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Roubini: BitMEX in Violation of Securities Laws, Crypto a Metastasized Cancer

Nouriel Roubini derided BitMEX as an example of a criminally unregulated crypto exchange, and called for authorities to enforce crypto regulation at large.

Economist and anti-cryptocurrency pundit Nouriel Roubini has recently declared that there is “overwhelming evidence of rampant fraud and abuse” in the crypto space. 

Roubini, a professor at NYU’s Stern School of Business, also took aim specifically at the compliance policies of crypto exchange BitMEX in an essay entitled “The Great Crypto Heist.” The essay was published by opinions publication site Project Syndicate on July 16.

According to Roubini, anonymous sources from within BitMex told him that criminals perform a massive amount of money laundering on the exchange:

“BitMEX insiders revealed to me that this exchange is also used daily for money laundering on a massive scale by terrorists and other criminals from Russia, Iran, and elsewhere; the exchange does nothing to stop this, as it profits from these transactions.”

Roubini also criticized the exchange’s anti-money laundering (AML) and know your customer (KYC) regulations at large, going so far as to say that the exchange is in violation of securities laws. Roubini writes:

“At any rate, we do know that BitMEX skirts AML/KYC regulations. Though it claims not to serve U.S. and U.K. investors who are subject to such laws, its method of “verifying” their citizenship is to check their IP address, which can easily be masked with a standard VPN application. This lack of due diligence constitutes a brazen violation of securities laws and regulations.”

Roubini recently debated BitMEX CEO and co-founder Arthur Hayes, as he recalls. Following the debate, he wrote a Twitter post calling Hayes a coward and telling him to release the tape. According to Roubini’s recent article, Hayes has subsequently released the video.

Roubini has also called on authorities to intervene and enforce regulation. He gave a nod to U.S. Treasury Secretary Steven Mnuchin, who recently said that “… to a large extent, these cryptocurrencies have been dominated by illicit activities and speculation.” 

Roubini mentioned several studies to support his claim that there exists “overwhelming evidence of rampant fraud and abuse.”  He said there is one study which concludes that up to 95% of Bitcoin transactions are fake, which he says suggests “that fraud is not the exception but the rule.” Another study he refers to reportedly concluded that 80% of initial coin offerings (ICOs) in 2017 were scams.

As previously reported by Cointelegraph, ICO advisory firm Statis Group ran a study that looked at data on ICOs in 2017. According to the study, 80% of the ICOs in 2017 were indeed scams. However, out of a total $11.9 billion raised via ICOs, only $1.31 billion — approximately 11% — of those funds actually went to scam projects.

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Steve Wozniak Co-Founds Blockchain-Based Energy Saving Firm in Malta

Steve Wozniak has co-founded a company in Malta, which will reportedly use blockchain technology to save energy.

Steve Wozniak, co-founder of American tech giant Apple, has invested in a new blockchain-based company headquartered in Malta. Wozniak is now the co-founder of energy efficiency company Efforce, according to a report by Maltese news daily The Malta Independent on July 18.

Wozniak co-founded the company alongside Jacopo Visetti, who — according to his LinkedIn profile — works in the renewable energy and environment sector. According to this page, Visetti co-founded Efforce in January, 2018 — approximately one year and seven months ago. 

According Efforce’s LinkedIn page, the company provides the first blockchain-based platform focused on investing in energy efficiency, with its stated goal “to be recognized as the first and main platform in the world for tokenized energy savings.”

As per the report, Wozniak recently spoke about Efforce at the pre-launch for the Delta Summit, which is a blockchain conference held in Malta. 

Wozniak reportedly spoke about how he thinks blockchain will be a great boon to decreasing the public’s environmental impact without requiring people to change their habits. Wozniak also spoke on the local government’s pro-blockchain attitude as key to Efforce’s decision to launch in Malta.

As previously reported by Cointelegraph, Wozniak also co-founded a blockchain investment project in October 2018. He founded the venture capital fund EQUI Global to support investments in blockchain solutions.

