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BitLicense Approval Shines Fresh Light On New York-Crypto Relationship

The recent approval of Genesis Global Trading’s BitLicense application has shone fresh light on New York State’s relationship with the cryptocurrency industry.

Although New York is historically a business-friendly center and international financial hub, many industry players have criticized the regulatory requirements enforced by the New York State Department of Financial Services (DFS) through the BitLicense since its release date in 2015.

Most of these criticisms were confirmed in a round table held earlier this year by New York State senators Jesse Hamilton and David Carlucci, who invited cryptocurrency companies to raise their concerns about the BitLicense.

Stakeholders reiterated that the regulatory requirements set by the DFS are too burdensome for small companies to bear, that it’s a one-size-fits-all regulation and ultimately that it stifles innovation

Even before the initial release of BitLicense back in 2015, the Editor of MIT Media Lab Digital Currency Initiative, Brian Forde, alluded to the fact that this is what will happen, with only the largest companies possessing ample resources able to comply with the strict regulations.

“If changes to the proposed BitLicense are not made, only a handful of the most well-funded companies will survive — not because they are providing the best product or service, but because they have access to the most money.”

BitLicense explained

The BitLicense is issued by the DFS to those able to meet regulatory requirements and engaging in one of the following activities:

  • Virtual currency transmission
  • Storing, holding, or maintaining custody or control of virtual currency on behalf of others
  • Buying and selling virtual currency as a customer business
  • Performing exchange services as a customer business
  • Controlling, administering, or issuing a virtual currency.

The DFS has also indicated that cryptocurrency mining will not form part of the regulation.

Some of the regulatory requirements include:

  • Background checks performed on all employees and fingerprints submitted to the FBI.
  • Companies must invest in New York bonds.
  • Records of transactions must be kept for 10 years.
  • Quarterly financial statements must be submitted within 45 days of the close of a quarter.
  • Company earnings can only be invested in US dollar markets, including US money market funds, and federal and state bonds.

The BitLicense became effective in New York on June 24, 2015 but in the three years since then, only five crypto-related companies have been approved for a BitLicense in the state.

This is perhaps a testament to strict regulatory burden it imposes on companies, but also to the demanding 31-page application form that has to be completed as a very first step.

Out of the very few companies who have been granted a BitLicense, is XRP II LLC, an affiliate of Ripple, with none other than Ben Lawsky, former DFS Superintendent and chief architect of the BitLicense, on the board of directors.

Not everyone thinks the BitLicense is bad for business though. The current DFS Superintendent, Maria Vullo has stated in her Spring Meeting Remarks that “The regulatory structure that we created for virtual currency has helped our licensed companies attract greater interest from customers, investors, and potential financial services partners seeking to pursue further innovation, while protecting market integrity by stringent standards applicable to all law-abiding business enterprises.”

The Bit-exodus

Since its release, the strenuous requirements of the BitLicense have forced many crypto startups to leave New York, in a movement that’s been dubbed the Bit-exodus.

Jesse Powell, founder and CEO of Kraken, a Bitcoin exchange, explained why his company decided to leave New York.

“There were some things about it that were just untenable … having to disclose all the information about your global client base to the state of New York – we just couldn’t live with.”

CEO and Founder of ShapeShift, another cryptocurrency exchange that left New York, also cited restrictive innovation as their reason for leaving the area.

“I went from loving the city and seeing it as a symbol of progress … to seeing it as an enemy of innovation. The regulators here want to treat every financial entity like a bank … we aren’t banks, we don’t want to be banks … everything we build is to do something in opposition to what banks have done,”

Other crypto companies that followed suit in the wake of the BitLicense storm include LocalBitCoins, Rebit, Genesis Mining, BitFinex, to name a few, with others, like Eobot, having to shut down operations entirely.

How is it affecting New York’s cryptocurrency opportunities?

The Consensus 2018 panel agreed that New York is the financial capital of the world but the blockchain community is international, and ultimately that the enforcement of the BitLicense is more harmful to the state than it is for the international cryptocurrency community.

The BitLicense is in stark contrast to New York’s welcoming attitude towards cryptocurrency opportunities and blockchain as a whole in the state.

