Industry at a Crossroads, Crypto Enters Fourth Phase of Development

A recent Andreessen Horowitz report says crypto is in its growth stage, but critics say the industry is yet to create end-use value.

The crypto space is well over a decade old with more than 5,500 different cryptocurrencies and a market capitalization north of $250 billion. Researchers at American venture capital firm Andreessen Horowitz say the 11-year old industry is in its fourth supercycle with the three previous epochs culminating in distinct developments that have gone on to shape the market as a whole.

In a report issued earlier in May, the VC firm posited that despite the apparently chaotic nature of the crypto market, each previous cycle has proceeded in roughly the same order. According to the report, every new stage begins with a massive increase in Bitcoin’s (BTC) price that triggers renewed interest in cryptos leading to the emergence of new ideas and startups.

However, there is an argument to be made over whether these thousands of crypto and blockchain projects have succeeded in ensuring any tangible value creation for end-users. For some pundits, apart from speculative investments, cryptocurrencies are not useful for much else.

Given that the industry is only 11 years old, some of the criticism may be premature. Seeing as the emerging crypto space mirrors the early days of the internet, the current challenges being posed by trying to navigate the decentralization, scalability and security trilemma may be little more than growing pains for a digital assets ecosystem still in its infancy.

Summary of the three past crypto cycles

According to the report, the first crypto cycle took place from 2009 to 2012 with mining pools and crypto exchanges being the highlights of the epoch. During this period, Bitcoin remained mostly within the confines of the cryptography and cypherpunk community as an elegant solution to the double-spending problem that had plagued previous attempts at digital money.

The ability to transfer value trustlessly — i.e., without the need for a central intermediary — likely attracted many of the early BTC adopters. An interesting piece of Bitcoin history from this period comes from the pseudonymous creator of Bitcoin, Satoshi Nakamoto. Posting on the Bitcointalk forum back in December 2010, Nakamoto discouraged WikiLeaks from adopting Bitcoin after major payment gateways like Visa, PayPal and Mastercard began to deny services to WikiLeaks.

Some in the nascent Bitcoin community saw any association with WikiLeaks as a growth opportunity for BTC. In response to the debate at the time, Nakamoto wrote:

“No, ‘don’t bring it on’. The project needs to grow gradually so the software can be strengthened along the way. I make this appeal to WikiLeaks not to try to use Bitcoin. Bitcoin is a small beta community in its infancy.”

The second growth phase between 2012 and 2016 saw crypto begin to permeate the larger tech space. In October 2013, the United States Federal Bureau of Investigation shut down the Silk Road darknet marketplace. Like the Andreessen Horowitz research report details, seeds planted in one epoch tend to drive up some aspects of the adoption seen in the following growth phase. Before Silk Road became a reality in 2011, a Bitcointalk forum poster named ‘teppy’ outlined a proposal to use Bitcoin in a hypothetical dark web-hosted heroin store.

The details of Bitcoin’s association with illegal drug trafficking isn’t the focus here, but it suffices to say that it served to catapult BTC beyond the cypherpunk community. Many developers drawn to the perceived potentials in blockchain technology entered the space and thus came the first wave of altcoin projects like Ethereum.

The initial coin offering mania of 2017 and 2018 was arguably the highlight of the third epoch — 2016 to 2019 — as developers and entrepreneurs tried to convince investors that their project was “the next Bitcoin.” BTC itself also set what is still its all-time highest price of about $19,800 in mid-December 2017. This third epoch saw the expansion of the crypto space beyond the creation of peer-to-peer cash systems into infrastructures like decentralized finance and decentralized apps.

What about actual value creation?

Early on in its emergence, the word “disruption” was almost always included in any mention of crypto and blockchain technology. The premise was that decentralized systems would disrupt several facets of the global business process dominated by centralized infrastructure.

Amid the expanding cast of projects and startups, some critics say cryptocurrencies are only useful as a speculative play — as an asset to hold in the expectation that its price increases in the future. Beyond the premise of the “greater fool theory,” the crypto skeptics believe tokens create no additional value for end-users.

Bitcoin proponents typically counter these assertions by pointing out BTC’s increasing utilization in cross-border transfers. For fees as measly as pennies to the dollar, Bitcoin allows users to transfer value across continents in a matter of minutes when bank wires would normally take days and come with a hefty fee.

The above use case, while arguably being prosaic, takes on a greater significance when viewed in the context of Bitcoin acting as a scarce digital wealth capsule in a time when government monetary policies appear to be wavering. According to the Bank for International Settlements, the offshore banking industry is believed to be worth more than $30 trillion.

Additionally, and despite its price volatility, Bitcoin is the best-performing asset of the decade and is leading the way in 2020 as well. This year, while major U.S. banking stocks are in the red, the largest crypto by market capitalization has printed a 30% price gain for holders.

Related: Defining Bitcoin: Money, Currency or Store of Value

Within the value creation argument for cryptos comes the need to define what exactly constitutes an acceptable set of parameters for judging the success of a digital asset project. For example, is Bitcoin’s emerging status as a safe haven asset and a convenient vehicle for cross-border transactions not akin to tangible value?

Critics of the reasoning above will point to Bitcoin’s limited scope of merchant adoption, which indeed applies for virtually all “payment” cryptos. Blockchains have so far appeared unable to scale sufficiently to enable broad-based retail adoption. For Jerry Chan, the CEO of TAAL, a blockchain service company, the focus on Bitcoin’s value as a store of wealth has taken away from developing useful payment projects. In an email to Cointelegraph, Chan remarked:

“We haven’t seen a focus on transactions on Bitcoin in the past, because the system in this market has historically been handicapped by limited block size, thus limiting its transactional processing capabilities. Instead, the focus has been exclusively on the monetary aspects of Bitcoin, namely that it is a stateless money, and nothing else.”

What will be the likely highlights of the fourth epoch?

Going by the Andreessen Horowitz report, the crypto space is currently in its fourth cycle and if history repeats itself, the current epoch should take effect following a BTC price gain that would renew interest for the creation of new projects. According to TAAL’s Chan, crypto projects that focus on transaction processing will be the main focus of the current cycle going forward: “In the next couple of years, we can expect to see the transaction processing businesses take center stage,” adding:

“The supercycle that we are now entering will be one where the processors that can handle more transactions, or develop innovative ways to serve new emerging transaction use cases and profiles, will be the ones that earn more share of the available transaction fees, which will incentivize them to continue building and supporting the infrastructure of the network.”

For Thor Chan, the CEO of crypto exchange AAX, the current cycle is going to be all about established platforms coming into greater compliance with regulatory standards. According to the AAX CEO, crypto businesses have been working toward building trust with not only investors but with government agencies, adding:

“It’s about getting security right, connecting to solid custody service providers, deploying market surveillance technology to protect the integrity of the markets, and then there’s the workaround optimising fiat on and off-ramps as well as the practical utility of cryptocurrencies in everyday life. We are seeing advances being made across all these sectors and together they are setting the scene for the next phase of growth.”

In a conversation with Cointelegraph, Emin Gün Sirer, a professor of computer science at Cornell University and the founder of Ava Labs, opined that the current crypto epoch will seek to solve issues neglected by the earlier generation of cryptocurrencies:

“The next cycle will revolve around ‘asset digitization,’ where mainstream financial professionals realize that issuing both physically-backed  (e.g., gold, real estate, commodities and the like) and purely financial (e.g., corporate debt instruments, CDSs, etc.) digital assets on blockchains confers enormous benefits. What is needed is an Internet of Finance, where any asset can be issued in a way that captures its unique properties, managed throughout its lifecycle in a legally compliant manner, and traded across the globe.”

Which direction to go?

On the subject of value creation for crypto projects, there is clearly a division between the pundits as some argue that the movement itself has been derailed from its original goals. For Fernando Gutierrez, the CMO of Dash (DASH) Core Group, the cryptocurrency space is losing the plot by pivoting away from building efficient payment infrastructure and focusing on tokenization:

“Payments is a use case that the traditional financial system has not fully solved where crypto can add a lot of value, especially in a world where digital is the only option, and borders are harder limits than they used to be. Everyone does many payments every day, yet many crypto projects try to solve funky problems that only happen when you margin trade a tokenised asset collateralised by a stablecoin that is obscurely backed by fiat money.”

Building efficient crypto-based payment systems will involve finding a solution to the scalability problem. For Sirer, the ability to operate at scale is cryptocurrency’s major challenge, adding: “None of the existing blockchains scale, and to the extent that people claim to scale, they do so by compromising decentralization.”

For TAAL’s Chan, the current issues in the crypto space stem from Bitcoin not being representative of its original purpose as developers agave been creating projects that range from alternative money systems to directly compete with fiat currencies to solving unnecessary problems. According to Chan, a fully functioning Bitcoin negates the need for the entire altcoin market, declaring:

“Altcoins shouldn’t be platforms, they should be applications built on-top-of Bitcoin. But because BTC ‘lost the plot,’ they started off on their own to build a blockchain with each use case. That is equivalent to creating a new internet protocol and payment system for every online application that needs to be developed. It makes very little sense.”

Steven Pu, the CEO and a co-founder of Taraxa, a platform looking to deploy blockchain technology for internet of things solutions, highlighted DApps as an area where the crypto movement is getting it wrong. According to Pu, the insistence of creating completely decentralized platforms is getting in the way of developers creating easy-to-use applications, as he told Cointelegraph:

“DApps will not gain widespread adoption until they offer excellent user experience, which includes performance on par with centralized systems and minimizing exposing users to blockchain’s underlying complexities — e.g., managing private keys. The ‘complete’ privacy offered by completely decentralized systems almost never offer anywhere close to good enough user experience to gain adoption, so some compromises need to be made.”

At the start of 2020, Cointelegraph reported that user retention was still a major issue for DApps. With many apps having difficult-to-navigate user interfaces, projects seem unable to continue directing user traffic to their products.

For Zach Resnick, a managing partner at crypto VC firm Unbounded Capital, only projects able to successfully solve the blockchain trilemma will become dominant in the emerging cryptocurrency landscape. In an email to Cointelegraph, Resnick posited:

“There is utility in being a store of value as well a highly efficient payment system. Further, there is utility in being able to store large amounts of data or perform complex computations. For all of these functions, scale increases the utility. I think scale is highly underrated by the broad blockchain community, and that trustlessness and censorship resistance are highly overrated.”

France Announces Successful Test of Central Bank Digital Currency (CBDC)

France

The central bank in France has announced a successful test of a proposed central bank digital currency (CBDC), becoming the latest nation to run pilot demonstrations of sovereign virtual currencies.

With the initial test completed, the Banque de France says it has more experiments to conduct with the digital euro involving interbank settlement protocols.

Meanwhile, China continues to be the clear leader in the race for supremacy in the CBDC arena with its proposed DC/EP currency already been trialed in different cities across the country. Facebook’s Libra project is also looking to get off the ground with more members joining the Libra Association while the payment platform undergoes operational changes targeted at smoothening regulatory wrinkles.

France’s Central Bank Tests Proposed Digital Euro

The Banque de France announced the news of the successful test of the CBDC via a communique published on Tuesday (May 20, 2020). According to the press release, the French central bank tested the CBDC in the settlement of digital financial securities issued by Société Générale Forge.

Reports indicate Société Générale issued about $44 million in security tokens back on May 14. The Bank de France using its in-house blockchain infrastructure settled the issuance of the covered bonds using digital euros.

An excerpt from a statement issued by Société Générale explaining the process reads:

“This experimentation was performed end-to-end using blockchain infrastructures…It demonstrates the feasibility of financial securities being digitally settled and delivered in Central Bank Digital Currency (CBDC) for interbank settlements.”

Back in December 2019, Blockonomi reported that France had plans for central bank digital currency trials in 2020. According to the communique, the country’s central bank will hold other tests to determine the suitability of the proposed CBDC.

This next round of trials will utilize the digital euro in interbank settlements. The French central bank also wants to see how participants in the legacy finance arena interact with a sovereign digital currency.

France’s Becoming More Crypto-Friendly

France has been vocal in its calls for the European Union (EU) to consider the creation of a digital euro for the region. Like was the case for robust crypto regulations, it appears the authorities in France are not waiting for the EU to chart a course forward.

In its communique, the French central bank described the CBDC tests as its contribution to any EU-led CBDC project. The country is also one of the major economies opposed to Facebook’s Libra digital payments project.

The CBDC tests also constitute another example of France’s growing appreciation for cryptocurrencies. Back in early March, a French court ruled Bitcoin (BTC) as being a currency. The country’s Finance Minister also removed taxes on gains from crypto-to-crypto trades in September 2019.

CBDC Race Still Ongoing

The French CBDC test comes even as China is already in an advanced testing stage of its proposed sovereign digital payment system. As previously reported by Blockonomi, wallets for China’s DC/EP are already available in four cities with each city working on a unique use case. Major restaurants and fast food outlets like McDonald’s’, Starbucks, and Subway have also been invited to participate in the DC/EP trial run.

Even countries like South Korea and the United States that are not actively developing a CBDC have issued statements indicating their intention to study the merits of creating their own sovereign digital currencies. In February, the U.S. Federal Reserve Chairman revealed that the country was working hard on a digital currency project.

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Crypto Exchanges to Obtain License Under Iran’s Proposed Bill Amendment

Iran

The Iranian parliament recently met to review its currency smuggling laws to properly define the concept of currency smuggling and punish offenders. However, the proposal does not cover currency smuggling, but also extends to crypto exchanges.

While most exchanges operate outside of Iran, the proposed amendment seeks to license exchanges, which could further stifle the growth of the crypto industry in the country.

Iran Mandates Licensing Regime for Local Crypto Exchanges

According to ArzDigital, on Monday (May 18, 2020), the Islamic Consultative Assembly in one of its sessions proposed to amend the law on smuggling of currency and goods. In the amendment, the lawmakers stated that bitcoin and other cryptocurrencies will be subject to the country’s currency smuggling and foreign exchange rules.

With the proposal, crypto exchanges will have to obtain an operating license with the Central Bank of Iran and follow strict guidelines. One of the cases considered a violation of the rule includes:

“Carrying out foreign exchange brokerage services inside the country for persons abroad, without having the permission to perform exchange operations from the Central Bank. The broker is the person who receives the currency for the currency traded in the country.”

The government’s proposed amendment seeks to curb capital flight. Failure to comply with the directives will earn defaulters a hefty fine and sanctions. While the lawmakers are placing cryptocurrencies under the proposed amendment, it is not clear how the government will mandate exchanges to obtain licenses. This is because some Iranian crypto exchanges are located abroad.

Iran’s attitude towards the nascent technology has not been entirely smooth. Back in July 2019, a top official of the Central Bank of Iran ruled bitcoin trading in the country as illegal because of the associated risks. Also, a draft crypto regulation by the government early in 2019 banned the use of bitcoin and other virtual currencies as a payment method in Iran.

Crypto Adoption in Iran Amid Crippling Hyperinflation

While bitcoin trading activities are prohibited in the country, the cryptocurrency mining industry continues to flourish in Iran. The country’s low electricity rates have attracted lots of bitcoin miners to the jurisdiction looking for cheap energy.

According to a report by Blockonomi in July 2019, the government of Iran officially recognized the crypto mining sector as industrial activity in the country, with miners also having a special electricity tariff.

The government later in Septemeber 2019 announced a tax exemption for bitcoin miners who bring their foreign earnings home. Early in 2020, Iran’s Ministry of Industry, Mine, and Trade issued 1,000 licenses to bitcoin miners to legally carry out mining activities in the region.

Iran’s economy has continued to plunge over the years, with the Gulf Nation struggling with serious hyperinflations. The current official exchange rate stands at 42,000 rials to $1, with the black market’s exchange rate being several levels higher.

In a bid to manage the crippling economic situation, authorities in Tehran redenominated the rial by removing four zero digits and changing it to toman, making each toman equal to 10,000 rials.

The Gulf Nation has also been blocked from the international financial scene, following the strict sanctions placed by the U.S. President, Donald Trump. Consequently, Iran has sought cryptocurrency to circumvent the sanctions. There were reports about the government looking to develop its own digital currency.

Back in December 2019, Iran’s President Hassan Rouhani during a summit in Malaysia called on Islamic nations to collaborate to create a Muslim cryptocurrency. According to Rouhani, such currency will help to remove them from the dominance of the U.S. economic hegemon. Also, an Iranian commander asked the country to use crypto to circumvent U.S. economic sanctions.

The post Crypto Exchanges to Obtain License Under Iran’s Proposed Bill Amendment appeared first on Blockonomi.

Crypto Exchanges to Obtain License Under Iran’s Proposed Bill Amendment

Iran

The Iranian parliament recently met to review its currency smuggling laws to properly define the concept of currency smuggling and punish offenders. However, the proposal does not cover currency smuggling, but also extends to crypto exchanges.

While most exchanges operate outside of Iran, the proposed amendment seeks to license exchanges, which could further stifle the growth of the crypto industry in the country.

Iran Mandates Licensing Regime for Local Crypto Exchanges

According to ArzDigital, on Monday (May 18, 2020), the Islamic Consultative Assembly in one of its sessions proposed to amend the law on smuggling of currency and goods. In the amendment, the lawmakers stated that bitcoin and other cryptocurrencies will be subject to the country’s currency smuggling and foreign exchange rules.

With the proposal, crypto exchanges will have to obtain an operating license with the Central Bank of Iran and follow strict guidelines. One of the cases considered a violation of the rule includes:

“Carrying out foreign exchange brokerage services inside the country for persons abroad, without having the permission to perform exchange operations from the Central Bank. The broker is the person who receives the currency for the currency traded in the country.”

The government’s proposed amendment seeks to curb capital flight. Failure to comply with the directives will earn defaulters a hefty fine and sanctions. While the lawmakers are placing cryptocurrencies under the proposed amendment, it is not clear how the government will mandate exchanges to obtain licenses. This is because some Iranian crypto exchanges are located abroad.

