[header date=”5 October 2018″]A file-sharing legend sees a greener future for cryptocurrency, investors are eager to buy into Coinbase, and Bitfinex’s tropical bank hits a rough patch.[/header]
What you need to know—and why
The petro goes on sale November 5. This week, Venezuelan president Nicolas Maduro announced that the state-sponsored, oil-backed crypto will be sold to the public for bitcoin, ether, dollars, euros, and sovereign bolivars. Petros are part of a package of measures intended to rescue the nation’s flailing economy.
[takeaway]Because of poor monetary policy, the exploitation of national oil reserves, and the government’s unreliability, buying petro would be a dubious investment decision—and that’s without considering President Trump’s executive order barring US investors. Forget oil, the petro’s more like snake oil, and it’s surrounded by barbed wire and landmines. ↘️[/takeaway]
Meet Chia, the eco-friendly coin. BitTorrent creator Bram Cohen is working on Chia, a cryptocurrency that isn’t dependent on energy-intensive mining. Instead, Cohen proposes “farming,” which would use spare hard-drive space, rather than computing power, to determine who earns the tokens, according to a Wired profile.
[takeaway]Competing for block production based on storage space makes it much harder for one person or group to dominate the network. Also, Cohen’s plan to pursue a Chia IPO contrasts favorably with the ICO strategy that was used—and abused—by many crypto entrepreneurs last year. ↗️[/takeaway]
Coinbase’s valuation soars. Hedge fund Tiger Global Management may be part of a $500 million investment round that would value the cryptocurrency exchange at as much as $8 billion. Coinbase, founded in 2012, has so far raised $225 million through equity issuance.
[takeaway]For long-time investors, this could be a chance to cash in. Half of the new funding could be used to buy out Coinbase’s older VC investors. With Coinbase discussing a possible IPO, it’s important to remember that buying can be risky when the big fish are selling. ➡️[/takeaway]
Belly up to the bar. Red Belly Blockchain claims that it’s achieved 30,000 transactions per second across 1,000 nodes operating on an intercontinental AWS cloud setup. The project, which grew out of Australia’s government research agency and is named for a poisonous snake, doesn’t use the industry’s conventional proof of work or proof of stake consensus algorithms, but something it calls a “deterministic Byzantine consensus algorithm.”
[takeaway]It’s not totally clear what sacrifices they’re making for the sake of speed, but Red Belly claims to process transactions faster than Visa. It’s worth noting that the company’s in the process of raising money in a series A funding round. ↗️[/takeaway]
Gemini secures insurance. On Wednesday, the exchange founded by the Winklevi announced it secured coverage for customers’ digital asset holdings, which include bitcoin, ether, and zcash. “Consumers are looking for the same levels of insured protection they’re used to being afforded by traditional financial institutions,” said Gemini’s head of risk, Yusuf Hussain.
[takeaway]This is a remarkable step for Gemini, providing the loss protection from theft investors should rightfully demand from exchanges. Because of the frequency of hacks, it’s taken a long time for insurers to get comfortable with the digital asset class. This backing of the crypto markets could give investors greater confidence to enter the market. ↗️[/takeaway]
[supplemental headline=”Reasonable Doubt”]
A crypto bank of last resort is in trouble. Puerto Rico-based Noble Bank International, which took on Bitfinex and Tether as customers after they were dropped by other banks, is selling itself, according to Bloomberg. Noble reportedly has lost the crypto giants as clients and might sell for as little as $5 million to $10 million.
In the wake of its credit crisis and Hurricane Maria, Puerto Rico emerged as a crypto hotspot last year, as dozens of entrepreneurs flocked to the island to establish their own low-tax “Puertopia.” That fantasy was enabled by crypto-friendly financial institutions like Noble. At some point, an enterprising businessman or company might swoop in to buy Noble, if only for its license as an international financial entity. [/supplemental]
Crypto meets finance
Big names are backing ErisX. The companies behind the new crypto exchange include institutional traders like DRW, Susquehanna International, and Virtu, as well as retail brokerage TD Ameritrade. The platform will let big investors trade bitcoin, ether, bitcoin cash, and litecoin, in addition to futures contracts, which traders use to bet on—or hedge—prices for some later date. The futures will be “physically delivered,” meaning the investor will receive actual crypto when the futures expire.