Earlier in May, the President and CEO of the New York City Economic Development Corporation (NYCEDC), stated that there’s no city in the world that’s better positioned to lead the way in blockchain innovation, as he announced a number of blockchain-related initiatives for the city, including an NYC blockchain Resource Center and a public competition for blockchain-based apps.

New York has also embraced cryptocurrency innovation in the past by being one of the first cities where property could be bought using Bitcoin, to install Bitcoin ATM’s and where diamond retailers accepted payment in Bitcoin. Support for crypto even showed up in the NY fashion week and at one point New York was named as the second most Bitcoin-friendly city in America.

In the absence of any real federal regulation dictating cryptocurrency-based operations in the US, state regulators have a real opportunity to entice these organizations to move their business into their jurisdiction.

Even the Securities and Exchange Commission (SEC) hasn’t introduced any specific crypto related governance, other than whether or not tokens launched through an initial coin offering (ICO) should be considered as a utility or a security, and as such, might be subject to regulation.

An unlikely state like Wyoming has taken advantage of this and shown that even though regulations are necessary to protect consumers, it can be done in such a way to promote cryptocurrency and blockchain operations, rather than chasing innovation away. In the space of several weeks, the state passed five separate bills for the advancement of cryptocurrency and blockchain technology.

Given New York’s reputation as a global financial hub that has attracted businesses from all over the world and supported innovation across many industries – including in the blockchain and crypto space – it is curious, to say the least, why regulators have chosen to go fundamentally against the grain with overbearing regulations. Especially if we consider that, at the moment, any cryptocurrency regulation in the US is more state driven rather than federal.

Although Genesis’s BitLicense application approval is a step in the right direction, the consensus is that the BitLicence process has all but destroyed the New York-crypto relationship and has been bad for innovation and business as a whole.

There might, however, be relief on the horizon for cryptocurrency startups in New York, including for those looking to move back into the state lines. Earlier this year, New York State Assembly legislator, Ron Kim, proposed a bill to effectively replace the BitLicense process, relaxing regulatory requirements and entice crypto investors back into the Empire State.

The current bill status is “In Committee” and still a few steps away from being passed but, if enough support is garnered, could signal the end for the BitLicense and perhaps a fresh start for cryptocurrency investors and businesses in New York.

Current Bill Status - In Assambly Committee

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Japanese Gov’t-Licensed Crypto Exchange Acquired By International Investor for $50 Mln

Japanese crypto exchange BitTrade has been acquired for S$67 mln ($50 mln) by a Singaporean multi-millionaire and entrepreneur, Asia One reported yesterday, May 30.

The acquisition will see Mr. Eric Cheng take a 100 percent stake in BitTrade Co., Ltd, one of only 16 domestic crypto exchanges to receive a license from Japan’s financial watchdog, the Financial Services Agency (FSA). Cheng is also acquiring BitTrade’s affiliate company, FX Trade Financial Co., Ltd,  one of Japan’s leading forex trading platforms.

As Asia One notes, the investment makes Cheng the first foreign investor to hold a 100 percent stake in an FSA-licensed trading platform. Cheng said:

“The cryptocurrency industry is growing exponentially. Against this backdrop, the key to capturing the rising demand is having a well-regulated and licensed outfit. With this Japanese FSA-licensed platform, I will work closely with the regulators to scale this platform globally.”  

The management teams of both platforms will reportedly work to “aggressively scale” and expand trading services on the exchanges, strengthen cybersecurity measures, and develop more international-user-friendly interfaces.

As Cointelegraph Japan reported earlier this week, Bitrade has said that “there is no policy to change the basic business framework under the new ownership,” and that currently provided services will continue.

Two high-profile Japanese crypto exchange scandals – January’s unprecedented $532 mln Coincheck hack and the notorious collapse of Tokyo-based Mt. Gox – have triggered an increasingly stringent regulatory climate for crypto in Japan. The FSA license held by BitTrade already stipulated strict guidelines, with the financial watchdog introducing further requirements for crypto exchanges earlier this month.

