Category Archive : Blockchain News

us-crypto-regulations-will-return-bitcoin-to-its-digital-cash-origins

US crypto regulations will return Bitcoin to its digital cash origins

The United States Financial Crimes Enforcement Network, or FinCEN, recently proposed a series of new regulations applying to financial institutions dealing with digital currencies, such as Bitcoin (BTC). To summarize the proposed regulations, exchanges would essentially be required to file a report with FinCEN when a customer makes a purchase in excess of $10,000, and gather Know Your Customer information any time a transaction of $3,000 or greater is conducted using a non-custodial wallet. 

This means that if a customer buys $3,000 worth of Bitcoin and withdraws it to a wallet they control, they would have to not only prove ownership of that wallet but also provide their name and physical address, along with additional identifying information.

Personally, my life stands to change very little. I’ve been living entirely off of cryptocurrency since 2015, unbanked since 2016, and have never used a centralized exchange, receiving all of my coins as compensation for goods and services. But as few live as I do, we will likely see a significant impact on how most cryptocurrency users conduct their business. I would hazard a guess that most users have interacted with a centralized platform requiring KYC.

For the rest of cryptocurrency users, the newly proposed regulations would put a significant friction point on deposits and withdrawals. At present, a user signs up to an exchange, submits KYC documents for approval, and can buy and withdraw Bitcoin to a wallet they control, including a hardware wallet for cold storage. When wishing to realize gains, they can then move the funds back onto the exchange and sell for spending money in the bank.

In the future, however, they may be required to prove ownership of the wallet to which they withdraw, including providing their physical address, and similarly, prove the origin of the funds when moving back on to an exchange. This may lead many users, including the privacy- and autonomy-conscious (of which there are many in the Bitcoin world), to seek other, less intrusive ways of using their digital funds. Making payments directly for the goods and services they desire, rather than first selling for fiat currency, avoids the headache of passing through the regulation-induced friction point every time.

The “centralized exchange closed-loop” experience Bitcoiners will wake up from

There’s a reason why relatively few people have engaged in regular transactions and purchases with Bitcoin — they haven’t needed to. The average user signs up for an exchange account, buys crypto, and may sell to realize some gains. Some of the more hardcore users may even buy a hardware wallet and transfer funds to it from an exchange, which could be an infrequent transaction of significant amounts with no real requirement for speed or particularly low fees. The basic process of buying for investment purposes, and occasionally selling to realize gains or to spend, is relatively smooth with centralized exchanges, which is why so few have ventured far out of this closed loop so far.

Many Bitcoiners have opted to stay inside this closed loop for exactly the same reason they may soon seek to exit it — avoiding friction. Sure, many will simply deal with the extra regulatory steps, but many more, particularly thought leaders and longtime community staples, will choose to stay closer to the cypherpunk ethos.

Bitcoin’s adoption ecosystem will get the push it needs

Bitcoin was born and bred for decentralized digital payments. At some point, this use case took a backseat to a digital store-of-value, and the tools necessary for it to reclaim this purpose haven’t adequately developed yet — foremost among these, of course, is scaling.

Bitcoin chose to pursue off-chain scaling solutions (Lightning Network) and on-chain transaction optimizations (SegWit). Both of these have seen lackluster development over the past several years, with SegWit transactions making up less than half of daily transactions over three years, and Lightning Network growth similarly stagnating, with very few exchanges or other major ecosystem players having integrated it at this point. As noted above, this hasn’t been that much of an issue with the current state of things.

However, when the average user gets direct exposure to the Bitcoin network as it functions today, they’re in for a rude awakening that will either prompt them to disengage entirely or will place pressure on wallets and service providers to prioritize SegWit and Lightning. In a free market, which the cryptoverse largely is, consumer demand drives innovation to meet its needs. If enough Bitcoiners start demanding that Bitcoin work seamlessly for small and efficient transactions (beyond simply posting about it on Twitter), the market will seriously push for the ecosystem to develop to meet its needs.

Hungry competitors line up to take over the digital cash role

Of course, Bitcoin is far from alone in the competition for cryptocurrency for direct purchases. Since its transition to a more digital gold-focused role starting in 2016 or 2017, quite a few hungry competitors have emerged. In the forefront of people’s minds are, naturally, the main Bitcoin forks, Bitcoin Cash (BCH) and Bitcoin SV (BSV). Both have pursued an on-chain scaling approach and have the capacity to field a large number of transactions cheaply, but neither has achieved a compelling enough differentiator yet to fully take over Bitcoin’s share of the payments market. Bitcoin Cash has the clear advantage in terms of integrations into valuable services such as Purse.io but lost significant momentum due to repeated forks, each one taking with it a portion of the community and mindshare. Bitcoin SV has quite a few innovations going for it, including social media platforms and rudimentary human-readable username systems. But with a market ranking firmly outside of the top 10 and with far fewer major integrations than Bitcoin Cash, there’s certainly an uphill battle ahead. Additionally, the mark of Craig Wright has soured the project in the eyes of much of the greater cryptoverse, making partnerships and publicity difficult.

Bitcoin Cash has the clear advantage in terms of integrations into valuable services such as Purse.io but lost significant momentum due to repeated forks, each one taking with it a portion of the community and mindshare. Bitcoin SV has quite a few innovations going for it, including social media platforms and rudimentary human-readable username systems. But with a market ranking firmly outside of the top 10 and with far fewer major integrations than Bitcoin Cash, there’s certainly an uphill battle ahead. Additionally, the mark of Craig Wright has soured the project in the eyes of much of the greater cryptoverse, making partnerships and publicity difficult.

Litecoin (LTC) presents an interesting case as the longest-running payments-focused Bitcoin alternative, but so far, it has not yet managed to come into its own. From 2014 to 2017, its transaction volume trended downward, only to rebound significantly as Bitcoin’s scaling issues began to arise. Since then, it has served as a testnet for Bitcoin of sorts, as well as an off-chain scaling solution. Litecoin’s own scaling path seems to be uncertain, as its own Lightning Network implementation found even less success than Bitcoin’s, while its current 4x on-chain capacity compared to Bitcoin still leaves plenty of growing room. Will Litecoin remain as a substitute until Bitcoin or another project evolves to fully take the payments lead, or will this be the opportunity it needs to take over the digital cash role? Either way, its fate seems to be inexorably tied with that of Bitcoin.