Iran’s attitude towards the nascent technology has not been entirely smooth. Back in July 2019, a top official of the Central Bank of Iran ruled bitcoin trading in the country as illegal because of the associated risks. Also, a draft crypto regulation by the government early in 2019 banned the use of bitcoin and other virtual currencies as a payment method in Iran.

Crypto Adoption in Iran Amid Crippling Hyperinflation

While bitcoin trading activities are prohibited in the country, the cryptocurrency mining industry continues to flourish in Iran. The country’s low electricity rates have attracted lots of bitcoin miners to the jurisdiction looking for cheap energy.

According to a report by Blockonomi in July 2019, the government of Iran officially recognized the crypto mining sector as industrial activity in the country, with miners also having a special electricity tariff.

The government later in Septemeber 2019 announced a tax exemption for bitcoin miners who bring their foreign earnings home. Early in 2020, Iran’s Ministry of Industry, Mine, and Trade issued 1,000 licenses to bitcoin miners to legally carry out mining activities in the region.

Iran’s economy has continued to plunge over the years, with the Gulf Nation struggling with serious hyperinflations. The current official exchange rate stands at 42,000 rials to $1, with the black market’s exchange rate being several levels higher.

In a bid to manage the crippling economic situation, authorities in Tehran redenominated the rial by removing four zero digits and changing it to toman, making each toman equal to 10,000 rials.

The Gulf Nation has also been blocked from the international financial scene, following the strict sanctions placed by the U.S. President, Donald Trump. Consequently, Iran has sought cryptocurrency to circumvent the sanctions. There were reports about the government looking to develop its own digital currency.

Back in December 2019, Iran’s President Hassan Rouhani during a summit in Malaysia called on Islamic nations to collaborate to create a Muslim cryptocurrency. According to Rouhani, such currency will help to remove them from the dominance of the U.S. economic hegemon. Also, an Iranian commander asked the country to use crypto to circumvent U.S. economic sanctions.

The post Crypto Exchanges to Obtain License Under Iran’s Proposed Bill Amendment appeared first on Blockonomi.

Crypto Exchange AAX Partners with Solidus Labs to Combat Market Manipulation

Solidus

Atom Asset Exchange (AAX) — an institutional-grade crypto trading platform — is partnering with Solidus Labs to use the latter’s market surveillance tools in combating manipulation in the cryptocurrency trading space.

The move is part of efforts by the London Stock Exchange (LSEG) Technology-backed exchange to improve its compliance with increasingly robust regulatory standards.

Crypto forensics is increasingly becoming important for exchange platforms especially as regulators in some jurisdictions are beginning to mandate that market participants improve market monitoring and surveillance. This insistence is part of global efforts to prevent the use of cryptocurrencies in money laundering and terrorist financing.

AAX to Deploy Solidus Labs’ Market Surveillance Tools

According to a press release shared with Blockonomi, AAX revealed its collaboration with Wall Street-based Solidus Labs to use the latter’s cryptocurrency surveillance framework. As part of the partnership, AAX will have access to Solidus Labs’ suite of surveillance and compliance software to detect potential market manipulation and other forms of cryptocurrency trading abuse.

The use of Solidus Labs’ crypto forensics framework upgrade’s AAX’s crypto market surveillance infrastructure to the standards set by participants in the mainstream asset trading arena. AAX plans to use the tools to detect spoofing, wash trading, cross-market manipulation, and pump-and-dump schemes among others.

Commenting on the partnership, AAX CEO Thor Chan remarked:

“We believe that all investors, retail and institutional, deserve fair markets, where prices are accurate and trade volumes are real. We are excited to partner with Solidus Labs to provide state-of-the-art market surveillance.”

Crypto Forensics Required for Greater Institutional Adoption

AAX tapping Solidus Labs for full-spectrum crypto trading forensics comes as regulators across the globe are insisting on total compliance with robust licensing and regulatory requirements. Indeed, jurisdictions like Hong Kong and Malaysia have introduced detailed listing requirements for cryptocurrency businesses in their respective markets.

In New York, the state’s Department of Financial Services (NYDFS) is also insisting on crypto companies adhering to industry-standard market monitoring protocols, stating:

“VC Entities are required to implement measures designed to effectively detect, prevent, and respond to fraud, attempted fraud, and similar wrongdoing.”

The NYDFS insisting on crypto companies deploying robust crypto forensic protocols is also making the notoriously difficult BitLicense even harder to obtain with Bittrex not getting the nod back in April 2019.

According to Chan, the move towards robust crypto forensics apart from helping platforms comply with regulators moves the industry into greater maturity. With rogue trading actions like spoofing and price manipulation out of the way, more sophisticated products like exchange-traded funds (ETFs) can emerge.

Indeed, the United States Securities and Exchange Commission (SEC) has consistently identified the absence of effective market surveillance as one of the reasons for refusing to approve a Bitcoin ETF. Many crypto pundits view investment vehicles like ETFs as major on-ramps for the entry of more institutional money into the cryptocurrency space.

Eradicating Market Manipulation in the Crypto Trading Space

Exchanges are increasingly moving towards deploying crypto trading monitoring systems. As previously reported by Blockonomi, Chainalysis has partnered with a few platforms to utilize its Know-Your-Transaction (KYT) compliance. Cryptocurrency exchanges already using the KYT infrastructure include Paxful and Bitfinex.

Apart from Chainalysis, Nasdaq is also providing cutting-edge crypto monitoring services to cryptocurrency exchanges via its SMARTS Market Surveillance toolset. Back in 2019, reports emerged that about seven crypto exchanges — including Gemini and SBI Virtual Currency — were already utilizing the Nasdaq technology in combating illegal trading activities.

The post Crypto Exchange AAX Partners with Solidus Labs to Combat Market Manipulation appeared first on Blockonomi.

Bitcoin Mining Revenue on the Decline Since Block Reward Halving

Bitcoin Mining Hash Rate

Bitcoin mining revenue is down by almost 50% from its pre-halving level with hash rate also showing a similar decline.

The halving event which saw block rewards cut in half appears to be significantly impacting the bottom-line for miners especially as a new difficulty adjustment is yet to happen.

Meanwhile, transaction fees are now accounting for a significant portion of the revenue earned by Bitcoin miners, reaching levels not seen since 2018

On the price side, BTC appears to be caught in a sideways accumulation phase between $9,500 and $9,800, signaling a massive resistance at the $10k to $10.1k level.

Bitcoin Mining Revenue and Hash Rate Tumble

According to data from Blockchain.com, Bitcoin mining revenue in USD has fallen by about 50% since the halving event took place a few days ago. The halving which reduces block rewards by half means a decrease in the inflation causing daily BTC supply to go down from 1,800 BTC to 900 BTC.

Bitcoin Mining Revenue Decline
Source: Blockchain.com

With the daily supply reducing by half, mining nodes are having to compete for fewer available new BTC. Many of these Bitcoin mining operations have recently installed state-of-the-art hardware to boost their chances of beating the rest of the competition.

The network hash rate — the computing power expended to secure the network — is also on the decline. Inefficient miners not able to compete are shutting down their machines and exiting the network.

The exodus of a significant amount of hashing power creates a shortfall in the computing power expended on the network. Again, the emergence of a decline in hash rate post-halving is not surprising.

Once the next downward difficulty adjustment occurs, the effect of the current miner exodus should be mitigated. Bitcoin has historically recovered from hash rate plunges even those incorrectly characterized as mining death spirals and there is little evidence to suggest the current situation will be any different.

Fees Now Accounting for 15% of Miner Revenue

Meanwhile, transaction fees now account for more than 15% of Bitcoin mining revenue, according to data from crypto analytics provider Glassnode. Not since the ‘crypto-mania’ hype of late 2017 and early 2018 have fees represented such a significant portion of the BTC miner earnings.

Bitcoin Fees Increasing
Source: BitInfoCharts

The increase in Miner revenue from fees comes amid a continuing rise in Bitcoin transaction fees. BTC fees are currently at their highest level in almost a year with BitInfoCharts showing transaction costs averaging $5.83.

With the increasing level of on-chain activity coupled with the reduction in block rewards, miners are prioritizing transactions with higher fees. Thus, the mempool is experiencing a growing backlog of unconfirmed transactions with significantly lower fees.

While the current fee hike is considerable, it is little compared to the spike seen in 2017 when transaction costs went as high as $50. The introduction of SegWit has helped to prevent the occurrence of such massive fees and once the next downward difficulty adjustment occurs, the mining space will regularize leading to a decrease in transaction costs.

Will Price Follow?

While the Bitcoin appears caught in a sideways accumulation trend, some crypto pundits argue that the BTC price will soon follow hash rate and miner revenue in experiencing a decline. Since falling to $3,800 during Black Thursday — March 12, 2020 — the top-ranked cryptocurrency by market capitalization has recovered, even temporarily going above the $10,000 mark in late April.

Typically, the Bitcoin price has set a new all-time high in the year immediately following a halving event. On-chain data shows increasing accumulation across both the retail and institutional market segments with investors looking to ride another upward price growth for BTC.

The post Bitcoin Mining Revenue on the Decline Since Block Reward Halving appeared first on Blockonomi.

Time for ETH to Rise and Shine as Futures Trading Now Available in US

ErisX rolls out CFTC-regulated, physically-settled ETH futures contracts to U.S. traders, but positive spot price action is not a certainty.

Crypto exchange platform ErisX is bringing Ether (ETH) futures trading to the United States, becoming the second cryptocurrency derivatives product on offer in the country. The announcement came only a few days after the Chicago-based, TD Ameritrade-backed ErisX obtained a digital currency license from financial regulators in New York.

Bitcoin (BTC) futures trading debuted back in 2017 with both the Chicago Mercantile Exchange and the Chicago Board Options Exchange launching cash-settled BTC futures trading. CBOE has since shuttered its Bitcoin futures contracts trading service.

The news comes after a year of speculation about a possible debut of ETH futures in the U.S. market with some of the arguments surrounding the possible launch hinged on the regulatory classification of Ethereum — whether Ether tokens should be deemed a commodity or a security.

A high-ranking official from the Securities and Exchange Commission has in the past characterized Ether as not a security. Indeed, Commodity Futures Trading Commission chairman Heath Tarbert predicted that ETH futures could hit the U.S. market by 2020 — a prediction that became true with the ErisX announcement.

Details of the offering

The ErisX Ether futures contract is a physically delivered futures contract product based on the ETH/USD trading pair. According to a company blog post announcing the launch, the expiration schedule for the ETH futures trading is both monthly and quarterly.

Being physically-settled, the ErisX ETH futures trading will see an actual exchange of the underlying Ether tokens at the expiration of the contracts. The newly introduced Ether futures will also run alongside the platform’s ETH spot trading market, potentially ensuring transparency in price discovery, as well as efficient collateralization of trades. In an email to Cointelegraph, Thomas Chippas, the CEO of ErisX, explained the reason for opting for physical delivery as against cash-settled futures, stating:

“A physically-settled contract plays a unique role in the market. First, a physically-settled contract reduces basis risk — the buyer of the future receives the actual asset underlying the derivative contract, not an approximated, index-derived cash amount, which does not perfectly track the price of the underlying asset.”

For Chippas, the need for robust price discovery played a major role in the exchange’s decision to settle for physically-settled and not a cash-settled ETH futures contract despite the added delivery costs and brokerage fees. Explaining further, he added:

“With our ETH contract, holders of ETH can use that ETH for collateral by depositing it into the clearinghouse and commencing trading — with cash-settled products, holders of ETH must first convert the ETH to cash somewhere else, incurring the market risk and expense of doing so, or they need to post cash to trade the cash-settled contract while still holding the ETH, bearing the cost and overhead of that inefficiency.”

According to ErisX, the newly launched ETH futures contracts will utilize the platform’s central limit order book (CLOB) system. For ErisX, the CLOB matching engine seeks to democratize the market, enabling equal access for all participants. An excerpt from the company’s blog explaining the benefits of its CLOB engine reads:

“CLOBs enable all participants to trade with each other without requiring new and exclusive agreements with each counterparty, and our surveillance program works to prevent malicious activity. CLOBs are used in traditional commodity markets by leveraging a matching engine that employs a price/time matching algorithm.”

Chippas, however, didn’t rule out the possibility of creating a cash-settled ETH futures contract product in the future, adding: “We think there is a role to place for cash-settled products, too. In addition to potential ETH products, we have unique ideas that we are working on and expect to launch, subject to regulatory approval, later this year.”

What happens to ETH spot price?

When talk of a possible ETH futures contract by the CBOE emerged in late 2018, some crypto commentators argued that such a development could significantly impact the spot price of Ether, as the introduction of derivatives enables traders to place long or short bets on the future price trajectory of an asset. The crypto space has changed somewhat since late 2018, but the same questions over the potential implications of Ether futures trading on the spot price of the asset still exist.

For David Grider, a senior research analyst at market research firm Fundstrat Global Advisors, the ErisX ETH futures offering represents a nonevent for the underlying Ether spot price. According to Grider, ErisX does not command sufficient liquidity for its futures contracts to significantly affect ETH prices, telling Cointelegraph:

“Over the long term, you could say futures negatively impact the price since bullish investors no longer need to actually buy the underlying. You could also say it gives bears a new means to short the price — we saw this with Bitcoin in Dec. 17, but let’s not forget we were at the top of a major bubble then. That’s not the view I take. My view is that futures add greater liquidity to the market, which de-risks the asset, and has a positive impact on valuations. Overall, it’s good that Ethereum has opened up to the U.S., and I suspect demand for ETH trading will grow slowly over time as it did for BTC.”

Apart from futures trading offering investors the ability to enter into short positions — which as crypto market analyst Mati Greenspan said in 2018 is a “critical component of price discovery” — ErisX ETH futures also serve to expand the visibility of Ether to a broader pool of investors. Intending market participants not keen on holding the actual asset can gain exposure to the Ether market by either going long or short on the future price of Ether.

If the trend observed on other derivatives platforms like Bitfinex is anything to go by, then ErisX might see an overwhelming majority of long bets. As previously reported by Cointelegraph, ETH longs on Bitfinex have gone parabolic, having steadily increased in volume since the start of the year.

Is Ether mature enough?

Given the volume of crypto market capitalization tied to Ether, any significant change in ETH’s valuation over a short time usually reverberates across several cryptocurrency projects. The bear market of 2018 effectively led to the death of the initial coin offering fundraising model, negatively impacting the valuation of several cryptocurrency startups.

Recently, the events of Black Thursday — when ETH’s price fell by about 50% — led to opportunistic profiteering on MakerDAO. Amid a tide of liquidations, the project would end up declaring losses of about $6.65 million in Dai stablecoins.

Related: MakerDAO Takes New Measures to Prevent Another ‘Black Swan’ Collapse

Apart from possible price implications, the question of Ether’s maturity as an asset also comes to the fore. Bitcoin’s market capitalization was over $300 billion back when BTC futures debuted in the U.S. in December 2017. Admittedly, the largest crypto, like others in the market, has shed a significant portion of its late 2017 valuation and is now around $174 billion as Ether’s market cap is only one-eighth of Bitcoin’s, at $22 billion. Commenting on Ether’s maturity as a commodity for futures trading in the U.S., Chippas remarked:

“Ethereum has real functionality and use cases, with real people, firms and governments beginning to use the network. The structure of the Ether market has many similarities with existing commodity markets and we believe the precedents and standards already in existence for those markets can be applied to Ether.”

According to Chippas, the roll-out of ETH futures trading on ErisX will further serve to improve the visibility of Ether to investors, adding: “We believe that Ether futures will bring broader market participation, a diversity of trading objectives and time horizons, more robust and resilient markets, as well as improved risk management tools, among other things.”

While ETH futures trading in the U.S. is now a reality, derivatives products for other altcoins might still be a long time coming. When asked about the possibility of major top 10 altcoins being approved for futures trading by the CFTC, Grider opined:

“Regulators will not allow altcoins, or any asset for that matter, that they feel is highly susceptible to market manipulation to trade in the U.S. The real answer depends on market size, liquidity and concentration of the float. Bitcoin and Ethereum are the two largest crypto assets.”

Related: Ethereum Developers Roll up Their Sleeves in Hunt for Scalability Cure

Binance CEO: Names Africa an Untapped Market for Crypto

Africa

Changpeng Zhao, Founder and CEO of crypto exchange giant Binance, has described Africa as an untapped market place with a plethora of opportunities for blockchain technology and widespread cryptocurrency adoption.

Africa’s Untapped Crypto Market

During an interactive “ask me anything” session on Zoom, CEO of Binance Changpeng Zhao popularly known as CZ discussed the possibilities of driving crypto adoption in Africa’s untapped cryptocurrency market.

Citing the early days of Binance, CZ revealed that the world’s top cryptocurrency exchange by trade volume has always had active users in Africa since the exchange launched in 2017. Seeing a potential market for crypto trading, Binance expanded its presence to the region with the launch of Binance Uganda in 2018.

Since then, the crypto exchange heavyweight has funded a plethora of incubation services that have provided capital for crypto-related startups across Africa. Binance has also enabled trading support and fiat deposits in rands for crypto investors in South Africa. CZ said:

“We view the entire African market as a really key market, and this year we were very lucky to be able to find a good banking partner in South Africa, and we are able to now accept banking deposits directly through bank accounts. We will soon be able to launch credit card buying as well. South Africa, and Africa as a whole, is a really important market for us.”

Despite Africa’s potential to build a foundation for the widespread crypto adoption, there are many challenges hindering progress. CZ highlighted the number of unbanked Africans and existing barriers to Know-Your-Customer (KYC) processes as major problems facing crypto adoption in the region. Attributing these challenges to the banking system in Africa, CZ remarked:

“Working with banks there is a little bit more difficult. The banking API interfaces are slightly older or nonexistent, and the number of people having bank accounts is quite low. So, even if you have a bank account support, the overall population you can tap into [is] still in the low double digits.”

