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41. 27/12/2018 09:00
Crypto Is Down, So Why Am I Smiling?

Let’s admit it. This year was a bit chaotic for blockchain efforts. Cryptocurrencies crashed. The SEC rained on the ICO parade. Many corporate projects, announced with elaborate fanfare, seemed to progress at a snail’s pace.

On top of it all, someone claiming to be Satoshi threatened to take the price of bitcoin down to $1,000, while a related faction threatened what amounted to a DDoS attack on a rival fork by planning to mine worthless blocks. (With blockchain friends like these last two, who needs a six-fingered man for an enemy?) And on a more somber note, we lost Tim May, who provided early inspiration for me and many others with crypto-libertarian aspirations.

So why am I smiling? It would be presumptuous to say that I know something that informed readers do not. But perhaps I have a longer-term perspective. For while as a community we celebrated the 10th anniversary of Satoshi’s white paper, next year is another anniversary for me. Namely, 2019 will mark 30 years since Stuart Haber and I began working on a contributing thread to what has become the blockchain.*

From that perspective, the disturbances of this past year are transitory issues that distract from value creation fundamentals. From financial services to social media, from crypto-based banking services to making real assets liquid, opportunities abound. And as Chief Scientist at a blockchain venture capital firm, I am prepared to recommend how to invest tens of millions of dollars in blockchain efforts this coming year.

The movie Jerry Maguire made famous the line “show me the money.” Let me suggest four “show me”s.

Follow these in 2019 and perhaps I can show you the investment money.

1. Show me the community

Successful blockchain efforts don’t begin with technology. Instead they begin with a community.

Indeed, Tim May and others of the cypherpunk community who helped create that community’s sense of shared purpose had as much to do with bitcoin’s early rise as did the technical merits of Satoshi’s work. This point, often lost on those who didn’t live through the pre-bitcoin days, leads many to draw the wrong conclusions about the reason for bitcoin’s early rise. Its community was primed to embrace a peer-to-peer currency and was thus willing to accept bitcoin weaknesses along with its strengths.

New blockchain efforts should begin with a community that shares a common interest and purpose. This is the fundamental promise of the blockchain: a shared, immutable record that allows communities to achieve their collective hopes in a peer-to-peer, transparent and efficient way.

2. Show me the solution to today’s problems

Successful blockchain efforts will not offer solutions in search of needs, but rather should solve current, pressing problems. And these “products” should provide immediate benefits to their earliest users, even without the benefit of scale.

Far too many blockchain enthusiasts in 2018 simply railed against the incumbents, the evils of the current systems, and the greed of their actors. They convinced themselves that because their blockchain-based solutions were different from the wrong answers, their solutions must of necessity be the right answer.

Such sloppy logic will no longer work. Blockchain aspirants should ask themselves a difficult question. Namely, is their solution truly a current “must have,” providing benefit to even the earliest users and then growing in value with network effects? Or is it just a “nice to have” convenience, the value of which will become evident only when the community reaches scale? Or even worse, is it merely a clever technology that solves a problem developers simply wish the entire world will someday have?

History demonstrates that successful revolutionaries focus less on what they fight against and more on what solutions they propose. The best visionaries have incremental, largely self-sustaining plans that grow over time to achieve radically improved results.

In 2019, efforts that fit this near-term/long-term dynamic will be well positioned. The financial services industry presents many such opportunities, as it is straightforward to quantify benefits that can be realized from reductions in reconciliation, settlement costs and times, even in the early stages. And as these networks scale, features can be added that provide additional utility.

3. Show me the incentives

Successful blockchain applications avoid creating destabilizing incentives, while allocating value to the participants within the ecosystem who actually create value. Creating that value via non-centrally governed communities can be especially challenging. Unlike classical corporations that rely on conventional, hierarchical command and control, successful blockchain systems require internal incentives that cultivate communal growth and stable peer-to-peer governance.

Successful incentives and related governance mechanisms avoid the kind of behavior demonstrated this past year at the hard fork of BCH-SV and BCH-ABC. Questioning pure proof of work might seem tantamount to breaking faith with the core tenets of decentralization. Yet I am convinced that proof of work can be improved upon in order to avoid these sorts of behaviors without relinquishing its useful incentives.

Fundamentally, decentralized communities require incentives for its community members to hold and validate the tamper-evident records, making them collectively immutable. With that as a secure foundation, they can then consider whether a token, representing an actual stake in the community’s common assets and purpose, fits the circumstances. If it does make sense, then one must ensure that the differential equation for reward redistributes tokens along the gradients of value creation and long-term stability.

