Based on process of elimination and the stats in this post, the likely answer does not appear to be consumer usage e. After all, both BitPay and Coinbase have stopped posting consumer-related stats and they are purportedly the largest merchant processors in the ecosystem.

Extraordinary claims requires extraordinary evidence: For instance, the price of ether ETH has increased 10x over the past 6 months but there is virtually no economy surrounding its young ecosystem. Mass consumer adoption is not happening as GIF artisans might says. Rather it is likely all speculation based — which is probably the same for all other cryptocurrencies, including Bitcoin.

About a year ago we began seeing a big noticeable pivot away from cryptocurrencies to non-cryptocurrency-based distributed ledgers. After all, why continue building products that are not monetizable or profitable for a market that remains diminutive? I have spent the past few weeks in East Asia, primarily in China visiting friends and relatives. Because the connection to the outside world was limited, the upside was that the cacophonous noise of perma cryptocurrency pumpers was relatively muted.

I have had a chance to reflect on a number of ideas that are currently being discussed at conferences and on social media.

A type of Kimberley Process but for cryptocurrencies. What Ou makes a mistake on is in her first sentence: I know, I know, all other digital currencies that are not proof-of-work are crap coins and those who make them are pearl-clutching morons.

Contra Ou and Coin Center, it is possible for central banks, and even commercial banks, to issue their own digital currency — and they could do so without using resource intensive proof-of-work.

Back to proof-of-work coins: If the network ever became cheaper to operate it would also mean it is cheaper to permanently fork the network. While it is debatable as to whether or not Bitcoin mining is wasteful or not, it empirically does consume real resources beyond the costs of energy and the externalization of pollution onto the environment.

I quickly made the chart above to illustrate this revenue or costs depending on the point of view. There are a few caveats: Empirically we know that miners will deploy and consume capital up to the point where the marginal costs equals the marginal value of the coin. There are a variety of sites that attempt to gauge what the energy consumption is to support the network hashrate.

Perhaps the most frequently cited is Digiconomist. For the month of December, the network hashrate for Bitcoin hovered around The tweet above is not a rare occurrence. If you are reading this, you probably know someone who tried to mine a cryptocurrency from an office computer or maybe their computer was the victim of ransomware.

You may not think of much of the externalization and socialization of equipment degradation that is taking place, but because mining is a resource intensive process, the machines used for that purpose depreciate far faster than those with normal office usage.

Even if miners eventually fully utilize renewable energy resources, most hash-generating machines currently deployed do not and will not next year. These figures also do not factor in the fully validating nodes that each network has that run out of charity people run them without any compensation yet consume resources. According to Bitnodes, Bitcoin has around 11, nodes online.

According to EtherNodes, Ethereum has around 26, nodes online. There is, by dividing hashpower by cost and comparing to costs of various known processor types. For instance, see this footnote for the math on how two trillion low-end laptop CPUs could be used. This is not to say you should march in the streets demanding that miners should forgo the use of coal power plants and only use solar panels which of course, require consumption of resources including semiconductors , there are after all, many other activities that are relatively wasteful.

But some Bitcoin and cryptocurrency enthusiasts are actively whitewashing the environmental impact of their anarchic systems and cannot empirically claim that their proof-of-work-based networks are any less wasteful or resource intensive than the traditional foreign capital markets they loathe.

In point of fact, while the traditional financial markets will continue to exist and grow without having to rely on cryptocurrencies for rationally pricing domestic economic activity, in , as in years prior, Bitcoinland is still fully dependent on the stability of foreign economies providing liquidity and pricing data to the endogenous labor force of Bitcoin. Specifically, I argue in a new article , that miners cannot calculate without using a foreign unit of account; that economic calculations on whether or not to deploy and consume capital for expanding mining operations can only be done with stable foreign currency.

Keep in mind that cryptocurrencies such as Bitcoin only clear not settle just one coin or token whereas traditional financial markets manage, transact, clear and settle hundreds of different financial instruments each day. But beneath the slick facade is a potential conflict of interest that has not been looked at by any media outlet. Specifically, around its formal foray into building tools for central bank digital currency CBDC.

Rob Ali, a well-respected lawyer turned research scientist formerly with the Bank of England , was hired earlier this year by DCI to build and lead a team at MIT for the purpose of continuing the research he had started at the BoE.

This is no secret. Ito is also the co-founder and director of Digital Garage. Digital Garage is an investor in Blockstream and vocal advocate of Lightning; coincidentally Blockstream is building its own Lightning implementation. In looking at his publicly recorded events on this topic Ito does not appear to disclose that the organizations he co-runs and invests in, directly benefit from the marketing efforts that Bitcoin Core and Lightning receive. Perhaps this is just miscommunication.

Because it would help reduce the perception that Ito — and others developers involved in it — benefits from these overlapping relationships. And after those two weeks are over, Hanks is informed yet again that it will be ready in another two weeks. The Lightning Network, as a concept, was first announced via a draft paper in February Its authors, Tadge Dryja and Joseph Poon, had initially sketched out some of the original ideas at their previous employer Vaurum now called Mirror.

