Ethereum is the second-biggest player in the cryptocurrency world today. Founded only 4 years ago by Vitalik Buterin, the Ethereum platform has seen remarkable growth in its short lifetime. If any coin is able to usurp Bitcoin’s position as the most valuable cryptocurrency in the world, Ethereum may just be the one.
In this guide we’ll explain what makes Ethereum so promising and tell you everything you need to know to start investing. Topics to be covered in this article include:
- What is Ethereum?
- What is the Technology Behind Ethereum?
- How to Buy Ethereum
- How Do Ethereum Transactions Work?
- Advantages of Ethereum
- Disadvantages of Ethereum
Let’s jump in!
While Bitcoin is first and foremost a blockchain currency, Ethereum is a blockchain platform. Ethereum allows developers to utilize blockchain technology for a wide range of purposes, with virtual currencies being just one of an infinite number of possible applications.
The Ethereum cryptocurrency is called ether. Ether is often referred to as the “fuel” of the Ethereum network. Anyone looking to make use of the Ethereum platform pays a transaction fee in the form of ether. These transaction fees cover computing costs and keep the network running smoothly.
The ether token can also be used for a number of other purposes, not least of which is buying alternative cryptocurrencies. Whenever you hear someone talking about the value of Ethereum, they’re more than likely talking about the value of ether. Though technically not the same, the terms are often used interchangeably.
This section will be pretty familiar to those of you who have already read our Ultimate Guide to Bitcoin, but here’s a refresher for those who haven’t.
The blockchain is a powerful technology pioneered by Bitcoin founder Satoshi Nakamoto that allows for secure, unalterable record-keeping without a trusted central authority. In Bitcoin, this takes the form of a public ledger which records every single Bitcoin transaction. A peer-to-peer network of nodes processes each new transaction and bundles them with other transactions in “blocks”. These blocks are then attached to the previous end of the blockchain using advanced encryption methods. Once a block is added, every single node in the network is notified and updates their copy of the blockchain.
This is an oversimplification of the process, but the point is that the public record of transactions is distributed across the whole network, rather than being stored in one central location. Blocks are essentially unchangeable once they are attached to the chain, which makes for a system that is both extremely secure and surprisingly transparent.
Ethereum has taken the blockchain and broadened its use beyond currency, instead focusing on decentralized applications.
The Ethereum network is maintained by volunteers known as Ethereum miners. Ethereum mining is very similar to Bitcoin mining. In short, miners carry out the computations required to process and validate new blocks.
Currently, Ethereum uses a proof-of-work system similar to Bitcoin’s to determine which miner gets to add each new block to the blockchain. Proof-of-work essentially requires miners to use computers to guess the answer to a difficult puzzle until one of them finds the answer. Mining requires extremely powerful computers in order to be competitive and is consequently very costly. Miners are rewarded for the valuable service they provide to the network with 5 ether for every new block they add to the blockchain. This incentivizes the miners and keeps the network running smoothly.
Ethereum will soon be transitioning away from proof-of-work toward a new system called proof-of-stake. This new system would randomly award blocks to users based on token ownership rather than their ability to compute the answer to a puzzle. This should be a less-costly option and result in a more distributed network of miners, rather than a handful of large mining operations.
The Ethereum Virtual Machine
While the idea of the blockchain was largely borrowed from Bitcoin, the Ethereum Virtual Machine (EVM) is something entirely new. Every node in the Ethereum network runs a copy of the EVM, creating a sort of world computer that allows any individual computer to run any application, if given enough time and memory.
In contrast to most other blockchains, which can generally be used for a very limited range of operations, this technology makes Ethereum extremely flexible. The most prominent examples of uses are smart contracts, decentralized autonomous organizations, and decentralized applications.
A smart contract is essentially a computer program that automatically executes a set transaction when certain conditions are met. Two individuals can anonymously “sign” a smart contract and the contract will be preserved on the public blockchain. When the conditions of the contract are met, it executes itself and this new state is updated on the next block in the blockchain.
