Big Bankers Continue to Bash Bitcoin

As Bitcoin and cryptocurrency markets correct from their previous highs the queue of high-profile bankers lining up to discredit the digital asset gets longer. Both the Federal Reserve Bank and Goldman Sachs bosses took swipes at cryptocurrencies claiming that they were ‘fraudulent’ and a ‘threat to financial stability’.

The newly-installed Fed Vice Chairman for Supervision Randal Quarles raised concerns about how cryptocurrencies would behave in a crisis this week as markets fell by over 20%. During a speech on payments systems, he said that during times of crisis demand for liquidity among bank depositors often shoots up. This will put major financial institutions under strain.

Decentralized cryptocurrencies have no central bank and are exchanged using encryption. Quarles claimed that the ‘currency’ or asset at the center of some of these systems is not backed by other secure assets and has no intrinsic value. A warning for the future followed; “While these digital currencies may not pose major concerns at their current levels of use, more serious financial stability issues may result if they achieve wide-scale usage.”

A large challenge to the system would be posed if digital currencies could not be predictably exchanged for the US dollar or fiat at a stable exchange rate in times of adversity. It is highly unlikely that crypto exchanges receiving fiat have enough to pay out should everybody cash out at the same time.

Jumping on the bandwagon, Lloyd Blankfein, CEO of US investment bank Goldman Sachs, said: “Something that moves 20% overnight does not feel like a currency. It is a vehicle to perpetrate fraud.”

He joins the ranks of JP Morgan chief Jamie Dimon who likened Bitcoin to a fraud that would ultimately blow up, claiming it was only fit for use by drug dealers, murderers and people living in places such as North Korea. Accusations of market manipulation rapidly followed as it was rumored that he bought Bitcoin on the dips his words caused.

According to Blankfein Goldman Sachs did not need to have a bitcoin strategy, stating that the digital currency would need to be a lot less volatile and a lot more liquid to justify closer attention. “Bitcoin is not for me. A lot of things that have not been for me in the past 20 years have worked out, but I am not guessing that this will work out.”

Other banking heavyweights such as Sir Jon Cunliffe, deputy governor of the Bank of England, said that cryptocurrencies were too small to pose a threat to the global economy.

Bankers and financial institutions that profit from control of capital generally sees cryptocurrencies as a threat to their business model. A decentralized currency that is beyond the control of the few can only be a good thing for the many – providing they do their research, invest wisely, and know their limits.

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The rise in popularity and prices of cryptocurrencies will bring an inevitable rise in cyber-crime and those trying to steal it. This last week has seen the crypto top three; Bitcoin, Litecoin and Ethereum, all reach record price highs of $11,400, $100 and $500 respectively. Big bucks bring bad guys and they are finding ever more devious ways to get at this digital booty.

Internet security researchers have found new techniques that let hackers perform browser-based crypto-mining even after the window has been closed. Millions of unsuspecting people have been targeted by drive-by crypto-miners using compromised websites to harness the CPU power and electricity of their machines without their knowledge.

Using malware called Coinhive, unscrupulous hackers can infect websites that inject code to secretly siphon off your computer power to mine the altcoin Monero which is currently trading around $175. The crypto-miner released in September allowed website owners to make extra revenue from their readers by harnessing their CPU power. However, it does not tell the user what is taking place and why their computer may start running a lot slower when visiting certain websites. The profits are shared between the account holder who gets 70% of what is mined and Coinhive the remaining 30%. It has been estimated that Coinhive is making between 4 and 5 million dollars a year from deceptive web-based mining operations. Torrent sharing platform The Pirate Bay was one of the early adopters of Coinhive, and changed its technique to mine through forced advertising instead of directly after users complained about their machines slowing down.

Researchers have found thousands of websites that are running Coinhive, many unknowingly, with proceeds going to whoever hacked the site. Anti-malware provider Malwarebytes have also discovered that the leaching can continue even after the user has closed the browser window. A pop-under window hiding behind the Windows taskbar is the culprit. It has been designed to bypass ad-blockers and closing the main browser still doesn’t get rid of it.

The code is even more cunning in that it intentionally does not max out the CPU usage but throttles down the computationally intensive actions to make usage look more natural. The technique works on the latest version of Chrome and the latest version of Windows 10 and antivirus providers have yet to include it in their signature updates although Malwarebytes are on the ball and claim to have blocked 248 million attempts at drive-by mining in the last month.