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New Jersey Accuses Blockchain Firm of Unregistered Securities Sale

The State of New Jersey has accused a blockchain-related firm of conducting an unregistered securities sale when it sold its token to investors.

The State of New Jersey alleges that a blockchain-based online rental marketplace sold over $400,000 of unregistered securities.

A complaint filed on July 17 accuses Pocketinns, Inc. and its president Sarvajnya G. Mada of offering and selling around $410,000 of unregistered securities in the form of a cryptocurrency dubbed “PINNS Tokens.” The tokens were sold through an initial token offering between Jan. 15 and Jan. 31, 2018. Neither Pockettins nor Mada have allegedly been registered with the state’s Bureau of Securities. 

The defendants purportedly sold tokens to 217 investors in violation of New Jersey’s Uniform Securities Law, wherein only 11 provided documentation proving their accredited investor status. Mada and his firm subsequently planned to exchange sold tokens for Ether (ETH), which at the time had a value of around $728.

The complaint alleges that Pockettins intended to raise as much as $46 million through the sale of 30 million PINNS Tokens. Paul Rodríguez, acting director of the Division of Consumer Affairs, stated:

“By failing to take reasonable steps to verify that purchasers were accredited investors capable of bearing the increased risks associated with unregistered securities, the defendants violated the law and exposed investors to financial losses that could have been devastating.”

The complaint seeks to preclude Pocketinns and Mada from selling securities in New Jersey and assess civil monetary penalties against the defendants for each violation of the Securities Law. It also seeks to require that they pay restitution to investors who participated in the offering.

Earlier in July, a Texas court ordered two defendants to pay $400,000 for conducting a fraudulent scheme to solicit Bitcoin (BTC) from members of the public.

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US Chamber of Digital Commerce Onboards Crypto Exchange ErisX

ErisX cryptocurrency exchange has joined the Chamber of Digital Commerce, a blockchain-related advocacy group.

The United States Chamber of Digital Commerce has taken aboard cryptocurrency exchange ErisX.

Per a press release shared with Cointelegraph on July 18, ErisX has become a member of the Chamber of Digital Commerce, an advocacy group that promotes the digital asset and blockchain industry. 

ErisX thus joined other heavyweights of the industry such as Fidelity Investments, Overstock.com’s Medici Ventures, enterprise blockchain software firm R3, stablecoin platform TrustToken and professional services company Accenture, among many others. ErisX CEO Thomas Chippas stated:

“The Chamber of Digital Commerce and its member initiatives are very much aligned with our objective to improve the digital asset trading and investing landscape. We are pleased they recognize our dedication to help bring mainstream adoption and accessibility to this space through an intermediary-friendly model and unified platform for spot and regulated futures.”

Perianne Boring, founder and president of the Chamber of Digital Commerce, said that “we look forward to bringing ErisX’s experience as a regulated market to the Chamber and to their participation in our efforts to educate policymakers as well as advocate for digital assets and blockchain technology.”

Recently, ErisX procured a derivatives clearing organization (DCO) license from the U.S. Commodity Futures Trading Commission. ErisX is ostensibly planning to make digital asset futures contracts available for trade on its regulated derivatives market later this year via its new DCO.

Earlier this year, the Chamber urged the U.S. government to implement a national action plan on blockchain technology. The group believes that blockchain offers a “myriad of transformational benefits” for businesses, government and consumers. The group also thinks that, as a leading nation in tech, the U.S. has to fully embrace a national strategy on decentralized technologies.

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Funding for Crypto and Blockchain Companies Plummets as Regulatory Concerns Grow

Crypto

Bitcoin and the entire crypto markets have been incurring significant volatility throughout the course of 2019, most of which has actually been bullish.

Despite this, newly released data suggests that funding for blockchain and crypto companies has dived over the past year, which may be exasperated in the coming months and years as the United States’ government begins implementing “very strong” regulations on the nascent markets.

Funding for Crypto and Blockchain Companies Expected to Plummet 60% in 2019

According to a recently released research report from CB Insights, 2018 was a record year for fundraising for blockchain startups, which pulled a total of $4.1 billion in the 12-month period.

