Top Crypto News – 23/01/2018

Hydro-Quebec Unable to Meet Energy Demand From Cryptocurrency Miners


Hydro-Quebec Overwhelmed by Electricity Demand From Miners

Hydro-Quebec Unable to Meet Energy Demand From Cryptocurrency MinersHydro-Quebec has indicated that it will not be able to meet the scale of power demanded by cryptocurrency miners, following an apparently overwhelmingly successful campaign designed to attract investment from the mining industry.

Marc-Antoine Pouliot, a spokesperson for Hydro-Quebec, recently stated “We won’t be able to power all the projects that we’re receiving,” attributing the utility’s changed position to overwhelming expressions of interest from mining companies. Mr. Pouliot stated the number of interested parties doubling over the course of the last week, resulting in the utility presently considering 70 potential mining projects. “We are receiving dozens of demands each day. This context is prompting us to clearly define our strategy,” he added.

Feral-Pierssens, who works alongside cryptocurrency miners seeking to establish operations in the province, has indicated that the expressions of interest received by Hydro-Quebec represent only a minority of the demand held within the mining industry, stating “This is the tip of the iceberg, as only a fraction of the initiatives have reached out to Hydro Quebec yet.”

Chinese Regulatory Concerns Drive Mining Companies Overseas

Hydro-Quebec Unable to Meet Energy Demand From Cryptocurrency MinersAmidst growing uncertainty regarding the future of mining within China, Eric Martel, the CEO of Hydro-Quebec, recently sought to attract cryptocurrency miners to establish operations in the province. Mr. Martel not only proclaimed the advantages the province could offer to miners – both in terms of access to cheap electricity and inexpensive cooling offered by Quebec’s snowy winters – but emphasized the benefits that could be reaped to the local population, stating that without a dramatic increase in the scale power consumed within the province, citizens could face an “explosion” in electricity tariffs in order to ensure the survival of the apparently struggling utility.

Hydro-Quebec has estimated that the province will produce approximately 100 terawatt-hours worth of power during the next decade – the equivalent of the energy required to power 6,000,000 homes in one year. In addition to cryptocurrency miners, Hydro-Quebec has also sought to entice entrepreneurs seeking to establish data centers in the province – as such are seen to create more job opportunities.

Industry Leaders Eye Quebec

Hydro-Quebec Unable to Meet Energy Demand From Cryptocurrency MinersDavid Vincent, the director of business development at Hydro-Quebec distribution, recently stated that “Of the world’s top five largest blockchain players, we have at least three or four.” Earlier this month, Reuters also reported that Nishant Sharma, a Bitmain spokesman, stated that the company has been in discussions with provincial power authorities regarding a number of potential sites in Quebec – indicating that the world’s largest mining company is among those seeking to establish operations in the Canadian province.

Hydro-Quebec’s Vice President of distribution, Eric Filion, has indicated that some companies have had issues finding sites with existing infrastructure suited to the requirements of industrial-scale mining operations. “We have the energy available,” Mr. Filion recently stated. “It’s a question of finding land and buildings quickly.”

Written by CoinDesk


How To Save on Bitcoin’s Soaring Fees


Rising fees seem to be the only thing people talk about in the bitcoin world these days.

The crypto space is full of frustration and vitriol on the topic, as the average transaction fee has soared to $19, turning bitcoin’s old claim to fame as a cheaper online payment method into a laughable assertion.

But despite these increasing costs, and the long-running debate they’ve caused, developers and users argue there are simple ways to decrease fees that aren’t being fully taken advantage of.

This point was raised recently when new data came to light suggesting that one bitcoin startup, Coinbase, singlehandedly facilitates as many as half of all bitcoin transactions, based on the drop in overall network volume when the U.S.-based exchange went offline for a couple hours on Jan. 11.

The problem with that situation, according to critics, is the company could singlehandedly save users (not only its own but other companies’ customers as well) a bundle on their transactions by implementing a couple technical features, namely Segregated Witness (SegWit).

And since the code change for SegWit was activated on bitcoin nearly six months ago, many are upset Coinbase hasn’t yet implemented it.

