Governance & Consensus Models
A Portrait of Cryptocurrency World Dominance
Volatility is core when it comes to the unregulated Cryptocurrency Market, it is what makes it highly risky, yet equally appealing to many. Loosing 15% of its total Market value in 24 hours can be a thing of the norm. Nevertheless, the Market went frantic with this drop on Monday 4th September. Crypto traders and holders woke up to alarming Red portfolios as almost all coins were spiraling down. Some even lost 50% of portfolio value. It was a ‘Bloodbath’. Bitcoin’s price staggered down 20% from its high of almost $5000 (2nd September) to $3998 (5th September) and Ethereum’s price echoed with a drop of 31% from a high of $390 (2nd September) to $268 (5th September). What is even more interesting is to note that today, (Thursday 7th September), only 3 days later, the market recovered back to its estimated $160 Billion value and prices of Bitcoin and Ethereum rebounded back to around $4500 and $322. It is this bounce back resilience that gives many traders and investors the confidence and faith in the market and what keeps them locked in despite any shortcomings. It is also why cynics have no definite case against the booming market. In essence, the most experienced and most successful traders and investors are the ones who take advantage of the dips and buy-in rather than sell and run for cover. The Cryptocurrency market is going strong, and ‘stronger’ is where it is headed as it becomes more tolerated by nations, governments and regulators globally. This article investigates the global landscape for Blockchain technology adoption and Cryptocurrency acceptance and assesses its probable future. Let’s start with what triggered the Monday fiasco.
China Bans ICOs (Initial Coin Offerings)
On Monday, 4th September, The Central Bank of China announced a ban on ICOs (See article “ICOs- Can you become a millionaire from a $500 investment?” that explains what ICOs are). The People’s Bank of China defined ICO as an unauthorized fundraising tool that may involve financial scams and deemed it illegal, halting all fund raising activities immediately. The regulator stated that it will strictly punish offerings in the future while penalizing legal violations in ones already completed. Furthermore it advised that those who have already raised money must provide refunds. The move marked the strongest Chinese attempt yet to regulate the thriving Cryptocurrency Market, and hence triggered the downtrend.
According to Xinhua news agency, there had been 65 ICOs in China so far during the year, raising a combined 2.62 billion yuan ($394.6 million) from 105,000 individuals in the country.
China’s greatest asset is its population, and hence its economic dominance. We can see the effect of that dominance on the market as the large price drops can quite simply be attributed to Chinese traders panic selling to take the most profit they can. This caused ‘short-lived’ chaos and massive losses, before prices stabilized and bounced back after the drop.
Going back to August 2016, China’s Ministry of Industry and Information Technology (MIIT) issued a whitepaper, in collaboration with tech companies including Onchain (investigated below), detailing Blockchain for financial applications. The financial sector was outlined as the first application for Blockchain technologies for use in: payment processing, asset management, securities, clearing and settlement as well as user ID. The whitepaper also suggests making relevant policies to support Blockchain technology research, projects, innovation as well as R&D and public platform building. Clearly china has big plans in store for Blockchain.
Therefore China’s ICO ban is not to be mistaken as obstructive to Cryptocurrency and Blockchain Technology, but rather a precautionary tactic and an attempt at regulating the industry and maybe even controlling it, putting the right players in the right places, at the right time.
China’s Blockchain Front Runner- NEO
The first to launch an ICO in China is the world leading open-source Blockchain project “Neo Smart Economy”, dubbed “the Ethereum of China”. Although unlike Ethereum, NEO uses fiat currency as its internal currency and their aim is to bridge the gap between the old and new financial systems through creating smart contracts, certificates, identity and legal compliance. The trading NEO coin isn’t the fuel that runs the engine like Ether is to Ethereum, in fact it is more like a security, ‘acting’ as shares in the company. NEO was previously known as “Antshares” and has seen a massive explosion on to the market. It is ranked amongst the top 10 cryptocurrencies of 2017.
NEO has recently seen a boost in price around 90% from $7 (end of July 2017) to $50 (mid August 2017), and then held it steady at $34 for a while. NEO was very much hyped after its re-branding and news of upcoming Chinese ICOs building solutions on the NEO blockchain like the much-anticipated Red Pulse ICO, which has now been cancelled. NEO was hit the hardest by the ICO ban and its price dropped around 37% instantly from $30 to $19 with the news, and has only today shot back to $31. Views remain divided on whether NEO is still a good investment in light of China’s recent stance. As many Chinese traders have pulled out of NEO amidst fear and doubt, many global traders step in as they see a golden opportunity.
