Jamming on Economics: What Comes After Crypto’s Summer of Love
With that in mind, I have been calling summer 2017 the “Summer of Crypto Love.”
Here in San Francisco, it was the 50th anniversary of the “Summer of Love” – a magical unique moment where artists and intellectuals came together to explore new ways of thinking. But this summer, which was just as astounding, was defined by everyone’s love for crypto.
The scope of the impact that blockchain technologies will have in reorganizing capital and intelligence (both human and machine) was recognized by business leaders all over the world. We saw extreme excitement for tokenized projects which drove high valuations in token crowdfunds (ICOs).
Clearly, there were examples of overvaluation in some assets, but discounting the ICO model as merely a bubble or temporary hysteria would miss the forest for the trees.
When a token is designed correctly and distributed thoughtfully to drive network effects, the leverage that a project can get from a massive globally distributed investor base is remarkable. Crowdfund participants contribute significant technical resources, evangelize and market the project and generally add value that is very difficult for even a very talented venture capitalist to match.
Capital is no longer a scarce resource because private VCs are no longer the gatekeepers of capital, so investors are being forced to actually deliver value-add for projects beyond writing a cheque.
I see this trend as generally positive and the natural evolution of the early-stage funding model.
But while the world was getting hyped on ICOs, here at the Polychain office, we were spending most of our time “jamming” on crypto-economic models with our portfolio entrepreneurs. The results have been very compelling.
In case you are unclear on the meaning of cryptoeconomics, it is the emerging field of study of how we use digital incentives to drive specific resources and behaviors on decentralized networks that lead to some globally desired result such as security or network effects.
Anecdotally, this term has been inspired by my friend, the great musician and technologist Simon de la Rouviere, who is great to jam with either on music or on crypto-economics.
The following are some observations that have came from the many jam sessions of this year:
The block reward is returning
An elegantly designed block reward scheme (ideally adjusted periodically via a governance model) that incentivizes the different key players – keepers (i.e. miners, validators, etc.), core protocol devs, application devs, and the wider ecosystem participants is an incredibly powerful concept and will be important as the battle for developer mindshare intensifies moving forward.
We remain in the ‘infrastructure era’ … for now
There is a thoughtful debate around protocol layer vs application layer as an investment thesis, and we recognize that there is considerable grey area in the classification of projects within the taxonomy of our ecosystem.
However, I observe that outlier value will continue to accrue deeper down the decentralized software stack known as Web3. We still have a long way to go to have adequate infrastructure for Web3 that will subsequently provide a platform for consumer applications at scale. We still require multiple orders of magnitude improvement on scalability, para-chain deployment, more robust developer tools and applications that make interacting with blockchain technologies far less cumbersome for non-technical users.
Yet, this industry moves faster than any other on the planet, and I’m confident that we will see the emergence of the ‘application era’ far sooner than we would guess today.
At the core of our thesis, Polychain remains laser focused on investing in and supporting the infrastructure layer of Web3, and there are two implications for the year ahead that we draw from this thesis – the emergence of Major Ecosystems & Meta Protocols.
Major ecosystems are maturing
Ethereum was the first “major ecosystem” to emerge beyond bitcoin and present a rich topography for open source developers to create decentralized applications and higher-layer protocols.
Entering 2018, we are seeing the emergence of other major ecosystems that have aggregated lessons learned and present considerable performance improvements above what is available today. These new major ecosystems will spawn their own communities of developers, entrepreneurs, researchers, investors, users, evangelists and so on.
Polkadot, Dfinity, Tezos, and Filecoin are all positioned to trigger a Cambrian explosion of innovation and novel applications across the space.
I’m incredibly excited to watch this story unfold in 2018 as all four of these major ecosystems will go live and begin to capture developer mindshare and notoriety and some will become crucial components of the decentralized web.
Meta-protocols are coming
Other examples of meta-protocols are Truebit for off-chain computational verification, NuCypher for proxy re-encryption and Keep for private data management on-chain.
- Governance and DAOs – The next year will bring some high profile experiments with on-chain governance and we are excited to observe the results. The launch of Dfinity and Tezos will be the largest attempts to fully deploy on-chain governance. I am cautiously optimistic that we will also see the re-emergence of prominent DAOs in 2018, including DAOs that govern development of an underlying blockchain.
- Functioning Applications – We are also on the cusp of seeing some really compelling applications within the ethereum community. Personally, I am very proud of the MakerDAO project that launched the Dai stable coin this month. This is one of the oldest projects in the ethereum community and is led by a very talented technical team. Instead of getting distracted with a flashy ICO, the MakerDAO team focused on building their project and the result is one of the first dapps that is robust and ready to scale.
- Stablecoins – are critical to the larger crypto ecosystem so that businesses and smart contract systems can perform transactions on-chain without speculating on the underlying currency. Functional dapps will drive a new cohort of users to the space and accelerate the speed of mass adoption.