Maybe it will eventually but not one of its multiple implementations is quite ready today unless you want to use a centralized hub. And like multiple other fintech infrastructure projects, some of its advocates repeatedly said it would be ready in less than 6 months, several times.

Segregated Witness SegWit was activated on August 24, More than four months later, Lightning is still not in production without the use of hubs. To be fair, there is only so much they could cover in a six minutes allocation. Who could have guessed it would take longer than 6 months?

For what it is worth, enterprise DLT vendors as a whole did a very poor job managing expectations the past couple of years which I mentioned in a recent interview. And they certainly had their own PR campaigns during the past couple of years too, there is no denying that.

Someone should measure and quantify the amount of mentions on social media and news stories covering enterprise vendors and proposals like Lightning. In a recent unscientific poll I did via Twitter the most scientific voting platform ever!

With that suggestion, I can see it now: Sure beats shipping code! A future post could look at all funded infrastructure-related efforts to improve cryptocurrency networks. Which ones, if any, showed much progress in Interested in reading more contrarian views on the Lightning Network?

See Gerard and Stolfi and Stolfi2x and Stolfi3x. Without sugar coating it: This includes The Information , which is usually stellar, but seems to have fallen in the tank with the ICO pumpers. It took some time, but eventually mainstream and a few not-so-mainstream coverage has brought a much needed spotlight on some of the shady actions that took place this year.

There were also a number of good papers from lawyers and academics published throughout Just a few short months after Stephen Palley published the article above, a lawsuit occurred in which, surprise surprise, the plaintiffs highlighted specific claims in the white paper:. Unfortunately will probably go down as the year in which several generations of nerds turned into day-trading schmucks, with colorful technical charts and all.

The dollar is crashing! A few parting bits of advice: Rethink donating or investing funds to anyone who makes up rumors about mining nationalization or who was fired for gambling problems or has a communications team solely dedicated to designing memes for Twitter.

I may write-up an article breaking down its reception at a later date. Below are some of my outward facing appearances. For background, this post assumes you have read some or ideally all of the previous posts:. At the time, the reference pricing data came from the following cryptocurrency exchanges: As of today, the CME has formally whittled down those six into a smaller group of four exchanges: The principals initially created and used the Winkdex.

The Winkdex included many different cryptocurrency exchanges over time, including Mt. This is chronicled in a paper I wrote last year. During the recent Bitcoin Core versus SegWit2X S2X political battle, one of the four exchanges that constitute the CME reference rate announced which ticker symbol would be attributed to a specific chain. In our prior blog post we indicated that at the time of the fork, the existing chain will be called Bitcoin BTC and the Segwit2x fork will be called Bitcoin2x B2X.

Since then, some customers have asked us to clarify what will happen after the fork. We are going to call the chain with the most accumulated difficulty Bitcoin. We will make a determination on this change once we believe the forks are in a stable state. We may also consider other factors such as market cap and community support to determine stability. We believe that letting the market decide is the best way to ensure that Bitcoin remains a fair and open network.

There have been several articles that attempted to track and chronicle what all of the exchanges announced with respect to the ticker symbol and the fork. At the time of this writing, itBit, Kraken, and Bitstamp have not publicly commented on this specific fork although they have publicly signaled specific views on other proposed forks in the past.

And this creates a challenge for any financial institution attempting to create a financial instrument that is compromised of a basket of cryptocurrency-specific prices from different, independent cryptocurrency exchanges. Ignoring the lack of adequate market surveillance for the moment, if there is a future fork and the constituent exchanges that comprise the reference data choose different forks to be represented by the same ticker symbol, this will likely create problems for the financial product.

Over the past several years the primary debate has been around scaling, specifically around block sizes. What if future forks are fought over changes to transaction fees, money supply, or KYC requirements?

Obviously this is a situation the CME and similar financial institutions wants to avoid at all costs. Either way, as by far the largest player in the market, in doing so it will be governing what Bitcoin is. Unlike what most Bitcoin promoters often think: It is going to become a key arm in its governance.

That said, as we have seen before, rather than directly get involved with the tribes and religions of development they might simply defer to the incumbent Bitcoin Core rules — so that they can remain above the politics and out of any legal liabilities. For more detailed commentary on this topic, be sure to read the articles linked to at the top. This will be worth re-visiting once the CME and other regulated institutions fully launch their proposed products.

Financial market infrastructure in just one country Source. It also illuminates the poor fiduciary care that some VCs have towards their LPs. In some documented cases, several dozen executives from VC-backed Bitcoin companies have spent thousands of hours debating this size attribute instead of building and shipping commercializable products. But hey, at least they sell cool hats and built up very large Twitter followings, right? Oh, but you realize that and still want to launch this new Bitcoin implementation with the help of other elements of the community, such as some miners and exchanges?

