In early October, the US Commodity Futures Trading Commission (CFTC) charged this crypto exchange with illegally operating an unregistered trading platform.
A) Bittrex B) Binance C) Bitmex D) That other crypto exchange that starts with the letter “B” Scroll down for the answer.
Ranking and October Winners and Losers
2019 Top Ten Ranking - 40% dropout rate After losing quite a bit of ground in the rankings in September, the 2019 Top Ten rebounded a bit in October. Only BSV finished down on the month, down two places (from #9 to #11) and dropping out of the Top Ten. The rest either held or climbed: EOS, Tron and Stellar each advanced one position each and Litecoin picked up four places and was able to rejoin the Top Ten. It’s good to have LTC back in the familiar confines of the Top Ten, as last month it found itself on the outside looking in, for the first time since the Experiments started back in January 2018. 40% of the crypotos that were in the Top Ten on January 1st, 2019 have dropped out: Tron, Stellar, BSV, and EOS have been replaced by BNB, DOT, ADA, and LINK. October Winners – Big PoppaBTC had a great month, finishing up +25%. Second place goes to LTC, up +17% in October, followed by BCH, up +14%. October Losers – The losses were moderate this month, but the L for October goes to BSV, which lost -7% and fell out of the Top Ten. EOS was second worst performing, down -5%. For overly competitive nerds, here is a tally of which coins have the most monthly wins and losses during the first 22 months of the 2019 Top Ten Experiment: 2019 Ws/Ls Because it's the default winner in down months, Tether is still far ahead in terms of monthly victories (7). That’s more than twice as much as second place BSV, BTC, and ETH. And although BSV is up 74% since January 2019, it dominates the monthly loss count: it has now finished last in nine out of twenty-two months (paying attention, swing traders?). And XRP is still the only crypto that has yet to notch a monthly win.
Overall update – BTC’s lead increases, XRP back to the basement, 2019 Top Ten pulls ahead of other Experiments.
BTC extended the lead it carved out last month over second place ETH in October. The top two are up +262% and +191% respectively, followed distantly by Litecoin, which is up +79% since January 2019. The initial $100 investment in BTC is currently worth $369. For the first time since April 2019, BSV has dropped out of the Top Ten. Twenty-two months into the 2019 Top Ten Index Fund Experiment, 70% of the 2019 Top Ten cryptos are either flat or in the green. After barely escaping the basement last month, XRP has once again sunk to the bottom of the pack, down -33% since January 2019. At +66%, the 2019 Top Ten Portfolio has pulled ahead of the 2020 Top Ten Portfolio’s +61% gain and both are far, far ahead of the 2018 group , which is down -74% (more on that below).
Total Market Cap for the entire cryptocurrency sector:
Total market cap since Jan 2019 is +215% Since January 2019, the total market cap for crypto is up +215%. The overall market gained about $50B in October, ending the month just over the psychologically important $400B mark. This is now the highest month-end level since the 2019 Top Ten Experiment began 22 months ago.
Overall return on investment since January 1st, 2019:
The 2019 Group gained $122 in October, so after the initial $1000 investment, the 2019 Top Ten Crypto Portfolio is worth $1,660. 2019 Top Ten Index Fund Experiment ROI For some context, here’s a look at the ROI over the life of the first 22 months of the 2019 Top Ten Index Fund experiment, month by month: 2019 Top Ten ROI summary Unlike the completely red table you’ll see in the 2018 Top Ten Experiment, the 2019 crypto table is almost all green. The first month was the lowest point (-9%), and the highest point (+114%) was May 2019. At +66%, the 2019 Top Ten Portfolio is now the best performing out of the three Experiments but not by much: the 2020 Top Ten Portfolio is up +61%. Speaking of the other Experiments, let’s take a look at how the 2019 Top Ten Index Fund Portfolio compare to the parallel projects:
Taking the three portfolios together, here’s the bottom bottom bottom line: After a $3000 investment in the 2018, 2019, and 2020 Top Ten Cryptocurrencies, my combined portfolios are worth $3,537 ($264+ $1,660 +$1,613). That’s up about +18% for the three combined portfolios, compared to +11% last month. Here’s a table to help visualize the progress of the combined portfolios: 2018, 2019, 2020 Top Tens combined ROI To sum up: +18% gain by dropping $1k once a year on whichever cryptos happened to be in the Top Ten on January 1st, 2018, 2019, and 2020. But what if I’d gone all in on only one Top Ten crypto for the past three years? While many have come and gone over the life of the experiment, only five cryptos have started in Top Ten for all three years: BTC, ETH, XRP, BCH, and LTC. Let’s take a look at those five: A tie: BTC catches up to ETH this month for leader of the Three Year Club Up until this month, Ethereum would have been your best bet. As of the end of October, it’s basically a tie between BTC and ETH. Both are up +121%, (although BTC is technically $21 ahead of ETH). On the other hand, if I had followed this world’s slowest dollar cost averaging approach with XRP, I’d be down -32%. With BCH I would have just about broken even. Alright, that’s crypto. How does crypto compare to the stock market?
Comparison to S&P 500:
I’m also tracking the S&P 500 as part of the experiments to have a comparison point with traditional markets. The S&P continued to fall from an all time high in the summer, and is now up +30% since January 2019. S&P since Jan 2019? +30% The initial $1k investment I put into crypto 22 months ago would be worth $1,300 had it been redirected to the S&P 500 in January 2019. +30% is not a bad return at all. But the 2019 Top Ten Portfolio is up more than double (+66)% over the same time period. That’s 2019. But what if I took the same world’s-slowest-dollar-cost-averaging $1,000-per-year-on-January-1st crypto approach with the S&P 500? It would yield the following:
$1000 investment in S&P 500 on January 1st, 2018 = $1220 today
$1000 investment in S&P 500 on January 1st, 2019 = $1300 today
$1000 investment in S&P 500 on January 1st, 2020 = $1010 today
Taken together, here’s the bottom bottom bottom line for a similar approach with the S&P: After three $1,000 investments into an S&P 500 index fund in January 2018, 2019, and 2020, my portfolio would be worth $3,530. That is up +17.6%since January 2018. Compared to a +17.9% gain of the combined Top Ten Crypto Experiment Portfolios. You can also compare against five individual coins (BTC, ETH, XRP, BCH, and LTC) by using the table above if you want. It’s small, but that tiny 0.3% difference in favor of crypto. That’s now seven monthly victories for the S&P vs. three monthly victories for crypto, all clustered in the second half of the year. Crypto re-takes the lead in October....barely
Thanks mainly to Bitcoin, October was a good month for crypto and a good month for the 2019 Top Ten Portfolio. As traditional markets have struggled over the last few months, crypto seems to be headed in the opposite direction. I’m looking forward to seeing if those trends hold in the last few months of a crazy year. Take care of each other out there, stay safe. Thanks for reading and for supporting the experiment. I hope you’ve found it helpful. I continue to be committed to seeing this process through and reporting along the way. Feel free to reach out with any questions and stay tuned for progress reports. Keep an eye out for the original 2018 Top Ten Crypto Index Fund Experiment and the 2020 Top Ten Experiment.
Summary: Everyone knows that when you give your assets to someone else, they always keep them safe. If this is true for individuals, it is certainly true for businesses. Custodians always tell the truth and manage funds properly. They won't have any interest in taking the assets as an exchange operator would. Auditors tell the truth and can't be misled. That's because organizations that are regulated are incapable of lying and don't make mistakes. First, some background. Here is a summary of how custodians make us more secure: Previously, we might give Alice our crypto assets to hold. There were risks:
Alice might take the assets and disappear.
Alice might spend the assets and pretend that she still has them (fractional model).
Alice might store the assets insecurely and they'll get stolen.
Alice might give the assets to someone else by mistake or by force.
Alice might lose access to the assets.
But "no worries", Alice has a custodian named Bob. Bob is dressed in a nice suit. He knows some politicians. And he drives a Porsche. "So you have nothing to worry about!". And look at all the benefits we get:
Alice can't take the assets and disappear (unless she asks Bob or never gives them to Bob).
Alice can't spend the assets and pretend that she still has them. (Unless she didn't give them to Bob or asks him for them.)
Alice can't store the assets insecurely so they get stolen. (After all - she doesn't have any control over the withdrawal process from any of Bob's systems, right?)
Alice can't give the assets to someone else by mistake or by force. (Bob will stop her, right Bob?)
Alice can't lose access to the funds. (She'll always be present, sane, and remember all secrets, right?)
See - all problems are solved! All we have to worry about now is:
Bob might take the assets and disappear.
Bob might spend the assets and pretend that he still has them (fractional model).
Bob might store the assets insecurely and they'll get stolen.
Bob might give the assets to someone else by mistake or by force.
Bob might lose access to the assets.
It's pretty simple. Before we had to trust Alice. Now we only have to trust Alice, Bob, and all the ways in which they communicate. Just think of how much more secure we are! "On top of that", Bob assures us, "we're using a special wallet structure". Bob shows Alice a diagram. "We've broken the balance up and store it in lots of smaller wallets. That way", he assures her, "a thief can't take it all at once". And he points to a historic case where a large sum was taken "because it was stored in a single wallet... how stupid". "Very early on, we used to have all the crypto in one wallet", he said, "and then one Christmas a hacker came and took it all. We call him the Grinch. Now we individually wrap each crypto and stick it under a binary search tree. The Grinch has never been back since." "As well", Bob continues, "even if someone were to get in, we've got insurance. It covers all thefts and even coercion, collusion, and misplaced keys - only subject to the policy terms and conditions." And with that, he pulls out a phone-book sized contract and slams it on the desk with a thud. "Yep", he continues, "we're paying top dollar for one of the best policies in the country!" "Can I read it?' Alice asks. "Sure," Bob says, "just as soon as our legal team is done with it. They're almost through the first chapter." He pauses, then continues. "And can you believe that sales guy Mike? He has the same year Porsche as me. I mean, what are the odds?" "Do you use multi-sig?", Alice asks. "Absolutely!" Bob replies. "All our engineers are fully trained in multi-sig. Whenever we want to set up a new wallet, we generate 2 separate keys in an air-gapped process and store them in this proprietary system here. Look, it even requires the biometric signature from one of our team members to initiate any withdrawal." He demonstrates by pressing his thumb into the display. "We use a third-party cloud validation API to match the thumbprint and authorize each withdrawal. The keys are also backed up daily to an off-site third-party." "Wow that's really impressive," Alice says, "but what if we need access for a withdrawal outside of office hours?" "Well that's no issue", Bob says, "just send us an email, call, or text message and we always have someone on staff to help out. Just another part of our strong commitment to all our customers!" "What about Proof of Reserve?", Alice asks. "Of course", Bob replies, "though rather than publish any blockchain addresses or signed transaction, for privacy we just do a SHA256 refactoring of the inverse hash modulus for each UTXO nonce and combine the smart contract coefficient consensus in our hyperledger lightning node. But it's really simple to use." He pushes a button and a large green checkmark appears on a screen. "See - the algorithm ran through and reserves are proven." "Wow", Alice says, "you really know your stuff! And that is easy to use! What about fiat balances?" "Yeah, we have an auditor too", Bob replies, "Been using him for a long time so we have quite a strong relationship going! We have special books we give him every year and he's very efficient! Checks the fiat, crypto, and everything all at once!" "We used to have a nice offline multi-sig setup we've been using without issue for the past 5 years, but I think we'll move all our funds over to your facility," Alice says. "Awesome", Bob replies, "Thanks so much! This is perfect timing too - my Porsche got a dent on it this morning. We have the paperwork right over here." "Great!", Alice replies. And with that, Alice gets out her pen and Bob gets the contract. "Don't worry", he says, "you can take your crypto-assets back anytime you like - just subject to our cancellation policy. Our annual management fees are also super low and we don't adjust them often". How many holes have to exist for your funds to get stolen? Just one. Why are we taking a powerful offline multi-sig setup, widely used globally in hundreds of different/lacking regulatory environments with 0 breaches to date, and circumventing it by a demonstrably weak third party layer? And paying a great expense to do so? If you go through the list of breaches in the past 2 years to highly credible organizations, you go through the list of major corporate frauds (only the ones we know about), you go through the list of all the times platforms have lost funds, you go through the list of times and ways that people have lost their crypto from identity theft, hot wallet exploits, extortion, etc... and then you go through this custodian with a fine-tooth comb and truly believe they have value to add far beyond what you could, sticking your funds in a wallet (or set of wallets) they control exclusively is the absolute worst possible way to take advantage of that security. The best way to add security for crypto-assets is to make a stronger multi-sig. With one custodian, what you are doing is giving them your cryptocurrency and hoping they're honest, competent, and flawlessly secure. It's no different than storing it on a really secure exchange. Maybe the insurance will cover you. Didn't work for Bitpay in 2015. Didn't work for Yapizon in 2017. Insurance has never paid a claim in the entire history of cryptocurrency. But maybe you'll get lucky. Maybe your exact scenario will buck the trend and be what they're willing to cover. After the large deductible and hopefully without a long and expensive court battle. And you want to advertise this increase in risk, the lapse of judgement, an accident waiting to happen, as though it's some kind of benefit to customers ("Free institutional-grade storage for your digital assets.")? And then some people are writing to the OSC that custodians should be mandatory for all funds on every exchange platform? That this somehow will make Canadians as a whole more secure or better protected compared with standard air-gapped multi-sig? On what planet? Most of the problems in Canada stemmed from one thing - a lack of transparency. If Canadians had known what a joke Quadriga was - it wouldn't have grown to lose $400m from hard-working Canadians from coast to coast to coast. And Gerald Cotten would be in jail, not wherever he is now (at best, rotting peacefully). EZ-BTC and mister Dave Smilie would have been a tiny little scam to his friends, not a multi-million dollar fraud. Einstein would have got their act together or been shut down BEFORE losing millions and millions more in people's funds generously donated to criminals. MapleChange wouldn't have even been a thing. And maybe we'd know a little more about CoinTradeNewNote - like how much was lost in there. Almost all of the major losses with cryptocurrency exchanges involve deception with unbacked funds. So it's great to see transparency reports from BitBuy and ShakePay where someone independently verified the backing. The only thing we don't have is:
ANY CERTAINTY BALANCES WEREN'T EXCLUDED. Quadriga's largest account was $70m. 80% of funds are in 20% of accounts (Pareto principle). All it takes is excluding a few really large accounts - and nobody's the wiser. A fractional platform can easily pass any audit this way.
