[header date=”21 December 2018″]Layoffs at ConsenSys (again), Blythe Masters moves on, and a stablecoin from Facebook? [/header]
What you need to know—and why
ConsenSys cuts fat, and then some. The blockchain venture studio led by Joseph Lubin—an ethereum co-founder—may lay off as much as 60% of its 1,200-person staff, according to The Verge. The company has an estimated $100 million annual burn rate, and it is feeling the heat because of the precipitous decline in cryptocurrency prices this year.
[takeaway]Many ConsenSys employees have been working on decentralized application startups, but frequently these projects haven’t been profitable. Those are the ones on the chopping block. Now, it appears that only mission-critical applications will remain in the fold—that is, those with an eye toward scaling and actually interacting with the ethereum blockchain. ↘️ [/takeaway]
Blythe Masters resigns as CEO of Digital Asset. Masters, who was instrumental in creating credit-default swaps, said she was stepping down for personal reasons. Digital Asset, a company of 200 people that provides blockchain solutions for financial services, says it will continue to develop a distributed-ledger post-trade settlement system for the Australian Securities Exchange (ASX), scheduled for 2021. Masters will remain in an advisory role while board member A.G. Gangadhar will serve as interim CEO.
[takeaway]Masters resignation comes as a shock, and it casts some doubt on the future of the Digital Asset development of ASX’s system. ASX has a 7% stake in Digital Asset, so they have incentive to be less than transparent about any hiccups. ➡️[/takeaway]
Is FaceCoin coming? Facebook is developing its own stablecoin, linked to the US dollar, to power remittance channels for India, reports Bloomberg. Payments would go through messaging platform WhatsApp, which has more than 200 million users in India. Considering that the Indian government has strongly opposed cryptocurrencies and effectively forced the closure of many exchanges, Facebook’s reported focus is surprising.
[takeaway]The company’s expansion into financial services makes sense, since Facebook’s blockchain lead, David Marcus, was once the head of PayPal and served on the board of Coinbase. A Facebook crypto sounds a bit far-fetched, but maybe Facebook can leverage its enormous user base into an effective service. ↗️[/takeaway]
Should ethereum behave like a company? Union Square Ventures co-founder Fred Wilson posted a video on his blog featuring an interview from October in which he voiced his frustrations with the snail’s pace scaling of the ethereum project. “They don’t have enough money. They don’t have enough developers. Their go-to-market strategy is non-existent. They’re not behaving like a company,” said Wilson.
[takeaway]Wilson can fault ethereum’s core developers for not meeting stated deadlines, but ethereum isn’t a company—it’s an open source project. Nonetheless, Wilson’s complaint seemed to spur some generosity from Vitalik Buterin, who in response to a disparaging Twitter thread, gifted 3,000 ether to a handful of blockchain startups—Prysmatic Labs, ChainSafe Systems, and Sigma Prime—which are working on scaling solutions, user-centric design, and cybersecurity. ➡️[/takeaway]
Tether’s got money in the bank. At least, that’s what bank statements reviewed by Bloomberg showed, according to its report. It appears that Tether, which offers a dollar-tied cryptocurrency of the same name, might actually have the $1.9 billion in reserves that it claims. But the company could still be scrutinized for potential price manipulation, as the US Department of Justice has focused its attention on Tether’s role in the crypto markets.
[takeaway]Because of Tether’s opaque management and mysterious banking relationships, concerns about its reserves became more acute over time, especially after the company cut ties with auditor Friedman LLP and a “transparency update” proved inadequate. Perhaps those fears were unjustified, but keep an ear to the ground about the manipulation investigation. ↗️[/takeaway]
[supplemental headline=”Chart interlude”]
This week’s bounce in bitcoin was one of the longest and strongest winning streaks of the year. There have been far more significant declines, of course—bitcoin is down some 70% in 2018, after all—but timing is everything.
[img src=”https://cms.qz.com/wp-content/uploads/2018/12/Bitcoin-winning-streaks-2018.png”]
[mailto filter=”Chart” subject=”Here’s a chart idea…”]Got a killer chart idea? Let us know[/mailto]
[/supplemental]
Crypto-meets-finance
Is blockchain compliant with GDPR? That’s the question Nasdaq has been studying. The sweeping EU legislation requires companies to get explicit permission for using personal information. Organizations must also, for example, give people in the EU the scope to inspect, correct, and delete records (the “right to be forgotten”) if they want.
