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Report: Bitmain to Launch 200,000 Crypto Mining Rigs in China

Bitmain Bitcoin Mining China 2019

According to a report published by CoinDesk on Mazar. 21, cryptocurrency mining conglomerate Bitmain is looking to launch up to 200,000 new mining rigs in China, at a conservatively estimated cost of $80 million.

The move will allow Bitmain to take advantage of the relatively cheap hydroelectric power in China during the summer of 2019, with CoinDesk also reporting that the expensive deployment of equipment may end up being more cost-effective for the company than outright selling their inventory. CoinDesk also reports that the decision by CoinDesk is positive for the industry and miners, sending a signal of a “broader shift in the market, with miners preparing to invest again following last year’s contraction in capacity.”

Bitmain, which holds the distinction of being the largest manufacturer of cryptocurrency mining equipment by market share, can take advantage of the excess hydropower in China’s southwestern province for cheap mining costs relative to the broader market. According to sources in the region familiar with the situation, Bitmain has “already started discussions and making deals with farms to host its equipment so that it can be fully prepared.”

The report also includes information that Bitmain will be primarily deploying its newer model mining rigs, the AntMiner S11 and S15, which retail for around $500 and $1000, respectively, per unit. It is also unclear according to the sources which proof-of-work cryptocurrency Bitmain will be targeting to mine for. As CoinDesk points out, even at $80 million in projected costs to deploy the equipment in the new region, the move represents a “non-negotiable opportunity cost” considering Bitmain’s primary revenue source is from mining equipment sales as opposed to actual mining.

However, the company is caught in a difficult position due to the ongoing bear market that has extended into the beginning of 2019. While the company could attempt to selloff the bulk of their 200,000 intended units for deployment, the marginal profits that could be made from mining in the presence of cheaper electricity may provide the better sunk cost. CoinDesk calculates that, using conservative estimates, Bitmain may be able to secure a monthly profit of $7.7 million.

CoinDesk also reports that Bitmain’s scaling up in mining operations could send a strong signal to the broader market, particularly as cryptocurrency mining and coins prices continue to linger at relative lows. Estimated reports found that over 600,000 Bitcoin miners shut down operation in 2018 due to the falling con prices no longer proving profitable relative to mining costs, leading to the market being flooded with second-hand rigs being sold at a discount.

Despite the decline, Bitmain and other miners deploying to China in the upcoming wet season to take advantage of excess hydroelectric power could bring about a sharp increase in Bitcoin’s hash rate, with some estimates putting it at 70 quintillion hashes per second (EH/s), well above the all time network high of 60 EH/s.

Renewed mining interest in conjunction with building crypto adoption that has already started in 2019 could lead to a reversal in both coin prices and increased competition to capitalize on the market while prices are still depressed. With increased mining competition for Bitcoin, the selling price for newly minted coins should also rise, which could have a broader effect on BTC pricing.

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Switzerland’s Biggest Online Retailer Starts Accepting Payments in Bitcoin (BTC) and Altcoins

Digitec Galaxus AG, the biggest online retailer in Switzerland, has decided to enter the crypto space and has done so through the main door.

In an official press release published on its website a few hours ago, the e-commerce giant announced that as of today, customers will be able to pay for their purchases with Bitcoin (BTC) and a significant number of altcoins:

“As one of the first online shops in Switzerland, Digitec Galaxus now accepts cryptocurrencies: customers of the two online shops digitec and Galaxus can now use Bitcoin, Bitcoin Cash ABC, Bitcoin Cash SV, Ethereum, Ripple (XRP), Binance Coin, Litecoin, TRON, NEO or OmiseGO to pay for all purchases with a total of over CHF 200.- or more”.

The firm was able to implement this new payment method thanks to a strategic alliance with the Swiss e-payments company Datatrans AG. This fintech, for its part, works together with Coinify (a crypto payment provider) to guarantee the instant conversion of crypto into traditional fiat currency.

Crypto Payments: Innovation is Always Good For Business

Despite not being wholly convinced of the advantages of blockchain technologies, Oliver Herren, Chief Innovation Officer at Digitec said that the company was willing to take that step a long time ago, but had to wait for the ecosystem to develop a bit to ensure a safe and innovative implementation:

“We’ve been wanting to do this for ages, but the effort it would have required has just always been too big. Now we’ve found a simple solution with Datatrans and Coinify. Thanks to our very own engineering team Spectre, the implementation has been a relatively effortless and straightforward matter”.