ANY VISIBILITY WHATSOEVER INTO THE CUSTODIANS. BitBuy put out their report before moving all the funds to their custodian and ShakePay apparently can't even tell us who the custodian is. That's pretty important considering that basically all of the funds are now stored there.
ANY IDEA ABOUT THE OTHER EXCHANGES. In order for this to be effective, it has to be the norm. It needs to be "unusual" not to know. If obscurity is the norm, then it's super easy for people like Gerald Cotten and Dave Smilie to blend right in.
It's not complicated to validate cryptocurrency assets. They need to exist, they need to be spendable, and they need to cover the total balances. There are plenty of credible people and firms across the country that have the capacity to reasonably perform this validation. Having more frequent checks by different, independent, parties who publish transparent reports is far more valuable than an annual check by a single "more credible/official" party who does the exact same basic checks and may or may not publish anything. Here's an example set of requirements that could be mandated:
First report within 1 month of launching, another within 3 months, and further reports at minimum every 6 months thereafter.
No auditor can be repeated within a 12 month period.
All reports must be public, identifying the auditor and the full methodology used.
All auditors must be independent of the firm being audited with no conflict of interest.
Reports must include the percentage of each asset backed, and how it's backed.
The auditor publishes a hash list, which lists a hash of each customer's information and balances that were included. Hash is one-way encryption so privacy is fully preserved. Every customer can use this to have 100% confidence they were included.
If we want more extensive requirements on audits, these should scale upward based on the total assets at risk on the platform, and whether the platform has loaned their assets out.
There are ways to structure audits such that neither crypto assets nor customer information are ever put at risk, and both can still be properly validated and publicly verifiable. There are also ways to structure audits such that they are completely reasonable for small platforms and don't inhibit innovation in any way. By making the process as reasonable as possible, we can completely eliminate any reason/excuse that an honest platform would have for not being audited. That is arguable far more important than any incremental improvement we might get from mandating "the best of the best" accountants. Right now we have nothing mandated and tons of Canadians using offshore exchanges with no oversight whatsoever. Transparency does not prove crypto assets are safe. CoinTradeNewNote, Flexcoin ($600k), and Canadian Bitcoins ($100k) are examples where crypto-assets were breached from platforms in Canada. All of them were online wallets and used no multi-sig as far as any records show. This is consistent with what we see globally - air-gapped multi-sig wallets have an impeccable record, while other schemes tend to suffer breach after breach. We don't actually know how much CoinTrader lost because there was no visibility. Rather than publishing details of what happened, the co-founder of CoinTrader silently moved on to found another platform - the "most trusted way to buy and sell crypto" - a site that has no information whatsoever (that I could find) on the storage practices and a FAQ advising that “[t]rading cryptocurrency is completely safe” and that having your own wallet is “entirely up to you! You can certainly keep cryptocurrency, or fiat, or both, on the app.” Doesn't sound like much was learned here, which is really sad to see. It's not that complicated or unreasonable to set up a proper hardware wallet. Multi-sig can be learned in a single course. Something the equivalent complexity of a driver's license test could prevent all the cold storage exploits we've seen to date - even globally. Platform operators have a key advantage in detecting and preventing fraud - they know their customers far better than any custodian ever would. The best job that custodians can do is to find high integrity individuals and train them to form even better wallet signatories. Rather than mandating that all platforms expose themselves to arbitrary third party risks, regulations should center around ensuring that all signatories are background-checked, properly trained, and using proper procedures. We also need to make sure that signatories are empowered with rights and responsibilities to reject and report fraud. They need to know that they can safely challenge and delay a transaction - even if it turns out they made a mistake. We need to have an environment where mistakes are brought to the surface and dealt with. Not one where firms and people feel the need to hide what happened. In addition to a knowledge-based test, an auditor can privately interview each signatory to make sure they're not in coercive situations, and we should make sure they can freely and anonymously report any issues without threat of retaliation. A proper multi-sig has each signature held by a separate person and is governed by policies and mutual decisions instead of a hierarchy. It includes at least one redundant signature. For best results, 3of4, 3of5, 3of6, 4of5, 4of6, 4of7, 5of6, or 5of7. History has demonstrated over and over again the risk of hot wallets even to highly credible organizations. Nonetheless, many platforms have hot wallets for convenience. While such losses are generally compensated by platforms without issue (for example Poloniex, Bitstamp, Bitfinex, Gatecoin, Coincheck, Bithumb, Zaif, CoinBene, Binance, Bitrue, Bitpoint, Upbit, VinDAX, and now KuCoin), the public tends to focus more on cases that didn't end well. Regardless of what systems are employed, there is always some level of risk. For that reason, most members of the public would prefer to see third party insurance. Rather than trying to convince third party profit-seekers to provide comprehensive insurance and then relying on an expensive and slow legal system to enforce against whatever legal loopholes they manage to find each and every time something goes wrong, insurance could be run through multiple exchange operators and regulators, with the shared interest of having a reputable industry, keeping costs down, and taking care of Canadians. For example, a 4 of 7 multi-sig insurance fund held between 5 independent exchange operators and 2 regulatory bodies. All Canadian exchanges could pay premiums at a set rate based on their needed coverage, with a higher price paid for hot wallet coverage (anything not an air-gapped multi-sig cold wallet). Such a model would be much cheaper to manage, offer better coverage, and be much more reliable to payout when needed. The kind of coverage you could have under this model is unheard of. You could even create something like the CDIC to protect Canadians who get their trading accounts hacked if they can sufficiently prove the loss is legitimate. In cases of fraud, gross negligence, or insolvency, the fund can be used to pay affected users directly (utilizing the last transparent balance report in the worst case), something which private insurance would never touch. While it's recommended to have official policies for coverage, a model where members vote would fully cover edge cases. (Could be similar to the Supreme Court where justices vote based on case law.) Such a model could fully protect all Canadians across all platforms. You can have a fiat coverage governed by legal agreements, and crypto-asset coverage governed by both multi-sig and legal agreements. It could be practical, affordable, and inclusive. Now, we are at a crossroads. We can happily give up our freedom, our innovation, and our money. We can pay hefty expenses to auditors, lawyers, and regulators year after year (and make no mistake - this cost will grow to many millions or even billions as the industry grows - and it will be borne by all Canadians on every platform because platforms are not going to eat up these costs at a loss). We can make it nearly impossible for any new platform to enter the marketplace, forcing Canadians to use the same stagnant platforms year after year. We can centralize and consolidate the entire industry into 2 or 3 big players and have everyone else fail (possibly to heavy losses of users of those platforms). And when a flawed security model doesn't work and gets breached, we can make it even more complicated with even more people in suits making big money doing the job that blockchain was supposed to do in the first place. We can build a system which is so intertwined and dependent on big government, traditional finance, and central bankers that it's future depends entirely on that of the fiat system, of fractional banking, and of government bail-outs. If we choose this path, as history has shown us over and over again, we can not go back, save for revolution. Our children and grandchildren will still be paying the consequences of what we decided today. Or, we can find solutions that work. We can maintain an open and innovative environment while making the adjustments we need to make to fully protect Canadian investors and cryptocurrency users, giving easy and affordable access to cryptocurrency for all Canadians on the platform of their choice, and creating an environment in which entrepreneurs and problem solvers can bring those solutions forward easily. None of the above precludes innovation in any way, or adds any unreasonable cost - and these three policies would demonstrably eliminate or resolve all 109 historic cases as studied here - that's every single case researched so far going back to 2011. It includes every loss that was studied so far not just in Canada but globally as well. Unfortunately, finding answers is the least challenging part. Far more challenging is to get platform operators and regulators to agree on anything. My last post got no response whatsoever, and while the OSC has told me they're happy for industry feedback, I believe my opinion alone is fairly meaningless. This takes the whole community working together to solve. So please let me know your thoughts. Please take the time to upvote and share this with people. Please - let's get this solved and not leave it up to other people to do. Facts/background/sources (skip if you like):
The inspiration for the paragraph about splitting wallets was an actual quote from a Canadian company providing custodial services in response to the OSC consultation paper: "We believe that it will be in the in best interests of investors to prohibit pooled crypto assets or ‘floats’. Most Platforms pool assets, citing reasons of practicality and expense. The recent hack of the world’s largest Platform – Binance – demonstrates the vulnerability of participants’ assets when such concessions are made. In this instance, the Platform’s entire hot wallet of Bitcoins, worth over $40 million, was stolen, facilitated in part by the pooling of client crypto assets." "the maintenance of participants (and Platform) crypto assets across multiple wallets distributes the related risk and responsibility of security - reducing the amount of insurance coverage required and making insurance coverage more readily obtainable". For the record, their reply also said nothing whatsoever about multi-sig or offline storage.
In addition to the fact that the $40m hack represented only one "hot wallet" of Binance, and they actually had the vast majority of assets in other wallets (including mostly cold wallets), multiple real cases have clearly demonstrated that risk is still present with multiple wallets. Bitfinex, VinDAX, Bithumb, Altsbit, BitPoint, Cryptopia, and just recently KuCoin all had multiple wallets breached all at the same time, and may represent a significantly larger impact on customers than the Binance breach which was fully covered by Binance. To represent that simply having multiple separate wallets under the same security scheme is a comprehensive way to reduce risk is just not true.