[takeaway]ErisX is being built for institutional traders. But while its industry backers may help it attract hedge funds and algorithmic traders, the real money—pension funds and insurances companies—is still a distant prospect. ↗️[/takeaway]
Ripple’s xRapid begins to flow. Payment providers Cuallix and Mercury FX, in addition to Catalyst Corporate Federal Credit Union, have signed on to Ripple’s xRapid service, which uses the XRP token for currency exchange. Mercury FX told Quartz the company will use xRapid for inbound payments from Mexico and will be open to new channels as Ripple’s network expands. It expects tens of thousands of US dollars will flow through the system at first and to increase over time. Mercury FX said the service is indeed much faster (minutes, compared with days for the previous process) and cheaper than what it used before, based on its own tests.
[takeaway]For all the hype, actual working projects that use distributed ledger technology and crypto assets have been hard to find. This live use of XRP tokens as a bridge to exchange fiat currencies is an important test. The crypto sector will be watching closely to see if more financial companies get on board. ↗️[/takeaway]
[supplemental headline=”Chart interlude”]
How bad is Venezuela’s hyperinflation? Even if you bought bitcoin at $20K, you’d still be better off than if you kept your savings in bolivars. Amid the country’s economic ruin, Venezuela’s over-the-counter bitcoin trade has steadily crept upward throughout 2018.
[img src=”https://cms.qz.com/wp-content/uploads/2018/10/Weekly-OTC-bitcoin-volume-in-Venezuela.png”]
[mailto filter=”Chart” subject=”Here’s a chart idea…”]Got a killer chart idea? Let us know.[/mailto]
[/supplemental]
Hacks, scams, and capers
Custom-built software is commonly used for market manipulation on cryptocurrency exchanges, with whales and small-time traders alike engaged in a battle of digital wits. Legitimate traders spend time and money countering nefarious tactics, like “harassing bots,” which are designed to initiate and quickly cancel orders to sucker other algorithms into money-losing trades.
The prevalence of trading bots also raises other questions, like whether manipulation should even be illegal, in the crypto markets or indeed in any market. “If everybody can manipulate, then nobody is manipulating,” Norwegian bitcoin trader Kjetil Eilertsen told the Wall Street Journal. Eilertson says small traders should be given the tools to manipulate markets on their own, to even the playing field. The argument is not unlike the defense of doping in sports: If everyone is doing it, what’s the harm? But unlike baseball or cycling, which are bound by the tolerances of the human body, there may be no upper limit to this arms race.
Regulatory Watch
Defining “blockchain.” The Blockchain Promotion Act, a bipartisan effort of the US Congress, would create a Department of Commerce working group to “develop a common definition of blockchain,” and provide related recommendations for federal agencies. The legislation could pre-empt efforts by various states to come up with their own definitions.
[takeaway]There’s little agreement about what a blockchain actually is—does it require proof of work like mining? A certain block size or throughput? Is a distributed ledger sufficient? Legislators are slowly learning that blockchain politics are just as contentious as regular politics. ➡️[/takeaway]
Israel’s stock market regulator signs up for blockchain. The Israel Securities Authority says it’s using blockchain technology to message the companies it regulates. The authority also plans to use blockchain to facilitate shareholder voting.
[takeaway]Regardless of whether this is a blockchain or distributed ledger system, it’s encouraging to see the shared data structure increasingly adopted by regulators. Last year, the Abu Dhabi Securities Exchange also explored blockchain-based shareholder voting. ↗️[/takeaway]
Calendar
🗣 Oct. 5-12 SF Blockchain Week. A collection of crypto superstars, including Kyber Network CEO Loi Luu 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 Parity Technologies CEO Jutta Steiner and Litecoin founder Charlie Lee, 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 MIT’s Silvio Micali, one of the brilliant minds behind ALGORAND, and Dawn Song, a UC Berkeley professor and CEO of Oasis Labs. The conference also features an array of postdoctoral researchers focused on privacy, security, economics, and scalability, so there’s a little something for everyone.
📚 Oct. 12 Quarterly earnings for JP Morgan Chase, Citigroup, PNC, and Wells Fargo. Among this group, JP Morgan has clearly led blockchain-related development through Quorum, which now powers the 75-bank Interbank Information Network. Meanwhile, PNC’s Treasury Management division recently joined RippleNet and earlier this year, Citigroup was part of a testing for LedgerConnect, a distributed ledger platform for financial services. In the cryptocurrency world, Wells Fargo might be most notable for its prior banking relationship with Bitfinex, a major cryptocurrency exchange.
🗣 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 Virgin Group founder Richard Branson. Stellar’s Jed McCaleb is also a featured speaker.
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Please send news, tips, and Chia pets 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, John Detrixhe, and edited by Oliver Staley. May market manipulation be in your favor.