So far in 2019, blockchain and crypto startups have only received a mere $784 million through a total of 227 deals. In the next five months, CB Insights predicts that companies will have slightly better success fundraising, putting the final fundraising amount for 2019 at $1.6 billion.

The report also notes that corporations are beginning to invest less in companies that were previously drumming up significant interest, and that more mature startups are actually facing a larger fundraising dilemma than their newer counterparts.

Could Incoming Regulatory Crackdown Further Hamper Fundraising Efforts?

Throughout the past couple of weeks, the world has gained significant insight into how many prominent politicians feel about Bitcoin and the aggregated crypto markets, and unsurprisingly, they aren’t expressing much enthusiasm about the nascent markets.

Shortly after President Donald Trump told the world in a tweet that he is “not a fan” of Bitcoin and other cryptocurrencies, the US Treasury Secretary, Steven Mnuchin, held a press conference on the same topic, telling reporters that the lack of regulations surrounding the crypto markets is a “national security” issue.

Now, during a recent interview with CNBC, Mnuchin explained that the government will begin policing cryptocurrencies with “very, very strong” regulations so that they don’t bring instability to the traditional financial system.

“I want to be careful that anybody who’s using bitcoin — regardless of what the price is — is using it for proper purposes and not illicit purposes… And there are billions of dollars of transactions going on in bitcoin and other cryptocurrencies for illicit purposes,” he added during the interview.

Only time will tell as to whether or not the imminent regulatory policies from the US government will hamper innovation and growth in the crypto and blockchain industry, but it is likely that fears about this clampdown will slow fundraising efforts in the coming months and years.

The post Funding for Crypto and Blockchain Companies Plummets as Regulatory Concerns Grow appeared first on Ethereum World News.

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Waves to Use Vostok as Utility Tokens for New Enterprise Blockchain Solution

Waves CEO says Vostok tokens will fuel a new Waves-based enterprise blockchain solution, provided by a new department within the company.

Waves CEO Alexander Ivanov has announced a new department for enterprise projects that will be fueled by Vostok (VST) tokens. 

According to a July 18 press release, Waves is opening a new company department called Waves Enterprise, which will employ a corporate blockchain solution of the same name. The Waves Enterprise solution is a management system for businesses that need to handle data sets containing private information.

As per the report, VST tokens will be the utility token for Waves Enterprise, and will be exchanged for a variety of network-based services. As Ivanov states:

“VST will lay the foundation of the Web3.0 economy, enabling control of (and payment for) app development, as well as other ecosystem solutions. VST is the network’s internal currency, needed for connecting your node to the network, paying operational (mining) fees, and anchoring the corporate sub-chains to the main chain.”

Regarding the capabilities of the new blockchain solution, the press release states that it will support any algorithm in any programming language, including smart contracts. The technology supporting these capabilities is Docker, which is an automated system for application installation and management.

Ivanov also predicts that private and public blockchain solutions “will merge into one global and universal technology in the future,” as per the announcement.

According to its website, Vostok is a blockchain-based solution for enterprises and public institutions. The project uses a private blockchain platform and a proprietary system integrator.

As previously reported by Cointelegraph, Ivanov sold his stake in Vostok, a blockchain project launched by Waves, on July 16. Ivanov claimed that he sold his stake in Vostok in order to concentrate on developing the Web3 ecosystem through Waves. The GHP Group, an early investor in Vostok, is now the sole owner of the company. 

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Tokenizing Commercial Real Estate and the Promise of Liquidity

The potential benefits of tokenization for the liquidity of commercial real estate.

The commercial real estate sector is squarely in the sights of the blockchain industry. Advocates justifiably believe that the technology offers the ability to streamline everything from capital formation to transaction settlement at hitherto unseen levels of speed and efficiency. Additionally, through a process known as tokenization, blockchain platforms can create digital representations of shares as well as ownership rights in properties and investment vehicles, simplifying the process of reselling those assets by creating a robust and liquid dual-sided market for an otherwise illiquid asset.

