Bits and stuff: March 25, 2018

Rather than focusing on what to do about cryptocurrencies, the G20 (comprised of the world’s 20 largest economies) has decided to take a step back and first decide what information they need. This is smart, and may lead to a deeper understanding of what cryptocurrencies are and where their impact may be felt. It is also going to buy them some time – and in the accelerated pace of blockchainland, a lot can happen in a short period. So, a wait may be frustrating to some, but informative to all.

This is huge – it’s potentially a first step towards a global approach to cryptocurrency regulation, befitting a global phenomenon. It seems that legislators are waking up to the futility of playing whack-a-mole with the slippery concept of decentralized, internet-based assets. And in this climate of jurisdictional positioning (“We’re blockchain friendly! Domicile here!”), a coherent approach will pave the way for the solid construction of a new payment rails and business structures.

The role of non-G20 economies is likely to become increasingly important in the development of cryptocurrency services. With smaller jurisdictions (Singapore, Switzerland, Malta) offering logistical and legislative support in exchange for capital flows, ecosystems and high-level immigration, rather than a blanket approach we may see a re-balancing of crypto influence.

By the time the G20 does start to make concrete recommendations, the entrenchment of cryptocurrencies in the world economy may be too big to walk back – in which case, anything that seems like a clamp-down will be met with a flow towards non-G20 areas. Or, it may still be on the fringes, in which case focus will shift to new “threats” to financial stability.

While it does its background research, the group has pledged to apply the standards of the Financial Action Task Force (FATF) – an intergovernmental body formed to fight money laundering and terrorist financing – to cryptocurrencies. It’s not yet clear what this actually means – everyone was doing that anyway (investigating money laundering suspicions, confiscating illicit funds, etc.)

It’s interesting that Brazil (according to reports) has said that it will not regulate cryptocurrencies. This may be jumping the gun – and it’s curious that Brazil feels that it has a better grasp of the potential impact than its illustrious colleagues.

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Jill Carlson highlighted an inherent weakness in most ICO models: when the token price goes up, the project sells tokens to raise cash and becomes less exposed to the token’s price. It will therefore benefit less from future price increases.

Also, if the price goes down, it may find itself buying tokens in the market to support the price – and so it’s exposure to future price slumps will be greater.

This is the opposite to sensible portfolio management principles – in bond holdings with standard “convexity”, for instance, if interest rates fall, you will get larger and larger price increases. But if interest rates rise, your price falls will get smaller and smaller. The upside outweighs the downside. That is good.

“Short” convexity – what most tokens seem to imply – reduces upside and exacerbates downside. That is not good.

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Favourite tweet of the week:

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The Financial Times published an interesting take on the battle for crypto friendliness – and the particular risk that Switzerland runs of revisiting its hard-lost reputation as being a haven for “dirty” money…

What’s more, it turns out that all is not rosy for crypto startups in the Valley – they still can’t interact with local banks, who distrust their earnings.

And, the ability to use bitcoin to pay for public services is “clearly a marketing gag”, according to a local councillor.

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This headline, seen in SoraNews:

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The story itself contains so many gems that I really don’t know where to begin.

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Jon Evans in TechCrunch points out that blockchain projects are not going to replace existing systems any time soon. But if they offer an appealing alternative, they can be viable, and grow organically.

“If things keep going as they are, maybe you won’t ever have to go through the Wall to get to the people on the other side. Maybe, eventually, they’ll come to you.”

So, enough with the overblown ambition and inflated egos – they damage the “brand”, which is an alternative way of processing information, appealing to a (for now) relatively limited subset of users. That’s probably enough – and the scope for disappointment is more limited.

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The possibility of XRP futures is intriguing, but the CEO of LedgerX is right – a big barrier to institutional investors being interested in this is the possibility of market manipulation, with so much of the outstanding float in the hands of Ripple itself.

ETH futures sound like a more interesting bet. I wonder why we’re not hearing more about them.

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With blockchain platform announcements this week from both Google and IBM, it might seem that the “standardisation” of distributed work is here. Not yet – it’s early days still. But the increasing competition in the “cloud blockchain” space will be interesting to watch. Let’s assume that Amazon is.

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A report in Nikkei Asia on North Korea’s cyber activities sheds light on the rash of attacks on cryptocurrency exchanges in Asia, including the recent hack of Coincheck in Japan. According to a defector, North Korea has a special unit dedicated to procuring foreign cash for purchases relating to weapons programs. In this case, “foreign cash” includes cryptocurrencies.

“In May 2017, a ransomware virus swept 150 countries. In South Korea, many cryptocurrency exchange operators have been hacked; some have lost their digital coins. South Korean intelligence even suspects that North Korean hackers were behind the big heist from Japan’s Coincheck in January.”

A new type of warfare.

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The minimalist, attention-to-detail genius of Tanaka Tatsuya… Via Instagram.

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tanaka tatsuya

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