Driving Blockchain Adoption in Africa

Referencing South Africa again, CZ pointed out that a few local crypto exchanges are already operating successfully but at a relatively small capacity. The Binance CEO also expressed doubts over the sustainability of these exchanges as making profits could prove difficult.

As Africa’s banking infrastructure is still catching up to modern standards, buying crypto in the region remains fairly complicated. However, with the introduction of trading pairs in local fiat currencies in countries such as Nigeria, crypto trading volumes are slowly growing. According to data from Binance, daily trading volumes in Nigeria recently surpassed $1 million on the crypto exchange.

Furthermore, CZ cited the recent bitcoin (BTC) halving event as another factor that will aid in encouraging crypto adoption in Africa and across the world generally. The Binance CEO explained that:

“There is a lot of fiat money being printed, while we’ve just gone through the Bitcoin halving…and the fiat money is being printed in record quantities now. So, I think the cost of everything will increase very soon. We will see hyperinflation. All of those things are actually really good for cryptocurrencies and for the overall blockchain business.”

Several developments indicate positives for widespread crypto adoption and blockchain technology utilization across Africa. As previously reported by Blockonomi, sub-Saharan African countries topped the list of the most conducive places to own cryptocurrency, according to a Global Digital Report backed by digital media firms Hootsuite and Wearesocial.

Back in April 2019, cryptocurrency options in South Africa were reportedly on the rise. A few months later in December, the South African central bank announced plans to introduce clear cut crypto regulatory policies.

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Ethereum Balance Held by Bitfinex: Now More than the Entire DeFi Market

Bitfinex Token Sales

Crypto exchange Bitfinex now holds more Ethereum (ETH) than the total value locked (TVL) in USD of ETH in the decentralized finance (DeFi) market. The platform is also increasing its exposure to Tether (USDT) with its balance of the stablecoin continuing to rise since mid-March 2020.

Meanwhile, the Bitcoin (BTC) balance on Bitfinex has taken a sharp downturn over the same period, dropping by more than 50%. The preference for USDT over BTC might point towards the expectation of an imminent price drop for Bitcoin hence exchanges like Bitfinex choosing to limit their exposure to the top-ranked cryptocurrency by market capitalization.

Bitfinex Outstrips DeFi Market in Ethereum Holdings

Taking data from crypto analytics platform Glassnode, Elias Simos of blockchain venture fund Decentral Park Capital tweeted that Bitfinex’s ETH balance is now greater than the TVL (in USD) of Ethereum in the DeFi market. An excerpt from the tweet reads:

“Since mid-March, the balance of ETH on Bitfinex has increased from ~2.5M to ~4M ETH. Over the same period, ~3B Tether has printed on the Ethereum chain.”

Bitfinex Holds More Ethereum than DeFi Market

Source: Twitter

According to data from DeFi market tracker DeFi Pulse, the TVL for the DeFi market currently stands at $835.5 million. This figure has been steadily on the rise since taking a massive hit on “Black Thursday” when ETH flash crashed by about 50%. There are currently 2.7M ETH ‘coins’ locked in the DeFi market.

Ethereum Locked in DeFi

Source: DeFi Pulse

For Simos, three explanations exist for Bitfinex’s increased appetite for the second-ranked crypto by market capitalization. The first likely reason has to do with the crypto exchange looking to profit from staking in ETH 2.0.

Some crypto pundits have predicted that the staking upgrade coming in ETH 2.0 will act as a catalyst for a massive Ethereum price bull run. Thus far, the launch of ETH 2.0 has been beset with delays with project co-founder Vitalik Buterin earlier this week revealing work on the update was still on track.

Simos also opined that Bitfinex could be doubling up on ETH to cover gas costs associated with USDT transactions on Ethereum while also enjoying greater funding rates on the crypto itself than DeFi. Tether transaction volume on Ethereum has increased significantly and was even the cause of network stagnation back in late 2019.

BTC Balance on Bitfinex Down 50% Since March

Bitfinex holding more USDT comes as Tether has been on a massive printing spree, minting millions of its stablecoin almost on a daily basis. Back in April, Blockonomi reported that Tether’s market capitalization had crossed the $7 billion mark. As of press time, Tether’s valuation has grown by over $1.5 billion in double-quick time and is now on the cusp of dethroning XRP from the third position on the crypto market cap log.

While Bitfinex increases its ETH and USDT holdings, the Bitcoin balance held in the exchange continues to decline rapidly, a point also raised by Simos. Data from Coin Metrics shows a 50% drop in Bitfinex’s BTC stash beginning from mid-March 2020.

This period coincides with the Black Thursday panic that saw Bitcoin fall to $3,800 as the entire crypto market capitalization fell by about 50%. The sudden price plummet caused a cascade of forced liquidations across many cryptocurrency derivatives exchanges in a wipeout that echoed similar crashes in the broader financial market.

Since Black Thursday, Bitfinex has seen its Bitcoin balance fall from 193,900 BTC to 93,800 BTC, a shortfall of 100,000 BTC in two months. BitMEX, another crypto derivatives exchange has also seen a similar drop in its Bitcoin holdings, decreasing from 315,700 BTC to 216,000 BTC within the same period.

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MiL.k Partners with Retailer Shinsegae to Expand Crypto Rewards Market in South Korea

Milk

MiL.k — a crypto rewards startup — has inked a partnership deal with popular South Korean retailer Shinsegae Duty Free to expand the adoption of digital currency-based loyalty points. The move follows on from a similar collaboration with South Korean travel agency Yanolja last month.

Crypto rebates and other forms of loyalty rewards tied to cryptocurrencies appear to be gaining in popularity. Some pundits say these programs can help to foster a greater appreciation for digital by rewarding online shoppers with digital ‘coins.’

MiL.k Pursuing Expanded Blockchain Rewards Arena in South Korea

The blockchain rewards startup announced the news of its partnership with Shinsegae Duty Free via a press release issued on Monday (May 11, 2020). As part of the partnership, customers of the popular retail outlet in Seoul can link their accounts to the MiL.k app and spend loyalty points earned from shopping within the MiL.k marketplace.

Shinsegae customers earn ‘GOD’ loyalty points and under this partnership, shoppers can exchange them for MLK coins; the native token of the MiL.k ecosystem. Ownership of MLK will allow Shinsegae customers to earn loyalty points on other merchant participants in the expanding MiL.k marketplace.

Commenting on the partnership with Shinsegae, MiL.k co-founder Jayden Jo remarked:

“Shinsegae Duty Free is one of the top duty-free brands in Korea with millions of customers throughout Asia. By adding top-tier service companies like Shinsegae Duty Free and getting their rewards to be securely traded on blockchain, we will create a new paradigm for the rewards market and accelerate the mass adoption of blockchain.”

Established in 2019, MiL.k aims to simplify the loyalty rewards ecosystem by leveraging blockchain technology in integrating multiple services offering rebates and other rewards into one platform. Using its MLK tokens, and a planned partnership network with many retail brands, the project hopes to provide users with the ability to exchange loyalty rewards.

The MiL.k project effectively tokenizes the loyalty points reward system, highlighting the increased utilization of blockchain technology in decentralizing global business processes. The resultant crypto rewards marketplace can also act as an on-ramp for attracting more adoption of cryptocurrencies.

In April 2020, MiL.k announced its partnership with Yanolja — a leading travel agency in South Korea. The collaboration with Yanolja was a first for the project with subsequent partnerships with the likes of vehicle sharing service Dilka.

Crypto Rewards and Rebates Gaining Momentum

The crypto rewards and rebates scene is continuing to undergo significant expansion with more participants entering the market. With the expansion of the ecosystem, different approaches to tokenizing loyalty reward points have emerged.

While projects like MiL.k focus on decentralizing the entire market, others are creating on-ramps for online shoppers to earn rebates in the form of crypto tokens from retailers. Some of the projects in the latter category are signing deals with major retail brands to allow their customers to earn Bitcoin (BTC) and other cryptos as rewards for patronage. These crypto rebates allow online shoppers to ‘stack sats’ without having to go through the hassle of purchasing BTC from crypto exchanges.

Another emerging area of the crypto rewards scene is in providing a cash-back option. The introduction of cash-back in the blockchain loyalty points arena is likely to incentivize more participation in the market.

At the heart of these crypto rewards initiatives is the spurring of retail cryptocurrency adoption which some pundits say is the next milestone for the industry. Despite the promise of the technology surrounding digital coins, their utilization in the electronic payment arena still popular channels like credit cards and online banking.

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Bitcoin Price Experiencing Extreme Volatility with Halving Hours Away

Bitcoin Halving

Bitcoin (BTC) price is currently experiencing a choppy price action with the block reward halving only hours away.

The top-ranked crypto by market capitalization has in the last 48 hours risen to $10,000 and fallen to $8,600 with a recent attempt at regaining the $10k price mark rejected causing the current 60-day volatility to hit 13.81%.

Meanwhile, anticipation continues to build among BTC proponents of a likely bull run sparked by the imminent block reward halving. The network is also experiencing a massive spike in on-chain activity with spot volumes reaching levels not seen since the height of “crypto-mania” in late 2017 when the Bitcoin price nearly eclipsed the $20,000 milestone.

Wild Volatility Swings for Bitcoin Price

The Bitcoin price briefly flirted with the $10,000 mark but has since been rejected with the $10,100 level providing stubborn resistance to any continued upward trajectory. Bitcoin’s move above $10k had come after shedding more than $1,700 on Sunday (May 10, 2020) as a cascade of long position liquidations swept the crypto derivatives scene.

Bitcoin Price Chart

Source: Coin360.com

Indeed, over $1.3 billion in crypto longs and shorts were wiped out on Sunday with long bets accounting for the greater majority of the liquidations. BitMEX, regularly in the news for massive liquidations saw traders in long positions losing over $275 million.

Given Bitcoin’s resurgence in late April, bullish sentiments seemed to spur traders on derivatives exchanges to enter into overleveraged long positions. However, with the Bitcoin price unable to break the $10,100 resistance during the climb, a cascade of liquidations occurred which saw BTC falling below multiple support levels on the way to likely bottoming out at the $8,500 price mark.

Paul Tudor Confirms Bitcoin Stash

Meanwhile, legendary billionaire investor and the latest mainstream market stakeholder to recognize Bitcoin, Paul Tudor, has doubled down on his newly found appreciation of BTC. Tudor first sent shockwaves through the crypto space in his May 7 letter to investors describing the top-ranked cryptocurrency as a hedge against inflation especially during the ongoing uncertainties caused by coronavirus pandemic.

In an interview with CNBC on Monday (May 12, 2020), Tudor confirmed to having over 1% of his assets in Bitcoin. Commenting on the value proposition for BTC, Tudor remarked:

“The digitization of the world clearly benefits Bitcoin […] When you think about every bull market, there’s one common thread: an expanding universe of people who own it. The estimates are between 55 and 70 million people own bitcoin. If you’re buying bitcoin, you’re betting that number [will go up].”

The upcoming halving arriving at a time when the world is almost in total lockdown due to COVID-19 has also served to increase enthusiasm among Bitcoin proponents. Some pundits argue that BTC’s haven asset narrative will be entrenched by its performance in the coming months as countries grapple with the realities of dealing with the viral pandemic.

On-Chain Metrics Spike as Halving Looms

Bitcoin transaction volume is currently nearing levels last seen during the late 2017 bull rally. Crypto exchanges are reporting massive accumulation especially by retail traders looking to ride the wave of the coming halving.

Speaking to Blockonomi, Nikolaj Rosenthal, CEO of KYC-free crypto exchange platform Evonax explained that Bitcoin hodlers are expecting a repeat of historical trends,

“Halvings have typically caused the price of Bitcoin to set a new all-time high. Thus, it is no surprise to see retail owners stacking sats as they hope to make huge gains once the BTC price goes parabolic after the halving.”

Apart from transaction volume, other on-chain metrics like hash rate and the number of active addresses have also gone through the roof. With the halving only hours away, Bitcoin’s block time has also reduced significantly with an average of 4.7 minutes between blocks as against the theoretical standard of 10 minutes.

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Iran Ditches Rial in Hyperinflation Crisis — Bitcoin Demand Rises

Iran is set to redenominate its fiat currency, removing four zeros to create a new fiat called toman as demand for crypto is surging.

Ravaged by crippling hyperinflation, Iran’s Parliament has sanctioned the redenomination of its fiat — the rial — by replacing it with a new currency called the toman. According to the plan, each toman will be worth 10,000 rials.

The redenomination plan effectively removes four place values (four zeros) from the Iranian national currency as part of efforts to kickstart an economic recovery from the country. It is a move that echoes steps taken by other countries like Venezuela and Zimbabwe amid huge inflation.

With the United States exiting its nuclear deal with Iran and reintroducing sanctions, the country’s economic situation has been in a tailspin. Virtually frozen from the international scene, Iran has been facing a severe liquidity crunch and foreign exchange shortage.

Typically, people living in countries suffering from an economic crisis turn to cryptocurrency not only as a way of preserving wealth but also as a means of carrying out international transactions. Iran’s case is not dissimilar, with Bitcoin’s (BTC) price even rising to a hefty 300% premium on peer-to-peer exchanges like LocalBitcoins.

Iran’s struggle with hyperinflation

In May 2018, U.S President Donald Trump exited the Joint Comprehensive Plan of Action — commonly known as the Iran nuclear deal — and reimposed sanctions on Tehran. This decision put enormous pressure on the country’s already fragile economic situation. Commenting on the impact of U.S. sanctions on Iran, Babak Behboudi, the CEO of blockchain innovation firm Synchronium remarked:

“The U.S. sanctions are the major problem facing the Iranian economy in recent years, which have paralyzed a significant part of the economy. In an economy like Iran, where a significant part of the economy is still state-owned, such sanctions prevent economic stability and growth.”

While the deal was in place, Iran’s economy was open to the international scene, benefitting especially from increased oil exports. Indeed, the country’s president, Hassan Rouhani, ran his 2017 election campaign based on programs that would leverage the opportunities afforded by the accord with the U.S.

Iran's inflation rate year-to-year comparison

However, the rial was evidently deteriorating even before the U.S. repudiated the nuclear deal, with the country’s inflation rate more than tripling between 2017 and 2018. Indeed, the lifting of sanctions in 2016 did little to spur any growth in real gross domestic product. Between 2017 and 2018, protests broke out in many Iranian cities with people voicing their dissatisfaction over the rising cost of living among other grievances. By August 2018, Iran’s rial had lost more than 80% of its value in barely a year.

Faced with a rapidly declining economic situation, the central bank began placing restrictions on forex, a move meant to checkmate the foreign exchange black market. The escalating rial devaluation meant the emergence of an expanding bid-ask spread on Nima — the country’s secondary forex market.

At the start of May 2020, the bid-ask spread — the difference between the buying and selling rate for forex — stood at about 9,000 rials. Exporters of non-essential goods in Iran use Nima, and the widening bid-ask spread on the market means having to liquidate overseas earnings at a much cheaper rate that, in turn, harms the profitability of such ventures.

The existence of a secondary forex market is in part due to the inability of the authorities to create a unified exchange rate. The government’s failure in this regard meant that a greater percentage of forex deals moved to the black market where participants could speculate on the unending volatility of the rial–dollar exchange rate.

At the time of writing, while the official government rate is about 42,000 rials to $1, the black market rate is almost four times higher — with $1 selling for 163,500 rials. Indeed, the Nima rate has also begun to approach the black market figures with $1 worth 157,320 rials.

Currency redenomination plans

Iran’s economic situation has also not been helped by the outbreak of COVID-19 with the country’s currency going into a deeper dive since February. The country has been hit hard by the deadly coronavirus with over 6,500 deaths from about 104,000 cases since the first confirmed infection in mid-February. According to an April report from the World Bank due to the dwindling oil revenues, the country’s GDP growth will continue to lag. The report reads:

“Persistence of lower oil prices and export volumes (e.g., due to a significant decline in China’s oil demand) would result in a substantially larger overall shock and fiscal deficit in 2020/21.”

On Monday, May 4, 2020, Iran’s Parliament authorized the redenomination of the country’s fiat, eliminating four zeros and replacing the rial with the toman. According to the plan, each toman will be equivalent to 10,000 rials. The move, more than a year in the making, began with a draft bill prepared by the governor of the Central Bank of Iran. Opting for a redenomination also marks a departure from the usual approach of Iran devaluing its currency — which happened about 3,500 times since 1971.

Rate of rial devaluation over past 10 years

Some commentators like government spokesperson, Ali Rabiei, have said the move will help to simplify financial transactions in the country. However, critics of the plan believe it does nothing to solve the fundamental issues affecting the economy.

Tehran late to the party

In a conversation with Cointelegraph, Ali Beikverdi, the CEO of crypto exchange deployment service bitHolla, remarked that Iranians have already been redenominating the country’s fiat to suit different purposes. According to Beikverdi: “Currency denomination in any country doesn’t solve any financial or economic issues. The only thing it does is inflation. However, I must say in Iran this has been a matter of debate for quite some time.” Explaining the confusion caused by multiple rial benchmarks in the country, Beikverdi added:

“While banknotes use Iranian rial, people already drop one zero and call it toman. So, one toman = 10 rial today. To add more to that confusion, people even drop three more zeros from toman to make the numbers smaller, and that is very confusing if you are not familiar with it. So, the currency denomination has already happened among people for simplicity, and this is nothing new.”

With multiple forex benchmarks existing within the country, the government’s redenomination plan might struggle to achieve the desired results especially given the historical precedence surrounding such actions. For Behboudi, it is still too early to determine the effectiveness of the government’s plan, arguing that taking four zeros of a currency will not have much effect in itself:

“Such an effort can be a good small step for a serious, wider, and more effective series of reforms, including well-planned privatization of the economy, decreasing the monetary system expenses, and ease of banking operations.”