In this regard, community-based social media platforms continue to offer a large but still largely unrealized opportunity. Tens of millions or even billions of suitably incentivized users would be a force with which to be reckoned.

But claimants to the Facebook/LinkedIn/Reddit/etc. throne must also demonstrate how well they understand the community and provide a compelling solution.

4. Show me flexibility, not rigid orthodoxy

Successful blockchain applications are no different from any other class of startup venture in that they need to adapt to the needs of their user communities. It is the records, not one’s approach to problem-solving, that must remain immutable.

Because Satoshi was legitimately concerned that governments might want to shut down competitors to their fiat currencies, he invoked massive computational redundancy as part of decentralization.

Today, however, most blockchain applications operate in a different environment. It’s hard to imagine the military hunting down providers of shared medical records, for example. Thus, as blockchain applications extend beyond bitcoin, it is worth reexamining when, where, and how users’ needs require different classes of solutions. In these early days of blockchain, in which a dominant design has yet to emerge, innovators must be flexible enough to explore new possibilities informed by their users and thinking from first principles.

More generally, an inappropriate focus on fighting the last war is symptomatic of leaders unwilling to change even as conditions evolve. Initial plans almost never work. Successful leaders listen to what users are saying and pivot accordingly.

The promise of decentralized trust has come a long way from its early beginnings in the late 1980s. Yet to give due respect to the significant work done by Tim, David, Nick, Satoshi, J.R., David, Blythe, Caitlin, Vitalik, Joe, Dan, Ned, and many, many others, blockchain communities must not fail to learn from the lessons of this past year.

To realize the promise of a fairer, more transparent, peer-to-peer world, we must put community first, focus on solving present-day problems, continue to refine incentives and governance, and respond with flexibility as needs and circumstances change.

Those who do so should find themselves smiling with me in 2019, as we know something others do not know: we know the fundamental promise of the blockchain.

–––––––––––––––———–

*Now let’s be clear that what Stuart and I created was a sort of proto-blockchain, and we are not claiming credit for any of the many welcome innovations that have followed. But even 30 years ago, many of the basic elements were in place: a system of blocks cryptographically chained together whose wide distribution via appropriate incentives led to eliminating the need for a trusted third party. What else would one call that if not a blockchain?

42. 26/12/2018 10:58
Layoffs Underway Amid ‘Adjustments,’ Bitcoin Miner Bitmain Confirms

Months after it filed an application to go public on the Hong Kong Stock Exchange, Beijing-based cryptocurrency mining giant Bitmain is undergoing a series of business changes that extend even to its China offices, the company confirmed Tuesday.

“There has been some adjustment to our staff this year as we continue to build a long-term, sustainable and scalable business. A part of that is having to really focus on things that are core to that mission and not things that are auxiliary,” a company representative said in a statement.

The discussion of the company cutting off staff first emerged on Maimai, China’s equivalent to LinkedIn, where one anonymous user posted a thread on Dec. 17 asking if anyone had insider information about a possible layoff at Bitmain soon.

The post has generated nearly 200 replies since then, some of which came from other users that appear to be verified Bitmain employees on the social network, who indicated the layoffs would start from the week of Dec. 24.

“It’s affirmative. The layoff will start next week and involves more than 50 percent of the entire Bitmain’s headcount,” replied one verified Bitmain staff on Maimai to the thread.

“Some departments have to be let go entirely,” replied another verified Bitmain employee on the same thread.

Currently, some Bitmain employees have already taken to the social network to discuss their respective layoff compensation packages since the week began. An employee from Bitmain’s China offices, who is still with the company and who spoke to CoinDesk under the condition of anonymity, confirmed the mining giant is indeed undergoing layoff at the moment.

Since it is still an ongoing process, the source said it’s unclear how many people have been impacted so far and was not able to verify the claim of 50 percent layoff.

“But the whole thing certainly couldn’t be handled in just one day given the total number could be large,” the source said, adding:

“This is an operational adjustment. Some projects will be entirely gone so it’s hard to calculate a precise percentage at this stage.”

The source added this round of operational adjustments has an impact on virtually all business units of Bitmain, including its flagship mining pool product.

“It’s not hard to infer which division is suffering the most. Bitmain’s core business is making miners. Other business lines are just blockchain and artificial intelligence,” the source said, implying the firm is having a major revamp on its push into the blockchain and AI field.