However, Claudio Schaad, leader of Team Spectre showed greater enthusiasm, explaining that the development team was really optimistic about the use of cryptocurrencies to expand their services:

The question of the hour was: what was the coolest, most impactful project they could come up with? They found their answer in a half-attempted but finally abandoned agile initiative: cryptocurrencies. The mystery-mongers at Spectre laughed and said: this fits us like a glove”

Mr. Herren explains that Digitec Galaxus AG would not be directly involved in the handling of cryptocurrencies. At the time of payment, customers send tokens that are immediately exchanged by Coinify into fiat, which is immediately transferred to the retailer. The process has a 15-minute payment window to minimize the risk associated with the volatility of the cryptocurrencies.

The payment option is enabled for all the 2.7 million products available for purchase on both Digitec’s website – geared towards consumer electronics – and Galaxus – an online warehouse for the general public.

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Former CFTC Chair Calls For More Cryptocurrency Regulations

CFTC Cryptocurrency Regulation 2019

A report published by the Brookings Institution and authored by Harvard University fellow Timothy Massad calls for improved regulation of cryptocurrency.

Massad, who served as chairman of the United States Commodity Futures Trading Commission (CFTC) during President Barack Obama’s administration, outlined the need for regulations on digital currencies, including their use in illicit activity, as well as providing a way to reduce the risk of cyber attacks.

In the report, Massad explains that the current landscape of cryptocurrency leaves the market open for fraud due to the absence of traditional market standards imposed on securities and derivatives, a feature which only serves to hurt investors via the lack of protection. Massad also targeted cryptocurrency exchanges and their lack of oversight, which has led to repeated instances of fraud, market manipulation and conflicts in interest. He then stressed the need for regulations imposed on exchanges in order minimize operational risk while putting into place measures to safeguard investors.

“Crypto exchanges are not required to have systems to prevent fraud and manipulation, nor are there rules to prevent or minimize conflicts of interest. Crypto exchanges can engage in proprietary trading against their customers, something the New York Stock Exchange cannot do. Regulations to minimize operational risk and ensure system safeguards are needed, just as with securities and derivatives intermediaries.”

The 60 page report also took a shot at the shortcomings of Bitcoin, namely the failure of cryptocurrency to fulfill its original intention. Instead of providing trust, Massad wrote that Bitcoin and other cryptocurrencies have created “regulatory distraction” which has contributed to an even greater problem in lack of accountability,

The hype surrounding Bitcoin and other crypto-assets has contributed to regulatory distraction. Bitcoin’s creators promised it would solve the “trust problem” and reduce our reliance on centralized financial intermediaries. However, it has not reduced our reliance on financial intermediaries or eroded the power of our largest institutions. Indeed, crypto-assets have created new financial intermediaries that are less accountable than the big banks.

The former CFTC Chairman called upon the powers of the U.S. Congress to address the issues related to crypto market fraud and the looming problem cybersecurity and potential illicit use through digital assets. As for handling the lack of regulation in cryptocurrency exchanges, Massad is not alone in advocating for reform.

The Winklevoss Twins, who recently made headlines for their comments about Facebook’s stablecoin, have been a driving force for cryptocurrency regulation through their crypto exchange Gemini. While the twins have previously been denied in their attempt to create the first U.S. Securities & Exchange Commission approved Bitcoin ETF, they believe self-policed and self-generated regulation to be the surest path to enticing institutional investment.

However, some community members have continued to embrace the lack of regulation for the cryptocurrency industry. While diminished oversight does allow for manipulation and fraud, it also prevents coin projects from making concessions in their decentralization, thereby fulfilling the original promise of crypto as an alternative to government-run fiat. In addition, the fear is that greater regulation will make the industry no different than that of the traditional financial markets, including the uneven influence imposed by established banking players.

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Could Booming Bitcoin Volume Set A Precedent For A Crypto Rally?