Private insurance has historically never covered a single loss in the cryptocurrency space (at least, not one that I was able to find), and there are notable cases where massive losses were not covered by insurance. Bitpay in 2015 and Yapizon in 2017 both had insurance policies that didn't pay out during the breach, even after a lengthly court process. The same insurance that ShakePay is presently using (and announced to much fanfare) was describe by their CEO himself as covering “physical theft of the media where the private keys are held,” which is something that has never historically happened. As was said with regard to the same policy in 2018 - “I don’t find it surprising that Lloyd’s is in this space,” said Johnson, adding that to his mind the challenge for everybody is figuring out how to structure these policies so that they are actually protective. “You can create an insurance policy that protects no one – you know there are so many caveats to the policy that it’s not super protective.”
The most profitable policy for a private insurance company is one with the most expensive premiums that they never have to pay a claim on. They have no inherent incentive to take care of people who lost funds. It's "cheaper" to take the reputational hit and fight the claim in court. The more money at stake, the more the insurance provider is incentivized to avoid payout. They're not going to insure the assets unless they have reasonable certainty to make a profit by doing so, and they're not going to pay out a massive sum unless it's legally forced. Private insurance is always structured to be maximally profitable to the insurance provider.
The circumvention of multi-sig was a key factor in the massive Bitfinex hack of over $60m of bitcoin, which today still sits being slowly used and is worth over $3b. While Bitfinex used a qualified custodian Bitgo, which was and still is active and one of the industry leaders of custodians, and they set up 2 of 3 multi-sig wallets, the entire system was routed through Bitfinex, such that Bitfinex customers could initiate the withdrawals in a "hot" fashion. This feature was also a hit with the hacker. The multi-sig was fully circumvented.
Bitpay in 2015 was another example of a breach that stole 5,000 bitcoins. This happened not through the exploit of any system in Bitpay, but because the CEO of a company they worked with got their computer hacked and the hackers were able to request multiple bitcoin purchases, which Bitpay honoured because they came from the customer's computer legitimately. Impersonation is a very common tactic used by fraudsters, and methods get more extreme all the time.
A notable case in Canada was the Canadian Bitcoins exploit. Funds were stored on a server in a Rogers Data Center, and the attendee was successfully convinced to reboot the server "in safe mode" with a simple phone call, thus bypassing the extensive security and enabling the theft.
The very nature of custodians circumvents multi-sig. This is because custodians are not just having to secure the assets against some sort of physical breach but against any form of social engineering, modification of orders, fraudulent withdrawal attempts, etc... If the security practices of signatories in a multi-sig arrangement are such that the breach risk of one signatory is 1 in 100, the requirement of 3 independent signatures makes the risk of theft 1 in 1,000,000. Since hackers tend to exploit the weakest link, a comparable custodian has to make the entry and exit points of their platform 10,000 times more secure than one of those signatories to provide equivalent protection. And if the signatories beef up their security by only 10x, the risk is now 1 in 1,000,000,000. The custodian has to be 1,000,000 times more secure. The larger and more complex a system is, the more potential vulnerabilities exist in it, and the fewer people can understand how the system works when performing upgrades. Even if a system is completely secure today, one has to also consider how that system might evolve over time or work with different members.
By contrast, offline multi-signature solutions have an extremely solid record, and in the entire history of cryptocurrency exchange incidents which I've studied (listed here), there has only been one incident (796 exchange in 2015) involving an offline multi-signature wallet. It happened because the customer's bitcoin address was modified by hackers, and the amount that was stolen ($230k) was immediately covered by the exchange operators. Basically, the platform operators were tricked into sending a legitimate withdrawal request to the wrong address because hackers exploited their platform to change that address. Such an issue would not be prevented in any way by the use of a custodian, as that custodian has no oversight whatsoever to the exchange platform. It's practical for all exchange operators to test large withdrawal transactions as a general policy, regardless of what model is used, and general best practice is to diagnose and fix such an exploit as soon as it occurs.
False promises on the backing of funds played a huge role in the downfall of Quadriga, and it's been exposed over and over again (MyCoin, PlusToken, Bitsane, Bitmarket, EZBTC, IDAX). Even today, customers have extremely limited certainty on whether their funds in exchanges are actually being backed or how they're being backed. While this issue is not unique to cryptocurrency exchanges, the complexity of the technology and the lack of any regulation or standards makes problems more widespread, and there is no "central bank" to come to the rescue as in the 2008 financial crisis or during the great depression when "9,000 banks failed".
In addition to fraudulent operations, the industry is full of cases where operators have suffered breaches and not reported them. Most recently, Einstein was the largest case in Canada, where ongoing breaches and fraud were perpetrated against the platform for multiple years and nobody found out until the platform collapsed completely. While fraud and breaches suck to deal with, they suck even more when not dealt with. Lack of visibility played a role in the largest downfalls of Mt. Gox, Cryptsy, and Bitgrail. In some cases, platforms are alleged to have suffered a hack and keep operating without admitting it at all, such as CoinBene.
It surprises some to learn that a cryptographic solution has already existed since 2013, and gained widespread support in 2014 after Mt. Gox. Proof of Reserves is a full cryptographic proof that allows any customer using an exchange to have complete certainty that their crypto-assets are fully backed by the platform in real-time. This is accomplished by proving that assets exist on the blockchain, are spendable, and fully cover customer deposits. It does not prove safety of assets or backing of fiat assets.
If we didn't care about privacy at all, a platform could publish their wallet addresses, sign a partial transaction, and put the full list of customer information and balances out publicly. Customers can each check that they are on the list, that the balances are accurate, that the total adds up, and that it's backed and spendable on the blockchain. Platforms who exclude any customer take a risk because that customer can easily check and see they were excluded. So together with all customers checking, this forms a full proof of backing of all crypto assets.
However, obviously customers care about their private information being published. Therefore, a hash of the information can be provided instead. Hash is one-way encryption. The hash allows the customer to validate inclusion (by hashing their own known information), while anyone looking at the list of hashes cannot determine the private information of any other user. All other parts of the scheme remain fully intact. A model like this is in use on the exchange CoinFloor in the UK.
A Merkle tree can provide even greater privacy. Instead of a list of balances, the balances are arranged into a binary tree. A customer starts from their node, and works their way to the top of the tree. For example, they know they have 5 BTC, they plus 1 other customer hold 7 BTC, they plus 2-3 other customers hold 17 BTC, etc... until they reach the root where all the BTC are represented. Thus, there is no way to find the balances of other individual customers aside from one unidentified customer in this case.
Proposals such as this had the backing of leaders in the community including Nic Carter, Greg Maxwell, and Zak Wilcox. Substantial and significant effort started back in 2013, with massive popularity in 2014. But what became of that effort? Very little. Exchange operators continue to refuse to give visibility. Despite the fact this information can often be obtained through trivial blockchain analysis, no Canadian platform has ever provided any wallet addresses publicly. As described by the CEO of Newton "For us to implement some kind of realtime Proof of Reserves solution, which I'm not opposed to, it would have to ... Preserve our users' privacy, as well as our own. Some kind of zero-knowledge proof". Kraken describes here in more detail why they haven't implemented such a scheme. According to professor Eli Ben-Sasson, when he spoke with exchanges, none were interested in implementing Proof of Reserves.
And yet, Kraken's places their reasoning on a page called "Proof of Reserves". More recently, both BitBuy and ShakePay have released reports titled "Proof of Reserves and Security Audit". Both reports contain disclaimers against being audits. Both reports trust the customer list provided by the platform, leaving the open possibility that multiple large accounts could have been excluded from the process. Proof of Reserves is a blockchain validation where customers see the wallets on the blockchain. The report from Kraken is 5 years old, but they leave it described as though it was just done a few weeks ago. And look at what they expect customers to do for validation. When firms represent something being "Proof of Reserve" when it's not, this is like a farmer growing fruit with pesticides and selling it in a farmers market as organic produce - except that these are people's hard-earned life savings at risk here. Platforms are misrepresenting the level of visibility in place and deceiving the public by their misuse of this term. They haven't proven anything.
Fraud isn't a problem that is unique to cryptocurrency. Fraud happens all the time. Enron, WorldCom, Nortel, Bear Stearns, Wells Fargo, Moser Baer, Wirecard, Bre-X, and Nicola are just some of the cases where frauds became large enough to become a big deal (and there are so many countless others). These all happened on 100% reversible assets despite regulations being in place. In many of these cases, the problems happened due to the over-complexity of the financial instruments. For example, Enron had "complex financial statements [which] were confusing to shareholders and analysts", creating "off-balance-sheet vehicles, complex financing structures, and deals so bewildering that few people could understand them". In cryptocurrency, we are often combining complex financial products with complex technologies and verification processes. We are naïve if we think problems like this won't happen. It is awkward and uncomfortable for many people to admit that they don't know how something works. If we want "money of the people" to work, the solutions have to be simple enough that "the people" can understand them, not so confusing that financial professionals and technology experts struggle to use or understand them.
For those who question the extent to which an organization can fool their way into a security consultancy role, HB Gary should be a great example to look at. Prior to trying to out anonymous, HB Gary was being actively hired by multiple US government agencies and others in the private sector (with glowing testimonials). The published articles and hosted professional security conferences. One should also look at this list of data breaches from the past 2 years. Many of them are large corporations, government entities, and technology companies. These are the ones we know about. Undoubtedly, there are many more that we do not know about. If HB Gary hadn't been "outted" by anonymous, would we have known they were insecure? If the same breach had happened outside of the public spotlight, would it even have been reported? Or would HB Gary have just deleted the Twitter posts, brought their site back up, done a couple patches, and kept on operating as though nothing had happened?
In the case of Quadriga, the facts are clear. Despite past experience with platforms such as MapleChange in Canada and others around the world, no guidance or even the most basic of a framework was put in place by regulators. By not clarifying any sort of legal framework, regulators enabled a situation where a platform could be run by former criminal Mike Dhanini/Omar Patryn, and where funds could be held fully unchecked by one person. At the same time, the lack of regulation deterred legitimate entities from running competing platforms and Quadriga was granted a money services business license for multiple years of operation, which gave the firm the appearance of legitimacy. Regulators did little to protect Canadians despite Quadriga failing to file taxes from 2016 onward. The entire administrative team had resigned and this was public knowledge. Many people had suspicions of what was going on, including Ryan Mueller, who forwarded complaints to the authorities. These were ignored, giving Gerald Cotten the opportunity to escape without justice.
There are multiple issues with the SOC II model including the prohibitive cost (you have to find a third party accounting firm and the prices are not even listed publicly on any sites), the requirement of operating for a year (impossible for new platforms), and lack of any public visibility (SOC II are private reports that aren't shared outside the people in suits).
Securities frameworks are expensive. Sarbanes-Oxley is estimated to cost $5.1 million USD/yr for the average Fortune 500 company in the United States. Since "Fortune 500" represents the top 500 companies, that means well over $2.55 billion USD (~$3.4 billion CAD) is going to people in suits. Isn't the problem of trust and verification the exact problem that the blockchain is supposed to solve?
To use Quadriga as justification for why custodians or SOC II or other advanced schemes are needed for platforms is rather silly, when any framework or visibility at all, or even the most basic of storage policies, would have prevented the whole thing. It's just an embarrassment.
We are now seeing regulators take strong action. CoinSquare in Canada with multi-million dollar fines. BitMex from the US, criminal charges and arrests. OkEx, with full disregard of withdrawals and no communication. Who's next?
We have a unique window today where we can solve these problems, and not permanently destroy innovation with unreasonable expectations, but we need to act quickly. This is a unique historic time that will never come again.
436 BTC were traded using LocalBitcoin last week,trading Bs. /BTC and BTC/Bs. (Bolivares, Venezuelan "official" currency).These 446 BTC were 1,610,000,00,000 Bs.(ATH).One BTC is around 4,000,000,000 Bs. Monthly minimum wage is around 2.3 USD.Inflation from March 2013 to July 2020 was 18,427,384,550%
Hi guys, as you might know I'm a Venezuelan "living" here. August trade using LocalBitcoin closed under 2,000 BTC. Venezuelan Central Bank posted today the inflation rate.
From January 2020 to July 2020 it was 492%.
From July 2019 to July 2020 it was 2,359%.
