[header date=”30 October 2018″]An open letter to bitcoin’s creator, how Devcon affects ether prices, and the view from Japan.[/header]
Dear Satoshi,
Tomorrow marks the 10-year anniversary of when you posted the white paper (pdf) that first introduced the idea of what would become bitcoin.
How did you feel when you shared your vision with the world? Was there a rush of adrenaline? Were you worried what people would think? Maybe that you overlooked something?
So it’s been a decade since you introduced yourself to the world as “Satoshi Nakamoto,” but I still don’t know who you are, or even if “you” are an individual. Nonetheless, you’ve had an indelible impact on my life, and on the lives of so many others. Did you have any idea that bitcoin would grow into the rebellious and revolutionary force that it has become? Could you have known that it would captivate—and befuddle—millions of people, across the world?
Would you have done it again, if you knew that thousands upon thousands of people would risk their financial security in pursuit of instant wealth? Was this all meant to be an experiment? Has it gone horribly wrong, or is it just as you expected?
Since you posted the paper so much has happened, but somehow it also feels like we still have a long way to go for bitcoin and blockchain.
Because of bitcoin, politicians, economists, and philosophers have wondered aloud whether cryptocurrencies could now—or in the distant future—displace the world’s central banking systems. Because of bitcoin, peer-to-peer digital monetary exchange has become a reality. Because of bitcoin, people across the world are thinking about alternative finance and remittances and privacy and autonomy. Because of bitcoin, my dad was able to buy a subscription to watch cricket games on a sketchy website.
Bitcoin has changed the way that people understand—and in some cases, acquire—wealth. Your invention woke us up to the rent-seeking middlemen who serve as intermediaries in many of our daily lives. And, while the value of bitcoin in circulation has climbed ever higher, into the hundreds of billions of dollars, you made me realize that dollars, too, are just vessels subject to the whims of social constructs.
If bitcoin has taught us anything, it’s that the barriers to market entry and competition continue to erode in the increasingly digital world, and that we must be aware of the impact our financial systems (and accompanying design choices) have on people from all walks of life.
I don’t know if these are the lessons you wanted us to learn, or what was going through your mind back on October 31, 2008. But I think I speak for many when I say, “Thank you, whoever you are.” —Matthew De Silva
[mailto filter=”Satoshi” subject=”Satoshi”]What would you tell Satoshi?[/mailto]
[supplemental headline=”Market chatter: Devcon dynamics”]
Does Devcon cause an ether price spike? How much are cryptocurrency markets shaped by external events? Devcon4, the latest installment of the largest annual event for the Ethereum Project, kicks off today in Prague. The conference generates media coverage for the token and enthusiasm among crypto investors, and it stands to reason it might influence the price of ether as a result.
To examine this possible correlation, let’s look at the past two installments of Devcon for price swings. (Because of platform vulnerabilities and the tiny size of the Ethereum community prior to 2016, it doesn’t make sense to examine prices earlier than that.)
Devcon2—Shanghai, China (Sept. 19-21, 2016)
[img src=”https://cms.qz.com/wp-content/uploads/2018/10/2018.10.29-September-2016-ether-price-draft-1.png”]
Devcon2 seems to have been associated with a slight price hike, though the move from $12 to $14 hardly seems spectacular nowadays. Remember, though, back in 2016 the total market cap of ether was just over $1 billion. It’s also worth noting that the price increase didn’t last for very long after Devcon2.
Devcon3—Cancun, Mexico (Nov. 1-4, 2017)
[img src=”https://cms.qz.com/wp-content/uploads/2018/10/atlas_BJqXUgB2m@2x.png”]
During last year’s event, ether prices dipped before rebounding to basically the same level they as when the conference started. Though the price was more volatile, ether remained within a range of about $280 to $310. Ether’s price did take off post-Devcon3, but that was in the midst of the broader ICO and bitcoin mania, so take it with a big grain of salt. (At the time, ether’s market cap was hovering around $28 billion.)
As Devcon4 kicks off, ether’s price has dropped from its highs—and broken the pattern of increasing each year. While there’s not sufficient data to establish, or disprove, a link between Devcon and the price of ether, important announcements could still have minor effects on the day-to-day price movements as information trickles out to the investing community.
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View from Japan
[img src=”https://cms.qz.com/wp-content/uploads/2018/10/RTR17VJ0.jpg”]
One of Japan’s largest cryptocurrency exchanges, bitFlyer, announced on Oct. 1 that Yuzo Kano, its 42-year-old founder and CEO, was resigning. He would be replaced by a familiar sight: A cohort of gray-haired financiers, typical of the Japanese business world’s ruling class.