In a conversation with Cointelegraph, a spokesperson for Iran’s Ministry of Finance derided the plan to create a new fiat currency for the country, declaring:

“Everybody in the country knows that redenomination has no effect on inflation. Most economists think it is not a sustainable time for redenomination. Due to coronavirus and oil prices, the revenue of the government has fallen sharply, and at the same time, the costs have grown. So, we expect high inflation.”

Bitcoin comes onto the scene

Amid the backdrop of the plans to revamp Iran’s currency, Cointelegraph reached out to Areatak, a blockchain solutions provider based in Tehran. Back in May 2019, Cointelegraph reported that Areatak — in partnership with the Informatics and Services Corporation of Iran’s central bank — was developing Borna, a national blockchain project aimed at transforming the country’s banking and financial sector. In a message to Cointelegraph, Areatak CEO Saeed Khoshbakht revealed the latest updates with the project, stating:

“Borna infrastructure and platform is passing the first phase of test and it will be ready soon to launch. As mentioned in the whitepaper, Borna can host central bank cryptocurrency, and maybe it is used in this economic evolution. But the decision is for the central bank and ISC.”

While the government tries to solve the growing inflation problem, crypto stakeholders in Iran say the situation favors a more broad-based adoption of cryptocurrencies. Indeed, high ranking officials within the country’s government and military have called for the use of digital currencies to evade crippling U.S. sanctions. Commenting on the growing adoption levels of crypto in Iran, Khoshbakht remarked:

“If we analyze the adoption of cryptocurrency usage in the world we find two types of countries are in front of the list. Countries with a lack of digital payment systems and countries with high inflation. Because of High inflation in Iran, people don’t trust to national currency and try to buy everything such as real estate, gold, stock, other currencies like the U.S. dollar and cryptocurrency.”

Tehran’s stance on crypto mining has noticeably softened with the authorities allowing Bitcoin miners to set up shop in the country. As previously reported by Cointelegraph, Iran has issued about 1,000 licenses to crypto miners in the country.

Related: Five Countries Where Crypto Regulation Changed the Most in 2019

Earlier in May, the country’s Ministry of Industry, Mining and Trade also gave the go-ahead to Turkish crypto mining firm iMiner to establish a 6,000-rig facility in the Semnan province. Iran has also given tax breaks to crypto miners on the condition that they repatriate all foreign earnings. According to Behboudi, crypto is primed for even greater adoption in Iran, adding: 

“Mining, holding and trading of cryptocurrencies, especially BTC and ETH, is widely adopted in Iran. I’m sure in next months we will see more investment by the public, especially the middle class, in cryptocurrencies like BTC.”

For Beikverdi, the economic crisis in the country is only setting the stage for more people to choose cryptocurrencies. “Once you see your currency loses its value more than five times in about two years, as an investor, you seek alternatives as a store of value,” remarked the bitHolla CEO.

Indeed, Bitcoin P2P trading data shows significantly higher BTC premiums in Iran since the start of 2020. On LocalBitcoins, Bitcoin has steadily sold for between 300% and 400% of the global average spot price.

For example, while Bitcoin traded at around $7,800 in early January, the quoted price for BTC on LocalBitcoins was the equivalent of over $25,000. While BTC recovered from the Black Thursday flash crash of March 12, the cryptocurrency seemingly traded for $21,000 while the global average hovered above $5,200.

Fiat On-Ramp Simplex Removes KYC Requirement for Crypto Transactions Below $150

Simplex

Simplex, a service that provides fiat on-ramps for crypto exchanges is removing know-your-customer (KYC) restrictions for transactions below $150. The move is part of efforts to increase cryptocurrency adoption by eliminating needless regulatory hurdles for microtransactions.

Since its launch in 2014, Simplex has worked to become a leading fiat on-ramp for the crypto scene, creating channels for several national currencies to be traded for cryptocurrencies. The platform has enabled its clients like exchanges and virtual currency brokers to introduce credit card support, opening the expanding digital currency scene to more would-be adopters.

Simplex Eliminates KYC Burden for Crypto Microtransactions

In a press release shared with Blockonomi, Simplex announced plans to remove KYC restrictions for crypto transactions up to $150. According to the press statement, the fiat gateway infrastructure service plans to effect the updated KYC requirement across all of its clients.

Explaining the reason for updating its KYC policy, an excerpt from the Simplex press release reads:

“Going through KYC is a lengthy process for those users who want to make small first purchases, and Simplex is dedicated to ensuring that all transactions are risk-free as well as fast and easy.”

In recent times, regulators in various jurisdictions have begun to insist on strict compliance with KYC and anti-money laundering (AML) compliance. These measures while necessary to combat the use of cryptocurrencies in illicit financial activities like money laundering, tax evasion, and terrorist financing often come at the expense of platforms and users.

Crypto exchanges, wallets, and custody providers have to bear the increasing cost of compliance while users need to navigate the many levels of security checks before being able to purchase and use digital currencies. These mandatory regulations often pose hurdles to widespread crypto adoption and utilization.

Indeed, the rising cost of compliance occasioned by stricter KYC and AML regulations is seeing small and medium scale cryptocurrency businesses being forced out of business. As previously reported by Blockonomi, crypto exchanges and custodians in the Netherlands are coming under increasing pressure from Dutch regulators.

However, most of the KYC and AML regulations deal with exchanges involved in crypto/fiat trading pairs. The reason being that cryptocurrencies can create an avenue for rogue actors to funnel proceeds from illegal operations and have the crypto market launder these funds in the process.

Fiat Gateways for Crypto Adoption Across the Globe

For Simplex, the removal of the KYC burden for crypto microtransactions is part of the company’s efforts to expand the adoption of cryptocurrencies around the world. According to its press release, Simplex is looking to perfect “the flow of crypto onramp experience for users globally.”

The elimination of KYC for transactions below $150 comes amid the company’s rapidly expanding roster of fiat currency support. Simplex currently offers support for more than 40 national currencies including the Canadian Dollar and Japanese Yen.

By enabling support for more fiat currencies Simplex hopes to create a crypto market ecosystem that allows frictionless fiat-to-crypto transfers. Via its client platforms, users can purchase cryptocurrencies using credit cards.

Apart from supporting more fiat currencies, Simplex is also increasing its crypto catalog with the addition of more tokens. Back in March 2020, the company announced the addition of the Dai stablecoin to its list of supported cryptocurrencies.

Fiat on-ramps simplify the process of people acquiring cryptocurrencies through conventional online payment means such as credit and debit card payments. These channels offer an alternative to peer-to-peer trading services. Platforms like Simplex also ensure adequate security for such transactions with robust fraud chargeback protocols.

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Square’s CashApp Bitcoin Volume for Q1 2020 at $306 Million

Bitcoin

Square’s CashApp Bitcoin (BTC) revenue for Q1 2020 crossed $306 million as retail crypto purchase on the app continues to increase. The massive BTC volume recorded by Square comes despite one of the worst sell-offs in Bitcoin’s history in March 2020 as COVID-19 panic caused a cascade of liquidations in the financial markets.

Meanwhile, Square’s massive Bitcoin volume is indicative of a growing appetite for Bitcoin by both retail and institutional buyers. This uptick in BTC purchasing is coming amid the growing anticipation for the upcoming halving event predicted by many pundits to catapult the top-ranked crypto by market capitalization into another sustained bull rally.

CashApp Bitcoin Volume up 72% in Q1 2020

In its letter to shareholders, Square announced that Bitcoin volume on its CashApp grossed $306 million in Q1 2020. This figure represents a 72% increase from the $178 million revenue announced in Q4 2019.

Indeed, Square’s earnings from Bitcoin purchases have grown by more than 370% since the $65 million recorded during this same period last year; Q1 2019. The continued growth in BTC revenue points to the increasing stake being commanded by CashApp retail clients in the Bitcoin space.

In total, CashApp recorded total revenue of $586 million with a profit of $185 million. Bitcoin sales accounted for $7 million in profits while non-Bitcoin revenue produced $178 million. The Q1 2020 figures show the platform’s profit margin growing by more than 115% in the first quarter of 2020.

With Bitcoin profit already at $7 million, CashApp appears set to best its 2019 record of $8 million. This increasing profit margin from BTC sales comes despite the massive sell-offs during the Black Thursday panic of mid-March 2020.

Retail and Institutional BTC Buying on the Rise

The massive increase in BTC buying recorded by Square’s CashApp is part of a developing trend of hyperbitcoinization in 2020. Both retail and institutional appetite for the top-ranked crypto by market capitalization appears to be on the rise.

As previously reported by Blockonomi, Coinbase revealed back at the end of March that Bitcoin buying increased six-fold during the price crash that saw BTC fall to $3,800. The U.S. crypto giant also reported renewed interest from retail investors in altcoins as well while the market was experiencing a flash crash.

Coinbase even reported that the U.S government sending stimulus checks to Americans also spurred another round of ‘stacking sats.’ Data released by the crypto exchange showed a massive surge in BTC purchases worth $1,200 immediately following the release of funds from the government.

On the institutional side of things, the same trend of increasing appetite is also becoming more apparent. Grayscale Bitcoin Trust is seeing increasing inflows of investments from big-money players. Open interests in CME Bitcoin futures are also on the rise as crypto derivatives appear to be an attractive proposition for investors.

Halving Anticipation Reaching Fever Pitch

The upcoming halving is also creating further positive sentiments for Bitcoin with the imminent supply shock expected to trigger another price rally. Part of this anticipation comes from historical precedence which has seen the Bitcoin price set a new all-time high in the year following a BTC halving.

With the halving less than a week away, network activity is noticeably on the rise. The hash rate has reached a new high as miners dedicate more computing power to discover blocks that still have the 12.5 BTC reward. Transaction fees have also increased with the increase in activity causing transaction costs to rise significantly.

As at press time, the Bitcoin price is attempting another go at the $10,000-mark and is currently up by 2% over the last 24 hours.

The post Square’s CashApp Bitcoin Volume for Q1 2020 at $306 Million appeared first on Blockonomi.

MakerDAO Takes New Measures to Prevent Another ‘Black Swan’ Collapse

The DeFi lending market MakerDAO has updated its governance protocols to prevent another occurrence of forced liquidations that lead to huge losses.

The decentralized finance lending market Maker, like many crypto participants, suffered losses during the price collapse of “Black Thursday” on March 12. The price of Ether (ETH) declined by about 50% within 24 hours, triggering a zero-bid attack as the Maker system became swamped with a huge volume of liquidations.

In the aftermath of the crisis, Maker recorded losses totaling 6.65 million Dai (about $6.65 million) and has been forced to make sweeping changes to its governance and auction parameters. The project also added the stablecoin USD Coin (USDC) to its collateral pool.

Amid the losses incurred by the project, Maker community members are calling for compensation for vault holders. However, a lack of consensus over the appropriate percentage of the collateral to be returned, as well as the proper ETH–Dai valuation, might delay any such restitution.

The events of Black Thursday represented another significant setback for the DeFi market in 2020, which already saw rogue actors exploit vulnerabilities in flash loans to acquire ETH with zero collateral, thereby causing millions of dollars in losses for projects such as bZx.

Primer on MakerDAO’s auction protocol

Before examining the events of Black Thursday, it is important to present a summary of the Maker governance protocol to better understand why the ETH flash crash caused a cascade of liquidations. Simply put, MakerDAO is the base protocol that supports the Dai stablecoin, which is pegged one-to-one with the United States dollar.

Apart from Dai, the project also has another token, Maker (MKR), that acts as a governance and equity token. MKR token holders can vote on matters impacting the MakerDAO protocols, such as fees and collateralization ratios. By depositing ETH into the Maker smart contract protocol, a user enters into a Collateralized Debt Position, or CDP. The Dai realized from entering the CDP is based on the collateralization rate.

Since Dai is supposed to maintain a one-to-one peg with the U.S. dollar, any substantial fluctuation in the price of the base collateral, which is ETH, will cause the debt position to close. This situation is indicative of what happened on Black Thursday. When the price of ETH fell, CDPs ended up not having sufficient collateral to stay above the collateralization ratio. Under normal circumstances, the MakerDAO protocol would trigger automatic liquidations to return capital to the market and make the CDPs “debt-free” once again.

The first step in the process is a debt auction that sees freshly minted MKR exchanged for Dai that is then burned. The token burn helps to repay the underlying debt even when the ETH value is not sufficient to fully collateralize the position. A second step involves a corresponding collateral auction which involves the buying of MKR tokens with ETH. By selling a sufficient amount of the collateral, the system can accumulate enough capital to cover the debt and the associated fees.

Once again, under normal circumstances these two auctions happening concurrently cancel each other out, preventing MKR dilution, as the token is designed to be a deflationary currency. Thus, as long as the ETH price fall does not cause a huge undercollateralization of the CDP and the smart contract protocol can sell the base collateral at or near spot market price, both auctions should see a return to equilibrium of the MakerDAO lending market.

The burning of MKR reduces the circulating supply of the token, meaning the value held by vault holders increases. These market participants also receive liquidation fees and sundry accumulated interests from the auctions.

What happened on Black Thursday?

As previously reported by Cointelegraph, MakerDAO published a report that provided an examination of the losses incurred from the zero-bid attacks that occurred on Black Thursday. The document compiled the performance of its ETH-collateralized Multi-Collateral Dai — or MCD — system from inception to date as a way of determining a fair compensation formula for affected vault holders.

On that fateful Thursday, panic spread across not only the crypto space but the broader financial markets. The previous day, the World Health Organization officially declared COVID-19 to be a pandemic. This announcement happening amid the Russia–OPEC oil price war saw investors moving to exchange investment assets for cash. Within the crypto scene, the sell orders triggered a cascade of liquidations, with the crypto derivatives platform BitMEX seeing about $1.6 trillion in crypto long positions decimated in the market panic.

When the spot price of Bitcoin (BTC) and ETH tumbled, market makers seemed unable to ensure any form of stability for the market. Under normal market conditions, market makers profit from the bid–ask spread and provide order book liquidity. However on Black Thursday, market makers that didn’t withdraw their limit orders ended up holding positions deep in the red. With the main liquidity providers underwater, crypto derivatives exchanges began experiencing a liquidity crunch that reverberated across the market, culminating in BTC and ETH dropping by about 50% each.

Zero-bid attacks

The massive ETH price decline meant that MakerDAO MCD CDP positions became undercollateralized, triggering liquidations. Usually, these liquidations proceed via the two concurrent auctions detailed earlier in the text. However, Black Thursday ended up being a black swan event for MakerDAO as liquidators became swamped by the sheer volume of forced liquidations. An excerpt from the report detailing the nature of the zero-bid attack reads:

“One bidder discovered they could actually win auctions for collateral with effectively 0 DAI bids. 1461 auctions liquidated 62,842.93ETH for no collateral return to 320 vaults and a cost of 6.65M DAI to the Maker system itself. This event was not only costly to the vault holders, but was to the Maker system as well, in capital costs, system confidence, and Maker reputation generally.”

According to the report, apart from zero-price bids, half-price bids also occurred during Black Thursday, which contributed to vault holders receiving minimal collateral. The presence of zero-price and half-price bids points to unforeseen issues preventing market participants from submitting bids on particular auctions, allowing rogue actors to acquire ETH with little or no collateral.

As stated by the document, 24.7% is the maximum collateral return seen during “good markets.” On average, the period before Black Thursday saw a collateral return of about 17.77%, which fell dramatically to 2.59% on March 12. In a conversation with Cointelegraph, J. R. Forsyth, the founder of the blockchain project Onfo, commented on the absence of robust fail-safe protocols in Maker’s initial architecture to prevent the occurrence of the zero-bid attacks in the first place:

“The liquidators of the MakerDAO attack did not cope with their responsibilities. The error in the general code did not allow users to take part in the auction. Moreover, the developers did not develop a fallback scenario in advance that would allow them to update the system, not in 24 hours, but faster.”

According to Alex Melikhov, the CEO of the stablecoin platform Equilibrium, the losses incurred by the MakerDAO protocol during Black Thursday have more to do with the project’s shortcomings than the ETH flash crash. In an email to Cointelegraph, Melikhov opined:

“If the system could've handled liquidations as initially expected the volatility of the underlying collateral should have nothing to do with the sustainability of the entire debt positions.”

For Forsyth, protocols such as Maker should prioritize detailed audits of their smart contracts, adding: “An important part of the security audit of such protocols should be stress testing, which shows how smart contracts behave in an extreme situation.”

Fallout and governance changes

MakerDAO lost $6.65 million as a result of the zero-price and half-price bid attacks on Black Thursday. The event exposed vulnerabilities in the project’s governance protocol during periods of heavy liquidation. According to Forsyth, the losses incurred by MakerDAO are indicative of some of the issues plaguing the DeFi space, stating:

“Probably, the negative experience of MakerDAO will stimulate the appearance of alternative clients and scenarios that can be run in a short period of time. Recent attacks have shown that DeFi protocols are unstable in conditions of increased volatility. In such periods, complex formulas based on their algorithms cease to work.”

For Long Vuong, the CEO of the smart-contract platform Tomochain, projects like Maker should prioritize simpler governance processes that deliver robust security and are resilient to the actions of rogue agents. In a conversation with Cointelegraph, Vuong argued:

“The auction system is complex so preventing liquidations due to prices precipitously dropping during a financial panic requires a proper fail-safe plan. Part of this is to simplify and minimize the governance processes to expedite solutions during emergencies.”

Following the events of Black Thursday, the Maker community sought to implement protocols that would prevent a situation where keepers were unable to participate in an auction bid. The zero-price and half-price bid attacks only worked because those auctions had only one bidder and were thus able to liquidate ETH with minimum Dai bids.

As part of its conclusions in the report, MakerMan, the document’s author, revealed that even during Black Thursday, auctions with multiple bidders returned between 10% and 11% on average to vault holders. With more auction access points added, bid count is reportedly up by 200%, but the collateral return is still far below the 17.77% average during the pre-Black Thursday period. Commenting on the changes made to the MakerDAO governance protocols, Melikhov remarked:

“Increasing auction terms to six hours and getting rid of the auction timer seemed to me sufficient technical measures to prevent a recurrence. Other steps were mostly focused on troubleshooting rather than preventing. Good for the MakerDAO project that community committed to participation in MKR auctions through the arisen syndicates and directly.”