Sergej Kotliar, the CEO of payment provider Bitrefill, called the new data a “smoking gun” in that it shows how much of bitcoin’s limited transaction space Coinbase is using up. The pseudonymous blogger WhalePanda went so far as to blame bitcoin’s transaction backlogs and high fees on the Silicon Valley startup’s “incompetence.”

Patience is running especially thin as it relates to Coinbase, since the startup was one of the more vocal during bitcoin’s block size debate, complaining about high fees and arguing that an increase in the block size parameter would help alleviate those expenses.

Yet, critics argue, the company really shouldn’t be complaining since it’s not doing everything it can to push fees lower.

In response, Coinbase co-founder and CEO Brian Armstrong took to Twitter to stress that the company is working on rolling out technical features to reduce fees, but hinted that it’s not easy. “Thanks for bearing with us!” he said. (Coinbase declined to comment for this story).

But should users not be interested in enduring the fees for transacting, there are several possible ways to reduce them today.

The fee halver

SegWit was lauded as the optimization that would help bitcoin scale without upping the block size during last year’s scaling debates – yet only 12% of bitcoin transactions take advantage of the technology, even though SegWit transactions cost half as much as normal transactions.

Not all wallets currently have SegWit capability, but hardware wallets Trezor and Ledger support it and mobile wallets such as Edge (formerly Airbitz) and privacy-minded Samourai Wallet do as well.

But for users who don’t want to go through the trouble of switching providers, SegWit capability is on its way at other companies too.

Coinbase and are working on implementations, for example, but both have emphasized that SegWit is a new and complex change that they need to take their time with – they could lose user funds if a big enough mistake occurred.

Overall though, as the number of companies supporting the new feature grows, bitcoin fees will decrease – some even argue that transaction fees would disappear altogether if SegWit transactions replaced normal transactions.

But if fees aren’t eliminated altogether, a more specific type of SegWit address is in the works, which could potentially save users more in the future.

Estimation game

But while users wait for mass SegWit adoption, they can reduce fees individually using fee estimators.

Although early bitcoin wallets didn’t let users choose fees, this has changed, with many bitcoin wallets providing fee estimator tools to help users decide how much of a fee they should attach to their transaction to get it through the network in a timely manner.

In short, the higher the fee, the quicker the transaction will get added to a block, but on the other hand, users don’t want to overpay. New fee estimator tools try to help users strike the right balance.

That said, some estimators are better than others.

Some users check with standalone tools that consider different factors, such as the estimator from University of Freiburg computer science researcher Jochen Hoenicke, which gives a good idea of what fee is required to get your transaction into the next block.

Another from considers transaction complexity – such as how much data is sent with the transaction. Fees also take this into account, meaning that even a transaction equal to $1 could have large fees based on a large amount of data attached to the transaction, whereas a transaction equal to $1,000 could have a smaller fee if the amount of data attached to it is limited.

Users have criticized some estimators as telling them to pay higher fees than necessary, but that’s partly because fees are so difficult to predict. Fees can fluctuate for all sorts of reasons. The day of the week, for instance, can be a factor since people generally make fewer transactions on the weekend, meaning transaction backlogs would ease and fees wouldn’t need to be so high during that time.

In this way, users who don’t need to send money right away always have the option to wait for transaction backlogs to die down.

Beyond that, there are more roundabout ways to eliminate transaction fees completely, but these are highly dependent on what wallet or exchange provider is used.

For instance, it’s possible to transfer bitcoin on Coinbase for free, using its off-chain way of transacting or by moving funds to the startup’s cryptocurrency exchange, GDAX.

Longer-term tools

While the idea of batching a bunch of smaller transactions into one big transaction has been used in the traditional payments space for some time, it’s becoming more popular for bitcoin businesses that facilitate payments.

If more companies use this feature effectively, bitcoin transaction fees could be reduced by as much as 80 percent, according to one estimate. However, it’s worth mentioning that batching can erode privacy and is potentially slower, depending on how the company or user implements it.

Despite these tradeoffs, though, several companies, including Coinbase, have announced they intend to implement batching to tame fees.