The dark horse in this division may very well be Dash, whose name is literally an abbreviation of “digital cash” and has competed for this use case longer than any other alternative except Litecoin. And despite steady growth in transaction numbers, regardless of a bull or bear market, it has largely gotten lost in an increasingly crowded field of payments coins, some with crypto celebrity backers, especially after the realignment from a privacy focus to an everyday payments focus.

Unlike its competitors, however, Dash has spent years working on quite a few real improvements to the payments experience, including instant transaction settlement and anti-51% attack protection, making a Dash transaction arguably more secure in seconds than what its competitors could achieve in minutes or even hours — an experience that’s particularly useful for in-person retail payments. This, combined with the recent release onto testnet of the long-awaited “Evolution” upgrade, which not only provides human-readable usernames and contact lists but also fully-decentralized digital identities, could make 2021 an interesting year for the crypto payments space. It remains to be seen whether the combination of instant payments with protocol-level ease of use will be enough to catch the attention of an industry with a notoriously short attention span.

The new U.S. regulations regarding non-custodial wallets may push more cryptocurrency users to skip the exchanges altogether and use their coins to directly buy and sell goods and services. Will this be enough to push Bitcoin to reclaim its peer-to-peer digital cash purpose by finally getting scaling solutions, such as the Lightning Network, developed enough so that they’re easily usable by the average person? Or will one of its children choose this time to shine, taking over the payments space while Bitcoin holds down the investment use case?

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Joël Valenzuela is a veteran independent journalist and podcaster, living unbanked off of cryptocurrency since 2016. He previously worked for the Dash decentralized autonomous organization and now primarily writes and podcasts for the Digital Cash Network on the LBRY decentralized content platform.

first-hyperledger-based-cryptocurrency-explodes-486%-overnight-on-bittrex-btc-listing

First Hyperledger-based cryptocurrency explodes 486% overnight on Bittrex BTC listing

The first Hyperledger-based cryptocurrency to achieve mainnet status just exploded 486% overnight, possibly bouyed by an impending Bitcoin trading pair.

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First Hyperledger-based cryptocurrency explodes 486% overnight on Bittrex BTC listing

A little-known altcoin known as Metacoin (MTC) surged to 486% gains in just 24 hours on Jan. 18, after Bittrex announced it would be listing the coin against Bitcoin (BTC).

Metacoin is built on the Hyperledger network, an umbrella project of open-source technologies focused around building permissioned blockchain ecosystems for large cross-industry enterprises. Metacoin became the first cryptocurrency of Hyperledger’s to achieve mainnet status when it went live in 2018.

Hyperledger was founded by the Linux Foundation, and is overseen by a host of “premium members”, comprising leading technology and finance companies, such as IBM, J.P. Morgan, Fujitsu, Hitachi, and more.

On Jan. 15, the Bittrex Global cryptocurrency exchange announced that it had opened its Metacoin wallet for deposits of MTC, and that trading against Bitcoin would soon follow.

Little over 48 hours after the announcement was made, the value of each MTC coin had more than quintupled. From a starting price of $0.026540 on Sunday night, the dollar value of the coin increased more than fivefold, climbing to a brief peak of $0.155600 by Monday afternoon – a 486% increase.

Metacoin (MTC) gained 486% during a tumultuous day of trading. Source: CoinMarketCap.com

Metacoin trade volume hit an all-time high of $482,000 on the day, all emanating from a single BTC trading pair on the Liquid exchange. This just exceeds the $444,000 volume recorded in August 2020, during the coin’s first two weeks on the open market.

Notably, despite the surge following hot on the heels of the announcement by Bittrex Global, no trading data for Metacoin yet exists on the site, and the BTC/MTC pair was still signalled as being “offline”.

Taking Hyperledger’s cross-industry modular toolkit as a starting point, Metacoin acts as a multi-function blockchain platform where tokens for businesses and commerce can be issued on-chain. The platform also plays host to a number of DApps, including ColdBank, a crypto custody service which utilizes IBM’s LinuxONE technology, as well as blockchain gaming apps.

‘miss-bitcoin’-launches-celebrity-nft-art-charity-project

‘Miss Bitcoin’ launches celebrity NFT art charity project

Mai Fujimoto’s Kizuna crypto donation platform is partnering with blockchain gaming platform Enjin to sell tokenized celebrity artwork.

‘Miss Bitcoin’ launches celebrity NFT art charity project

Early crypto evangelist, Mai Fujimoto, a.k.a. Miss Bitcoin, has partnered with blockchain gaming ecosystem Enjin to launch Japan’s first nonfungible token, or NFT, charity project.

According to a Jan. 18 blog post, the project’s first initiative will be the sale of tokenized artwork by Japanese celebrities to benefit DxP, a non-profit that supports teenagers facing challenges during the COVID-19 pandemic.

Fujimoto believes that the project embodies the Japanese concept of “Sanpo Yoshi”, or three-way satisfaction. This describes transactions that are good for the seller, good for the buyer and good for society:

“When fans purchase NFTs drawn by artists and celebrities, they can not only enjoy the art, but also directly contribute to those in need. I believe this NFT campaign will bring joy to many people, and I’d like to thank the Enjin team and artists who have agreed to join the initiative.”

The initiative will take place through Fujimoto’s crypto donation platform Kizuna. This was launched in 2017 to educate about the potential of blockchain and NFTs for mainstream use, especially in the context of giving to charity.

Kizuna hopes to raise over 2,000,000 yen ($20,000) from the sale, with the celebrities who are donating artworks to be announced soon.

Fujimoto was an early adopter of Bitcoin technology and has been actively promoting crypto and blockchain since 2011. Aside from running Kizuna, she is an ambassador for Binance’s charity foundation, and an advisor for multiple companies in the blockchain space.

