Bitcoin woes, Civil unrest, SpankChain regrets

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[header date=”12 October 2018″]Even as VCs champion crypto investment, the market tumbles; big-name projects are struggling to deliver on their promises; and the freshest decentralized innovation looks like it’s happening without a blockchain.[/header]

What you need to know—and why

The bear bites bitcoin. In a 30-minute span on Wednesday, bitcoin fell from $6,560 to $6,320, or about 4%. Normally, we wouldn’t bat an eye at that sort of move, but the sustained drawback seems to have ricocheted throughout the rest of the crypto markets as well. Once again, ether has dipped below $200 and prices for dozens of other coins suddenly dropped by 10% or more this week.

[takeaway]It seems this week’s global stock market downturn carried over into cryptocurrencies. While Donald Trump blamed the market decline on the Fed raising interest rates, a periodic freeze on stock buybacks certainly hasn’t helped, removing key support for high valuations. If you’re hedging the stock market and inflation risk with bitcoin, you’re probably not a happy camper. ↘️[/takeaway]

Binance will donate listing fees… to itself. On Monday, the crypto exchange announced a plan to donate listing fees to Blockchain Charity Foundation, it’s own philanthropic arm. Binance has been roundly criticized for its opaque listing charges for new cryptocurrencies, and the maneuver may be an effort to deflect some of that opprobrium.

[takeaway]Charity rarely seems so self-serving. As noted by TechCrunch, “it’s certainly possible for money to find its way back out of an in-house charitable arm.” It’s easy to be a cynic, though, and Binance’s announcement seems like a step in the right direction toward transparency. Let’s claim small victories where we can. ↗️[/takeaway]

Bancor soldiers on. The founders of Bancor—one of the darlings of last year’s ICO craze—continue to make media appearances, despite the company’s resemblance to a dumpster fire. On Bloomberg TV, Galia Benartzi, head of business development, recently promoted BancorX, a cross-chain trading protocol. Basically, if you have tokens on the Ethereum network, you can use the protocol to swap them into tokens on the EOS network (or vice versa).

[takeaway] In June 2017, Bancor raised $153 million worth of ether with just 40 lines of code. It turned out that the code was flawed and Bancor lost more than $20 million of crypto to hackers. Bancor was—and continues to be—a mess. If you’re in it for the long haul, steer clear of BNT. ↘️[/takeaway]

Venture capitalist endorses crypto investing. Not long after Yale invested in Andreessen Horowitz’s crypto fund, the VC firm’s managing partner, Scott Kupor, published “How To Think About Crypto Investing, For Institutional Investors.” Basically, it’s like any alternative investing strategy, he says. (You need professional help!) Kupor claims Main Street investors aren’t getting the best investment opportunities and only VCs get access to the most lucrative projects.

[takeaway]If you believe Kupor, what’s weird about the allegedly transformational cryptonetworks of the future is that they seem to operate within the bounds of traditional venture capital. As such, even if networks change radically, who’s making money could very well remain the same. ➡️[/takeaway]

Blockchain isn’t on Solid ground. Tim Berners-Lee, the father of the World Wide Web, wants to decentralize it. Blockchain technology is conspicuously absent from his plans. With a team at MIT, Berners-Lee has been working on Solid, an open-source project “to restore the power and agency of individuals on the web.”

[takeaway]Although Berners-Lee previously opined on blockchain’s intersection with web browsers, it looks like Solid doesn’t use the slow and expensive infrastructure popularized by bitcoin. There’s no mention of blockchain technology in Solid’s documentation, which should serve as a reminder that decentralization doesn’t always require blockchain. ➡️[/takeaway]

[supplemental headline=”Reasonable Doubt”]

A digital experiment using blockchain technology to promote ethical journalism is faltering. Civil is underwhelming on multiple fronts, according to the Wall Street Journal. The project has been stymied in its partnership efforts, turned down by The New York Times, Dow Jones, the Washington Post, and others who question the notion of accepting a digital token for their articles rather than subscriber dollars. One notable exception is Forbes, in many ways a crypto cheerleader, which has dared to partner with Civil.

In July, Manoush Zomorodi, an entrepreneur partnering with Civil, appeared on Recode Media with Peter Kafka, where she tried to explain how Civil tokens (CVL) can create sustainable economic incentives for reliable journalism. Truth be told, Zomorodi herself didn’t sound convinced of CVL’s usefulness, let alone blockchain’s role in the system.

It’s tough to enumerate the many problems with CVL. First, there’s no compelling reason for existing media companies to change their payment systems, especially not if they’re replacing subscriptions with an unproven digital asset. Second, do media organizations really need to indicate to readers—especially from such a niche crypto audience—that they are trusted sources? Also, where does governance come in? And what happens to writers who are kicked off the Civil platform? Ultimately, there are too many questions and too few answers.


Crypto meets finance

Can crypto police itself? That was one of the topics during a panel discussion in London about institutional crypto investing. Self-regulatory organizations (SROs) for virtual asset exchanges have been started in places like the UK, Japan, and the US, and proponents may be hoping that self-policing could head off a heavier crackdown by government watchdogs.