According to some vocal members of the current BIP approval committee Bitcoin Core and its surrogates, this is an attack on Bitcoin. Obviously this is absurd because there is no de jure or legally defined process for changing or forking Bitcoin, either the chain itself or the code. There is no terms of service or contract which explicitly states what Bitcoin is and who controls its development process.

Fast forward to this current moment in time: At any time a block maker miner could use a different software implementation with different consensus rules. They, like Satoshi before them, do not need permission to modify the code. That is certainly a risk. In fact, several exchanges are now effectively white listing and black listing — permissioning — Bitcoin-related blocks.

For instance, Bittrex, a large crypto-to-crypto exchange, has said:. Bittrex will observe the Bitcoin network for a period of 24 to 48 hours to determine if a chain split has occurred and the outcome. Bitfinex, the largest and most nebulous cryptocurrency exchange in the world, took this even further by stating:. The incumbent implementation based on the existing Bitcoin consensus protocol will continue to trade as BTC even if the B2X chain has more hashing power.

After heavy public and private lobbying by members and surrogates of Bitcoin Core, other exchanges have instituted similar policies favoring the incumbent. Historically miners have built on the chain that is both the longest and also has the most accumulated difficulty… and one that has enough profitability to pay for the electricity bills. Visions of what Bitcoin is and how it should be defined have clearly, empirically shifted over time. But since this network was purposefully designed to be self-sovereign and anarchic — lacking contracts and hooks into any legal system — no one group can claim legitimacy over its evolution or its forks.

Is it the longest chain? The chain with the most accumulated difficulty? Furthermore, if the BIP approval committee gets to say what software miners or exchanges should or should not use e. And this could have legal implications. Recall that in the past, because block making and development were originally separate, FinCEN and other regulators issued guidance stating that decentralized cryptocurrencies were exempt from money transmission laws.

An argument could be made that these dev groups are not just a loose collective of volunteers. In fact, I have no coins of any sort at this time.

Once institutions, regulators, and sophisticated investors enter the picture, they will want to hold people accountable for actions. In fact, the common refrain Bitcoin Core and its surrogates continually use amounts to arguments in favor of a purported natural monopoly. First, Joi Ito is not a disinterested party in this debate.

Through Digital Garage which he co-founded it has invested in Blockstream, a company that employs several influential Bitcoin Core devs. But this is an empirically poor analogy because it ignores technology transfer and aerospace education… and the fact that multiple countries have independently, safely sent humans, animals, and satellites into space.

It also ignores how competitive verticals typically have more than just one dominant enterprise: Each of these has more than one company providing goods and services and even usually more than just one product development team developing those.

Intel, for example, has dozens of design teams working on many new chips at any given time of the year. And they are just one of the major semiconductor companies.

Even in the highly regulated markets like financial services there is more than one bank. Review of Global Retail Core Banking. It is a bit ironic that Bitcoin Core seeks to have a monopoly on the BIP process yet even banks have more than one vendor to choose from for mission critical software securely managing and processing trillions of dollars in assets each day. On the enterprise non-anarchic blockchain side of the ecosystem, there are well over a dozen funded teams shipping code, some of which is being used in pilots by regulated institutions that are liable if a system breaks.

But as one vocal Core supporter in a WeChat room recently said, Bitcoin Core is equivalent to Fedwire or Swift, there is only one of each; so too does it make sense for only one Bitcoin dev team to exist.

Firstly, this conflates at least four different things: In effect, they have a bit of a legally ring-fenced marketplace to solve specific industry problems though this is somewhat debatable because there are some alternatives now.

If this supporter is equating Core, the codebase, with real financial market infrastructure FMI , then they should be prepared to be potentially regulated. As I mentioned in my previous article: Depending on the jurisdiction, Core and other teams could end up with regulatory oversight since they insist on having a monopoly on the main only implementation and process by which the implementation is managed.

Remember that Venn diagram at the very top? The companies and organizations that manage FMI today for central banks RTGSs , central securities depositories CSDs , and other intermediaries such as custodians and CCPs, have specific legal and contractual obligations and liabilities.

Following the most recent financial crisis, the G and other counties and organizations established the Financial Stability Board FSB to better coordinate and get a handle on systemic risks among other issues. Fact-check me by reading through the PFMI guide. Depending on the jurisdiction they may or may not be scrutinized as FMI. But in contrast, in looking at the evolution and development of the enterprise chain ecosystem — as I described in multiple previous articles — there are valuable lessons that can be learned from these vendors as to how they plan to operate a compliant network.

I recall one conversation with several managing directors at a large US investment bank over a year ago: Maybe existing FMI operators will do just that. Speaking of which, will Bitcoin Core or other dev teams apply to participate with organizations like the FSB that monitor systemically important financial institutions and infrastructure?

Angela Walch has argued slides that some coders, especially of anarchic chains, are a type of fiduciary. Look no further than the string-pulling Mafia which tried to decentralize its operations only for the top decision makers to ultimately be held liable for the activities of their minions.