Smart contracts aren’t limited to only monetary transactions either. Content, property, and anything else you can think of can be used as a reward for meeting the contract’s conditions. Smart contracts are appealing because they are anonymous, secure, flexible, and they don’t require any third-parties to be carried out.
Decentralized Autonomous Organizations
Decentralized Autonomous Organizations (DAOs) are essentially smart contracts taken to the scale of an entire organization. Organizational processes could be written into code and run automatically rather than relying on an actual hierarchy of individuals to carry them out.
DAOs are an incredibly ambitious application of the Ethereum network. The upshot of this kind of an organization would theoretically be extreme efficiency and lack of corruption. The downside though is that implementing this kind of a system would require incredible foresight. Smart contracts are very difficult if not impossible to alter once they’re live, so any oversights or coding errors would be a major liability. This is exemplified by the most famous DAO in Ethereum’s history, simply called The DAO, which was exploited by hackers to steal about $60 million of investors’ funds. The money was eventually returned, but The DAO Event serves as a stark warning for what can happen if coding is flawed.
Probably the most exciting use of the Ethereum network is decentralized applications, better-known as dapps. A dapp is exactly what it sounds like: an application that utilizes the decentralizing power of the blockchain.
Dapps have several advantages over traditional applications. Perhaps the biggest is that dapps have no central point of failure. It’s common today to hear about thousands or millions of people’s data being compromised or stolen as a result of hacks or server malfunctions — the Equifax scandal in 2017 comes to mind. Dapps don’t suffer from these types of problems because of the security and decentralization of the blockchain.
Beyond security, another advantage of dapps over traditional applications is that dapps are not susceptible to server outages. Dapps are maintained by a network of thousands of nodes which act as mini-servers. A dapp could only be “down” if the entire network were down.
Best of all, dapps don’t require any change in the front-end user interface, meaning that dapps can reap all the benefits of decentralization while remaining indistinguishable to most users from the traditional applications they are used to.
The most convenient way to buy Ethereum is on an online exchange. Exchanges allow users to buy, sell, or trade Ethereum for fiat currency or alternative cryptocurrencies. There are many exchanges to choose from and they each have their pros and cons.
Here’s a quick look at some of our favorites exchanges:
- Coinbase – Coinbase is one of the oldest and most trusted exchanges around today. Its website is very intuitive and allows users to easily buy or trade 4 of the most popular cryptocurrencies: Ethereum, Bitcoin, Litecoin, and Bitcoin Cash. Coinbase charges very low transaction fees and allows users to purchase the above cryptocurrencies using credit cards, debit cards, and bank transfers. Coinbase is particularly good if you’re new to cryptocurrency, though it may lack some of the bells and whistles of other exchanges.
- Gemini – Gemini is a great option for those looking for a slightly more advanced trading platform. Founded in 2015, Gemini is a relatively young exchange but it’s quickly become one of the most popular. Gemini offers some more sophisticated trading technology compared to Coinbase but still remains pretty user-friendly. One of Gemini’s big selling points is its very low fees, averaging around 0.25% or less. Gemini allows users to buy either Ether or Bitcoin using ACH bank transfers and bank wires.
- GDAX – GDAX is another great option for more advanced cryptocurrency trading. This exchange is owned by the same company as Coinbase and holds a similar industry reputation. The difference is that GDAX is less user-friendly and geared more toward serious traders. Like Gemini, GDAX charges very low fees of 0.25% or less and accepts ACH bank transfers or bank wires.
These are just three of the numerous exchanges on which users can buy Ethereum. For a more in-depth look at these and other exchanges, check out our guide to the Best Bitcoin, Ethereum, and Altcoin Exchanges of 2018.
Before purchasing any Ethereum though you’ll first want to make sure that you’ve set yourself up with an Ethereum wallet. Wallets serve the important function of protecting your Ethereum when it’s not in use.
Your wallet doesn’t actually store your ether. Instead, wallets store the alphanumeric keys and addresses that allow you to send or receive ether.
