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Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 26th June 2017


The Blockchain Bitcoin & Crypto Weekly CXO Briefing is all you need to know, each week, jargon free for CXO level business leaders and investors who will use this technology to change the world. Each week we select the 3 news items that matter and explain why and link to one expert opinion.






Bernard Lunn
Bernard Lunn
News Item 1: Suddenly, Bitcoin to Be Officially Legal in India

Decrypted: Last November, when the government in India announced the demonetization of the 500 and 1000 rupee notes, it shocked its citizens. Rising demand for Bitcoin in India was just a matter for time. While the government made it difficult to use cash, raided those it suspected of concealing gold and assets in forms other than cash, it was inevitable that people would turn to Bitcoin and other cryptocurrencies. Now the Indian government has made a 180 degree turn, from never wanting to do anything with Bitcoin to legalizing it. This is huge news, especially because it comes from an emerging market and one of the world’s fastest growing economies.

Our take: The stories in the news are somewhat misleading. They are implying that Bitcoin was illegal in India up to now and that the Indian government decided to make it legal with its recent announcement. Well, that is not exactly true. The fact is, that buying, selling, trading or mining Bitcoin was not illegal in India under any law. Several Bitcoin exchanges operated in India (Unocoin, Coinsecure, Zebpay and others). Some politicians, mostly in the ruling party, were against Bitcoin. What really remains to be seen, is if the Indian government will recognize Bitcoin as a currency or not. If it does, then there will be restrictions imposed under the FEMA (Foreign Exchange Management Act) laws. The Indian government wants to give Bitcoin a legal status in the country. They want laws so they can levy taxes on it, and when people get returns for Bitcoin investments they can be taxed. They want laws so local talent can thrive and innovate in the space.

The increased adoption by the Indian people in the past few months, decisions in other countries around world like Japan, Australia and upcoming crypto adoption in Russia, certainly affected the Indian government’s thinking. They did not want to be left behind in a world were technology is transforming money and how people exchange it.

This is an extremely sound decision and India will emerge as a strong cryptocurrency market. Today, when you compare Bitcoin trading volumes in India to that of other Asian and world markets, they are very modest. But, the vast majority of India is still unaware of Bitcoin. According to the United Nations in July 2016, the population was 1,326,801,576 and is expected to surpass China’s population by mid-century. And lets not forget, India is one of the largest remittance markets with a total value of more than $70 billion. This is where Bitcoin’s true potential lies.

With India’s +1 announcement, we will see more countries getting on board and at a faster rate. We can also expect the United States to continue to dragging its feet and staying away from Bitcoin, as the dollar remains the world’s top reserve currency. But, there is an ancient greek saying that says “It's impossible to escape from what is destined." Either from inside, as more US. States legalize Bitcoin or from outside, like Russia embracing crypto, the United States will eventually join the rest of the world.

News Item 2: Ethereum Slides as Network Backlog Points to Growing Pains

Decrypted: Ethereum’s network experienced extreme congestion as a result of Status and Civic ICOs last week, delaying transactions and frustrating users as several exchanges announced delays and halted withdrawals. Just like with the Bancor ICO, the Ethereum network chocked, creating a huge backlog, delays and people claiming their transactions were not carried out.

Our take: On June 20, the Ethereum recorded 300,000 transactions, reaching Bitcoin’s transaction levels. Ethereum has caught up to Bitcoin, going from $17 million dollar crowdfunded project to market with a $30 billion dollar market cap and competing with Bitcoin head to head. Ethereum’s smart contracts have also attracted significant interest, helping it carved a niche with ICOs and token sales. Essentially, organizations are able to issue assets and tokens on the blockchain that are tradable and very liquid.

Moreover, everyone is worried about a possible bubble and that the ICO gold rush won’t last forever. Many companies are racing to get their share of the pie, before the novelty wears off. I spoke with a VC last week, that has participated in several ICOs, and he said it will be all over in the next six to nine months. I don’t agree. It will just get harder for new ICOs to get attention. The ICO buzzword will not longer be a passport to easy money. Also, regulations and accountability mechanisms must be established. The market is very liquid and people are willing to switch one token for another. Trading stock is completely different from buying and selling cryprocurencies. Many traders jump on these ICOs without any intention of long term ownership, but only to flip them and gain more ETH.

Maybe my VC friend is right. The ICO craze that's driven by Ethereum's smart contracts, has blurred the line between virtual currencies and securities. Bitcoin is no stranger stock exchanges. In the past with GLBSE, BTC-TC and Bitfunder and more recently with Crypto Stocks. The principal cause for their shutdown appears to be legal problems. Sooner or later ICOs will likely run into regulatory problems.

One thing is certain. Businesses with real value will come out of this. There will be winners and there will be losers. When you look back at the late nineties, companies like Google emerged out of the dotcom era, while many others that were well funded, just died. Investors will become more selective about where they invest their money. When organizations raise money, whether its from VCs or ICOs, what happens to the money that flows into those organizations, differs. It depends on the quality of the organization and the people.