This is very exciting and has been a long-time coming for an industry that has largely remained on the sidelines of a digital revolution that has been impacting industries around the world. However, for this technology to truly succeed, industry participants need to engage in an honest dialogue about the hurdles — of which there are many — that could prevent a decentralized utopia.

Often times this requires combating myths that arise from blockchain hyperbole. One such prevailing opinion that needs refinement is what some call the “Field of Dreams” scenario, which is the belief that if a particular asset becomes tokenized, a deep and mature market will automatically materialize (i.e., “If you build it they will come”). However, while it is easy to deliver one-liners at conferences, few articles take the time to go into the specific drivers of supply and demand in markets such as commercial real estate and the net effect that tokenization can have on this asset class. Honest discussions along these lines are critical in order to create and implement successful adoption roadmaps for blockchain technology.

Introducing the illiquidity discount

Industries without standardized products or fluctuating supply and demand often experience an illiquidity discount. For readers who are unfamiliar with the term, an illiquidity discount refers to the reduction in price that gets applied to an asset because of a shallow market. It exists because, for certain assets like real estate or unique works of art, it is not always easy to move in and out of a cash position. Commonly used in the context of risk, Investopedia defines illiquidity as “the state of a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value.” 

While liquidity has historically been less of an issue for public equity markets, in private real estate markets (in which the commercial sector almost exclusively exists), liquidity has always been a key factor significantly affecting asset valuation — or more specifically, pricing. In fact, illiquidity discounts can often reach up to 30%-50% of the estimated fundamental value! 

Reasons for the illiquidity discount in the commercial real estate sector

Looking at the nature of the commercial real estate market as a whole, one can easily identify some obvious reasons for illiquidity, such as the lack of market depth and transparency, the fact that most activity takes place in shallow private markets, and assets are often priced on an as-needed basis. Furthermore, unlike in public markets, the valuations are not consistent and regularly updated (often due to the unique nature of most properties and varying levels of inventory depending on geography), and the transactions themselves are often difficult and expensive to execute (especially with private or institutional financing involved). All of this results in high levels of complexity, counterparty risk and transactional friction, making the underlying assets less liquid.

Regulation as a source of illiquidity

However, the most important factor contributing to illiquidity in traditional commercial real estate investments is that most of these investments are considered, at least in the United States, securities or investment contracts and, as such, are subject to a myriad of transfer prohibitions and restrictions on liquidity, resulting from complex legal and tax requirements imposed by U.S. regulatory agencies like the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority and the IRS, just to name a few.

Examples include:

— The “Maximum 100 Investor Rule,” which states that, in order to be exempt from registering as an investment company under the two most frequently used exemptions of the Investment Company Act of 1940, most private real estate funds must choose to either (a) limit their private offerings to no more than 100 investors (or 99 investors, if the General Partner’s interest is at risk of being considered a security) under the 3(c)(1) exemption, or (b) limit the fund to only “qualified purchasers” under the 3(c)(7) exemption.

— The “Minimum 100 Shareholder Rule,” which states that, in order to qualify as a Real Estate Investment Trust (REIT) under the Internal Revenue Code, a company must comply with many relevant provisions in the code, including having a minimum of 100 investors, holding a majority of its assets in real estate and annually distributing a minimum of 90% of the REIT’s taxable income to its shareholders.

— The “Maximum 2000 Shareholder Rule,” which states that, pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended on May 24, 2016, a private fund that exceeds (even if inadvertently) the maximum of either 2,000 shareholders or 500 shareholders who are not accredited investors and has more than $10 million in assets must register and file its financials with the SEC (and this includes ongoing disclosures, appointment of disinterested directors, and prohibitions on affiliated transactions and trading activities such as short sales and derivatives trading).

Historically, the only way to ensure compliance with all requirements and to maintain control of private securities has been to make them all go through a fund manager, which results in additional costs, delays and counterparty risk. Moreover, if the selling shareholders cannot find an outside buyer, they often end up having to sell their shares to another shareholder or back to the fund at a brutal illiquidity discount — a scenario that usually comes with its own set of problems and potential conflicts.