Vigilance is the key for end users, keep an eye on your CPU usage through Windows task manager and shut down all browser instances when you are no longer browsing the web.

Nasdaq, the world’s second-largest stock exchange behind New York Stock Exchange, will be allowing Bitcoin futures trading by the middle of 2018. With a stock market worth $6.8 trillion Nasdaq is a behemoth among exchanges and reports that it will be opening up to crypto trading can only be good news for Bitcoin and its brethren.

A report on the Wall Street Journal revealed that Nasdaq and Cantor Fitzgerald & Co. will list BTC futures within the first half of 2018. With a recent price surge to $11,400 and an increase of over a thousand percent this year alone, Bitcoin has grabbed everyone’s attention. Sources familiar with Nasdaq’s plans claim that the two exchanges will list Bitcoin futures among Nasdaq futures on its NFX markets opening it up to traditional traders and investors. They also claim that the Nasdaq contracts are also designed to handle Bitcoin hard forks more elegantly by reinvesting proceeds from the split blockchain back into the original one in a way designed to make the process more seamless for traders.

The offering will pit Nasdaq against two competitors, CME Group Inc. and Cboe Global Markets Inc., both of which already announced plans to offer cryptocurrency derivatives sending the price of Bitcoin to record highs this month. Nasdaq is a beast for stock trading but relatively small for futures, both CME and CBOE are larger in that respect.

The move also makes NYSE owner Intercontinental Exchange Inc. the only one of the four major US exchange operators without public plans to offer Bitcoin derivatives. Observers say that an announcement could be in the pipeline.

Major US-based financial firm, Cantor, also revealed that it intends to launch Bitcoin futures and derivatives on its flagship exchange. CEO Shawn Matthews said this in an interview with the WSJ:

“The asset class is not going away. If you look at the next level, it will be the institutions coming in and being larger participants in the marketplace, especially as liquidity gets better.”

The US Commodities and Futures Trading Commission (CFTC) has already approved Cantor’s futures exchange. Other major exchanges including Nodal Exchange are also investigating the possibility of listing crypto-futures. The more the heavily regulated institutions get involved the more legitimacy can be awarded to cryptocurrencies which are largely viewed by old-school bankers and TV pundits as the wild west of trading and investing.

With all eyes looking at the charts and wondering when Bitcoin will ever stop its upward march over ten thousand dollars, many overlook what is actually involved in creating one. According to reports, the popularity of Bitcoin has created a global surge in energy consumption. Digiconomist’s Bitcoin Consumption Index claims that the current estimated annual electricity consumption is over 30 TWh.

A TeraWatt hour is a pretty big number and equates to 1012 (1 followed by 12 zeros) watts per hour – which is a lot of energy. That is the equivalent of around 0.14% of total global electricity consumption. It doesn’t sound a great deal but Bitcoin mining is currently using more electricity than 159 countries. Almost 10 US households can be powered for one day by the electricity consumed for a single Bitcoin transaction. With a continuous power drain of 3.4GW, the BTC network consumes five times more electricity than is produced by the largest wind farm in Europe.

This colossal amount of energy is used to power the computers and graphics processors which do the number crunching to mine Bitcoin. Mining is the process by which blockchain transactions are verified and added to the public ledger. As the block reward becomes harder to mine more energy is required to carry out the calculations in this computational arms race. If Bitcoin miners were their own country they would rank 61st in the world for electricity consumption. This puts them above Ireland and Nigeria.

According to the report, Bitcoin mining energy consumption has increased by almost 30% in the last month alone. The monumental rise in price has created a flurry of interest as people want to jump on the gravy train. Many are unaware of the mathematical complexities that mining involves and the level of hardware and power required doing it. As much as 80% of the mining is currently done in mega-factories in China where banks of computer rigs and fans stretch away as far as the eye can see. Companies rent these rigs out to individuals who get a cut of the mining action.

In comparison one of Visa’s two US data centers reportedly runs on around 2% of the power required by Bitcoin. Between them, those two servers conduct around 200 million transactions a day while the Bitcoin network handles less than 350,000. With Bitcoin’s price increase over tenfold since the beginning of the year and this unsustainable energy draw in keeping up with it, many speculate that the bubble may soon burst.