Following the losses incurred, MakerDAO corrected the collateral shortfall via debt auctions with investors buying newly minted MKR tokens. As previously reported by Cointelegraph, venture fund Paradigm Capital led the auction round, winning about 68% of the MKR sold during the process.

Given the fact that the ETH flash crash of Black Thursday triggered the massive liquidations on the platform, MakerDAO has since added the USDC stablecoin as a collateral on its lending market. Commenting on the decision to add USDC as collateral for opening CDPs, Melikhov remarked:

“I think that adding USDC collateral was a necessary measure to stabilize the system after a serious stress test and further dramatic losses. Some users were even considering the proposal for USDC collateral as ‘throwing up the white flag’. We saw that DAI’s price started deviating from its one-dollar target after Black Thursday. It was floating above $1 creating an obvious arbitrage opportunity for potential borrowers of DAI who could lock Ether, get DAI at $1, and sell it with premium.”

Recommendations and calls for compensation

With the collateral return to vault holders still low despite the creation of more auction participation access points, the report called for lot sizes no higher than 50 ETH. According to the document author, larger lot sizes are reducing the auction performance despite the presence of more bidders.

Instead of having lot sizes that exceed 50 ETH in a single auction, the report called for a staggering of collateral return, with vault holders receiving half of the total percentage collateral return from smaller lot sizes. The remaining half should then be split between medium and larger lot sizes as a way of creating a baseline for observing auction performance vis-a-vis lot sizes.

The report also suggested that auctions for larger lot sizes should include a higher minimum number of bidders to improve bid efficiency. According to the recommendations, only participants with the necessary capital requirement should have access to larger lot size auctions.

Apart from providing recommendations for future MakerDAO governance protocol changes, the report also aimed to establish a baseline for compensation considerations. However, responses to the report on the MakerDAO forum show that community members have not yet reached a consensus on the preferred percentage collateral return to affected vault holders, as well as an appropriate ETH–Dai valuation.

Bitcoin Exchanges in India Query RBI over Regulations & Tax Laws

India

Despite the reversal by the Supreme Court on the ban placed against crypto exchanges by the Reserve Bank India (RBI), local Bitcoin exchanges are still facing difficulties in receiving services from financial institutions. Market participants are now calling on the RBI to offer up much-needed clarity on their regulatory status and tax obligations.

Banks Still Shun Indian Bitcoin Exchanges

According to a report by the Economic Times on Monday (May 4, 2020), several Bitcoin exchanges in India collectively wrote a letter to the RBI, asking for clarification regarding their status as well as tax categorization. The letter was penned after Bitcoin exchanges complained that financial lenders refused to offer them banking services.

A statement by Sidharth Sogani, the CEO of CREBACO Global, a crypto and blockchain research firm, reads:

“After the supreme court judgment, the RBI was supposed to issue a new circular directing the banks to start banking relationships again with cryptocurrency exchanges and businesses. When the Crypto exchanges approached banks to start operations the banks simply denied as they had not received any notification from the RBI till date.”

The RBI mandated commercial banks in India to cease offering financial services to virtual currency businesses back in April 2018. However, the ban was not well received by the Indian digital currency community, as most saw the central bank’s ban as arbitrary.

As reported by Blockonomi back in March 2020, the Supreme court ruled in favor of the crypto community by reversing the RBI ban. Shortly after the landmark judgment, the RBI was reportedly planning to petition the ruling of the apex court, on the grounds that resumption of virtual currency trading was risky for mainstream banking institutions.

Sidharth further said that financial institutions in the country are trying to be careful and claiming they are anti-Bitcoin, as they cannot refuse banking services to Bitcoin exchanges following the apex court’s repeal of the RBI ban. However, the lack of banking support is hindering the potentials of the crypto industry in the country.

Indian Crypto Bourses Want Clear-cut Tax Laws

In addition to seeking status clarity from the RBI, the Bitcoin exchanges also need information on tax categorization. The virtual currency businesses need the central bank to define if they fall under goods, commodities, services, or currency category, to determine how they will be taxed under India’s Goods and Services Tax (GST).

Different tax authorities in the past have investigated crypto exchanges along with bitcoin and other virtual currencies to determine if digital currencies fall under the purview of the GST framework.

Speaking on the matter, Praveenkumar Vijayakumar, head of the crypto platform Belfrics Global, said:

“If the digital assets are not exempted from GST, the digital currency exchanges in India are going to have a standoff with the tax authority. In early 2019, the tax department had reached out to several cryptocurrency platforms in this regard. In the wake of the recent Supreme Court ruling, we have also approached the RBI for clarity on this, as if we pay GST on the whole transaction, then most platforms would not be able to survive.”

Crypto Taxation Rundown Outside India

Outside India, crypto tax laws are also taking shape with regulators keen on maintaining strict compliance. In the U.S., the Internal Revenue Service (IRS) invited stakeholders in the crypto industry to a summit in March 2020 for discussions regarding crypto tax laws.

The IRS earlier distributed over 10,000 warning letters to bitcoin investors in a bid to curb crypto tax evasion. However, the Government Accountability Office (GAO) recently stated that the virtual currency tax law was not clear enough and needs more clarification, although the IRS does not agree.

Back in April 2020, Spanish tax authorities were gearing up to send more letters to bitcoin holders. In November 2018, the authorities clamped down on individuals who owned virtual currencies, after the Spanish Treasury got hold of the names of over 15,000 taxpayers with crypto holdings.

However, in New Zealand, tax authorities are considering exempting bitcoin and other digital currencies from the country’s GST structure, to encourage the development of the crypto sector.

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CipherTrace Launches Armada: A Crypto Tracking Tool for Banks

Finance

Cryptocurrency forensics platform CipherTrace has announced the launch of a new tool — Armada — for banks to use in tracking suspicious crypto transactions.

The move signals the company’s expanding presence in the virtual currency monitoring space having been assisting crypto exchanges in creating protocols based on the regulatory provisions enacted by financial regulators across the world.

Meanwhile, the days of unclear crypto regulations in the U.S. may soon be at an end with over 30 cryptocurrency-related bills before Congress. Close to half of these pieces of legislation deal with combating money laundering and terrorist financing, a theme consistent with the efforts of regulators in other countries.

Armada to Help Banks Identify Suspicious Crypto Transactions

CipherTrace announced the news of the Armada launch via a press release issued on Tuesday (April 28, 2020). According to the press statement, the Armada tool will help banks and financial institutions in the U.S. plug blind spots and gray areas associated with crypto transactions.

As part of the announcement, the crypto forensics company revealed that Armada interfaces with the know-your-customer (KYC) protocols already being utilized by banks while providing on-ramps to its vast network of monitoring infrastructure that covers more than 500 virtual asset providers (VASPs).

According to CipherTrace, with the Armada tool, banks can develop more robust anti-money laundering (AML) and counter-terrorist financing (CFT) protocols. The announcement also highlighted other features relating to the enhancement of due-diligence and risk profiling of crypto clients for banks.

Commenting on the importance of a tool like Armada, CipherTrace CEO Dave Jevans pointed to cases of money laundering associated with cryptos and banks caught in the middle of these activities.

Jevans recalled the enforcement action levied against M.Y. Safra Bank by the Office of the Comptroller of the Currency (OCC) for the bank’s inadequate crypto AML infrastructure.

According to the CipherTrace chief:

“If M.Y. Safra Bank had deployed Armada to detect illegal cryptocurrency transactions, they would not be scrambling to meet the OCC’s requests. Though the OCC did not levy a fine, M.Y Safra Bank must implement an independent BSA audit, monitor and report suspicious activity, institute an independent party to review past activities, and hire a BSA officer and sufficient supporting staff — all within 180 days.”

While the Armada tool is designed for banks, CipherTrace has also collaborated with exchanges to aid the latter in becoming more regulatory compliant. As previously reported by Blockonomi, CipherTrace has partnered with the likes of Rakuten and Binance for better AML protection.

AML and CFT a Major Focus for U.S. Cryptocurrency Legislation

AML and CFT are among the major concerns of U.S. lawmakers concerning cryptos judging from the focus areas of the cryptocurrency bills currently before Congress. Of the 32 of such pieces of legislation, 12 deal with developing laws to combat money laundering and terrorist financing orchestrated via virtual currencies.

The majority of the bills under consideration, however, aim to clarify the country’s crypto regulatory climate, as well as streamlined tax rules. Pundits like former U.S. Presidential hopeful Andrew Yang have described the country’s cryptocurrency regulations as hodgepodge.

Indeed, several stakeholders have identified the patchwork of State and Federal laws affecting crypto businesses as being a stumbling block to the country’s advancement in the emerging digital economy.

Some lawmakers are also wary of the entry of “big tech” like Facebook into the crypto and broader financial market scene. Some of the currently proposed bills seek to place strict regulatory hurdles on the path of projects like Libra.

Other Libra-related bills contain arguments for big tech companies entering the finance sector to obtain bank holding company licenses to bring them under the purview of strict Federal regulatory guidelines.

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Dutch Crypto Companies Feeling Pressure From AMLD5

Europe

Smaller crypto businesses in the Netherlands face uncertain times as the Dutch National Bank (DNB) enforces its interpretation of the European Union’s fifth anti-money laundering directive (AMLD5).

Despite stringent enforcement of the AML directive, the DBN claims the country remains crypto-friendly and plans to lead the development of a central bank digital currency (CBDC) within the EU.

Tough Times for Small Dutch Cryptocurrency Firms

Smaller crypto businesses are forced to exit the Dutch cryptocurrency market as compliance with the requirements of the AMLD5 as enforced by the country’s top financial regulator has proven near-impossible.

In a blog post, the founder of crypto exchange platform Bittr Ruben Waterman revealed the shutdown of his firm’s operations. An excerpt from the blog post reads:

“Due to upcoming regulatory changes in The Netherlands (where Bittr is based), I will have to shut down the Bittr service on April 28, 2020, 09:59 UTC. A small chance exists I will have to shut down the service even before this moment if the new regulations get published in the “Government Gazette” before this time.”

Initially, the EU’s AMLD5 policies were directly integrated into the Dutch regulatory framework. However, after a public consultation between the country’s Ministry of Finance and the DNB, several modifications have been made to the directive.

Due to heavy criticism from industry stakeholders and the Council of State, the Minister of Finance Wopke Hoekstra reportedly made minor alternations to the DNB’s added policies. However, no changes were effected regarding the central bank’s interpretation of the EU’s directive and the Dutch senate approved the new regulations.

According to the new policies from the DNB, mandatory registration for crypto businesses amounts to some $36,500 as well as additional fees mandated to satisfy compliance requirements.

Waterman pointed out that the enforced crypto regulations are not only a deviation from the EU’s recommendations but are also unsuitable for the growth of small cryptocurrency businesses. Waterman remarked:

“Well, Bittr isn’t big enough for that yet and because of these regulations, I can’t grow anymore to the required size because of these regulations. To me, this sounds like they’re treating every bitcoin company in The Netherlands as a bank and a startup like Bittr does not fit into this regulatory scheme in my opinion.”

Stringent Policies Continue to Hurt Crypto Businesses

Although the DNB is currently enforcing its senate approved crypto regulations, it took a few months for the financial regulator to receive the go-ahead from the Dutch parliament as crypto firms in the country accused the central bank of largely deviating from the EU’s recommendations.

Allegedly, the Dutch Central Bank created a de facto licensing regime for crypto businesses instead of adhering to the registration framework stated in the EU’s AMLD5. Agitation from crypto firms caught the attention of the Dutch Council of State, the country’s state-run agency responsible for testing new policies. The council then ordered the DNB and the Ministry of Finance to provide clarity on the proposed interpretation of the AMLD5.

Following the submission of proposals by the Minister of Finance Wopke Hoekstra, the senate approved the new crypto regulations for enforcement by the DNB. However, skepticism remains regarding the central bank’s consideration for small cryptocurrency firms.

Although the Ministry of Finance is reportedly set to evaluate the approved crypto regulations in the coming months, some firms have already taken action.

As previously reported by Blockonomi, Bitcoin derivatives exchange Deribit announced the shutdown of its operations in the Netherlands. The crypto exchange revealed plans to relocate to Panama and cited the EU’s 5AMLD as the main reason for its decisions.

In other jurisdictions, crypto businesses have reportedly experienced a decline due to stringent crypto laws. In Brazil, several bitcoin exchanges such as Xdex, Acesso Bitcoin, and Latoex have shut down as the platforms were unable to keep up with costly compliance fees and unfavorable crypto tax policies.

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Hive Price Jumps 460% in Four Days Following Major Crypto Exchange Listings

Hive

Hive (HIVE), the crypto that forked from Steem (STEEM) following disagreements over Tron CEO’s — Justin Sun — involvement in the project amid allegations of a hostile takeover is gaining increasing support from major crypto exchanges. Now ranked in the top-40 ‘coins’ by market capitalization, the Hive price has surged by more than 460% in less than a week.

Elsewhere in the crypto market, Ethereum (ETH) is up more than 50% since the start of the year amid reports of massive institutional interest in the second-ranked cryptocurrency. Meanwhile, Bitcoin (BTC) appears to have shaken off the “Black Thursday” decline and is now in the middle of a triple resistance region which might determine the future BTC price trajectory as the halving event looms.

Binance Joins Hive Listing Spree as Price Moons

In a statement issued on Monday (April 27, 2020), crypto trading giant Binance announced the listing of Hive on its platform. According to the blog post, Binance is set to offer support for three HIVE trading pairs — HIVE/BTC, HIVE/BNB, and HIVE/USDT.

Binance also revealed that Hive deposits and withdrawals will commence on Wednesday (April 29, 2020). The Binance announcement is the latest high-profile crypto exchange listing for Hive in recent weeks.

Major platforms like Bittrex, Probit, and Huobi Global are among the over the crypto exchanges offering support for Hive. On Monday, Huobi also began allowing withdrawals for Hive despite announcing the crypto’s listing back in March.

The flurry of exchange listing activity has also coincided with a bullish run for the Hive price with the 37th-ranked crypto up by more than 460% in less than a week. Hive’s price gain has caused its market capitalization to surge to $191.4 million — almost two-and-a-half times the market capitalization of Steem.

Hive price chart

Hive pulling away from Steem would serve to justify proponents of the former especially after the events that led to the hard fork. Back in March, sections of the Steem community accused Tron CEO Justin CEO of attempting to orchestrate a hostile takeover of the network.

At the time, reports indicated that Sun used STEEM deposits held in exchanges like Huobi and Binance to influence voting on the platform as part of efforts to prevent a scheduled soft fork initiated to curtail Sun’s influence on the Steem blockchain. Later in March 2020, a section of the Steem community opposed to the Tron CEO completed a hard fork thus birthing the Hive blockchain.

Ethereum up 50% in 2020 Amid Massive Institutional Interest

Elsewhere in the crypto market, Ethereum is up by 50% so far this year amid a surge of interest from institutional investors. Calculations based on Grayscale Investment’s Ethereum shares shows that clients of the crypto asset fund manager have bought close to half of the 1.56 million ETH mined in 2020.

This massive buying has seen total ETH investments on Grayscale cross the $110 million mark in Q1 2020 alone. Indeed, Grayscale is on course for a record-breaking 2020 in investment inflows.

According to Grayscale’s Q1 2020 report, total investment inflow stands at $503.7 million. For the whole of 2019, Grayscale recorded $607 million worth of crypto investment mostly from institutional players like hedge funds.

For Bitcoin (BTC) — the top-ranked crypto by market capitalization — its price appears to have shaken off its mid-March 2020 sharp decline. As at press time, BTC has regained the $7,700 price mark and now has to surmount resistance between $8,000 and $8,400.

The Black Thursday crash has affected Bitcoin’s 2020 performance with the price growth only standing at 8%. Bitcoin’s upcoming halving in May is expected to provide a positive boost for the BTC price as the supply shock occasioned by the inflation drop could see demand far outstripping supply.

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Bitcoin Hodling Crosses $500 Million Per Day as Halving Approaches

Bitcoin

Bitcoin (BTC) owners are reportedly increasing their long-term BTC hodling with the block reward halving event only a few short weeks away.

Crypto exchanges are seeing massive outflows as crypto proponents expect the halving to kick start another bullish cycle for the top-ranked cryptocurrency by market capitalization.

Bitcoin mining giants are also looking to increase their operational efficiency with improved chipset hardware that delivers more hash power per watts of electricity. However, some pundits predict the reduced block reward subsidies will negatively impact the bottom-line of smaller operators forcing them to exit the market.

Bitcoin Hodling Moons as Halving Nears

According to data from crypto monitoring platform Glassnode, Bitcoin owners with long-term positions are adding over 75,000 BTC (about $530 million) to their holdings per day.

This trend represents an all-time high for daily BTC hodling signaling an increasing investor appetite for the top-ranked cryptocurrency, especially with the upcoming halving event.

This particular metric — Hodler net position — has been known to indicate the direction of long-term investors during bullish and bearish cycles.

In bull markets, when the Bitcoin price continues on a significant upward trajectory, the metric has shown massive cashing out while in bear markets, there has been a race to ‘buy the dip,’ in the expectation of another future positive price performance.

The Hodler net position indicating massive BTC accumulation is the latest indication of Bitcoin owners electing to hold the crypto in the expectation of significant gains after the May 2020 halving. Bitcoin’s two other halvings have been a precursor to the BTC price reaching a new all-time high.

Crypto exchanges are also seeing massive withdrawals as BTC holders appear to want to keep their Bitcoin stash in their wallets. After the halving, the supply inflation drops 3.72% to 1.79% causing the daily supply of Bitcoin to reduce by half from 1,800 BTC to 900 BTC.