Tokenization can help, but it is not a silver bullet

The most optimistic scenario is that, as real estate (residential or commercial) becomes tokenized, the illiquidity discount can be narrowed or eliminated altogether. However, just tokenizing assets and putting them on a blockchain will not be a solution in and of itself. 

For example:

— While blockchain technology should help, given the proper infrastructure, accelerate core elements of real estate transactions — such as price and title discovery, identifying any liens or easements against a property and adhering to restrictions placed on shares (because they can now be programmed into the platform and/or the token) — tokenizing real estate assets does little to change the fact that the underlying real estate is fixed to a particular location and is difficult (actually, impossible) to move. These are factors that impact demand that cannot be easily countermanded.

— Furthermore, tokenization alone will not alter the fact that real estate assets themselves are individually unique on a granular level, which can make it difficult to have clear transparent markets and data feeds.

— Finally, tokenizing real estate assets does not change the subjectivity of these shares to securities regulation, which is sometimes a common misconception in blockchain circles.

The silver lining

However, these disclaimers are not necessarily a bad thing, it just means that tokenized assets cannot alleviate illiquidity by themselves. Fortunately, there is tremendous work being undertaken utilizing blockchain technology (and tokenized assets) to streamline the capital formation process by helping to identify, broaden, and build markets and syndicates faster.

For instance, the lack of public markets will be gradually counteracted by the emergence of regulated security token exchanges and alternative trading platforms like OpenFinance and tZero. Additionally, emerging security token issuance and investor management platforms — like Templum, Securrency, Harbor, Symbiont and Securitize — are making programmable governance and built-in regulatory compliance possible on the platform and/or the security token levels.

Transactional difficulty and friction can be dramatically reduced through the implementation of smart contract functionality to automate many data-driven and task-based processes — i.e., public records maintenance, chain of ownership, escrow and real-time transaction settlements.

Blockchain-based payments are another important element that should be easily incorporated into the real estate transaction process. Be it fiat-backed stablecoins (e.g., JPM Coin or Libra), or native crypto assets (e.g., XRP or Bitcoin), it should be orders of magnitude easier, safer and faster to send funds without error or counterparty risk.

Finally, preapproved and whitelisted investors will be able to trade these private securities peer-to-peer, at virtually real-time settlement speed and with no counterparty risk — almost as quickly as sending an email. This is truly transformational, as it will bring the benefits historically enjoyed by public markets into the world of private equity and commercial real estate.

These building blocks are all complementary to the tokenization process, and I truly believe that together they will symbiotically transform and evolve the real estate industry in a way that is durable and scalable.

The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Nothing in this article should be construed to be legal advice, and all content is for informational purposes only. You should not act or refrain from acting on the basis of anything herein without seeking appropriate legal advice regarding your particular situation.

Alexander Kanen is a well known New York City attorney, speaker and entrepreneur, specializing in Real Estate, Private Equity and Blockchain. Alexander is Chair of the Real Estate Working Group at the Wall Street Blockchain Alliance, a leading 501(c)(6) non-profit, that guides the comprehensive adoption of blockchain technology within the financial and real estate industries, and a Member of WSBA’s Legal Working Group, and serves on the New York Board of Directors of FIABCI (The International Real Estate Federation) with members in more than 50 countries and Special Consultative Status with the Economic and Social Council of the United Nations. Involved with Distributed Ledger Technology since early 2013, Alexander pioneered the concept of “Bitcoin Closings”, and currently advises domestic and international companies, high-net-worth individuals, family offices and private equity funds in all aspects and stages of commercial real estate transactions, including raising new capital through tokenized equity offerings and other asset-backed digital security issuances.

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IDEO’s Blockchain Accelerator Startup Studio Onboards Over 50 Mentors

IDEO CoLab’s Blockchain Accelerator Startup Studio Has Reportedly Onboarded Over 50 Mentors.

Over 50 members, including officers from companies such as Ethereum Foundation, Blockchain Capital, and Messari, have joined blockchain accelerator Startup Studio backed by Fidelity.

