[header date=”28 September 2018″]Google reverses its crypto ad ban, Bitmain raises money (and eyebrows), and JPMorgan takes another step toward blockchain.[/header]
What you need to know—and why
Coinbase is after additional tokens. The exchange is accepting applications to list new tokens, and seems eager to expand beyond its current offerings of bitcoin, bitcoin cash, ether, ethereum classic, and litecoin. Any additions must meet the requirements laid out in Coinbase’s updated Digital Asset Framework, which includes standards on token distribution, utility, security, and scalability.
[takeaway]The development follows Coinbase’s July announcement that it was exploring the addition of Cardano, Basic Attention Token, Stellar Lumens, Zcash, and 0x. Because the exchange is being guided by regulators, who are moving cautiously in their embrace of crypto, it seems likely that additions will be incremental rather than explosive. ↗️[/takeaway]
Google ends its crypto advertising ban. Starting in October, regulated crypto exchanges in the US and Japan can apply for certification to advertise through Google, ending a broad prohibition on crypto-related marketing. However, ads for initial coin offerings and some niche, crypto-linked financial derivatives remain prohibited.
[takeaway]When Google announced its ban in March 2018, gross abuses demanded a response from the company. Hacks and thefts are still prevalent in crypto world, but Google—like Facebook before it—is warming to the sector as regulators create and enforce minimum safety standards. Google’s reversal on crypto ads could bring bitcoin back on the radar of retail investors. ➡️[/takeaway]
Bitmain’s explosive growth leads to an IPO, and questions. Bitmain, a manufacturer of crypto mining hardware, filed an IPO prospectus in Hong Kong that is raising eyebrows. The company’s profits have shot through the roof in recent years: $114 million in 2016, $701 million in 2017, and a gross profit of $743 million in the first half 2018. But Bitmain reported its results for only the first half of 2018, rather than breaking out quarters, and skeptics wonder if the company might be obscuring bad news to secure a favorable IPO price.
[takeaway]One detail is clear from the prospectus: Bitmain got a little ahead of itself with its 2018 projections. Since prices have fallen, demand for miners has lessened, and the company’s inventory has stacked up. With fast growth, there’s often a sudden reckoning. Proceed with caution. ➡️[/takeaway]
Andreessen Horowitz meets its MKR. The venture capital firm’s crypto fund, a16z crypto, bought 6% of MakerDAO’s MKR tokens for $15 million. MKR tokens give the firm a voice in the governance (e.g., the creation, issuance, and management) of dai, a stablecoin collateralized by another token, ether. Notably, to liquidate dai, a user must pay “stability fees” and weirdly, these fees can only be paid in the governance token, MKR. “How dai works is not inherently easy to understand,” observed Amy Castor of Bitcoin Magazine. “MakerDAO uses an elaborate scheme of tokens, smart contracts, and ‘autonomous feedback mechanisms’ to maintain its peg.”
[takeaway]Even in the crypto world, dai has an unusually complex structure. But here’s a critical distinction. A16z did not make a large purchase of dai itself, the stablecoin. It bought MKR—the governance token. What’s really bizarre is that despite dai’s over-collateralization model, it’s strongly dependent on the price of ether. If ether tanks, dai could die. All in all, there’s something discomforting about tokens backing other tokens. ↘️[/takeaway]
Antpool looks to score with the Rockets. Antpool, a bitcoin mining company owned by Bitmain, will sponsor the Houston Rockets in the upcoming NBA season. In an announcement posted on Antpool’s Youtube channel, Rockets’ swingman Gerald Green can be seen meeting with Antpool representatives, who were decked out in the basketball team’s colors. Last month, AntPool said it would begin its US expansion by investing $500 million in Texas, including a data center for crypto mining not too far from Houston.
[takeaway]Antpool’s partnership makes sense. The Rockets have been the most popular NBA team in China since the team drafted 7-foot-6 NBA Hall of Famer Yao Ming in 2002 and China is also home to a massive number of cryptocurrency investors. Given the concentration of crypto interest among young men, a sports-oriented partnership targets exactly the right consumer demographic. The deal underscores how crypto players are increasingly seeking legitimacy through conventional marketing platforms. ↗️[/takeaway]
[supplemental headline=”Reasonable Doubt”]
Walmart says lettuce use blockchain. To improve food safety, Walmart is tracking lettuce and spinach from its suppliers using a blockchain system from IBM Food Trust, with IBM hosting all the data. Walmart and IBM are touting the technology as an advance that can track produce from farm to consumer, and allow grocers and regulators to trace contaminated veggies back to the source, avoiding the waste of mass recalls.
Skeptics applaud the goal of improved food safety, but wonder if Walmart really needs blockchain to accomplish it. “I think it’s mostly a P.R. move, so these companies can sell themselves as blockchain leaders,” one tells the New York Times. Tracking food origin could just as easily be accomplished using a normal, permissioned database, and of course, the limitations of tracking physical goods exist regardless of whether a company uses a database or a blockchain. For Walmart and IBM, promoting this initiative as a landmark blockchain use case seems disingenuous. [/supplemental]
Crypto meets finance
JPMorgan will use blockchain for payments—sort of. The New York bank has signed up more than 75 other banks for the live blockchain service it began piloting last year. It won’t, however, replace the banks’ underlying payment network. The existing rails remain the same, Sungmahn Seo, JPMorgan managing director, said in an interview. The Interbank Information Network (IIN), as it’s called, is for information sharing and will complement the Swift network used for payments by banks globally.