Based on observations from how Bitcoin Core evolved and consolidated its power over time e. While the power struggles between various factions within the Bitcoin development community will likely rage on for years, by permissioning off the development process, Bitcoin Core and any other identifiable development groups , have likely only begun to face the potential regulatory mine field they have foisted on themselves.

Historically blockchain-based systems have and still are highly dependent on the input and decision-making by people: And the goal of appointing or choosing specific teams on anarchic chains seems to be based around resolving political divisions without disruptive network splits.

The big questions now are: What legal responsibilities and regulatory oversight will the developers have? With billions of dollars on the line, will they need to submit upgrade and road map proposals for approval? This was published with his permission.

Bitcoin price is about 10 times of what it was a year ago. The exchange that decisively sets Bitcoin price is Bitfinex, a secretive institution with unknown beneficiary structure and place of organization. To resume trading, Bitfinex enlisted the help of Tether , another company with unknown beneficiary structure and place of organization, but based on announcements is likely under common share holder control with Bitfinex.

The invention of USDTs led to the proliferation of numerous crypto-currency exchanges. Therefore, USDTs not only help these exchanges remove the need for formal banking arrangement, but also enables these exchanges to organize in lesser known jurisdictions e. Most of these exchanges claim to screen-off visitors from the United States and other countries with laws on coin-to-coin trading, but the screen-off is often perfunctory.

In almost all cases, the screen can be defeated with a simple mouse click. It is doubtful that these exchanges perform meaningful due diligence beyond identity verification to combat money laundering, financing of terrorism, and corruption of politically exposed persons. Bitfinex, for example, requires no identity verification at all for most trading activities and imposes no trading amount limits on unverified accounts.

The enablement of these exchanges where rampant money laundering is possible is outside of the scope of this note.

Instead, I would like to bring to your attention the distinct possibility that Bitfinex, as the likely controller of Tether, is a bad actor. The sole mandate of this central bank is to enrich itself through market manipulation. The second image above illustrates a strong correlation but admittedly not causation between the total amount of USDTs in circulation and Bitcoin price. The memo, however, is of no probative value.

Manipulation of Bitcoin prices referenced by these entities is prosecutable by the CFTC, an agency with broad statutory authority to prosecute manipulation of commodity prices under the Commodity Exchange Act including Section as amended by the Dodd-Frank Act. Although none of these CFTC-registered entities are currently including Bitfinex in the calculation of their Bitcoin reference rates CME used to , it is well understood and could be easily established partially because of the transparency of Bitcoin blockchain that Bitfinex-initiated price movements ripple through all exchanges via manual and automated trading.

If you are considering investing into Bitcoin at this time, please look closer at the exchanges involved in price discovery and give it a second thought. The views expressed below are solely my own and do not necessarily represent the views of any organization I advise. Less than two years later, the creator walked away from the project and without ever revealing their real identity. The creator likely stayed anonymous for a variety of reasons, including the fact that by creating and administering a new payment system they may have been violating money transmission laws in multiple countries.

At the end of that month, US federal agents raided a Costa Rica-based company called Liberty Reserve due to money laundering violations along with a list of other crimes. Liberty Reserve was a centralized payment platform that marketed to its users the ability to anonymously send funds to one another. According to the BBC:. Last year the founder of Liberty Reserve, Arthur Budovsky, was convicted and sentenced to twenty years in prison.

Several other insiders also received sentences. Liberty Reserve had more than 5 million users including more than , in the US — it is unclear at this time if any of the users are being prosecuted. But this misses the point. If you play with a highly regulated industry such as financial services, be prepared for the existing stakeholders such as regulators and law enforcement to increasingly scrutinize your operations as they detect familiar activities, such as the marketing and sale of securities or operating a payment platform.

If you spend your weekends cosplaying online as a cypherpunk and yet voluntarily sit on-stage wearing a name tag with your real name at public events and promote financial products and financial market infrastructure to the world at large, consider that there may be people who later watch these videos stored on Youtube.

Recall that Slack stores everything, including your private pump and dump strategies. If you used cloud-based email, there is a non-zero chance that your successful solicitations and payola to coin media could be discovered after the cloud provider receives a subpoena.

What does this have to do with blockchains? Below we discuss a few ideas that tie in with money transmission and payment processing. Let me state from the onset that I am unaware of any current or potential criminal or civil cases specifically against developers of cryptocurrency networks.

Furthermore, regulators and law enforcement may not view development teams as administrators at all. I am not a lawyer and this is not legal advice. An administrator is a person engaged as a business in issuing putting into circulation a virtual currency, and who has the authority to redeem to withdraw from circulation such virtual currency. The rest of the March guidance goes into a little more detail of what administrators are with respect to money exchange itself.

While other people can submit suggested changes, he alone has commit access to make any changes to the code. And then sets up one mining node, initiates the genesis block, and begins Day 1 of Bobcoin.