In a blog post published today, July 18, IDEO CoLab Ventures — which stands behind the blockchain accelerator program — revealed that over 20 leading organizations joined Startup Studio, bringing more than 50 mentors to the project for 2019.

Announcing the new program members, IDEO wrote: 

“last week you met our blockchain Startup Studio’s 20+ partner organizations […], today we’re excited to share the humans behind them — and many more — who deeply care about the blockchain community and helping entrepreneurs and developers in it succeed.”

Startup Studio has onboarded industry players such as Denelle Dixon, CEO of Stellar Development Foundation, Joey Krug, co-chief investment officer at Pantera Capital, Robbie Bent from ecosystem support at  Ethereum Foundation, and Ryan Selkis, co-founder and CEO of Messari, among others.

As Cointelegraph reported, major global firms Fidelity, Deloitte and Amazon began supporting a new blockchain accelerator program Startup Studio on July 11. Startup Studio’s objective is to provide workshops to blockchain startups to help them enhance a variety of skills, including product design, law and engineering, smart contract development, finance and hiring, and other fields.

Blockchain accelerators have been gaining traction internationally in recent months. In March, Singapore government-backed blockchain accelerator Tribe got BMW and Intel as two major strategic partners. Both BMW and Intel will provide expertise to the startups selected for support.

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Social Innovations and Secret Conversations (on the Blockchain)

New ways to communicate through coded conversations and secret languages are being implemented on blockchains.

There’s a novelty in finding new ways to communicate through coded conversations and secret languages. How is this being implemented for good — or otherwise — on blockchains?

Since its beginnings, blockchain technology has led to many movements, including the formation of a unique crypto community. This blockchain community is forming its own lexicon (including a more formal vocabulary that industry opinion-makers are creating and debating and Twitter-based crypto slang like hashtagging Lambos and Bitcoin whales.) 

There is also another language that has developed, the one in blockchain platforms themselves — developed through a “glitch” in the blockchain system — through a coded instruction that was meant for something else entirely. This is a conversation created through transaction signatures — the method of transfer — with coded messages built into the hash. 

What started this trend? In part, it came from necessity, the need to find an anonymous way to converse with each other — to complete a private transaction. It may also be rooted in psychology. “Groups of people form their own private lexicons because coded language is exclusive, exciting and defiant,” Gary Nunn wrote. An exclusive argot gives ownership, pride and a sense of being part of something greater than oneself.

Private interactions on blockchains

A coded language can be used for harmless activities such as in-jokes or conversations, but they are often developed by a person or people in need of a way to communicate as anonymously as possible. And so, it stands to reason that transaction signature conversations have been used for harmless fun between online friends and also for illicit activities between bad actors.

What are some of the ways that transaction signatures have been used for conversing, for better or for worse? Let’s start first with a description of how a conversation actually works using blockchain technology.

Signed on the dotted line, with a public and private key

A digital signature or transaction (TX) signature is the detail of an electronic document that is used to identify the person transmitting data on a blockchain. The signature acts as a transaction validation, linked to the public key of the entity involved. It’s a confirmation that the transaction has not been tampered with in any way — a trustless transaction. Here’s how it works:

How digital signatures work: signing the message with private key

How digital signatures work: verifying the message with public key

Coded conversations through a “glitch” in the tech

Users of the technology at some point or another realized that it’s possible to add a so-called “OP_Return output” to the transaction — an instruction coded into the Bitcoin blockchain by Bitcoin developers. This output would be nonspendable, the data attached to it, however, would remain on the blockchain forever. And so, coded conversations on the blockchain began.

Some believe that this is an irresponsible use of the technology, as the Bitcoin blockchain was created solely for financial transactions and not a record for arbitrary data. Either way, it has become a function used by transactors, whether it was initially intended as such or not.