The Enjin platform provides tools for integrating blockchain technology into games and creating NFT assets that can be used across various games in the Enjin multiverse. It recently announced that it would be launching a range of Atari branded NFTs for a reboot of the Kick Off series of footballing games.

how-compliance-software-detects-fraud-and-money-laundering-involving-crypto

How compliance software detects fraud and money laundering involving crypto

The crypto industry has boomed over the past 12 months. While 2019 began with a total market cap of $200 billion, the explosion in Bitcoin’s value resulted in this figure surging fivefold as 2020 began — and according to CoinMarketCap, the digital assets space was collectively worth $1 trillion at one point.

However, as the crypto sector continues to grow and flourish, so too does crypto-related crime. Virtual assets worth $3.8 billion were lost to fraud in 2019. This figure rose to almost $4.9 billion in 2020.

Fraud, money laundering and the financing of terrorism are not issues that are exclusive to the cryptocurrency sector — and every financial system on Earth has had to take action to ensure its infrastructure isn’t used for illicit purposes. But now, regulators around the world are stepping up their efforts to clamp down on criminal activity — and this has the potential to affect operations for crypto service providers, many of whom are still behind the curve.

Mainstream media coverage of digital assets has increased dramatically in recent months, with countless column inches devoted to BTC’s current bull run. This increased exposure also results in newfound scrutiny, especially when exchanges fall victim to high-profile hacks. Thankfully, there are ways for crypto businesses to take action, to protect their operations, and to work in the interests of their consumers in the process.

Achieving compliance

Amid the fractured landscape of regulatory developments for crypto, one of the most important sets of guidelines has come from the Financial Action Task Force, which has 39 members including the European Commission, Japan, the United Kingdom, and the United States.

The FATF recently unveiled a series of red flag indicators that suggest potentially suspicious activity is taking place — or possible attempts by entities to evade law enforcement. For example, the size and frequency of transactions could set off alarm bells for compliance officers, especially if such repeated payments are made that fall just underneath the threshold for reporting.

Other issues may arise where deposits are made using bank accounts that use a different name to the one registered with a crypto exchange, where mixers and tumblers are used to obfuscate the origins of BTC payments, or where potentially suspicious IP addresses are used.

At first, it might seem like a nightmare for virtual asset service providers to introduce safeguards that quickly detect when these red flag indicators emerge. In a competitive marketplace, some will be concerned about the costs associated with stopping high-risk transactions in their tracks — as well as the disruption that their operations could face if legitimate activity is mistaken for something more sinister.

But platforms do exist that can monitor new transactions in real time — instantaneously assigning a risk score to each and every transaction. This is by no means a straightforward task, as the high volume of transactions running through blockchains daily means that analysis needs to take place continuously and without interruption.

The speed with which bad actors can execute transactions also means that compliance systems need to be fast acting — identifying centers of suspicious activity, and creating meaningful connections to other wallets where potentially illegally acquired funds are distributed. Past data may also be used to anticipate future events, meaning that exchanges can receive a warning that potentially risky activity is about to happen — even if a transaction hasn’t been confirmed yet.

The benefits associated with this type of software aren’t hypothetical. In late September, KuCoin announced that close to $280 million was stolen from its exchange as a result of a security breach. Analytics tools enabled the company to track down and freeze these funds so they couldn’t be laundered further — and 84% of the assets taken were later recovered.

Taking action

The technical nature of blockchain — along with the prevalence of crypto scams — has caused a significant image problem for Bitcoin in society. But despite missteps in the first decade of its existence, aspects of blockchain design champion transparency and security — meaning it can offer far greater levels of protection than older financial systems. If $500,000 in banknotes are stolen from a bank vault, the funds could end up being far harder to track down than if the same amount was taken in BTC from an exchange that has safeguards in place.

Crystal Blockchain says its analytics platform enables compliance officers and anti-fraud departments to stop illicit activity in its tracks — and monitoring can either be performed manually or automatically as settings are configurable by the user.

This is achieved by understanding the provenance of funds being sent over the blockchain, their connections, their flow paths, and by alerting crypto service providers if these assets are stolen or fraudulent. Addresses and bank cards can be linked to fraud, extortion, ransomware and darknet marketplaces. Businesses can also be alerted when entities are attempting to deposit to or withdraw funds from accounts and exchanges that have little or no due diligence procedures in place.

Institutional adoption of cryptocurrencies is happening at a staggering rate — and as we head into 2021 and beyond, Wall Street is ramping up efforts to ensure it has the infrastructure required for traders to gain exposure to digital assets. But this comes with an expectation of a mature marketplace, meaning crypto service providers need to take the necessary actions to ensure they aren’t operating in the Wild West any more.

Marina Khaustova, the CEO of Crystal Blockchain, told Cointelegraph: “The crypto industry is relatively young, and as the technology develops it also brings with it unique compliance requirements. We need to combine the best practices of the more mature financial industries with the knowledge amassed by crypto market experts to combat money laundering and the financing of terrorism. By assisting with fraud identification and suspicious activity monitoring on the blockchain, Crystal aims to improve safety and trust in the global financial markets.”

Disclaimer. Cointelegraph does not endorse any content or product on this page. While we aim at providing you all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor this article can be considered as an investment advice.

nornickel-to-use-blockchain-for-its-new-etcs-on-deutsche-borse-and-lse

Nornickel to use blockchain for its new ETCs on Deutsche Börse and LSE

A palladium fund founded by Norilsk Nickel will launch exchange-traded commodities for metals custodied using blockchain at the Deutsche Börse and London Stock Exchange.

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Nornickel to use blockchain for its new ETCs on Deutsche Börse and LSE

The world’s largest producer of palladium and high-grade nickel, Norilsk Nickel, is pressing ahead with its digital technologies strategy. As of Jan. 18, Nornickel’s Global Palladium Fund has launched exchange-traded commodities, or ETCs, for metals on the Deutsche Börse, which are custodied by TokenTrust AG and also make use of its distributed ledger platform, Atomyze.