A bigger picture is forming
Through the emergence of crypto-economics, I believe the study of economics will forward more in the next 24 months then has occurred in the last 24 years.
John Lennon grafitti image via Shutterstock
Exclusive: Telegram to Release Blockchain Platform, Native Cryptocurrency
The popular encrypted messaging app Telegram will launch its own Blockchain platform and cryptocurrency, according to sources familiar with the matter. The new platform will be dubbed either “The Open Network” or “Telegram Open Network” (TON) and is supposed to be based on an improved version of Blockchain technology.
Initial reports of the new platform surfaced today from Anton Rozenberg, a former employee of Telegram’s publishing division Telegraph. Rozenberg posted on Facebook what he claims is an advertorial video for the new platform (he did not disclose the source of the video). He also pointed out that TON would aid those under oppressive governments, since they would be able to transfer money natively through the messaging app. This could serve to break the state’s control over citizens’ money, added Rozenberg.
Cointelegraph learned that the currency of TON will be called “Gram” and the platform will be natively integrated with many of the most popular messaging apps (it’s not yet certain which ones). The platform will utilize light wallets, making it unnecessary for users to download a large and unwieldy Blockchain.
The TON platform also won’t have to go through a multi-year bootstrap period like most new platforms, since the Telegram app already boasts 180 mln users, according to Bloomberg.
Telegram is already immensely popular with the Blockchain community, as cofounder Pavel Durov proclaimed:
“Like right now, the entire Blockchain and cryptocurrency community just switched to Telegram.”
Cointelegraph has reached out to Durov, but has not yet received a reply. While still not officially confirmed, the creation of TON is compatible with an earlier article from Bloomberg, which said:
“[Durov] sees Telegram as a charity that he’ll start to monetize early next year, but only enough to fund expansion.”
The Mark Zuckerberg of Russia
The enigmatic Pavel Durov teamed up with his brother to launch Telegram in 2013. The app boasts end-to-end encryption, making it extremely useful for dissidents and ordinary citizens living under oppressive regimes. In fact, according to Bloomberg, Telegram accounts for 40% of Iran’s internet traffic. The Iranian government is so aggrieved by the app’s privacy features that they have charged Durov, in absentia, of terrorism.
Durov isn’t terribly bothered; he’s used to standing up to national governments. He and his brother cofounded Russia’s largest social network, VK, building a company worth over $3 bln. VK was in fact quite similar to Facebook, but whereas Zuckerberg was able to maintain control (and a massive ownership stake), Durov was not. When he refused to hand over personal user information to Russian authorities, he was forced to sell his stake in the company to one of Putin’s allies. Thus, while Zuckerberg had the option of an IPO, Durov is using an ICO to monetize his creation.
After being forced out of VK, Durov left Russia for good, taking with him an estimated $300 mln and 2,000 Bitcoins. He took his substantial wealth with him to St. Kitts and Nevis, investing enough in the Caribbean nation to become a citizen. However, he spends most of his time in Dubai.
Durov insists Telegram is not for sale at any price, because his users’ privacy is too valuable to risk:
“Even for $20 billion, it’s not for sale. That’s a lifetime guarantee.”
Written by CoinTelegraph
North Korea Accused of Hacking South Korean Bitcoin Exchange Youbit
Earlier this week, major South Korean Bitcoin exchange Youbit suffered a large-scale security breach that led to the theft of one fifth of user funds.
Almost immediately after the hacking attack, Youbit’s parent company Yapian filed for bankruptcy. In an official statement, the Youbit team told its users that 75 percent of their holdings on the Youbit exchange will be accessible and ready for withdrawal. But, to claim the rest of the funds, the company stated that investors will have to wait until the final settlement of bankruptcy proceedings.
In the case of the now-defunct Bitcoin exchange Mt. Gox, which once was the largest Bitcoin exchange within the global cryptocurrency market, the settlement of bankrupt proceedings have taken more than four years. Still, the creditors of Mt. Gox have not received their funds and the procedure is still ongoing.
Unfortunately, for Youbit investors, it may take several months to years to receive the remaining 25 percent of their personal funds, as the settlement of bankruptcy proceedings will have to be finalized before the company can credit its customers.
North Korea accused
Upon the discovery of the hacking attack, the Youbit team told its clients that the company is working closely with local authorities and the South Korean law enforcement to evaluate and investigate the security breach. The Youbit team said:
“Currently, we are cooperating with law enforcement and third-party investigators to evaluate the breach. We are trying everything in our capability to minimize the losses of our users and we are considering several ways to handle this situation. We would like to apologize again for disappointing our users.”
According to the Wall Street Journal, sources familiar with the ongoing investigation into the Youbit security breach have discovered telltale signs and historical evidence that North Korean state-funded hackers likely engaged and initiated the hacking attack.
