crypto-hack

Cryptocurrency Exchanges Lost More Than $1.5 Billion in 2018

2018 was indeed a monumental period for the cryptocurrency community primarily because of the various highs and lows of the industry as well as the many innovations that we got to see. Some of the most notable occurrences were the loss of funds by a number of exchanges all over the world. It was hard to keep track of the amounts but now, thanks to a Q4 cryptocurrency Anti-Money Laundering report that was published by CipherTrace, a blockchain intelligence agency, it has been revealed that criminals stole a whopping $1.7 billion of cryptocurrency last year. The company further pointed out that cryptocurrency theft is still on the rise despite the freefalling prices of cryptocurrencies as well as the savage bear market that the sector has been subject to.

Of the $1.7 billion that was stolen from the crypto exchanges and wallet providers, $950 million went to hackers. This was 3.6 times more than what was recorded in 2017 which further shows there is one increase in theft despite market drops – the price of bitcoin, for instance, has dropped in value by almost 80 percent. Obviously, this is a very worrying statistic especially for an industry that is trying very hard to achieve mainstream adoption.

The Reasons

As it turns out, many of the existing exchanges have been in operation for no more than two years and most of them do not have sufficient safeguards in place to prevent hackers from stealing their funds. The lack of these safeguards makes it possible for hackers to obtain simple files of cryptographic private keys and each can be worth anywhere between $30 million and $500 million. While this is the case with most companies, it is also worth noting that not all crypto-related businesses are not immature in terms of funding, implementation, and training – the tools and methods used by hackers are also becoming more and more sophisticated which means that even established companies that are considered to have better safeguards can lose funds or data due to hacks.

At least $725 million of the stolen crypto funds came from “inside jobs” which included exit scams, fraudulent Initial Coin Offerings (ICOs) and Ponzi Schemes.

Proposed Solutions

According to Dave Jevans, the CEO of CipherTrace and co-chair of the Cryptocurrency Working Group at the APWG.org, the cryptocurrency sector needs to implement huge improvement to their infrastructure and increasing education in order to prevent such kinds of attacks. Such measures could involve the use of robust anti-phishing measures, cold storages as well as data sharing and behavioral analytics. Fortunately, thanks to the global wave of regulations that will be going into effect anytime this year, laundering of digital currencies by hackers and criminals will be much harder to do. Hopefully, it gets better from there.

cryptos

More Institutional Investors to Venture into Crypto in 2019

The price of a number of cryptocurrencies including bitcoin, which is considered to be the mother of all cryptocurrencies, took big hits in 2018 amid the prolonged Crypto Winter. Even though there is no guarantee that it cannot get any worse than it did in the just concluded year, many investment analysts and financial market experts are expecting the volatility to subside significantly this year largely due to the entry of institutional investors. In fact, according to a report the Australian Financial Review some analysts even believe that bitcoin may make a comeback that will be fueled by the momentum created by institutional investors.

Over the summer of 2018, Wall Street was stunned by the news that some multi-billion-dollar endowments of Harvard, Yale and Stanford had decided to invest in digital currencies. Analysts believe that due to the herd mentality of most institutions, the move is likely to trigger a chain reaction of sorts among other institutional investors like pension funds. This influx of institutional investors was expected to pick up in a major way in late 2018 but the harsh bear market that affected nearly all digital currencies stalled most of the efforts – a number of the institutions were reportedly scared off by the protracted downturn of the crypto market which is an understandable move especially for organizations operating within that particular space.

Financial analysts have projected that, as Wall Street appears to be poised to even more turbulence in 2019, organizations may begin to consider crypto assets even more seriously – these assets are not buoyed since they have no correlation to the regular stock market and this makes a pretty good investment, especially during volatile periods.

Will Crypto Finally be Legitimized?