Nornickel’s Global Palladium Fund intends to launch the ETCs on the London Stock Exchange “within a few days.” An ETC, which is an instrument that is tradable like a stock or share, offers traders and investors exposure to an underlying commodity — in this case, metals. Nornickel’s fund will contribute palladium, platinum, gold and silver to the newly-launched ETC instrument and will collaborate with the Swiss-based company TokenTrust AG on metals custody arrangements and a tokenization strategy.

TokenTrust provides the fund with a distributed ledger technology-based platform called Atomyze, built on Hyperledger Fabric that will be used to immutably record metals information and tokenize a part of the mining group’s contractual volumes.

The ETC instruments will be offered at the LME — London Metals Exchange — spot price and will provide additional guarantees about the provenance of the underlying commodities due to the usage of distributed ledger technology for monitoring and verifying standards. The CEO of Nornickel’s Global Palladium Fund, Alexander Stoyanov, said:

“Our way of digitalization of commodities allows one to capture and trace the source of underlying metals and the way they were produced, coupled with ESG credentials. Nornickel, whose products we carry, sets a new standard for responsible mining by fully endorsing the UN2030 charter and the existing LBMA source of metal standards. This gives our ETC platform a […] clear differentiator.”

As reported, Nornickel has recently joined an initiative called the Responsible Sourcing Blockchain Network, which was set up to improve the transparency, traceability and verification of sustainable practices in the global minerals and metals industries. The network is built on the IBM Blockchain platform, similarly powered by Hyperledger Fabric. 

ac-milan-employs-blockchain-to-reach-450-million-fans-amid-covid-lockdowns

AC Milan employs blockchain to reach 450 million fans amid COVID lockdowns

European football giant AC Milan is the latest sporting organization to jump on the blockchain bandwagon after it announced the impending launch of the $ACM fan token on the Chiliz (CHZ) blockchain.

With the launch expected to commence in the coming weeks, ACM token holders will be able to use their tokens to redeem various exclusive rewards and take part in interactive activities with the club and players.

The addition of AC Milan takes the number of sporting organizations on the Chiliz blockchain to 20. These include fellow European football heavyweights FC Barcelona, Paris Saint-Germain, AS Roma, and Atletico Madrid, as well as various e-sports teams, and leading MMA organization, the UFC.

In the past, football fans have used cryptocurrency tokens as a way to engage with their favorite teams in a number of ways. Examples include fans of Cyprus-based club, Apollon FC, choosing the team’s first opponent for a friendly match, and even deciding on the club’s home and away strips for the 2020/2021 season.

Barcelona fans used the tokens to vote on the placement of a fan-designed artwork in the team dressing room, while Juventus fans had a say in choosing the club’s new celebration song. Holders of AS Roma’s fan token were even able to ask questions of the team’s head coach during a live press conference.

Chiliz tokens are accessible through the Socios.com app, which has reportedly been downloaded 450,000 times, generating token sales exceeding 14 million in number.

Many Chiliz tokens have since been listed on the Binance cryptocurrency exchange, which initially launched a staking program for various tokens, before opening up direct trading against Bitcoin (BTC) and Tether (USDT).

Casper Stylsvig, chief revenue officer of AC Milan, said the decision to employ blockchain technology was motivated partly by a desire to gain further outreach to the club’s 450 million global fans — a task made all the more important during COVID-19 lockdown:

“We are happy to join hands with Socios.com and welcome them to our family as a global partner. This partnership allows us to give our 450 million fans across the world another exciting way to interact with AC Milan, which is particularly important under the current circumstances created by the Covid-19 pandemic.”

Alexander Dreyfus, founder and CEO of Chiliz and Socios.com, said he hoped to establish fan-tokens as the primary fan-engagement tool and expects it to become a new revenue generator in the sports arena:

“Fans of the I Rossoneri (AC Milan) will be able to enjoy unprecedented engagement with their favourite team, influencing the club in polls, accessing VIP rewards, exclusive promotions, chat forums and much more.”

Socios claims to have generated $30 million in revenue for clubs and partners in little over 12-months since it launched. Its FC Barcelona (BAR) fan token sale sold out to the tune of $1.2 million in just 2 hours in June 2020, while trade volumes of the Juventus (JUV) and Paris Saint-Germain (PSG) tokens exceeded $300 million within days of being listed on Binance.

mitsubishi-and-tokyo-tech-create-blockchain-system-for-p2p-energy-trading

Mitsubishi and Tokyo Tech create blockchain system for P2P energy trading

Beginning in April, the electronics giant and university R&D team will evaluate and tweak the new trading system’s performance before commercialization.

Mitsubishi and Tokyo Tech create blockchain system for P2P energy trading

Mitsubishi Electric has teamed up with researchers from the prestigious Japanese university, Tokyo Tech, to jointly design a blockchain-based trading system that can support more flexible, peer-to-peer energy trading.

Announced on Jan. 18, the new system is intended to support the efficient use of surplus electricity that is generated from renewable energy sources. In particular, it is hoped that the trading system can ensure that at any given moment, there will be the maximum available amount of surplus electricity accessible on the market for consumers. 

Peer-to-peer energy trading set-ups allow consumers and prosumers to engage in direct trading as buyers and sellers. To make their new system less reliant on hardware-intensive, high-volume computations, Mitsubishi Electric and Tokyo Tech have customized their blockchain system in order to optimize matches and make clearing buy and sell orders more efficient. 

According to the announcement, a distributed-optimization algorithm, which differs from most blockchain technologies, enables customer computers to share their trading goals and data and then to “optimally match buy and sell orders using minimal computations.” As well as requiring fewer computations, what Mitsubishi and Tokyo Tech call their “new mining method” can be executed on a micro-computing server. The four steps involved in the method are as follows:

“In the first step, information on buy and sell orders with a common trading goal (market surplus, profit, etc.) are shared by computing servers during a predetermined timeframe. Second, each server searches for buy and sell orders matched to the common goal in the first step. Third, each server shares its search results. In the fourth and final step, each server receives the search results and generates a new block by selecting trades that best meet the shared goal, which it adds to each blockchain.”

Moreover, to ensure trading is fair, the search for the solution for each shared goal occurs in a decentralized manner — i.e., in parallel on multiple computers, where equivalent matches are selected at random.

