CFTC Subpoenas Leading Exchanges for Trading Data
CFTC Purportedly Conducting Criminal Investigation Into Bitcoin Price Manipulation
Last month, it was reported that the U.S Justice Department had launched a criminal probe into whether the bitcoin and cryptocurrency markets the subject of manipulation and misconduct, citing “four people familiar with the matter.”
According to a report recently published by The Wall Street Journal, again citing “people familiar with the matter,” the CFTC has “open[ed] an investigation into whether traders have colluded to manipulate bitcoin prices.
The report adds that “The CFTC is coordinating with the U.S Justice Department” in its investigations.
CFTC Investigation Spurred by Lack of Trading Data Provided to CME by Exchanges
The Wall Street Journal claims that the CFTC’s investigation was spurred by a lack of responsiveness to requests from CME that Bitstamp, Coinbase, Itbit, and Kraken to provide trading data back in January. In response to the requests, several exchanges reportedly initially “declined to comply,” before “provid[ing] some data” after CME reduced the request to just several hours of trading activity, rather than a full day. The report adds that the data provided only included information “restricted to “a few market participants.”
The CFTC, the regulatory authority tasked with overseeing CME’s bitcoin futures markets, reportedly subpoenaed the exchanges for the data in response to the dispute. The report describes the “fight over access to bitcoin trading data” as having comprised a significant factor in the CFTC’s decision to launch an investigation into price manipulation in the BTC markets.
Regulated Futures Markets Grants CFTC Oversight of Underlying Spot BTC Markets
The investigation is legitimated by bitcoin’s designation as a commodity, juridically granting the CFTC jurisdiction over the commodity markets underscoring derivative markets overseen by the regulator. CME spokeswoman, Laurie Bischel, stated: “All participating exchanges are required to share information, including cooperation with inquiries and investigations.”
Jesse Powell, the chief executive officer of Kraken, has criticised the subpoena, stating that the “newly declared oversight” of the CFTC “has the spot exchanges questioning the value and cost of their index participation.” Charles Cascarilla, the chief executive officer of Paxos, the company that operates Itbit, stated: “We have definitely entered an unknown area where it is clear there is a desire for tightened oversight.” As of this writing, Bitstamp and Coinbase are yet to address the alleged subpoenas.
Written by Bitcoin.com
The Top 5 Ethereum Dapps By Daily Active Users
From the mists of ideation, a first wave of ethereum dapps is starting to emerge.
Launched in 2015 with the promise that developers could use its technology as a “secure backbone” for a new kind of software application, ethereum has long held the promise of enabling such innovations, all “without any possibility of downtime, censorship or third-party interference.”
So far, however, this vision has largely fueled an explosion of fundraising through initial coin offerings (ICOs), in which ethereum-based tokens were sold as the native currency for applications that were ostensibly being built, but in many cases have yet to see a real launch.
In other words, there is plenty of fodder for the narrative that while ICOs will welcome your money right now, real, working dapps are always a day away. And yet a few dapps are starting to attract active daily users in the hundreds and thousands.
These dapps have a few things in common. The top five – Idex, ForkDelta, Bancor, CryptoKitties and LocalEthereum – all facilitate trades of crypto assets in one way or another, though they have a range of business models, from exchange to game to market maker.
Successful projects also tend to have a relatively intuitive user experience, something dapps in general struggle with. Michael Foster, co-founder of LocalEthereum, said, “We deliberately designed LocalEthereum to look and feel like an ordinary website.”
Bancor’s director of communications Nate Hindman echoed that sentiment, saying the dapp was “built with simplicity in mind.” And Bryce Bladon, a co-founder of CryptoKitties, attributed that dapp’s success to the fact that it “managed to introduce consumers to the blockchain in a way that was fun, interesting, and accessible.” (He mentioned cat puns as a specific example.)
Contributing to their ease of use, none of these dapps requires the use a native token. Bancor and Aurora Labs – Idex’s parent company – have conducted ICOs, but owning these tokens isn’t required.
For all these dapps’ relative success, it must be said: daily userbases of a few hundred or a few thousand are laughably small compared to those of the biggest centralized apps – Facebook has well over a billion daily active users.
Asked to explain this disparity, Hindman remarked, “Building apps that are not only decentralized but run like popular consumer web apps is no small feat and requires underlying infrastructure that is still in its infancy.”
Bladon said something similar: “centralized solutions are difficult to outperform in terms of convenience. They’re faster, familiar, and entrenched.”
“Compared to Amazon Web Services, processing on ethereum is 150 million times more expensive.”
Not that dapp-lovers should despair. That decentralized applications have even modest userbases, Bladon suggested, shows “the incredible value people place on trustless computation.”
And dapps are still in their infancy, after all. “The blockchain world is quickly catching up to its aspirations,” said Hindman, at the same time as consumers are “awakening to the power of decentralization.”
As data breaches and centralized parties’ other lapses pile up, he predicted, users “will flock to decentralized services in droves.”
Until then, below are the top five ethereum dapps by number of daily active users, with data sourced from DappRadar. (Editor’s note: The ranking can be volatile, so this list is based on a snapshot taken Tuesday afternoon.)