The first publically accessible marketplace for IoT (Internet of Things) has been launched this week. Berlin-based crypto startup IOTA has partnered with Microsoft, Fujitsu and twenty other companies including Bosch and Accenture to develop a blockchain solution to data monetization via internet-connected devices.

Analysts predict that business-to-business spending on IoT technologies and solutions will reach $267 billion by 2020. More and more devices will create a near-endless stream of data, and the market for data-driven insights is being eyed as a catalyst for IoT growth.

The initiative will allow stakeholders to share and monetize their data in a secure way in a tamper-proof data marketplace via distributed ledger powered by the cryptocurrency. IOTA’s blockchain will distribute the data to countless nodes in order to ensure that integrity and security remain intact.

The altcoin uses a different technique to distribute and decentralize its ledger, unlike standard blockchain technology. A system called ‘tangle’ which claims to offer free transactions and much better scaling opportunities than regular blockchain systems. IOTA co-founder David Sønstebø stated “We are very excited to announce the launch of our data marketplace. This will act as a catalyst for a whole new paradigm of research, artificial intelligence, and democratization of data.” According to its latest white paper IOTA “naturally succeeds the blockchain as its next evolutionary step, and offers features that are required to establish a machine-to-machine micropayment system.”

The marketplace demo will run until January and IOTA stated they will release a series of blog posts to highlight how companies can use the technology and benefit from it. IoT devices connected to the IOTA ledger will allow regular users to sell their data and allow them to access other data streams. A system that facilitates the sharing and selling information from smart devices across the internet may enable people to profit from their own personal data.

IOTA does not require miners which is why the transactions are free, developers and investors are banking this and the rapid growth of IoT to push the crypto technology further. IOTA is currently the ninth largest cryptocurrency with a market capacity of just over $4 billion. Trade volume in the past 24 hours has been around $370 million, and prices have jumped from a range bound $0.4 – $0.6 for three months or to around $1.4. Many altcoins have enjoyed a resurgence in price action following Bitcoin’s monumental climb to five figures and the latest news will only push the price of IOTA even further.

Once again Bitcoin has taken all of the fame as the week starts by hurtling almost relentlessly towards the big $10k. However smaller sibling Litecoin also recorded an all-time high of just over $90 today. Often likened to the silver to Bitcoin’s gold, Litecoin has been slow to gain momentum since its previous peak at the end of August. It has been languishing around the $55 mark for roughly two months until it broke resistance around ten days ago and has been marching upwards ever since.

Trade volumes have broken $400 million in the past 24 hours and market cap is rapidly approaching $5 billion. This puts it a number six in the crypto chart for market capacity.

The spike in interest has been caused by atomic swaps which seek to bring interoperability between altcoins and the original bitcoin. Litecoin is often viewed as a major component in the push toward atomic cross-chain transactions. Every major cryptocurrency can be traded for Litecoin on the open market.

Breaking things down further the Litecoin Rich List, a website analyzing the number of addresses and amounts held indicates that the majority of holders have less than 100 coins. With less than 3% of the wallets holding more than 100 coins. Only 69 addresses hold almost 38% of the total supply, the richest one having 1.4 million coins, currently valued at $130 million.

Litecoin is often viewed as being more stable than its bigger brother Bitcoin which has had a wild ride in the past six months. It has rapidly emerged as one of the fastest and most affordable transaction units on the market. Investors looking for innovative solutions can expect a lot from Litecoin as its popularity grows. It still remains highly affordable, unlike Bitcoin which will soon be over $10,000.

GDAX has dominated the exchanges in terms of LTC trading volume, however, South Korean Bithumb, where up to a quarter of global Litecoin trade is made, could easily take the top spot. Coinbase also lists LTC available to purchase directly with fiat, and the more exchanges listing it will result in the coin becoming more mainstream like its bigger brother.

Many altcoins have taken a beating at the expense of Bitcoin but Litecoin, and recently Ethereum, have shown strong gains and continue to trend upwards. $100 per LTC is not that far away now and 2018 could be very productive for Bitcoin’s silver.