“There’s also some adjustment on the mining equipment business line. For the firm as a whole, it’s going to reduce redundancy to increase operational efficiency,” the source added.

The news makes Bitmain another major industry company that is undergoing reshuffles amid months of cryptocurrency market decline, joining others such as ConsenSys and Steemit. Previously, layoffs were confirmed by Bitmain, but outside of mainland China, where the firm’s core operations are based.

However, the source said even without the overall market decline, this round of adjustment was inevitable, due to an extraordinarily fast expansion Bitmain has seen this year.

“Now Bitmain has about 3,100 people, even several hundreds more than what was disclosed in the IPO prospectus in September. But there were only about 1,000 people at the beginning of the year,” the source said, adding the growth rate is like two to three times in general.

“For some specific business lines, the expansion growth rate could be more than three times,” the source added.

Bitmain said also that it is still hiring, despite the layoffs, adding: “As we move into the new year, we will continue to double down on hiring the best talent from a diverse range of backgrounds.”

Bitmain CEO Jihan Wu via CoinDesk archives

43. 24/12/2018 12:15
What Happened to Dapps? (And 4 Other Big Questions for Ethereum in 2019)

For the most part, Bitcoin and Ethereum have held the title of the top two cryptocurrencies with the largest market capitalization. But in the past year, we’ve noticed that the second place for crypto’s market share is constantly switching between XRP and Ethereum – first in September and most recently in November and December.

With many other coins also left in a shadow of their 2017 value, fear and uncertainty have led many to wonder if Ethereum will survive this next season. I believe without a doubt that Ethereum is not going anywhere, and as less meaningful blockchains are weeded out, it will be an opportunity for Ethereum to develop a much-needed edge.

As we move into 2019, there is much more work to be done. Here are five questions I believe the community needs to ask themselves if we are to truly BUIDL for a future for cryptocurrencies.

1. What happened to the promise of dapps and smart contracts?

There were already over 200 cryptocurrencies by the time the Ethereum mainnet went live in 2014. But what made it a game changer was the birth of the smart contracts, and more specifically, contracts such as ERC-20, a universal standard that would allow different tokens to exist on the same blockchain.

Developers could program a truly decentralized application (dapp) on the Ethereum blockchain using smart contracts – a simple program that would automatically execute an action as soon as a specific criterion was fulfilled.

There are plenty of great projects already demonstrating how dapps can improve user experience. For instance, ENS (Ethereum Name Service) is a solution that allows users to turn their hexadecimal wallet address into a unique domain name instead.

One other impressive application of the technology is open-sourced decentralized exchanges or liquidity providers like Kyber Network, which are helping to connect the increasingly fragmented token ecosystem. MakerDAO and its Collateralized Debt Position (CDP) contract is another notable example, as it enables users to take a loan in a stablecoin by putting up Ethereum as collateral.

It is impressive to see how all these dapps are working in a completely decentralized and trustless way to accomplish needs which would otherwise require a centralized authority. However, while the community dedicates its efforts towards driving mainstream adoption, I think we are still at least five years away from seeing a dapp which appeals to the man on the street.

I encourage dapp developers to focus on building ecosystems with user experience and newcomer adoption in mind. We cannot ignore that in recent years, the Ethereum community has expanded beyond the technically-proficient to include the crypto-curious too. This change is a good thing and our platforms and solutions must look at how we can accommodate for newcomers.

2. Are we finally done with ICOs?

ICOs were the best and worst thing to happen to the cryptocurrency industry. Like it or not, it was a catalyst for driving interest in the space, spurring innovation and leading its growing adoption. In 2017, companies raised more than $5.5 billion through the ICO route and in just the first three months of 2018, it reached a peak of $6.3 billion.

This injection of funds into the market created a surge of interest on the mainstream media’s part, and consequently, this drew in more and more crypto-curious individuals into the blockchain world.

However, unfortunately, when Ethereum’s price took off, it gave many of the original developers a seven- to eight-figure reason to cash out. Many developers who helped to build, launch and maintain the Ethereum blockchain left, taking their bright minds, vision and drive with them. Even though this was unfortunate, it allowed us to filter out the developers who were only there for financial gains instead of the cause.

The wider Ethereum community did not self-regulate, nor help to safeguard users either. More than 80 percent of ICO projects launched in 2017 have been identified as scams, leaving behind a negative stigma and a highly cautious general public.