The flexibility of the system ensures that buyers and sellers can make trades above or below bid prices if the right match is found. Those who fail to make a trade can also change the terms of their subsequent offer on the basis of assessing the previous offer/bid conditions. 

Mitsubishi and Tokyo Tech anticipate that by ensuring the maximum amount of surplus electricity is available for trading on the market, the cost of sustainable consumer goods such as electric vehicles will drop accordingly. By proposing a peer-to-peer solution, the onus will no longer be on retail power firms to respond to market fluctuations.

As previously reported, blockchain-based digital energy platforms have already been operative for some time in other countries. The Australian firm Power Ledger, for example, offers blockchain-based transactive energy solutions that include peer-to-peer energy trading and virtual power plants, along with trading in carbon credits and renewable energy certificates.  

Mitsubishi and Tokyo Tech have announced that, following evaluations of the system’s operations beginning in April, their aim is to commercialize the product as quickly as possible.

bitcoin-gets-physical:-art-or-digital-heresy?

Bitcoin gets physical: Art or digital heresy?

Since 2011, a group of enthusiasts and collectors have been obsessed with the physical manifestation of Bitcoin. 

On the face of it, physical Bitcoin seems like a contradiction to the key terms that define it, so a trustless, instantly transferable virtual currency becomes a real world coin that has all the disadvantages of Earth-bound cash. But there are numerous advantages too when it comes to privacy, storage and ease of use — and they look pretty cool too.

“A lot of people know about Bitcoin, but very few people actually own Bitcoin. Even fewer own physical Bitcoin,” explains Bobby Lee, who has owned a 10 BTC coin since 2011 and designed and produced his own coins under the BTCC Mint brand until 2018. He added:

“Physical Bitcoins are a rarity, they’re sort of like Picasso and Van Gogh paintings were back in those days. Nobody realized how rare they were. I expect these physical Bitcoins will gain in popularity and appreciation by connoisseurs worldwide.”

Physical Bitcoin typically comes in the form of metal coins, with the private key hidden behind a tamper proof holographic sticker Although highly prized by collectors, Lee said the coins are also practical too.

“The reality is that it’s impossible for me to send people Bitcoin if they’re new to Bitcoin,” he said, referring to digital Bitcoin’s steep learning curve to set up wallets and seed phrases. “Physical Bitcoin, there’s no permission needed, I just hand it to them. Recently my cousin got married in Toronto Canada, and I was able to give them some Bitcoin as a gift and they didn’t need to set up a wallet, I just mailed it to them.”

A piece of history

For ‘cryptonumist’ Elias Ahonen, author of the Encyclopedia of Physical Bitcoins and Crypto-Currencies, physical Bitcoin is also a marker of history. “These coins are the physical manifestation, or artefacts, of Bitcoin in every technical phase,” he says. “Anything that happened with miners from the early Bitcoin era we can’t really point to, but these physical coins we can and collectors find that personally meaningful and also something worth preserving.”

Ahonen was a first year political science student at Wilfred Laurier University in Waterloo when he first became interested in Bitcoin.

“I had just bought my first Bitcoin on an exchange and not being technically sound, I was convinced I was going to lose my private key to the wallet and get locked out of my Bitcoin,” he said: “So I decided instead to buy the physical Bitcoins which held the private key inside of them.”

This turned out to be a wise move as he did indeed lose access to his original wallet ,fortunately with less than 1 BTC in it. And of course it led to a whole new career as a Bitcoin historian and coin broker. “It’s taken me around the world on all kinds of adventures where I pick up half a million dollars’ worth of coins at an airport coffee shop,” he said.

Physical Bitcoin
Physical Bitcoin seems like a contradiction in terms. (Wikipedia)

Multi billion dollar industry

Precise figures for the size of the industry are hard to come by, but almost $3.25 billion dollars worth of Bitcoin (at today’s prices) was minted under the original ‘Casascius’ coin brand between 2011 and 2013. More than 1.5 billion worth (or 44,000 BTC) remains unspent and out in the wild.

One of the most valuable is the 1000 BTC coin, three of which remain unopened out of the five minted. “It’s actually the most valuable coin in the world,” said Ahonen. Worth $35 million on face value alone today, it’d fetch considerably more as an ultra-rare collectible. That puts it ahead of its nearest mainstream rival, the ‘Flowing Hair Silver/Copper Dollar‘ from 1794 which last sold for $10 Million in 2013.

Right now you can snap up a 1 BTC Casascius coin from 2011 on eBay for $130,000. If your budget doesn’t stretch that far, there’s a 0.5 BTC coin from 2013 that’s a steal at only $30,000 – and there’s even an unfunded 1 BTC coin from BTCC Mint on sale for $4900. On Crypto De Change, they’re offering a 1 BTC ‘Titan One’ silver coin for just $15,100 (sadly, when you try to buy it you just get a 404 error).

Titan One silver coin
This Titan One silver coin contains one BTC and is listed for $15K. Bargain! (cryptodechange.com)

Dim dark days of 2011

Physical Bitcoin traces its history back to 2011 when Utah computer scientist and Bitcoin contributor Mike Caldwell came up with the idea as an educational tool. “Bitcoin was very difficult to explain and in 2013 the average person simply could not get their head around it,” explains Ahonen, adding:

“The idea was that by taking this physical coin, and actually putting the Bitcoin inside of it, you could make a demonstration and say, look here’s a Bitcoin, I’m giving to you and now that you have it, I don’t control it.”

Caldwell’s first plan was to print out the private key to 1 BTC on a bit of paper, stick it in the middle of a washer, and seal both sides with tamper proof stickers. He quickly abandoned this in favour of something a little more high end, contracting a company that made brass tokens for amusement arcades to produce thousands of beautiful Casascius coins. They feature the Bitcoin logo, year and denomination, along with the slogan Vires In Numeris or ‘Strength in Numbers’.

The coins became popular and Caldwell introduced 5, 10, and 25 BTC coins, followed by gold plated bars with 100, 500 and 1000 BTC. As Bitcoin’s price surged in 2013, smaller denominations below 1 BTC began to appear.