NEO’s founder Da Hongfei, is CEO of Shanghai Distributed Technologies Co Ltd, the umbrella startup behind Onchain. The Fosun Group (China’s largest investment conglomerate) is directly investing in Shanghai Distributed Technologies Co Ltd. This implies government ties in place and underlying support. With that stated, NEO as a blockchain project has been developed with an eye for government regulations and legal compliance. Arguably, the recent ICO ban acts is in NEO’s favor, abolishing competition and making it an even stronger player.
With the 2017 DACA International Blockchain Summit scheduled for 2nd-3rd September in Beijing, Da was supposed to be a presenter, as NEO is the pioneer blockchain project in China. Da however announced that he won’t be able to attend “for personal reasons” only days before the conference was cancelled by the government. A questionable move that sparks theories of his involvement in the government inner circle and the possibility of his awareness of the ban before it was issued.
Can china’s ICO ban be a tactic to protect NEO’s best interests and position it as the first, top and ONLY blockchain digital platform? Bearing in mind the government’s indirect stakes involved. At the end of the day, China is no stranger to such authoritarian tactics to undercut competition. If that is true, then NEO is definitely one to watch, and could potentially be the next big thing in blockchain and cryptocurrency!
The Future of ICOs and Cryptocurrency
In the long run, the move to ‘temporarily’ ban and regulate ICOs is promising and mostly positive, given the widespread support and sales of fraudulent coins that promise high returns, and the incompetency and inability of some teams to hold fair and transparent token sales. ICOs are a new model of raising capital and Regulators globally are yet to understand its risks fully in order to properly regulate it. The Challenge will be in achieving the balance that would regulate, but not hinder or stifle innovation and progress of the new and promising ’Blockchain’ technology.
Before China, there was the SEC issuing warnings about ICOs, then the US banning Americans from participating in global ICOs and Singapore’s Central Bank issuing an Investor warning about the risks of ICOs as Singapore became the most favoured destination for ICOs. These attempts were not as strong as the latest Chinese attempt at stopping ICOs as the Tech Savvy traders found a way around these formalities and bypassed the fork in the road through using VPNs (Virtual Private Networks), which in this case act as a tunnel for free, unrestricted, secure and private access to the internet. Providing a connection via proxy hopping to different external public IP addresses. This method is not as easy for the Chinese traders as China’s tech infrastructure ring fenced and fort-like due to stronger and more secure firewalls which stop VPNs in and out.
While China and the US are (on the surface) going for a prohibitive approach to Cryptocurrency and Blockchain, another Major power is adopting a much more permissive approach and welcoming it with open arms. Russia is embracing blockchain, making it a national priority, and would be the first stock exchange to make cryptocurrency a new investable asset as Moscow Stock Exchange welcomes cryptocurrency trade against paper currency. Although only accessible for qualified investors (with at least six million rubles in personal assets or 200 million rubles for investment firms), in order to avoid money laundering activities, it is a major stepping stone.
The Russian-Ethereum Love Affair
Russia is seemingly going full steam with Blockchain Technology. This is no surprise, as Russians are some of the most skilled cryptocurrency developers. The founder of Ethereum; the second largest cryptocurrency, succeeding Bitcoin according to market cap, which is essentially a platform for creating smart contracts via Blockchain is Russian born developer Vitalik Buterin. Vitalik has just signed a partnership under the non-profit ‘Ethereum Foundation’ with Russian state-owned development bank Vnesheconombank (VEB) to provide support and expert training of the Ethereum platform in its new blockchain research center. Vitalik stated that;
“Cooperation between Ethereum and VEB gives a unique opportunity to engage in research and development on the use of blockchain technology for public administration and accelerate the adaptation of this technology to government organizations in the Russian Federation,”.
Russia is surely fostering the home grown talent, harboring a community of Ethereum experts within Russia and planning for big blockchain based projects. Putin himself has expressed interest and support for new technology like “AI” stating that “the nation that becomes the leader in this sphere will become the ruler of the world”. Also Predicting that future wars would be fought by countries using drones. Blockchain surely has the capacity and infrastructure to accommodate AI. AI works on large volumes of Data and high throughput stream processing, therefore needs technology with Big Data scalability and querying, Blockchain technologies are able to do just that. Blockchain provides the ability to harness distributed computing power, access shared Data and Storage; offering more Data and better models, making AI more intelligent, faster and stronger!
