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CoinDesk Crypto

98% of Bitcoin’s ‘Unspent Outputs’ Are Worth More Than When Made

5 years 10 months ago

A bitcoin on-chain metric has increased to three-year highs, suggesting a potential supply shortage and low odds of significant price pullback. While there are conflicting interpretations about this latest signal, many market observers are taking it to be positive for the cryptocurrency. 

The percentage of bitcoin unspent transaction outputs (UTXOs) in profit recently topped 98%, the highest level since December 2017, according to data source Coin Metrics. As well, the number of UTXOs in profit reached a record high of over 110 million. 

The data indicates a large number of holders are currently making money on their coins and may decide either to hold or liquidate, depending on their outlook. Their next step may influence the price trajectory. 

Related: Bitcoin Price Breaks Above $16K for First Time in 3 Years

“A high percentage of UTXOs in profit potentially signals that there is relatively low sell pressure since there’s a low risk of capitulation. Conversely, it could signal that some investors may soon start taking profits if the potential gains become too good to pass up,” according to Coin Metrics’ “State of Network: Issue 76.”

A UTXO is leftover bitcoins after a transaction akin to receiving change after making a large cash payment. These coins can be spent as inputs to future transactions. A profit-making UTXO is the one whose price at the time of creation is less than the current market price.

Capitulation is the point where investors give up trying to recapture lost gains and sell into the falling market, leading to a more profound decline. Currently, most investors are making money on their investments, and the risk of capitulation is almost nil. Besides, the market is mood bullish, and holders are unlikely to book profits anytime soon. 

Analysts expect the cryptocurrency to consolidate in the short-term before challenging the record high of $20,000 before the year-end.

Related: Market Wrap: Bitcoin Fails to Break $15.9K; Over 50K ETH Staked on Eth 2.0 Contract

“Most investors that have held steady for this long would continue to hold till new all-time highs, causing a supply shortage, and acting as a positive reinforcement loop, leading prices higher,” Connor Abendschein, research analyst at Digital Assets Data, told CoinDesk in an email.

Large spot buyers have already caused the drying up of sell-side liquidity, and the situation could intensify with the uptick in the percent of UTXOs in profit. 

“Between Grayscale’s GBTC trust, MicroStrategy, and the influx of other large spot buyers, the supply of bitcoin is beginning to look more scarce,” Matthew Dibb, CEO of Stack Funds, told CoinDesk. Grayscale is owned by CoinDesk’s parent firm, Digital Currency Group.

At press time, the cryptocurrency is trading near $15,800, having reached a three-year high of $16,157 early Thursday.

Also read: Bitcoin Price Breaks Above $16K for First Time in 3 Years 

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Israeli Firm Unveils Tech Allowing Users to ‘Undo’ Erroneous Ether Transactions

5 years 10 months ago

Kirobo, a Tel Aviv-based startup known for developing a product that reverses erroneous bitcoin transactions, has repurposed its invention to work on Ethereum.

  • Announced Thursday, the Retrievable Transfer service is now available to users transacting in the network’s native ether token.
  • “The use of our logic layer finally eliminates the need to send a test transaction, sharply reducing the level of anxiety users feel when transferring funds to a third party,” said Asaf Naim, CEO at Kirobo.
  • Available to users of MetaMask and any wallet that uses the WalletConnect protocol, Retrievable Transfer allows users to reclaim funds sent to the wrong address by generating a password that is entered by the sender.
  • The receiver of the funds must also enter the matching password – failing to do so allows the sender to claim back the funds, reversing the transaction.
  • In addition, the service is also designed to safeguard against sending funds to smart contracts that don’t support deposits, as well as man-in-the-middle attacks, according to Kirobo.
  • Ethereum standard ERC-20 tokens will also be supported by the service at a later date, the startup said.

See also: Israeli Firm Develops Tech Allowing Crypto Users to Retrieve Funds Sent in Error

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Bitcoin Price Breaks Above $16K for First Time in 3 Years

5 years 10 months ago

Bitcoin’s (BTC) stalled rally picked up the pace on Thursday, with prices reaching three-year highs above $16,000.

  • The world’s top cryptocurrency by market capitalization clocked a high of $16,157 at 10:12 UTC, a price point last seen on Jan. 6, 2018.
  • The move ended a week of consolidation in the range of $14,000 to $16,000.
  • Bitcoin is now up 123% on a year-to-date basis and has gained nearly 50% so far this quarter, according to CoinDesk 20.
  • With the U.S. election in the rearview mirror, projected President-elect Joe Biden’s stance could have an influence on fiscal policy over the next four years, which could, in turn, affect inflation, against which bitcoin is touted as a hedge.
  • “Against the backdrop of stimulus from the Federal Reserve, we expect investors holding cash to continue to allocate to bitcoin,” said Kyle Davies, co-founder of Three Arrows Capital.
  •  “The interest so far in 2020 has been primarily from institutions and we could see more retail participation when bitcoin breaks its previous all-time highs of $20,000,” Davies added.
  • The cryptocurrency has recently received validation from several public companies and prominent investors as a store of value asset and is facing a supply crunch due to increased institutional participation.
  • U.S. billionaire investor Stanley Druckenmiller disclosed on Monday a bitcoin position and said bitcoin will outperform gold in the long run.
  • Analysts also told CoinDesk the bitcoin price may consolidate for a short period before moving toward $20,000 in December.
  • Other top cryptocurrencies were also in the green with ether, litecoin posting gains between 1%-2% and OMG rising 8% on the day, according to data by CoinDesk 20.

See also: Lightning Operators Are Bracing for a Bitcoin Bull Run

Zack Voell and Nikhilesh De contributed reporting.

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Total Value Locked in DeFi Sector Hits Record $13.6B

5 years 10 months ago

The U.S. dollar value of the cryptocurrency liquidity locked up in all decentralized finance (DeFi) projects has hit another record.

  • At around 08:00 UTC on Thursday, the total value locked (TVL), as provided by analytics website DeFi Pulse, reached a new lifetime high of $13.62 billion.
  • Harvest Finance, the decentralized platform that lets users automatically “farm” assets from other DeFi platforms, is helping the charge with its TVL almost doubling over 24 hours.
  • The 84% boost to Harvest’s TVL, in U.S. dollar terms, saw it jump from $473.5 million to over $890 million, just shy of its record TVL at $1.09 billion seen on Oct. 23. It currently ranks sixth among other DeFi projects.
  • Lesser known projects, DFI Money and ForTube also saw big hikes in locked liquidity, with 24-hour gains of over 45% and 36%, respectively.
  • “People have been fascinated by high-yield, risk-free strategies,” said Ki Young Ju, CEO at analytics firm CryptoQuant. “For conservative investors, staking on DeFi projects is a better strategy than holding or utilizing other risk-free strategies like arbitrage on exchanges.” 
  • The DeFi sector has been on a tear this year, after hitting $1 billion TVL in February, the sector currently holds 13 times greater value.
  • The last all-time high of around $12.5 billion was hit in late October, preceding a temporary $1 billion slump before rising sharply again to Thursday’s record.

See also: Flash Loans Aren’t the Problem, Centralized Price Oracles Are

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Hackers, Scammers Have Stolen $7.6B in Crypto Since 2011

5 years 10 months ago

Since 2011, $7.6 billion worth of cryptocurrencies have been stolen, according to a new report from Amsterdam-based blockchain analytics firm Crystal Blockchain. The total figure breaks down into two sadly predictable buckets – hacks and scams. 

The report found that $2.8 billion was stolen through security breaches, the most popular breach being via a cryptocurrency exchange’s security systems. In total, the firm documented 113 security breaches; the largest of these was the Coincheck breach in 2018, which saw hackers make off with more than $535 million worth of NEM coins. 

The United States, Japan, the United Kingdom, China and South Korea experienced the most exchange security breaches. U.S. crypto services were targeted 13 times, topping the list. 

Related: Binance Gives $200K to Investigators Who Helped Identify Actors Behind 2018 Attack

Read more: Social Engineering: A Plague on Crypto and Twitter, Unlikely to Stop

Another $4.8 billion was stolen through scams, with Crystal Blockchain identifying 23 prominent fraud schemes. 

“We deemed $7.6 billion as the total amount for all the years combined in one sum. Basically a cumulative sum for the last 10 years,” said Kyrylo Chykhradze, a product director of Crystal Blockchain.

In terms of the value stolen, China led the pack by far. The report attributed its ranking mainly to the 2019 PlusToken Ponzi scheme ($2.9 billion) along with the 2020 WoToken scam ($1 billion) that  was connected to the PlusToken. 

Related: Crypto Exchange Coinbase Is on a Hiring Spree in Japan

The majority of crypto exchanges that were hacked had insufficient security and low-level verification for withdrawals, such as just an email or phone number. 

In the case of Coincheck, for example, the company kept most of its assets in a wallet connected to other external networks. It also lacked multisignature security entirely, which would have required multiple key holders to sign off before funds were moved. 

Read more: Multisignature Wallets Can Keep Your Coins Safer (If You Use Them Right)

Chykhradze said the main reason for vulnerabilities in the tech is the industry continues to evolve at a very fast pace, and more and more entities are appearing on the market with inadequate and “neglected” internal security policies. 

“Their security policies are neglected because these new services cannot (financially) afford to pay as much attention to such security issues, whereas well-established entities are in a better position to ensure and prioritize security,” he said in an email to CoinDesk. “This results in newer services becoming cherry-picking opportunities for bad actors who can spot those vulnerabilities.”