But could a SRO for crypto have the teeth to impose fines? In traditional trading, US exchanges for securities and commodities are SROs with that ability. SROs haven’t always been a panacea for regulation, however, and US regulators have, over the years, pointed out their shortcomings and conflicts of interest.

Linda Wang, co-founder of Lendingblock, endorsed the idea of crypto SROs wielding financial penalties. She said Lendingblock, which provides securities-lending-style infrastructure for crypto (this type of lending helps, among other things, facilitate short selling), can suspend and ban users for certain behaviors. She said such standards will give regulators and investors confidence that the digital token sector is worth watching and investing in its infrastructure.

Andrew Robinson, who works in business development at Coinbase, said his personal view (not on behalf of Coinbase) is SROs should stick to things like a code of conduct; the responsibility for fines belongs with government regulators that have the resources for investigations. “We welcome the regulation,” he said. “There are a lot of bad actors and it’s a hindrance for institutional investors coming into the space.”

[takeaway] Crypto’s Wild West days seem to gradually be coming to an end, and SROs will likely be part of the answer. But if old school exchanges are any guide, self-regulation won’t be a replacement for regulation by government authorities. ➡️[/takeaway]

[mailto filter=”SROs” subject=”Regulate thyself”]Can crypto regulate itself?[/mailto]

[supplemental headline=”Chart interlude”]

The bear roars

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Regulatory watch

Nouriel’s gnashings. On Thursday, NYU professor Nouriel Roubini—one of the world’s most vociferous crypto critic—testified before the US Senate Committee on Banking, Housing, and Urban Affairs. From mining centralization to crypto-connected crime, Dr. Doom hates it all. Check out these live tweet threads of his testimony.

[takeaway]Roubini is a little extreme, but he raises legitimate gripes about blockchain technology and cryptocurrency usage. We can plug our ears and ritualize Fibonacci retracements, but many of Roubini’s critiques are valid. Since crypto lobbyists like Coin Center’s director of research, Peter Van Valkenburgh, are a fixture at these hearings, it’s good to see Congress soliciting a range of views. ↗️[/takeaway]

Bitcoin is not about to sink the global economy. In a Wednesday report, the Switzerland-based Financial Stability Board (FSB) reiterated that crypto-assets “do not pose a material risk to global financial stability at this time.” After studying the low liquidity and high volatility of cryptocurrencies, the G20’s advisory body found that the digital assets do not resemble currencies.

[takeaway]The FSB found that crypto-assets may cause financial instability only if they grow much, much larger or if financial institutions substantially increase their exposure to the asset class. The board’s position hasn’t really changed since its July 2018 report to the G20 on crypto-assets. ➡️[/takeaway]

[supplemental headline=”Hacks, scams, and capers”]

SpankChain’s BOOTY has been un-plundered. On Monday, the company—which focuses on payments for the adult entertainment industry—disclosed that it was targeted by a hacker, who used a “reentrancy” bug to drain some ether and BOOTY from a smart contract. On Thursday, SpankChain CEO Ameen Soleimani apparently spoke with the hacker, who returned the funds and was rewarded with a $5,000 bounty.

SpankChain admitted to being penny-wise but pound-foolish when it decided to forgo a security audit prior to the hack. Although the project wiggled its way out of this mess, the hack reveals the insecurity of blockchain-based programming. Thousands of dollars are being transacted on these platforms, but that doesn’t mean they’re safe. It’s like driving a race car that’s never been crash tested.


Crypto calendar

📚 Today: Quarterly earnings for JPMorgan, Citigroup, PNC, and Wells Fargo. JPMorgan is pushing blockchain-related development through Quorum, which powers the 75-bank Interbank Information Network. PNC’s Treasury Management division recently joined RippleNet and earlier this year, Citigroup was part of a testing for LedgerConnect, a DLT platform for financial services. Wells Fargo might be most notable for its prior banking relationship with Bitfinex.

🗣 Oct. 21-24: Money 20/20. Speakers at the Las Vegas event range from Coinbase president Asiff Hirji and Andreessen Horowitz’s Kathryn Haun to Senegalese singer Akon and Virgin Group founder Richard Branson.

🗣 Oct. 29: D1Conf. Covering everything from oracles to social security, this one-day event will bring together incumbents and innovators to discuss blockchain-based insurance and potential improvements for “insurtech.” If you’re already in Prague for Devcon (see below), D1Conf could be a worthwhile opening act.

🗣 Oct. 30-Nov. 2: Devcon 4. This year, the premier Ethereum conference takes place in Prague, Czech Republic. Talks are aimed at a deeply technical audience.

📚 Nov. 1: Alibaba quarterly earnings. The Chinese conglomerate has filed more than 10% of the world’s blockchain-related patent applications. Earlier this year, Ant Financial—an Alibaba affiliate—launched a blockchain-based remittance service.

[mailto filter=”Calendar” subject=”This is happening”]Tell us about your upcoming events.[/mailto]

Please send news, tips, and doomsday predictions to 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 and Jason Karaian. Don’t let the bitcoin bears bite.