What is most interesting is that with the ICO craze finally cooling off, a growing number of crypto companies are turning to traditional and venture capital financing to provide them with enough runway to make it through the current market spell.

3. How can we ensure that the Ethereum community grows together, instead of apart?

This season will not just be a test for the robustness of Ethereum’s technology, but also how we evolve as a community. The case for Ethereum’s survival begins with its core developers working toward a common cause.

Bitcoin may be the most used blockchain right now, but its developers are constantly in dispute with one another and often resort to hard forking when trying to reach a resolution to their differences. With Ethereum, developers are compelled to work together instead, finding solutions based on compromise and collaboration.

One might attribute this to the Ethereum Foundation’s leadership. Unlike Bitcoin’s anonymous creator, Satoshi Nakamoto, Ethereum’s co-founders actively engage with the ecosystem, bringing together a sense of camaraderie through events like the annual conference for Ethereum’s developers, DevCon, which held its fourth edition this year in Prague.

What we have built together as a community is undoubtedly impressive, but we cannot rest on our laurels.

Now more than ever, it is important that we hold onto good talent throughout the industry. In the midst of these volatile market conditions, we cannot afford another brain drain and it is crucial that intelligent and committed people are drawn to this field and incentivized by goals that are not purely financial.

4. How can we restore trust in crypto?

Thanks to ICOs, some work is needed to revamp Ethereum’s tainted image and restore trust in blockchain technology.

Many newcomers have not even had a chance to learn about how revolutionary the technology is because so many bad actors took advantage of them. Looking back now, the community should have worked together to protect consumers by increasing awareness around scams and bad projects.

Many of these, like BitKRX who claimed to be a branch of the South Korean Stock Exchange, duped investors by posing as an affiliate of a respectable organization and could have been uncovered with proactive inquiries or if journalists engaged in further research.

It is extremely important for us to educate the community on how to find genuine projects amongst all the scams. To turn over a new leaf, we can start by making it easier for crypto beginners by providing more materials and resources tailored to them.

After all, making a crypto transaction is not as intuitive as making one through the current banking system. We should not forget that most of us were raised within a traditional financial ecosystem, and building similar best-practice behaviors in the crypto world will take time.

5. How can we set ourselves up to BUIDL for the better?

It may take a while before Ethereum gets where it needs to be, but that may not be the worst thing. While setting aside time for a slow build may seem like a luxury that the Ethereum community cannot afford, it is what will set it apart in the years to come.

To put things into perspective, Bitcoin took close to a decade before capturing the public’s attention.

A steady and considered approach is what is needed. To lay the right foundations in place, teams should look at how they can strategically dedicate their resources and funding to build support tools while nurturing strong developer talents.

Until then, keeping pace and regularly hitting product development milestones is what’s needed to keep the community interested and motivated toward the cause.

44. 22/12/2018 20:24
Launch of Bakkt Bitcoin Futures Market May Get Postponed Again

Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange, is likely to delay the launch of Bakkt, its bitcoin futures trading and custody platform, a second time, CoinDesk has learned.

The company last set Jan. 24 as the launch date. However, ICE has yet to receive the necessary approvals from the U.S. Commodity Futures Trading Commission (CFTC), and at the pace the agency has been moving, it is unlikely that approvals will be secured in time to hit that target.

To be clear: That does not mean the CFTC won’t ultimately approve the plan. A person familiar with the agency’s inner workings said even a Jan. 30 launch was still plausible, meaning the delay could be just a matter of days.

Specifically, the CFTC must grant an exemption for Bakkt’s plan to custody bitcoin on behalf of its clients in its own “warehouse,” according to sources familiar with regulatory discussions of the plan. CFTC regulations normally require that customer funds be held by a bank, trust company or futures commission merchant (FCM).

The agency’s staff has finished reviewing Bakkt’s exemption request and passed it to the commission on Friday, one source said. Now the commissioners have to vote on whether to put out the proposal for public comment. After the 30-day comment period, the commissioners would likely take at least a couple days to read the comments, and then vote on the proposal itself.

But here’s the deal: Monday and Tuesday are now federal employee holidays. So unless these government officials decide to work on their days off, the earliest the commissioners are likely to vote on a public comment period and thereby start the 30-day clock is Wednesday, Dec. 26, the day after Christmas.

That already would push any final vote past Bakkt’s Jan. 24 launch target, even without taking into account the time needed to read the public comments. The possibility of a U.S. government shutdownthreatens to further delay the process.

The exchange is likely to issue an updated launch target date, but not until next week, another source said.

