[header date=”7 December 2018″]Joe Lubin’s ConsenSys announces layoffs, mining margins briefly shrink, and a New Zealand newsman rails against con artists.[/header]
What you need to know—and why
Layoffs at ConsenSys. The ethereum-focused company founded by Joseph Lubin will terminate 13% of its approximately 1,200 employees, according to a statement (pdf) on its website Thursday. It wasn’t a surprise: In a letter to staff last Friday, Lubin revealed concerns about the bottom line and detailed the next phase for the company.
[takeaway]Over the past few years, ConsenSys has taken a shotgun approach, investing resources and money in a wide variety of projects referred to as the ConsenSys Mesh. Now, with bitcoin and ether prices cratering, ConsenSys has tightened the purse strings and employees are feeling the pain of the bear market. The reckoning has truly begun. ↘️[/takeaway]
SpankChain has money in the bank. The crypto-payments-for-porn startup has $3 million in reserve, including $2 million in cash, CEO Ameen Soleimani—a ConsenSys alum—said in a Reddit post. The company, a rare operation in the space with an actual business model, has pared expenses from $200,000 to $80,000 a month through layoffs of its own, and has a three-year reserve to see it through the crypto winter.
[takeaway]SpankChain’s preparations reflects a self awareness that many of its peers lack. Although it now has only eight employees, including Soleimani himself, SpankChain’s transparency and careful treasury management make it a model for other companies in the crypto space. ↗️ [/takeaway]
Ohio’s technology funds target blockchain startups. Hundreds of millions of dollars could go to blockchain companies in the state’s opportunity zones, Cleveland.com reports. Ohio has at least seven funds with $100 million to invest in startups across all business sectors, and some portion will likely go to blockchain startups, said Ray Leach, CEO of JumpStart, a non-profit accelerator.
[takeaway]Ohio appears eager to position itself as a blockchain hub, first by accepting bitcoin for taxes, and now courting blockchain investments. It’s not clear whether tax exemptions for blockchain-related companies are warranted, however. Without demanding minimum viable products from promoters, Ohio risks becoming a crypto tax haven rather than an innovation hub. ↘️ [/takeaway]
Coinbase lists Zcash. The listing on the large, reputable exchange is happy news for adopters of the privacy-oriented cryptocurrency. The thing is, Zcash’s celebrated privacy features won’t really be available to Coinbase users. Like Gemini, which listed the coin in May, the exchange will allow deposits from transparent and shielded wallet addresses but, for now, will only allow withdrawals to transparent addresses.
[takeaway] Good news or not, Zcash traded 12% lower shortly after the announcement, at $66 per coin. That’s a long way from the $900 it fetched back in January. According to CoinMarketCap, Lbank, a crypto-to-crypto exchange based in China, accounts for more than 60% of Zcash trading. ↗️[/takeaway]
Miners drop out as bitcoin’s price falls. Bitcoin mining is only profitable as long as the cryptocurrency trades above $4,500, says Bloomberg. The report cites Autonomous Research LLP, which says as many as 100,000 individual bitcoin miners have shut down their machines. One large-scale miner based in Washington, Malachi Salcido, says profit margins fell from 40% to 20%, but they quickly recovered as competitors closed up shop and mining became easier due to bitcoin’s “difficulty” adjustments.
[takeaway]Mining companies with wide margins and low energy costs are best positioned to survive the bitcoin price drop. For individuals considering mining, though, there couldn’t be a worse time to enter the game. Only large, tightly-run outfits make sense in this climate. ➡️[/takeaway]
[supplemental headline=”Chart interlude”]
Have we hit bottom yet?
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Polychain Capital parts ways with a principal. The $1 billion crypto fund fired Ryan Zurrer due to a weak 2018 performance, The Block reported. Zurrer, who joined Polychain in December 2016, helped build it into the largest dedicated crypto fund, with investments from heavyweights Andreessen Horowitz and Union Square Ventures. The fund returned investors a jaw dropping 2,303%, after fees, last year amid the crypto frenzy.
[takeaway]Zurrer’s departure isn’t the only sign of trouble. The fund shed approximately 40% of the $800 million it made for clients due to losses and withdrawals. In September, the Wall Street Journal published a profile of the hedge fund’s quirky founder, Olaf Carlson-Wee. “This is going to be such an epic adventure either way,” Carlson-Wee said a few months ago. “Like, if this whole thing collapsed, that would be crazy, you know?” Crazy indeed. ↘️ [/takeaway]
[supplemental headline=”Reasonable doubt”]
A Santa Clara finance professor warns of a death spiral. Bitcoin’s explosive growth was fueled in part by miners selling coins on the futures market for prices well in excess of the cost of mining, writes Atulya Sarin in MarketWatch. But as prices fall below the cost of mining profitability, it makes more sense to stop mining until the difficulty of mining readjusts, and it becomes easier to make a profit. But if enough miners stop, it deprives the network of the computing power it needs to sustain itself.
Bitcoin’s difficulty adjustment has a parallel in the physical world—as mining competition increases, it becomes more challenging to unearth tangible commodities, too. However, while gold does not lose value when mining for it ceases, “absent the mining activity, bitcoin is a just a set of encrypted numbers with no value,” Sarin writes.
If a death spiral does occur, it will be the result of a dual decline in the price of bitcoin and its hashrate—both linked to short-term speculators. It would take a perfect storm for bitcoin fizzle out, but it’s not out of the realm of possibility, despite the claims to the contrary from crypto media.
The US Department of Homeland Security is looking for blockchain forensics tools. The feds are specifically interested in tracking privacy coins Zcash and Monero. In a notice to potential vendors posted Nov. 30, the department notes that while privacy and anonymity “are desirable, there is similarly a compelling interest in tracing and understanding transactions and actions on the blockchain of an illegal nature.”
[takeaway]Zcash and Monero have become the top contenders for a truly anonymous cryptocurrency and, by extension, the tool of choice for digital financial criminals. The US government‘s interest in tailor-made forensics solutions indicates that current tools from Chainalysis and CipherTrace may be insufficient for tracking the privacy coins. Zooko Wilcox, one of the Zcash creators, had a uniquely optimistic take on the DHS notice, suggesting that the government might be developing stronger privacy tools, as opposed to playing catch-up with crypto criminals. ↗️[/takeaway]
[supplemental headline=”Hacks, scams, and capers”]
Bitcoin scams get more obscure. This week, Daniel Fiataua, host of Breakfast—a TV news program in New Zealand—warned viewers about an article that falsely claimed he had gotten rich while interviewing a bitcoin investor. The bogus article claimed Fiautaua invested $250 while on the air, and impressed himself and his production staff when he purportedly doubled his money in minutes. “It is fake news, and whatever you call it, it is not true,” said Fiataua. “It is a scam.”
Fake stories featuring celebrities have become fairly common in the cryptocurrency universe. Just ask Elon Musk. However, as mainstream scams become tired and less effective, con artists are targeting new victims, like the older viewers of daytime television. Be on the lookout for further tomfoolery.
🗣 January 8: Israel Bitcoin Summit. The Tel Aviv gathering features Nick Szabo (who coined the term “smart contract”), Meni Rosenfeld (chairman of the Israeli Bitcoin Association), and Ittay Eyal (assistant professor at Technion), among others.
🗣 January 31: Wall Street Blockchain Summit. The one-day event in New York will include discussion of market infrastructure, legal and regulatory considerations for blockchain and digital assets, and accounting matters related to crypto assets.
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[supplemental headline=”A humble request”]
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