Is Bob an administrator? If so, at what point does he stop being an administrator? When there are more than one mining nodes in operation? When more than one developer has commit access? Can he redeem it? He could change the money supply schedule, doubling or halving it if he so pleased.

He could make a new version that separates the digital signatures from other data in the block. He could change the required transaction fee. He could add functionality such as P2SH. He could change how the difficulty setting adjusts. Arguably yes, but there should be some objective measuring sticks as to what these attributes are e.

In the proof-of-work-based cryptocurrency world today, we have observed a stark logistical change from Bitcoin in Whereas originally all nodes were miners and vice versa, today you have a permanent bifurcation between: Similarly, many participants in the market, including dozens of developers and miners, use their real legal identities through the use of verified social media accounts and the speaking circuit at fintech events.

They are no longer pseudonymous. In order for participants to coordinate and administer these types of networks, they did not necessarily need to reveal themselves. But because many have publicly identified themselves , they could be served with legal process and held responsible if legally liable: Access can become gated by a clique who determines who can be involved.

This may have been the case in and prior to mining pools and dedicated development teams but it may not stand up to closer scrutiny in As mentioned above, mining in is different than it was in Whereas mining initially meant 1 validation back to the genesis block and 2 generating proofs-of-work hashes , these two processes are fully separated today.

Today mining pool operators pick and choose which transactions to include into blocks and validate the chain they are building their blocks, is the chain they intended to do so on. They can and do censor transactions. For a pre-arranged fee, some will include your transaction before including others, including transactions from the mining pool operator itself. Mining pools in turn pay miners those with hash generating equipment a share of the block reward for the work they do.

There is a third stake holder in the mining process; infrastructure managers, who own and operate or lease the physical infrastructure that houses the equipment for miners. Very little has been published on these participants in English because most of this infrastructure is managed in countries where English is not the mother tongue. Until very recently, most mining pools ran a reference implementation of what is called the Bitcoin Core implementation of Bitcoin. That is to say, the software running their node which builds and validates blocks, comes from a repository managed by a collective describing itself as Bitcoin Core.

In October, one common refrain from the camp that collectively identifies itself as Bitcoin Core, is that miners do not ultimately operate Bitcoin.

They argue that hashrate follows price and price follows the chain that is best maintained by the best developer team. This is empty rhetoric. We know that there are three entities involved in mining: We know their key importance because they have been lobbied non-stop by many different stakeholders such as Bitcoin Core and Bitcoin Classic over the past several years including both open and closed door events on multiple continents.

They have been asked to sign agreements. And then have seen those same agreements broken. If miners are not important, they would not be lobbied or demonized at all: Bitcoin Core is especially interesting because Bitcoin Core proponents claim it does and does not exist. Core exists when it is convenient for its proponents like rallying supporters to denounce an alternative implementation but does not exist when it encounters accountability or responsibility for its collective decisions or the decisions made by its surrogates.

Bitcoin Core maintains a website , a verified Twitter profile, Slack and other media channels. It is unclear how they precisely coordinate, but they work closely together with the owners and maintainers of Bitcoin.

This collective does not have any known trademarks or copyrights at this time. While no one has yet identified the actual decision makers, Bitcoin Core has multiple surrogates who are publicly known and actively engaged in media.

When there are disputes over decisions, some individuals who have identified themselves on the Bitcoin Core contributor list, will come out defending Bitcoin Core. This includes asking for Bitcoin Core alleged lookalikes and doppelgangers to stop existing. What about the web domains?

Those people are arguably actual representatives of the collective. Bitcoin Core does not have a trademark on the Bitcoin logo, the Bitcoin ticker symbol, etc. While the representatives and surrogates of Bitcoin Core argue over alternative implementations, if the entity called Bitcoin Core sued, this could open them up for a few things:. Some developers want the power to control a code repo but not the accountability that comes with it.

It is unclear if Bitcoin Core itself will remain pseudonymous to avoid lawsuits and countersuits. However, Bitcoin Core does control the GitHub repo and tightly controls the commit access, occasionally removing those that do not align with their political views. Network traffic will continue to flow irrespective of what browser is being used. Bitcoin Core the software is not like a browser.

But as noted above, miners have been lobbied not to use anything but Bitcoin Core or face the consequences if they did. For instance, this past spring a group of Bitcoin Core affiliated developers threatened to change the proof-of-work mechanism.

These same developers even created a Twitter account hence deleted and still maintain a website dedicated to promoting this change. George Kikvadze is an executive and vice chairman of BitFury, a large Bitcoin mining company based in the Republic of Georgia. Seven months ago he tweeted the statements above in reaction to a Bitcoin Core developer that threatened to change the proof-of-work algorithm used in Bitcoin in order to punish miners for using non-Bitcoin Core code.

Neither threat was carried out but this scenario raises interesting questions: Is it just the person who submitted the documents to get a verified Twitter account?