Hackers are becoming more sophisticated

The report’s conclusion doesn’t offer much of a silver lining. It observes that over the last few years the number of attacks have remained high. Even large-scale exchanges, which would ostensibly have better security measures, have experienced breaches. The report also predicts that, given that methods used by hackers have continued to become more sophisticated, attacks will only continue to grow in number. 

Chykhradze said they see SIM-swapping on the rise; this scam is industry-agnostic, afflicting cryptocurrency players as well as those in other sectors. 

“But what has really changed and developed is the way that these criminals are laundering stolen funds. These entities scrutinize services to understand their [anti-money laundering/know your customer] policies as well as policies related to privacy coins in the service’s offering,” he said. 

“Services with lower barriers for KYC or privacy coin entry are better opportunities for laundering. This is another critical point to consider in crypto service security, how do we make stolen fund laundering almost impossible for bad actors?”

By way of solution, a few basic security measures for all crypto exchanges were recommended, particularly when exchanges use hot wallets. One is having proper insurance for special cases, a second is retaining an in-house security team, the third is using blockchain analytics software and last is making sure to have assets in reserves equivalent to the amount of cryptocurrencies in online storage. 

“We can assume that the number of attacks and schemes will continue to grow as the blockchain industry and the crypto market grows,” said Chykhradze, “especially with this latest bitcoin bull run we are currently experiencing and the influx of new business.”

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Ethereum’s ‘Unannounced Hard Fork’ Was Trying to Prevent the Very Disruption It Caused

5 years 10 months ago

The Takeaway:

  • The bulk of Ethereum’s DeFi ecosystem went dark earlier today after a latent bug in the Ethereum code split the network’s transaction history in two.
  • The split resulted from a code change that was surreptitiously inserted into a previous Geth update; some Ethereum node operators ignored the update, which ironically was meant to prevent the very split that occurred.
  • The nodes that did not upgrade were under the impression the update was minor and did not know it included a change to Ethereum’s consensus design.
  • A post-mortem released today by Geth indicates that the bug was intentionally triggered. The case is perhaps Ethereum’s greatest challenge since the 2016 DAO fork, and it raises questions about Ethereum’s oft-touted decentralization and the effectiveness of its developer coordination going into Ethereum 2.0. 

At first, it was an apparent issue with Infura, the ConsenSys-run servers that keep a majority of decentralized finance (DeFi) applications synced to the Ethereum network.

Infura went down around 8:00 UTC Wednesday, and with it, some of Ethereum’s most popular applications like Metamask, MakerDAO, Uniswap, Compound and MyCrypto, among others. Shortly after, Binance halted Ethereum trading after noticing conflicting transactions on its Ethereum node. As other exchanges suspended trading as well, the real issue became clear: A bug in the Go Ethereum (Geth) client, whose code underpins 80% of Ethereum’s applications, had split the Ethereum blockchain in two.

Related: Ethereum Heavyweights Launch LiquidStake Loans to Ease Eth 2.0 ‘Lockup’

Read more: Ethereum Developers Delay Berlin Hard Fork to Stem Client Centralization Concerns

The two conflicting transaction histories meant Etheruem users were temporarily interacting with different versions of the Ethereum blockchain. More than causing delays, this put user funds at risk by knocking out the majority of Ethereum’s DeFi applications for a few hours.

Infura has fixed the issue, as have other service providers who were affected by the snafu, by updating their nodes. These stakeholders were running an older version of Geth, which contained a bug that Ethereum developers silently patched in recent update – an update which Infura and Blockchair, among others, ignored. 

Besides these two service providers, other Ethereum users and wallet providers were also affected because they didn’t update their code, developers have told CoinDesk. 

Related: First Mover: Bitcoin Pause, Ethereum Snafu, 1,000% Returns Put Focus on Exchange Tokens

The fiasco has critics challenging Ethereum’s perceived decentralization, while stakeholders are wondering why the change was pushed in secret without coordination between Geth and other development teams. 

To some, the split is the most pressing challenge for Ethereum since the infamous DAO hack of 2016.

Ethereum’s chain split: How it happened

In a just-published post-mortem, Péter Szilágyi, a team lead at Ethereum, wrote that a fork “was (deliberately) triggered on the Ethereum network.”

A representative from Optimism, an Ethereum scaling project, recently posted that the project purposefully triggered the bug the Geth update fixed, setting off the fork.

When the fork occurred, it created two versions of the Ethereum transaction ledger: one with transactions from updated Geth clients, and one with transactions from older Geth clients (like Infura).

“The fix was deployed several months ago and only today a transaction that caused that split came in,” Nikitia Zhavoronkov, the lead developer at Blockchair, an Ethereum block explorer who was affected by the fork, told CoinDesk in a direct message. 

Read more: Did Ethereum Learn Anything From the $55M DAO Attack?

Thinking the update was “a minor change to the code,” Blockchair didn’t bother with the update because it wouldn’t be worth the downtime for their services. But more than minor, developers apparently made a quiet change to Geth’s consensus mechanism in the update, as well. 

“The Geth team indeed changed the consensus implementation in the v1.9.17 release, however the team did not create any new rules that the Ethereum community didn’t know about or agree to,” Szilágyi writes in the post, saying these rules were laid out in an Ethereum Improvement Proposal three years ago.

“If you don’t consider accidentally introducing a bug a ‘consensus upgrade,’ then you should also not consider fixing the said bug a few months later a ‘consensus upgrade’,” he argued.

A call for transparency

Ironically, the fork was caused by the very consensus bug that Geth’s update sought to address. 

The Ethereum bounty program recently recognized John Yang, a newcomer to Ethereum’s open-source community, for discovering this and another vulnerability. Geth developer and Ethereum security expert Martin Swende tweeted the changes in the update fix the disclosed issues, intimating that the debacle is a “reminder to keep your node(s) up to date!”

Swende continues to say in the tweet thread that developers did not announce the big change to avoid drawing attention to the flaw. In his own explanation, Szilágyi said that “silently” fixing the bug invited less “disruption.”

Still, other Ethereum stakeholders are wondering why the bug could not have been disclosed in private with the teams that are building on Geth.

Read more: ‘High’ Severity Bug in Bitcoin Software Revealed 2 Years After Fix

“Each major project that the dev team is in close contact with should have a security contact that can help manage and coordinate a smooth upgrade, and we should work together,” Matt Luongo, the founder of Thesis, told CoinDesk.

“When forks are surprises, anyone who has built atop Ethereum like we have could lose money,” he continued.

Thesis builds the Keep Network, which issues tBTC, a form of tokenized bitcoin for the Ethereum blockchain. Luongo said the fork put tBTC users’ funds at risk, but not because of the chain split, which has been resolved after Infura and others updated their Geth clients. 

It’s because the downtime meant that users staking Ethereum in Keep Network couldn’t coordinate with the Ethereum mainchain; as a result, they risked having part of their stakes “slashed” for not meeting their fiduciary requirements.

Despite the problems the split caused, prices for ether, the Ethereum blockchain’s native cryptocurrency, rose 4.6% Wednesday after the news emerged, suggesting that traders see little systemic or long-term threat from the snafu.

Picking up the pieces

Zhavoronkov said that the mess-up was not malicious, but that “if [Geth] knew such thing could happen, they should’ve prepared a guide for node operators.” Luongo shared similar frustrations, saying that the Geth team are “good developers” but that they lack “experience running infrastructure” and are “underfunded.”

The comments key in on a frustration some Ethereum stakeholders share pertaining to why Geth kept the consensus change a secret. Going further, why did Infura, the backbone of Ethereum’s decentralized finance ecosystem, among others, not know about a consensus-breaking bug in Ethereum’s code before it was triggered?

“This is a bit of a grey area and requires a case-by-case discussion,” Szilágyi explains in his post. “We all agree that transparency is king and that we should strive as much as possible towards it, but it’s also important to look at all the details before heads start rolling.

Read more: Ethereum 2.0 Countdown Begins With Release of Deposit Contract

“In the case of Ethereum, it takes a lot of time (weeks, months) to get node operators to update even to a scheduled hard fork. Highlighting that a release contains important consensus or DoS fixes always runs the risk of someone trying to beat updaters to the punch line and taking the network down. Security via obscurity is definitely not something to aim for, but delaying a potential attack by enough to get most node operators immune may be worth the temporary ‘hit’ to transparency,” he continued.

Ultimately, Geth’s team believed there was too much risk in disclosing the vulnerability, so they decided that pushing the update surreptitiously invited the least risk.

“We’d argue that it actually did work,” Szilágyi says. Even though the update “took an unexpected turn with yesterday’s network split,” Geth’s team still believes that keeping the issue hush “was the right call”

As Ethereum approaches its largest upgrade ever in Eth 2.0, the case could be a critical study in client coordination for the Ethereum ecosystem.

“The most important thing here IMO is that the folks who made this call are transparent about the reasoning, own any mistakes, and grow,” Luongo said. “Monero has dealt with [consensus bugs] well in the past, as has Bitcoin and Zcash. There are many examples, and while it’s always tricky to coordinate across an industry, eschewing any sort of coordination is extremely dangerous. 

“I hope this fork leads to tighter relationships and rethinking how projects on Ethereum interact with client development.”

Update 00:36 UTC – This article has been updated to better convey that the “hard fork” was not a deliberate code change, but a chain split which was triggered by the consensus bug that Ethereum developers quietly patched in the Geth v1.9.17 release.