Well, many observers believe that, as it stands, mainstream adoption hinges on regulatory clarity to help legitimize the market. Regulation is already a big deal and has been defined by the move by US lawmakers in December 2018 to propose legislation that was designed to prevent bitcoin price manipulation and position the United States as a market leader in the crypto space. The US is being encouraged not to ignore the “profound potential” of crypto to bolster the country’s economy and this might just be what is needed to have digital currencies legitimized. The industry is putting a lot of effort into advancing the agenda of mainstream adoption of crypto most by greasing the wheels of Congress.

Unfortunately, there are some setbacks that may still impede the growth of the sector and one of the most serious ones is the scalability. As it stands, most platforms would need about a year to figure out concrete solutions to scaling, but until then let’s hope that the Lightning Network grows further and, hopefully, achieves its full potential.

blockchain-speed

Conflux Raises $35 Million into New Blockchain Protocol

The cryptocurrency industry, despite having existed for well over a decade and culminated into several innovations, is still in its nascent stage. Needless to say, there have been some very high moments for the industry as well as some very low lows, but cryptocurrency enthusiasts are in no mood to give up their optimism for a bullish future.

Still, we have to acknowledge the fact that the crypto market has been on a downward slope for a better part of this years, a bearish trend that is still going on. One of the major factors that go against digital currencies, more specifically bitcoin which is the flag bearer of the cryptocurrency world, is the sluggish nature of the underlying blockchain technology which makes its an infeasible choice for a real-world ledger. Even though developers have been working round the clock to solve this problem, it remains to be one of the most significant stumbling blocks to the wider adoption of cryptocurrencies.

Well, things, in this regard, are about to change for the better.

Enter Conflux

In a bid to provide the much-needed solution to the problem, a group of university professors and researchers have raised a whopping $35 million for Conflux, a non-profit foundation that will support the development of a new and improved blockchain network. The Conflux project which is being backed by a Sequoia China and a number of Chinese Internet Companies claims to be able to overcome a key limitation of the existing blockchain – this limitation is rooted in the fact that protocols like bitcoin’s can only add a single block to the blockchain at any given time. The addition of multiple blocks at the same time results in the creation of a fork which leads to competing chains.

Conflux’s solution involves the utilization of a system that allows users to simultaneously work on blocks and put them in the chain. This new system will also be able to maintain a decentralized consensus method that prevents any entity from taking control of the blockchain. The general idea is to make the entire blockchain scalable.

In essence, Conflux serves to fulfill Etheruem’s promise of allowing the users to create an execute the so-called “intelligent contracts” in a distributed blockchain library. Unfortunately, even though Ethereum boasts of being a powerful technology, it still suffers from the same speed scaling issues that have hampered the growth of bitcoin up until now.

“Contrary to popular belief, true decentralization isn’t sacrificed to increase throughput, highlighting Conflux as the first example that achieves the best of both worlds. By weaving a Directed Acylic Graph data structure into Conflux’s Proof of Work consensus algorithm, tests on its testnet has achieved a throughput of at least 6,500 Transactions Per Second (TPS), while supporting at least 20,000 nodes,” said the foundation’ press release.

Private blockchains have been able to overcome the aforementioned scaling problems but this has been at the expense of decentralization since they were only able to do this by relying on central authority. Conflux, on the other hand, promises to offer the best of both worlds, that is, both speed and decentralization.

bitcoin-price

Bitcoin’s Price Dwindles as Its Dominance Increases

Bitcoin has been on a steep downward trend for the past few weeks. In general, the market has not been very stable with a number of people hoping that it the market will stabilize very soon and bitcoin can regain even a little of the value that it lost in the past month. Both bitcoin and Ethereum, the two most popular cryptocurrencies have had their prices drop by over 40 percent particular because of the rapidly increasing sell pressure and the declining buy pressure. As a result, the crypto market has been struggling to sustain some sort of momentum in a bid to reverse the downward trend but, of course, it might be a while before this happens.

To put this into perspective, when the price of an asset falls significantly without any significant spike in volume, it is representative of a free fall albeit without much sell pressure. This implies that as big sell volumes continue to hit the market, the price of the said asset will be at the mercy of additional sell-offs in the future.