Bitcoin Trading Volumes Boom

Over recent weeks, it has become more and more apparent that life has returned to Bitcoin (BTC), and the broader digital asset ecosystem by extension. Independent cryptocurrency researcher Kevin Rooke recently drew attention to data that would corroborate this sentiment on Twitter.

Rooke notes that per statistics from Nic Carter’s CoinMetrics, Bitcoin trading volume on all exchanges combined is up by 150% or so over the last five months, all while BTC fell from $6,000 to $4,000. He adds that the average daily volume sum for the cryptocurrency hasn’t been this high since January 2018, when BTC was falling off its $20,000 peak in a surprising, rapid turn of events.

And to put the cherry on top of the proverbial cryptocurrency cake, Rooke adds that while a mere nine days in the last 12 months have posted $10 billion in Bitcoin volume, five of those days have been in the past two weeks.

Could This Set A Positive Precedent For Crypto?

While there are other catalysts that could drive this market, volume readings are seen as a key way to interpret market interest in an asset, meaning that the recent influx of both buying and selling pressure could mean that investors (or traders at the minimum) are starting to see some money-making potential. Many believe that this newfound speculation could fuel a bounce.

Financial Survivalism, for instance, noted that from a top-down perspective, trading volumes are the highest this industry has seen since the last week of 2017, a time when everyone and their dog were investing their savings into altcoins in dreams of striking it rich. The insurance agent turned Bitcoin traders adds that this nascent space hasn’t ever seen “four straight weekly bars with [this] much buying volume,” leading him to the conclusion that a short-term bounce to precede a move to under $2,000 is in Bitcoin’s cards.

But, there’s a nuance or two. Crypto Integrity, a blockchain-centric research division that specializes in market manipulation and fraud, claims that up to 88% of all volume figures could be entirely fraudulent. Integrity’s data science team specifically draws attention to OkEX, Bit-Z, Huobi, HitBTC, among a handful of other mostly unregulated exchanges as perpetrators or accessories in potential wash trading schemes.

Speaking to Decrypt, a team member from the research group explained how it gathered this information:

“[We built] a system that collects low-level market data from exchanges (order books as well as trades). It allows us identify what no one is able to find on charts or by the analysis of trades & volumes.”

If this is accurate, this revelation would be a drastic blow to analysts who believe that cryptocurrencies are slated to move higher on the back of volumes.

Photo by Thought Catalog on Unsplash

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Anonymous user sends 0.0002 BTC and pays 1.99 BTC in Fees!

Some days ago, Ethereum World News reported that an anonymous user made several transactions from their personal wallet, with enormous fees. What at one point seemed to be a mistake soon gave rise to a strong debate after this practice was repeated several times throughout the day. On March 11, this unusual incident happened again, but this time with a Bitcoin (BTC) wallet, which sent less than a dollar in BTC, paying fees of near $7769.

BTC Block explorer showing the inusual fee of 7.7k USD for a 0.6 USD transaction
courtesy: Blockchain.com

The information, available for verification in the block explorer of the Bitcoin (BTC) blockchain shows that the transaction comes from a wallet address with two movements: A deposit for that amount of money and a spend 10 minutes later with the extraordinary fee.

Considering that there have been no further operations from this address, it is difficult to determine whether it was a mistake or if there is any motive behind these types of transactions. Precisely what raised suspicions in the series of identical activities carried out on the Ethereum network is that they came from the same wallet address.

courtesy: Etherscan.io

Doing a little more detailed monitoring, it is possible to detect that the address received the funds from the wallet 1G47mSr3oANXMafVr8UC4pzV7FEAzo3r9. This wallet is quite active (more than 367,000 transactions) with a current balance of 2.7 million dollars and near 400 million dollars of total funds moved, so it could be concluded that it was either funds withdrawn from some Exchange, or it was an error done by the staff of an Exchange in an internal movement.

Fat-Fingers? Money Laundering?

The community has, of course, discussed the causes of this “disaster“ however, apart from the possibility of an error, the two strongest explanations seem to be

  1. The improper coding of a trading bot
  2. Some complex scheme of “money laundering” through the secret mining of a block containing the transaction with the exorbitant fees (not uploading it to the blockchain until it’s mined).