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MakerDAO’s DAI Stablecoin Breaks $1B Market Cap

5 years 10 months ago

The stablecoin dai (DAI) broke a market capitalization of $1 billion on Wednesday, according to CoinGecko.

“One billion Dai in circulation is a huge milestone and a powerful validation that people around the world want more access, more transparency and more opportunity to maximize their economic potential,” Rune Christensen, MakerDAO’s founder, told CoinDesk through a spokesperson.

Supply actually increased by $30 million at one point today, the MakerDAO Foundation confirmed, though it provided no additional details.

Related: Flash Loans Aren’t the Problem, Centralized Price Oracles Are

DAI is created when Ethereum users deposit one of many assets into the Maker Protocol and borrow against that asset in the form of DAI. The smart contracts enforce a value of $1 per DAI, which helps the stablecoin generally maintain a $1 peg, though it varies from time to time. 

All of the relevant data about the MakerDAO system can be monitored at the Dai Stats website. As of this writing, the total supply is at around 993 million DAI. (The $1 billion market cap is explained by DAI being slightly above its peg at $1.01, as of press time.)

“Dai is a pioneer of protocol-created financial instruments – and reaching the milestone of one billion Dai proves that it works, is here to stay, and is the honey badger of Ethereum,” Robert Leshner, founder of DeFi money market Compound, told CoinDesk.

It’s worth noting that it was only February that the whole DeFi market first broke $1 billion in total value locked.

Related: US Representatives Rip OCC, Brooks for ‘Excessive Focus’ on Crypto

On Compound, there’s actually $1.6 billion in DAI locked up right now. As we’ve previously noted, this is because users deposit, borrow and deposit again, in loops (as much as collateralization rates will allow). 

While most DAI that’s used in the world takes the form of an ERC-20 token, not all of it does, and that is by design. DAI doesn’t go into the ERC-20 smart contract until users withdraw it from MakerDAO, and in the future users could do so in other token standards, if better ones arise, Nik Kunkel, a developer at the Maker Foundation, explained.

“In the Maker system, dai is not an ERC-20 token. Dai is just dai,” Kunkel said. 

About a third of the total supply is in the DAI Savings Rate (DSR) smart contract, despite the fact that it currently offers no return. Most dai, over 620 million, are currently in the ERC-20 smart contract, as viewable on Etherscan.

“DSR is part of the protocol itself, so it’s not opinionated about what form dai should be in,” Kunkel explained.

Maker currently has $2.3 billion in assets locked according to DeFi Pulse, making it the second biggest DeFi application on Ethereum, after Uniswap.

“MakerDAO was built to help people find a better, less biased and more transparent way to participate in the global financial system,” Christensen said.

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Market Wrap: Bitcoin Fails to Break $15.9K; Over 50K ETH Staked on Eth 2.0 Contract

5 years 10 months ago

Bitcoin gained Wednesday while Ethereum 2.0 staking has been ramping up.

  • Bitcoin (BTC) trading around $15,694 as of 21:00 UTC (4 p.m. ET). Gaining 2.6% over the previous 24 hours.
  • Bitcoin’s 24-hour range: $15,293-$15,973
  • BTC above its 10-day and 50-day moving averages, a bullish signal for market technicians.

Bitcoin’s price was back on a bullish run Wednesday, heading as high as $15,973 around 18:00 UTC (2 p.m. ET) before slipping somewhat, at $15,694 as of press time. 

Constantin Kogan, managing partner at investment firm Wave Financial, sees an upside signal in the Power of Balance indicator, which uses opening, closing, high and low daily pricing to determine market movements. “The Power of Balance indicator signals in favor of an upward breakout, most likely a test of $16,000,” Kogan said. 

Related: Venezuela’s Bitcoin Story Puts It in a Category of One

Read More: Bitcoin to Consolidate Before December Rise Toward $20K, Say Analysts

Analysts seem to have found a short-term price floor, the area where order books will trigger buying, pushing the price back above that level if it does go that low. 

“We’ve been ranging between $14,600 to $16,000 since Nov. 5. Bitcoin seems to have found a local floor at the $15,000 price,” Andrew Tu, an executive at quant trading firm Efficient Frontier, told CoinDesk.

David Lifchitz, chief investment officer of ExoAlpha, echoed a similar assessment. “In the very short term, we may see some consolidation of the bitcoin price around $15,000, which would be healthy after the last powerful breakout, before grinding higher toward $20,000.”

Related: Bridgewater’s Dalio Sees Governments Banning Bitcoin Should It Become ‘Material’

“As BTC consolidates and more bullish fundamental news comes out for both bitcoin, like [Stanley] Druckenmiller coming out as an investor in BTC, and the general market, like the [Pfizer coronavirus] vaccine, it may provide the risk-on impetus to break above resistance at $16,000,” Tu added. 

The market hailed the potential for coronavirus vaccinations being deployed over the next several months. That has pushed up global equities since Monday and major indexes were positive on Wednesday.

Bitcoin’s correlation with the S&P 500 has been trending down this week, with Tuesday continuing Monday’s drop in the relationship of their price movements.

For Efficient Frontier’s Tu, some fundamental aspects that would cause traditional markets to dump may simultaneously pump bitcoin. “[U.S. President] Trump’s posturing around the election result and the multiple lawsuits and recounts coming from his administration may provide enough political instability to cause BTC to bid upwards.”

Ether in ETH 2.0 surpasses 50K

Ether (ETH), the second-largest cryptocurrency by market capitalization, was up Tuesday, trading around $465 and climbing 3.5% in 24 hours as of 21:00 UTC (4:00 p.m. ET).

Read More: Ethereum Providers to Update Software After ‘Unannounced Hard Fork’

The amount of ether that has been staked in Ethereum’s 2.0 upgrade smart contract passed 50,000 ETH Tuesday. It’s at 50,977 ETH, according to data aggregator Glassnode, and is worth over $23 million as of press time.

The Ethereum 2.0 contract launched Nov. 3. Users must stake at least 32 ETH in the contract in order to participate in the network upgrade, which is expected to enhance its security and scalability while maintaining the transaction history and functionality of existing ether balance. 

Ben Chan, vice president of engineering at oracle provider Chainlink, told CoinDesk he is bullish on ETH 2.0 prospects but that more scaffolding still needs to be built for ETH 2.0 developers. “I think it needs more community support, more tooling and turnkey staking solutions,” Chan said.

Other markets

Digital assets on the CoinDesk 20 are mixed Wednesday. Notable losers as of 21:00 UTC (4:00 p.m. ET):

Notable losers:

Read More: Bridgewater’s Dalio: Governments Will Ban Bitcoin if It Becomes ‘Material’

Commodities:

  • Oil was down 0.60%. Price per barrel of West Texas Intermediate crude: $41.53.
  • Gold was in the red 0.69% and at $1,864 as of press time.

Treasurys:

  • The 10-year U.S. Treasury bond yield climbed Wednesday, jumping to 0.982 and in the green 1.4%.
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Venezuela’s Bitcoin Story Puts It in a Category of One

5 years 10 months ago

Venezuela is an example of cryptocurrency adoption during an economic crisis. No other economy facing hyperinflation has come near the South American nation in terms of GDP-adjusted activity on peer-to-peer crypto exchanges, according to a new CoinDesk Research analysis of data from LocalBitcoins and Paxful, the two largest such exchanges.

Previous reporting from CoinDesk has shown that amid platform bans by the government and Venezuelans’ unease toward foreign crypto coverage, peer-to-peer (P2P) transactions remain at the center of the country’s thriving crypto scene. In general, Venezuelans cite a combination of factors for the rise of crypto there including migration, capital controls, risk of government seizure, demand for hard money and exposure to the petro, the cryptocurrency backed by the government. 

Whatever the main cause, data indicate unique factors could be driving bitcoin adoption in Venezuela, which is far outpacing adoption in countries experiencing similar economic fallout.

Related: Market Wrap: Bitcoin Fails to Break $15.9K; Over 50K ETH Staked on Eth 2.0 Contract

The map above shows a visualization from CoinDesk’s GDP-adjusted database of LocalBitcoins and Paxful volume by currency. Venezuela’s dominance is apparent. 

Other GDP-adjusted analyses of peer-to-peer bitcoin trading volumes, such as this one from analyst Matt Ahlborg, excluded Paxful, which has become a major platform. In this data visualization from CoinDesk, we include both LocalBitcoins and Paxful data and adjust for GDP. Peer-to-peer activity in Venezuela has continued to dominate – with a monthly level at least twice as high as the next-largest market, Nigeria. Paxful’s exit from Venezuela is imminent, but its growth in other parts of the world make it an important component of analysis that looks at peer-to-peer crypto trading on a global scale. 

Peer-to-peer crypto exchanges are often where people come to buy their first crypto assets, Ahlborg argued in the same analysis, and so their activities can depict how the crypto asset is adopted on the ground level more truthfully than larger exchanges that are set up for fast-paced, speculative trading.

By and large, this is true in Venezuela. Expats use bitcoin to send remittances back home, where locals convert it to bolivars to buy food and pay bills. With crypto remittances from expats plunging, peer-to-peer cryptocurrency transactions within the country have proven resilient. LocalBitcoins and Paxful trades using bolivars peaked in the first half of 2019, and have since hovered around $20 million.

