The crypto community is showing signs of growing up

Less of this.
Less of this.
Image: Reuters/Amir Cohen
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It’s become trite to say that while cryptocurrencies are a fad, blockchain technology is here to stay. I’ve heard this so much, though, I’m starting to believe it.

I’m not counting out crypto—there are reasons to believe that the revolution is just beginning. But now that we’re in the depths of the crypto winter, with bitcoin down by 80% from its 2017 peak, the enduring interest in blockchain becomes more meaningful.

Speaking of winter, my most recent encounter with the blockchain-not-bitcoin brigades was in Davos, at the World Economic Forum last month. The exclusive Swiss ski resort where the global elite gather every year is as establishment as it gets. In the past few years, the steady creep of crypto into the mainstream has been apparent in the snowbound town.

After the crash, the session on crypto in the main Congress Centre this year wasn’t as well attended as the one the year before, giving naysayers the fodder to say that the world no longer cares. This is wrong.

That’s because the real action in Davos typically takes place away from the official programming, in numerous side events held in hotels, lounges, and chalets scattered around the city. In my experience, there was more blockchain chatter in Davos this year than ever before. By my count, twice as many venues hosted crypto- and blockchain-focused events in 2019 than in 2018.

The more buttoned-up nature of the crowds and programs was also revealing. Last year, the lively “Crypto HQ” lounge got a visit from the local police early in the week, for convoluted reasons I couldn’t quite confirm. The outlaw vibe of the place fit the brash tone of crypto’s peak days: There was Jägermeister on tap, animal skin rugs everywhere, and panels with execs from Cambridge Analytica talking about how to monetize data with blockchain. (How did that work out for them? Oh.)

This year, the only venue with “crypto” in its name was Crypto Mountain, a converted shipping container parked outside a casino, that hosted al fresco panel discussions on the sidewalk. The more common theme of purpose-built venues along the promenade was clear: there was Blockchain Central, Davos Blockbase, and the Blockchain Economic Forum, to name a few. During the week, the World Economic Forum announced the founding of a Global Council on Blockchain, not to be confused with the Global Blockchain Business Council, the first crypto group to set up shop in Davos, in 2017.

The sorts of people you met at crypto gatherings this year were also very different. Last year, at ConsenSys’s Ethereal Lounge, I watched panel discussions where participants talked about tokenizing sheep herds and using blockchain to track land ownership on other planets. (What happens when the data beamed back to Earth hits a wormhole, asked someone in the audience, which prompted a discussion of quantum mechanics and relativistic physics.) This year, at the same venue, I moderated a panel about trade finance, with real-world examples of blockchain-based letters of credit passing between banks and traders in the crude oil market.

Last year, a lawyer on a panel I attended asked, “should we be regulating at all?” This year, more than a few crypto fund managers pitched me on the strength of their regulatory teams and relationship with securities regulators. I heard “STO” far more than “ICO.”

So what? Davos gets a lot of criticism, and the jokes about the hot air produced there making the sub-zero weather more manageable are not totally off base. But few events gather so many executives and policymakers in the same place, and that counts for something. There are also far cheaper places to set up shop to talk about blockchain, which strikes me as an important signal. Last year, a startup founder I met in Davos described the rise of crypto as a “reality hard fork.” Today, reality seems relatively undisturbed, but that doesn’t necessarily mean that it’s business as usual.—Jason Karaian

Hacks, scams, and capers

Unraveling the Quadriga mystery

A flotilla of attorneys is massing in a Halifax, Nova Scotia, bankruptcy court today in a bid to represent the owners of some $144 million worth of cryptocurrency that may be locked away in the electronic coffers of Quadriga CX.

Quadriga, a Canadian crypto exchange, was granted bankruptcy protection last week after an unusual series of events that, in the best case scenario, expose a serious flaw in the architecture of the crypto economy and, at worst, suggest massive theft.

Quadriga was founded in 2013 by Gerald Cotten, who operated the exchange alone from his laptop. When Cotten, 30, died unexpectedly from Crohn’s disease while in India in December, he didn’t leave behind passwords to the cold wallets used to store his clients’ funds, according to an affidavit filed by his widow (pdf). (For more on hot and cold wallets, see the De-jargonizer below).

While the over-reliance of crypto accounts on unrecoverable passwords, and the systems’ difficulty in handling assets in the event of death, are not new problems, it has never caused quite as big a fiasco as this. However, not everyone is convinced it’s a simple matter of an inaccessible private key. According to experts interviewed by the Wall Street Journal (paywall), an analysis of transactions by some Quadriga customers found no evidence of their funds flowing into cold wallet accounts, but instead going into accounts at other exchanges. Other experts, and rival exchange operators, aren’t sure what happened exactly.

Resolving whether the money was stolen or simply inaccessible doesn’t offer much relief to the 115,000 Quadriga customers who lost their money. One of them says he was using Quadriga as a low-cost means to transfer his life savings—$422,000—from US to Canadian dollars after he took a job in Vancouver. Now, he is wiped out. “I just got caught up in this at the wrong time, I guess,” he told Bloomberg. — Oliver Staley

Crypto meets finance

The feds have their eye on crypto

It may be crypto winter, but the feds haven’t forgotten about digital assets. The Commodity Futures Trading Commission (CFTC) said this week that “cryptocurrency surveillance practices” are now a priority for examination. While it wasn’t entirely clear what this entails, the statement suggests the agency may be looking ways, perhaps via CFTC-regulated exchanges CME Group and Cboe, to more closely examine spot crypto exchanges.

A little digging into federal filings also shows that the CFTC spent $70,000 on services from Chainalysis, which makes software for crypto compliance and investigations. The Department of Homeland Security paid Chainalysis almost $1 million, while the Justice Department and US Treasury have spent money on its services as well.

The efforts to more closely scrutinize that crypto sector demonstrate the US government doesn’t think digital assets are a passing fad. It also shows there are ways to make money in crypto even when trading has cooled. About one-third of Chainalysis customers are government entities. Even as crypto pessimism seems to set in, this week the fintech upstart said it raised $30 million from investors including Accel and Benchmark. Chainalysis said it plans to use the money to open an office in London, giving it access to the UK capital’s talent pool, as well as proximity to financial institutions and European governments. —John Detrixhe and Justin Rohrlich


Hot and cold wallets

Keeping your holdings safe is one of the greatest challenges of cryptocurrency ownership. Bitcoin wallets broadly fall into two categories. Hot wallets are software versions of your public key (your receiving address) and your private key (your sending address), and they are kept on devices connected to the internet. Because they’re online, hot wallets can be vulnerable to hackers and malware.

As suggested by their name, cold wallets—also called “cold storage—are versions of your public and private keys, which are not connected to the internet. For example, you may choose to keep your wallet information exclusively on a thumb drive or even printed on a piece of paper (these are called “paper wallets”). Of course, with cold wallets, you must contend with the physical security of your wallet information. So, steer clear of the shredder, small children, fires, and puppies. —Matthew De Silva