With such largescale hodling, the supply shock created by the reduction in block subsidies will make supply far outstrip demand thereby triggering a significant price increase for Bitcoin.

Bitcoin is currently mounting another assault at staying above the $7,000 price mark. Previous attempts have seen the top-ranked crypto being rejected between the $7,100 and $7,500 resistance zones.

The current BTC price struggle appears to be follow-through from the events of “Black Thursday” (March 12, 2020) when Bitcoin fell to $3,800 — a day marked by panic selling in the broader financial markets as well.

Halving Could Cause Miners to Exit the Market

With the halving set to happen in May, mining giants like Bitmain and MicroBT are acquiring more sophisticated hardware to account for the supply shortfall that will follow the event. These upgrades reportedly boast greater efficiency in terms of reduced energy requirement and faster computational capacity.

While mining behemoths like Bitmain can afford to upscale their hardware, smaller mining pools may be forced to exit the market once the block reward drops from 12.5 BTC to 6.25 BTC. The reduced network output due to the inflation drop may see these smaller miners unable to breakeven.

Meanwhile, the current trends in network fundamentals see the Bitcoin hash rate recovering from its late March slump. At the time, the Bitcoin hash rate fell by more than 45% as some miners exited the blockchain following the flash crash of the previous fortnight.

This hash rate plunge led to the second-largest downward difficulty adjustment for Bitcoin as the mining difficulty dropped about 16%.

However, the current Bitcoin hash rate has almost erased the drop especially following the influx of nodes from the Bitcoin Cash (BCH) and Bitcoin SV (BSV) chains. Both BCH and BSV saw their halvings happen more than a month before BTC’s, forcing some miners to move their hashing power to the Bitcoin Chain.

The post Bitcoin Hodling Crosses $500 Million Per Day as Halving Approaches appeared first on Blockonomi.

China’s CBDC Testing: To Involve Subway, Starbucks & McDonalds

Payments

Popular fast-food chains like McDonald’s, Starbucks, and Subway are said to be among a group of 19 participating retailers testing out China’s proposed central bank digital currency (CBDC).

The news is the latest development in the country’s plan to roll-out a digital currency electronic payment system (DC/EP).

Meanwhile, the ongoing COVID-19n pandemic appears to be accelerating the pivot towards contactless electronic payment systems as countries look to combat the spread of the virus. Several countries are also reportedly working on modalities for the creation of their own sovereign digital currencies.

Xiongan CBDC Testing to Focus on Restaurants and Retailers

According to a report by Chinese media outlet InterChain Pulse, officials of Xiongan are set to initiate a pilot test of the country’s planned CBDC. As previously reported by Blockonomi Xiongan is one of four cities where preliminary trials of the DC/EP are set to take place.

As part of the test, the city council reportedly invited 19 retailers including fast food and restaurant giants like Subway, McDonald’s, and Starbucks. Other participants include JD Supermarket and Qingfeng Baozi — one of China’s largest dumpling makers.

Xiongan’s proposed testing of the CBDC will center around its use in the retail ecosystem, hence the decision to limit the participating pool to restaurants, entertainment centers, and retail outlets. The city has a history of supporting technological developments with the government setting up a Smart City Federation back in September 2019.

The city is reportedly also looking to be a leader in leveraging emerging technologies like blockchain, 5G, artificial intelligence (AI), and internet of things (IoT) among others.

Earlier in the year, the Xiongan Blockchain Lab was launched to create a unified infrastructure for the development, testing, and integration of distributed ledger technology (DLT) protocols in the city.

While Xiongan focuses on the retail aspects of the DC/EP rollout, other Chinese cities and reportedly exploring the utilization of the proposed CBDC in different use cases. For example, the testing in Suzhou appears to be geared towards transportation subsidies as Chinese authorities look to work out the kinks in its sovereign digital currency.

China’s Central Bank Digital Currency Progress

These tests already involve the use of a mobile wallet app for the DC/EP with the Agricultural Bank of China already developing a test interface to demonstrate how the CBDC can be used in monetary transactions. The rollout of these testing protocols comes following reports that preliminary developmental work on the project was already completed.

China has been working on a sovereign digital currency since 2014 but activities appeared to pick up pace in 2019 following the emergence of Facebook’s Libra payment project. Authorities in Beijing joined a stream of opposition from across the globe against the private digital currency project with regulators pointing to monetary control risks.

The outbreak of the COVID-19 pandemic reportedly slowed down progress on the CBDC but reports indicate that more than 80 patents have been filed by several participants in the DC/EP project.

Apart from China, other countries are also exploring the need for a sovereign digital currency. In Asia, lawmakers in Japan have called on the government to be alive to the potential disruption of a digital yuan and respond with a digital yen.

So far, the country’s central bank says there is no need for a Japanese CBDC but the country will be ready to issue one if the need arises.

Elsewhere, countries like France and Germany have also called on the European Union (EU) to consider a CBDC for the region to counter both Libra and China’s DC/EP.

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Peer Into the Crystal Ball: Will BTC Halving Echo Fate of BCH and BSV?

With the Bitcoin halving less than three weeks away, pundits predict the hash rate distribution to revert to the optimized pre-halving state.

With the Bitcoin (BTC) halving only weeks away, anticipation appears to be building up as Google Trends data for the event show online searches reaching an all-time high. Bitcoin’s block reward halving comes following that of Bitcoin Cash (BCH) and Bitcoin SV (BSV), where miners moved their hashing power to the BTC Chain.

Several crypto pundits point to the halving potentially having a significant impact on the BTC spot price. Indeed, Bitcoin’s two previous halvings — November 2012 and July 2016 — have each been precursors to a new, all-time price high for BTC.

However, the situation in the crypto and mainstream market in 2020 differs greatly from the two other halvings. The economic downturn occasioned by the current COVID-19 pandemic has added to stressors such as the 2018 bear market, hash wars and a litany of stricter government regulations.

Lessons from the BCH and BSV halvings

As previously reported by Cointelegraph, the BCH and BSV halvings occurred this year on April 8 and April 10, respectively, as both chains reached their 630,000 block milestones. This event triggered a 50% reduction in the block reward for miners on the two networks.

Following the halving for both Bitcoin Cash and Bitcoin SV, miners reportedly moved their computing power to the Bitcoin chain, which is still operating under the 12.5 BTC block reward regime. The miner exodus resulted in a huge hash rate decline for the BCH and BSV blockchains, while BTC’s share of the hash rate distribution among all three chains increased significantly.

The hash rate decline also temporarily left both chains susceptible to 51% attacks in which, theoretically, a rogue actor controlling more than 50% of the network could have rolled back transactions and double-spent tokens. Since the halving, data from Crypto51.app — a platform that monitors the vulnerability of proof-of-work blockchains like BCH to such attacks — has shown an increase in the theoretical cost of a 51% attack of both chains.

Despite the hash rate decline, miners with a vested interest in either chain continued to dedicate their computing power to secure the networks. Given the significantly higher profitability for miners on the BTC chain as opposed to the other two networks, some crypto pundits characterized miners’ decision to remain on BCH and BSV as “crypto socialism.”

In an email to Cointelegraph at the time, Alex Speirs, head of communication at the Bitcoin Association, countered the notion of crypto socialism and irrational mining. According to Speirs, Bitcoin creator Satoshi Nakamoto only intended for block subsidies to be a temporary reward for miners, with transaction fees being the actual long-term incentives to remain on the network.

On the price side, the halving did not trigger any meaningful upward momentum, as both BCH and BSV declined following the event. Since the halving, the BCH and BSV spot price has lost even more ground, declining by 15% and 10% respectively.

What happens to the hash rate distribution after the Bitcoin halving?

The halving events for Bitcoin Cash and Bitcoin SV saw similar trends emerging in the immediate aftermath, bringing up the question of whether both events provided an early indicator for the Bitcoin halving in May. Once the Bitcoin halving is complete, all three chains will operate on the same block reward amount — 6.25 units of their individual native currency — with mining profitability likely to once again be the major determining factor in deciding the chain chosen by miners.

Ali Beikverdi, CEO of Seoul-based crypto exchange deployment service bitHolla, thinks the reaction of miners to the Bitcoin halving will be different from the trend observed in the earlier BCH and BSV halvings. In a conversation with Cointelegraph, Beikverdi characterized both BSV and BCH as suffering from “extreme centralization,” and thus unsuitable for being used as an indicator of the likely result of the upcoming BTC halving. Criticisms over the perceived centralization of BSV and BCH are usually centered on the relatively larger block sizes of both chains in comparison to BTC.

This perceived centralization also covers the mining arena. For BCH, pools either owned or backed by heavyweights like Roger Ver and Bitmain’s Jihan Wu control the greater majority of the network’s hash rate distribution. For BSV, the situation is very similar, with pools affiliated to Bitcoin SV proponents like self-proclaimed Bitcoin creator Craig Wright and billionaire Calvin Ayre dominating the arena.

Indeed, the block size debate has been at the heart of the hard forks that led to the creation of both Bitcoin Cash and Bitcoin SV. In theory, larger block sizes lead to more centralization, as the resources required to run nodes, such as bandwidth and disk space, could restrict a significant number of participants on the network.

The miner exodus from BSV and BCH caused the Bitcoin share of the hash rate distribution across the three chains to hover between 96% and 99%. More than a week has passed since the two halvings, and the miners are still devoting their hash power to the BTC chain. Following the Bitcoin Cash and Bitcoin SV halvings, some pundits who spoke to Cointelegraph characterized the movement of hashing power to BTC as only a temporary trend that would revert itself once Bitcoin’s own block reward reduced by 50%.

According to Sonny Meraban, CEO of Bitcoin of America — a Bitcoin ATM operator and United States-licensed crypto exchange — the hash rate distribution will revert to the established pre-halving paradigm. In a conversation with Cointelegraph, Meraban opined:

“There’ll likely be a rebalance back towards where we stood pre-halving (which was about 3% for BCH and BSV, 94% for BTC), maybe slightly up for the smaller coins short-term but not much more than that. Hash rate balances were fairly optimized towards profitability pre-halvings, and the nature of the halvings means that they should be back in that same balance after it.”

Mining giants loading up

The upcoming Bitcoin halving also presents a new challenge for miners, as energy efficiency is likely to be a major focus for market participants. With the block reward dropping from 12.5 BTC to 6.25 BTC, Bitcoin miners will be looking to deploy hardware solutions with a significantly lower watt per terahash ratio.

The W/T ratio refers to the amount of electricity required by a Bitcoin mining machine to complete one terahash of computing on the network. Within the crypto mining market, this ratio is a measure of the efficiency of a cryptocurrency mining machine.

Already, Chinese BTC miners such as Bitmain and MicroBT are reportedly set to deploy new mining hardware with lower W/T ratios, which means greater efficiency. Market rivals are looking to leverage improvements in chipset technology to deliver configurations that ensure gross profit margins do not decline due to the reduced block reward subsidy scheme brought on by the halving.

At the intersection of lower block rewards and newer hardware, smaller miners could find their ability to compete coming under increasing threat. Beikverdi highlighted the coming struggles for some BTC miners, stating that the halving will squeeze out some miners, as “the life cycle of Bitcoin miners always gets a huge shock after each halving but tends to take time as miners slowly unpack their operations.” For the bitHolla CEO, the departure of these smaller capacity miners will not happen overnight. He added:

“It is important to note that miners don’t have a quick way to unwind their business operations and generally have to follow their energy contracts. This means it could take 6–12 months for miners to finish the energy contracts that they have. It isn’t like a normal operation where you pay month-by-month. Mining is typically longer 6 to 12 months business cycles which takes time for weaker miners to fold.”

The current price struggles in the oil market could also play a role in the destinies of Bitcoin miners. In recent times, a key business relationship appears to have emerged between miners and energy producers, with the former becoming a “buyer of last resort” for the latter.

Taking upstream oil companies as an example, amid measures to curb gas flaring due to environmental considerations, some Bitcoin mining firms in North America have used the excess gas from these oil wells to power their data centers. On April 20, 2020, the price of West Texas Intermediate crude futures fell below $0. Should the price of the futures on other crude grades take a beating, wells could shut down in several locations, impacting the activity of some Bitcoin miners.

However, with China accounting for the greater majority of the Bitcoin hash rate, a price crash in the oil market might do little to affect the operations of BTC miners. While more than 71% of China’s electricity is generated from nonrenewable sources, this amount is spread among coal and natural gas, to mention a few.

Hash rate recovery and pre-halving hodling

Back in March, Cointelegraph reported that the Bitcoin hash rate had declined by about 45% from its 2020 peak. The reduction in the computing power expended to secure the network came at a time when the BTC spot price was still in recovery from the “Black Thursday” crash that saw Bitcoin briefly fall to $3,800 on March 12, 2020.

Following the hash rate plunge, the Bitcoin network saw its mining difficulty decline by 16% — the second-largest downward difficulty adjustment. The blockchain’s mining fundamentals have improved significantly since the events of late March 2020, with the current hash rate almost erasing the earlier drop.

Related: Hash Rate Spike Relates to BTC Price, but Halving Throws Miners Off Their Game

While miners are providing computing power to secure the network, Bitcoin holders appear to be storing up BTC in expectation of a post-halving price boom. Earlier in April, Cointelegraph reported that crypto exchanges are recording large outflows, which could indicate a pivot toward long-term holding by Bitcoin owners.

Additionally, it is possible that some U.S.-based crypto owners may have been using their COVID-19 stimulus checks to buy Bitcoin. Data from Coinbase showed a four-fold increase in crypto purchases worth $1,200, the exact sum of the stimulus payments.

For Joe DiPasquale, CEO of crypto hedge fund BitBull Capital, the upcoming halving will largely follow historical precedents in having a positive impact on the BTC spot price. In a conversation with Cointelegraph, DiPasquale remarked:

“The upcoming Bitcoin halving is likely to have a positive impact on BTC’s price in the next 12 to 18 months. The last two halvings saw massive price appreciation in the same periods, with the first posing a 1000x gain in a year while the second taking longer, but delivering even bigger returns.”

The BitBull Capital chief, however, tempered expectations citing the tightening of crypto regulations and the emergence of central bank digital currencies, but is overall expecting some upward momentum for Bitcoin, adding that “the halving is a positive milestone for Bitcoin, especially in contrast to inflationary fiat currencies.” Meraban also offered a similarly subdued forecast for the Bitcoin price performance after the May halving, stating:

“BTC should experience tremendous growth over the next 12–18 months, but it will be perhaps slower than people might tend to expect; we actually saw that already in 2016, but it could easily be even slower this time. Cryptocurrencies are retail-driven markets more than anything else, and there’s just too many uncertainties as of yet over what the implications in retail demand in both Western and Asian markets for cryptocurrencies will be with regards to the current global climate.”

Since falling to $3,800 in mid-March, the top-ranked crypto by market capitalization has been unable to regain its 2020 starting price of $7,200. Bitcoin has seen over half a dozen rejections between the $7,100 and $7,500 resistance levels with each attempt causing a drawdown back to the $6,800 price mark.

Libra Updates White Paper Amid Calls by Regulators to Police Stablecoins

Facebook LIbra

David Marcus, the Libra co-creator, has revealed new updates to the project’s white paper as the Association tries to navigate regulatory hurdles in launching the payment platform.

Since its emergence, the digital payments project has drawn a steady stream of criticism from regulators and government officials across the world with some organizations even calling for measures to tightly regulate global stablecoins.

Countries like China have also moved forward with plans to launch their own sovereign digital currency in response to Facebook’s Libra project with reports of testing already underway in four cities across the country. Stakeholders in Asia Pacific, Europe, and the United States are also calling on their respective central banks to begin working on modalities for their own central bank digital currencies (CBDC).

Libra to Use Single Currency Stablecoins Plus Libra Coin

Tweeting on Thursday (April 16, 2020), the Libra chief revealed a few adjustments made to the project since the release of its white paper back in mid-2019. An excerpt from the Twitter thread detailing the most significant updates reads:

“The creation of single currency stablecoins, e.g. ≋USD, ≋EUR, ≋GBP, in addition to Libra Coin (≋LBR), which will now be a Move smart contract “stitching” together fixed nominal weights of underlying stablecoins.”

The original Libra plan had been a single Libra Coin backed by a basket of fiat currencies held in bank accounts. Government regulators faulted this model as having the potential to pose serious risks to the ability of countries to dictate their own monetary policies.

The new operating infrastructure significantly reduces the flexibility of Libra’s tokenomics, preventing instances of “new money creation” as detailed the following excerpt from the updated white paper:

“Each single-currency stablecoin will be supported by a Reserve of cash or cash-equivalents and very short-term government securities denominated in that currency and issued by the home country of that currency. Single-currency stablecoins will only be minted and burned in response to market demand for that coin. Because of the 1:1 backing of each coin, this approach would not result in new net money creation.”

Marcus also revealed the project was firming up its anti-money laundering (AML) protocols to be more in line with international finance standards. Also, the Libra chief revealed that Facebook’s funding for the project has been diluted to less than 10%.

Back in 2019, several government figures identified Facebook’s role in the Libra Association as a potential problem given the global reach of the social media giant. Back in mid-October 2019, the Libra Association was inaugurated with 21 founding members, including Coinbase, Andreessen Horowitz, and Uber.

Regulators Coming After Stablecoins

Before the inauguration, several early backers like PayPal ditched the Libra Association following negative reactions from regulators. As previously reported by Blockonomi, Ripple CEO Brad Garlinghouse remarked in October 2019 that Libra will struggle to launch within the next three years.

Libra’s tweak to its operational framework comes at a time when regulators are focusing more attention on global stablecoin projects. In April 2020 alone, the European Parliament and the G20’s Financial Stability Board (FSB) have issued reports calling for greater policing of stablecoins.

For the FSB, a unified approach to regulating stablecoins has to replace the current patchwork of laws in different jurisdictions to prevent the emergence of regulatory arbitrage which can be exploited by rogue actors.