Related: Bridgewater’s Dalio Sees Governments Banning Bitcoin Should It Become ‘Material’

Continued high volumes are driven by businesses’ demand for bitcoin, according to Gabriel Jiménez, a Venezuelan blockchain entrepreneur who led the development of the petro. Venezuelan businesses often use bitcoin as a medium to obtain foreign currencies like the dollar, he said. 

Read more: Here in Venezuela, Doctors Struggle to Access Aid From Crypto Platform

Yet, other countries that also suffer from hyperinflation have not come close to Venezuela in peer-to-peer bitcoin activity. Among the 10 economies that have experienced the highest rates of annual inflation since 2017, according to data from the International Monetary Fund, only Venezuela, Argentina and Iran have shown significant peer-to-peer bitcoin market activity, and none approach Venezuela in size or consistency. Venezuela’s peer-to-peer bitcoin activity has been extraordinary, whether measured as an absolute or relative to GDP.

What sets Venezuela apart may be governmental support of a digital currency. The petro helped loosen Venezuelans’ fear of dealing with services like LocalBitcoins, said Jiménez. 

Some high-inflation countries have moved in the other direction. The government of Zimbabwe, where the two largest peer-to-peer bitcoin exchanges have shown zero activity, has made efforts to curb cryptocurrency adoption.  

There are other factors: Venezuela’s inflation rate is measured by the International Monetary Fund at orders of magnitude higher than any other economy in the top five by annual inflation rates. It hit 65,374% in 2018. The next-highest rate of inflation tracked by the IMF over the past three years is in Zimbabwe, where it is projected to be 319% in 2020. 

“People living in Venezuela are living under a very unstable and predatory government. They suffer from extreme inflation and general economic instability. And here’s a censorship-resistant, inflation-proof asset, so it’s very attractive to people who are looking for a way to maintain value,” said Andrea O’Sullivan, director of tech and innovation at James Madison Institute, a Washington think tank.

Peer-to-peer vs. centralized exchanges

According to Jiménez, Venezuelans prefer peer-to-peer exchanges also because they’re better than other alternatives. Centralized services, for example, have lower liquidity and less-developed trading capabilities due to a lack of service from Venezuelan banks. 

The “early bird” factor is yet another reason. LocalBitcoins became such a popular exchange in Venezuela not only because it was inexpensive, but also because it was the first thing available to Venezeulans as soon as government normalization of cryptocurrencies was in the air around 2017, Jiménez added. Veteran LocalBitcoins traders have their ratings, number of successful trades and years of experience visible on their profile pages, which attracts and maintains customers’ loyalty to them and, in turn, both sides’ loyalty to the platform.

Read more: Venezuela Rolls Out Ethereum-Based Stock Exchange to Help Skirt US Sanctions

In contrast, Paxful only made plans to enter the market by late 2018, and research from CoinDesk shows that bolivar-bitcoin trades on the platform have only amounted to less than 1% of their LocalBitcoins counterparts in terms of monthly volume.

Yet, even though it’s slated to cease all operations in Venezuela because of heavy U.S. sanctions against the country, Paxful has been on the rise. In July, trades involving bolivars doubled the June volume, crossing the $100,000 line for the first time since the currency was reissued in August 2018, the research shows. The exchange is also enjoying explosive growth in Nigeria, Ghana and Kenya.

People living in Venezuela suffer from extreme inflation and general economic instability. And here’s a censorship-resistant, inflation-proof asset, so it’s very attractive to people who are looking for a way to maintain value.

That said, Paxful’s monthly volume in each of these countries has only amounted to half of LocalBitcoins’ growth in Venezuela, our data visualization shows. Peer-to-peer activity continues to be most dominant in Venezuela, where it is used to skirt government restrictions and obtain foreign fiats. 

It’s possible that, as Jiménez suggested, Venezuela’s peer-to-peer bitcoin activity wouldn’t be where it is today without crypto-friendly initiatives from the government itself. It’s also possible that bitcoin adoption in Venezuela may be driven by the sheer rate of Venezuela’s hyperinflation, which outpaces other crisis economies. As bitcoin’s real-world uses continue to crystallize, yet other factors may emerge as drivers of its adoption. 

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CoinDesk

US Representatives Rip OCC, Brooks for ‘Excessive Focus’ on Crypto

5 years 10 months ago

Several U.S. lawmakers are displeased by the Office of the Comptroller of the Currency and its focus on crypto and fintech during a pandemic-caused recession.

Six members of Congress faulted the banking regulator’s stance on crypto custody and stablecoin services, as well as its plans to offer a fintech charter, in a sharply-worded letter Tuesday that questioned whether acting chief Brian Brooks has his priorities straight during COVID-19’s health and economic crises.

Brooks has no business bolstering crypto banking while millions of Americans are still waiting for economic relief, wrote Reps. Rashida Tlaib (D-Mich.) and Stephen Lynch (D-Mass.) in a letter cosigned by Deb Haaland (D-N.M.), Ayanna Pressley (D-Mas.), Jesús García (D-Ill.) and Barbra Lee (D-Calif.). They blasted OCC’s “unilateral actions” as short-sighted calls that they said could put “the entire hierarchy” of dollar-denominated financial assets at risk.

Related: Kadena Partners With Stablecoin-Maker Terra in Bid to Expand Its DeFi Offering

“The OCC plays an important role in providing stable forms of currency. However, the decisions of your agency have the potential to adversely affect banking and financial activities well beyond your jurisdiction,” they wrote.

The letter appears to be the first substantial Congressional critique of a financial regulator that has indeed thrown its weight behind crypto. In July, OCC gave national banks the go-ahead to custody assets like bitcoin and ether for their clients. Then, in September, the agency allowed banks to begin offering stablecoin issuers banking services.

Those twin decisions could take crypto banking mainstream in the United States. But according to the representatives, they’re not OCC’s calls to unilaterally make. They castigated Brooks, a former Coinbase lawyer, for failing to consult Congress and other agencies on his crypto regulation first.

“We also question whether this is an appropriate priority for the OCC in the midst of this pandemic,” the representatives wrote.

Related: Crypto Custodian Anchorage Gets SOC 1 Security Certification With Big 4 Auditor EY

Read more: The OCC’s Crypto Custody Letter Was Years in the Making

Cryptocurrency should not take precedence over America’s systemic banking access issues, the representatives wrote. Around 8% of Americans use crypto. But a combined 25% of their fellow citizens are either unbanked or underbanked. Their shaky financials are deteriorating further amidst the pandemic, representatives said.

“Arguably, the immediate needs of millions of at-risk individuals who have not yet received an economic stimulus check and/or cannot deposit their funds in a bank, deserve greater attention than an effort to increase access to financial services to the “banked community” via mobile phones,” they wrote.

The representatives asked that Brooks explain OCC’s stance on stablecoin regulation and consumer protection by Dec. 10.

Wednesday’s letter isn’t the first asking Brooks to explain himself; Senator Mike Crapo (R-Idaho), chairman of the Senate Banking Committee, wrote to Brooks in September, asking him to update the committee with the OCC’s findings and detail the next steps the regulatory agency would be taking. Crapo also called for clear regulations to be drafted around cryptocurrency services in the letter.

Read the letter below:

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CoinDesk

Blockchain Bites: Bitcoin’s Path to $20K, Ethereum’s ‘Unannounced’ Fork and Biden’s Crypto-Friendly Picks

5 years 10 months ago

Ethereum’s Infura went down, causing a chain split. The world’s second-largest bank will issue $3 billion in blockchain bonds. President-elect Joe Biden’s transition team features some noted crypto commenters. 

Top shelf

Chain split
Wednesday morning, around 08:00 UTC, Ethereum infrastructure provider Infura disclosed a service outage for its Ethereum mainnet API, related to one of the blockchain’s major clients, Geth. Industry participants began speculating over a possible “chain split,” or a type of unplanned and unannounced hard fork. The issue likely stems from the split between node operators who have and have not upgraded Geth. “Those who haven’t been upgrading their Geth nodes for a while (I presume several months at least) got split with those with new Geth versions,” Nikita Zhavoronkov, lead developer at Blockchair said, adding that his own services were restored after upgrading. As of press time, Infura has identified the root cause and has begun work towards recovery.

Blockchain bonds
The world’s second-largest bank (market cap), China Construction Bank (CCB), will issue $3 billion worth of bonds on a blockchain. These tokenized bonds (offered at the state-owned bank’s Labuan, Malaysia, branch) will be exchangeable for bitcoin and U.S. dollars on the Fusang digital asset exchange. Tokenization reduces the number of financial intermediaries and costs associated with issuance, meaning that CCB can offer the certificates for as little as $100 (rather than the typical $4,000 price tag) and offer yields of 0.75% (compared to the 0.25% industry standard).

Related: First Mover: Bitcoin Pause, Ethereum Snafu, 1,000% Returns Put Focus on Exchange Tokens

Tokenization chill
Despite a DeFi cooldown, the number of tokenized BTC on Ethereum increased 21% since September. There are now well over 150,000 BTC, worth some $2.3 billion, on Ethereum. However, the trend has slowed significantly. Roughly $360 million worth of bitcoins was tokenized in October, compared to the $737 million tokenized in September, according to data from Dune Analytics. Notably, the pace of tokenization still outpaced the rate of mining issuance for the third consecutive month.