Here are some of the more novel ways that the OP_Return output has been used so far:

Rick-rolling

One of the first OP_Return messages that gained notoriety was the use of the lyrics “Never Gonna Give You Up” by Rick Astley (following the theme of the well-known rick-roll meme) to play pranks on users. A hacker, for example, who demanded payment by blackmail was rick-rolled by a prankster who used the first few symbols of addresses to spell out the lyrics of the song and send only tiny amounts of Bitcoin. Each transaction made by the prankster was worth 0.001337 BTC, and was effectuated in homage to leet, a code of modified spelling using numbers in place of letters.

Rickrolling on the blockchain

Ethereum DApps

A relatively slow uptake in decentralized application (DApp) adoption might be due to users having to pay a transaction fee to complete an action — Mahesh Murthy of Zastrin noted the fee as a pain point in a blog post he wrote about a voting DApp he created. He mentions an idea by John Backus as a solution to this bottleneck using a similar function to OP_Return for Ethereum DApps through a private key.

Ethereum DApps

Eternity Wall

Eternity Wall, a service for writing short messages on blockchain, is mostly used for writing proverbs, jokes and love declarations, but it can also be used to reply to a message sent via the service, so conversations may be created. 

Eternity Wall

Ricardo Casatta, creator of Eternity Wall, has also promoted the potential political use case for such a tool as an uncensorable means of communication, having written in a post, now unavailable:

“If you live under a dictatorship, you could use it for saying something that your government would remove or block.” 

Eternity Wall

Blockchain riddles

An entertaining way of using OP_Return is to organize quizzes on a blockchain. The address 1HoTZGKwXY2HM8UBpiBKtBUd8otPpsJ5Pc has sent several riddles via OP_Return messages, for example.

Here’s what was sent by the address:

  1. Five riddles, one-word answers. Start at 1HKGame213Part2xxxxxxxxxxxxzQajrj
  2. What English word has three consecutive double letters?
  3. What disappears as soon as you say its name?
  4. Which word in the dictionary is always spelled incorrectly?
  5. You can hold it without using your hands or arms. What is it?
  6. What word becomes shorter when you add two letters to it?

And probably the answers lead you to some private key, since the last message was:

“PrivateKey=SHA256(tolower({2} {3} {4} {5} {6})). Transfer to prove solution.”

Blockchain riddles

The webpage Bitscribble was created as a simple interface that could be used to write messages on a blockchain via the OP_Return script. 

In January 2019, Parisian-based street artist Pascal Boyart created a mural with a hidden Bitcoin prize, announcing the treasure hunt on Twitter to participants eager to win the coveted reward. The stunt was a celebration of the 10th anniversary of the first mining of a Bitcoin block. If you’re wondering if it’s been solved yet, you can find out here.

Image with a hidden message

There has been everything from marriage proposals to cryptic clues to messages supposedly written by Satoshi encrypted on the Bitcoin blockchain.

If you’d like to learn how to write a blockchain message yourself, here’s a step-by-step guide.

Blockchain messaging used in elevated situations

The OP_Return script may be used to contact a person on the Bitcoin blockchain if you only know their Bitcoin address. There are some incidents in which this tool has proven very useful for transactors: For example, a person may be contacted if they received stolen funds for some reason or if someone accidentally sent them a transaction that needs to be returned.

When communicating with a hacker following a security incident in August 2016, Bitfinex offered the OP_Return instruction as a potential method for anonymous communication, should the hacker wish to get in touch with the exchange and find a compromise in return for a bug bounty.

Going back as far as 2014, the OP_Return script has often been used by spammers

Bitcoin Cash as a messaging service

Messaging on the Bitcoin Cash blockchain is not something done in secret anymore, either. Memopay, for example, is a service that offers its customers advertising opportunities on the Bitcoin Cash (BCH) blockchain. Bitcoin Cash has proven to be more popular for messaging services, likely due to lower blockchain transaction fees.

There is, in fact, a social network called Memo in which all networking actions are recorded to the BCH blockchain. Bitmain co-founder Jihan Wu has publicly tweeted that he has an account on Memo, inviting his Twitter followers to sign up for an account and get in touch with him.

CryptoGraffiti is a solution that allows anyone to easily decode and read arbitrary messages that have been saved to the blockchain. The tool detects transactions that contain either “human-readable text messages or files of known formats” and publishes it under a reader tab.