In September 2017, security research firm FireEye revealed in a threat research paper that it has found evidence to link various cryptocurrency exchange hacking attacks to North Korea by analyzing the tools that were used to hack into South Korean cryptocurrency platforms.
One of the methods used by the North Korean hacking group was Spear Phishing, the FireEye report stated, which targeted individual cryptocurrency users with highly sophisticated phishing attacks and malware. FireEye further emphasized that there is some evidence to link previous South Korean cryptocurrency exchange security breaches to North Korea.
Specifically, the FireEye team wrote that the following activities were likely initiated by North Korean hackers:
- April 22: Four wallets on South Korean Bitcoin exchange Yapizon compromised.
- Early May: Spear Phishing against South Korean exchange one.
- Late May: South Korean exchange two compromised via Spear Phish.
- Early June: Cryptocurrency service providers targeted by hackers.
- Early July: South Korean exchange three targeted via Spear Phishing to a personal account.
Given the imposition of harsh international sanctions against North Korea by the US government and the financial instability of the North Korean regime, FireEye researchers wrote that North Korean hackers have had many incentives to target South Korean exchanges. The report read:
“While Bitcoin and cryptocurrency exchanges may seem like odd targets for nation-state actors interested in funding state coffers, some of the other illicit endeavors North Korea pursues further demonstrate an interest in conducting financial crime on the regime’s behalf. North Korea’s Office 39 is involved in activities such as gold smuggling, counterfeiting foreign currency, and even operating restaurants.”
Korea Economic Institute hints North Korean activity
In an interview with The Wall Street Journal, Troy Stangarone, a senior director at the Korea Economic Institute, shared a similar sentiment with FireEye and stated that North Korea is in an ideal position to target Bitcoin companies as it has to find ways to earn back money from the recently imposed sanctions. Stangarone said:
“North Korea is an ideal country to use hacking and financial tools like Bitcoin. They’re experimenting with ways to earn back lost money from sanctions.”
Throughout the upcoming weeks, the South Korean law enforcement and cybersecurity agencies are expected to focus on finding solid evidence to link the hacking attack targeted at Youbit to North Korean hackers.
Written by Cointelegraph
Cambridge Experts Diverge On The “Bitcoin Bubble” Question
Bitcoin’s popularity should be considered a “concern for society,” a UK Academic Larisa Yarovaya told Cambridge Independent.
Today, the local newspaper reported an ongoing discussion on Bitcoin’s rapidly growing value amongst Cambridge experts, whose opinions on the subject vary. Yarovaya, a lecturer in accounting and finance at Anglia Ruskin University (ARU), commented on a study on Bitcoin she co-authored at the university:
Specifically addressing the issue of energy use for Bitcoin mining, she stated:
“I think yes we should be worried. Of course it will have a negative impact on the environment, it’s not an energy-efficient process. The spectrum of Bitcoin’s popularity has to be a concern for a society.”
Bitcoin as a currency
As Bitcoin prices exploded to over $20,000 in some markets before tailing off this week, the question of whether or not the cryptocurrency’s notable growth is a bubble has enveloped more and more sections of the global economy.
Academia has been less vocal than mainstream media and economists on the question. However, Yarovaya’s study of Bitcoin, which looks at the performance of the coin specifically as a currency, makes fairly clear-cut conclusions:
“Our evidence finds that the price of Bitcoin has been artificially inflated by speculative investment, putting it in a bubble.”
Bitcoin as an asset
Others in the Cambridge discussion see the situation differently. Michael Rauchs, head of cryptocurrency and Blockchain at the Cambridge Centre for Alternative Finance, noted that whether or not Bitcoin is a bubble very much depends on how you define the coin itself. His view is that as a currency, Bitcoin is in fact a bubble, as the ARU study says. But as an investment, it’s not necessarily doomed to undergo a bubble-like pop.
However, even as an asset or tool for investment, according to Yarovaya Bitcoin is still a bubble. She argued that the digital asset has no “true value:”
“I believe even as an investment it’s in a bubble. As an investment, the true value of Bitcoin is potentially zero. It’s not gold, it has no true value. The price is higher than the true fundamental value so sooner or later the investors’ preferences (regarding) Bitcoin and cryptocurrency will change and the bubble will burst.”
More bullish still was data analytics CEO Richard Baker, who forecast Bitcoin prices having “some way to go” before hitting a peak, due principally to the launch of futures this month.
Emily Mackaym, alternative lender at TAB Capital, meanwhile was more cautious, pointing out that Bitcoin’s performance is very much tied to what people think of it:
“The very mention of the word ‘bubble’ could have a self-fulfilling effect of moderating demand too. We live in an age where anything can happen, so I’m not going to try to predict this one!”
Bitcoin had lost around six percent in the 24 hours to press time according to cross-exchange data, trading at an average of $15,800.