This Is Not the End

Even though bitcoin has undoubtedly had quite a month, it did not take nearly as much a hit as many other digital currencies. In fact, in November, bitcoin’s share of the total cryptocurrency capitalization or rather its dominance saw a notable increase. Over the course of the month, bitcoin’s dominance has spiked from lows of 51 percent in early November to the prevailing 53 percent, something that goes further to prove the digital currency’s appeal to both miners and investors.

Despite the fact that there have been lots of talk about the demise of bitcoin, especially over past two weeks, it is worth noting that the cryptocurrency’s price is still more than what it was last year in the summer. Furthermore, bitcoin has been building quite a loyal customer base over the past decade and there is still a growing appetite for crypto all over the world.

Institutional Investors Are Still Hopeful

It is not only individuals within the crypto community that are still confident about bitcoin. The traditional financial services industry and a number of institutional investors including New York exchange operator, Nasdaq, are still pursuing ventures involving the digital currency. According to Bloomberg, the company on November 27 announced that it is moving forward with its plan to list bitcoin features, a market that it hopes to officially launch in with the first quarter of 2019.

Sources close to the matter have also revealed that the New York exchange has been working closely with the Commodities and Futures Trading Commission (CFTC) to receive regulatory approval for its plans to operate as a compliant bitcoin futures market service provider. There is a huge window for success but knowing how shaky the crypto market can get, it remains to be seen just how far these projects will go.

bitcoin-united-states-us-flag

Michigan Bans Use of Crypto as Political Campaign Donations

The Michigan Department of State has formally barred digital currencies from being used as donations for political campaigns. According to a letter that was published last Thursday by the state’s Secretary of State, the law does not recognize crypto and associated virtual assets as political campaign donations because their values cannot be determined with absolute certainty.

This was in response to a letter from William Baker, a Michigan State Legislature candidate, that outlined some of his opinions on why state politicians should be allowed to receive digital currency campaign donations from their supporters. In the letter, Baker points that cryptocurrencies are a valid way to receive payments and donations and thus political campaigns should be no exceptions. He however also acknowledged that there were such issues as recording the value and utilization of these digital currencies that still need to be resolved.

“With some modest record keeping, donations of digital currencies can be an additional method of raising funds for political campaigns in the coming years, just as the internet first allowed political based websites to collect credit card donations roughly twenty to twenty-five years ago,” Baker’s letter read.

As it stands, Michigan politicians are allowed to accept non-monetary political campaign donations, which, much like most digital currencies rarely hold and a precise or value.

State Department Disagrees

The Michigan Secretary of State, Ruth Johnson, responded to Baker’s letter by stating that bitcoin and other digital currencies may not be used to make political campaign donations simply because “the value of these crypto assets is not fixed, and their volatility makes it impossible to assign an exact dollar value to them in administrative terms.”

“In the context of a contribution under the MCFA, an ascertainable monetary value is one that is exact, precise, and certain or can be determined with certainty. Where it cannot be determined the exact or precise dollar amount for a contribution made with Bitcoin at the time it is given, there can be no ascertainable monetary value,” an excerpt from the Michigan State Department’s letter read.

The State Department’s letter further compared digital currencies, more so bitcoin, to a security – it quoted legal precedents which effectively restricted the use of any financial assets save for those held by banking institutions for use in campaigns. Still, the department did acknowledge that bitcoin is analogous to a security, that is, both cannot be used “in and of themselves to purchase goods or services”, something that many crypto enthusiasts consider to be a highly contestable claim.

The main takeaway from the letter is that the crypto campaign donations are effectively illegal in Michigan mostly because of the reasons stated above and because the reporting requirements do not allow for multiple recordings that are required to capture various values that are likely to be held by digital assets at various points in the process.  These include such issues as the date of receipt by the candidate, the date of sale to the donor as well as the date of record on a campaign statement.

finma

Swiss Regulator Imposes 800% Risk Coverage on Crypto Trading

The Swiss Financial Market Supervisory Authority, otherwise known as FINMA, has instructed Swiss banks that are dealing in crypto assets to apply an 800 percent risk weighting the market value of said assets when “calculating loss-absorbing capital buffers. The news of this was delivered in a confidential letter that the regulator recently sent to swissinfo.ch.