“Crypto enthusiasts would buy these physical Bitcoins from Casascius and give them to friends and family as gifts,” recalls Lee, who’s brother Charlie is the founder of Litecoin. “And that’s precisely what my brother did.”

“That December (2011) he gifted me a 10 Bitcoin and paid about $50 for it. So it was relatively inexpensive. Obviously it’s now worth $100,000.”

By 2013 Caldwell had sealed 90,683.9 Bitcoin into metal coins — around half of which remain unspent in the form of 21,000 or so physical coins.

“It was very much a hobby, I don’t think he ever made any money, or any significant amount of money selling those,” says Ahonen. “Frankly, he took a huge amount of personal risk by basically handling the private keys. He was actually concerned that someone would come and hurt him (to steal them).”

Casascius coins
Casascius physical Bitcoins are the most highly prized.

The Feds object

The whole exercise came to a shuddering halt in 2013 when the Financial Crimes Enforcement Network contacted Caldwell to accuse him of operating an illegal money transmitting business, and he was forced to wind it up.

“It put a damper onto the physical Bitcoin thing,” Ahonen said. “That’s where the rise of these buyer funded coins really came from and also other larger companies that actually have money transmitter licenses.”

A raft of different manufacturers, from boutique artisans to big companies, sprang up in its wake, producing not only Bitcoin but also Litecoin, Dogecoin and Ethereum among others. They included bhCoin, Lealana, Microsoul, Nasty Mining, Recalescence Coins, Ravenbit, Alitin Mint, Cryptmint, Titan Bitcoin and Satori Coin. Ahonen detailed the works of 50 different outfits in his 286 page encyclopedia in 2015, and leveraged the contacts he made writing it to produce a new book called Blockland.

Bobby Lee’s BTCC Mint

The BTCC Mint was an offshoot of Lee’s exchange, BTCC and produced some of the most sought after physical Bitcoin until the company changed hands in 2018. Lee designed the coins himself — “I see myself as an artist having created BTCC Bitcoin” —  with the first coins released in early 2016.

“The idea was to take advantage of our BTCC Mining Pool, to mine fresh uncirculated coins into the physical Bitcoins. Over the three years we ran the BTCC Mint business, we minted over 8,700 BTC worth of physical Bitcoins.”

Lee and a select group of highly trusted team members inserted the private keys into the coins by hand. He added:

“I handled the private keys with extreme caution, and have properly deleted all private key data, so naturally, there have been no reports of funds lost or stolen from any BTCC Mint products. I’m most proud of that pristine track record.”



This touches upon one counterintuitive aspect of physical Bitcoin — it breaks the crypto commandment of: ‘don’t trust, verify’. Ahonen points out that purchasers need to completely trust the manufacturer and everyone in the production process as it’s impossible to tell if the coin even contains a private key, or if it does, if the manufacturer kept a copy.

“Bitcoin comes from a specific type of philosophy, which is around not your keys, not your Bitcoin. It very much goes against the concept of trusting other people. But with any type of physical Bitcoin, you effectively are trusting the person created to not have the private key. So there is this implicit paradox.”

Symbols of wealth

While BTCC Mint coins featured a Bitcoin logo and the slogan “In Crypto We Trust”, other  coins featured artwork that attempted to capture the philosophy behind cryptocurrency. “I would say that with some there’s a very stark, very clear symbolism, which is very philosophical,” explains Ahonen. “With others, it will clearly be something more difficult to decipher and may be personal to the creator.”

There are plenty of circuit boards, bulls and rockets going to the moon, as well as mining pools, Greco Roman warriors, Buddhist imagery, famous figures like Adam Smith and Satoshi Nakamato and historic events like the collapse of Mt Gox and Bitcoin Pizza. “For me personally, the most striking had a burning bank that was on fire,” Ahonen said: “And the bankers were kind of crying on the steps as people were pulling down the pillars of the bank using chains which obviously represent blockchain.”

Physical Bitcoin art
This coin leans pretty heavily on Bitcoiner ideology. (Elias Ahonen)

Not just keepsakes

Apart from collecting, there are a couple of real world uses for physical Bitcoin too. One is for inheritance planning. “Several of my buyers actually have been looking for physical Bitcoin because they want to put them in a safe deposit box for the purposes of inheritance,” he said: “They have got 100 individual coins, and will split them up with the kids evenly – which is much harder if you have exchange accounts or (have BTC) on wallets or USB sticks.”

Physical coins are also the ultimate privacy coins as there’s nothing to associate the owner with an address and they can be traded a million times without ever leaving a record on the blockchain. Theoretically of course, this would make physical Bitcoin a very attractive way to launder money or pay for drug deals, hence the interest from the U.S authorities.

“I don’t know of anyone specifically using it that way,” Ahonen said carefully. “But you could very easily imagine someone using that way, it’s extremely plausible.” He went on to add: “It’s the same as having gold coins. You can hide them, you can do anything with them. No one can really track them.”

Where did all the manufacturers go?

Sadly, physical Bitcoin’s best days appear to be behind it, with one of the last commercial scale manufacturers, Denarium, closing down in July 2020 after producing more than 15,000 coins. Lee believes that increasing regulations and the sky high Bitcoin price have made the logistics more difficult.

“You can’t sell physical Bitcoins in the U.S. due to regulations and as Bitcoin gets very expensive, it’s very cumbersome to ship in the mail,” he said. “There’s lots of inherent risks, insurance needs and so on.”

Ahonen added that there are still numerous hobbyists doing it as a labor of love or as a side project: “It’s a niche thing, but they do exist.”

Ballet wallet
The Ballet wallet is designed to appeal to your senses. (balletcrypto.com)

Lee’s Ballet Wallet is probably the closest living relative — it’s a metal card with a QR code address and a scratch off wallet passphrase. Able to be used by complete noobs with zero technical knowledge, the wallets support 50 cryptocurrencies and more than $28 million worth of cryptocurrency is currently held on them.