In the case of the present transaction, and until there is evidence of more similar situations, it is very possible that it is a “human error” trying to pump up the fees without verifying the amounts. Please, if you are a user of cryptocurrencies, it is always worth the effort to spend a few seconds to check all the data of a transaction. Remember that in the world of cryptocurrencies, you are your own bank.

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Breaking: MtGox CEO Faces Court Verdict in 3 Days. Is This The End of the Story?

The Mt. Gox case could be close to concluding one of the most significant stages of a 5-year odyssey. According to Channel News Asia, the Japanese court in charge of the trial is expected to issue a verdict on Karpeles’ innocence or guilt this Friday.

Karpeles faces up to 10 years on charges of faking digital data and embezzling millions of dollars. In case of being found guilty, it is very probable that this Friday we all learn about the penalty that awaits him. The Court should subtract the five years him has already served in a Japanese prison while awaiting sentencing from his sentence.

During the entire trial Mark Karpeles, 33, has pleaded not guilty. Statements collected by the media during the trial portray a Karpeles convinced of his innocence but aware of the difficulty of proving it.

“I swear to God that I am innocent … Most people will not believe what I say. The only solution I have is to actually find the real culprits.”

MtGox and The Bitcoin (BTC) Tragedy: From “Hack” to “Embezzlement”

Mark Karpeles was CEO of MtGox, the most important crypto exchange during 2014, handling over 70% of the total Bitcoin trading volume by the time. In February 2014 the firm lost 850000 Bitcoin (BTC) in strange circumstances.

Shortly after, Karpeles published a post on the Exchange website saying he “found” 200000 Bitcoin (BTC) in an “old-format” cold wallet.

In 2015, an investigation by the Japanese cybersecurity firm WizSec concluded that “most or all of the missing bitcoins were stolen straight out of the Mt. Gox hot wallet over time, beginning in late 2011.

The evolution of the events led the authorities to accuse Karpeles of playing a direct part in the loss of the Bitcoins. In statements for Asian media, Satoshi Mihira, chief attorney at Mizuho Chuo law firm explained that a hack directs investigations to find the perpetrator of the crime while embezzlement directs investigations towards Karpeles as the main suspect.

“If it was an outside hacker who stole the currency, it’s a problem. But if he stole even part of the money, it would be embezzlement …

His defense counsel needs a high level of evidence to win an innocent verdict,”

The situation is quite complex for Karpeles: Not only was it virtually impossible for him to present the evidence necessary to clean his image of any doubt, but there is also a “tradition” in the Japanese courts of having a high conviction rate (some speak of a 99% chance of being found guilty).

This being the most likely scenario, the defense is expected to appeal the verdict.

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It’s Official: Alt Season is Here! (But BTC Remains The King), eToro’s Mati Greenspan Says

Mati Greenspan

Since 2017, the crypto market has not had good times. The bearish streak that began at the end of that year (just as the initial futures contracts gained strength) became more pronounced throughout 2018 and seems to have diminished in intensity during the initial quarter of 2019.

This behavior, along with the active development of several projects based on blockchain technologies seems to have aroused the interest of traders and crypto enthusiasts, however, while previously Bitcoin grabbed everyone’s attention, 2019 appears to be the year of altcoins and so has been “decreed” by Mati Greenspan, one of the most respected analysts not only in the community of cryptocurrencies but among traders of diverse financial instruments.

Alt Season Is Here!

In an essay published by Hacked and replicated by The Bitcoinist, Mati Greenspan points out that from a technical analysis standpoint, Bitcoin trading is lagging behind the rest of the cryptocurrencies, something that many experts see as a sign of increasing influence of altcoins in the whole crypto trading market.

Also, Bitcoin’s modest price variation makes it unappealing for traders accustomed to more volatile and risky markets. While Bitcoin maintains a low variability in prices and volume, other cryptocurrencies have tripled their numbers, with noticeable gains that stimulate the growth of their market cap:

“Of course, there’s no telling how long this could last but the signs are all in place. Global volume across crypto exchanges is holding steady at around $30 billion per day, yet Bitcoin’s volume is less than a third of that figure. Sure, Bitcoin exchange volumes are still about double what they were in early February, but some coins like Litecoin, EOS, and BNB have more than tripled their daily volumes in the same time frame.”