This would be the second postponement. ICE had originally aimed to launch Bakkt in December, but last month it said that the “volume of interest” in the company and the “work required to get all the pieces in place” necessitated a delay.

Unlike the bitcoin futures offered by CME Group and Cboe, Bakkt’s will be physically settled, meaning actual bitcoin will change hands rather than cash when the contracts expire.

45. 21/12/2018 12:20
Why Crypto Winter Won’t Be 2019’s Defining Story

In 2018, I thought about two anniversaries.

The first, we’re all familiar with. By the end of this year, it will have been a decade since Satoshi Nakamoto created bitcoin and launched a new industry.

The second anniversary is a personal one. After launching the Deloitte blockchain practice with two friends in 2012, I moderated a panel at Money/2020 in 2013. This space was so new, we did not have a name for blockchain yet; rather, the panel I led was called “Bitcoin 2.0.” Yet, we knew more would come from the technology.

There, Charlie Lee, David Johnson and Taariq Lewis talked about self-governing organizations, digitized commodities and decentralized business models. You could tell most of the room was completely lost.

As we close 2018, one of the key lessons is that the most important stories in cryptocurrency aren’t always the ones with the loudest headlines. While the “crypto winter” was at the center of many discussions, it was not, to me, the key story of the year. What do I think was more important?

First, the rise of the “other” tokens – security tokens, non-fungible tokens, stablecoins and equity tokens, all of which demonstrated the continued vitality of the blockchain community. That a single year – and a tough year at that – saw so many diverse and innovative products proves the enduring value of the blockchain.

Second, significant investments in crypto and blockchain infrastructure from traditional financial institutions and new technology companies mean we have much stronger foundations to build on: wallets, trading technologies, custodian solutions, exchanges, broker solutions and more.

Finally, our regulatory environment. While, to a certain strain of crypto enthusiast, regulation sounds a death knell for blockchain, I think this viewpoint is misguided on two counts.

First, regulation removes and discourages the bad actors who have done such harm to blockchain’s reputation. Second, regulation proves that blockchain is here to stay. There’s no need to regulate a fad; it will expire well before a bill reaches committee.

An enduring new asset, however, needs a place in a legal framework. Legislators have decided that blockchain is growing, not evaporating.

What do I expect to see in 2019? Given the speed and volatility of cryptocurrency, you’ll have to allow me some margin of error, but here’s what I see coming in the next 12 months:

  1. Investing at the bottom: If we haven’t reached the solstice of the crypto winter yet, we’re very close; brighter and warmer days are coming soon. The early days of 2019 are the time to make bets on the best tokens and the best teams. I call it the new Rockefeller moment.
  2. A new Howey test: The SEC’s increased scrutiny of blockchain has meant that blockchain proponents have had to learn about SEC v. W.J. Howey Co., the 1946 Supreme Court case that defined securities in U.S. law. I expect the courts to promulgate a new test for blockchain, which will let investors place their money with greater confidence.
  3. Better core tech: It may have taken a bear market to drive this point home to some, but blockchain is not about getting rich tomorrow. We need to pay more attention to improvements in performance and scalability and pay less attention to new projects. #BUIDL is the new #HODL.
  4. Decentralized business models: This may be the hardest of my predictions to imagine. In 2019, we will see the rise of decentralized businesses in banking, capital markets, payments, insurance, supply chain and other fields. The next Google or Amazon could make its appearance, but they’ll be very different: They won’t be looking for a place on Nasdaq, because they’ll be generating network value more than equity value.
  5. A killer consumer app: While blockchain conferences were the killer app of 2018, we’re still looking for the product that will bring blockchain’s value to the non-tech, non-business consumer audience. I’ve tried a few apps that purported to be killer apps, but the experience was so bad I wonder if the developers thought killer apps were supposed to kill their users. I survived, and I’m hoping for more and better next year.

To return again to that long-ago Money 2020 conference: it’s rare to be talking to a single visionary, much less three. Most of the ideas that Charlie, David and Tariq discussed that day were so forward-looking that they were, at the time, dismissed as impossible or ignored as incomprehensible.

Today, many of their ideas have become implementations. Tomorrow, more will follow.

I’m beginning to wonder if those pie-in-the-sky predictions for 2020 were, in fact, too conservative. And remember, the difference between genius and stupidity is 18 months…

Have an opinionated take on 2018? CoinDesk is seeking submissions for our 2018 in Review. Email news [at] coindesk.com to learn how to get involved. 

 

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