Brain trust
President-elect Joe Biden announced his transition team yesterday, a “brain trust” of policy experts featuring some with close ties to the crypto industry. Most notably, former CFTC chairman and noted blockchain commentator Gary Gensler will lead the Biden financial policy transition team, responsible for Federal Reserve and banking and securities regulators review. MIT’s Simon Johnson, who has written about blockchain technology; Georgetown’s Chris Brummer and University of California’s Mehrsa Baradaran, known for their comments on Facebook’s libra project; and one of the “digital dollar’s” architects, Lev Menand, have also been tapped as part of the transition team.

Quick bites
  • Audius has big numbers by crypto standards, with approximately 50,000 daily users, but can it take on SoundCloud? CoinDesk’s Brady Dale dives in.
  • One week after deployment, Ethereum 2.0’s deposit contract now holds over 50,000 ETH, or approximately 10% of the threshold value needed to move to the next phase of development. (CoinDesk)
  • Service journalism: Multisignature wallets can keep your coins safer (if you use them right). (CoinDesk)
  • So you want to use a price oracle, ETH whisperer Samczsun writes. (Blog)
  • Sam Bankman-Fried: “When incentives are gone, what’s left? DeFi gets mixed marks.” (The Defiant)
Market intel

Coin consolidation 
Market analysts are largely bullish on bitcoin’s prospects to test all-time highs of $20,000, though many foresee a period of consolidation in the coming weeks and months. CoinDesk market reporter Omkar Godbole writes, “further notable gains look unlikely in the short term, as the cryptocurrency’s 60% rally from $9,800 to $15,900 seen over the past two months looks overstretched, per the technical charts.” A position also taken by Patrick Heusser, senior cryptocurrency trader at Zurich-based Crypto Broker AG, who sees consolidation between $14,000 to $16,000 in the next few weeks. Diminished sell-side liquidy, driven by increased institutional action, could be a factor here, Godbole notes. 

At stake

Privacy coins
Colorado-based cryptocurrency exchange ShapeShift has delisted a roster of privacy coins including zcash (ZEC), monero (XMR) and dash (DASH).

Related: Blockchain Bites: Billionaire Bullish on Bitcoin, Updates on Fowler’s Crypto Capital Case and More

Citing regulatory concerns, Veronica McGregor, ShapeShift’s chief legal officer, told CoinDesk’s Brady Dale that the action was taken to “derisk” the company.

At the moment, it seems like ShapeShift is alone in disabling certain privacy coins. There was no immediate change to regulatory policy that might have incentivized the move – though the general thrust of overriding guidance would suggest that privacy coins are in financial watchdogs’ crosshairs.

Dale spoke with Peter Van Valkenburgh, Coin Center director of research and a zcash Foundation board member, who compared privacy coins to bags of cash – currently the denomination of choice for criminal activity.

The U.S. Financial Crimes Enforcement Network, or FinCEN, “basically says, you have to make sure you are taking reasonable steps from a cost-benefit analysis to stop the proceeds from crime from flowing through your institution,” Van Valkenburgh said.

What defines a reasonable step is still open to interpretation, given the broad mandate of laws like the Bank Secrecy Act. Van Valkenburgh noted that these vague regulations do offer ways for crypto companies to offer privacy coin services, “just as banks deal with cash.”

Notably, monero, the 14th largest cryptocurrency by market cap and the only one of the coins in question that offers privacy by design, is something of a pariah for centralized exchanges. Of the major exchanges, only Kraken offers XMR trading, Decrypt reported.

Blockchain forensic firm CypherTrace was tapped by the Department of Homeland Security to crack monero’s privacy protections, while the IRS has offered a similar contract to Chainalysis and Integra to crack monero, zcash, dash, grin, komodo, verge and horizon.

Offering a peak behind the hood of regulatory conversations, Coinbase CEO Brian Armstrong essentially said this summer that regulators speak softly but carry a big stick.

“A lot of it is behind-the-scenes conversations where [regulators] are kind of saying: ‘We very much don’t think you should do this. And then we have the conversation: ‘Well, are you telling us that you don’t like it, or are you telling us that you are going to sue us if we do it?,’” Armstrong reportedly said.

To be sure, when it comes to financial surveillance U.S. financial regulators have both soft power and money behind them.

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CoinDesk

Binance Gives $200K to Investigators Who Helped Identify Actors Behind 2018 Attack

5 years 10 months ago

Cryptocurrency exchange Binance has followed through with its pledge to reward anyone helping bring about the arrest of the bad actors who attacked the exchange in March 2018 and stole from users in a phishing campaign.

Over a period of months, unknown persons set up phishing websites that mimicked Binance’s own, and collected users’ login details to attempt to access accounts and breach the platform.

The exchange announced Wednesday that it has now awarded a bounty of $200,000 to private investigators, whom it did not identify, for providing a report identifying one of the alleged attackers and providing information on how the attack was carried out.

Related: Exchange Tokens Are Skyrocketing as They Act More Like Equity; That Could be a Problem

Binance made the decision to hand over the promised bounty after two individuals said to be responsible for the phishing attempt were charged by the U.S. Department of Justice (DoJ) in February, and also sanctioned by the Department of the Treasury’s Office of Foreign Assets Control (OFAC) in September.

The security team at Binance had passed on the investigators’ findings to U.S. law enforcement, along with “other information and indicators,” the exchange said. It also work with U.S. agencies to help identify the suspects.

The DoJ and OFAC named Danil Potekhin and Dimitrii Kamasavidi, both from Russia, as the alleged perpetrators of the phishing campaign. Further, the Justice Department accuses both of also having carried out similar attacks on the Bittrex, Poloniex and Gemini cryptocurrency exchanges resulting in combined losses of $17 million.

A direct attack on Binance by the attackers saw no losses from the exchange, according to a blog post at the time.

Related: Ethereum Service Providers Scramble to Update Software After ‘Unannounced Hard Fork’

Also read: Binance Recovers $344K From Scam DeFi Project Launched on Its Platform

However, around 566 bitcoin (now worth around $8.8 million) was taken from 142 users through the phishing campaign’s fake sites between Dec. 19, 2017, and March 2, 2018, according to the DoJ indictment. At least some of the cryptocurrency was placed in a Bitfinex account “controlled by Kamasavidi.”

Binance further said it would award the private investigators another $50,000 once the attackers have been placed in custody.

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Bridgewater’s Dalio Sees Governments Banning Bitcoin Should It Become ‘Material’

5 years 10 months ago

Ray Dalio, the founder and co-Chairman of Bridgewater Associates, the world’s largest hedge fund, said he sees three main problems with bitcoin and other cryptocurrencies that will limit their future, including that governments will “outlaw” them should they start to become “material.”

In an interview with Yahoo Finance, Dalio said he expects more digitized versions of government-issued currencies in the future than bitcoin and other cryptocurrencies for three reasons:

  1. A lack of venues that will accept cryptocurrencies for purchase. “I today can’t take my bitcoin yet and buy things easily with it.”
  2. Bitcoin and other cryptos are too volatile to be considered an effective store of wealth. That volatility also hurts bitcoin’s use transactionally because vendors won’t know how much they’re getting, Dalio said.
  3. If bitcoin or other cryptos become “material,” Dalio predicted governments will “outlaw” it. “They’ll use whatever teeth they have to enforce that.”

“I don’t think digital currencies will succeed in the way people hope they would,” Dalio said.

Related: First Mover: Bitcoin Pause, Ethereum Snafu, 1,000% Returns Put Focus on Exchange Tokens

The comments are at odds with comments made by other billionaire investors including Paul Tudor Jones and Stanley Druckenmiller who say they’ve invested in bitcoin.

“Would I prefer bitcoin to gold? No,” Dalio said.

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CoinDesk

Bitcoin Hashrate Rebounds as Asian Miners Bring Machines Back Online

5 years 10 months ago

Bitcoin’s hashrate bounced 30% Wednesday from quarterly lows on Nov. 2 as miners brought ASIC machines back online after relocating them out of China’s Sichuan province as the wet season ended in late October, as CoinDesk previously reported. 

Bitcoin’s mining difficulty registered a record-setting percentage decrease on Nov. 3 – the largest since the advent of ASIC miners – as bitcoin miners shuffled their machines around the globe to access cheaper power causing the network’s hashrate to drop considerably.

A “large percentage” of all machines taken offline through the end of October are back online, said Alejandro De La Torre, vice president at Poolin, in a direct message with CoinDesk Wednesday. “There are, of course, some that may take longer,” he added, but most of the relocation process – typically a brief two-week period – is finished. 

Related: Riot Blockchain Mined 222 Bitcoins in Q3

For most miners, the migration process is not very difficult, said Ethan Vera, co-founder of Seattle-based mining company Luxor Technology, in a conversation with CoinDesk about miners migrating from Sichuan to Inner Mongolia, Xinjiang and other regions. “Most miners can un-rack, drive them over and re-install in less than two weeks,” he said.

Miners return to Inner Mongolia, Xinjiang, Tibet and other regions to tap into “fossil fuel, wind, or geothermal” power sources in those regions, De La Torre explained.

But this year’s miner migration is different from previous years. According to Vera, “Some Chinese miners have decided to move out of China altogether.” He named Iran, Kazakhstan and Venezuela as popular, low-cost mining destinations. “The Chinese are getting very comfortable with hosting their miners in [Iran and Kazakhstan] with local partners,” Vera told CoinDesk.

The rapid increase in hashrate should continue over the next couple of weeks, said Qingfei Lei, CMO at F2Pool. “Most of the rigs are back online, but not all of them,” Lei said, noting that he expects more hash power to return since “some rigs in transit are still offline.” 