In an effort to keep up with all the industry’s progress on decreasing fees, Bitrefill’s Kotliar launched a tool that allows users to see how optimized their bitcoin transactions are, displaying whether the transaction used batches, SegWit or a handful of other mechanisms shown to increase or decrease fees.

“Just paste a transaction ID and see if you’re overpaying for your bitcoin transactions and withdrawals,” Kotliar tweeted.

Plus, looking even further into the future, bitcoin developers are working on a handful of projects, such as the Lightning Network, that would be instrumental in reducing transaction fees, even as the number of people using the network continues to grow.

Summing up the work in the industry to reduce transaction fees in the short term, BitGo engineer Mark Erhardt tweeted:

“There is a lot of throughput to be gained by making better use of the available capacity.”

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in BitGo, Blockchain, Coinbase and Ledger. 
Fee charge statement image via Shutterstock


What’s a Former CIA Lawyer Doing in Crypto? Structuring Compliant ICOs


Russell Bruemmer is taking it upon himself to help token issuers construct compliant initial coin offerings (ICOs).

While that might sound challenging in a space where the regulatory framework has not been formalized, Bruemmer is as prepared as anyone could be in his new role advising blockchain startup Applied Philosophy Labs (APL).

A former top lawyer of the U.S. Central Intelligence Agency (CIA) and the former lead of the congressional affairs unit at the FBI, Bruemmer gained the relevant experience working for decades at for the law firm of WilmerHale, helping traditional companies structure their corporate governance.

In recent years, he said, he was approached by a number of blockchain entrepreneurs trying to figure out if the token they wanted to issue was a security or not.

As a result, by the time he retired from the firm in 2015, he had laid the foundation for his work advising startups more broadly.

“[Bruemmer] seemed like exactly what I needed in the new venture,” said APL founder David Levine.

In a climate where the Securities and Exchange Commission has been cracking down on crypto token fundraising schemes, Bruemmer knows he has his work cut out for him.

At APL specifically, he has helped the public benefit corporation draw up plans for a network of humanitarian companies that would sit underneath the parent entity and issue regulated cryptocurrency tokens.

To fund the humanitarian companies, he helped create a template to comply with the SEC’s Reg CF and Reg A+. The hope is that, eventually, this compliant structure will define a path to public offerings via an S-1 filing and S-3 filing.

Bruemmer told CoinDesk:

“We are using corporate and governance structures that will be familiar to, and thus comfortable for, our investors. This is another aspect of our intention to be transparent with our investors and regulators who have jurisdiction over our activities.”

And the first company that gets the treatment is solar power startup Indeco.

A power play

Indeco was one of the reasons Bruemmer was intrigued with APL in the first place, he told CoinDesk, since he already had an interest in how a compliant crypto token could incentivize the adoption of solar power.

And so the crew got started.

Speaking to Bruemmer’s insight, Levine told CoinDesk:

“Within a couple hours, we had mapped out the whole plan on how to build a regulatory compliant crypto.”

For Indeco’s ICO, people can purchase an ethereum-based ERC-20 token pegged to a single watt of solar capacity. They are then being offered an ownership stake in assets installed with the funds, including solar panels, batteries and microgrids for decentralized energy distribution.

“We’ve evolved from cryptocurrencies which are based solely on algorithms and trading values, etc. into something like Indeco, where the coin is actually going to equate to something that is more tangible,” said Bruemmer, who now sits on Indeco’s board.

Earlier this month the company completed a $100,000 presale, as part of a broader ICO governed by Reg A+ that could eventually see the firm raising $50 million.

“If it works … you will expand the amount of solar energy being produced by bringing together groups of people who can invest small amounts, not huge amounts, and then aggregate those small amounts and build systems that can then sell energy either to a utility or to a customer,” Bruemmer said.

Although APL was originally designed to house what are called “series LLCs,” each with its own token, due to tax considerations the final structure of the subsidiaries could end up shifting to C Corps, which can offer unlimited stocks.

Investor resistance

If all that structuring doesn’t sound complicated enough, Indeco’s backstory is equally, if not more, complex.

