January 2018 – The Blockchain Report

Bitcoin, cryptocurrency prices tumble again

A market selloff sent prices for bitcoin, ethereum and other cryptocurrencies tumbling Tuesday. Bitcoin was down 12 perecent and trading below $10,000 Tuesday afternoon, according to CoinDesk. Ethereum was down 9 percent while ripple fell 10 percent, according to CoinMarketCap. (CNBC)

Be smart: No one exactly knows what sparked the massive selloff. One possibility is South Korea implementing strict KYC rules for trading cryptocurrencies. (CNBC) Another is the SEC freezing the assets of AriseBank and halting its massive ($600 million so far) ICO. (CNBC) A third regulatory action saw the U.S. Commodity Futures Trading Commission send subpoenas to cryptocurrency exchanges Bitfinex and Tether. The subpoenas were issued in December, but reported publicly for the first time today. (Bloomberg Technology) It’s also entirely possible that this trifecta of bad news had nothing to do with the selloff. Nobody knows for sure.

What’s next: Volatility is the norm in cryptocurrency markets. So this wild ride will continue. Just remember the regulators are not going away either. The size and volatility of these markets have caught their attention. And there are going to be more regulatory actions in the future.

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Commerce Department hops on blockchain train

In a move that slipped a bit below the radar last week, the U.S. Commerce Department issued its first blockchain guidance report. The report, written by the National Institute of Standards and Technology (NIST), attempts to explain blockchain technology to the business set and help executives make “clear-eyed” decisions about investing in it. (NIST)

Why this is important: Guidance reports from the NIST signal both mainstream acceptance and act as a permission slip for many organizations to consider blockchain as a solution. It also shows that the U.S. government is thinking about how to use blockchain technology and not just blockchain policy. That’s a good sign for the long-term health of the industry.

Fun with government names: In the great tradition of dry government nomenclature, the blockchain guidance report, which is just a draft for now, is titled: Draft NIST Interagency Report (NISTIR) 8202: Blockchain Technology Overview.

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Japanese regulators looking into Coincheck

Losing $530 million in a newly regulated business is the fastest way to get the government looking into your affairs. So it’s no surprise that Japan’s Financial Services Agency (FSA) has decided to investigate Coincheck after hackers stole $530 million from the cryptocurrency exchange last week. Coincheck already has announced it will return 90 percent of the money. But the company has provided no timetable. (CNBC)

The key facts

The FSA said it ordered Coincheck to submit a report on the hack and measures for preventing a recurrence by Feb. 13, and that it will, if necessary, conduct on-site inspections of other cryptocurrency exchanges. The regulator also said it has yet to confirm whether Coincheck had sufficient funds for the reimbursement. (CNBC)

The smart take: Japan began regulating cryptocurrency exchanges last year and believes fintech will be a boon to the nation’s economy. How the government and Coincheck handle this crisis is a major test for both the industry and regulators. Neither can afford a misstep.

If the company doesn’t handle the crisis well, it invites more regulatory oversight and intervention into exchanges. If the FSA responds with a heavy hand, it could choke the industry. If the FSA responds too leniently, it could undermine public confidence.

Most regulated industries suffer through growing pains — especially as regulators and entrepreneurs work together to find the right balance between regulation and innovation. This situation is no different.

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Brazil eyeing blockchain for deed management

Add Brazil to the list of countries turning to block chain for deed management. In the wake of a massive fraud scandal, Brazil’s state-run technology company Serpo is pitching blockchain as the solution to the nation’s titling problems. The hope is blockchain can reduce fraud in a country where much of the population lacks property rights. (Reuters).

They key facts: Tracking property — whether it’s properties or global supply chain management — is one of the most popular uses for blockchain technology. Blockchain’s immutable trust is particularly useful in Brazil, which needs to build trust into the system.

The big question: Tracking property deeds using blockchain technology would be a huge step forward for Brazil. But it doesn’t solve one big problem — who owns the land in the first place. If Brazil is going to rebuild trust in the system, it will need to address this issue as well.

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Monero malware incidents on the rise

Monero malware is becoming a serious problem. The number of different malware attacks, which use infected computers to secretly mine monero, is rising precipitously. January alone saw three new attacks. And there were more than a dozen attacks in 2017. (Bleeping Computer)

Key vulnerabilities: Machines running Cleverence Mobile SMART server, Apache Struts and DotNetNuke have all been targeted by malware. So have non-enterprise users in Thailand, Vietnam, Egypt, Indonesia, and Turkey. (Bleeping Computer)

Smart take: As long as mining remains a resource-intensive (and profitable) activity, it will remain a popular use for malware.