Related: Hive Blockchain Buys, Deploys 1,240 Bitcoin Mining Machines, Nearly Doubling Hash Power

The returning hash power is helping to clean out Bitcoin’s previously congested mempool, a sort of holding depot for transactions awaiting confirmation by miners. The volume of transactions filling the mempool neared two-year highs on Oct. 28, reaching the highest unconfirmed transaction count since January 2018. Following the return of hash power, mempool transaction count has returned to somewhat normal levels through early November. 

A positive difficulty adjustment is expected as the network reacts to the surge in temporarily inactive hash power, said De La Torre. Estimated to happen on Nov. 16, the increase would start the network’s rebound following the record-setting difficulty drop two weeks prior on Nov. 3.  

At the current block pace, the adjustment is expected to be above 6%, Vera told CoinDesk. But he thinks it’s likely to reach an increase of more than 8%. 

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Ethereum Heavyweights Launch LiquidStake Loans to Ease Eth 2.0 ‘Lockup’

5 years 10 months ago

A coalition of Ethereum OGs is tackling the so-called “lockup” issue, whereby the first generation of participants staking crypto on the transitioning Eth 2.0 blockchain must commit their coins to a restrictive multi-year contract.

Announced Wednesday, LiquidStake, which is being launched by crypto trading firm DARMA Capital, will allow ether (ETH) stakers to take out USDC stablecoin loan against their staked assets while earning staking rewards from the new network.

In addition, U.S.-registered investment fund DARMA, founded by former ConsenSys stalwarts Andrew Keys and James Slazas, intends to allocate over $50 million worth of ETH to Ethereum’s new deposit contract.

Related: First Mover: Bitcoin Pause, Ethereum Snafu, 1,000% Returns Put Focus on Exchange Tokens

There are obvious economic incentives for participants to take part in Ethereum’s evolutionary step vis-a-vis staking because they can earn, say, 15% on those assets over the course of however many months it takes the network to complete further upgrades, said DARMA Capital founder Andrew Keys.

“I call it the one-way street problem,” Keys said. “Participants will not be able to ‘unstake’ those assets. So we’ve created LiquidStake, wherein users can earn staking rewards, and have their staked ETH be pledged as collateral to receive a USDC loan. This is very different from BlockFi and Celsius and other lenders, because in those cases you can’t stake the ether and you can’t earn the reward.”

Necessity and invention

The first phase (phase zero) of Ethereum’s migration to a proof-of-stake blockchain involves some 16,384 validators each committing a minimum of 32 ETH in a deposit contract. Those tokens will then be staked to secure and govern a new parallel Ethereum blockchain known as Beacon, a live environment for testing proof-of-stake, which will eventually return the staking rewards to those validators. 

Since the deposit contract went live this week, some 52,801 ETH  has been locked up, worth $23.8 million. (At least 524,288 ETH split between 16,384 stakers is needed to trigger Eth 2.0’s “genesis event” and activate the upgrade.) In addition to the staking rewards returned to those validors, earning potential can still be derived from those locked up funds. This is exactly the sort of innovation seen springing up everywhere in the decentralized finance (DeFi) field. 

Related: TrustToken Taps Chainlink for On-Chain Proof of Reserves for TrueUSD Stablecoin

Read more: Ethereum 2.0 Deposit Contract Tops $22.5M One Week After Launch

The same can be said of Wall Street’s engineers who come up with new products in response to rule changes. As CoinDesk’s Michael Casey points out, it doesn’t matter if the behavior-constraining rules are imposed by a government regulator or, in the Ethereum 2.0 case, by a protocol. “Constraints create an incentive for financial creativity,” he wrote.

LiquidStake is by no means the only attempt to solve this problem. 

Indeed, a taxonomy for liquid staking includes a number of smart contract protocols issuing tokenized claims on staked assets, such as Rocket Pool, Blox or StakerDAO. Exchanges like Binance and Coinbase are also keen to get in on the action, with various Eth 2.0 staking products in the offing.

Ethereum establishment

But LiquidStake is a confident play, heavily backed by what could be called the Ethereum establishment: the project involves the likes of ConsenSys, Bison Trails, Figment, OpenLaw, and Filecoin. 

“LiquidStake offers an ideal solution for ETH holders looking to stay liquid while staking,” ConsenSys founder and Ethereum co-founder Joe Lubin said in a statement. “I’m excited to watch DARMA Capital play a significant role in the Eth2 transition with LiquidStake, which has selected ConsenSys’ Codefi platform as its staking partner.” 

Filecoin founder Juan Benet added: “Protocol Labs already uses DARMA’s swaps for a crucial component in the Filecoin ecosystem, and we plan to do the same with our staked ETH treasury.”

Read more: ConsenSys Capital Co-Founder Departs to Bring Wall Street Money to Ethereum

DARMA Capital co-founder Slazas made clear that LiquidStake is for individuals who are going to borrow against collateral, while DARMA Capital is an entirely separate entity designed for institutions entering into total return swaps. (Such instruments are agreements in which one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the return of an underlying asset, which includes both the income it generates and any capital gains.)

“The big reason for institutions to want to enter into a swap is basically that it gives a lot of regulatory and tax clarity,” Slazas said. “There’s some great work being done to clarify if I move from Eth 1 to Eth 2 is that a taxable event? Given that those are up in the air, and we don’t know what the actual answer is today, if you enter into a swap, you do know the tax treatment of what a swap is.”

The LiquidStake business model is based on taking a cut of the interest rate, and then a part of the reward rate, said Slazas. “The exact interest rates and your loan to value rates will change a little bit. But what we’re doing is we are just adding 5% of what the reward rate is, as our fee on the loans.”

LiquidStake helps the Ethereum community face the number one fear with respect to the Eth 2 upgrade, said Keys: liquidity.

“Now they can have all of their ETH deposited to stake, and if they need money they can take a loan,” said Keys. “It could be to pay their rent, or they could buy more ETH and stake that, or maybe they want to enter the wild world of DeFi.”

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First Mover: Bitcoin Pause, Ethereum Snafu, 1,000% Returns Put Focus on Exchange Tokens

5 years 10 months ago

Bitcoin was higher, pushing toward the upper edge of its recent range between about $14,700 and $15,600.

“The positive sentiment towards bitcoin has not gone away,” said Denis Vinokourov, head of research at crypto prime broker Bequant. 

In traditional markets, Asian shares tumbled, led by Alibaba and Tencent, as Chinese government issues regulations designed to curb growing influence of big tech companies. European shares were up, and U.S. stock futures pointed to a higher open. Gold weakened 0.1% to $1,875 an ounce. 

Market Moves

Related: Number of Bitcoin ATMs Up 85% This Year as Coronavirus Drives Adoption

Crypto-exchange tokens like Binance Coin (BNB) and FTX’s FTX (FTT) started out as a sort of in-house currency: Traders could use them within the closed environment to buy digital assets, getting discounts on transaction fees. 

But recently some digital-asset traders are thinking of them a bit more like traditional stocks – as a bet on the exchange itself. It’s also increasingly possible to park the tokens in various systems and protocols for yield, not too dissimilar from a dividend. 

And some of them are registering outsize gains. Binance’s BNB tokens have gained about 30% this year, while FTX token is up 157% and upstart Hxro’s token has increased 10-fold in price. 

Exchange management teams increasingly viewing the tokens as a way to bind loyalty among customers. The rationale, according to Jack Purdy, senior research analyst at the cryptocurrency research firm Messari, could be that the exchanges now view token holders as an important component to their long-term business success.

Related: Bitcoin Likely to Consolidate Before December Rise Toward $20K, Say Analysts

The specter of an unexpected move by authorities to crack down on the tokens – precisely because of their resemblance to stocks – remains a threat.

Exchange tokens “are a gray area with equity-like characteristics,” Purdy said. “Regulatory concerns are definitely a problem because they definitely look like securities under U.S. laws.” 

– Muyao Shen 

Read More: Exchange Tokens Are Skyrocketing as They Act More Like Equity; That Could be a Problem

Bitcoin Watch

After the recent rapid rally, the bitcoin market is likely to take a breather before continuing its rise toward the end of the year, analysts told CoinDesk.

“The cryptocurrency may consolidate for a short period before moving higher” toward the end of the year, said Chris Thomas, head of digital assets at Swissquote Bank.

Indeed, further notable gains look unlikely in the short term, as the cryptocurrency’s 60% rally from $9,800 to $15,900 seen over the past two months looks overstretched, per the technical charts. Both the 14-day and 14-week relative strength indexes are hovering well above 70, indicating overbought conditions and scope for consolidation or minor pullback.

Patrick Heusser, senior cryptocurrency trader at Zurich-based Crypto Broker AG, expects bitcoin to consolidate in the range of $14,000 to $16,000 in the next few weeks. 

He expects the pause to allow a rally in alternative cryptocurrencies, most of which have lagged bitcoin in the past two months.

– Omkar Godbole

Read More: Bitcoin Likely to Consolidate Before December Rise Toward $20K, Say Analysts

Token Watch

Ether (ETH): Prices hold firm as Ethereum service provider Infura suffers outage from reported blockchain split. 

Bitcoin (BTC): Nearly $360M of bitcoin tokenized on Ethereum blockchain in October despite cool-down in the thriving cryptocurrency subsector of decentralized finance, known as DeFi.  

Filecoin (FIL): Winklevosses’ Gemini crypto exchange is developing a wrapped version of decentralized data-storage provider’s tokens. 