Private Keys and Ethereum Addresses
A private key is a long string of alphanumeric characters that is used to “sign” transactions to verify that you are the one sending your ether. As the name suggests, it is critical that you keep your private key secret. Anyone with knowledge of your private key would be able to steal your ether. Protecting your private key is your wallet’s primary purpose.
Ethereum wallets also store your Ethereum addresses. An Ethereum address is another long string of alphanumeric characters, but an address is used for receiving ether instead of sending it. It is not necessary to keep your Ethereum address secret in the same way you keep your private key secret. Your Ethereum address is cryptographically derived from your private key, but there is no way to determine your private key simply by looking at the address. Giving someone your address allows them to send ether to your wallet.
Ethereum wallets fall into 5 main categories:
- Online – Online wallets are accessible through a web browser. The main advantage of online wallets is that you can easily access them anywhere you can access the internet. The major downside is that your private keys are typically stored on the wallet’s servers, which means your ether is only as secure as their servers. For this reason, we only recommend using online wallets for small amounts of ether.
- Desktop – Desktop wallets are software programs that you install onto your computer. These wallets are typically more secure than web-based wallets because your keys are stored on your computer rather than online. That being said, your computer is still susceptible to viruses or other malware that might have the potential to steal your ether, so they still are not ideal for large amounts of ether.
- Mobile – Mobile wallets are apps installed onto your phone or tablet. Mobile wallets either store your private key locally on the device (similar to a desktop wallet) or they store your private key online (like a web-based wallet). Mobile wallets offer the convenience of being able to use your ether on the go, but they also suffer from the same security risks as online or desktop wallets.
- Hardware – Hardware wallets are physical devices that store your private keys offline in “cold storage”. These devices are small and plug into your computer via USB whenever you need to access your ether. These hardware devices are immune to viruses and are generally considered to be the most secure wallets available. The only real downside of hardware wallets is that you have to pay for the physical hardware, though recent wallets like the Nano Ledger S are very affordable.
- Paper – Finally, paper wallets are an alternative method of offline cold storage. They are physical pieces of paper with your public and private keys written on them. Paper wallets are generally inferior to hardware wallets, as they are both less convenient and less secure.
Once you’ve selected wallet type and purchased some Ethereum from an exchange, you’re ready to start making transactions using Ethereum.
Ethereum transactions work in much the same way as Bitcoin transactions. Paying someone in Ethereum is as simple as entering in their address along with the amount you’d like to send.
Receiving ether is equally simple. Just give the other party your address and they can send you the ether.
- Broad range of applications – The biggest thing Ethereum has going for it is that it is much more than just a cryptocurrency. Ethereum is first and foremost a blockchain-based software platform. Ethereum’s blockchain is already being used as the foundation for thousands of applications, and the possibilities for future applications are limited only by programmers’ imaginations.
- Supported by other coins – One kind of application that naturally lends itself to being built on a blockchain is of course a cryptocurrency. Sure enough, the Ethereum network serves as the foundation for hundreds of smaller coins. Most of these small tokens adhere to what’s called ERC-20, which is essentially a set of rules that define how tokens should operate on the Ethereum network. Because most tokens follow these rules, tokens of different types can be used the same all across the Ethereum network. These smaller coins bolster the value of the Ethereum network as a whole.
- Central leadership – Ethereum is backed by an organization with leaders and developers actively trying to make Ethereum succeed. This stands in contrast to Bitcoin, which was created by an almost mythical individual going by the name Satoshi Nakamoto, who wrote the Bitcoin white paper and then disappeared not long after. The team behind Ethereum regularly updates the platform and advocates for it in the world. This type of leadership could help Ethereum grow and adapt to the needs of its users over time.
- All the other benefits of a cryptocurrency – As a blockchain-based cryptocurrency, ether enjoys many of the same advantages as other cryptocurrencies like Bitcoin. Namely, the Ethereum network is secure, pseudoanonymous, decentralized, and international.