“The inspiration for Ballet came in large part from how much customers loved the simple design of the BTCC Mint physical bitcoins,” he said. Lee designed it to appeal to our different senses, you can feel the design as it’s in relief and there’s a real heft to it as opposed to a plastic credit card.

“You can also hear it. I mean literally if you tap on the table that’s the sound of Bitcoin. And we have a surprise feature where if you actually scratch the QR code you can smell it.”

He scratches it off an empty wallet and holds it up to my nose. It smells like perfume. But don’t bother licking it though, as Lee didn’t come up with anything for taste.

Bank on the future

While the heyday of physical cryptocurrency appears to have passed for now, what about the future? Is there any chance that after Bitcoin becomes the world’s reserve asset that we’ll see 100 Satoshi notes being used for everyday purchases?

Lee thinks this isn’t likely, due to the need for trust:“So that’s why it’s not very feasible to have real Bitcoin embedded in physical form and go for 100 satoshi (coins) circulating in the real world. I think physical Bitcoin will remain in the art, limited edition … collector’s world, just like gold coins.”

But Ahonen sees a future for physical Bitcoin outside of art and collecting: “I do believe that there’s a future for physical Bitcoins simply because they’re such a simple way to hold and verify through the use of an intermediary.” He added:

“I mean, grandma can buy it and put it in her safe deposit box. It’s not necessarily as feasible to do that with a USB stick with whatever program that gets outdated. It’s fairly future proof and fairly idiot proof. And I could see banks, or some sort of institutions creating some sort of physical Bitcoins in the future.”

defi’s-death-by-a-thousand-cuts

DeFi’s death by a thousand cuts

One rule at a time, decentralized finance is gradually being outlawed. It is not that governments specifically aim to make it illegal. Rather, every proposal that comes out lately seems to enact rules that are impossible for decentralized finance to meet.

The United States

The most recent example is the notice for proposed rulemaking by the United States Financial Crimes Enforcement Network, or FinCEN, which requires banks and other money service businesses to verify the identity of customers who transact from “unhosted” wallets (wallets that are not held on registered exchanges or other custody services).

A seemingly reasonable requirement in terms of fighting crime, it does not sit well with DeFi services, such as Compound, which rely on smart contracts to link user funds together. Unlike more traditional crypto assets that are usually traded on exchanges that function as wallets too, thereby allowing the tracking of users’ identities, DeFi projects are often disintermediated and wallets are self-custodied (unhosted).

The danger here is that if financial institutions cannot comply with identity verification and record-keeping requirements in DeFi services, it is only natural to expect that they will not support them. The more rules they risk running afoul of, the less likely it is that DeFi will be supported.

To compound this effect, the Digital Commodity Exchange Act proposed to ban token transactions on exchanges unless the exchange is registered, is ready to share requested information, meets certain capacity and anti-manipulation standards, and does not violate antitrust laws. Of those requirements, registration, information sharing and compliance with antitrust laws are all but certain that decentralized exchanges will fail.

European Union

European regulators are not friends of DeFi either. In the proposed Regulation on Markets in Crypto-assets, or MiCA, the European Commission requires stablecoin issuers to have “robust governance arrangements” in place, including a clear organizational structure with well-defined lines of responsibility and administrative and accounting procedures.

According to another rule, managing bodies of stablecoins and exchanges must be of “good repute and competence.” The problem is that DeFi and DEX projects can, by nature, have dynamic management and decision-making membership and procedures. Even if they comply with MiCA’s requirements initially, they are not designed to freeze their initially approved structures so that they remain compliant.

Where does that leave DeFi?

One possibility is that the conflict between the law and DeFi will continue and that DeFi will gradually be marginalized in favor of regulated and compliant services that users increasingly see as more reliable. Exchanges are a good example of the power of compliance. Many rushed to comply with applicable laws once it became apparent that earning users’ trust after such scandals as Mt. Gox in 2014 and Bitfinex in 2016 was their key to success.

Another possibility is that DeFi will retain its dynamism despite not being sanctioned by the law. It will remain a pariah, albeit a popular one, like illegal peer-to-peer networks that the law has failed for over 20 years to shut down. Users will be caught in the middle of a constant cat-and-mouse game between the law and DeFi until one wins out. This may be a difficult fight for DeFi to win because money is subject to network effects, and if DeFi money cannot interface with legal money, its uses will be limited.

The last option, and hopefully the one that will prevail, is that governments see the potential of DeFi and legislate to include it. Step one would be for regulators to stop pretending that DeFi does not exist and, instead, explicitly consider how the proposed rules apply to it. If their conclusion is that DeFi projects are incompatible with the law’s objectives, so be it — at least we will start having a focused conversation on whether the law is in going in the right direction.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Konstantinos Stylianou is an associate professor of law and the deputy director of the Centre for Business Law and Practice at the University of Leeds School of Law. He researches competition and regulation in digital markets and blockchain, and he has been involved in projects with the EU, the Greek, Swedish and Thai governments, the International Association for Trusted Blockchain Applications and several universities, including Brown, Oxford, Stockholm and Fundação Getulio Vargas. His forthcoming book on Blockchain Antitrust will be published by Oxford University Press.

why-defi-plus-asset-tokenization-will-take-crypto-to-new-heights

Why DeFi plus asset tokenization will take crypto to new heights

In previous years, we have seen numerous attempts to bring real-world assets to the crypto market. However, none of them has proven to be massively adopted among retail crypto users and traditional financial players.

So, why hasn’t real-world asset tokenization become a massive trend?

You’ve probably heard how almost anything can be tokenized — securities, art, real estate, to name a few. And there were so many projects that promised to change the way we invest in assets, no matter the type. At the same time, no projects managed to get massive adoption on the market.

Traditional market professionals haven’t really found proof that tokenization improved current fundraising processes for them. Although, an overview of real-estate tokenization has been already discussed.

You may also struggle to find real retail investors who bought the rights to a famous art piece or a portion of Dracula’s castle. While most successful offerings were focused on private investors, basically nothing has changed in the process for the crypto market, even for the owners of tokenized assets.