A self-regulatory body for Japanese exchanges was convened in April to provide assistance to domestic operators, some of whom have buckled under escalating pressure from the FSA. Nonetheless, the country continues to show high crypto adoption levels. Just over a week ago, a leading Japanese fintech company announced it would be launching a crypto asset exchange within the year.

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Blockchain-Powered Trust Paxos Raises $65 Mln From Investors

Paxos, an American financial technology startup, has attracted $65 mln from investors, including venture capital firms RRE Ventures and Liberty City Ventures, and private equity executive Jay Jordan, Reuters reported May 31.

The company was initially founded in 2012 as Bitcoin exchange itBit and later rebranded as Paxos, a business focused on providing services using blockchain technology. Paxos holds a trust company charter in the state of New York, which gives it some of the same privileges as a bank, including the ability to take custody of mainstream financial assets.

Paxos reportedly aims to use the raised funds to bolster its operations, such as providing blockchain-based services to financial institutions, and to operate digital currency exchange and custodian itBit. Chief Executive Charles Cascarilla said that the startup has been “pouring a lot of resources into it for the past nine months,” adding that the company is looking to launch more products. He said:

“We will use the capital to help grow the business which is broadly our settlement business on the Paxos side and the crypto asset exchange and custodian on the itBit side.”

In 2016, Paxos announced its strategic partnership with Belgium-based asset and securities settlement cooperative Euroclear to deploy a blockchain settlement service for gold markets. While the joint venture came to an end in 2017, Paxos has continued to develop and test the system with other financial institutions.

The system was tested with at least 16 market participants including Citi, Société Générale, MKS PAMP Group, INTL FCStone Ltd, Barrick Gold Corporation, NEX EBS BrokerTec and ED&F Man. The pilot program saw over 100,000 settlements.

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Crypto Payment Gateway to Help Start-ups Increase Adoption of Custom-made Tokens

A company that describes itself as a “pioneer in the digital payments space” has unveiled plans to become the first company to offer payment processing capabilities for transactions involving ERC20-compliant tokens.

CoinPayments, which was established back in 2013, says its payment gateway has the potential to help fledgling crypto start-ups increase adoption for their custom-made tokens (ERC20), without the need for each company to code their own payment processing solutions.

The feature also means customers who have invested in new tokens could be able to use them on relevant platforms far faster than before – and spend their crypto with physical merchants and e-commerce stores which accept CoinPayments as a payment method.

Alex Alexandrov, the CEO of CoinPayments, told Cointelegraph: “Scalability and utility issues around Ethereum tokens have taken the spotlight in the cryptocurrency industry today. Once again, CoinPayments leads the way innovating the first and only ERC20 token payment processing solution in the world.

“My vision is a world built around thousands of micro economies focused on building niche industry specific communities. CoinPayments provides a solution for every new token to have a chance to participate in this new world of banking.”

The official CoinPayments blog details the full breakdown of how their ERC20 token payment processing solution works.

Several new projects in the works

As reported by Cointelegraph earlier in May, the company has been preparing to launch two major projects in 2018.

CoinPayments recently performed an airdrop of the platform’s utility token, which is known as the CPS Coin. All current users of the platform have received 100 CPS Coins each, worth about €10, as will new customers who sign up for the first time before August 1, 2018. The company plans for this token to provide discounts and rebates on the merchant transaction fees, conversion fees and coin hosting fees, while also providing staking rewards and exclusive access to allocations of initial coin offerings (ICOs) hosted by CoinPayments.

The platform is also preparing to launch what it describes as a revamped edition of its current user interface, which has been dubbed CoinPayments 3.0. It is hoped that wallet holders and online merchants alike will enjoy an “even more user-friendly experience” as a result of this upgrade.

According to the team’s official website, CoinPayments currently has an expansive reach of more than one mln vendors in 182 countries. Through its cloud payment technology – including point of sale interfaces, plugins and APIs – merchants of all sizes are able to accept Bitcoin along with hundreds of other cryptocurrencies.

The CoinPayments website has an expansive list of stores which use its payment processing solutions – spanning an array of sectors including clothing, gaming, health and beauty, music, travel, tobacco, gaming, art and collectibles, marketing and charities. This software allows consumers to effortlessly access their account – sending and receiving coins – while on the go. Users can also exchange crypto coins wherever they please, as long as they have an internet connection.