- Volatility – Much as Ethereum shares many of the same advantages as other cryptocurrencies, it also shares many of the disadvantages. Probably the most significant of these is that Ethereum is very volatile. The value of 1 ether rose by over 10,000% over the course of last year, so the overall trajectory has been incredibly positive. But market swings can be drastic, and it’s common to see the value of Ethereum go up or down by 5 percent or more in a single day. As with any other investment, only invest what you can afford to lose.
- Smart contracts are only as secure as they are programmed to be – This one is fairly self-explanatory. The Ethereum network as a whole is incredibly secure. Individual smart contracts, however, may be less-so. That being said, this is becoming less of an issue as developers on the platform are becoming more experienced coding these types of applications. Plus, many of the basic smart contracts that most users use have become standardized and are completely safe.
- Central leadership, again – It might seem silly to have central leadership as both an advantage and a disadvantage, but some cryptocurrency insiders see Ethereum’s leaders as more of a threat to the network than a benefit. This is exemplified by how The DAO Event was resolved. I mentioned earlier that investors in The DAO whose money had been stolen eventually had their money returned. Technically this shouldn’t have been possible as all Ethereum transactions, like Bitcoin transactions, are final. But the Ethereum leaders decided to step in and essentially rewrite the block on which the money was stolen. Some thought this move was justified, while others said that it compromised the integrity of the network. This divided the Ethereum community and resulted in two separate networks: Ethereum (the primary network and the subject of this article), which was built off of the rewritten block, and Ethereum Classic, which continued their own blockchain based off of the original unchanged block. The decision is still contentious and raises questions about how decentralized the network truly is.
Calling Ethereum a cryptocurrency feels insufficient, because it is so much more than that. Ethereum is a platform that allows developers from all around the world to utilize the power of blockchain technology for any application they want to create. Smart contracts and dapps have the potential to revolutionize a wide range of industries, and given that Ethereum has only been live for about 2 years, that potential has only just begun to be explored.
This expansive network puts Ethereum in a truly unique position in the cryptocurrency world. Owners of ether have more than just a piece of digital currency; they have a stake in something special.
Alleged Fiat Gateway of MT Gox Hackers Tops SAR Reports in Leaked FinCEN Files
The entity that has received the most Suspicious Activity Reports (SARs) in some 2,000 leaked FinCEN documents happens to be an online payment processing company that allegedly served clients involved…
The entity that has received the most Suspicious Activity Reports (SARs) in some 2,000 leaked FinCEN documents happens to be an online payment processing company that allegedly served clients involved in the MT Gox hacked bitcoin money laundering scandal.
Mayzus Financial Services (MFS) had a corporate account at BTC-e, according to a report from last year, as did some of its employees, with this fiat gateway suspected of being the chief way hacked bitcoins were turned into dollars.
The company itself denied any wrongdoing in 2017 following the arrest of Alexander Vinnek, the alleged owner of BTC-e, with MFS stating at the time:
“MAYZUS Financial Services Ltd. might have had among its clients, through the services of MoneyPolo and OKPAY, legal entities who could be operators of the BTC-E exchange, or private persons who could be owners or employees of the BTC-E exchange, however, all accounts of legal entities or individuals whom we considered as possibly related to the BTC-E exchange, are blocked, which was properly reported to the financial regulatory authorities. In addition, information about these individuals and legal entities was forwarded to the law-enforcement agencies of Great Britain.”
That they may well have indeed done so could be corroborated by these leaked files which have not been published as far as we can see, but Buzzfeed and the International Consortium of Investigative Journalists say they have analyzed the documents for the past year. They say:
“Some entities have been flagged numerous times in the FinCEN Files. Mayzus Financial Services sets the record, appearing as a subject of 36 SARs.”
What the nature of these SARs was is not clear, but it raises questions about whether any of them was investigated especially considering the volumes concerned.
Michael German, a former FBI special agent who is a national security and privacy expert, is quoted as saying that in the naughties “the SAR program became more about mass surveillance than identifying discrete transactions to disrupt money launderers.”
Volumes have ballooned with some two million such suspicious activity reports filed every year, an almost impossible number to swift through.