What It Means

As per the terms of the regulator’s new requirements, securities dealers and banks will be required to assign a flat risk weight of 800 percent – which will be used to cover both market and credit risks – against digital assets. Therefore, considering bitcoin’s current value or price ($6,000), the banking institutions would be required to value each of the coins on their books at $48,000 when making decisions regarding adequate levels of buffer. This is regardless of whether the positions are held in a trading or banking book.

Even though FINMA has openly allowed banks in the country to trade bitcoin and other crypto assets, the regulator has not made any effort to integrate cryptocurrencies into the country’s liquidity ratios or Base III capital requirements. Risk weightings are a measure of an asset’s volatility as well as their potential to compromise the capital base of any given bank. Naturally, a higher risk weighting is largely an indication of skepticism – the higher the risk weighting, the lesser amount of the asset that a bank should hold.

“FINMA has recently received an increasing number of enquiries from banks and securities dealers holding positions in crypto assets and are subject to capital adequacy requirements, risk distribution regulations and regulations for the calculation of short-term liquidity ratios,” the letter, dated October 15, reads.

This move is an indication that FINMA is clearly still very skeptical of digital currencies despite the fact that some of them have steadily stabilized over the past year. Bitcoin, for instance, has been priced at around $6,000 over the past few months.

Not So Surprising Positive Reactions

It is undeniable that the asset class is extremely volatile but there is a lot of great signs with more and more banks all over the world offering crypto related products. Switzerland happens to be one of the few places where banks and trading products have been in business for quite a while. SEBA Bank, one of the Swiss banks that is hoping to win a license to operate full banking services to bridge fiat currencies and crypto.

“It’s encouraging to see banks no longer turning down the increasing number of client requests for crypto services but asking for guidance and providing their input along the way,” the Bitcoin Association of Switzerland stated. “This is the Swiss financial center’s first step towards moving into the next decade where assets are no longer held in single, central custody but instead are held on the blockchain.”

FINMA’s new regulations are certainly going to present a new set of hurdles for banks hoping to offer crypto trading services but with such positive reactions, something good may eventually come of it.

uk-crypto

UK Regulator Considering Ban on Sale of Crypto Derivatives

On October 29, the United Kingdom’s Cryptoassets Taskforce released a report that detailed its proposal for changes to some of the crypto regulation and raised a number of concerns over the way digital currencies and associated assets are used and traded. The taskforce which was launched earlier this year in March comprises the Financial Conduct Authority (FCA) and the Bank of England (BOE) was tasked with regulating and supporting cryptocurrency-related technologies.

Due to the lack of a widely accepted definition of crypto assets as well the variations in the value and rights that they bestow their holders with, the task force developed a framework that classifies crypto assets into three categories – that is, crypto assets for investment, for use as a means of exchange and for supporting capital raising and the development of decentralized networks through ICOs.

The report explained that, due to their extremely high volatility, failure in use as a unit of account and poor acceptance, crypto assets that are meant to be used as a means of exchange cannot be considered to money or currency. On the other hand, if the crypto assets are used as an investment they would reportedly have the potential to widen access to new investment ventures. However, the report went on to acknowledge that at the current market state, these cryptocurrency assets also have the potential to expose users to varying degrees of risks including illicit or criminal activities.

As for the so-called Initial Coin Offerings (ICOs) the report stated they are very promising ventures especially because most of them present several opportunities that would be great for supporting innovation and competition, addressing certain financing gaps, improving efficiency as well as the creation of a new investor and customer base.

The FCA To Act

With all these in mind, the Financial Conduct Authority (FCA) is reportedly mulling over a potential ban on the sale of crypto derivatives specifically because it believes that digital currencies hold no intrinsic value.