One of the fundamental challenges for any anarchic chain is coming to agreement on defining the chain in the first place. Is it the chain with the most proof-of-work? The one that gets the most retweets? The one with the most starred repo on GitHub? As I mentioned in a paper a couple years ago Appendix A , because there is no de jure process to handle governance issues, the various communities and tribes rallying and fighting around their disparate visions must rely on ad hoc de facto processes, much of which spills over onto social media.

Fundamentally there does not appear to be any contract rights involved in using or operating Bitcoin the network. Who do users have contractual relationships with? If someone does, then you could theoretically sue them. But there is not even a click-through agreement or EULA when downloading Bitcoin Core or any other alternative implementation.

This is relevant because earlier this month there were several Bitcoin Core contributors and surrogates, some of whom used their real names, claimed that alternative implementations such as Bitcoin Segwit2X and its developers could be violating the Computer Fraud and Abuse Act in the event that Segwit2X successfully creates a new fork next month.

If the CFA Act or money transmission laws are being broken post-Segwit2X then they are probably being broken now because of how various forks and updates are currently rolled out by developers and miners. While it is unclear if any regulators or law enforcement would see the interpretation of the CFA Act the same way as Bitcoin Core representatives do, this hypothetical legal threat raises a few interesting points:. By pushing any interpretation of the CFA Act onto anarchic cryptocurrency networks, it could create interesting legal precedents for Bitcoin Core because once the government gets involved in deliberating which fork is and is not legitimate or which miners can or cannot participate, then you no longer have a pseudonymous anarchic network.

Does Coinbase violate the BitLicense for supporting one chain versus another? Last month a Bitcoin Core contributor who also used his real name, penned a letter to the SEC about why it should not approve an ETF because the company applying for it supported Segwit2X, an alternative Bitcoin implementation.

A couple weeks later the same author of the SEC letter publicly said:. If all the miners switch over, most likely some folks will buy hashrate and there will be a Bitcoin chain again to work on. If, somehow inexplicably, the entire community gives up on Bitcoin and uses 2xCoin, then most likely the vast majority of Core contributors will just move on to something other than Bitcoin, though given how 2x has been going, I find that highly, highly unlikey.

Other Core developers have publicly stated that other Core developers will walk away from quit the project if an alternative implementation successfully creates a fork.

Where is the passionate uproar against the dozens of Bitcoin clones and forks including the ones that used line-for-line the same code but simply rebranded?

Since Bitcoin was designed from the outset to be forked and for those with the most hashrate to decide what is and is included in a block — and the rules therein — how is Bitcoin Cash any different in terms of legitimacy than Bitcoin? If there is a regulatory arbitrator stating which fork is the legitimate legal one, you have a permissioned network. And I truly could talk all day about those because I popularized that term with this now dated paper more than two years ago and currently advise a couple companies involved in building those.

The tactics used by different cryptocurrency tribes versus others is not new. This was a manufactured controversy and coordinated attempt to discredit a company Bitmain that had publicly spoken out against one specific Bitcoin implementation in favor of another. Many elements in the community thrive on both real and fake controversy in order to stay relevant: Lest I be accused of picking favorites, I should point out that future researchers could create an infographic depicting how all chains evolved over time.

Below is a non-exhaustive list of other chains that have highly coordinated behavior between influential persons that look administrator-like:. Even ignoring the issuance of unregistered securities through ERC20 and ERClike standards, many of these these ICO coins and tokens were centrally issued and administered. One reviewer singled out Factom, Tierion, Ripple, and Stellar as well, but these communities have slightly different nuances worth looking into independent of this article.

It bears mentioning that Ripple was penalized and settled with FinCEN in May , but this was due to non-compliance with BSA requirements with respect to not filing suspicious activity reports SAR from a side fund it operated. There are likely ways to create a new cryptocurrency and structure its governance in a legally compliant or exempt manner. But some of those who issued a cryptocurrency which they centrally operate and mint could be on thin ice depending on how strict regulators and law enforcement are.

If it is centrally administered for 2 minutes versus 2 hours versus 2 years like Satoshi did , at what point is that line crossed? What about a network like Stellar that was originally decentralized and then in an emergency, centralized running off of one node due to a break in its consensus mechanism? The Stellar organization itself operated the single validation node for months before re-decentralizing.

A friend of mine that is the CEO of a Bitcoin-focused company recently hired an attorney to look at the upcoming Bitcoin Segwit2X S2X fork proposal and thinks there could be an argument that the fork is a security based on the Howey test. His rationale is the following, reused with his permission: If this is true, then you could likely insert and replace S2X and NYA with various cryptocurrency developer groups including Litecoin, Ethereum, Ethereum Classic, Bitcoin Core, Bitcoin XT and others listed in the section above and just modify the date to argue that each of these coordinated efforts is effectively a common enterprise seeking to profit from the expectations of X, Y, or Z features.

It could be smaller or bigger blocks, sidechains, slower or faster block generation times, etc. However, if any regulator or court does formally publish guidance or a ruling siding with a specific fork, the cryptocurrency community will have institutionalized permissioned-on-permissionless chains.