The crypto-sphere has been awash recently with stories claiming that the creator of Bitcoin is none other than SpaceX founder and Tesla CEO Elon Musk. Nobody really knows the true identity of Bitcoin’s father other than the pseudonym Satoshi Nakamoto and its elusive connotations. Interest has surged in the cryptocurrency which is currently teetering on breaking the ten thousand dollar price level so people are wondering who founded it and how much of it do they hold.

No person or group has stepped forward with a genuine claim to be Nakamoto, though some have falsely tried. Founder of Nchain, Craig Wright, is one such fraudster that claimed to be the creator of Bitcoin at a Future of Bitcoin Conference. Core developers and BTC community members immediately rejected this claim.

Enter Sahil Gupta, a software engineering intern at SpaceX. In a recent Medium post he put forward some arguments for Elon Musk as being the founder, and some are quite convincing. Firstly the capability must be established, the 2008 Bitcoin Whitepaper was written by someone with an extensive understanding of cryptography and economics. Musk has a background in economics and has written production-level internet software for several platforms including Paypal.

The source code for Bitcoin was written by an expert in the C++ language. Again, Elon Musk is a high-level coder and insists that this language is used at his companies. Being a self-taught polymath Musk has been on the leading edge of innovation for at least a decade and has worked on the forefront of projects such as reusable rockets and Hyperloop.

As for motivation, there would have been no better seed for one than during the great recession of 2008. Developing a solution to the banking problem and the deep mistrust people had with them as millions lost investments to unscrupulous bankers would have been high on any philanthropically minded entrepreneur’s list.

Gupta went on to draw similarities with the original paper and the hallmarks of Musk’s reasoning and order of magnitude calculations. He then asked the question of anonymity, “Would Elon have stayed anonymous for 10 years? Probably, on principle.” Bitcoin was created as a peer-to-peer currency that did not need centralization or control by a financial institution or government.

Musk has publically stated that he does not own any Bitcoin but it was widely reported that Satoshi possessed a million of them. This could mean that the Satoshi stash has now gone or that we are still none the wiser about who created it. There were some comparisons to Benjamin Franklin with Musk identifying with the urgent problems that humanity faces such as renewable energy, interplanetary exploration, and artificial intelligence.

But his final argument was the best, would Elon choose a pseudonym that is an anagram for “So a man took a shit?” Of course.

Ethereum creator Vitalik Buterin has laid out the future plans for the technology at a blockchain conference in Taiwan. He opened with a statement in reference to the numerous Ethereum replacements that have been launched in recent months. “The Ethereum killer is Ethereum, the Ethereum of China is Ethereum, the Ethereum of Taiwan is Ethereum… 2.0.”

Four areas of improvement to the Ethereum platform were then described; privacy, consensus safety, smart contract safety, and scalability. Buterin sees a solution for each of the first three through current and future hard forks. Byzantium has introduced some new cryptographic algorithms such as zero-knowledge proofs and ring signatures which can give coders tools to build solutions that will address the privacy issues.

The privacy problems are three quarters to being solved from the base layer he stated, the fourth quarter is at a protocol level. Byzantiums’ zk-Snarks provide the ability to hide a transaction at all while permitting you to decide who you wish to show that transaction to at the same time.

The Casper update will address consensus safety issues and a later Viper update will work on smart contract safety. Scalability remains to be the tough one to solve as a sacrifice of one of three factors must be made in order to achieve it. Decentralization, security, and scalability need to be able to work together. Currently, scalability is sacrificed with existing blockchains of Ethereum and Bitcoin. Larger blocks would improve this but at the expense of decentralization. The goal is to have the trifecta working together on-chain with the use of second layer solutions, such as Plasma, Raiden, or the Lightning Network.

He went on to state that the aim is to scale on-chain to thousands of transactions without masternodes, consortium nodes, or any other centralizing aspects. This will be achieved through a system he described as sharding, which allows side chains where protocol changes can be upgraded but keeping the primary chain complete.

The roadmap set out was three to five years to achieve this, it would also involve a change from proof of work to proof of stake. Using validator managers to replace the traditional method of mining to validate transactions would be at the heart of this change in protocol. He described it as two worlds, the old world that keeps operating with the same level of scalability which currently is limited as each transaction is replicated by each node that has to run on a computer.