Why didn’t these offerings manage to gain mass adoption? While the concept of tokenization promises a better and cheaper way to raise funds for issuers, there are almost no real benefits for the crypto market.

I’ve covered problems of tokenization in the form of security token offering before, but in short, it boils down to regulation (tokenized assets are regulated by the traditional rules) and a lack of a secondary market. Retail crypto investors can’t profit from these two issues, and there is basically no need for them to adapt to something new, especially now with the emergence of DeFi protocols.

What corporations are looking for while raising funds

Corporate institutions have to exist in a world with complex and outdated rules. Therefore, a clear legal model to attract or borrow funds is vital for them. With over $20 billion locked in decentralized finance at the moment, it might attract some interest from corporate institutions and make them consider entering the market — especially if we consider that the common annual percentage rate in DeFi protocols is just 2%–10% with no additional costs to attract funding.

Yes, there are no ready-to-go legal models built for corporates to attract or borrow funds from DeFi protocols on the market today. But it’s possible to build one with minimal effort, as the benefits of DeFi borrowing easily cover the efforts of building such a system. DeFi might be able to provide borrowing on perfect terms for corporate institutions, which is something that might make them consider entering the market. Meanwhile, corporate institutions will be willing to provide several types of stable assets to be used as collateral for their loans.

However, there is a real need for real-world assets to be used as collateral in DeFi protocols to prevent more market falls in the future, fixing the over-collateralization issue along the way.

Can current market players operate like this?

Right now, there are several attempts to bring real-world assets to the DeFi market. Most of them seem to accept a wide range of assets, mainly tokenized invoices.

The main issue related to using those assets in a protocol is an absence of publicly available sources for pricing. This relates to the lack of transparency and the need to rely on a centralized party (valuation firms, underwriters, etc.) in order to determine the price of the collateralized asset. There is also no mechanism to monitor the pricing in real-time (as it is done, for instance, when using crypto as collateral). Those assets are generally illiquid; they are not traded on any marketplace or digital OTC platforms; and there is no source for periodically updating information on their pricing — a crucial point to determine the moment in which the collateral will be liquidated.

There is no doubt that some of those assets could be insured, such as payment under invoices, meaning that the insurance company will pay in case of a default of the debtor. But again, the insurance process lacks transparency and lives completely off-chain, providing no real warranties for the investors or real-time knowledge whether or not the insured event has occurred.

Additionally, current solutions allow borrowing strictly in crypto, which won’t suit everyone. It’s not a bad thing, but it reduces the chance of attracting large institutions that need to receive financing in fiat, which is used for their day-to-day operations.

But the main question that arises is the possibility for big protocols to adapt and use real-world assets as collateral. And it will be extremely difficult, as they will have to change the borrowing process, build a system that will update the price of collateral, issue new assets, cooperate with regulated entities, and, generally, receive approval from the majority of current participants. Talks regarding the adoption of such a solution by Aave and Maker have been ongoing for over six months, with no clear date when it will actually go live.

What kind of infrastructure must be built to bring traditional institutions to the DeFi market?

A perfect solution that will allow the tokenization of traditional stable assets and that will be suitable for the DeFi market must meet several criteria.

  1. Real-world assets used by the protocol must have a transparent source of pricing available on demand by any user of the protocol. This requires not only selecting an asset capable of fulfilling this requirement but also building a price oracle that will transfer information regarding the collateral. Such an oracle should be connected to a transparent and trusted pricing source, such as Bloomberg Terminal, rather than receiving proprietary data from a centralized party.
  2. Real-world assets used by the protocol should be as less volatile as possible, generate fixed income to provide real cash flows to liquidity pools, and have a certain level of liquidity and market in the real world to be able to process the liquidation event in case it occurs.
  3. The protocol must allow users to borrow money in fiat. For such purposes, there is a need for yet another intermediary to be connected to the protocol, to cover the exchange needs of users who want to borrow money in fiat, and fulfill the role of a payment agent for them.
  4. Real-world assets used by the protocol should have a digital presence, for example, be held on a secure accounting system. To achieve that, there is a need for an intermediary that operates such systems connected to the protocol.
  5. In order to defend the decentralized nature of the protocol and maintain the trust at the highest achievable level, intermediaries connected to the protocol must be regulated, insured, selected and overseen by the community of the protocol under established requirements. In addition, the community will decide any other crucial matters for the protocol’s development and economic sustainability, including selecting assets that may be admitted as collateral.

What should we expect in the future?

I expect that we will see several initiatives on building new, real-world, asset-backed protocols in 2021, and hopefully, they will be the ultimate solution to finally connect traditional financial and crypto markets. Existing protocols are more likely to adopt them in their current ecosystems only after new protocols will prove to be operational.

Another area in which real-world asset-based protocols could make an important impact is stablecoins. There is a current trend among regulators mostly in the United States that targets all stablecoins that have centralized issuers — such as Tether (USDT) or USD Coin (USDC) — with discussions about the potential need to impose the requirement for any of such issuers to have a banking license. Decentralized stablecoins backed by real-world assets might solve this issue; however, it is a topic for a separate discussion.

But what about other tokenization attempts and STOs? Of course, there have been successful cases before. Large financial institutions are still slightly interested in launching such products, as they may potentially save them money. But most likely, these initiatives will be focused on private offerings due to the aforementioned flaws.

It’s naive to believe that many crypto investors will be willing to make long-term investments in unfamiliar markets. Especially with great investment opportunities in the DeFi space. Until new regimes for the offering of tokenized instruments are built (and there are no bright signs in this direction), I believe real-world assets tokenization in a form of an STO will still be limited to closed offerings with no attention from the global market.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Artem Tolkachev is the founder and CEO of Tokenomica. For over six years, Artem has been a key blockchain and tokenization opinion leader in the CIS region. Since 2011, he has been an intellectual property and information technology lawyer and entrepreneur. In 2016, Artem founded and headed Deloitte CIS Blockchain Lab. As part of that initiative, he led a range of innovative projects involving the implementation of enterprise blockchain solutions, tokenization of real-world assets, tax and legal structuring of security token offerings, development of cryptocurrency, and blockchain legislation.