The second thing that’s certain is that there’s a real issue with Ethereum’s scalability. It has become obvious that there is a serious issue with the current gas payment structure. Network congestion is something we often see with Bitcoin. Over the last year Bitcoin’s scaling issues created similar problems, with slow transactions and higher fees. With upcoming ICOs, its possible this will happen again and again. This poses serious questions about Ethereum’s scalability and possible vulnerabilities to DDoS attacks. Ethereum will have to address the congestion issues in order to retain users and value.

News Item 3: SegWait Is Over! Bitcoin Network Shows 80 Percent Support For SegWit2x

Decrypted: Big news. It looks like SegWit2x is going to be locked in on July 31st. Bitcoin mining pools at the New York Consensus agreed on SegWit2x, and a few days ago 80% of the miners signaled their support. SegWit2x is a Bitcoin scaling compromise that includes the activation of Segregated Witness and the inclusion of the 2 megabyte hard fork to increase the block size altogether.

Our take: On a decentralized platform, when you have people with different opinions, reaching a consensus can be hard. This has been the case for Bitcoin and the scaling debate. The SegWit2x proposal is a bridge between two big opposing camps. Bitcoin Core that wants SegWit, and Bitcoin Unlimited that wants to increase the block size. It looks like Bitcoin will definitely get SegWit, but its still remains to be seen if the hard fork will go through in the coming months.

Despite 80% support by the mining community, many feel the UASF (aka BIP148) is the best solution. The BIP148 proposal has raised a lot of questions and caused some panic. BIP148 is based on the idea that if the economic majority agrees, then miners that don't will be forced to activate SegWit. In effect the BIP148 proposal is a hard fork, even though it was suppose to be a soft fork. Although SegWit2x and the UASF are not mutually exclusive, Bitmain has proposed contingency plan to protect users in the case of BIP148. Segwit2x requires Segwit and thus, if Segwit is locked in on the network, BIP148 won’t do anything. And it looks very likely that SegWit2x will be activated on July 31st, a day before UASF.

Bitcoin’s new climb comes as the community becomes more convinced that SegWit will activate on the network at the end of July.

The price of Bitcoin went up because of SegWit optimism, while Litecoin down. Many believe that Ethereum will overtake Bitcoin, but Bitcoin should be wary of a different coin, and its not Ethereum. Ethereum has it's own scaling issues. Anyone that has participated in any of the recent ICOs knows. Even though earlier this month it got a big thumbs up from Russia, I think the main potential competitor to Bitcoin is Litecoin and its partly due to how similar the two coins are.

Even though Litecoin has the best chance of doing this, I personally think that nothing will replace Bitcoin. I think Naval Ravikant said it well in this tweet: "All Bitcoin has to do to become the premier store of value is survive."

Bitcoin will go even more mainstream after the 2nd activation and scaling issue is solved. In the meantime we can expect the prices of altcoins to go up. In the fiat currency world we have many currencies and the same goes for cryptocurrencies. Today there are 800+ in existence and new cryptocurrencies can only bring innovation, new approaches and technical solutions.

Opinion: Why Putin endorsed Ethereum by meeting Vitalk Buterin?

This week we’ll be discussing an opinion posted on our own Fintech Genome:

“Putin clearly wants to disrupt American power any way he can. Disrupting the US$ as a reserve currency is part of this. He knows that the Russian Ruble is not a contender. So why not promote an alternative, however far fetched? Decentralization will disrupt the power of the corporate giants of the Centralized Internet era, most of whom are American and none of whom are Russian. So why not promote a leading platform for Decentralization? Russia has a lot of people with crypto expertise who will benefit as this grows.”

Why did the Russia make a U-turn? What does it see now that it did not see last year, when people that traded cryptocurrencies could be jailed?

In an article on Bloomberg that Vlad Martynov, an adviser for the Ethereum Foundation said:

“Blockchain may have the same effect on businesses that the emergence on the internet once had -- it would change business models, and eliminate intermediaries such as escrow agents and clerks. If Russia implements it first, it will gain similar advantages to those the Western countries did at the start of the internet age.”

Hoping to maintain its currency dominance, the US is introducing new regulations that will make Bitcoin even more difficult for Americans to use, in the name of combating terrorism and money laundering. In a blockchain world, where the US is still dragging its feet in terms of regulations, this could be the way to reduce its dominance on the global financial system.

Innovation has been moving to places that have been more progressive in setting up crypto regulations. Places like Crypto Valley in Switzerland or Singapore, where they just started tokenizing fiat currency. Ethereum is headquartered in Switzerland. How do you make sure that an asset like Ethereum with cap of 30-40 billion is not created in another part of the world? You create a legal framework that will allow businesses to operate and innovate within the rules. India wants to be one of these places and so does Russia.

The space race in on, and some are still wondering if the moon is there. Bitcoin and Blockchain are going to change the world in profound ways. Change is inevitable.

Bernard Lunn
Founding Partner, Daily Fintech Advisers
www.dailyfintech.com

Bernard Lunn is a serial entrepreneur, senior executive, adviser and a strategic dealmaker. He worked in Fintech before it was called that with startups, growth stage and turnaround ventures (incl. Misys, Temenos, IMS, ITRS). He has lived and worked in America, India, UK & Switzerland and is adept at cross border deals.

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Wednesday, June 28th 2017
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