The new world has its own rules which have quadratic scalability as nodes that validate certain shards. These act as light clients for other shards, with this new world potentially having even higher levels of scalability dependent on how sharding is implemented or incrementally improved.

Ethereum currently handles more transactions than all other decentralized public blockchains combined, it has increased by ten times since last year. Time is of the essence but these developments will not happen overnight, Ethereum has a long road ahead.

The big story that sent Bitcoin to the moon earlier this month has been updated this week with more good news. Both the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) have released details on upcoming futures contracts for the cryptocurrency.

These proposed trading contracts by major exchanges caused an upward surge in Bitcoin price earlier this month as it was seen as a sign of financial institution and mainstream adoption. The relentless uptrend continued and Bitcoin broke record after record the last high being a little over $8,200 just yesterday.

The CBOE released details of their BTC (or XBT) contracts on the exchange blog. There will be a 1BTC contract with the lowest price fluctuation (tick) of $10 released once regulatory reviews have been passed. A specific date was not mentioned though it is likely to be before the end of the year in line with CME’s announcement.

In response to questions CFA Russell Rhodes stated:

“The question I am constantly hearing is, “How will the futures prices relate to spot Bitcoin pricing,” and the best (and most honest) answer I can give is, “I don’t know.”  I’ve done academic work on the launch of newly listed products in the past and prior assumptions about new markets often are off the mark.  I’ve heard arguments for the futures trading at both a premium and a discount to the spot price, personally, I think the best strategy is to see what the market tells us when Bitcoin futures are available for trading.”

Previously CME announced a mid-December date for its Bitcoin contracts however that was later changed according to Reuters. The CME website currently states that futures contracts will be available before the end of the year pending all relevant regulatory review periods.

The contract will be a 5BTC offering with a price tick of $5 for each coin in the contract or $25 for the total of five. There will be spot position limits set at a thousand contracts.

The news bolstered the price again as it is likely to when these contracts go live next month. Bitcoin seems pretty unstoppable at the moment and the expectation is that these futures would impart legitimacy to the asset class which could see institutional investors entering the Bitcoin market.

In a statement to US news media Chairman and CEO of CME said:

“Today you cannot short Bitcoin. So there’s only one way it can go. You either buy it or sell it to somebody else. So you create a two-sided market, I think it’s always much more efficient.”

Ethereum is no stranger to coding crises and wallet mishaps; remember the bug back in July that allowed $30 million of Ether to be stolen from a popular Ethereum wallet client? Well it has happened again, and to the same Parity wallets that were compromised earlier this year.

A vulnerability resulted in the freezing of money in all Parity multi-signature wallets deployed after July 20th when a developer ‘accidentally’ hit a vulnerable patch of code. Some estimates are as high as $280 million in Ether that can no longer be accessed or used by Parity users.

The company has been battling to recover its reputation from a previous code breech which allowed hackers to steal 150,000 ETH in July. The original embezzlement would have been a lot worse were it not for the actions of white hat hackers who helped to recover an additional 377,000 ETH.

Following July’s hack the company issued a patch for the exploit deploying a new library contract with the intention of fixing it. The new code contained another flaw which converted the wallet to a multi-sig wallet which can have ownership taken over.

The parity team made this blogpost to explain the situation:

“Following the fix for the original multi-sig issue that had been exploited on 19th of July (function visibility), a new version of the Parity Wallet library contract was deployed on 20th of July. However that code still contained another issue – it was possible to turn the Parity Wallet library contract into a regular multi-sig wallet and become an owner of it by calling the initWallet function. It would seem that issue was triggered accidentally 6th Nov 2017 02:33:47 PM +UTC and subsequently a user suicided the library-turned-into-wallet, wiping out the library code which in turn rendered all multi-sig contracts unusable since their logic (any state-modifying function) was inside the library.”

The company went on to state that no funds can be moved out of the multi-sig wallets and $152 million in Ether is believed to have been frozen.

Memories still linger from Ethereum’s darkest days of the DAO attack last year which resulted in the theft of $60 million of Ether. This exploit does not affect Ethereum as a whole but it has raised security concerns amongst the community. Fingers are now being pointed at the security of Ethereum and its smart contract coding language, Solidity. Some serious questions will be asked and it is likely that Parity could lose a large portion of its customers, if they ever get their crypto back.