Idex had 6,479 users in the 24 hours prior to our snapshot, making it the most-used ethereum dapp in that period.
Idex is a decentralized exchange offered by Aurora, a firm that has developed a series of financial services dapps. The exchange went live in October and experienced rapid growth in January, Aurora CEO Alex Wearn told Craig Cobb’s Trader Cobb Crypto Podcast in May. It offers trades between ether and ERC-20 tokens.
Wearn explained on the podcast that “you’ve got these digital assets that can move in a peer-to-peer fashion,” but added that users of centralized exchanges such as Binance, GDAX and Kraken, have “given control of the cryptocurrency over to the exchange operator.” The practical implications of that decision, he added, are “the risk of hacking and theft.”
Idex, by contrast, uses a “publicly verifiable” ethereum smart contract, Wearn continued. In its current form, however, Idex is not entirely decentralized, as Aurora’s white paper explains. Idex’s centralized server is used at various steps of the process, such as queueing transactions in the order book. The white paper references a planned “fully decentralized version” of the platform.
ForkDelta had 2,221 users in the 24 hours prior to our snapshot, making it the second most-used ethereum dapp in that period.
Similar to Idex, ForkDelta is a decentralized exchange offering trading in ether and ERC-20 tokens. Arseniy Ivanov started the project in January as a fork EtherDelta, another decentralized exchange. He cited the departure of EtherDelta founder Zack Coburn and “the fact that EtherDelta has strayed from the original spirit of the project.”
As with Idex, ForkDelta’s order book is centralized, although decentralizing that aspect of the exchange, as well as its hosting, is listed on the project’s roadmap. ForkDelta continues to use EtherDelta’s smart contract for now, meaning that fees on the ForkDelta platform still go to EtherDelta.
Bancor had 560 users in the 24 hours prior to our snapshot, making it the third most-used ethereum dapp in that period.
Hindman disputed that number, however, telling CoinDesk that the daily active userbase is “significantly larger” than what DappRadar shows; he declined to reveal Bancor’s estimate. (DappRadar founder Skirmantas Januskas said that he is in contact with Bancor and “will see what we can do to make sure the data is 100 percent accurate.”)
Bancor is a market maker that allows users to exchange ether and a growing number of ERC-20 tokens – 100 as of this week – but unlike a traditional exchange, it does not match buyers and sellers. Instead, Bancor’s protocol aims to provide liquidity between different ethereum-based assets using “smart tokens,” which Bancor says create a “built-in liquidity mechanism” through smart contracts.
Bancor raised $150 million last year selling the first of these smart tokens, BNT, in an ICO.
CryptoKitties had 408 users in the 24 hours prior to our snapshot, making it the fourth most-used ethereum dapp in that period.
CryptoKitties, which spun out of Axiom Zen in March, has arguably attracted more attention than any other dapp: from players, media, investors, imitators, and non-users who felt the effects of CryptoKitties’ popularity due to increased congestion on the ethereum network. According to estimates by Bloxy, CryptoKitties’ daily userbase (measured by distinct senders) has fallen by around 97 percent since its peak in December.
The game allows users to collect, trade and breed unique, non-replicable cats. These are in fact ERC-721 tokens, ethereum-based assets that, according to CryptoKitties co-founder Arthur Camara, could eventually be used to tokenize real-world assets such as art and real estate.
Bladon told CoinDesk that CryptoKitties receives far more users on its site than directly through its smart contract, which is the only source DappRadar references. The fact that only a portion of CryptoKitties players interact with the game through the smart contract itself hints at something larger: CryptoKitties is not as decentralized as the “dapp” label suggests.
As CoinDesk reported in December, “the game is run within a centralized database, and mostly operates from one internet portal – the CryptoKitties website itself.”
LocalEthereum had 236 users in the 24 hours prior to our snapshot, making it the fifth most-used ethereum dapp in that period.
LocalEthereum facilitates trades of ether between individuals, much as LocalBitcoins did for bitcoin. The similar name is not a coincidence: “People have been asking, ‘is there a LocalEthereum?’ even before we announced ourselves last year,” Foster told CoinDesk.
LocalEthereum functions via an escrow smart contract, which locks up the seller’s ether until the seller certifies that they’ve received the money from the buyer – whether through an in-person cash handoff, a bank transfer, or another method.
In the event of a dispute, the smart contract specifies an arbitrator (for now, only LocalEthereum, but perhaps eventually other reputable parties). The arbitrator can award the ether to one of those two parties, but not to anyone else – for example, themselves.
5 image via Shutterstock
Written by CoinDesk.com
Bitmex to VIPs: Bitcoin Won’t Replace Fiat, Just a ‘Useful Niche,’ Enthusiasts ‘Naive’
Before Weirdly Turning, Bitmex Praises BTC’s Deflationary Aspects
In conclusion, Bitmex researchers lukewarmly laud bitcoin core’s merits, arguing how “to many, Bitcoin’s ability to decouple debt from money and thereby result in a deflationary climate without the deflationary debt spiral problem is the point, rather than a bug.” Still, Bitcoin Economics – Deflationary Debt Spiral, published recently by the exchange for its VIPs, refers to those who believe bitcoin “would result in a more prosperous economic system” as being “naive.” Piling on in this manner, they continue, “Bitcoin is a new and unique system, which is likely to cause more economic problems, perhaps unexpected or new ones.”
