[header date=”11 January 2019″]Ethereum Classic was compromised, Beam remains vulnerable, and central bankers aren’t sold on cryptocurrencies.[/header]
What you need to know—and why
ShapeShift gets smaller. Due to the “bitter frost” of crypto winter, ShapeShift—a digital asset exchange that recently, and belatedly, instituted anti-money laundering measures—let go of 37 employees, CEO Erik Voorhees announced this week. “Crypto, like the moon we strive toward, is a harsh mistress,” he wrote.
[takeaway]As ShapeShift attracted regulatory scrutiny, the company had to spend on “immense legal bills and risk assessment,” Vorhees said. In pursuit of compliance, the company lost customers and partners who valued their anonymity. ↘️ [/takeaway]
Cryptocurrency isn’t being used as money. The Bank for International Settlements—a bank for central banks based in Switzerland—recently surveyed central banks about cryptocurrencies. In results published this week (pdf), a majority of respondents said crypto usage is “assessed to be either minimal (‘trivial / no use’) or concentrated in niche groups.”
[takeaway]Crypto startups like Ripple claim cryptocurrencies can be used to optimize the speed, cost, and settlement finality of cross-border payments. But central banks aren’t sold on a crypto-based future, saying “current and prospective use of cryptocurrencies seemed contained to such assets being used for investment purposes.” ➡️[/takeaway]
Beam warns of critical vulnerability. The development team behind the latest privacy coin implored users to re-download the Beam wallet to patch a vulnerability that affects all previous desktop and command-line interface wallets. Proceed with caution—if you are a Beam user, the team emphasized, “DO NOT DELETE THE DATABASE or any other wallet data.”
[takeaway]Beam won the race to release a Mimblewimble-based cryptocurrency (using technology named for a Harry Potter spell), but the project is off to a tumultuous start. Early adopters should update their wallets—and follow the Beam GitHub page—as the team will soon share details about the vulnerability. They’re holding off for now, however, in order to avoid exploits. ↘️[/takeaway]
Blockchain goes to school. The US Department of Energy is making up to $4.8 million available for university research grants, and is seeking proposals to study cybersecurity topics that emphasize “blockchain and decentralized, peer-to-peer internet protocols.” Applications are due Feb. 25.
[takeaway] The DOE asks applicants to specify which platform they are working with, naming bitcoin, Ethereum, and Hyperledger as examples. Decentralized tech remain a hot topic in energy sharing and security circles. ↗️[/takeaway]
TenX president Julian Hosp resigns. In an emotional video, Hosp announced that he is stepping down from TenX, the developer of a cryptocurrency debit card. In December, he was linked to Lyoness, a discount shopping service and suspected pyramid scheme. TenX said it has no connection to Lyoness. TenX raised $83 million through an ICO in June 2017, but since then it has faltered mightily, struggling to deliver on its promised debit cards.
[takeaway]TenX’s PAY tokens—which have plummeted from $5 to just 15 cents apiece—were recently replaced by TenX tokens, which will apparently be used to disburse dividends from fees collected by debit card users. ↘️[/takeaway]
[supplemental headline=”Chart interlude”]
Ethereum Classic was hacked (see “Hacks, scams, and capers” below) and traders just sorta shrugged.
[img src=”https://cms.qz.com/wp-content/uploads/2019/01/ETC-price-chart.png”]
[mailto filter=”Chart” subject=”Here’s a chart idea…”]Got a killer chart idea? Let us know[/mailto]
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Crypto-meets-finance
The US has lagged far behind other countries when it comes to payments. While transactions can be processed in essentially real time in Australia and the UK, payments in America can still take days. The US Federal Reserve is looking at ways to catch up, perhaps building its own 24-hour system for Real Time Gross Settlement (RTGS), and last year asked for public comment.
More than 300 responses poured in, ranging from banks to Amazon to a trucker association. Germany’s Bundesbank also gave its counterpart in the US some advice: among other things, an RTGS upgrade “could also avoid consumers using alternative settlement mechanisms based on privately issued crypto-assets like bitcoin in order to benefit from end-to-end real-time transactions.”
Quartz asked the Bundesbank to elaborate on its views. Its email response has been edited for length.
Quartz: Have cryptocurrencies inspired central banks to become more competitive when it comes to digital payments?
As instantaneity and around the clock availability have become the new normal for most digital services, it is crucial for modern means of payment to adequately cater for these evolving needs of payment users.
Has the central bank, for example, seen any instances in which consumers have made this shift?
Supposed benefits of crypto-assets are sometimes seen in enabling (close to) real-time payments at any time of the day. If traditional payment systems equally offer real-time payments and 24/7 availability, this potential advantage of crypto-assets would clearly become obsolete.
That being said, so far, the usage of crypto-assets as a means of payment is a mere niche phenomenon. Consequently, there is no evidence of any significant shift in payment users’ behavior towards the use of crypto-assets in order to make (close to) real-time payments.