In addition even after wrongdoing is ascertained and they get a fine, banks like JPMorgan Chase, HSBC, Standard Chartered, Deutsche Bank, and Bank of New York Mellon continued to move money for suspected criminals, Buzzfeed says.
Two trillion dollars of such reports have been filed within this somewhat limited set of leaked documents with such suspicious reports not quite being proof of wrong doing, but more something to potentially look at.
In the case of BTC-e, there was a lot to look at because they had no anti-money laundering measures at all, with MFS seemingly serving them.
The alleged owner of BTC-e is now to go through trial in France where this relationship may well come under more scrutiny, especially now that these documents bring them to the spotlight once more.
However senator Ron Wyden, a member of the Senate Intelligence Committee which requested some of these SARs, is quoted as saying that the FinCEN Files investigation “reinforces the fact that we now have two systems of law enforcement and justice in the country.”
Drug cartels move millions through US banks; poor people go to jail for possession. “If you’re wealthy and well-connected, you can figure out how to do an enormous amount of harm to society at large and ensure that it accrues to enormous financial benefit for all of you.”
SARs are meant to act as some sort of a ‘zoom in’ suggestion that can potentially give enforcement the ability to do what we’ll call analogue blockchain analysis through spreadsheets.
In crypto of course these ‘spreadsheets’ are available to anyone and can be analyzed by anyone, as was the case with the revelation that MT Gox still had 200,000 bitcoins, rather than losing them all as they initially suggested.
In fiat, these spreadsheets are secret but the law requires unusual transactions to be revealed to law enforcement with such revelation in itself being sufficient, leaving the bank free to continue facilitating transactions from entities or individuals that they filed as suspicious.
It’s up to law enforcement at that point to then follow the lead, but considering for MFS there have been 36 such suspicious activity reports from eight filers, you’d think either the leads are not being followed or the filers are abusing the SAR system.
Meet in the Middle: Crypto Companies and Banks Are Evolving Together
Some say that meaningful change happens gradually. Others insist it erupts unexpectedly. This week, we saw that both are true.
Earlier this week, the Wyoming Banking Board voted to approve the application from San Francisco-based crypto exchange Kraken for a Special Purpose Depositary Institution (SPDI) banking charter. Yes, one of the crypto industry’s oldest exchanges has become a bank.
This is a big deal, one that heralds a coming transformation of the crypto asset industry. Market participants and commentators understandably reacted with glee and surprise. Both are warranted, yet both overlook the bigger shift that has been building up for some time, and which will have an even more significant change on how finance functions.
First, to understand the excitement, let’s look at what this means for Kraken.
A SPDI is a bank charter, but it is not a traditional bank in that it can’t make loans. It also is not required to have FDIC insurance, since there is no solvency risk stemming from fractional reserve banking – 100% of its deposits have to be backed by assets on hand.
Pending approval, this should give the firm’s subsidiary Kraken Finance access to an account at the Kansas City Federal Reserve, which gives it access to the U.S. payments system. This will make it easier for clients to move funds on and off the exchange, as well as allow for the launch of new products such as debit cards, IRA accounts and wealth management services.
Also, Kraken Finance will be able to custody both fiat and crypto assets, with more oversight and legal protection for clients than a trust company can offer. Client confidence will get a further boost through the additional capital that banks are required to hold, and through the required contingency account.
And, although it is chartered in Wyoming, Kraken Finance will be able to operate in most U.S. states under a unified regulatory framework through reciprocity agreements, possibly even returning to operate in New York, more than five years after its public departure in response to the BitLicense.
This is good for Kraken, but also for the industry as a whole, as it will facilitate onboarding for a range of businesses and institutions that are only comfortable entrusting financial transactions to a bank. It also takes steps towards solving the perennial problem many crypto businesses have in getting a banking license for operational needs. Opening an account at a digital asset bank should support both fiat and crypto liquidity. And the emergence of a competitor to the few banks serving digital asset businesses should give customers greater choice and better conditions.