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Weiss gives ethereum higher grade than bitcoin

Independent financial ratings firm Weiss Ratings awarded ethereum a B and bitcoin a C+ in its first cryptocurrency ratings report. No cryptocurrency received an A. EOS was the only other currency to receive a B. (CNBC)

The key facts: Bitcoin was dinged for slow transaction times, high transaction fees and no method to upgrade its underlying technology. Ethereum, by contrast, was faster and had better underlying technology. (CNBC)

Market fears: Weiss Ratings had to overcome distributed denial of service attacks to publish the ratings report. The attacks appear to have originated South Korea. Fears of low ratings for certain cryptocurrencies may have prompted the DDOS attacks. (Palm Beach Post)

The bottom line: Weiss Ratings is considered a tough, but fair rating service. As cryptocurrencies gain mainstream acceptance, more ratings like this will come out. And as more ratings come out, cryptocurrencies will move from a speculative market play to a much more informed one.

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SEC not happy with fake blockchain rebranding

As far as the Securities and Exchange Commission is concerned, fake blockchain rebranding is the equivalent of fake news — and they’re not happy about. In fact, the SEC is so unhappy about it that it’s planning on cracking down on companies who change their names to something blockchain related in an effort to make a quick buck — especially when those companies have nothing to do with blockchain technology. (Investopedia)

The money quote

Speaking at the Securities Regulation Institute this week, SEC Chairman Jay Clayton spoke pointedly about the blockchain name phenomenon. “I doubt anyone in this audience thinks it would be acceptable for a public company with no meaningful track record in pursuing the commercialization of distributed ledger or blockchain technology to 1) start to dabble in blockchain activities, 2) change its name to something like ‘Blockchain-R-Us,’ and 3) immediately offer securities, without providing adequate disclosure to Main Street investors about those changes and the risks involved,” Clayton said, according to his prepared remarks. (Investopedia)

The bottom line: Plenty of companies have been doing this. Some apparent, like Long Island Iced Tea becoming Long Island Blockchain to avoid bankruptcy and some, not so apparent. The SEC cracking down on this behavior is a good thing for investors.

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Bermuda to use blockchain for property deeds

Bermuda is going to modernize its property deed management system by switching to blockchain technology. Bermuda’s premier, David Burt, made the announcement at the World Economic Forum in Davos, Switzerland. (Royal Gazette)

The key facts: Tracking the transfers of properties is a natural fit for blockchain technology. And it’s not the only thing Bermuda is considering blockchain technology for.

Stan Stalnaker, founding director of Bermudian-headquartered Hub Culture, said digital assets such as property title deeds, marriage certificates, vehicle registration documents and ownership contracts will end up on blockchain. (Royal Gazette)

The smart take: Smaller countries like Bermuda are going to be early adopters of blockchain technology — especially for governmental use. Using blockchain both modernizes their systems and makes them thought leaders in the blockchain space.

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Blockchain gets new use in tracking mortgages

This can’t be a good idea. Remember when bankers bundling home loans and selling them to investors nearly wrecked the global economy in 2008? Well, Credit Suisse, Western Asset Management, Wells Fargo and U.S. Bank want to try doing it again. Except this time, they’ll be using blockchain technology to create a more transparent process and standardize the data. (Bloomberg)

The key facts

In theory, this is actually a smart use of blockchain technology. Blockchain’s distributed ledger technology can be used to simplify the process.

“Structuring securities is complex, involving many different parties, manual processes, duplicated documents and data in different formats,” David Rutter, chief executive officer of blockchain startup R3, which is organizing the consortium. (Bloomberg)

But the real debate isn’t whether blockchain can make this process better. The real debate is whether banks should be back in this business again at all.

The smart take: It’s interesting to note that the powers that be have no problem getting up in arms about the value of bitcoin or the potential for money laundering, yet have no problem with blockchain if banks are using it in potentially ruinous ways — like tracking mortgages to bundle them. It’s more proof that the fight isn’t about the technology, it’s about the people adopting it.

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Ledger raises $75 million in Series B round

Hardware wallet company Ledger announced late last week it raised $75 million in its Series B funding round. Venture capital firm Draper Espirit was the architect of this fundraising round. (CNBC)

The key facts

Ledger claims the investment to be one of the largest of its kind for a blockchain-related firm to date. It dwarfs that raised by BitGo and Blockchain, which achieved $42.5 million and $40 million respectively in Series B financing rounds in 2017. (CNBC)

Smart take: As technology advances, it’s usually the people/companies that make the plumbing that end up making the most money. When the Internet took over the world, the people that provided the hardware to make it run won big. Looks like blockchain is following the same path. People want secure places to store bitcoin and other cryptocurrency investments. Hardware wallets, which take the investments offline and into secure devices, provide that environment.

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