Does the Bundesbank see crypto tokens as a risk to government central banks?
The use of the currently prevailing crypto-assets by the general public for payment purposes is at best marginal. It seems quite obvious that crypto assets are mainly used as a means of speculation. All in all, from a current perspective, we do not expect that crypto-assets will pose a real threat to traditional payment systems, also because current crypto-asset transfer mechanisms come with significantly higher costs. That being said, in order to ensure the efficiency and safety of the payment system, the current infrastructures should constantly be further enhanced in line with user needs.
[supplemental headline=”Reasonable doubt”]
Another central bank skeptic. Ardo Hansson—governor of the Estonian central bank—said cryptocurrencies will be remembered as a “complete load of nonsense.”
Speaking at a conference in Latvia, Hansson, a council member for the European Central Bank, added, “The bubble has already started to collapse and maybe we should just see how far this collapse goes, and what is left when we’ve reached a new kind of equilibrium.”
He continued: “I think we will come back a few years from now and say how could we ever have gotten into this situation where we believed this kind of a fairy-tale story.”
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Regulatory watch
A Europe-wide approach to crypto regulation? EU financial regulators are sending signals that a comprehensive approach to cryptocurrency for the bloc may be coming, with both the European Banking Authority and European Securities and Markets Authority publishing advice to EU institutions concerning crypto-assets this week.
The EBA noted that various regulations are emerging in EU member countries, which could threaten a “level playing field.” The group advised the European Commission, the EU’s executive branch, to conduct a “comprehensive cost/benefit analysis to determine what, if any, action is required at the EU level at this stage to address these issues.”
Meanwhile, ESMA explained how existing EU rules do—and don’t—apply to initial coin offerings and crypto-assets. For crypto-assets defined as financial instruments under the EU’s MiFID regulations, the authority said it will be important to revisit existing regulation to ensure effective oversight. When crypto-assets aren’t financial instruments, ESMA proposed that “at a minimum” anti-money laundering and disclosure requirements ought to apply.
[takeaway]Europe lacks an overarching crypto strategy, so as individual countries have introduced regulations, operators have simply moved to less stringent jurisdictions. ESMA and EBA’s recommendations indicate that the EU is at least aware of the risks crypto-assets pose to investors. The urgency for crypto regulation may have diminished, however, as prices and activity have declined. ↗️ [/takeaway]
Thailand approves four crypto exchanges. The Ministry of Finance gave the green light to four companies—Bx, Bitkub, Coins, and Satang Pro—as licensed broker-dealers, the Thai SEC announced. But two companies—Cash2Coins and Southeast Asia Digital Exchange—must close. They were denied licenses because of inadequate oversight and security measures.
[takeaway]Thailand has been on the forefront of ICO regulation, and has considered easing measures to facilitate private fundraising. However, the country has been much slower than other Asian nations—like Japan and Singapore—to authorize crypto trading. Thus far, Thailand’s cautious approach has served it well. ↗️[/takeaway]
[supplemental headline=”Hacks, scams, and capers”]
Ethereum Classic suffered a 51% attack. A malicious actor gained control of more than half of the network’s hash power, allowing them to rewrite the blockchain’s history. In addition to selfishly mining for block rewards—depriving other miners of potential rewards—the hacker “double-spent” more than $1 million worth of the cryptocurrency. Many exchanges, including Coinbase and Kraken, have halted ETC deposits and withdrawals. Gate.io, another exchange, said it detected seven transaction rollbacks on the ETC network.
Ethereum Classic (ETC) is a vestigial version of Ethereum. Though relatively unpopular and lacking a vibrant development community, ETC persisted after developers forked Ethereum to reverse a previous catastrophic hack—the DAO—in 2016.
Kidnappers demand $10 million—in Monero—for a Norwegian real estate mogul’s wife. Anne-Elisabeth Hagen has been missing since Oct. 31. Hagen’s alleged captors have asked to be paid in Monero, a cryptocurrency known for its enhanced privacy features, which afford users virtual anonymity. Police have advised her family not to pay.
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Crypto calendar
🗣 January 14-15: Blockchain(ge). Government and industry leaders will gather in Washington, DC to discuss distributed ledger technology and related regulation. Keep an eye out for Rep. Warren Davidson, a Republican from Ohio, and Rep. David Schweikert, a Republican of Arizona—both sponsors of past crypto legislation—as well as Daniel Gorfine, the CFTC’s chief innovation officer.
🗣 January 19-22: Binance Blockchain Week Singapore 2019. The SAFU hackathon and Binance conference will focus on “sustainable growth.” Speakers include TRON founder Justin Sun and Bloq chairman Matthew Roszak.
🗣 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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Please send news, tips, and wallet patches 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. Sometimes, it’s better to be lucky than good.