Disclaimer. Cointelegraph does not endorse any content or product on this page. While we aim at providing you all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor this article can be considered as an investment advice.

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The Codex Protocol Puzzle: Solve It And Win 3 ETH

A new crypto-puzzle offers a prize of 15 ETHs hidden inside a painting called “Codex Protocol Puzzle” to the first person who can solve it.

The Codex Protocol Puzzle was created by Zden Hlinka, a computer engineer and digital artist, who founded the group “Satori” as a means to unite his two passions.

So far the creator has not provided any clues, however, the community has already made several advances to solve the puzzle. Perhaps the most obvious and easy is the Wallet address, which is camouflaged at the bottom of the picture.

Codex Protocol: This picture contains 3.1 ETH / Click to see the original Full-Res / Credit: Crypto.Haluska

As of this moment, the wallet contains 3.1337 Ether. So far no one has claimed the prize, the puzzle seems to be worthy of the reward it contains.

Users always enjoy this kind of challenges. Some take the difficulty with humor while others take it with enthusiasm:

“pls zd3n , stop. I want to sleep this week…” says the user Little Evil Cat, while Esfranklin commented in Spanish “Those 1700USD could be mine,” a sign that the passion for puzzles – and prizes – transcends borders.

The official Codex Protocol blog does not provide further details, however, it ensures that the prize is real and anyone can get it.

“Sit back and relax. You may not figure it out overnight, but if it was that easy, it wouldn’t be as fun … Artist @Zd3N’s work is beautiful and thought-provoking. The more you look, the more you will understand. The ETH is there waiting.”

On the website Crypto Haluska, similar works can be seen. More than 10 published works of art have been previously resolved. However, while some took only hours, others took several weeks to resolve.

Codex Protocol: A New Project in Crypto-Puzzle Fashion

The world of puzzles is exciting, solving an enigma always brings a level of satisfaction, but a monetary prize implies a very attractive incentive.

The emergence of cryptos has given way to the rise of a small artistic movement that “rewards” users for solving certain challenges proposed by artists.

Currently there is a similar painting containing the key for a wallet with 1 Bitcoin. Also, other paintings are available for purchase with less ambitious prizes.

Solving the Puzzle hidden in this picture will give access to a wallet containg 1BTC. Credit: Cryptogreetings. RedditSolving the Puzzle hidden in this picture will give access to a wallet with 1BTC / Credit: Cryptogreetings. Reddit

There are also games with enigmas related to cryptocurrencies. Montecrypto, Neon District and the Pineapple Arcade are the most outstanding examples.

Good luck to those who wish to venture into this new world!

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Mastercard Looks to Blockchain to Make Coupons Immutable

A new patent application from Mastercard suggests that the payments giant is eyeing blockchain as part of a way to verify the authenticity of consumer coupons.

The application for a “Method and System for Authentication of Coupons via Blockchain” was published on May 31 by the U.S. Patent and Trademark Office (USPTO). It envisions utilizing the tech “specifically [for] the storage of coupon data in a blockchain to ensure redemption only by authorized individuals and immutability of coupon data.”

The idea is that blockchain can help reduce the risk of data manipulation that accompanies the use of certain types of systems for storing coupon data, including those that “have been developed that directly associate a coupon with a transaction account, to ensure that only the specified transaction account is eligible to redeem the coupon.”

As Mastercard goes on to write:

“However, this requires the entity to store data regarding coupons that are associated with transaction accounts, which can be resource-intensive and subject to data manipulation. In addition, the entity must offer a suitable interface for the consumers to access the data storage to identify what coupons have been associated with their transaction account. Thus, there is a need for a technological solution whereby coupons can be issued to an individual for redemption only by the individual, and where the system relies on a publicly accessible data source to enable implementation without the use of additional resources for the issuing entity.”

Whether an actual service offering comes out of the patent application remains to be seen – and Mastercard itself is no stranger to intellectual property bids related to the tech. That focus on authentication has been seen in other patent applications, including one focused on the prevention of fake identity use.

What is known, however, is that Mastercard has moved in recent months to beef up its internal blockchain-related development resources as part of a wider technology play.