From March 2013 to July 2020 it was 18,427,384,550%
Best places to trade your Ripple/XRP (longer read)
In the past when you heard the word ‘cryptocurrency’, the first thing that came to everyone’s minds was Bitcoin. To some, this is still the case; they believe that Bitcoin is the cryptocurrency and the vice versa to also be true. Of course, the statement is correct in one way; Bitcoin is a cryptocurrency, but cryptocurrency is not made up of only Bitcoin but a host of other currencies. One of these currencies is Ripple. When it comes to the top five cryptocurrencies with the highest capitalization, Ripple needs no introduction as it has managed to secure a position of being the third most traded cryptocurrency around the world. Perhaps this is due to the fact that Ripple is the only cryptocurrency with a backing from traditional legacy financial institutions. In addition, the coin has been integrated into the operation of thousands of small businesses around the world. At this juncture, it is only fair that you learn how to be a part of this great innovation. Thankfully, that is what this guide is all about, showing you some of the best trading platforms for Ripple. There are numerous exchanges that offer decent exchange rates and well-matched trading pairs, but I’ll only narrow down to some of our best picks to help you get started fast.
What is Ripple (XRP)?
Ripple is a cryptocurrency, a currency exchange, a real-time gross settlement payment system, and a remittance network powered by Ripple. As I mentioned before, this is the third most capitalized cryptocurrency asset after Bitcoin and Ethereum. XRP allows enterprises such as banks and other financial service providers to offer their clients a reliable option to source for liquidity for cross-border currency transactions. Ripple is a distributed, open-source platform that seeks to capitalize on the weaknesses of the conventional money payment systems such as credit and debit cards, PayPal, bank transfers, among others. According to Ripple, these payment systems expose users to a lot of transaction delays and restrict the fluidity of currencies. The platform aims at replacing traditional payment systems through offering a faster, safer, and more convenient alternative for making payments. Both the platform’s exchange and tokens are called Ripple, and their mantra states one frictionless experience to send money globally.
Where Can I Trade XRP?
Most exchanges that trade Ripple are limited to crypto-to-crypto transactions. This means that you can only trade Ripple with another cryptocurrency and not fiat currencies such as the euro or the dollar. You’ll need to acquire the currency you wish to trade with XRP on a platform that accepts fiat, and once that happens, you can proceed to trade the two currencies. There are several great platforms that offer XRP trading; below are just a few:
Buying XRP on Binance
Buying XRP on Bittrex
Just like on Binance, you’ll need to create an account on Bittrex to get started. The process is pretty much straightforward, only requiring you to sign up using your email address and password. Once you’re done signing up, click on the wallet tab. You will be taken to a page where you can view all the deposit addresses of the cryptocurrencies on the Bittrex platform. You can then choose the currency to use to purchase XRP, after which, you will be required to type in the code of the currency you will be using to purchase Ripple. If you’re using Ethereum, you can type in the search bar “ETH” and then click on the green arrow to reveal the deposit address. In case you will be sending the funds from a different exchange, you’ll need to paste the address to that platform. Next, you’ll need to send funds to your Bittrex account. Bittrex permits payments using both fiat and cryptocurrencies. So, depending on what you will be using, send money to your online wallet and proceed to trade it with Ripple.
Buying XRP on Changelly
Changelly is another Ripple exchange that requires you to use either Bitcoin or Ethereum to acquire XRP. The exchange doesn’t have an inbuilt wallet, so you’ll need to store your funds on a separate hardware or software wallet. You can pretty much use any type of wallet, but the most secure ones are the hardware ones as they store your coins in an offline cold storage area. Ripple prefers not to have many unutilized accounts being set up on its platform; this is why you’ll need to have a minimum of 20 XRP in your account for you to get started. However, if your first transaction will be more than 20 XRP, then you’re all set. Once you have a wallet ready for your Ripple, head to the Changelly site and click on “input currency”. Here, you will be able to enter the currency you wish to trade for Ripple. You can basically pick and use any coin listed on the site, but it is highly recommended that you use either Bitcoin or Ethereum due to their high liquidity. The output section will have Ripple, which is the currency you wish to receive. The next step will require you to key in your XRP address, which is your Ripple address and the destination tag, which is a description of the transaction. You can now proceed to trade your chosen coins for Ripple. The transaction shouldn’t take long, and you will be able to receive the coins in your Ripple wallet.
Cryptmixer is a platform that assists users to swap XRP with 5 other assets freely. The interface lets users convert assets directly from one’s wallet, without having to create an account or register. Besides, the service helps to compare different providers and find a suitable deal for handling Ripple transactions securely, rapidly, and at the best rate. The process of using Cryptmixer is quite simple:
Go to the main page, choose the currency you’d like to swap, and enter the amount.
Choose XRP to receive.
Review the amount to see how much you will receive. Cryptmixer will automatically find the best rates for your trade.
Then, enter the wallet address that you wish to use.
Send in the deposit to the generated wallet address and wait for the transaction to be processed.
What makes Cryptmixer a great fit is that it provides a very simple layout and quick process so it’s not chore when you trade your crypto. The support line also takes on the job of solving the cases by cooperating with users with top priority. To learn more on how to exchange XRP at the best rate check https://cryptmixer.com
Buying XRP on Coinmama
Coinmama is a cryptocurrency exchange that has been around for quite a while now. The Coinmama team has been adding more coins on their platform over time to be able to provide its users with a wider variety of trading pairs. More recently, the platform included Ripple on its platform. However, Coinmama does not allow US-based users to purchase Ripple due to some stringent laws and regulations surrounding the coin. But for non-US users, you can proceed to create your account on the platform and locate Ripple among the listed assets. Once you’ve created your account, navigate your way to the area with the list of assets. Select one of the provided packages and proceed. You’re required to have a crypto wallet prior to making any purchase on the platform, so be sure to have a valid wallet address before completing the purchase. Once that’s done, purchase your Ripple coins and they will be delivered to your wallet.
Storing Your Ripple Coins
Online storages are never safe for cryptocurrency assets. Individuals have woken up to all sort of horrific sceneries on their accounts that left them bankrupt with no one to turn to. One of the most important concepts you need to grasp about online businesses is the security of your transactions. Cryptocurrency burglars are everywhere and are getting smarter by the day; this means that traditional ways of guaranteeing the security of your online assets are no longer effective. Most exchanges have top-notch security standards, but the safety of your cryptos begins with you. A great way of ensuring that your funds are secure is by getting an offline storage device for your coins. I’ve seen great reviews on two hardware wallets that I highly recommend; these are the Ledger Nano S and Trezor wallets. After getting the wallet of your choice, keep your personal data such as passwords and secret words private; this will ensure that no one else gains access to your wallet even if you misplace it. Writing your password or PIN on open places or somewhere in your phone might not be a good idea; yes, it may be convenient for you, but it will be for the burglar too.
What method of purchasing XRP is considered to be the best?
The most secure and common way of acquiring Ripple is through buying Ethereum or Bitcoin from Coinbase or Coinmama, then transferring the same to Cryptmixer to use to exchange with Ripple. This is because Ripple is currently not available for purchase by using fiat currencies.
What is the best trading platform for Ripple?
Ripple is available on a decent number of exchanges including Binance, Coinmama, Coinbase, Bittrex, Cryptmixer, and more. However, among the stated ones, I have found Cryptmixer to be more secure and easier to use while it also offers the best trading rates and fees.
The Bottom Line
As we conclude, you now have some of the best choices when it comes to the exchange to acquire Ripple coins. After buying your XRP coins, store them offline on a secure device due to the risk of being faced by threats such as hacking or system failures. If you’re serious about making cryptocurrency your investment vehicle in the long run, consider investing in a more lasting security solution such as a hardware storage device. You may not get them for a few pennies, but trust me when I say they are worth every last dime you spend on them.
Decentr ($DEC) - foundational cross-chain and cross-platform DeFi protocol
Decentr is a protocol designed to make blockchain/DLT mainstream by allowing DeFi applications built on various blockchains to “talk to each other”. Decentr is a 100% secure and decentralised Web 3.0 protocol where users can apply PDV (personal data value) to increase APR on $DEC that users loan out as part of of our DeFi dLoan features, as well as it being applied at PoS when paying for stuff online. Decentr is also building a BAT competitor browser and Chrome/Firefox extension that acts as a gateway to 100% decentralised Web 3.0
Allows DeFi Dapps to access all Decentr’s dFintech features, including dLoan, dPay. Key innovation is that the protocols is based on a user’s ability to leverage the value of their data as exchangeable “currency”.
Decentr is building foundational chain-agnostic protocols that will support “true” 100% DeFi Dapps, a 100% secure and decentralised, user-centric alt economy. DeFi dApps inter-connected by Decentr can talk to each other and share PDV (personal data value) of their users. PDV is best described as a personalized “exchange rate” (in a sense social reputation where more effort leads to more rewards and NOT more capital to more rewards. ) between currencies that users apply at point-of-sale to make the cost of goods and services cheaper online. PDV is applied to the APR users earn on $DEC (native token) that they hold that they loan out as part of the investing pool. PDV will also allow uncollateralized loans on their dLoan platform, and also on platforms like Aave and Compound.
Decentr will implement ZKsync to get super cheap and super fast transactions across the ETH network. It is also working with HoloChain and Tomochain to allow connect their DeFi ecosystem to the Ethereum DeFi ecosystem. Decentr has DEEP TIES and a PARTNERSHIP with Holochain: https://medium.com/@DecentrNet/decentr-holochain-ama-29d662caed03
Decentr is also building a browser and Chrome/Firefox extension - a gateway that “transitions” Web 2.0 into a 100% decentralised Web 3.0 via their suite of decentralised dFintech and dCommunications features. The browser adds a 100% decentralised “user layer” to current blockchain protocols so that applications built on blockchain can actually “talk to each other”. The browser uses encryption all the time and the power of blockchain to keep private keys safe. Browser will offer a more robust and innovative type of blockchain storage and caching that is much faster than VPN or TOR. It will allow surfing .onion addresses as well as the regular ones. >>BAT browser 400m marketcap, DEC marketcap 4m<<
Decentr is researching a hardware application, powered by Decentr software, that would greatly enhance current IoT networks. It’s called a “Smart Chip Node” (SCN) and will adhere to 4G LTE standards (with in-built 5G capability), which means connectivity between devices will match or exceed current speed and connectivity, dramatically improving stability and coverage of standalone devices, such as a laptop or tablet, as well as IoT devices, such as home routers and modems.
Decentr uses Coinbase API to optimise integrated implementation of the user layer and Blockchain as a Service (BaaS) to allow users to leverage cloud-based solutions to build, host and use their own blockchain apps. Tierion’s technological infrastructure, the Chainpoint Proof protocol, will come into play whenever a user adds something in Tierion’s data store. Hyperledger Fabric and R3 Corda private blockchains are used as an immutable transaction database for data transfers, including the following tech: R3 Corda, Hyperledger Fabric, Ansible, Bitbucket Pipelines, AWS, Node.JS, GoLang, Kotlin and CouchDB.
Implements a system of layered security protocols based on a radically-new software architecture that combines Elliptic Curve Cryptography (ECC)4 and Sobol sequencing with a n-dimensional chain as part of AI-enhanced, platform-wide community consensus mechanism — a mechanism that assigns mutually agreed value to data and user security protocol upgrades (further encouraging enhanced data integrity) by deploying a Delegated Proof of Stake (DPoS) protocol.
Bank of England has reached out to Decenr to discuss the potential of a UK CBDC upon hearing about the potential of their tech. Decentr is consistent with their own R&D into a "dGBP" and they requested a top-level document for review >> Decentr created this proposal: https://decentr.net/files/Decentr_Consultancy_Doc_UK_CBDC.pdf
A fee is charged for every transaction using dPay whereby an exchange takes place between money (fiat and digital) and data, and vice versa, either as part of DeFi features or via a dApp built on Decentr. They are launching pilot programmes in the following industries:
Banking/PSP Industry: On Product launch, due to Decentr’s powerful PSP connections (including the worlds #2 PSP by volume), a medium-scale pilot program will be launched, which will seed the network with 150,000 PSP customers in primarily the Spanish/LAC markets, generating revenue from day one.