Alt Season Means Good News for Bitcoin (BTC)

However, the alt season has also benefited Bitcoin (BTC) trading: Being the most widely used cryptocurrency, it forces traders to operate with this cryptocurrency as the base for most of their trading pairs, increasing its demand.

He also illustrates that there has been a decline in the number of Bitcoin transactions over the last few days, indicating that users might prefer other currencies although the Bitcoin dominance index still gives BTC over 50% of strength.

number of BTC Transactions

Number of BTC Transactions. courtesy: Bitcoinist

The community seems to share Mr. Greenspan’s sentiment. On “Crypto Twitter” (and also Reddit) several users have talked about not only to a possible reversal of the bearish trend but also about the end of the infamous “crypto winter.”

If this is true, happy trading! But please remember: Never invest more than you can afford to lose.

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Report: Ethereum (ETH) Has Twice the Monthly Core Dev Support as Bitcoin (BTC)

A new report confirms the industry belief that Ethereum has the largest coding development support of any cryptocurrency.

Despite sitting in the number two spot by market capitalization, and trailing Bitcoin by $55 billion, a report published by crypto management firm Electric Capital on Mar. 7 found that Ethereum has the most developers working on its protocol of all cryptocurrency projects.

Ethereum, helmed by co-founder and industry figurehead Vitalik Buterin, has consistently been one of the top cryptocurrency projects to attract both core and community development, particularly when evaluating its monthly core commits. Research collected by Electric Capital reviewed 20,000 code repositories with 16 million commits to obtain data in their evaluation of different coin projects, determining that Ethereum averages 216 developers contributing code each month. Electric Capital also included in their post that this figure is likely less than the actual number of developers, because their review did not include community-base projects such as Truffle, one of the leading sand boxes for Ethereum and smart contract testing,

“This is undercounting the number of Ethereum developers since we do not include ecosystem projects like Truffle.”

The report also found that Bitcoin has amassed a healthy developer ecosystem, nearly a decade after being launched. While Electric Capital calculated BTC developer support to be 50 per month–around a quarter of what they found for ETH–the company again noted the figure to be likely under-represented, considering they do not account for cryptocurrency wallet projects.

When looking strictly at contributors to both coin’s core protocol, the numbers become more even, albeit with Ethereum still holding a significant lead. Electric Capital reported finding ETH to be “by far” the most active project, averaging 99 monthly core developers–more than twice that of BTC which claimed the second place spot at 47 core devs per month.

Overall, the report is extremely positive on the industry of cryptocurrency and its current development pace. Despite coin prices falling more than 80 percent over the last year, constituting a “crypto winter,” development support has continued to be on the rise. Electric Capital reported that the number of devs working on public coins has doubled in the last two years, with total industry figures being 4,000+ developers per month contributing code to 2,800+ coin projects.

In addition, the report found that development interest has largely been immune to depressed coin prices, a sign of both industry adoption and growing interest,

“Developers who entered the crypto ecosystem have continued to build despite market conditions. From Jan 2018 to Jan 2019, the number of monthly active developers fell 4% while the markets fell more than 80%.”

Electric Capital also found that the majority of abandoned coin projects are currencies forked from existing “high network value coins,” citing Bitcoin Diamond and Bitcoin Gold as both having fewer than 5 developers per month since Oct. 2018. Core protocol development for platform currencies have also drawn the most interest in projects observed, with the report finding 25+ monthly devs for EOS, Cardano and TRON.

With Ethereum trail-blazing the industry in developer support, the cryptocurrency welcomed the launch of its long-awaited Constantinople upgrade two weeks ago.

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Minimal Long & Short Interest May Send Bitcoin (BTC) Plummeting, Warns Crypto Researcher

Lack Of Speculation May Precede Bitcoin (BTC) Drop

Over recent weeks, there’s been an odd dichotomy between Bitcoin (BTC) bulls and bears. Optimists have claimed that as the cryptocurrency remains above key support levels, as volumes surge, a breakout is inbound. Conversely, short-term cynics have argued that lower lows are inbound.

Crypto researcher Willy Woo, known for his cautious optimism, recently claimed that if BTC is to follow its historical trends, a drastic drop could be inbound. Backing his point, Woo cited the amount of open long and short interest on Bitfinex’s Bitcoin contracts, and how the market has previously reacted to movements in this figure.