Since you do not need proof-of-work to maintain all blockchains, enterprise focused blockchain and DLT-related companies commonly referred to as private or permissioned chains typically started off with the realization a couple years ago that:.

But in this case, many of these companies took roughly the same tact: As a result, so far the vendors have generally gotten to bypass most of the drama around factional in-fighting described above. But each vendor still has their own challenges ahead. That is why some operating models involve banks or other existing financial institution running the validating nodes — because they already have the necessary licenses and compliance structures put in place.

That is also why some of the vendors created a consortium from the get-go because they foresaw the need to bring on different types of stakeholders early on. But ignoring the consortium approach for the moment, once real legal names are touching and managing real financial instruments, regulators and law enforcement begin to pay much closer attention.

Can private parties initiate litigation? Based on one conversation with an interested party, it seems that there is arguably a private right of action under the CEA, under certain state money transmission business MTB laws and under securities laws. My guess is that as more real value e. With that said, networks such as blockchains, do not maintain themselves. They do not upgrade themselves or automatically fix bugs that arise.

They are not anti-fragile. They need people to do all of these pesky maintenance things. And with people comes politics and social engineering. If there is a disagreement, as we have seen multiple times, a political struggle often takes place and a fork or two may happen: With hundreds of dead or zombie blockchains, it is clear that blockchains do not work without some kind of administrator and decision maker. Whether or not FinCEN or other money transmitter regulators come to the same conclusion is a different matter.

Or that passion and enthusiasm should be discouraged. Rather, it is about consistency and the rule of law. This is definitely a topic worth revisiting in a year to see if any regulator publicly opines on the topic. To protect the privacy of those who provided feedback, I have only included initials: Yet by most measures, many bad actors have not left because there are no real consequences or repercussions for being a bad dude or dudette. Simultaneously, despite the hundreds of millions of dollars raised by VCs and over a couple billion dollars raised through ICOs in the past year or so, not one entity has been created by the community with the power or moral authority to rid the space of bad apples and criminals.

Part of this is because some elements in the community tacitly enable bad actors. This is done, in some cases, by providing the getaway cars coin mixers but also, in other cases, with a wink and a nod as much of the original Bitcoin infrastructure was set-up and co-opted by Bitcoiners themselves, some of whom were bad actors from day one. There are many examples, including The DAO.

BTC-e is a major Europe-based exchange that has allegedly laundered billions of USD over the span of the past 6 years. Its alleged operator, Alexander Vinnik, stands accused of receiving and laundering some of the ill-gotten gains from one of the Mt. Gox hacks it was hacked many many times through BTC-e and even Mt.

In other cases, some entrepreneurs and investors in this space make extraordinary claims without providing extraordinary evidence. Such as, using cryptocurrency networks are cheaper to send money overseas than Western Union.

No, it probably is not, for reasons outlined by SaveOnSend. But those who make these unfounded, feel-good claims are not held accountable or fact-checked by the market because many market participants are solely interested in the value of coins appreciating. Anything is fair game so as long as prices go up-and-to-the-right, even if it means hiring a troll army or two to influence market sentiment.

Bitfinex is a Hong Kong-based cryptocurrency exchange that has been hacked multiple times. Bitfinex eventually painted over these large losses by stealing from its own users, by socializing the deficits that took place in some accounts across nearly all user accounts. Phil Potter publicly explaining how they handle being de-banked and re-banked:. Yet there is little action by the cryptocurrency community to seek answers to the open questions surrounding Bitfinex.

I wrote a detailed post several months ago on it and the only reporters who contacted me for follow-ups were from mainstream press. The latest series of drama began earlier this spring: About a week later Bitfinex dropped the suit and at least one person involved on the compliance side of a large Taiwanese bank was terminated due to the misrepresentation of the Bitfinex account relationship. No faces or names of employees or personnel can be found on its site.

Bitfinex has also created a new ICO trading platform called Ethfinex and just announced that Tether will be partnering with it in some manner. Tether as an organization creates coins. Which leads to the question: Who is responsible for issuance, and how if at all can they be redeemed? Are they truly backed 1: Who will have access to them?

Will either Tether the company or Bitfinex going to use them to trade? The only reason anyone is learning anything about the project is because of an anonymous Tweeter, going by the handle Bitfinexed , who seemingly has nothing better to do than listen to hundreds of hours of audio archives of Bitcoiners openly bragging about their day trading schemes and financial markets acumen in that order.

Despite myself and others having urged coin media to do so, to my knowledge there have been no serious investigations or transparency as to who owns or runs this organization.

The only superficial things we know about Tether formerly Realcoin is from the few bits of press releases over time. Last month a report from Xinhua found that:. In other words, the reason these exchanges were able to operate and survive while charging zero-fees is partially offset by these exchanges using customer deposits to invest in other financial products, without disclosing this to customers.