And finally, Kraken is likely to be the first of many firms moving to take advantage of the business opportunity that being a digital asset bank promises. This will continue to boost institutional confidence in the crypto industry, and support the growth of related banking services that further incorporate digital assets into users’ daily lives.
Now, let’s look at why this was a surprise.
A group of visionary regulators and advocates started work in 2018 on the painstakingly detailed process of drawing up legislation that takes crypto assets into account. Caitlin Long, one of the aforementioned advocates, hosted a panel at our Invest conference last year that went into many of the details, and has both written and spoken about it at length. So, no surprise there.
And a Kraken job ad in December of last year hinted that applying for the SPDI charter was in their plans. Yet Kraken’s win in being the first caught many off guard, because Kraken has not traditionally been seen as, well, the type to choose the banking route.
The exchange was founded in 2011 (when the bitcoin price averaged $5.60) by Jesse Powell, one of the industry’s earliest advocates, and an outspoken critic of regulatory overreach.
What is one of the original crypto companies doing becoming a bank? Has it given up its principles to join the “system” bitcoin was supposed to circumvent?
The answer is no, it hasn’t. On the one hand, Powell has shown from the beginning that he will take steps to ensure fair access to cryptocurrencies, and has worked at getting strong banking relationships to support his business. Becoming a bank is an efficient way to cement the firm’s standing in the financial community, which benefits its clients.
On the other hand, the “system” that Kraken is joining is changing. And that has been the point all along.
Here we get a glimpse of the bigger shift I mentioned above. It’s not that crypto businesses are jumping through hoops to become respectable. That is happening to some extent, and it’s good for the industry. Respectability brings mainstream acceptance and investment inflow. And with its SPDI application, Kraken is reinforcing its reputation as one of the more innovative institutions in our sector.
The bigger shift is that traditional finance is changing to adapt to the crypto industry.
The SPDI is a new type of bank charter that was created with the crypto industry in mind. A new set of definitions and protections was drawn up to take into account crypto asset characteristics. A state passed financial legislation for the crypto industry.
What happened this week is not so much confirmation that crypto businesses are joining traditional finance. It’s more, to some extent, the other way around.
Many of us working in this industry are here because we believe that we are witnessing the emergence of a new economic system that will reform capital markets and finance. We have all faced cynics who insist that traditional finance won’t change, that cryptocurrencies are a threat to stability and order and that authorities won’t let this scale of innovation take root.
This week proved the cynics wrong.
The main story is not that one of the original cryptocurrency businesses, which supports the underlying principles of distributed governance, has joined the legacy financial system.
The story is more one of traditional finance adapting.
So far, this is both a small step (Kraken is one company, Wyoming is one state, the U.S. is one country) and a big one. The crypto industry wants reasonable regulation, for security and respectability. But it knows that traditional rules can’t apply. So it has convinced the rule makers to make new ones.
This week it showed that it can get the traditional side to meet it halfway. If you were wondering how the crypto industry could transform traditional finance, this is how it happens.
Anyone know what’s going on yet?
Bitcoin started to recover some ground this week, although it is still down for the month.
Stocks generally continue to languish, with the tech sector suffering a drawn-out hangover from recent exuberance. The market as a whole seemed to be feeling frustration that the U.S. Federal Reserve chairman Powell’s remarks this week – in his last scheduled public appearance before the U.S. election – didn’t offer more clarity on inflation expectations.
Amid deepening fatigue around the persistent uncertainty (not just about inflation but also about the economic recovery, a vaccine, can our kids stay in school and so much more), concern about the fate of the U.S. dollar seems to be gathering strength. Even renowned fund manager Ray Dalio was caught hinting that “other asset classes” will pick up strength from the loss of faith in fiat currencies.
The question remains how long before this growing tension starts to really overrule the persistent faith that the Fed will keep stock markets afloat. The declines we’ve seen so far this month may hint that the concern is starting to make itself felt in the indices – or, they could just be a breather before another spurt of energy.