Prior to founding APL and Indeco, Levine founded Geostellar, a solar power startup like Indeco, except without the blockchain.

By 2016, Geostellar was generating $3.6 million in annual revenue and had raised $27 million in venture capital, but even still, Levine was having trouble keeping the company going.

To help put the company on more solid footing, Levine says he spent about $500,000 on legal fees, accounting fees and more last year, in an effort to raise $40 million in an ICO governed under Reg A+.

But the company’s secured creditors pushed back, Levine said.

“They could block us from doing almost anything,” he said. “And they were sending me cease-and-desist letters on the ICO, claiming they had to consent as our secured creditors.”

Levine was able to sidestep Geostellar’s creditors’ concerns by offering a Simple Agreement for Future Equity (SAFE) on the equity crowdfunding site Republic (which recently began managing token sales).

As part of the crowdfunding campaign, the company offered to those investors cryptocurrency called “zydeco,” among other gifts including a “shoutout” on Facebook and a solar-powered happy hour.

Levine raised $325,000 during that promotion.

“The secured creditors and investors were challenging my authority to even offer free tokens, and generally criticizing everything I did,” Levine said, adding, “Of course it turned out to be a huge success.”

Now Geostellar will be Indeco’s first customer, Levine told CoinDesk. Which is one more client than most blockchain startups can boast.

Then again, a struggling company with the same founder is not exactly an ideal source of revenue. Bruemmer, who chairs the conflict and audit committees of APL’s board of directors, would not comment on Geostellar’s history of financial struggles.

But Levine said having the legal veteran on board will help Indeco navigate such complexities, telling CoinDesk:

“Things were going to get weird, and we needed someone brilliant, unflappable, experienced and credible.”

Photo courtesy of David Levine (shown left) with Russell Bruemmer
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Tax Loophole Closing For South Korean Cryptocurrency Exchanges




What Tax Rates Apply To Crypto Exchanges?

Tax Loophole Closing For South Korean Cryptocurrency ExchangesThe South Korean government is working on how to tax cryptocurrency exchanges. The Korea Times quoted an official of the Ministry of Strategy and Finance revealing on Monday, “Virtual money exchanges will have to pay taxes. But we have yet to decide the exact tax rates as we are in talks with the National Tax Agency.”

Yonhap, however, reported that “The government said Monday it will collect up to 24.2 percent of corporate and local income taxes from South Korea’s cryptocurrency exchanges this year.” The news outlet also quoted an official saying:

Virtual currency exchanges should pay the corporate tax on income earned last year by the end of March and the local income tax by the end of April.

Following media reports, the government posted a notice on its website quoting the Ministry of Strategy and Finance, stating, “In relation to virtual currency taxation, we are currently considering the method to secure taxation data…it has not been decided yet.”

Imposing Corporate and Income Taxes

The Korea Times explained that in South Korea:

All companies reporting more than 20 billion won have to pay 22 percent and 2.2 percent of corporate and local income taxes out of their revenues under the relevant laws. But the rules were not applied to exchanges.

However, recently the regulators emphasized that some taxes are possible under the current law, as previously reported.

Tax Loophole Closing For South Korean Cryptocurrency ExchangesThe crypto exchanges that will pay the most taxes are the country’s two largest exchanges, Bithumb and Kakao-backed Upbit. At the time of writing, Bithumb’s 24-hour trading volume is $3.14 billion whereas Upbit’s is $2.97 billion, according to Coinmarketcap.

In the first 7 months of last year, Bithumb reported 49.23 billion won (~USD$46.3 million) in earnings on 49.27 billion won sales. According to Yujin Investment & Securities, the exchange’s 2017 estimated earning is 317.6 billion won (~$298.5 million). Based on this estimate, Bithumb could be paying about 60 billion won in corporate and local income taxes, according to Yonhap.

Earlier this month, the Korean National Tax Service launched a tax investigation into Bithumb and Coinone. The Hankook-Ilbo described, “The government is considering ways to impose a capital gains tax on virtual currency investment returns.”

Images courtesy of Shutterstock, the Korean government, and Bithumb.
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