Bitcoin Economics – Deflationary Debt Spiral, is the final in a three part series by the Hong Kong-based Bitcoin Mercantile Exchange (Bitmex). Hot shot, risk enticed futures traders are emboldened by the exchange’s shorting ability and 100x leveraged contracts. Contracts can only be purchased and settled in bitcoin core (BTC), all without the bother of holding actual coins. Bitcoin cash, bitcoin core, ripple, ether, litecoin, cardano round out possible contract choices.
The report was initially released by a cranky Twitter polemicist who claimed it to be an exclusive get, designed for Bitmex’s VIPs. Days later, the exchange would publish it on their site for all to see. The report’s focus was to “examine the deflationary nature of Bitcoin and consider why this deflation may be necessary due to some of Bitcoin’s weaknesses.”
Deflation, as a matter of course, occurs when the value of money increases. In the modern West, at least, this concept has largely been only theoretically known. And then crypto. And then bitcoin. Cursory surveys, and perhaps the reader’s own experience, revealed during 2017 the tension many bitcoiners faced. Used to government tickets eventually and methodically losing value through inflation, a bargain cut between court economists and the first to receive newly printed paper meant every incentive in the average person’s experience pointed to spending. Spend those tickets before they lose more value.
The opposite was evident for most of last year. And this third report by Bitmex takes into consideration long held beliefs about money in this respect. “Critics have argued that history has taught us that a finite monetary supply can be a poor economic policy, resulting in or exacerbating, economic crashes. Either because people are unwilling to spend appreciating money or because the real value of debt increases, resulting in a highly indebted economy. Bitcoin proponents are often called ‘economically naive,’ for failing to have learnt these economic lessons of the past,” researchers explain.
Bitmex believes economics, when it comes to bitcoin core, are “fundamentally different” from anything preceding. “There may be unique characteristics about Bitcoin, which make it more suited to a deflationary policy,” they argue. “Alternatively, limitations or weaknesses in Bitcoin could exist, which mean that too much inflation could have negative consequences not applicable to traditional forms of money.”
Deflation’s bad rap in the United States, for example, can be attributed to Irving Fisher’s appraisal of causes and exacerbation of the Great Depression of 1929. And the Bitmex part three meditation presents his arguments well as a chain of consequences where hoarding, or as crypto enthusiasts understand, hodling, only served to severely worsen the problem, according to Fisher. Yet, “maybe Fisher’s view on inflation was correct for the economy in the 20th century, however by 2150 technology may have fundamentally changed to such an extent that another inflation policy may be more appropriate for society,” they contend.
Turning from mere description, Bitmex researchers hit upon a rather novel concept: bitcoin is not a debt based currency, the kind government paper all over the world is. That is a fundamental difference, and it follows economies would behave differently should something like bitcoin core take hold. In a bitcoin based, deflationary economy, an economic downturn’s “impact of increases in the real value of debt could be less significant than one may think. This could make the deflationary debt spiral argument less relevant in a Bitcoin based economy,” they note.
A Cynical, Dismissive Way to View Bitcoin’s Potential
Given BTC’s deflationary aspects, its being so fundamentally different, and how traditional economic theory is at a loss to grapple with it, Bitmex would seem to hold the coin in high esteem. No, not really. Not at all, in fact. Very near the report’s end, VIPs are given the candid, unvarnished truth as the exchange sees it. Bitcoin core is a speculative plaything, an interesting project to perhaps make some interim profit if one is positioned well.
“Much of this discussion focuses on the economics of Bitcoin, assuming Bitcoin is widely adopted, such that the inflationary dynamics have an impact on society,” the report tantelizes. Curiously, the report doesn’t account for BTC’s notorious problems as a functioning currency in terms of block size, mempool congestion, and transaction fees – a debate lived out along side BTC by bitcoin cash (BCH). Researchers do not believe BTC will be widely adopted.
“In our view [wide BTC adoption] is an unlikely outcome and perhaps should be considered even more unlikely by Bitcoin’s critics. In our view, Bitcoin may satisfy a useful niche, that of making both censorship resistant and digital payments, but it’s unlikely to become the main currency in the economy. Therefore the debate about Bitcoin’s deflationary nature should be considered as largely irrelevant anyway. Hence, it is therefore somewhat odd that some critics use this as an argument against Bitcoin,” thereby negating almost the entirety of the previous report findings.
The last thought left with readers is a cynical, just-in-case principle: “if one thinks these economic problems associated with deflation have a remote chance of being relevant, like the critics indirectly imply, that would mean Bitcoin has a significant chance of becoming widely adopted and hugely successful. In that case, perhaps the sensible thing to do is buy and ‘HODL’.”
Written by Bitcoin.com