He explained that last time the market was this indecisive, shown by the lack of speculation via futures interest, BTC fell dramatically. The same could be said about previous periods of low futures volume, which were seen in January 2018, April 2018, August 2018, and prior to the collapse in cryptocurrencies on the eve of the Bitcoin Cash hard fork. Woo elaborated, writing:

“Zones of minimal Long + Short positioning have historically coincided with bearish price action during bear markets. When [the market is] undecided, the ‘trend is your friend’ prevails.”

While the respected Australian commentator didn’t make any explicit price predictions, only explaining he is leaning to the theory that this market currently has a propensity to fall lower, BTC mirroring its previous price action would bring it to lower lows.

If Lower Lows Are Inbound, Where Will Crypto Fall To?

Doing some napkin math, weighing this cycle’s previous rapid sell-offs, Bitcoin falling from here could see the asset fall 25% at the minimum. If it comes to fruition, such a move would bring the flagship cryptocurrency to just under $3,000, a tad below its December 14th low of $3,150.

But some are convinced that BTC will fall even lower. In fact, sub-$2,000 forecasts have been floated from time to time. Financial Survivalism, an up-and-coming analyst centered around Bitcoin, recently took to Twitter to issue a harrowing comment. He noted that the longer BTC fails to surmount a long-term declining trendline at ~$4,600, the higher likelihood that the cryptocurrency’s price could “mirror the price action from September 20th to November 25th of last year.”

Per the analyst, this would mean that BTC could trade flat for another two to three months, before falling dramatically to the $800 price point. This, of course, is a worst-case scenario, but Survivalism does allude to a good point about market cycles and behavioral finance.

On a separate occasion, Survivalism took a public wager that the flagship crypto could hit $1,165 before $10,200, as reported by us previously.

Others have been lest abrash with their calls, but have still claimed that BTC going sub-$2,000 wouldn’t be too nonsensical. Murad Mahmudov, for instance, has made the case over the past several months that historical price action, combined with fundamentals, signals that there is further to fall.

Title Image Courtesy of Andre Francois Mckenzie Via Unsplash

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Bitcoin (BTC), Facebook, JPM Coin, the Cincinatti Time Store And The Payments Revolution

Bitcoin, Facebook Coin and JPM Coin could together usher in a crypto default for value transfer. And to help see why, there is a crypto adoption lesson from America’s utopian past.

Be it the internet of value trumpeted by Ripple or the peer-to-peer electronic cash of Satoshi Nakamoto’s bitcoin whitepaper, the premise that underlies crypto valuation assumptions is the notion that money will in time be brought into the digital age.

Just as Netflix makes watching what you want when you want possible in a way that the analogue TV networks couldn’t, or the iPod and then Spotify began to deliver similar instant gratification in the realm of music, so too will money get the consumer-first digital makeover.

The last week of February 2019 may in retrospect signal a pivotal moment in the history of, and revolution in, payments

The commodification of payments

It was the week in which a report by MoffettNathanson analyst Lisa Ellis predicted the possible commoditisation of current private payment systems as a direct result of inroads by crypto.

She didn’t mention, judging by the reports on her client note, the giant step towards this when Facebook’s coin launches in the next four months, assuming this week’s report in the New York Times is accurate.

As seems fairly certain, Facebook will turn on a crypto-based payments system for WhatsApp, and no doubt, in time, for its other properties. When it does the future that Ellis dwells upon as an “existential threat” to payment incumbents such as Visa, Mastercard and PayPal, determining that it “is unlikely to occur soon”, may in fact be much closer than she expects.

We don’t know exactly how Facebook’s coin will work but it seems likely it will be a stablecoin and perhaps using a delegated proof-of-stake consensus system, or it could go down the sharding road that Telegram is using in its Telegram Open Network (TON) protocol.

Facebook’s and other future distributed ledger systems may not be on blockchain at all.