“We’re driving projects that promote financial inclusion at home and abroad, and are working to provide consumers, businesses and governments with the most innovative, safe and secure ways to pay,” Sonya Geelon, Mastercard Ireland’s country manager, said in April.

Image via Shutterstock

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US Crypto Exchange Signs Agreement to Offer Fiat-Crypto Trading to Corporate Clients

Seattle-based crypto exchange Bittrex has signed a banking agreement that will allow corporate investors to trade selected cryptocurrencies for fiat, Bloomberg reports today, May 31.

Bittrex, which supports over 200 cryptocurrencies and reportedly has over 3 mln customers worldwide, will cooperate with New-York based Signature Bank to launch fiat trading for Bitcoin (BTC), Tether and TrueUSD. Speaking of the new banking deal, Bittrex CEO Bill Shihara is quoted as saying that the process “had been a long path”:

“They really do look and pore through the entire business. They want to make sure that we’ve got robust AML/KYC (anti-money laundering/know your customer) processes, that we’ve got the right controls on our finances. They do background checks and everything. They really look at our business soup to nuts.”

Shihara suggested that the deal pointed to a broader trend in terms of interaction between the traditional finance sector and the crypto sphere, saying that:

“It’s not just about banks being able to trust Bittrex. It’s about banks being able to trust crypto in general. And I think it’s really showing that crypto is turning the corner in terms of mainstream acceptance.”

The service will initially only be open to corporate customers in the states of Washington, California, New York and Montana, reportedly for regulatory reasons. Bloomberg further reports that Bittrex has plans to ultimately offer crypto-fiat trading to retail customers as well. At press time Bittrex’s 24 hour trade volume was over $98 mln.

In the current climate, crypto exchanges need to work with correspondent banks in order to offer crypto-fiat alongside crypto-crypto trading on their platforms. Major US crypto exchange Coinbase, for example, has developed relationships with Cross River Bank, Metropolitan Bank and Silvergate Bank, and recently opened an account UK bank Barclays.

A recent WSJ report suggested that Coinbase is now looking to secure a federal banking charter, which would remove the need for them to find a banking partner to support its activities.

Uncertainty from banks about regulatory compliance has meant that crypto exchanges’ dependency on their cooperation can be fraught with complications, as a string of suspensions and restrictions on exchanges’ bank accounts has shown. Just this week, Poland’s largest crypto exchange BitBay was forced to halt its activities in the country after local banks ceased to cooperate with the company.

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Coinbase Board Member: Crypto Ecosystem Will Not See Regulation for Years

Kathryn Haun, board member of Coinbase and HackerOne claimed that cryptocurrency and blockchain will not see regulation for years, Techcrunch reports May 31. Haun made her statements on regulation at the Code Conference in California today.

Haun drew parallels between the internet and crypto, claiming that the in the early days of the internet, users called for one single regulatory body, which never took place. As per Haun, crypto and blockchain are following the same scheme of the development. She further pointed out that if regulation would have been developed a year ago, it would already be outdated due to the rise of initial coin offerings (ICOs).

Haun, who is also a professor at the Stanford Graduate School of Business, argued that there cannot be any regulation in the crypto field until regulators gain a solid understanding of how it works. Haun stressed the need to “wait and see how the the technology develops,” adding that regulation should not “outpace understanding.”

Today’s statements echoed those of Mike Lempres, Chief Legal and Risk Officer at Coinbase, who said during a Congressional hearing in March that the US regulatory system is currently “harming healthy innovation.” Lampres said there is a lack of understanding of what is allowed and how digital assets are considered under the law; either as securities, commodities, property, or money.

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Polish Gov’t Invites BitBay to Join Working Group as Exchange Forced to Leave Country

Recently expatriated Polish cryptocurrency exchange BitBay tweeted yesterday, May 30, that the Polish Financial Supervision Authority (KNF) has asked them to join a Blockchain Working Group.

BitBay suspended operations in Poland this week after banks refused to cooperate with the exchange, in the wake of the Polish government’s increasingly negative stance toward cryptocurrencies.