Be sure to listen to my colleague Nathaniel Whittemore interview Raoul Pal for a harsh take on the inefficacy of monetary policy and the need for a new economic paradigm.
Michael Saylor, the founder of MicroStrategy, revealed that his company has acquired an additional $175 million in bitcoin, which brings his firm’s total spend on cryptocurrency to approximately $425 million. TAKEAWAY: While it is exciting to see such public validation coming from outside our industry, it is a bit worrying when corporate treasury decisions start to be treated as publicity for a concept. It’s also disconcerting to see the resulting (or coincidental?) bump in the share price touted as a reason other corporate treasurers should put company funds into cryptocurrencies. I say this as someone who believes in bitcoin’s long-term potential (not investment advice!). I also say this as someone concerned about the pressures CFOs face in their daily jobs, and the implied assumption that putting corporate funds into bitcoin is risk-free. It isn’t.
(Nathaniel Whittemore’s interview of Michael Saylor is a compelling listen.)
Over $1 billion worth of bitcoin has been tokenized on Ethereum, equivalent to 0.42% of the total BTC supply and up from less than $7 million in January. TAKEAWAY: This is astonishing growth. The concept is compelling. It’s not just about depositing your bitcoin into a specific wallet in order to get a corresponding amount of an Ethereum-based token that you can then deposit in another wallet to get yield. It’s also fascinating for the way assets can “live” on more than one blockchain at once, even if just temporarily. We’ll no doubt be hearing a lot more about this.
The RGB protocol, currently in beta, is a second layer network that aims to bring smart contracts and tokenized assets to Bitcoin. TAKEAWAY: This reminds us that Bitcoin may have a simple and resilient protocol, but it is also an evolving technology. While the base code may be difficult to change, developers are working on code layers that connect to the Bitcoin blockchain and that allow for additional functionalities. Some of these may one day end up being a key driver for bitcoin demand, much like the growing demand for applications on the Ethereum blockchain was one of the factors that boosted the price of its native token, ETH.
A leaked version of rules to be issued later this month by the European Commissionproposes an all-encompassing set of regulations covering the trading or issuance of digital assets, effectively treating them the same as any other regulated financial instrument. TAKEAWAY: The legal clarity will be welcomed by many, although Europe has a well-earned reputation for passing blanket rules with good intentions that end up having the opposite effect than that intended. That said, European regulators have on the whole been supportive of blockchain technology, and some countries have encouraged the development of digital asset market infrastructure, so this could end up being a positive development.
Blockchain services firm Diginex is officially merging with publicly traded 8i Enterprises Acquisition Corp., a special purpose acquisition company (SPAC). The merger is a key part of its plan for a “backdoor” Nasdaq listing. TAKEAWAY: Diginex’s businesses include crypto derivatives exchange EQUOS.io, digital asset trading technology platform Diginex Access, securitization advisory firm Diginex Capital, as well as a digital asset custody provider and an investment management business. Some see irony, as it represents the merging of decentralized assets with centralized markets (a crypto company listing on Nasdaq). Others see perfect synergy, however, as Diginex covers a range of crypto-focused businesses that are pushing the innovation envelope for capital markets. Either way, it heralds the eventual merging of decentralized and centralized concepts, and a maturation of crypto market infrastructure.
According to blockchain forensics firm Chainalysis, the number of “young investment” wallets (those that are one to three months old and rarely send bitcoins) has jumped to the highest level since February 2018, double that of six months ago. TAKEAWAY: While it’s hard to draw clear conclusions from address data, this does hint at growth in interest in cryptocurrency from new entrants into the market. The theory is that new addresses used for transactional purposes would have outgoing as well as incoming transactions – those that are almost all incoming are more likely to be investment accounts.
According to a report in Bloomberg,India plans to ban trading in cryptocurrencies. TAKEAWAY: So, India has been sending mixed signals. It allows banks to offer services to crypto exchanges. And then leaks a possible ban on crypto exchange activity? This is worth watching because India is a potentially massive market. Even apart from the sheer size of the population, there’s the recent painful experience with demonetization and the relatively high inflation rate.