“Bricks and Mortar” Supermarket/Grocery Industry: Decentr aims to ensure the long-term competitiveness of “bricks and mortar” supermarkets against online-only grocery retailers, such as Amazon, by a) building secure tech that allows supermarkets to digitise every aspect of their supply chains and operational functions, while b) allowing supermarkets to leverage this incredibly valuable data as a liquid asset class. Expected revenue by Year 5: $114Mn per year.
Online Advertising Industry: Decentr’s 100% decentralised platform credits users secure data with payable value, in the form of PDV, for engaging with ads. The Brave browser was launched in 2012 and in 8 years has reached over 12 million monthly active users, accented by as many as 4.3 million daily active users.
TOKEN $DEC AND SALE
Decentr recently complete their token sale on a purchase portal powered by Dolomite where they raised $974,000 in 10 minutes for a total sale hardcap of 1.25M. The $DEC token is actively trading on multiple exchanges including Uniswap and IDEX. Listed for free on IDEX, Hotbit, Hoo, Coinw, Tidex, BKex. Listed on CoinGecko and Coinmarketcap. Listed on Delta and Blockfolio apps. ➡️ Circulating supply: 61m $DEC. ➡️ Release schedule and token distribution LINK -> NO RELEASE UNTIL 2021.
A tradeable unit of value that is both internal and external to the Decentr platform.A unit of conversion between fiat entering and exiting the Decentr ecosystem.A way to capture the value of user data and combines the activity of every participant of the platform performing payment (dPay), or lending and borrowing (dLend), i.e a way to peg PDV to tangible/actionable value.Method of payment in the Decentr ecosystem.A method to internally underwrite the “Deconomy.
You have probably read dozens of articles dedicated to this subject before, and likely skipped even more. So why write another one, let alone read it? The short answer is times have changed. Well, times always change. Still, the point is that we may be amidst a paradigm shift in the cryptocurrency space right now even if we don’t feel it yet. by stealthEX Such a fundamental change is possible due to a confluence of several factors. Some of these factors are external and therefore not related to crypto. Others are internal and represent the value-oriented nature of cryptocurrencies. It just happened that all of them got activated under specific conditions at a certain point in time, which is today, give or take.
Economic woes in a post-Covid-19 World
You wouldn’t be far from the truth if you claimed that we haven’t yet pulled through the pandemic, to begin with. Unfortunately, it only makes matters worse unless you are a cryptocurrency investor and don’t care for the rest of humanity. Anyway, the damage has been done, and nothing can change that. We are now entering the phase that is technically called “competitive devaluations” and colloquially known as currency wars. You could also argue that if it didn’t happen at the peak of the coronavirus pandemic, it is not going to happen now. The sad truth is that we are only starting to feel the real pain. Even the deadly coronavirus doesn’t take over the body instantly, while it takes some time on the scale of a few months up to a couple years for the economic disease to spread through the fabric of society, evolve, and then erupt with inflation rates shooting through the roof, among many other nasty things. Please take your seat. The world reserve fiat, the American dollar, is sinking like Titanic, slowly but surely. We can’t say the same about less lucky currencies, though. We won’t dwell on the Venezuelan bolivar and Zimbabwean dollar as they are altogether beyond redemption, but fiats like the Brazilian real and Russian ruble are also balancing on the brink of another landslide devaluation, which they have seen many in the past. Sharp minds in the cryptocurrency space have been telling us about this development for ages. It all looked like a remote possibility in some distant future that as we felt deep down wouldn’t have a chance to come up in our lifetime. As it stands, we were wrong, and the events described are now starting to unfold right before our own eyes. In a strange twist of fate, large-scale cryptocurrency adoption is about to occur along with them, but not through some technical breakthroughs and innovation, or even the much-hyped DeFi, but primarily through the failure of conventional financial systems based on fiat currencies. Rest assured, the top dogs in the cryptocurrency pit are well aware of this dynamic, and they are not going to wait any longer. Grayscale Investments, a multi-billion dollar company behind a host of cryptocurrency trust funds, started to frenziedly buy up bitcoins a couple weeks ago. All in all, it acquired over 17,000 BTC adding to its already quite impressive stash of Bitcoin, now totalling almost 450,000 coins under its management. Love it or leave it, but it amounts to 2.4% of all bitcoins mined to date, including lost, burned, or left for dead as dust in Bitcoin wallets. In essence, it means that their effective share is way higher. But while Grayscale definitely sits at the top of the cryptocurrency investment chain, it is not the only company that went on a buying spree lately. MicroStrategy, a company largely unknown to the wider public, suddenly got religion and swapped over $400 million of its capital into 38,250 BTC. Even Barry Silbert, CEO of Grayscale, commented on this feat in his tweet. Twitter, by StealthEX So whenever there is a hint at price correction, someone comes out of the shadows and picks up a handful of bitcoins from the market propping up the price. Why are they doing this? You already know the answer.
In different words, all that cryptocurrencies had to do was to last long enough until fiat started to fall apart. It does now, and paradoxically such times are also times of great opportunity, Baron Rothschild’s way. The world’s largest cryptocurrency exchange, Binance, has been pushing its cryptocurrency payment card since April when it acquired Swipe, a firm focused on crypto-to-fiat payment cards. At the time of the acquisition Swipe already supported 20 cryptocurrencies and fiat transactions in major currencies. Binance.com, by StaelthEX For European users the Binance card was officially made available in August, and the exchange plans to enter the US market soon. Given its dominance in the crypto arena, it wouldn’t be unreasonable to expect the surge in the cryptocurrency use as a means of payment thanks to this. It is unlikely that people would spend their precious bitcoins, but the packmaster is not the only member of the pack that Binance handles. Cryptos like Litecoin or Bitcoin Cash can easily become currencies of choice to use with Binance debit cards. But what truly makes it a game-changer is the current turmoil in the global economic affairs which may turn out to be a once-in-a-lifetime chance for crypto to pick up where fiat currencies leave, or fail, to be exact. On the other hand, it may be a natural development after all, set in stone by the very first Bitcoin transaction and cemented for good when it got confirmed. Now things start to arrange themselves to fit their preordained layout. We have taken our time. As cryptocurrencies are not internally linked to, or tied by, the lunatic policies of monetary authorities, that is to say, no central bank can ask or force miners to mine more bitcoins, we have the first element in place in the layout for the cryptocurrency mass adoption to occur at the most basic level. In fact, it has always been there, so we just had to wait until the two other elements arrived, even though it took longer than most of us were ready to wait. The second required element in the grand picture of cryptocurrency adoption is the change in attitude toward wealth evaluation. So far the vast majority of people involved in crypto, including its most die-hard supporters, valued their cryptocurrency holdings in fiat terms. Without doubt, it was the US dollar, regardless of your home currency. But when fiat collapses or enters a long period of runaway inflation, people will be ready for a dramatic change in their approaches toward capital assessment as well as spending habits. And here comes the most important part where Binance hits the nail on the head. If you are unable to effortlessly spend crypto in your everyday life, the first two components cannot trigger this change in attitude on their own. We need this third element to make use of what has existed and take advantage of what has come around. In a way, what Binance did, and what its competitors are no doubt going to do as well if they don’t want to miss out on the opportunity, appears to be the part that snugly snaps into place when we finally get there. With Binance payment card, you can “buy the things you love with crypto”. So now the ball is in your court to support the full-scale cryptocurrency adoption coming up. Kidding aside, with fiat turning into trash by leaps and bounds all over the globe, this looks like a very enticing payment option for both the crypto purists and the unbanked. We have seen quite a few such cards in the past, but Binance seems to be adamant on making its variety really popular and actually usable. And then you can ride volatility waves to your financial benefit. If Binance succeeds, that may herald a new era of cryptocurrency adoption, a breakthrough of sorts after so many years of stagnation in this department.
Repercussions and ramifications
It is not like only we, traders and investors alike, see these trends. Governments are also taking notice and paying close attention. They can’t remove cryptocurrencies and they can’t help inflating their national currencies. However, they can still crack down massively on this and similar endeavors, trying to nip them in the bud. We don’t know yet what Uncle Sam is going to say but some muslim countries have been quite vocal in this regard. For example, Egypt has issued a fetva which prohibits bitcoin transactions as being against Sharia, an Islamic religious law. Another mostly Islamic country, Indonesia, has banned the use of cryptocurrencies as a means of payment. Russia, although not Islamic yet, is hellbent on effectively outlawing most cryptocurrency operations despite passing earlier a law on digital assets which is essentially neutral to crypto. To conclude, we must be aware that once things get serious and governments see that their monetary supremacy is being threatened, that they can no longer play their favorite game of inflation tax, they will leave no stone unturned to prevent mass use of crypto as an alternative means of payment. And cryptocurrency payment cards are hands down one of the best tools available for this use on a down-to-earth level, groceries and whatnot. Now you know what their target will be. And don’t forget if you need to exchange your coins StealthEX is here for you. We provide a selection of more than 300 coins and constantly updating the cryptocurrency list so that our customers will find a suitable option. Our service does not require registration and allows you to remain anonymous. Why don’t you check it out? Just go to StealthEX and follow these easy steps: ✔ Choose the pair and the amount for your exchange. For example BTC to ETH. ✔ Press the “Start exchange” button. ✔ Provide the recipient address to which the coins will be transferred. ✔ Move your cryptocurrency for the exchange. ✔ Receive your coins. Follow us on Medium, Twitter, Facebook, and Reddit to get StealthEX.io updates and the latest news about the crypto world. For all requests message us via [email protected]. The views and opinions expressed here are solely those of the author. Every investment and trading move involves risk. You should conduct your own research when making a decision. Original article was posted onhttps://stealthex.io/blog/2020/10/06/cryptocurrency-adoption-a-breakthrough/
Now transactions in the TkeyNet network are instant. You won’t even notice how the TKEY delivers to the recipient. For example, when you send a payment from card to card, and after a few seconds, the money is in the recipient’s possession. Despite the fast speed of transactions, the system has not only preserved its security properties but also strengthened them and still works on the blockchain.
“The chain of information a store on every computer in the network. The addition of information occurs by using cryptographic functions, allowing you to identify the information for any period. When a new data block adds to the TkeyNet network, the integrity of all previous information confirm by the entire TkeyNet, and each node checks its integrity.”
What is it for, and how does the “Financial Marketplace module” work?
TkeyNet combines various assets in a single system, creating instant access to liquidity. Digital exchanges connect to TkeyNet and provide assets for exchange: BTC, USDT, ETH, and others. For example, Kraken connects to TkeyNet and provides digital assets: ETH, ETC. Binance: USD, BTC. Bitfinex: USDT, EOS, etc. Exchanges can provide any assets that trade on their platforms. The blockchain acts as a Registrar of financial transactions. Accounts, balances, and orders store in a distributed registry TkeyNet, and copies of data to distribute across network TkeyNet nodes. Payment routing is implemented in the TkeyNet system, which allows you to track not only balances but also distribute transactions without the participation of any party. The user, in turn, has quick access to transactions with digital currencies, regardless of the blockchain used: Bitcoin, Ethereum, EOS, or any other, transactions are recorded in TkeyNet, and transactions are processed instantly.
“The task of the platform is to automate the interaction of the parties and ensure the convenience of performing operations. — This is the core element of a trusted environment.”
In addition to digital assets, the “Financial Marketplace module” includes working with Fiat currencies, stocks, bonds, as well as raw materials: oil, gas, diamonds, etc. — This means that payment systems, banks, currency exchanges, commodity exchanges, and other financial market participants, are also connected to the TkeyNet blockchain.
Payments between companies in a few seconds
https://preview.redd.it/v84fizszvdp51.png?width=1920&format=png&auto=webp&s=e501b06661b2a960fe75abe07a1aba5177db620d Companies can make payments in seconds, not days. TkeyNet can seriously mitigate the adverse risks of extraterritorial sanctions against the financial system of the countries if such follow. Also, the ability to conduct internal and cross-border transfers through an independent financial channel directly to the counterparty at high-speed is beneficial to business and the state from any point of view. Each user will be able to make quick transfers to counterparty wallets, exchange digital currency for another or fiat money at the current exchange rate.