They could use so-called post-blockchain approaches, such as hashgraph in which virtual voting establishes consensus; direct acyclic graph where a previous transaction validates a succeeding one; or Holochain-esque decentralised edge architecture, where nodes have their own chains and even unique consensus systems as well

Whichever direction Facebook goes in is of course dependent only partly on what is most convenient for the consumer and probably mostly on what is most profitable in the long run for the company. For the phrase “profitable in the long run” we might supplant with the word “controllable”.

Two Facebook coins to rule them all?

Facebook will be acutely aware of the danger of creating a system that competitors will be able to piggy back on, although if it is, as reported, looking at listing its cryptoasset on exchanges then perhaps it wants to see its stablecoin used beyond its ecosystem so that it can suck into its gravitational field the rest of the cryptoasset economy.

Or maybe it will create a free-floating coin alongside its putative stablecoin; one that will reward content creators or perhaps with a portion of supply given to its customers for a utility function in a new blockchain-based Facebook Connect ID verification system?

Although some might in the distant past have been fooled by Facebook’s supposed mission to do good in the world, or for that matter Google’s mission to forestall evil, that’s all for the birds. A payments system built by Facebook will necessarily limit the extent to which it is decentralised. However, if it is too centralised it would defeat the purpose of putting in place a decentralised architecture in the first place. So perhaps we should expect some sort of halfway house from Facebook.

However, although not the intention of whatever system emerges from Facebook, it could in fact come to be a necessary staging post on the road to “free money” by introducing the masses to crypto, an introduction from which there will be no turning back.

Bitcoin –  commoditisation’s reserve currency

But where does bitcoin fit in? Well that’s where Ellis’s commoditisation thesis comes in.

Ellis thinks it is much less likely that the payment incumbents will be disintermediated. Instead she expects commoditisation but if those incumbents incorporate blockchain tech then they can protect and advance their positions (she has a buy recommendation on Visa, Mastercard and PayPal).

“Cryptocurrency systems (e.g., Bitcoin, Ethereum, Ripple) are potentially disruptive to private payment systems. Their core design characteristics – which are aimed at enabling ‘freedom of money’ – are in direct contrast to the characteristics of most traditional, private payment systems,” says Ellis, but how can we expect that to play out?

Commodification of payments means the feature differences between the offerings in the marketplace vanish, with competition reduced to price alone. Payments commodification in the age of crypto implies the reduction of all service providers to delivering over the cheapest and most efficient protocol.

Company-centric coins repeat Web 1.0 mistakes?

In a world that’s coming rapidly into view, where we could have a jumble of private money forms – from Facebook to JPM Coin, from BTC to XRP, from retail to wholesale, which one is likely to be the most useful and therefore most widespread?

It will surely be the one that has staked out the ground in such a way that it can speak to all others, not the one trying to define its own universe.

In a way, we’ve been here before. At the beginnings of the internet in the 1980s we had walled-garden worlds, courtesy of the likes of Compuserve and AOL , in which each tried to fashion its own corner of the internet that users had to pay to play in, but as there was nothing else useable around for the layperson it sort of worked for a bit (no pun intended).

But then came the Netscape web browser to make sense of the protocols of the public internet so that mere mortals were not required to know what transmission control protocol, internet protocol and hypertext transfer protocol meant or did.

Compuserve and the rest became redundant.

Returning to the world of value transmission, it is today possible to imagine an online universe where the interfacing between Facebook Coin, JPM Coin, TON, Amazon Coin (yes, Bezos might want to keep his value transfer options open) etc is not a void made passable only by fiat entries and exits, but by the internet of value’s ultimate reserve currency, bitcoin.

That doesn’t mean that fiat and its payment rails, including steps towards the non-crypto “omnichannel” combining offline point-of-sale and online, as PayPal is trying to do, will disappear, primarily because nation states and will not disappear.

Payments arms race is upon us

Facebook’s payments system is likely to be most successful, at least initially, in those parts of the world where the prevalence of current dominant payment networks are not as readily accessible to large swathes of the population that increasing need to move value about. But is won’t stop there, in adoption terms or regional presence.

Crypto payments also make sense in developed markets. Why transfer value in a fiat medium when you can achieve the same results more quickly and much more cheaply with crypto, be it Facebook Coin for consumers or JPM Coin for corporations? The genie won’t be rebottled.

