[header date=”18 January 2019″]Ethereum delays a hard fork, a new Mimblewimble coin is born, and the US government shutdown hampers the CFTC. [/header]
What you need to know—and why
Ethereum delays upgrades. Constantinople, the latest round of updates to the Ethereum network, hit a snag this week when ChainSecurity, a firm that audits smart contracts, discovered a vulnerability in Ethereum Improvement Proposal 1283, one of five planned upgrades. A new date for the hard fork will be determined during a developer call later today.
[takeaway]If EIP 1283 had been adopted, the vulnerability would’ve allowed “reentrancy attacks,” the same type of bug that afflicted The DAO, an ill-fated crowdfunding venture on Ethereum. An attacker could have unilaterally and improperly drained funds from contracts that met certain preconditions. For Ethereum, development delays remain the norm, regardless of whether its governance is decentralized. ↘️[/takeaway]
Miners speculate on Grin. Named after Gringotts Wizarding Bank from Harry Potter, Grin is the second cryptocurrency to launch using the Mimblewimble protocol, a privacy-enhancing and potentially scalable system. Grin is unusual because it isn’t being maintained by a company (like Beam, the other Mimblewimble-based crypto) or a foundation (like Zcash), and it hasn’t featured an ICO (Tezos), premine (Ethereum), or founder’s reward (you get the point). Taken together, these attributes make Grin one of the fairest—or perhaps, least unfair—cryptos since bitcoin itself was created.
[takeaway]Grin’s inflationary monetary policy—one unit is created per second—may encourage usage of the new coin as opposed to long-term holding. The project’s volunteer developers wrote, “As an experimental hypothesis, Grin’s inflation rate may discourage hoarding, improving its distribution.” On social media, some crypto-asset investors offered guesses at Grin’s fair price, but until the coin hits exchanges en masse, it’s hard to say what one grin is really worth. ↗️[/takeaway]
Bitmain recedes. The Chinese crypto mining company has suspended operations in Rockdale, Texas, where it intended to open one of North America’s largest bitcoin mines. It’s not clear how many lost their jobs, but only five employees, including two engineers and a human resources employee, remain. “I’m really disappointed because we had advertised this. We had waited for this. We had wanted this,” said Milam County Judge Steve Young.
[takeaway]Bitmain selected Rockdale—a town of 5,600 people—for its cheap power supply in July 2018, but since then, the price of bitcoin has fallen by more than 50%. Although the company still plans to pursue the mining facility, it sounds like it won’t be the $500-million, 400-person endeavor it originally sought. The longer the crypto bear market drags on, the worse prospects look for miners, and the rural towns banking on these facilities. ↘️ [/takeaway]
ConsenSys backs Automattic’s open-source media project. Automattic, the company behind WordPress, announced funding for Newspack, an “advanced open-source publishing and revenue-generating platform for news organizations.” Supporters included Google ($1.2 million), the Lenfest Institute for Journalism ($400,000), and ConsenSys ($350,000), among others. The beta version of Newspack will launch in July 2019.
[takeaway]ConsenSys’ decision to back the venture should raise eyebrows since just weeks ago development studio was reportedly struggling through layoffs. Still, Newspack sounds more promising than Civil, ConsenSys’ community-owned journalism network. ➡️ [/takeaway]
Bitfury launches a music entertainment division. Bitfury, which sells cryptocurrency miners and blockchain software, announced the creation of Bitfury Surround, an open-source music platform built with its Exonum software and anchored to bitcoin, which “will enable the entire music entertainment industry to streamline operations through secure transfer of copyright assets… as well as better monitoring and management systems.”
[takeaway]The music industry’s royalty systems are notoriously convoluted, and they’re just begging for an overhaul—via blockchain or not. It’s early days for Bitfury Surround and it will be a while before the platform is deployed, even in beta, but the attention to artist rights is a step in the right direction. ↗️[/takeaway]
[supplemental headline=”Chart interlude”]
As the crypto winter drags on, you might hear boosters say that despite all the volatility, the yearly low set by bitcoin has been higher each successive year since 2015 (including 2019, so far). Statistical coincidence or meaningful pattern?
[img src=”https://cms.qz.com/wp-content/uploads/2019/01/Bitcoin_price_Price_Annual_low.png”]
[mailto filter=”Chart” subject=”Here’s a chart idea…”]Got a killer chart idea? Let us know[/mailto]
[/supplemental]
Crypto-meets-finance
HSBC is settling trades with distributed ledger technology. The bank has settled $250 billion in foreign exchange trades using its shared permissioned ledger, HSBC FX Everywhere. In the past year, the system processed more than 3 million transactions and made more than 150,000 payments.