What else is interesting? — Applications
Developers can connect to TkeyNet and get access to a large-scale pool of liquidity: digital currencies, stocks, precious metals, etc. This solution not only reduces development costs but also allows you to get access to the best prices and fast exchanges. You can create any financial application, regardless of the market usage: a cryptocurrency, or financial markets. Developers can create a digital Bank or exchange, fast connect the app, and TkeyNet using the API.
“By working with partners around the world, we can significantly increase our market share in this business, providing our partners with ready-made tools without risks.”
And also regardless of the applications that will be created by partner developers. The company will provide its interfaces that will provide access to various types of assets — digital currencies: BTC, USDT, ETH, etc.; Fiat currencies: euros, dollars, pounds, etc.; securities and commodity assets. https://preview.redd.it/23whmnm1wdp51.png?width=679&format=png&auto=webp&s=52bf10bf43268f835cff981a110d41528b838a89 Anywhere in the world, at any time, the system user will have access to the desired currency without having to exchange one for another. Also, when implementing the application for NFC payments, it will become even easier to use the system. However, even with the availability of several types of currencies, such as the pound, dollar, and euro, it is easy to make payments abroad.
“According to the World Bank, more than 1.7 billion adults are still not covered by banking services, but two-thirds of them have a mobile phone that can help them access financial services. — This tells us one thing: the traditional banking approach is exceptionally inefficient. Lack of infrastructure: a network of ATMs, fees and deposits, a network of cashiers, and internal money transfer programs are just some named obstacles to creating a real banking experience.”
Imagine that in one app you have access to Apple shares, Tesla shares, gold, precious metals, rubles, dollars, and even oil if you want. TkeyNet — makes this possible. TkeyNet is an industrial solution designed for companies and users at the same time. Since payments in the system are very fast, a person can store and send money in any asset they want. This flexibility creates an open market, which is necessary at present.
TkeyNet back-end — completed. Currently, we are actively working on the front-end side. Regardless of working on the front-end side, the TkeyNet system is tested on an ongoing basis.
CDCs business model explained - And how this benefits you
wanted to make this post a long time ago but never found the time around it. Right now I feel it justifies a simplified version where I think people can do their own calculations and assumptions. Please put your own opinion on it. But I hope this explains a bit why CDCs decision was good (for them) but not for us.
Their original idea turned a flop. Why? The Cashbacks. I loved the cashbacks but from a business perspective they made no sense: - Other companies cap the cashbacks because they are loss making. - CDC had to share creditcard revenue with AND visa AND wirecard. - Cashbacks are used for crosselling (get a bank account, insurance, loan for your house etc). The lifetime value of a customer makes it viable. - A big chunck of their customers (EU) live in an area where creditcard companies’ shares on purchases are capped at lower rate than the cashbacks. I think this point needs almost no further explanation as the increases costs to get a card clearly show CDC understand this as well.
Industry standard rates, but unsustainable. If you take someones money for interest that means you earn a higher interest rate on that money than you give back. Might be possible with crypto on the short term but very risky. Arguments that you can get these rates on for example SGD are invalid as SGD is not pegged to BTC. Some rates such as the rate for CRO is indeed sustainable for CDC. Don’t want to go too far in it as other people will be more knowledgable in this than me, but: something about interest rate & inflation.
Only use of this is to use it for leverage trading. If you need a loan you wont lock 100% to receive 50%.
Their mastermove, and with a domain like crypto.com the ability to get very big. Google how much Binance made and you know the possibilities. On top of this they created their own monopoly on CRO. Making sure all tokens held by customers are effectively locked. This means they will earn money twice: - On the trading fee; and - On selling you the crypto used to pay the trading fee.
I suspect the four elements described above are all loss-making as of now. But who cares? CDC managed to do what every company dreams of: providing their own financing by printing money. Best of it: 1) they control the price, 2) no need to pay it back, and 3) no need to pay interest. Not even triple A countries with negative interest rates get this good of a deal as they won’t be able to refinance those bonds into perpetuity.
We do not own shares, we own tokens. To make this a valuable investment you want your tokens to go up in value. I know as of now both are up in value but looking longer term here. The value of your tokens can be drilled down to the following: supply and demand. MCO: First of all, I am in favour of CDC using a fractional reserve, or capital requirement to reinvest your money. Ofcourse with checks on their risk profile but how else are they gonna make money from your stakes. It cant be only giving cashbacks and free cards. With or without a reserve the value of MCO would go up eventually. - locking cards causes buying pressure - card cashbacks cause buying pressure (assuming not resold immediately) - Dynamic pricing of cards would cause selling pressure (when CDC is out of MCO it is up to you to sell, some people are happy to sell for $10, keeping the same card and basically freeing an extra card (or 5 - fractional reserve) for someone else. Others want to do it later. Significant gains on your MCO might take long with this process and is based on adoption but would come. CRO:
Trading fees cause demand
Syndicates cause demand (less sustainable as rewards are quite limited with the current oversubscription.
The problem here is the absence of the long term incentive for CRO holders. Right now CRO made very good gains. Personally I don’t understand why but also I cant complain about what it gave me. But in the long term CDC controls the supply. You will never get the good deal you wanted because there is such an absolute whale on the market. See how a bitcoin whale can influence the price of a token and compare their small share to the massive amount of CRO held by CDC. This will not be viable until the market controls the token - which is far, far in the future. Just my thoughts. Do with it as you please. You may not agree, which is your good right. But I hope it makes you think critically about what you are investing in and about the implications of a swap. As in my opinion the upside potential of MCO gets moved from the token investor to CDC. A smart move from their side, one that I totally understand. But there are clearly some losers here (me, us).
Weekly Update: ParJar Swap private beta, Fantom Opera Network Special-fee Contract, SelfKey + ThreeFold, Open Staking live on Harmony…– 15 May - 21 May'20
Hey Parachuters! Seems like ages since I last posted a weekly update, right? Unfortunately, got super busy with IRL work and couldn’t keep up. But fret not! I finally scraped some time out today to get upto speed with all the news from the Parachute universe in May and June and organised them into a series of weekly updates like the ones I used to write earlier. But instead of posting them one by one everyday, thought it might be best to release them all at one go. So here's Part I of VI - All that happened at Parachute + partners from 15 May - 21 May'20: The ParJar swap feature beta testing started this week with a call to testers far and wide. Click here for the latest update and stats on ParJar straight from Cap's mouth - "...it took almost two years of betas and growth to reach 1 million tips (March 7th) nd it’s taken 2 months to to add another 400k..". Amazing! The #par4par raffle continues with a 500k $PAR pool. Peace Love hosted a general knowledge trivia in TTR this week for 10k $PAR in prizes. Gamerboy’s random trivia and Victor’s “Big Trivia” in Tiproom were quite fun as well. Naj (who’s also this week’s Parena winner) hosted a six set quiz in TTR. Charlotte’s been hosting quizzes in a new format for quite some time now. This week too she held one in Tiproom. Jason started a #culturalweekend prompt with an invitation to Parachuters to share "about a cultural dance or ceremony" from their area. "Explain in detail about the dance and why it is important" for some cool $PAR. Among many of the cool stories shared by Parachuters included Nico’s Occitan music from Italy and Soleira’s Dancing Devils of Tinaquillo. Congratulations to Clinton’s FLI charity for partnering with Lumenthropy which is Stellar's philanthropic arm. Remember, all profits from the Parachute Shop go to FLI. Another crypto league with a 150k $PAR prize pot started this week. Gian’s Two-For-Tuesday was a free for all. To revisit all the awesome music posted for 2FT, check out the playlist made by Sebastian. Naj came back from near certain defeat in the finale to win this week’s Parena aXpire CEO Matthew Markham penned an article on remote work and billing software for legal firms. An updated e-flyer for Bilr was released as well. To track the latest $AXPR burn, click here. 2gether added customer support capabilities to their Twitter, Facebook and Discord. Plus, an incident tracker status page was added this week. The XIO dApp which is still in private beta has already seen 500k+ $XIO tokens locked into it. Awesome! To get a feel of how the dApp works, check out Dash’s latest video demo where he also shared some updates on tokenomics. Uptrennd founder Jeff Kirdeikis interviewed Dash over an hour long session to talk all things XIO. $XIO got listed on Idex. Click here to watch an update video on the latest developments. For XIO discussions this week, Citizens brainstormed over the base liquidity pair on Uniswap V2. DeFi Nation’s Clayton Roche wrote a detailed commentary on what XIO is doing right. Birdchain’s mid-May update came out this week. Voyager hosted a business update conference call this week. CEO Steve Ehrlich talked about the platform and crypto in general with Charlie Shrem on the Untold Stories podcast this week. Voyager’s Q3 2020 results were released. Still figuring out how to fund your Voyager wallet? Watch this video to find out. An upgrade to Fantom’s Opera Network was pushed which allows staking different amounts over time. For the latest project update, click here. A community AMA also happened this week where the team talked about a new staking proposal called Fluid Staking. Jeff from Uptrennd sat down to interview IOST co-founder Terry Wang this week. Uptrennd broke into the top 20k Alexa global rankings. Woohoo! GET Protocol’s GUTS Tickets app is now available in Italian as well. DoYourTip’s $DYT is now available on Uniswap V2. What a welcome sight for support engineers. Source: https://2gether.statuspage.io/history Switch’s $ESH token was listed on Stex, ProBit, Crex 24, Hotbit, Bilaxy and Bitcoin.com this week. Bitcoin.com also announced support for the $GHOST airdrop along with a deposit and trade competition. Continuing on its acquisition spree from last week, Switch acquired gaming platform Wavesbet and voting dApp ClearPoll. Whitepaper for the GHOST project by John McAfee was released. They will be airdropping their tokens 1:1 to $ESH HODLers on the 25th. The release of $GHOST has been contentious to say the least. Reflecting on some of the plagiarism allegations levelled against the project, the crew shared their side of the story. The team also sat down for an AMA with Coiner Vietnam. District0x’s latest weekly update talked about the upcoming DappDigest and new developments in Meme Factory among other news. The Q4 2019 quarterly report was released as well. Read all about Hydro’s Financial Offers framework here. If you are a graphic designer, don’t forget to check out this gig at Sentivate. US-residents only. OST’s Simona Pop will be attending a panel discussion by Outlier Ventures next week to talk about dev onboarding. P2P internet ecosystem ThreeFold announced a multi-faceted partnership with SelfKey for KYC and new user onboarding services. Following last week's community vote on the most attractive marketplaces, Passports Marketplace was found to be the most popular. This week, the community voted on their most preferred blockchain to be added to the app. Bank of Hodlers joined SelfKey's Loans Marketplace while Tokens.net joined the Exchanges Marketplace. COTI did a study on IoT payments and how it could offer a solution. The project was selected for the next listing vote on Gate.io. COTI community also got an opportunity to interact with the AtomicWallet team through an AMA this week. Hydro has been constantly updating its dev tools to offer a seamless developer experience Click here to read the latest Constellation Hypergraph mainnet stats. New features were added to the Molly wallet. Click here for steps to install the wallet. TheDailyChain expanded on how the $DAG ecosystem was growing. Pynk CEO Seth Ward wrote about the future of fintech in his EM360 article. Congratulations on crossing the 1k follower mark on Medium. In Shuffle Monster news, most of the $SHUF liquidity on Uniswap was moved to the V2 pool this week. New features were added to the Wibson app with the latest release giving more data control powers to the end user. Pre-staking started on the Harmony mainnet with the opening up of bids by validators followed by the election of the first batch of validators thereby marking the start of Open Staking. And just after, Harmony became the first ever blockchain to support sharded PoS. The news of Open Staking going live was covered by Coindesk and Cointelegraph. More details on what next was shared in a Coinspeaker article. How does a delegator fit into the overall scheme of things? Check out this video. Open staking noobs will find these 101 tutorials helpful. CTO Rongjian Lan also did a community call to explain about it. For the latest development updates otherwise known as #pow thread, click here. Harmony’s EPoS is designed to be fair to all stakers. So make sure to optimise your staking rewards. $ONE Binance wallets were taken down briefly for a temporary maintenance activity. They now support the mainnet coin. Hope you had a chance to participate in the guess-effective-median-stake contest to win some cool $ONE prizes. Click here for the latest staking stats. $ONE was added to Binance Savings which offers a fixed rate of return on locked savings. A minor bug in the staking bug was removed. The APR numbers should get calculated more accurately now. The crew appeared for an AMA with StakingHub. Congratulations to the winners of Stake Heist! Binance and BitMax announced support for staking with BItMax crew also appearing for an AMA. IntelliShare crew sat down for an AMA with CoinNess this week. And with that, we have to close for this week in the Parachuteverse! See you again with another update. Ciao!