“Given concerns identified around consumer protection and market integrity in these markets, the FCA will consult on a prohibition of the sale to retail consumers of all derivatives referencing exchange tokens such as Bitcoin (BTC), including CFDs, futures, options and transferable securities. The proposed prohibition would not cover derivatives referencing crypto assets that qualify as securities, however CFDs on securities would remain subject to [the European Security and Market Authority’s] temporary restrictions and any future FCA proposals to implement permanent measures in relation to CFDs,” a statement by the FCA reads.

The regulator is also reportedly expecting to launch a wide consultation into whether or not the ban will be a good idea within the first quarter of 2019. Hopefully, the United Kingdom will not go the “Indian route” by completely banning crypt, a move that would be quite devastating considering how deep-rooted digital assets are in the region.

declub

Macau Casino Plans to Build World’s First Blockchain Casino

Despite a significant decline in prominent blockchain-based digital currencies such as bitcoin due restrictions that are being enforced by the governments of countries like China, there are still large and prevalent communities of cryptocurrency enthusiast in those areas. Similar restrictions have been imposed on gambling activities within the same areas.

However, in the peninsula of Macau which is the Chinese licensed Mecca of gambling activities, casino operator known as DeClub Macau has come up with a new idea to take advantage of the high demand for cryptocurrencies. For this, the casino has already inked a partnership with Wide Rich Global Company, a Maltese investment firm, to bring gambling and blockchain technology together.

DeClub, in its press release, said that Wide Rich Global Company intends to buy the casino so as to build the what the duo is referring to as the “world’s first blockchain-based casino gaming hub with fully integrated online and land-based casinos.” Wide Rich hope to fund the purchase by offering an Initial Coin Offering (ICO) which will hopefully bring in as much as $1 billion.

“The tokenization of chips, casinos and their surrounding entertainment service providers will be able to build a pan-gambling business ecosystem together, so that people with varying business needs – from tourism to business meetings, to shopping – can all gain easy and cost-effective access to customized and prestigious services on their mobile devices,” Wide Rich Global Company’s officials stated in a recently released white paper.

Once the sale of the 20 billion DEC tokens is complete, De Club International will move forward with its plans to apply for a junket promoter license in Macau – this is because it intends to open multiple land-based gambling facilities both within and outside of the Macau region. The company has allocated about 35 percent of the funds from the token sales to the acquisition and licensing of said casinos.

Bypassing the Limitations of the Gambling Industry

Apparently, the prime motivator of this project is the need for a viable solution to the untrustworthy nature of the gaming industry. The project is aimed at achieving transparency are trustworthiness using blockchain technology – in essence, the project managers are counting on the fact that it is easy to conduct research, investigations or digital forensics on blockchain-based serves.

China has in the recent past had a very strained relationship with cryptocurrencies. The country also penalizes gambling outside Macau despite the obvious demand for it, but with blockchain technology, it will be much harder for the country’s government to implement these restrictions since users can gambler using a number of digital currencies anonymously.

There are, of course, a number of challenges that stand in the way of the project – the fact that Macau does not allow blockchain gambling yet, for instance – but with just enough lobbying, it will be a reality sooner than we may anticipate.

liquid

Blockstream’s Liquid Network Launches for the BTC Blockchain

One of the major setbacks for the mainstream adoption of cryptocurrencies has been the difficulty and slow nature of crypto settlements, especially where large volumes of these digital assets are involved. There have of course been attempts at fixing this problem with the so-called sidechains that promise faster transactions but the pace of the developments has not been as reassuring as many people had hoped for. The Lightning Network, for instance, has managed to gain quite a lot of traction in the past several months but its use of nodes with limited capacities has been quite detrimental to its growth, to say the least.