Balancer (BAL): Cryptocurrency funds Pantera Capital and Alameda Research invest in liquidity provider via direct purchase from Balancer Labs treasury. 

Ether (ETH): Prices hold firm as Ethereum service provider Infura suffers outage from reported blockchain split. 

Bitcoin (BTC): Nearly $360M of bitcoin tokenized on Ethereum blockchain in October despite cool-down in the thriving cryptocurrency subsector of decentralized finance, known as DeFi.  

Filecoin (FIL): Winklevosses’ Gemini crypto exchange is developing a wrapped version of decentralized data-storage provider’s tokens. 

Balancer (BAL): Cryptocurrency funds Pantera Capital and Alameda Research invest in liquidity provider via direct purchase from Balancer Labs treasury. 

Algorand (ALGO), Cosmos (ATOM), Cardano (ADA), Kyber Network (KNC), OMG Network (OMG): Growth in trading volume means tokens are added to CoinDesk 20 while Bitcoin SV (BSV), Dai (DAI), Zcash (ZEC), Monero (XMR) and Dash (DASH) are out. 

What’s Hot
  • DeFi fever returns as total collateral value locked into protcols hits all-time-high above $12.8B (CoinDesk)
  • Former CFTC Chair Gary Gensler, a crypto-savvy veteran of Wall Street and Washington, plans to lead projected President-elect Joe Biden’s financial-policy transition team (CoinDesk) 
  • Chinese bank, world’s second-biggest, plans to issue $3B of tokenized certificates of deposit on blockchain via a branch in Malaysia, and they’ll be tradeable for bitcoin on the Hong Kong-based digital-asset exchange Fusang, according to the South China Morning Post (CoinDesk) 
  • Ethereum 2.0 deposit contract tops $22.5M, week after launch (CoinDesk) 
  • Cred bankruptcy highlights need for crypto-lending industry to adopt best practices absent “paternalistic state to backstop credit and bail out excessive risk-taking” (CoinDesk)
  • MicroStrategy CEO Michael Saylor explained why gold is “an antiquated approach to storing value,” while bitcoin is “a million times better.” (CoinDesk)
Analogs The latest on the economy and traditional finance
  • This time might actually be different, since “another round of massive fiscal+QE MMT combo” would likely push up inflation and asset prices too far, Lyn Alden Schwartzer writes (SeekingAlpha) 
  • U.S. job openings increase less than expected in September while hiring fell, suggesting labor market recovery was petering out even before recent coronavirus resurgence (Reuters) 
  • Stimulus, spending bills top U.S. lawmakers’ “to-do list” in lame-duck session (WSJ) 
  • Greece, debt defaulter as recently as 2015, now sees yields on its short-term bonds going negative (WSJ) 
  • European banks worry over $1.7T of bad loans that could take toll when government rescue packages end, possibly necessitating state support (WSJ)  
  • Biden faces resistance from U.S. Senate over $2T tax increase unless Democrats win Georgia seats (WSJ) 
  • U.S. corporate tenants put record 42M square feet of office space on rental market with many employees remote working for foreseeable future (WSJ) 
  • Lenders see big opportunities in bailing out financially strapped hotel owners (WSJ) 
  • Australian mining giant BHP links with China’s Baowu Steel in bid to reduce environmental footprint through carbon capture research (Nikkei Asian Review)
  • Fitch report chronicles how far Chinese yuan has to go before challenging U.S. dollar’s dominant role in foreign exchange markets (Fitch):
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CoinDesk

Number of Bitcoin ATMs Up 85% This Year as Coronavirus Drives Adoption

5 years 10 months ago

The number of bitcoin automated teller machines (ATMs) across the globe has surged this year amid the coronavirus-induced shift toward contactless payments.

Bitcoin ATM installations have increased by 85% to 11,798, outpacing the previous year’s near 50% rise by a significant margin, according to data source Coin ATM Radar.

The spike demonstrates the rising popularity of bitcoin as a payment mode. The fear of getting a coronavirus infection has accelerated the growth in the broader contactless payment market this year, according to Global Trade Magazine.

Related: First Mover: Bitcoin Pause, Ethereum Snafu, 1,000% Returns Put Focus on Exchange Tokens

Bitcoin’s borderless network facilitates a seamless transfer of money in any amount from anywhere across the globe, through any mobile or computer, and at relatively lower fees than traditional banking channels.

A bitcoin ATM allows a person to purchase the cryptocurrency by using cash or debit card. Some machines facilitate the purchase of bitcoin and the sale of cryptocurrency for cash.

The U.S. added over 800 ATMs in October alone and is leading cryptocurrency adoption, followed by Canada and Germany, as noted by Coin ATM Radar.

With several public companies investing in bitcoin and online payments giant PayPal adding support to the cryptocurrency, mainstream adoption could continue to grow.

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TrustToken Taps Chainlink for On-Chain Proof of Reserves for TrueUSD Stablecoin

5 years 10 months ago

Stablecoin issuer TrustToken is bringing its proof of reserves system for TrueUSD (TUSD) collateralization levels on-chain. Adding Chainlink to an existing partnership with accounting firm Armanino makes it possible.

The transparency measure is meant to provide additional certainty for decentralized finance (DeFi) traders who often rely on asset-backed stablecoins – even without a clear understanding of whether the assets are fully backed.

Pulling from Armanino’s TrustExplorer API, the Chainlink integration makes the data available on-chain, which then lets app builders develop preventative measures against fractional reserve banking or other potential red flags.

Related: Nearly $360M in Bitcoin Moved to Ethereum in October Despite DeFi Cool-Off

“One of the things that we think will be immediate will probably be on Aave – they’ll build-in risk circuit-breakers,” said Noah Buxton, Armanino’s blockchain director. “They’ll look at if the token is collateralized – is it a stable stablecoin – and then be able to build risk functionality around that.”

One of the problems that lending protocol Compound has with listing stablecoins is ensuring that stablecoin issuers are actually capable of minting the coins and keeping them properly collateralized, said TrustToken CEO Rafael Cosman.

TUSD is the seventh-largest stablecoin by market capitalization, according to CoinGecko. In June the stablecoin was approved as a collateral asset for generating dai on the Maker lending protocol.

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Bitcoin Likely to Consolidate Before December Rise Toward $20K, Say Analysts

5 years 10 months ago

After the recent rapid rally, the bitcoin (BTC) market is likely to take a breather before continuing its rise toward the end of the year, analysts told CoinDesk.

“The cryptocurrency may consolidate for a short period before moving higher into Christmas,” said Chris Thomas, head of digital assets at Swissquote Bank.

Indeed, further notable gains look unlikely in the short term, as the cryptocurrency’s 60% rally from $9,800 to $15,900 seen over the past two months looks overstretched, per the technical charts. Both the 14-day and 14-week relative strength indices are hovering well above 70, indicating overbought conditions and scope for consolidation or minor pullback.

Related: First Mover: Bitcoin Pause, Ethereum Snafu, 1,000% Returns Put Focus on Exchange Tokens

Echoing Thomas’ comments, Patrick Heusser, senior cryptocurrency trader at Zurich-based Crypto Broker AG, expects bitcoin to consolidate in the range of $14,000 to $16,000 in the next few weeks. However, he expects the pause to allow a rally in alternative cryptocurrencies, most of which have lagged bitcoin in the past two months.

Others suggest bitcoin may be heading for more than consolidation. “Bitcoin is overbought after surging through critical resistance at $14,000, which suggests we could see a period of correction and consolidation,’ Joel Kruger,  a currency strategist at LMAX Digital said.

Historically, bitcoin has seen multiple pullbacks of over 20% in previous bull markets. This time, however, a big drawdown looks likely as sell-side liquidity appears to have dried up with the increased institutional participation and strong holding sentiment among investors.

While observers stand divided on whether prices would consolidate or retreat in the short term, there seems to be a consensus that bitcoin’s long-term prospects are bullish, with some anticipating a re-test of the record high of $20,000 by the end of December.

Related: Number of Bitcoin ATMs Up 85% This Year as Coronavirus Drives Adoption

Also read: Bitcoin’s Weekly Close Above 2019 High Leaves Runway Clear to $20K

“We expect short-term volatility alongside even more powerful upward trends, flirting with $20,000 before year’s end and, if the stars align, $50,000 to $80,000 by the end of 2021,” Jehan Chu, co-founder and managing partner at Hong Kong-based trading firm Kenetic Capital, told CoinDesk. Investor sentiment has never been better, Chu added.

Swissquote’s Thomas also expects a weaker dollar and political uncertainty in the U.S. to power bitcoin higher in the long run.

All things considered, bitcoin is likely to maintain its overall upward trajectory. “Look for the market to establish above $20,000 in 2021 before the next major upside extension into the $30,000-$40,000 range, Kruger said, and added that, “any major setbacks should be well supported above $8,000.”

Also read: MicroStrategy CEO Explains Why Bitcoin Is ‘a Million Times Better’ Than ‘Antiquated’ Gold

Bitcoin’s upward momentum has stalled since prices hit $15,971 on Nov. 6. At press time, the cryptocurrency is trading near $15,665, representing a 2.3% gain on the day, according to CoinDesk’s Bitcoin Price Index.

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Audius Has Big Numbers by Crypto Standards but Can It Take On SoundCloud?