How To End The Cryptocurrency Exchange "Wild West" Without Crippling Innovation
In case you haven't noticed the consultation paper, staff notice, and report on Quadriga, regulators are now clamping down on Canadian cryptocurrency exchanges. The OSC and other regulatory bodies are still interested in industry feedback. They have not put forward any official regulation yet. Below are some ideas/insights and a proposed framework.
Typical securities frameworks will cost Canadians millions of dollars (ie Sarbanes-Oxley estimated at $5m USD/yr per firm). Implementation costs of this proposal are significantly cheaper.
Canadians can maintain a diverse set of exchanges, multiple viable business models are still fully supported, and innovation is encouraged while keeping Canadians safe.
Many of you have limited time to read the full proposal, so here are the highlights:
Effective standards to prevent both internal and external theft. Exchange operators are trained and certified, and have a legal responsibility to users.
Regular Transparent Audits
Provides visibility to Canadians that their funds are fully backed on the exchange, while protecting privacy and sensitive platform information.
Establishment of basic insurance standards/strategy, to expand over time. Removing risk to exchange users of any hot wallet theft.
Background and Justifications
Cold Storage Custody/Management After reviewing close to 100 cases, all thefts tend to break down into more or less the same set of problems: • Funds stored online or in a smart contract, • Access controlled by one person or one system, • 51% attacks (rare), • Funds sent to the wrong address (also rare), or • Some combination of the above. For the first two cases, practical solutions exist and are widely implemented on exchanges already. Offline multi-signature solutions are already industry standard. No cases studied found an external theft or exit scam involving an offline multi-signature wallet implementation. Security can be further improved through minimum numbers of signatories, background checks, providing autonomy and legal protections to each signatory, establishing best practices, and a training/certification program. The last two transaction risks occur more rarely, and have never resulted in a loss affecting the actual users of the exchange. In all cases to date where operators made the mistake, they've been fully covered by the exchange platforms. • 51% attacks generally only occur on blockchains with less security. The most prominent cases have been Bitcoin Gold and Ethereum Classic. The simple solution is to enforce deposit limits and block delays such that a 51% attack is not cost-effective. • The risk of transactions to incorrect addresses can be eliminated by a simple test transaction policy on large transactions. By sending a small amount of funds prior to any large withdrawals/transfers as a standard practice, the accuracy of the wallet address can be validated. The proposal covers all loss cases and goes beyond, while avoiding significant additional costs, risks, and limitations which may be associated with other frameworks like SOC II. On The Subject of Third Party Custodians Many Canadian platforms are currently experimenting with third party custody. From the standpoint of the exchange operator, they can liberate themselves from some responsibility of custody, passing that off to someone else. For regulators, it puts crypto in similar categorization to oil, gold, and other commodities, with some common standards. Platform users would likely feel greater confidence if the custodian was a brand they recognized. If the custodian was knowledgeable and had a decent team that employed multi-sig, they could keep assets safe from internal theft. With the right protections in place, this could be a great solution for many exchanges, particularly those that lack the relevant experience or human resources for their own custody systems. However, this system is vulnerable to anyone able to impersonate the exchange operators. You may have a situation where different employees who don't know each other that well are interacting between different companies (both the custodian and all their customers which presumably isn't just one exchange). A case study of what can go wrong in this type of environment might be Bitpay, where the CEO was tricked out of 5000 bitcoins over 3 separate payments by a series of emails sent legitimately from a breached computer of another company CEO. It's also still vulnerable to the platform being compromised, as in the really large $70M Bitfinex hack, where the third party Bitgo held one key in a multi-sig wallet. The hacker simply authorized the withdrawal using the same credentials as Bitfinex (requesting Bitgo to sign multiple withdrawal transactions). This succeeded even with the use of multi-sig and two heavily security-focused companies, due to the lack of human oversight (basically, hot wallet). Of course, you can learn from these cases and improve the security, but so can hackers improve their deception and at the end of the day, both of these would have been stopped by the much simpler solution of a qualified team who knew each other and employed multi-sig with properly protected keys. It's pretty hard to beat a human being who knows the business and the typical customer behaviour (or even knows their customers personally) at spotting fraud, and the proposed multi-sig means any hacker has to get through the scrutiny of 3 (or more) separate people, all of whom would have proper training including historical case studies. There are strong arguments both for and against using use of third party custodians. The proposal sets mandatory minimum custody standards would apply regardless if the cold wallet signatories are exchange operators, independent custodians, or a mix of both. On The Subject Of Insurance ShakePay has taken the first steps into this new realm (congratulations). There is no question that crypto users could be better protected by the right insurance policies, and it certainly feels better to transact with insured platforms. The steps required to obtain insurance generally place attention in valuable security areas, and in this case included a review from CipherTrace. One of the key solutions in traditional finance comes from insurance from entities such as the CDIC. However, historically, there wasn't found any actual insurance payout to any cryptocurrency exchange, and there are notable cases where insurance has not paid. With Bitpay, for example, the insurance agent refused because the issue happened to the third party CEO's computer instead of anything to do with Bitpay itself. With the Youbit exchange in South Korea, their insurance claim was denied, and the exchange ultimately ended up instead going bankrupt with all user's funds lost. To quote Matt Johnson in the original Lloyd's article: “You can create an insurance policy that protects no one – you know there are so many caveats to the policy that it’s not super protective.” ShakePay's insurance was only reported to cover their cold storage, and “physical theft of the media where the private keys are held”. Physical theft has never, in the history of cryptocurrency exchange cases reviewed, been reported as the cause of loss. From the limited information of the article, ShakePay made it clear their funds are in the hands of a single US custodian, and at least part of their security strategy is to "decline to confirm the custodian’s name on the record". While this prevents scrutiny of the custodian, it's pretty silly to speculate that a reasonably competent hacking group couldn't determine who the custodian is. A far more common infiltration strategy historically would be social engineering, which has succeeded repeatedly. A hacker could trick their way into ShakePay's systems and request a fraudulent withdrawal, impersonate ShakePay and request the custodian to move funds, or socially engineer their way into the custodian to initiate the withdrawal of multiple accounts (a payout much larger than ShakePay) exploiting the standard procedures (for example, fraudulently initiating or override the wallet addresses of a real transfer). In each case, nothing was physically stolen and the loss is therefore not covered by insurance. In order for any insurance to be effective, clear policies have to be established about what needs to be covered. Anything short of that gives Canadians false confidence that they are protected when they aren't in any meaningful way. At this time, the third party insurance market does not appear to provide adequate options or coverage, and effort is necessary to standardize custody standards, which is a likely first step in ultimately setting up an insurance framework. A better solution compared to third party insurance providers might be for Canadian exchange operators to create their own collective insurance fund, or a specific federal organization similar to the CDIC. Such an organization would have a greater interest or obligation in paying out actual cases, and that would be it's purpose rather than maximizing it's own profit. This would be similar to the SAFU which Binance has launched, except it would cover multiple exchanges. There is little question whether the SAFU would pay out given a breach of Binance, and a similar argument could be made for a insurance fund managed by a collective of exchange operators or a government organization. While a third party insurance provider has the strong market incentive to provide the absolute minimum coverage and no market incentive to payout, an entity managed by exchange operators would have incentive to protect the reputation of exchange operators/the industry, and the government should have the interest of protecting Canadians. On The Subject of Fractional Reserve There is a long history of fractional reserve failures, from the first banks in ancient times, through the great depression (where hundreds of fractional reserve banks failed), right through to the 2008 banking collapse referenced in the first bitcoin block. The fractional reserve system allows banks to multiply the money supply far beyond the actual cash (or other assets) in existence, backed only by a system of debt obligations of others. Safely supporting a fractional reserve system is a topic of far greater complexity than can be addressed by a simple policy, and when it comes to cryptocurrency, there is presently no entity reasonably able to bail anyone out in the event of failure. Therefore, this framework is addressed around entities that aim to maintain 100% backing of funds. There may be some firms that desire but have failed to maintain 100% backing. In this case, there are multiple solutions, including outside investment, merging with other exchanges, or enforcing a gradual restoration plan. All of these solutions are typically far better than shutting down the exchange, and there are multiple cases where they've been used successfully in the past. Proof of Reserves/Transparency/Accountability Canadians need to have visibility into the backing on an ongoing basis. The best solution for crypto-assets is a Proof of Reserve. Such ideas go back all the way to 2013, before even Mt. Gox. However, no Canadian exchange has yet implemented such a system, and only a few international exchanges (CoinFloor in the UK being an example) have. Many firms like Kraken, BitBuy, and now ShakePay use the Proof of Reserve term to refer to lesser proofs which do not actually cryptographically prove the full backing of all user assets on the blockchain. In order for a Proof of Reserve to be effective, it must actually be a complete proof, and it needs to be understood by the public that is expected to use it. Many firms have expressed reservations about the level of transparency required in a complete Proof of Reserve (for example Kraken here). While a complete Proof of Reserves should be encouraged, and there are some solutions in the works (ie TxQuick), this is unlikely to be suitable universally for all exchange operators and users. Given the limitations, and that firms also manage fiat assets, a more traditional audit process makes more sense. Some Canadian exchanges (CoinSquare, CoinBerry) have already subjected themselves to annual audits. However, these results are not presently shared publicly, and there is no guarantee over the process including all user assets or the integrity and independence of the auditor. The auditor has been typically not known, and in some cases, the identity of the auditor is protected by a NDA. Only in one case (BitBuy) was an actual report generated and publicly shared. There has been no attempt made to validate that user accounts provided during these audits have been complete or accurate. A fraudulent fractional exchange, or one which had suffered a breach they were unwilling to publicly accept (see CoinBene), could easily maintain a second set of books for auditors or simply exclude key accounts to pass an individual audit. The proposed solution would see a reporting standard which includes at a minimum - percentage of backing for each asset relative to account balances and the nature of how those assets are stored, with ownership proven by the auditor. The auditor would also publicly provide a "hash list", which they independently generate from the accounts provided by the exchange. Every exchange user can then check their information against this public "hash list". A hash is a one-way form of encryption, which fully protects the private information, yet allows anyone who knows that information already to validate that it was included. Less experienced users can take advantage of public tools to calculate the hash from their information (provided by the exchange), and thus have certainty that the auditor received their full balance information. Easy instructions can be provided. Auditors should be impartial, their identities and process public, and they should be rotated so that the same auditor is never used twice in a row. Balancing the cost of auditing against the needs for regular updates, a 6 month cycle likely makes the most sense. Hot Wallet Management The best solution for hot wallets is not to use them. CoinBerry reportedly uses multi-sig on all withdrawals, and Bitmex is an international example known for their structure devoid of hot wallets. However, many platforms and customers desire fast withdrawal processes, and human validation has a cost of time and delay in this process. A model of self-insurance or separate funds for hot wallets may be used in these cases. Under this model, a platform still has 100% of their client balance in cold storage and holds additional funds in hot wallets for quick withdrawal. Thus, the risk of those hot wallets is 100% on exchange operators and not affecting the exchange users. Since most platforms typically only have 1%-5% in hot wallets at any given time, it shouldn't be unreasonable to build/maintain these additional reserves over time using exchange fees or additional investment. Larger withdrawals would still be handled at regular intervals from the cold storage. Hot wallet risks have historically posed a large risk and there is no established standard to guarantee secure hot wallets. When the government of South Korea dispatched security inspections to multiple exchanges, the results were still that 3 of them got hacked after the inspections. If standards develop such that an organization in the market is willing to insure the hot wallets, this could provide an acceptable alternative. Another option may be for multiple exchange operators to pool funds aside for a hot wallet insurance fund. Comprehensive coverage standards must be established and maintained for all hot wallet balances to make sure Canadians are adequately protected.