“A 63-year-old man, dressed in a gray suit, sits in the new president’s office,” says the manager of another Japanese cryptocurrency exchange in a cynical tone, speaking on condition of anonymity. “BitFlyer is the only crypto exchange in the world with so many of those in their 60s sitting in management.”
The graying of Japan’s crypto leadership may have only just begun. As Japan’s financial regulator, the Financial Services Agency (FSA), frets about the prevalence of crypto hacks, thefts, and security breaches, the old guard is being brought in to restore confidence and imbue professionalism.
Like many in the crypto industry, Kano was a rebel from the finance world. He first recognized the potential of cryptocurrencies as a young and elite trader at Goldman Sachs, and in 2014 he founded bitFlyer. He soon rocketed to stardom, scoring financial support from companies linked to Japan’s megabanks.
One of Kano’s major achievements was a deal with consumer electronics retailer BicCamera (similar to Best Buy in the US), which agreed to allow customers to buy high-end cameras and Apple products using bitcoin. Back then, bitFlyer’s management ranks consisted of similarly youthful colleagues, many of whom were also ex-Goldmanites.
Despite Kano’s success—bitFlyer grew to serve more than 2 million users and earned him the nickname “king”—it couldn’t insulate him from the Japanese cryptocurrency industry’s mounting troubles.
In January, Coincheck—another of Japan’s major cryptocurrency exchanges—was hacked, losing 56 billion yen ($498 million) worth of a cryptocurrency called NEM. The hack sent a shockwave throughout the crypto industry and the FSA—which had previously touted its crypto-friendly policies, such as establishing a licensing regime that was forward-looking, if somewhat rushed—promptly returned to its conservative nature.
“The FSA was shocked by the fact that entrepreneurs in their 20s had gathered assets of 50 billion yen and 100 billion yen, without any investor protections,” said one expert familiar with Japanese cryptocurrency regulation. That boom, of course, wasn’t specific to Japan, but for a time, the country did dominate bitcoin trading. (At one point, Japan accounted for 50% of global bitcoin trading volume.)
Embarrassed by the Coincheck hack, the FSA repeatedly inspected exchanges and issued business improvement orders to others, including bitFlyer, while demanding security enhancements. Simultaneously, “The FSA was secretly pushing for Mr. Kano’s resignation,” according to an industry insider with knowledge about bitFlyer’s circumstances.
At bitFlyer, management representatives from major banks and investors who previously served in “supporting roles” were sent in. “It now feels like an executive floor of a traditional bank, and I feel uncomfortable,” said one young bitFlyer employee, who wished to remain anonymous.
The FSA, which once dreamt of Japan becoming one of the world’s leading cryptocurrency nations, now feels that digital exchanges have sullied its reputation. And, it seems, FSA officials prefer to deal with old-school bankers, whom they trust, rather than hotshot cryptocurrency entrepreneurs.
Indeed, in less than a year, the founders of three major Japanese crypto exchanges—Coincheck, Zaif, and bitFlyer—have been pushed out. That’s dramatic turnover for an industry, which just last year enjoyed trillions of yen worth of trading.
The FSA further put the brakes on new cryptocurrency exchange operations by basically suspending its review process from January to September, despite more than 150 crypto-related companies sending in applications. Likewise, rules for listing new cryptocurrencies were put on hold. In October, the review process was resumed, but registration is no longer a free-for-all.
Alongside new rules being established by the Japanese Virtual Currency Exchange Association (a self-regulatory organization for the crypto industry), the FSA has designed capital minimums and security requirements for exchanges.
As regulatory requirements are introduced to bring crypto into the mainstream, the space increasingly looks like the financial world which it was supposed to disrupt, right down to the gray-haired CEOs. —Naoyoshi Goto in Tokyo
[mailto filter=”Japan” subject=”Feedback”]Is Japan’s regulatory approach reasonable or excessive?[/mailto]
[supplemental headline=”De-jargonizer: Fungibility”]
Fungibility is the property of interchangeability. In the digital asset world, it means that there’s no distinguishing feature to augment or reduce the value of a token relative to another unit of the same type. Just like a $1 bill is tradable with any other $1 bill, one bitcoin is the equivalent to one bitcoin—and in the crypto universe, there aren’t even serial numbers to differentiate between units. Fungibility is an important feature of a currency, because it means that a person or business will uniformly accept units of the medium of exchange.
Non-fungibility, by contrast, describes the uniqueness of a specific item—a property that could hold significance for blockchain-based recordkeeping and newfangled digital assets (like CryptoKitties).
[mailto filter=”Jargon” subject=”De-jargonize this…”]Heard a new crypto term? We can tell you what it means.[/mailto]
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Please send news, tips, and gray suits 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 Naoyoshi Goto and edited by Oliver Staley and Jason Karaian. If you’re at Devcon4 in Prague, say “hi” to Matt.