Instead of delivering payments, the network will be used to untangle errors. Correspondent banking is complex, as payments must sometimes hop along several banks to their destination. When something goes wrong—like a mistyped birthdate—it can take weeks to sort out. Now, rather than manually emailing around the details, banks can use this shared, immutable record captured by the INN. Only the parties with permission can view the details, and they don’t have to rely on JPMorgan or any other bank to maintain the records. Seo said it has turned out to be an excellent use for blockchain.
[takeaway] So far, Seo said JPMorgan has come to the same conclusion as others—that blockchain doesn’t necessarily make payments faster. In big time finance, blockchain remains interesting rather than revolutionary. ➡️[/takeaway]
[supplemental headline=”Chart interlude”]
In the jaws of the bear: Funding through initial coin offerings (ICOs) is drying up as ethereum prices fall and regulatory scrutiny increases.
[img src=”https://cms.qz.com/wp-content/uploads/2018/09/Funds-raised-through-initial-coin-offerings-ICOs.png”]
[mailto filter=”Chart” subject=”Here’s a chart idea…”]Got a killer chart idea? Let us know[/mailto]
[/supplemental]
Regulatory Watch
Cryptos are commodities. Virtual currencies are commodities, ruled US district judge Rya Zobel, upholding the CFTC’s interpretation and giving the agency the go-ahead to pursue related fraud charges against My Big Coin Pay Inc, a company that promoted an obscure cryptocurrency. Blockchain and cryptocurrency lawyers are divided about the ruling, however, and even questioned why the government went after My Big Coin under commodities law in the first place.
[takeaway]It appears the court issued a pretty broad interpretation of virtual currency. The court seemed to say that because bitcoin futures are trading, all cryptocurrencies are commodities, which, some attorneys say, could be “vulnerable on appeal.” The great crypto-commodity debate roars on. ➡️[/takeaway]
No taxes? No registration? No problem. Rep. Tom Emmer, a Minnesota republican and the new co-chair of the congressional blockchain caucus, has drafted a bill proposing that people who fail to pay taxes on forked digital assets (e.g., bitcoin cash) should not be penalized until the IRS has provided clear guidance on how the assets should be treated. In a separate bill, he suggests that miners and service providers like wallet companies be exempt from registering as money transmitters, because they don’t take control of consumer funds.
[takeaway]Removing money transmitter licensing requirements could allow more wallet providers to pop up, and it seems prudent not to require registration for miners. Cryptocurrency taxation is an especially complicated issue, as the IRS must wrestle with the cost-basis for new digital assets. The blockchain caucus was previously stymied in its effort to create a de minimis exemption for cryptocurrency transactions under $600, but Emmer’s new bills indicate the lawmakers haven’t backed away from crypto causes. ↗️[/takeaway]
[supplemental headline=”Hacks, scams and capers”]
The Zaif plot thickens. Japan’s financial regulator isn’t satisfied by the answers it’s received from Zaif, an exchange that lost $62 million worth of crypto in a recent hack. The Financial Services Agency has issued a third business improvement order to Zaif’s parent company, Tech Bureau—the first two were delivered before the hack and one even instructed the exchange to address its technology risks. By all indications, Tech Bureau hasn’t been forthcoming with information about the hack, reporting the theft a few days after it occurred and saying only that an employee’s PC was hacked.
[/supplemental]
Calendar
🗣 Oct. 1-2: Ripple’s Swell Conference. Bill Clinton is a keynote speaker at the San Francisco event this year. At last year’s gathering, ex-Fed chairman Ben Bernanke told attendees, “Bitcoin is an attempt to replace fiat currency and evade regulation and government intervention. I don’t think that’s going to be a success.”
🗣 Oct. 5-6: Scaling Bitcoin. The Tokyo event is geared toward the “engineering and academic community.”
🗣 Oct. 5-12 SF Blockchain Week. A collection of Ethereum superstars, including researcher Vlad Zamfir and 0x co-founder Will Warren will be at ETH San Francisco, the world’s largest Ethereum hackathon (Oct. 5-7). Meanwhile, Epicenter (Oct. 8-9) will feature Litecoin founder Charlie Lee and Parity Technologies CEO Jutta Steiner, among others.
🗣 Oct. 10-11 Crypto Economics Security Conference (CESC). If there’s just one conference you attend this year, CESC—also in San Francisco— would be a fantastic choice. Keep an eye out for Dawn Song, a UC Berkeley professor and CEO of Oasis Labs, and MIT’s Silvio Micali, one of the brilliant minds behind ALGORAND. The conference also features an array of postdoctoral researchers focused on privacy, security, economics, and scalability, so there’s a little something for everyone. Matthew will be covering this event, so come say “hi!”
🗣 Oct. 21-24 Money 20/20. The Las Vegas event features a bevy of crypto personalities ranging from Coinbase president Asiff Hirji and Andreessen Horowitz’s Katie Haun to Senegalese singer Akon and gazillionaire Richard Branson. Stellar’s Jed McCaleb is also a featured speaker.
[mailto filter=”Calendar” subject=”Crypto Events”]Something missing? Tell us which events are on your radar.[/mailto]
Please send news, tips, and leafy greens to privatekey@qz.com. If this email was forwarded to you, click here to sign up for your own subscription, which includes a free two-week trial. Today’s Private Key was written by Matthew De Silva and John Detrixhe, and edited by Oliver Staley. When in doubt, phone a friend.