[takeaway]Although some media outlets referred to HSBC’s platform as a “blockchain,” the bank didn’t use that terminology itself, reflecting the continuing confusion over whether private implementations deserve that label. Whatever you call it, HSBC’s platform demonstrates the viability—and yes, benefits—of secure digital environments where information is shared and recorded simultaneously across multiple locations. Maybe it’s easier to just say “blockchain.” ↗️ [/takeaway]
Bitcoin has its own fear index. LedgerX, one of the first companies to list bitcoin derivatives in the US, has created an index to track bitcoin’s volatility. The LedgerX Volatility Index (LXVX) is a crypto version of the Cboe’s volatility index, nicknamed the “fear index.” LedgerX CEO Paul Chou said tradable VIX products may follow.
[takeaway]LXVX is just based on LedgerX’s bitcoin options trading data, but the prospect of a financial product that tracks bitcoin volatility is genuinely exciting. Considering the unpredictable nature of the crypto market, it’s easy to imagine a lot of interest in LXVX. Betting on bitcoin’s ups and downs may be less exciting now, given it’s mostly headed in one direction lately, but betting that it will continue to oscillate; now that’s enticing. ↗️[/takeaway]
[supplemental headline=”Reasonable doubt”]
Crypto innovators say bitcoin lacks scalability. A team of academics is working to shore up what they describe as a key shortcoming of bitcoin: slow processing speed that inhibits its growth. Unit-e, a new token which aims to address the limitations of blockchain scalability, is expected to launch in the later part of 2019
“Bitcoin has shown us that distributed trust is possible but it’s just not scaling at a dimension that could make it a truly global everyday money,” says Pramod Viswanath, a professor of electrical and computer engineering at University of Illinois Urbana-Champaign. Viswanath is one of the researchers at Distributed Technology Research, the non-profit launching the new coin, and his critique was joined by Joey Krug, co-chief investment officer at Pantera Capital, which is backing Unit-e.
“We are on the cusp of something where if this doesn’t scale relatively soon, it may be relegated to ideas that were nice but didn’t work in practice: more like 3D printing than the internet,’’ said Krug.
[/supplemental]
Regulatory watch
South Africa proposes registration requirements. The country’s central bank published a consultation paper this week in conjunction with other state financial agencies. The authorities encouraged a review of current regulatory frameworks as they apply to cryptoassets, recommending that they “remain without legal tender status.”
[takeaway]The 32-page paper signaled a sensitive, but not overly burdensome, regulatory regime. Referencing Nobel laureate Robert Shiller and the IMF, the central bank appears aware of the evolving role of digital money and appropriately wary of potential abuses, such as money laundering. ↗️[/takeaway]
The US government shutdown delays crypto oversight. The term of J. Christopher Giancarlo, chairman of the Commodity Futures Trading Commission (CFTC), expires in April, meaning that the agency was already facing a tight deadline as it strives to bring crypto exchanges under the swap execution facility designation. The agency’s study of Ethereum may also face delays because of the shutdown, potentially stalling listings of financial derivatives linked to the price of ether.
[takeaway]Even after the government shutdown (eventually) ends, the CFTC might be forced to focus on enforcement issues rather than rulemaking, so clear guidelines for crypto exchanges might still be a ways off. The incoming CFTC chairman is Heath Tarbert, whose stance on blockchain and cryptocurrency issues isn’t yet known. ↘️[/takeaway]
[supplemental headline=”Hacks, scams, and capers”]
A profile of Monero imposter was deleted by Forbes Middle East. The publication ran a story in October about Ezekiel Osborne, who claimed to be a founding members of Monero, one of the most popular privacy-enhancing cryptocurrencies. In fact, Osborne appears to be Zeke Echelon, whom Breaker identified as a veteran of crypto manipulation schemes. Although Osborne’s deception was immediately refuted by Riccardo Spagni, Monero’s lead developer, and called out by savvy crypto media, Forbes Middle East—which is editorially independent from Forbes—didn’t remove the story until this month and when it did, the publication simply scrubbed it, rather than issuing a retraction.
Missing New Zealand tokens reappear on Binance. Cryptopia, an exchange based in Christchurch, announced on Tuesday that it had been breached. “Police are not yet in a position to say how much cryptocurrency is involved, other than it is a significant amount,” said New Zealand Police. Some stolen funds later surfaced on Binance, a popular, high-volume cryptocurrency exchange. “I don’t understand why the hackers keep sending to Binance,” tweeted Binance CEO Changpeng Zhao. “Social media will be pretty fast to report it, and we will freeze it. It’s a high risk maneuver for them.” [/supplemental]
Crypto calendar
🗣 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.
🗣 Jan 22-23: EmTech Asia. Speakers at the Singapore conference include Patrick Murck, cofounder of the Bitcoin Foundation and a fellow at Harvard’s Berkman Centre; Loi Luu, CEO of Kyber Network, a decentralized liquidity protocol; and Norberto Andrade, privacy and public policy manager at Facebook.
🗣 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 fear indices 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 edited by Oliver Staley and Jason Karaian. “Time is your friend; impulse is your enemy” – Jack Bogle (1929-2019).