Current Draft Proposal
(1) Proper multi-signature cold wallet storage. (a) Each private key is the personal and legal responsibility of one person - the “signatory”. Signatories have special rights and responsibilities to protect user assets. Signatories are trained and certified through a course covering (1) past hacking and fraud cases, (2) proper and secure key generation, and (3) proper safekeeping of private keys. All private keys must be generated and stored 100% offline by the signatory. If even one private keys is ever breached or suspected to be breached, the wallet must be regenerated and all funds relocated to a new wallet. (b) All signatories must be separate background-checked individuals free of past criminal conviction. Canadians should have a right to know who holds their funds. All signing of transactions must take place with all signatories on Canadian soil or on the soil of a country with a solid legal system which agrees to uphold and support these rules (from an established white-list of countries which expands over time). (c) 3-5 independent signatures are required for any withdrawal. There must be 1-3 spare signatories, and a maximum of 7 total signatories. The following are all valid combinations: 3of4, 3of5, 3of6, 4of5, 4of6, 4of7, 5of6, or 5of7. (d) A security audit should be conducted to validate the cold wallet is set up correctly and provide any additional pertinent information. The primary purpose is to ensure that all signatories are acting independently and using best practices for private key storage. A report summarizing all steps taken and who did the audit will be made public. Canadians must be able to validate the right measures are in place to protect their funds. (e) There is a simple approval process if signatories wish to visit any country outside Canada, with a potential whitelist of exempt countries. At most 2 signatories can be outside of aligned jurisdiction at any given time. All exchanges would be required to keep a compliant cold wallet for Canadian funds and have a Canadian office if they wish to serve Canadian customers. (2) Regular and transparent solvency audits. (a) An audit must be conducted at founding, after 3 months of operation, and at least once every 6 months to compare customer balances against all stored cryptocurrency and fiat balances. The auditor must be known, independent, and never the same twice in a row. (b) An audit report will be published featuring the steps conducted in a readable format. This should be made available to all Canadians on the exchange website and on a government website. The report must include what percentage of each customer asset is backed on the exchange, and how those funds are stored. (c) The auditor will independently produce a hash of each customer's identifying information and balance as they perform the audit. This will be made publicly available on the exchange and government website, along with simplified instructions that each customer can use to verify that their balance was included in the audit process. (d) The audit needs to include a proof of ownership for any cryptocurrency wallets included. A satoshi test (spending a small amount) or partially signed transaction both qualify. (e) Any platform without 100% reserves should be assessed on a regular basis by a government or industry watchdog. This entity should work to prevent any further drop, support any private investor to come in, or facilitate a merger so that 100% backing can be obtained as soon as possible. (3) Protections for hot wallets and transactions. (a) A standardized list of approved coins and procedures will be established to constitute valid cold storage wallets. Where a multi-sig process is not natively available, efforts will be undertaken to establish a suitable and stable smart contract standard. This list will be expanded and improved over time. Coins and procedures not on the list are considered hot wallets. (b) Hot wallets can be backed by additional funds in cold storage or an acceptable third-party insurance provider with a comprehensive coverage policy. (c) Exchanges are required to cover the full balance of all user funds as denominated in the same currency, or double the balance as denominated in bitcoin or CAD using an established trading rate. If the balance is ever insufficient due to market movements, the firm must rectify this within 24 hours by moving assets to cold storage or increasing insurance coverage. (d) Any large transactions (above a set threshold) from cold storage to any new wallet addresses (not previously transacted with) must be tested with a smaller transaction first. Deposits of cryptocurrency must be limited to prevent economic 51% attacks. Any issues are to be covered by the exchange. (e) Exchange platforms must provide suitable authentication for users, including making available approved forms of two-factor authentication. SMS-based authentication is not to be supported. Withdrawals must be blocked for 48 hours in the event of any account password change. Disputes on the negligence of exchanges should be governed by case law.
Continued review of existing OSC feedback is still underway. More feedback and opinions on the framework and ideas as presented here are extremely valuable. The above is a draft and not finalized. The process of further developing and bringing a suitable framework to protect Canadians will require the support of exchange operators, legal experts, and many others in the community. The costs of not doing such are tremendous. A large and convoluted framework, one based on flawed ideas or implementation, or one which fails to properly safeguard Canadians is not just extremely expensive and risky for all Canadians, severely limiting to the credibility and reputation of the industry, but an existential risk to many exchanges. The responsibility falls to all of us to provide our insight and make our opinions heard on this critical matter. Please take the time to give your thoughts.
Decentralized Finance (DeFi) can be rightfully considered a third revolution in the crypto space. If you wonder what the first two are, these are the invention of blockchain itself along with the technology’s firstborn, Bitcoin, and the inception of the smart contract technology. Just like blockchain provides the basis for smart contracts, the latter give rise to DeFi. It is often said that smart contracts are poised to revolutionize the ways both humans and organizations interact in their contractual relationships. In this sense, DeFi is the stage where these relationships are set to emerge and develop. With a bigger picture in mind, it is the world that the blockchain technology lays the foundation for, while smart contracts help to build it. Why we need DeFi, how it is possible, what makes it tick and click are the main themes of this article. by StealthEX
But seriously, why do we need it?
As most financial services in existence today are provided by or involve third parties, for example, banks, exchanges, investment companies, insurance agencies etc, DeFi is an attempt to build an alternative environment, an ecosystem of applications offering the same set of services but now powered by public blockchain networks in a decentralized, transparent and permissionless way. By and large, the basic idea that guides DeFi is essentially the same ethos that drives innovation with crypto as such, but at an entirely different level. Just like cryptocurrencies try to wrest the state supremacy over money from the hands of rogue governments and central banks, DeFi takes it further and aims higher. With DeFi, it is no longer a matter of creating a coin in an effort to replace fiat money, which mostly doesn’t work anyway. However, building a whole new domain of financial services available fairly and squarely to anyone, with full control over the assets but without corrupt governments and greedy intermediaries sticking around, may pan out better after all. So, answering the question posed at the beginning of this section, we need DeFi for basically the same reasons we need cryptocurrencies. Or, put differently, if we need cryptocurrencies, an assumption that has been proved indisputable, it is inevitable as well that we will sooner or later become interested in decentralized financial services powered by these cryptocurrencies through smart contract blockchains. We can’t just create Bitcoin and say that’ll do. It is a natural development, a Maslow’s hierarchy of needs, in a sense.
How is it ever possible?
As mentioned in the introduction, DeFi emerges thanks to smart contract tech and decentralized applications (or simply dApps) running them. So how does it work in practice? To better understand the idea, let’s take a closer look at a relatively simple example of a decentralized crypto-backed stablecoin which can be created through a smart contract. Stablecoins are coins whose value is pegged to a stable asset such as a commodity like gold or a fiat currency like the US dollar. There are a few different types of stablecoins that exist in the wild. For the purpose of this exposition, we are interested in crypto-backed stablecoins. Like stablecoins collateralized by fiat, these stablecoins use cryptocurrencies as collateral. However, the key difference is that a fiat-based stablecoin is pegged to the fiat currency which is backing it up. Kinda obvious. A crypto-backed stablecoin, on the other hand, is pegged to one asset, say, the American dollar, but backed up by a completely different one, for example, Ether. Things get tricky. A crypto-collateralized stablecoin is possible through the magic and the beauty of the smart contract governing it. If the price of such a stablecoin rises above its peg, or parity, you can create more stablecoins and sell them at a premium. If the price of the stablecoin falls below parity, you can buy stablecoins and liquidate them at a discount. If the collateral itself crashes, undercollateralized stablecoins will be liquidated with their collateral now backing up fewer stablecoins. As a result, the price always gets pushed back to parity. And all this rather complicated stuff is done on the blockchain in a decentralized and automatic fashion with no banks or other third parties involved. Consequently, more services are easily possible too. And quite a few at that.
Okay, what decentralized financial services are available?
Well, one such service we have just described above. Cryptocurrencies are infamous for being extremely volatile, and stablecoins are designed to deal with this issue. There are many stablecoins out there like Tether, TrueUSD, or Gemini Coin, but they are all based on trusting third parties. Easily one of the best known crypto-backed stablecoins is MakerDAO’s DAI, which is pegged against the US dollar with a basket of crypto-assets as collateral in a truly decentralized and trustless way, that is, a blockchain way. Crypto-based stablecoins can be used on their own by offering a hedge against the price volatility of such popular cryptocurrencies as Ether or Bitcoin. Aside from that, they are also instrumental in other DeFi services, for example, in decentralized exchanges like IDEX or BiKi.com. With stablecoins, it becomes possible to create fiat trading pairs in addition to crypto ones in entirely decentralized, non-custodial trading environments as opposed to centralized exchanges like Bitfinex or Binance, which are vulnerable to high-profile hacks and personal data leaks. Unlike MakerDAO, Ampleforth doesn’t strive to create a rock-solid stablecoin. Instead, it comes up with the notion of “adaptive money built on sound economics”, with its mission stretching out as far as to marry “the scarcity of Bitcoin with the elasticity of fiat”. It tries to go beyond the relatively simple concept of a stablecoin and brings forth the idea of elastic money supply that can expand and contract depending on market demands, as well as allow the creation of a valid form of collateral for DeFi based on that idea. Obviously, DeFi is not just about stablecoins or the financial services using them. Blockchain-based borrowing and lending is another important DeFi arena. With platforms like Compound, dYdX, Dharma, you can deposit your crypto assets to either earn interest on them or use these assets as collateral for borrowing. Smart contracts automatically match borrowers and lenders, offering dynamic interest rates based on supply and demand. And with tools like LoanScan, you can also easily shop around for the best interest rates on the block. These examples are far from exhaustive, of course, as the space is rapidly expanding and evolving. However, there are some fundamental issues that put grit into the wheels of the DeFi war machine.
So where’s the catch?
There are many advantages of DeFi, but to be of any practical use, it needs up-to-date information that would be reliable and authentic. Smart contracts that DeFi is based on are hopelessly on-chain, but the data they need for processing is mostly off-chain. Without a bridge to close this gap between a smart contract and its source of external information, smart contracts are entrapped in closed-off dungeons of their blockchains. To be sure, no crypto-based stablecoin is going to work correctly without a real-time price feed for the assets taken as its collateral and used for maintaining the peg. To get around this roadblock, a concept of blockchain oracles has been suggested. But as the chain cannot be stronger than its weakest link, blockchain oracles seem to be that weak link in the field of DeFi and beyond as obtaining information in a verifiable way can be an intimidating task. What approaches dApps are taking to procure and verify sources of truth in the external world is the topic of our upcoming article about blockchain oracles. Stay with us and stay tuned! And remember if you need to exchange your coins StealthEX is here for you. We provide a selection of more than 250 coins and constantly updating the list so that our customers will find a suitable option. Our service does not require registration and allows you to remain anonymous. Why don’t you check it out? Just go to StealthEX and follow these easy steps: ✔ Choose the pair and the amount for your exchange. For example ETH to BTC. ✔ Press the “Start exchange” button. ✔ Provide the recipient address to which the coins will be transferred. ✔ Move your cryptocurrency for the exchange. ✔ Receive your coins. Follow us on Medium, Twitter, Facebook, and Reddit to get StealthEX.io updates and the latest news about the crypto world. For all requests message us via [email protected]. The views and opinions expressed here are solely those of the author. Every investment and trading move involves risk. You should conduct your own research when making a decision. Original article was posted onhttps://stealthex.io/blog/2020/08/04/decentralized-finance-defi/
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