Although BitBay did not directly address whether they would accept the KNF’s invitation, they wrote in yesterday’s tweet that they “are not abandoning  crypto activity for the Polish community.”

BitBay had not responded to Cointelegraph’s request for comment by press time.

BitBay’s new center of operations is now in Malta, which recently welcomed crypto exchanges Kraken, Binance, and OKEx as part of its aim to become the world’s “blockchain island.”

BitBay offers trading in 29 cryptocurrencies and has a 24-hour trade volume of about $5.7 mln by press time.

The KNF, which has taken an active stance against cryptocurrency, posted a tender offer this month looking for a company to conduct a social media campaign about the dangers of cryptocurrency, allotting a budget of around $173,000. The KNF and Poland’s central bank have also created an anti-crypto educational website that explains why “virtual currency is not money” and “cryptocurrencies are not currency.”

In mid-February, Poland’s Central Bank acknowledged that they had funded a $27,000 anti-crypto campaign consisting of one YouTube video about a man losing all his money after investing in cryptocurrencies.

Poland officially recognizes crypto mining and trading, and the Polish crypto community is responding to the KNF and Central Bank’s anti-crypto messages in kind.

More recently, at the end of May, the Police Finance Ministry admitted that its crypto tax regulations often led to people paying more in taxes than their initial investment, and suspended crypto tax collection until further research is completed.

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Ethereum Surpasses Bitcoin in Number of Active Addresses

Ethereum (ETH), the second-ranked cryptocurrency has now overtaken Bitcoin (BTC) based on the number of unique addresses. While this stat doesn’t in itself tell the full story, another surprising statistic has emerged. Ethereum has for the first time surpassed Bitcoin in the number of active addresses. With some experts believes that the so-called “flippening” is at hand, this news might be a precursor to the event.

35 Million Unique Ethereum Addresses

According to the figures on Etherscan, there are now 35 million unique ETH addresses. This figure represents a 100 percent increase since December 2017. The second-ranked crypto based on market cap is reportedly adding an average of 100,000 addresses per day. A comparison with Bitcoin is no longer possible since the main blockchain explorer doesn’t provide data on unique addresses anymore. However, the last known figures for Bitcoin addresses was 24 million in March. At the time, Ethereum’s figures stood at 31 million, a difference of 7 million.

It is important to note that 35 million addresses don’t mean that there are 35 million ETH users. One person can have more than one cryptocurrency address. Also, smart contracts also count as addresses in ETH. However, Coinbase does list 20 million users, and the FSA of Japan says there are 3.5 million users in Japan. Adding figures from South Korea, the total number of ETH users might not be too far away from 35 million. One thing though is sure, Ethereum now has more active addresses than Bitcoin. There are 550,000 active ETH addresses as against 472,000 BTC addresses.

Analyzing the Figures

The fact that there are more active Ethereum addresses than active Bitcoin addresses is particularly significant. The default setting for ETH wallets is that addresses are re-used all the time. However, for BTC wallets, each incoming transaction uses a different address. The reason for this on Bitcoin wallets is to avoid address re-use. Consequently, there should be fewer active Ethereum addresses per unit of activity when compared to Bitcoin since addresses are being re-used. Thus, for ETH to outstrip BTC based on active addresses, it means that Ethereum is seeing more crypto activity than Bitcoin. Also, the variance in activity between the two cryptocurrencies is even more substantial than the 78,000 difference as shown in the figures above.

While ETH might have overtaken BTC in the number of active addresses, the number of active users for both cryptos still shows the nascent nature of digital currencies. Despite the significant attention on blockchain and cryptocurrencies, everyday use is still miles away from levels when it could be said that cryptos have fully gone mainstream. However, when compared to activity levels on the internet in the early 90s and 2000s, cryptos appear to be following a similar trajectory. Before the birth of social media and powerful search engines, the internet wasn’t exactly mainstream. If cryptos follow the trend set by the likes of Facebook and Google, then the future might be dominated by the internet of value.

With Ethereum addresses surpassing Bitcoin addresses, does it mean that the flippening; the point where ETH upstages BTC, is at hand? Keep the conversation going in the comment section below.

Images courtesy of Etherscan, Medium (Chris McCann).