Assuming Facebook makes a success of payments, which its dominant social network positioning means is likely, then it will trigger an arms race in payments, if it hasn’t already done so. And it should be noted that Facebook is playing catch up with Asia when it comes to mobile payments

The reality of a new payments landscape is dawning on Facebook’s big bank (some banks still don’t realise that they are competitors of Facebook) and big tech competitors. The credit card tie-up between Goldman Sachs and Apple is in some respects recognition of this, although there is no indication of a crypto angle as yet.

JPM Coin’s money grab: unpegged and retail-facing?

Of course, there is the danger that coins from big tech or more pertinently big banks, will actually be a roadblock to “real” crypto adoption and not a staging post en route to a better place.

Anthony “the pomp” Pompliano , co-founder at Morgan Creek Digital, sounding off in his Off The Chain podcast said as much when dissecting the implications of the JPM Coin birthing.

He forsees a future he doesn’t care for in which JPM Coin pivots from wholesale to retail.

As previously reported by EWN, JPMorgan Chase chief executive Jamie Dimon has already hinted that the coin could be openly traded.

According to Pompliano, as soon as JPM Coin is widely adopted in both institutional and retail domains JPMorgan Chase will forget about the dollar peg and just start issuing the coins without collateral restraint.

For those who came to crypto in search of a solution to debt-fuelled fiat devaluation JPM Coin lands us back where we started. The pomp issues a warning: “We should do everything in our power to prevent this from happening. The US government is already questioned quite aggressively about monetary policy decisions, so imagine if we had to trust a Wall Street bank that was previously charged with a felony.”

However, even if such a scenario were to come to pass,  is it really to be feared as Pompliano imagines?

Wouldn’t it bolster the use case as store of value for mined crypto such as bitcoin, the granddaddy of them all? There could be an even stronger argument to say that it would enhance bitcoin’s claim to be the reserve currency of the digital age.

Co-founder of Apple Steve Wozniak may agree with that last point. Speaking to Bloomberg this past week, although he is not definitive on whether bitcoin will be the world currency he hopes it will, but he thinks it should be, claiming its inception far from destroying value as heralded “massive value creation”.

How private money could win this time – from time store to blockchain

As a student of economic history, I was fascinated by the experiments of anarchist free-marketeer Josiah Warren in the nineteenth century US and his founding of the Cincinatti Time Store in 1827.

Deriving from the labour theory of value as expounded by the classical political economists such as Adam Smith, the time spent making or procuring a product or service determined its value. Warren’s “labour note” denominated in the time taken to produce a commodity was the medium of exchange at his time stores.

The experiment in its own terms was a success, with the time stores the most popular shops of their day in Cincinatti.

Warren went on to start communities based on his labour exchange ideas, fittingly named Utopia and Modern Times (later renamed Brentwood) but failed to remake the American economy in the image of his new order of ethical mutuality where none could exploit the labour of another.

There was one obvious problem with the labour notes – not all labour was of equal value and the utopian communities were not sealed off from the non-utopian outside world. To address this, a person could post their own rates, the standard of measure being corn.

As the wiki entry explains: “Although it goes back to 1827 though 1830, Josiah Warner’s ‘Cincinnati Time Store’, which sold merchandise in units of hours of work called ‘labour notes’ which resembled paper money, this was ‘[p]erhaps … the anticipator of all future’ Local exchange trading systems, and was even a precursor to modern cryptocurrency”.

Another more immediate problem was timing and how to spread the word about the success of the stores? There was no way of achieving the necessary dissemination at the scale required to compete with the growth of industrial capitalism which went into hyper-drive after the US Civil War. The days when freely associating individual landowners could subsist and thrive through their own labours were passing.

In an economy today characterised by instantaneous one-to-many communications and where the advent of blockchain technology means non-governmental digital money forms can be verified and trusted with mathematical certainty most effectively (currently) in mined systems, to the satisfaction of all market participants, such a money network could prosper and spread through dint of its use value as an exchange value.

Short of state prohibition, although even that would be of doubtful effectiveness given the impossibility of turning off the internet unless through the advent of a dystopian post-apocalyptic nuclear winter, the forward march of bitcoin, or a competing cryptoasset, may be unstoppable. Facebook and JPMorgan Chase, by getting the party started, could be the unlikely midwives.

 

 

 

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