Leading crypto derivatives exchange Deribit is seeing increasing investor interest in bitcoin options that would profit from prices rallying as high as $36,000 by the end of 2020. TAKEAWAY: I’d say this is nuts, but it obviously makes sense to some people.
For those looking for more clarity as to what’s going on in crypto market infrastructure, this is your week.
- Ark Invest published, in collaboration with Coin Metrics, a paper that explores bitcoin as a monetary asset, focusing on its trading volume evolution and outlook, liquidity and the potential impact of institutional investment.
- Binance Research put out an overview of crypto market infrastructure, with a focus on the evolving role of prime brokers, and a prediction that traditional brokers will continue to move into the crypto industry.
- Deribit published a note that points out how blockchains’ relatively slow responses hinder trading opportunities, given the need to move collateral around for leveraged positions – and how custody services are evolving to solve for this.
Podcast episodes worth listening to:
The United States Gets Its Crypto Back from Two Russian Hackers
The United States appears to be angry with crypto hackers as of late, and the country is making it clear that it’s not going to put up with bad actors anymore. The U.S. is presently accusing two Russian hackers of making off with roughly $17 million in assorted crypto units. The accusations come from the Justice, State and Treasury Departments.
The United States Will Not Put Up with Crypto Theft
The Treasury has identified two individuals allegedly involved in the scheme. They are Danil Potekhin, 25 years of age and living within the region of Voronezh; and Dmitirii Karasavidi of Moscow, who is presently 35 years of age. The two are accused of conducting cyberattacks a year apart from each other in 2017 and 2018 that ultimately deprived two U.S. crypto exchanges of more than $16 million.
The attacks on the exchanges sound rather complicated in that the pair created websites similar with those of the trading platforms they were targeting. These websites mimicked those of the original sources, and thus people who initially signed up or logged in on the copy sites gave the attackers their information, thereby giving the pair access to dozens of accounts and allowing them to make off with the funds.
Treasury Secretary Steven Mnuchin explained in a statement:
The individuals who administered this scheme defrauded American citizens, businesses and others by deceiving them and stealing virtual currency from their accounts… Ultimately, the stolen virtual currency was traced to Karasavidi’s account, and millions of dollars in virtual currency and U.S. dollars were seized in a forfeiture action by the United States Secret Service.
While it’s believed that the two initially tried to hide the stolen money by keeping it stored in several accounts on several different blockchains, the story is unique in that the U.S. officials in charge of the case appear to have gotten the money back. This is huge in that typically money stolen from a crypto platform or exchange is often lost for good. This is just more proof that the United States is not messing around.
This marks the second time in a while that the United States has managed to take effective action against nations that look to steal from American reserves. Recently, the country announced that it had garnered several million in crypto funds back from North Korea after the nuclear state stole a hefty digital sum as a means of building up its arsenal.
Trying to Prevent Future Crime
Right now, the two Russian men are facing a maximum 59 years in prison if they are convicted. At the time of writing, they are facing charges of conspiracy to commit computer fraud, among others. Secretary of State Mike Pompeo commented:
The United States will continue to promote accountability among malign actors seeking to undermine our economic security. Today’s coordinated action demonstrates our commitment to deterring cybercrimes.
Blockchain3 weeks ago
Market Wrap: Bitcoin’s Powell-Induced Price Swing; Ethereum Still High on Gas
Blockchain1 month ago
The US Post Office Files a Patent for a Blockchain-Based Voting System
Blockchain4 months ago
How to Identify the ‘Third Wave’ of Cannabis Investments
Blockchain2 months ago
Wealthfront Lures Millenials With Crypto Memes and Tactics
Blockchain2 months ago
Top Five Most Advanced Cryptocurrencies
Blockchain3 months ago
5 Tips to Interest the Press in Your Cannabis Business
Blockchain3 months ago
Top 5 Most Effective Cannabis Marketing Strategies
Blockchain8 months ago
What is Litecoin? | A Complete Beginners’ Guide