5 years 10 months ago

The Takeaway:

  • Audius is an Ethereum-based streaming app looking to take on Spotify and Apple Music by offering artists a better deal.
  • Like many blockchain projects, Audius is both a company and a network controlled by token holders.
  • Audius has thousands of regular listeners using it, with a strong base in EDM and a growing cadre of underground hip-hop acts.
  • Streaming music is free for now and artists mainly use it to build their fan bases. Tokenized monetization options will come later, but when they do, artists will have incredible flexibility.

The music industry has problems the right blockchain application could fix, inching open the door for mainstream crypto adoption – at least that’s the dream.

Audius is an Ethereum-enabled music distribution service that takes aim at recognized startups such as SoundCloud and Spotify. Its creators hope that offering a more attractive deal for musicians should help Audius build a stable of musicians so strong that users will come in droves.

Related: First Mover: Bitcoin Pause, Ethereum Snafu, 1,000% Returns Put Focus on Exchange Tokens

According to the Audius block explorer, the network has seen between 30,000 and 50,000 unique users per day since the end of October – a not-insignificant sum in the emerging world of Web 3.0. (For context, according to its third-quarter earnings report, Spotify has 144 million paying users.)

“It’s just been kind of real and exciting to see this response,” Roneil Rumburg, co-founder and CEO of Audius, told CoinDesk in an interview. “Especially in COVID-19, these [musicians] are really hurting. You can’t tour. Most revenue streams have dried up.”

Read more: Audius Rallies EDM Artists, Crypto VCs to Back Vision for Music Payments on Ethereum

Audius had a big surge in interest at the end of October when it announced a distribution of the network’s AUDIO token, marking the end of its beta network phase. It gave away 50 million AUDIO tokens to 10,000 super users, mainly the artists who are using Audius, but also to some listeners who play a lot of tracks and offer a lot of feedback.

Related: Ethereum Service Providers Scramble to Update Software After ‘Unannounced Hard Fork’

“The most exciting thing about Audius to me is that it’s not trying to create a new ecosystem with the same players (i.e. DeFi or NFTs),” Jesse Grushack, a ConsenSys alum and pioneer in the blockchain music space, told CoinDesk over Signal, referring to decentralized finance and nonfungible tokens. “It’s bringing in a totally ‘virgin’ crypto community that until the release of $AUDIO probably had no idea they were using crypto.”

What is Audius?

Like a lot of the creations in this industry, it is two things. There is the company and the network. The company has raised funds from various venture capital firms in two separate rounds, first from General Catalyst and Lightspeed Capital and second from Multicoin Capital and Blockchange.

Read more: Blockchain for Music Startup Raises $5.5. Million in New Funding

The network is a series of two kinds of nodes, one which hosts content and another that indexes it. On top of that network, there are apps that allow users to interact with the content.

The main app is the Audius web and mobile apps made by the company, but there are a few others already. Anyone can build an interface that interacts with content on Audius.

Artists and fans use the different applications to post content and stream it. To a small degree, users contribute to the useability of the network. When they are active online, the network might direct other users to copies of content that users have temporarily stored for other users who want to access the same file (much in the same way BitTorrent has for years).

How does Audius fit into the crypto world?

Audius is governed on the world’s second-largest blockchain, Ethereum. It uses an ERC-20 token, AUDIO, for governance and as a security mechanism. Node operators and artists have to stake AUDIO tokens in order to unlock different kinds of features and earning opportunities.

While in beta, Audius used the POA Network, an Ethereum sidechain, to run its content management. In late October, it announced a partial move to the Solana blockchain, which bills itself as incredibly fast and inexpensive.

It’s the latest case in point of the “one network, many chains” thesis articulated by crypto evangelist Andreas Antonopoulos.

Read more: ‘One Network, Many Chains’ – The Case for Blockchain Interoperability

Additionally, payments are managed over the network using a basket of stablecoins. Or, it might be better to say, they will be. Monetization is not a major part of the Audius use case here in the early days, but the functionality is there when the time is right.

What kind of token model does Audius use?

Once upon a time, Audius had a two-token model, but that’s because when the team first started laying out the vision there was really only one stablecoin, tether (USDT).

So Audius invented this notion of a stablecoin just for its platform called LOUD. However, by the time the company rolled out the beta network, there was a plethora of stablecoins, a trend that has only continued.

Now, Audius only uses the AUDIO token for governance, security and unlocking features.

Like many networks, node operators need to post AUDIO tokens in order to earn future token emissions in its inflationary system (and as a protection against poor performance or malicious performance on the system). According to a Medium post, Audius created 1 billion AUDIO tokens at genesis with 41% designated for the founders and the project and 36% for investors.

Read more: This a16z Alum Is Launching a VC Fund Focused on Platforms You Can ‘Own’

The Open Audio Foundation controls another 178 million tokens designated for network growth, though it only has access to 65 million AUDIO immediately. Most everyone’s genesis tokens are under some kind of vesting schedules. 

As of this writing, the liquid supply is only a bit over 65.6 million AUDIO, according to CoinGecko.

There’s currently an emission rate of 7% of new tokens, all of which goes to node operators for now, though Rumburg told CoinDesk that the Audius team hopes the community will vote to spread those emissions around to various stakeholders. (And obviously based on the numbers above, the team and investors have an enormous amount of vote weight there.)

How do musicians use Audius?

Camoufly is an electronic artist who has a lot of tracks posted on Audius, going back to October 2019. 

“I saw a big help coming from them with the launch of $AUDIO,” Camoufly told CoinDesk, “so all the music and work I’ve put on the platform has definitely paid back!”

Right now Audius is mainly a way for new artists to build an audience. The site is dominated by EDM artists, with hip-hop as the second-largest genre (and hardly any acts from other categories, thus far). It’s also overwhelmingly underground, but it has a few acts with strong followings, such as Skrillex.

“I think both of those groups have been very eager, excited to embrace new platforms because they both had a very difficult time breaking into the mainstream to some extent,” Rumburg said.

Read more: Audius, the ‘Decentralized Spotify,’ Is Moving Part of Its Service to Solana Blockchain

The project has described itself as picking up where SoundCloud left off, as a way for music junkies to discover unknown acts and have the thrill of knowing new acts first.

“Since I am an indie singer-songwriter, which is not the typical kind of music you will find there right now, it’s still possible people will check you out,” Noir Yon, a Berlin-based artist told CoinDesk over email. “I hope it will grow bigger and more and more musicians of different genres will consider to upload their music in addition to other platforms as well.”

Obviously, the network doesn’t really become sustainable until it has people spending money over it one way or another, but Rumburg notes that first Audius needs a lot more tracks and a lot more artists. When that happens, the team can start to roll out different approaches to monetization to see what works.

On that front, Audius opens up a plethora of strategies for artists. They can create interesting new ways of enlisting fans in helping them to grow their brands. So, for example, they can “lock” tracks, only allowing access to users who have, for example, shared one of their other songs or who hold one of their personal tokens.

Read more: The Man Who Tokenized Himself Gives Holders Power Over His Life

Personal tokens have been a big theme in 2020 and Rumburg said that for now Audius is functioning as a sort of Switzerland for such tokens – it’s open to allowing any of the personal token networks to run on Audius.

It’s theoretically possible to create any kind of rule for unlocking music. If more robust clients get built to access the Audius network (imagine video games that draw from it for background music or live-streamers who add it to their shows), that opens up other categories for rules and incentives that artists can provide.

A key goal is to make Audius a way for artists to distribute music and earn the lion’s share of income that their music earns. Still, not many of its artists have opted into monetization yet.

What do node operators do?

Storage nodes need to have at least two terabytes of storage and a fast internet connection. Discovery node operators need to be able to store an IPFS-based directory of content. Together, they help users find the content they want as fast as possible.

For now, all new token emissions go to operators of these nodes.

Isn’t there a problem with copyright and piracy on an open service like Audius?

In October 2019, The Verge went into detail about the history of intellectual property disputes in music and how Audius fits into that persistent story. 

It has been true since the earliest days of the web: there’s a category of user that is always happy to share content they have no right to.

Rumburg told CoinDesk that Audius already had a tool for rights holders to use that enables requests directly to the node that is hosting disputed content. 

“In the future, we envision there will be an arbitration system that allows the network to openly and transparently resolve disputes of this nature, alongside things like getting revenue shares and splits right if there is a dispute among track owners,” Rumburg wrote in an email.

Read more: Musicians Want to Break Free of Big Tech

Apple Music, Spotify and Pandora may be good at making sure the right people get paid and the wrong things never get posted, but it is also worth noting that there are ways in which the existing infrastructure has railroaded creator rights in other ways. 

Since the pivot to streaming, audio metadata legibility to end-users has become quite poor, robbing behind-the-scenes performers of credit and fans of the ability to get truly obsessive about the finer details.

And most reasonable people agree there’s something off about who gets remunerated in the music industry. 

“When only 12% of the recorded music income goes to the people responsible for it,” Grushack, the ConsenSys alum, wrote. “We can’t sit around and pretend that industry is doing a great job.”

What’s the chief obstacle for Audius?

The problem for all applications like this is they need lots of users to obtain network effects. Audius just needs more people coming on. That will attract more artists who will in turn attract more users. This is always the hard part.

It took a long time for Spotify to reach profitability and that has always been tenuous. Apple Music has a variety of unfair advantages.

Music has consistently been a tough area for technology, but the internet keeps trying.

This early, the fact Audius uses crypto is unlikely to make it especially more attractive, but its openness might help if it can build buzz. It’s making a similar pitch that other blockchain-based music projects have made before it: the music industry is unfair to artists and this can fix it.

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