Now, Blockstream, a San Francisco-based blockchain technology company may have finally found a solution to the problem. Referred to as the Liquid Network, the company’s new bitcoin sidechain is set to revolutionize the crypto space by allowing for faster and more secure digital currency and asset settlements with an emphasis on the larger volume settlements. The sidechain which will be connecting institutions, crypto exchanges, and even brokers partnered with 20 exchanges at launch, a move that is certainly bound to improve its standing in the crypto space and speed up its adoption at the same time.

“Liquidity across exchanges is definitively not there yet. With the advent of Liquid — with faster settlement times — we should be able to improve it by making it faster and easier to transfer,” Samson Mow, Blockstream’s Chief Strategy officer said.

How It Works

According to Samson Mow, the members of the Liquid Network and the exchanges will be the main providers of liquidity since they will be the ones responsible for keeping a balance of L-BTC that they would, in turn, allow their users to swap. The Liquid Network’s design is a bit of a twist of the original concept of the sidechain which was initially pitched as a means for trustless swaps – Blockstream’s spin requires the intermediaries to execute the swaps themselves.

“When someone wants to move BTC to the Liquid sidechain,” Mow went on to explain. “they send it to a unique peg-in address. When someone is ready to move their money back to the Bitcoin blockchain, they can make a peg-out transaction that will tell the [Liquid members] to send Bitcoin to the desired address.”

Contrary to what many people would assume, the Liquid Network is not a replacement of the Lightning Network. In fact, in the blog post that announced the launch of the project, Blockstream clarified that the Liquid Network is capable of adding the Lightning Network as a second layer which makes the two technologies complimentary as both of them are vital to the crypto ecosystem.

Petition Champions XRP As Official Crypto in 2020 Olympics

An online petition pertaining to the mainstream adoption of Ripple’s XRP that was created months ago has recently gained a lot of steam. Dubbed change.org, the petition that was reportedly created by Ken Takahashi, a Japanese citizen, is aimed at the Olympic Games Committee and it proposes that Ripple’s XRP token should be adopted as an official cryptocurrency in the upcoming 2020 Tokyo Olympics.

Initially, the petition aimed at getting a total of 7,5000 signatures before it was submitted to the International Olympic Committee (IOC), but the number has since been surpassed with the total count currently standing at around 15,000 signatures.

According to the creator of the petition, Ken Takahashi, XRP is capable of solving a number of logistical problems that have often accompanied large international sports events such as the Olympics especially when it comes to foreign exchange. So, instead of putting enormous pressure on the Japanese Yen in 2020, the petition proposed that a system that uses XRP be created and implemented.

“As tourists stream into the country, demand for the local currency skyrockets, causing long lines at currency exchanges, as seen at past events like Beijing 2008 and Rio de Janeiro 2016. Confusing exchange rates and language barriers further complicate the problem. We believe that the fast transaction times and security of Ripple Lab’s XRP cryptocurrency would be a great contribution towards solving this problem,” reads a section of the online petition.

The arguments presented in the petition could not be more sensible – it seems natural that the borderless nature of crypto would be used at an international event that is attended by people from all corners of the globe. In fact, if such a thing happens, it would be a huge step forward towards mainstream adoption of digital currencies.

How Likely Is It?

Despite the fact that Japan witnessed the biggest crypto heist in the world earlier this year, it has remained quite open to crypto adoption – this shows how deep-rooted cryptocurrencies are in the country. As such, the 2020 Tokyo Olympics present a golden opportunity to test the potential of crypto to help in saving time and money for the global influx of Olympic fans and tourists.

Unfortunately, while the case can be made for the benefits that a crypto-powered gaming event has been made, the problem in this particular case lies with XRP itself. Ripple has not focused much on mainstream adoption with XRP even though the platform has been gaining a lot of popularity due to its application for cross-border transactions between organizations.

Frankly speaking, XRP might be the third-ranked digital currency on the planet but its application in the Olympics might be too premature especially because it is still in its early stages and is yet to gain enough traction in the mainstream commercial arena. However, in retrospective, the period between now and the 2020 Olympics is a fairly long time more so when speaking of the crypto industry – who knows what changes may be introduced?