Meanwhile, China is reportedly entering the testing phase of its proposed CBDC. The race to develop sovereign central bank digital currencies has also been another fallout from Libra’s emergence.

China’s progress on the CBDC front has also sent shockwaves among other major economies and geopolitical blocs. Lawmakers in Japan are making the case for a crypto yen in response to China’s digital yuan while the U.S. Federal Reserve says there are discussions underway about the possibility of a digital dollar.

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Bitcoin Price Back Above $7,000: Shorts Liquidation Bloodbath on BitMEX

Bitcoin

The Bitcoin (BTC) price is back above $7,000 with the altcoin market also posting significant returns over the last 24-hour trading period.

Bitcoin’s latest assault at the $7,000-price level triggered a bloodbath for shorts on BitMEX with about $10 million liquidated within a 1-hour window earlier on Thursday (April 16, 2020).

Meanwhile, reports suggest a massive outflow of Bitcoin from crypto exchanges as retail traders appear to favor “hodling” with the block reward halving expected to happen in less than a month.

Bitcoin Price Staging Another Climb Above $7,000

The Bitcoin (BTC) price has crossed the $7,000 mark, gaining close to 5% since the start of the day. The top-ranked cryptocurrency is yet to find any momentum at the $7,100 price mark with five consecutive attempts to scale this level met with resistance.

Since dropping to $3,800 during ‘Black Thursday,’ — March 12, 2020, the Bitcoin price has been unable to reclaim its 2020 opening level of $7,200. These price struggles have left the top-ranked crypto in the red in terms of year-to-date (YTD) performance.

The current Bitcoin price rise has also seen massive liquidations on BitMEX. Data from crypto trading analytics platform Coinalyze showing $10 million in short positions being liquidated in less than 1 hour.

With trading on BitMEX highly leveraged — as high as 100x — slight changes in Bitcoin spot price can cause a cascade of liquidations for either short or long positions. Longs on BitMEX have also felt with the heat on Thursday as well with Skew reporting a total of $23 million in BitMEX liquidations as at press time.

Holding with Halving in Mind?

Thursday’s Bitcoin price gain also comes at a time of reports of massive withdrawals from crypto exchanges. With the Bitcoin block reward halving happening in mid-May it appears BTC holders are hoping for the event to cause a significant response in the local price action.

Previous halvings have occupied a pivotal place in the bull cycle for Bitcoin with the spot price reaching a new all-time high (ATH) in the year immediately following the event. Bitcoin’s last ATH was back in mid-December 2017 when the BTC price rose to $19,800.

Bitcoin (BTC) Price

As previously reported by Blockonomi, stakeholders like Galaxy Digital’s Mike Novogratz continue to espouse bullish sentiments about Bitcoin. Bitcoin enthusiasts will be hoping that the current upward trend will see the top-ranked crypto move away from this sideways price action into a more sustained bull run.

Any serious bull-run for Bitcoin will only happen if the top-ranked crypto can finally surmount the $7,500 resistance level which has proved difficult over the last month. If buying pressure persists, then the bulls may be able to stage another go at the elusive $7,500 price mark.

Green Day for Crypto Market

Apart from Bitcoin, the altcoin market has also experienced significant gains over the last 24 hours with Ether (ETH) gaining close to 10%. The top-ten cryptos are all in the green with XRP and Bitcoin Cash (BCH) up by 3% and 4% respectively.

BCH recently had its block reward halving as well as its fork Bitcoin SV (BSV) which also up by about 2.6%. The post-halving price action for both cryptos had been negative along with network stresses as miners have moved their hashing power to the BTC chain which still has a 12.5 BTC block reward.

BCH and BSV both had halvings one month before BTC because Bitcoin Cash used a different difficulty adjustment algorithm back in 2017 which saw faster block times. Litecoin (LTC) and EOS have also posted significant gains and are up by 9% and 3% respectively.

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China’s CBDC Testing Underway: Wallet App Available in Four Cities

China Stock Market

Images purportedly showing the testing of China’s proposed central bank digital currency (CBDC) have emerged on social media. These tests appear to be revolving around the official mobile app for the country’s digital currency/electronic payment (DC/EP) wallet which is reportedly being trialed in four different cities.

Meanwhile, China has launched its National Blockchain Committee — a consortium of fintech partners and other stakeholders looking to work towards the rapid development and deployment of the technology in the country.

The launch appears to be the first step among many in actualizing the call made by President Xi Jinping back in 2019 about China becoming a leader in the emerging digital economy.

Digital Yuan CBDC Testing Underway

Tweeting on Tuesday (April 14, 2020) Binance executive Ling Zhang revealed that the wallet app for China’s planned CBDC was already available for download. According to Zhang, trials are already underway in four Chinese cities — Suzhou, Xiongan, Shenzhen, and Chengdu — as authorities in Beijing move closer towards a live rollout of the digital yuan.

Details about the ongoing testing are yet to emerge but according to commentary provided by Matthew Graham, CEO of venture fund Sino Global Capital, the pictures which circulated on social media on Tuesday were for the Agricultural Bank of China (ABC).

China has been at the forefront of creating a CBDC with multiple sources saying the working group has already finalized all the basic functionalities of the planned digital yuan project. More than 80 patents have been filed concerning the CBDC project despite delays occasioned by the ongoing COVID-19 pandemic. Largescale testing of China’s CBDC is expected to happen later in the year.

In response to China’s progress with its CBDC plans, lawmakers in Japan have been clamoring for their government to move forward with a digital yen as a counter to Beijing’s digital yuan. These lawmakers are also advising the government to make discussions about CBDCs a major focus of the G7 summit later in the year.

Outside Asia, China’s accelerated CBDC plans have also sent shockwaves across Europe and the United States with countries like France and Germany calling on the European Union (EU) to consider the development of a digital currency for the region. Earlier in the year, executives at the U.S. Federal Reserve revealed ongoing discussions about a possible digital dollar.

China Launches 71-member Strong National Blockchain Committee

In a related development, China has also officially inaugurated its National Blockchain and Distributed Ledger Technology Standardization Technical Committee. The consortium has drawn experts from Chinese academia, telecoms, banking, and tech giants like Baidu and Tencent.

Chen Zhaoxiong, deputy minister at China’s Ministry of Industry and Information Technology (MIIT) heads the committee with five vice-presidents among which is an executive of the country’s central bank — the People’s Bank of China (PBoC).

As previously reported by Blockonomi, China’s President remarked that blockchain will become a “core” technology in the country. Despite crackdowns on crypto trading and initial coin offerings (ICOs) Beijing continues to maintain a positive disposition towards distributed ledger technology (DLT).

Regulators Putting the Squeeze on Stablecoins

While China is getting set to test its CBDC, financial regulators are looking to enact stricter laws for stablecoins like Tether and Facebook’s Libra. A report issued on Tuesday showed the G20’s Financial Stability Board (FSB) calling for a unified approach to regulating stablecoins to prevent the emergence of regulatory arbitrage.

Apart from the FSB, the European Parliament also recently published a report identifying stablecoins as one of the gray areas of the cryptocurrency industry. Both reports argue that stablecoins pose considerable risks to global monetary stability.

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FBI Issues Crypto Scams Warning Amid COVID-19 Pandemic

QuadrigaCX FBI

The U.S. Federal Bureau of Investigation (FBI) recently issued a warning to citizens about crypto scams increasing during this present COVID-19 pandemic. Crypto fraudsters have constantly preyed on vulnerable victims in their weakest moments, with the coronavirus pandemic being the latest avenue for the scammers.

Crypto scams seemed to have progressed over the years with fraudsters using updated and sophisticated methods that evade governments’ radar. To reduce the number of victims that fall for fake crypto schemes, regulatory bodies globally have warned investors to beware of offers that seem too good to be true.

Crypto Scams Increasing as Coronavirus Spreads

According to a press release on Monday (April 13, 2020), the FBI stated that there will be an increase of crypto scams during this COVID-19 pandemic. The virtual currency fraudsters target people of different ages who hold bitcoin and other digital currencies.

An excerpt from the press statement reads:

“There are not only numerous virtual asset service providers online but also thousands of cryptocurrency kiosks located throughout the world which are exploited by criminals to facilitate their schemes. Many traditional financial crimes and money laundering schemes are now orchestrated via cryptocurrencies”.

Also, crypto fraudsters are taking advantage of the current fear of the coronavirus to steal from funds from unsuspecting individuals. While the FBI acknowledged that there are real investment schemes, e-commerce platforms, and charities that accept crypto payment, any pressure to receive crypto is a red flag.

Furthermore, these scams could come in different ways, which include bogus crypto investment schemes offering a hyperbolic return on investments, and remote work scams where fake employers request people to accept donations probably stolen from other people.

Another method involves crypto scammers who use the traditional blackmail method to get their victims to succumb. However, rogue actors have spiced up their blackmail technique during this COVID-19 pandemic.

In addition to releasing sensitive information, the bitcoin scammers also threaten to infect the victim and the victim’s family members with the coronavirus, unless payment is made to a specified BTC wallet. The crypto fraudsters also use deceptive methods to lure victims into buying fabricated products that allegedly cure COVID-19.

Citizens and potential investors are advised to verify the legitimacy of vendors and investment schemes before sending donations or payments in crypto; avoid revealing personal financial details, and report incidents of blackmail and extortion.

Rogue Actors Use Extortion Emails to Get Bitcoin Ransom

In another development, New Zealand authorities were investigating cases of extortion scams via emails, where victims were asked to pay a ransom in bitcoin. According to the official publication, the targets for the scam are victims who visit pornographic sites.

Victims receive an email from hackers who state that they are aware of the victim’s internet history which includes a visit to porn sites. The scammers further threaten to release the information to the public, unless the victims pay a ransom fee of $1,900 in Bitcoin.

Callum McNeill, a Detective Senior Sergeant, said that fraudsters have carried out this method of extortion scam since 2018. The Sergeant also stated that bad actors claim knowledge of victims’ passwords.

Also, some victims agree to the conditions of these extortionists because of the fear of seeing their leaked video online. However, the local police asked residents to ignore and delete such extortion scams, while victims should report to authorities.

More Sophisticated Cryptocurrency Fraud in 2020

Crypto scams are on the rise, as rogue actors are employing more sophisticated methods and use any available means to fleece victims. As reported by Blockonomi earlier this month, the social media giant Facebook sued one of its users for using a cloaking method to promote fake bitcoin investment schemes and COVID-19 news.

Also, the UK’s fraud agency warned citizens not to pay attention to fraudulent emails from crypto scammers asking for donations to the NHS.  The U.S. Department of Justice accused three individuals involved with a fake crypto mining scheme that generated over $700 million.

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Facebook Sues Cloaking Expert for Bitcoin Investment Scams

Facebook

Social media giant, Facebook is suing Basant Gajjar for cloaking activities on the platform aimed at promoting Bitcoin scams and disseminating fake news about the ongoing COVID-19 pandemic.

Rogue actors have sought every opportunity to steal bitcoin and other virtual currencies from unsuspecting victims, sometimes taking advantage of a global issue and the victims’ vulnerability.

Fake Bitcoin Investment Schemes and COVID-19 News

According to a lawsuit filed on Thursday (April 9, 2020) by Facebook and its subsidiary Instagram, in the U.S. District Court of the Northern District of California, Gajjar cloaked landing pages for multiple ads on Facebook since 2018, some of which sold fake bitcoin schemes and dietary supplements.

An excerpt from the court filing reads:

“Defendant’s cloaking services were used to promote, among other things, deceptive diet pills and pharmaceuticals, cryptocurrency investment scams, and even misinformation about the economic impact of the COVID-19 pandemic”.

Gajjar, an Indian citizen residing in Bangkok, owned and operated an unregistered company called LeadCloak, which specialized in cloaking ads. Cloaking is a technique that hides the true nature of an advert by presenting something different to the public.

By putting up seemingly “harmless” ads on platforms like Facebook, the media platform’s review process is blocked, thereby preventing the platform from clamping down on deceptive ads.

The lawsuit further claimed that Gajjar employed cloaking services in March 2020 to promote a fraudulent bitcoin scheme. According to Facebook, the defendant posted a harmless ad about stainless steel spoons. However, the ad was in fact about a bitcoin investment scheme which supposedly cushioned people economically from the coronavirus pandemic.

Also, the defendant used the image of a celebrity to lend “credibility” to the virtual currency investment platform. Apart from selling bitcoin investment, Gajjar also employed cloaking services to promote fake dietary supplements and paraded images of celebrities who supposedly used the product.

Consequently, the social media giant is seeking a permanent injunction against Gajjar, LeadCloak, and collaborators. Facebook is further claiming damages and asked for relief.

Crypto Scams by Any Means

Fraudulent actors waste no time in preying on victims during a pandemic or some major world event, like the ongoing COVID-19 pandemic. Over 1.6 million cases have been reported since the novel virus surfaced.

In the United Kingdom, the country’s national fraud & cyber reporting center, Action Fraud, recently revealed that residents were receiving fake emails requesting donations in bitcoin to the National Health Service (NHS).

 

Furthermore, the agency warned citizens not to yield to such emails, as the UK healthcare system will not request donations in BTC or ask for a transfer of funds into a bank account.

Back in March 2020, the UK’s financial regulatory body, the Financial Conduct Authority (FCA), issued a warning regarding COVID-19 scams. The agency further revealed the tactics of the bad actors and asked citizens not to reveal sensitive details and also beware of mouth-watering schemes, fake charity projects.

Chester Wisniewski, a researcher at the security outfit Sophos, exposed the activities of fraudsters who impersonated the World Health Organization (WHO) to seek donations in bitcoin for the health agency.

When basketball players and fans globally were mourning the death of basketball legend, Kobe Bryant, who, along with his teenage daughter and seven others died in a plane crash, crypto hackers saw the perfect opportunity to strike.

The rogue actors concealed a digital currency mining script in the wallpaper of the late former basketball player. Fans who downloaded Bryant’s picture from the internet would unknowingly enable crpytojackers mine digital currency on their computers.

Regulatory agencies across different jurisdictions constantly warn investors to beware of fraudulent bitcoin schemes that offer a bogus return on investment (ROI). The U.S.Justice Department charged three men for carrying out a massive fraudulent crypto mining scheme.

As reported by Blockonomi in January 2020, Bitcoin billionaire Pierce Brook backed a digital currency scam operated by EXW Wallet.

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Chain of Events Post-BSV Halving Mirrors BCH’s, Loyalists Propping Up the Network

The first Bitcoin SV halving sees hash rates drop by more than 50% with BSV price failing to get a boost.

Bitcoin SV (BSV) has seen its first halving since its creation in late 2018, hours after Bitcoin Cash (BCH) also completed its 50% block reward reduction event. The cryptocurrency first came about as a result of disagreements between opposing factions within the BCH community, which led to a group backed by self-proclaimed Bitcoin (BTC) creator Craig Wright and billionaire Calvin Ayre forking the chain to form Bitcoin Satoshi’s Vision, or Bitcoin SV.

As was the case with BCH, BSV also saw a reduction in hash rate as miners moved their computing power to the BTC chain, which is currently the most profitable to mine among all three blockchains. BSV proponents say the hash rate reduction is only a temporary trend and will do little to negatively impact miner revenue.

During the hash war between BCH and BSV, the concentration of computing power in those two chains almost led to a mining death spiral for Bitcoin. This period was also the last leg of the 2018 bear market, with the price of BTC bottoming out at $3,800 in December 2018.

With both the BCH and BSV halvings completed, attention now turns to the BTC block subsidy reduction, which is set to take place in mid-May. Given the migration of miners across the blockchains during this halving season, the aftermath of Bitcoin’s 50% inflation drop might provide a clearer picture of the hash rate distribution for the three chains.

On the price side of things, the BSV and BCH halvings have coincided with a downward slide for all three cryptos. Bitcoin has fallen below $7,000 after failing to surpass $7,500 during the fifth time of asking since Black Thursday on March 12, when the price fell sharply to $3,800.

BCH saw a swift retracement after its halving, eroding the 11% gain that followed the event. As of press time, BSV is down more than 15% in the last 24-hour trading period, with the halving failing to trigger any upward momentum in its price action.

BSV in the middle

BSV, while being the youngest of the three “major” Bitcoin chains, saw its halving occur between those of BCH and BTC. As previously reported by Cointelegraph, the block reward subsidy reduction for BCH occurred a full month ahead of that of BTC due to a change in the former’s difficulty adjustment algorithm back in 2017. As a BCH fork, Bitcoin SV inherited this temporary faster block creation time artifact in its blockchain after its split in 2018.

The halving sees the reward earned by miners for each block that they produce fall by 50%. This event occurs after every 210,000 blocks or four years and is an inflation control protocol coded into the Bitcoin blockchain and, by extension, those of BCH and BSV. This quadrennial inflation drop helps to regulate the token supply by slowing down the production of new coins. Without such control measures, miners could theoretically acquire all the block rewards in a significantly short time.

Such a scenario would see the supply of coins outstripping the demand, likely causing the price of the token to crash. The finite supply of 21 million tokens and the inflation control schedule serves to present Bitcoin as “hard money” — currency immune to inflation and indiscriminate dilution — which is a term historically reserved for gold-backed currencies.

Post-halving hash rate plunge: like BCH, like BSV

At 12:48 a.m. Coordinated Universal Time on April 10, the 630,000th block emerged on the Bitcoin SV blockchain. An unidentified mining pool was responsible for producing the milestone transaction. This landmark triggered the halving in miner reward from 12.5 BSV to 6.25 BSV. ViaBTC was the first pool to mine a block under the new regime approximately 30 minutes later.