Here are some other GDPR concerns, and possible blockchain solutions, according to Nasdaq’s research:
- Identify a single data “controller.” Under GDPR, this controller is charged with compliance responsibilities. But it isn’t such an easy task when the network is distributed and multiple parties have this role. A special purpose entity that identifies a single control could be a solution.
- Minimize personal data storage on the blockchain. Instead, use the blockchain entry as evidence of the record, while storing personal data elsewhere. If it has to go on the chain, use strong encryption to protect it.
- Use private and permission-based blockchains. Under GDPR, data may only be transferred to places and jurisdictions that have adequate protections. This, however, is not consistent with public, permission-less blockchain networks. Private and permission-based blockchains can make sure participants agree to international transfer terms for the exchange of data.
- Render data inaccessible. Because blockchain is designed to be immutable, one way to approach the “right to be forgotten” would be to make that data inaccessible. In order to allow people in the EU to fix data entries about them, this technique could be combined with a corrected/replaced block entry.
[takeaway]You can see where this is going—how does the blockchain’s shared, immutable record square with strict privacy rules? This is a thorny question for companies building blockchain technology that could record personal data of EU users, as regulators have the authority to levy fines of up to 4% of a company’s global revenue for breaking the rules. ↘️ [/takeaway]
[supplemental headline=”Reasonable doubt”]
Even security experts question bitcoin’s use. Nicholas Weaver, a UC Berkeley lecturer and researcher at the International Computer Science Institute, lays out a convincing argument for why blockchain-based digital currencies are “not fit for purpose” in the June 2018 edition of Communications of the ACM (Association for Computing Machinery).
From excessive power consumption to price volatility and the irreversibility of transactions, Weaver contends bitcoin isn’t really necessary or useful, especially when compared to alternatives like PayPal. Indeed, if a person must make a digital payment free from prying eyes, they should hold bitcoin for the shortest possible time to reduce the risk of losses from volatility (which is awkward at best).
The private key setup is also full of pitfalls, Weaver says. “If security experts can’t safely keep cryptocurrencies on an internet-connected computer, nobody can,” he writes. “If bitcoin is the “internet of money,” what does it say that it cannot be safely stored on an internet connected computer?” [/supplemental]
Regulatory watch
Token taxes could change. US congressmen Warren Davidson, a Republican from Ohio, and Darren Soto, a Florida Democrat, took a step toward changing cryptocurrency tax rules with the Token Taxonomy Act. The bill would amend securities law to prevent digital tokens from being defined as securities. Furthermore, the bill would create a de minimis tax exemption for crypto when traded for something other than cash and a like-kind tax exemption, meaning that conversions of one crypto into another wouldn’t trigger a capital gains tax. The bill also seeks a tax exemption for crypto held in individual retirement accounts, which would parallel those for gold and other precious metal coins.
This bill is the culmination of lobbying efforts by venture capitalists and cryptocurrency supporters—among them Andreessen Horowitz and Nasdaq, who met with Davidson at a roundtable meeting in September. While the bill has some components which could ease the usage of cryptocurrency and reduce burdensome taxation requirements on small transactions, the proposed definition of a “digital token” should be scrutinized. Do tokens like XRP deserve such beneficial tax treatment? What about the multitude of crypto projects with no functional products, but digital assets galore?
[takeaway]Critically, removing digital tokens from the umbrella of securities regulation could give scam artists the green light to conduct ICOs once again—and there would be nobody to police investor protections. This bill is a mixed bag, with some sensible tax proposals, but not everything in it should stick. ➡️[/takeaway]
[supplemental headline=”Hacks, scams, and capers”]
Scam artists are posing as Bitmain on Facebook. Fraudsters have created accounts to impersonate the Chinese chip manufacturer and mining pool operator. Fake accounts add replies on posts by the actual company. The con artists ask for a small amount of bitcoin to verify a person’s cryptocurrency address and promise to send more cryptocurrency back. On Monday, Bitmain—the actual company—warned about the scam in a Facebook post. As always, unless you’re feeling unusually generous, don’t send crypto to strangers on the internet. [/supplemental]
Crypto calendar
🗣 January 8: Israel Bitcoin Summit. The Tel Aviv gathering features Nick Szabo (creator of 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.
[mailto filter=”Calendar” subject=”This is happening”]Tell us about your upcoming news and events.[/mailto]
Programming note: Private Key will be taking Tuesday off, but will return a week from today. Happy holidays!
Please send news, tips, and FaceCoins 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 and Jason Karaian. To live outside the law you must be honest.