Social networking on a public, immutable ledger

With the advent of social media as a powerful communication and advertising tool, the conversation has inevitably — and regularly — returned to how a decentralized technology like blockchain can be harnessed to provide enhanced social networking opportunities. Realistically, though, until the user interface and user experience are at the level of major current social networks, the tech won’t appeal to those who already have easy-to-use messaging applications at hand.

Not only that, but the question of whether people want their private (or indeed public) conversations permanently imprinted on a ledger remains to be seen. Transparency is important, but people still want to feel a certain sense of privacy. 

That being said, the world is no longer a private forum, with public data becoming so available as users sign their rights away. Perhaps it’s not such a stretch to envision a decentralized, international social networking platform on a public and permanent ledger.

The article was co-written by Kyrylo Chykhradze and Pavel Mischchenko. 

Kyrylo Chykhradze is the Head of Product at Crystal Blockchain, Bitfury’s analytics tool for blockchain and cryptocurrencies. He joined Bitfury after having worked as an academic researcher for five years, where his areas of focus were graph theory and real-world network analysis. Along with being deeply involved in forming the global product strategy for Crystal Blockchain, Kyrylo is also leading its internal forensic investigation department.

 

Pavel Mishchenko  is the Head of R&D at Crystal Blockchain. He joined Bitfury in 2015 after obtaining a master’s degree in Advanced Mathematics at the Ecole Normale Supérieure de Lyon. His primary areas of interest are statistics, data analysis, and probability theory. Pavel actively participates in mathematics competitions and has been awarded gold medals at the International Mathematical Olympiad. Pavel is the Research & Development Lead at Crystal, and is also heavily involved in the development of algorithms for efficient cryptocurrencies data analysis.

The views and opinions expressed here are solely those of the authors and do not necessarily reflect the views of Cointelegraph.

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NEO and Ontology Partnership Eyes Global Cross-Chain Blockchain Platform

Chinese blockchain platforms Ontology and NEO are partnering to create an interoperable protocol in a bid to spur development of the next-generation internet.

Chinese blockchain platforms Ontology and NEO are partnering to create an interoperable protocol in a bid to spur development of the next-generation internet.

A press release shared with Cointelegraph on July 18 revealed that the two blockchain firms intend to build an open, global cross-chain platform based on an interoperability protocol that would harness both companies’ strengths. 

In reorienting the focus of their respective strategies to the task of full-fledged interoperability, NEO will work to develop protocols and components that can support a full spectrum of digital assets and Ontology will continue to build out its decentralized identity framework. 

Key Features of NEO and Ontology’s interoperability protocol

The press release reveals four fundamental aspects of the firms’ interoperability push, noting first that the development work will aim to establish an “eco-friendly approach to member chains.” This means that — in order to protect member chains from so-dubbed cannibalization — the protocol will not issue tokens, nor will it include a dedicated smart contract system.

A second point is an ambition to establish a low barrier for entry — i.e. to not require existing blockchain projects to develop new protocol layers or other modifications in a bid to streamline their perspective integration. 

Third, the protocol will seek to achieve finality and atomicity in cross-chain transactions and will focus on expanding the scope of decentralized applications (DApps) by supporting cross-chain smart contract interactions.

Last, the two firms pledge to focus on optimizing security for cross-chain transactions and interactions but have not yet revealed specific details of the technical and operational security mechanisms that are planned for implementation.

The global push for blockchain interoperability

Both companies’ founders have underscored in their respective statements that a collaborative approach is the first step to building the foundation for a global cross-chain platform that can onboard diverse projects and companies in the sector and tackle real-life applications.

Last month, Ethereum Classic (ETC) incubator ETC Labs revealed plans to create a solution for Ethereum (ETH)/ETC interoperability in collaboration with Metronome (MET).

A report prepared by blockchain tech firm ConsenSys and published by the European Union Blockchain Observatory and Forum this March had recommended the introduction of interoperability and scalability standards for the European blockchain sector.