Based on conversations with investigative reporters and former insiders, it appears that many, if not most, mid-to-large exchanges in China used customer deposits without disclosing this fact to purchase other financial products.

This is not a new story Arthur Hayes first wrote about it in November , but the absence of transparency in how these exchanges and intermediaries are run ties in with what we have seen at BTC-e. While there were likely a number of legitimate, non-illicit users of BTC-e like this one Australian guy , the old running joke within the community is that hackers do not attack BTC-e because it was the best place to launder their proceeds.

Many exchanges, especially those in developing countries lacking KYC and AML processes, directly benefited from thefts and scams. In its most current incarnation it has raised and liquidated its earnings via bitcoin.

As a result, the volume on the new exchange in South Africa outpaced the others that remained compliant with AML procedures. Through coordination with law enforcement it was driven out for some time, but in January of this year, MMM rebooted and it is now reportedly back in South Africa and Nigeria. The same phenomenon has occurred in multiple other countries including China, wherein, according to inside sources, at least one of the Big 3 exchanges gave MMM representatives the VIP treatment because it boosted their volume.

It was a lack of this market surveillance and customer protections and outright fraud that eventually led to many of the Chinese exchanges being investigated and others raided by local and national regulators in a coordinated effort during early January and February But they were lying.

They combed through the accounting books, bank accounts, and trading databases, logging the areas of non-compliance and fraud. This included problems such as allowing wash-trading to occur and unclear margin trading terms and practices. Following the recent government ban on ICO fundraising described in the next section , all exchanges in China involved in fiat-to-cryptocurrency trades have announced they will close in the coming weeks, including Yunbi, an exchange that was popular with ICO issuers.

The two other large exchanges, OKCoin and Huobi, both announced on September 15 th that they will be winding down their domestic exchange by October 31 st. It is still unclear at this time what the exact breakdown in areas of non-compliance were largest or smallest. As mentioned in an earlier post , cryptocurrencies are the preferred payment method for ransomware today because of their inherent characteristics and difficulty to reclaim or extract recourse.

Through the use of data matching and analytics, there are potential solutions to these chain of custody problems outlined later in section 8. Irrespective of where your company is based, the fundraising system in developed — let alone developing countries — is often is a time consuming pain in the rear.

The opportunity costs foregone by the executive team that has to road show is often called a necessary evil. There has to be a more accessible way, right? ICO organizers typically do not disclose what these discounts are and often have no vesting cliffs attached to them either. The surge in popularity of ICOs as a way to quickly exploit and raise funds coins and liquidate them on secondary markets has transitively led to a rise in demand of bitcoin, ether, and several other cryptocurrencies.

Because the supply of most of the cryptocurrencies is perfectly inelastic, any significant increase or decrease in demand can only be reflected via volatility in prices. Hence, ICOs are one of the major contributing factors as to why we have seen record high prices of many different cryptocurrencies that are used as gateway coins into ICOs themselves.

Bitcoiners condemning the Ethereum community which itself was crowdfunded as an ICO , because of the popularity in using the Ethereum network for many ICOs… yet not equally condemning illicit fundraising that involves bitcoin or the Bitcoin network or setting up bucket shops such as Sand Hill Exchange strangely one of its founders who was sued by the SEC now writes at Bloomberg.

Irrespective of whether you think it was the right or wrong thing to do because you heart blockchains, the PBOC and other regulators had quite valid reasons to do so: You can hire the services of one of these traders in many of the cryptocurrency trading chat groups. Scene from Boiler Room. Much like boiler rooms of days past. At its dizzying heights, in China, there were about sixty ICO crowdfunding platforms each launching or trying to launch new ICOs on a monthly basis.

In addition, several executives from these exchanges have been given a travel ban. Cryptocurrency exchanges the ones that predated the ICO platforms have to delist ICOs and freeze plans from adding any more at this time. Multiple ICO promotional events, including those by the Fintech Blockchain Group a domestic fund that organized, promoted, and invested in ICOs have been canceled due to the new ban.

This past week, Li Xiaolai, an early Bitcoin investor and active ICO promoter, has publicly admitted to having taken the ICO mania too far using a car acceleration example , an admission many link to the timing of this crackdown and ban. A real ICO in China: For journalists, keep in mind this is mostly just one country described above.

It would be a mistake to pin all of the blame on just the ICO operators based in China as similar craziness is happening throughout the rest of the world observe the self-serving celebrity endorsements. There may be a legitimate, legal way of structuring an ICO without running afoul of helpful regulations, but so far those are few and far between.

And as shown above with the initial enforcement actions of just one country, short sighted hustling by unsavory get-rich-quick partisans unfortunately might deep-six the opportunities for non-scammy organizations and entrepreneurs to utilize a compliant ICO model in the future.

Okay, so that may be a little exaggerated. But still the same, few high-profile Bitcoin companies are publishing daily active or monthly active user numbers for a variety of reasons. Founded in May , the only known unicorn to-date is Coinbase.


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