Singapore, Thailand, Philippines and Brazil
Amongst other nations to rally support for the Crypto and Blockchain movement are Singapore, Thailand, Philippines and Brazil.
Singapore has always been a favorite destination for startups due to its friendly taxation policies, light regulations and state funding. The government, through its central bank ‘MAS’ has launched initiatives to support the FinTech industry, the latest being dedicating $166 million in funding for the development of financial technology projects. The central bank went over and beyond, creating the Ethereum based “Project Ubin”, creating a tokenized version of the Singapore dollar, as an alternative currency to be used in the interbank payments network. A move signaling its support for Crypto-assets and Blockchain technology. The MAS is moving to regulate ICOs in attempt to maintain Singapore’s reputation as a safe financial hub. It aims to protect ICO activities, prevent money laundering, protect investors and allow more people to participate in the offerings.
Thailand has started its mission of widespread adoption of Blockchain technology in various sectors. The central bank of Thailand recently held a meeting with Vitalik Buterin and the CEO of OmiseGo to discuss the future of the financial sector with Blockchain technology. Moreover, the Ministry of Finance are openly supporting OmiseGo; an Ethereum based financial services platform that acts as a real-time peer-to-peer (P2P) value exchange and payment services to participating customers. It is essentially a platform for efficient and secure infrastructure for payment processing based on the Blockchain technology. The OMG coin has seen great growth and a price surge with the news of government support and as they signed a new partnership with McDonald’s Thailand. Amongst other developments in Thailand, a leading Thai commercial bank “Kasikornbank” partnered with IBM to introduce the ‘Hyperledger Fabric Blockchain’ to its current systems of processing letters of guarantees.
Elsewhere, The central bank of the Philippines has granted licenses to two local Bitcoin exchanges, according to reports from the Philippine Star. Also, The Central Bank of Brazil is considering prototyping a Blockchain settlement platform as a backup to the main existing platform for the Central Bank. Furthermore Brazil’s Ministry of Planning, Budget and Management is piloting a Blockchain ‘identity’ application in partnership with Microsoft and Ethereum-based startup ConsenSys.
EU Blockchain efforts
In line with ‘identity’ Blockchain use cases the United Nations, backed by the EU parliament is also piloting a Blockchain project for the management of Syrian refugee identities. The UN has also conducted a pilot in camps in Jordan where funds were distributed amongst Syrian refugees in Ethereum.
The UK also maintains support for growing FinTech developments and the government is funding Blockchain initiatives under the body ‘innovate UK’, mostly in sectors like digital health and Payment Solutions.
Major global banks have also indicated support for the Blockchain. UBS is leading a project to create a digital Cash system that allows financial markets to make payments and settle transactions at speed via Blockchain Technology. The group of participating banks includes Barclays, Credit Suisse, Canadian Imperial Bank of Commerce, HSBC, MUFGand State Street. The project “Utility Settlement Coin” (USC); a tokenized equivalent to each of the major currencies backed by central banks is to be launched in 2018.
US Bitcoin Developments
Bitcoin is closer to being classed as an investible digital asset globally, and becoming a tradable asset on the regulated stock exchange markets against fiat currency this year, as LedgerX (with CFTC clearance) are offering the first federally regulated bitcoin options exchange. With that in place, the SEC could change its mind and approve the first Bitcoin ETF, as 3 more application have been filed for review, and the first “Winklevoss Bitcoin ETF” originally rejected in March is currently under re-assessment.
So, Where To?
If the ICO frenzy somehow comes to an end, there will be a bigger wave of investors flocking to tap in to this world of new value by launching Crypto Hedge Funds that theoretically act like VCs to facilitate funding for Blockchain project development. Current VCs like Andreessen Horowitz, Founders Fund, Sequoia Capital and Union Square Ventures are already ahead of the trend and have already invested in the Crypto Fund “Polychain Capital” which now has $200 million in assets under management. Currently there are 15 new Crypto funds globally, each assuming their own strategies and models, but the number will inevitably rise as investors see more value in the development of these projects.
With all these indicators that Cryptocurrency and Blockchain will slowly become the standard norm for governments, authorities, and regulators, will the core values and fundamentals on which Blockchain was built on be tarnished? Will we be seeing “Centralised” and “Controlled” as opposed to “Distributed” and “Decentralised”? Accumulated wealth for the few instead of for the masses? No more shared prosperity? Or will that mass adoption only enhance the development of Blockchain by providing the necessary means and infrastructure for optimal growth and achieving full potential? Whichever way it goes, it will be one hell of a ride; history in the making!
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