Before the BSV halving, Jimmy Nguyen, the president of the Bitcoin Association and the former CEO of the blockchain research firm nChain, declared that the halving will serve as a watershed event for Bitcoin SV. Speaking to the Calvin Ayre-owned, BSV-affiliated crypto media platform Coingeek, Nguyen remarked:

“Short-term, 2020’s Bitcoin halving will of course mean an immediate reduction in the profitability of transaction processors. Long-term however, it is my view that the halving of the block reward’s subsidy amount will reinforce the importance of Satoshi Nakamoto’s original economic design for Bitcoin. Satoshi intended to reduce transaction processors’ reliance on the block subsidy amount over time by replacing that income with more transaction fees.”

The aftermath of the Bitcoin SV halving also saw a similar hash rate plunge as was the case with Bitcoin Cash. Following the BCH halving, the computing power expended on the BSV chain rose to about 3.01 exahashes per second.

However, as of press time, data from the blockchain explorer platform Blockchair.com shows BSV’s hash rate at 0.98 EH/s, which means a more than 50% hash rate decline since the time of halving. BSV mining difficulty has also adjusted to the sharp hash rate plunge, reducing by more than 35%. At the time of writing, the BSV blockchain has produced 39 blocks since the halving.

Almost all roads lead to BTC, at least for now

According to data from Coin Dance, the BTC chain now controls 98.7% of the hash rate distribution among all three blockchains. The mass exodus of miners from both BCH and BSV has led to a noticeable drop in the proportion of the total hash rate controlled by the two forks.

In a conversation with Cointelegraph, Connor Murray, a BSV proponent and the host of the Bitcoin and Beyond podcast, argued that the Bitcoin Cash and Bitcoin SV halvings were immaterial. According to Murray, the May BTC halving will determine the future fate of the three chains:

“The BSV and BCH halvings don't matter much since miners can still mine BTC. It is the BTC halving that will have a major effect on the ecosystem, and since there are a very small amount of transactions on the BTC network, the effects will be felt quickly.”

For Murray, the hash rate drop does little to affect the value proposition of BSV. With the halving done, the crypto podcast host remarked that BSV was still on course to attain its developmental goals, adding that “BSV developers and entrepreneurs have been prepared for the halving for years.” Bitcoin SV developer Daniel Connolly also echoed similar sentiments, telling Cointelegraph:

“The halving reduces the subsidy for confirming transactions in blocks. The cost of mining a block has not changed. When a subsidy is decreased, there are two options: increase the cost of confirming a transaction or increase the number of transactions confirmed in a block. BSV is uniquely positioned to increase the number of transactions in a block while maintaining exceptionally low transaction fees and miner revenue.”

For Alex Speirs, the communications director of the Bitcoin Association, the current miner reward model is short lived, with transaction fees being the main incentive for miners once block subsidies run out. In an email to Cointelegraph, Speirs remarked:

“The Bitcoin network was designed to incentivize the sustainability of the network through transaction fees. The problem is, with BTC and BCH, sustaining a model built on transaction fees is just not possible because of the extremely limited block size caps on their networks.”

According to Speirs, the unlimited block size employed in the Bitcoin SV blockchain constitutes a more faithful implementation of Satoshi Nakamoto’s original plan for Bitcoin, adding: 

“We are confident that with the growing volume of transactions seen across the Bitcoin SV network [...] transaction processors (miners) will be incentivized to remain on the Bitcoin SV network by earning an ever-increasing proportion of their revenue from growing transaction fees.”

Network security concerns 

With the BCH post-halving miner exodus, fears have arisen of a possible 51% attack on the blockchain. As reported by Cointelegraph, a rogue attacker would only require about $10,000 worth of rented hash power to stage an attack.

A similar situation has arisen for BSV. As shown by data from Crypto51, a platform that tracks the theoretical host of staging a 51% attack on proof-of-work blockchains like BSV, a rogue actor could attack the BSV chain for one hour for a cost less than the present Bitcoin price.

For Mason Jang, the chief strategy officer at blockchain analytics firm CryptoQuant, BSV mining stakeholders like Coingeek will continue to expend computing power on the Bitcoin SV chain. In a conversation with Cointelegraph, Jang remarked:

“Since the Genesis update, BSV has an unlimited block size and restored op code. Because of this, it's already unfavorable to miners. Instead, the miners and others in the ecosystem are trying to make a distributed database. Therefore, it doesn't seem that the main miners, like Coingeek, will leave the chain.”

Away from the immediate aftermath of the halving, proponents like Murray say Bitcoin SV stakeholders are focused on the planned economic innovations on the chain, telling Cointelegraph:

“There are a lot of entrepreneurs and developers in the 'blockchain' industry that see utility in a global transparent ledger, but are building on top of ledgers that don't scale for global usage. BSV has shown that Bitcoin was always meant to scale to handle billions of transactions a day.”

Bitcoin Cash Halving Results in Miner Exodus and Profitability Decline

The first Bitcoin Cash halving sees miner exodus, declining profitability and no significant upward price action.

The quadrennial block reward halving for Bitcoin Cash (BCH) has come and gone, with miner rewards dropping from 12.5 BCH to 6.25 BCH. The event marked a pivotal moment for the fifth-ranked cryptocurrency by market capitalization, as it was its first 50% block reward reduction since emerging as a hard fork of Bitcoin (BTC) back in 2017.

The Bitcoin Cash chain experienced another split that led to the creation of Bitcoin Satoshi Vision (BSV) in late 2018. The chain of events leading to the BCH blockchain split caused a cascade of network issues, as the hash war between both factions almost led to a mining death spiral on the Bitcoin blockchain.

BSV’s halving event is coming up in less than a day, and Bitcoin’s halving will come in mid-May. The halving for both BCH and BSV is happening earlier than BTC’s because Bitcoin Cash temporarily used a different algorithm to adjust its mining difficulty back in 2017, thus speeding up the block creation time.

There are several analyses of halvings, as it occupies an important position in the bull cycle for BTC, with Bitcoin’s price setting a new all-time high within a year after the previous 50% reduction in the block reward.

Halving, a summary

Approximately every four years — more specifically, after 210,000 blocks have been mined — the block reward earned by miners on the BCH, BTC or BSV chains reduces by 50%. Satoshi Nakamoto, the pseudonymous creator of Bitcoin, coded the halving as an inflation-control measure in the blockchain protocol.

Together with the finite supply of 21 million “coins,” the halving constitutes the basic rules of the Bitcoin protocol — and by extension, those of forks like Bitcoin Cash and Bitcoin SV. The periodic inflation drop slows down the supply of new coins, thus preventing the emergence of an inflationary-skewed supply-demand dynamic. Without the halving, miners could, in theory, acquire all of the block rewards, likely causing the price to crash.

Indeed, the halving and hard cap set by Nakamoto was in response to the inflationary nature of fiat currencies. Central bank practices like quantitative easing and indiscriminate printing of currency usually serve to devalue national currencies. The scarcity created by the halving process echoes the dynamics of gold mining. Earth’s own supply of the precious metal is finite, and each extraction from the crust makes it even more difficult to acquire the remainder.

BCH halving 2020: A commentary

At 12:19 p.m. (UTC) on Wednesday, April 8, 2020, Bitcoin Cash saw the production of its 630,000th block, triggering a halving of its miner reward. Bitmain-owned Antpool was the winning mining pool for the milestone block.

In the hours leading up to the halving, BCH stakeholders like Roger Ver of Bitcoin.com, Bitmain boss Jihan Wu, and major Chinese crypto miner and BTC.TOP CEO Jiang Zhuoer appeared in a livestream session to discuss the future of Bitcoin Cash. When asked about the possibility of the halving being “priced in” and thus not having a significant impact on BCH price action, Zhuoer remarked:

“Why does ‘price in’ theory fail? That’s because the crypto users are expanding as Bitcoin continues developing rapidly. Many users coming to the market in the next two years have not joined the community yet. Thus, the ‘price in’’ theory is not applicable without the majority of future users in the market.”

As previously reported by Cointelegraph, the conclusion of the halving saw the BCH blockchain suffer stagnation with the next block — i.e., 630,001 — as it took almost two hours to emerge. While Bitcoin Cash can handle about 116 transactions per second, this rate fell to just 1.11 TPS.

As of press time, data from blockchain explorer Blockchair shows the BCH transaction rate falling even further — to 0.34 TPS — indicating the continued slowdown of economic activity on the network. The average block time has, however, reduced from 100 minutes to 18 minutes.

In the hours leading up to the halving, BCH did gain about 11%, temporarily topping out at $280. However, the event did little to sustain the upward momentum, with Bitcoin Cash down by 5% in the last 24 hours.

BCH price trend over the past three days. Source: Coin360.com

Commenting on the halving event itself, George Donnelly, the business development manager at Bitcoin ABC, revealed that it was still too early to see the bigger picture that would emerge following the block reward reduction. Donnelly told Cointelegraph:

“The first halving, post the Bitcoin Cash fork, was a great success. But the event is still unfolding. We lost some hash rate for the moment, but it may return soon. The larger trend has yet to reveal itself. Bottom line, BCH blocks are still being produced and the halving may turn out to be essentially a non-event. This is, in reality, little different than the BCH price drop last month, which we now see recovering.”

Miner exodus amid declining profitability

Before the halving, a lot of commentaries dwelled on the likely response of BCH miners following the block reward reduction. Some pundits had predicted that mining nodes would move their hashing potential away from Bitcoin Cash in favor of BTC and BSV, all three of which share the same mining algorithm.

Back in March, crypto analytics platform Coin Metrics issued a report arguing that the upcoming halvings for both networks would force miners to migrate to the BTC chain. In a private note to Cointelegraph, Alejandro de la Torre, vice-president of crypto mining pool Poolin espoused similar sentiments, predicting:

“I do expect some miners to leave Bitcoin Cash, yes. Since BCH shares the same algorithm as Bitcoin and Bitcoin SV, miners can switch to mine these other chains where the reward has yet to halve.”

Indeed, miners have been known to frequently make this migration largely driven by economic considerations, with computing power being dedicated to the most profitable chain. A significant exodus of miners can negatively impact the security of the blockchain and thus make it susceptible to a 51% attack.

Such a hostile event may take place after a significant amount of this hashing power leaves the blockchain, making it possible for rogue actors to gain control of more than 50% of the mining power, which would allow them to double-spend tokens, roll back the ledger and even prevent the confirmation of new transactions.

According to data from Fork.lol, the mining profitability for BCH dropped to 50% that of BTC immediately following the halving. While the profitability plunged, mining difficulty remained virtually unchanged, as nodes seemingly acted as expected by moving resources to BSV and BTC. Joe Nemelka, a data analyst at blockchain analytics platform CryptoQuant, confirmed the miner exodus from the BCH chain:

“Yeah, it looks like miners have left BCH for other chains. Miners are profit seeking, and so even if miners are committed to BCH, it makes more sense in this case to mine BTC and then trade it for BCH.”

As of press time, the BCH block difficulty has taken a 16% downward plunge to account for the hash rate drop. In a conversation with Cointelegraph, Chun Wang, co-founder and managing partner at crypto mining pool F2Pool, remarked:

“Most BCH and BSV miners mine these coins when the BCH/BSV mining revenue is greater than BTC. Before the BCH halving on April 8, the mining revenue for these three coins was around $0.12 per TH per day. Immediately after the halving, BCH revenue dropped to $0.06, and now it's at $0.08. Unlike BTC, the difficulty of BCH adjusts after every block, based on a moving window of the last 144 blocks, to ensure a new BCH block to be generated every 10 minutes on average.”

Crypto socialism as a temporary palliative

According to Wang, the only exception to the trend would be miners willing to continue on the BCH chain despite the unfavorable opportunity cost. Indeed, Bitmain-owned Antpool and BTC.com mining pools have been responsible for a large percentage of the mining activity on BCH since the halving.

Jihan Wu’s Bitcoin Cash gamble back in 2018 reportedly contributed to Bitmain’s revenue woes, leading to a series of administrative upheavals at the Bitcoin mining giant. Wu has since returned to the company, albeit under controversial circumstances, with fellow co-founder Micree Zhan now ousted.

With Bitmain’s mining pools still responsible for most of the block mining since the halving, it appears that Wu is doubling down on BCH. This seemingly irrational mining strategy — which some pundits are calling a form of crypto socialism — might be necessary to prevent far-reaching network instability. For Wang, the upcoming BSV and BTC halvings will determine how miners will allocate their hashing potential among all three chains. According to the F2Pool co-founder, “We would expect that most hash rate will continue to leave the BCH chain until the daily mining revenue per TH reaches a similar value as BTC.”

Should the price of Bitcoin Cash experience a sharp decline in the coming days and weeks, reducing the BCH to BTC ratio, the unfavorable opportunity cost for BCH miners will become even more negative. Nodes that elected to not jump ship might be forced to abandon such irrational mining, especially when operational costs begin to increase exponentially.

What next for BCH?

For its proponents like Roger Ver, BCH is the embodiment of the ethos laid down by Nakamoto in the Bitcoin white paper because it functions as “peer-to-peer electronic cash,” and Wednesday’s halving marks a landmark moment for BCH: its first halving since the 2017 fork.

A slow down in on-chain economic activity where transaction count stays below 1 TPS for at least some time does not help to bolster the appeal of BCH as a currency for retail adoption in microtransactions. However, the block reward halving is about to make BCH a little scarcer, especially given the fact that 6 million coins — about 32% of the circulating supply — have never moved. For Donnelly, the halving is bullish for BCH, as he told Cointelegraph:

“The reduction in the block reward means there will be less new BCH emitted from now on. This is bullish, as the same demand chases a smaller ongoing liquid supply. It strikes a stark contrast with the unlimited quantitative easing we're seeing from developed world central banks. We are focused on continuing to grow Bitcoin Cash use and utility.”

While BCH proponents might remain upbeat, the halving appears to have left the network worse for wear. According to Crypto51.app, a platform that tracks the theoretical cost of a one-hour 51% attack on proof-of-work blockchains such as BCH, a rogue actor would only need $5,628 (as of press time) to attack Bitcoin Cash. Earlier on Thursday, April 9, the theoretical cost stood at $7,500. Back on March 10, it was over $21,600. 

Commenting on the current security status of the Bitcoin Cash network, crypto podcast host and BCH proponent Collin Enstad told Cointelegraph: “The BCH community itself acknowledges this reduction in security. Miners are profit driven, so of course some of this hashpower will go into BTC or BSV until their halvening happens.” However, Enstad is not worried about a 51% attack, as miner migration is a common theme across the three blockchains, adding: 

“During the BSV split, also known as the ‘hashwar,’ many miners moved their hash over to the BCH chain in order to ‘out-hash’ the BSV chain. They did this at a loss, to ensure the integrity of the chain. Because of this, I have no doubt that many miners would do the same if a 51% attack was detected on the network.”

Crypto Derivatives Exchange Bybit Announces USDT Airdrop

ByBit Review

Crypto derivatives exchange platform ByBit is set to airdrop Tether (USDT) tokens to its users following the platform’s recent unveiling of its perpetual contracts for the popular stablecoin. Bybit is one of the participants in Singapore’s growing cryptocurrency derivatives scene as pundits expect more institutional inflows into the derivatives market.

Given the popularity of crypto derivatives trading, regulators in jurisdictions like Japan have come out with robust regulators to govern the market. However, their counterparts in the UK have expressed a desire to ban cryptocurrency derivatives due to perceived risks to retail traders.

ByBit’s USDT Airdrop Campaign

In a press release shared with Blockonomi, the Singapore-based crypto derivatives exchange announced plans for a 1,000 USDT airdrop to its customers. As previously reported by Blockonomi, Bybit launched USDT perpetual contracts in May 2020.

According to the details in the Bybit press release, traders with a wallet balance of at least 0.5 BTC by 10 am (UTC) on April 13, 2020, stand a chance of receiving up to 50 USDT. Customers with wallet balances of at least 50 USDT by 10 am (UTC) on April 16, 2020, could receive coupons of 60 USDT.

The Bybit press statement also revealed that active traders on the platform could receive up to 1,000 USDT depending on their trading volume and wallet size with early-bird registration opening the door for users to claim an additional 20% bonus rewards.

Commenting on the decision to carry out the airdrop campaign, Ben Zhou, CEO of the exchange, remarked:

“The launch of the USDT perpetual contracts on Bybit is a cause for celebration, and this airdrop will incentivize traders to hold the most liquid and trusted stablecoin on the market. Small traders, as well as big players, will be rewarded according to their activity, giving all Bybit users an incentive to get involved.”

Despite multiple legal troubles for Tether and Bitfinex, the popular stablecoin has remained the de facto liquidity provider for most of the crypto trading market. USDT has also been at the center of price manipulation claims with some critics alleging that Tether was being used to control the Bitcoin (BTC) price action.

As part of the airdrop campaign, Bybit says users can sign up to become MVFs (Most Valuable Feedbackers) — providing reviews on the USDT perpetual contracts trading experience on the platform. Members of the MVF club also stand a chance to win 500 USDT in additional bonus rewards.

Evolving Crypto Derivatives Scene

Back in 2019, the explosion of crypto derivatives saw many pundits stating that the market would be the conduit for greater institutional investment in cryptocurrencies. Intercontinental Exchange (ICE) launched Bakkt which after a slow start began to set trading volume records.

CME Bitcoin futures also saw increased appetite from traders despite months of sideways price action in the spot market. Bakkt, on the back of its successful physically-delivered BTC futures, launched an Options product in Singapore.

New entrants like Phemex also entered the scene, promising to deliver novel features as competition in the crypto derivatives scene picked up in 2019. With volume on the rise, the UK’s Financial Conduct Authority revealed that it was looking to ban cryptocurrency derivatives.

In response, organizations like the World Federation of Exchanges declared that the FCA’s move would be a bad idea. The UK government even came out to state that it would not interfere in the FCA’s plan to outlaw cryptocurrency derivatives.

Outside the UK, regulators in Germany and Japan have made efforts to legitimize crypto derivatives with the former officially recognizing them as investment instruments. In Japan, the newly created Financial Instruments and Exchange Act (FIEA) officially creates a regulatory platform for cryptocurrency derivatives trading in the country.

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