Although there are groups on both sides – with some claiming that Bitcoin’s day is over, while others argue a rise in price is imminent – the truth is far more complex. Bitcoin can rise again, but it requires a shift in the crypto industry to happen, says George Zarya, CEO of BEQUANT.
Institutional buy-in
Fundamentally, the retail aspect of cryptocurrency investment has been a huge driver for the market. Small groups of consumers have willingly put money into a wide range of digital assets with Bitcoin being one of the first examples of this. While this has led to huge growth in the market, there now needs to be an equal amount of attention from large financial institutions in order to take the crypto market to the next stage.
This has already begun to occur, with research from the Global Blockchain Business Council (GBBC) showing that up to 41% of institutional investors believe they will be entering the Initial Coin Offering (ICO) sector within the next five years. Through this kind of support from large industry bodies, the cryptocurrency sector will gain further legitimacy – a factor that has historically plagued the asset since its inception.
Compliance first
However, even with the investment of large financial institutions, there still needs to be further reliability in order for coins like Bitcoin to regain their presence in the market. Fundamentally, the ‘new frontier’ that is crypto-investment has been viewed as a lawless and unregulated, leading many financial leaders to resist investment in the sector. Without more consistent regulation in place, the large institutions will always be nervous about entering the market.
While those in the industry have done much to offset these concerns – such as aligning themselves to wider market regulation or creating self-monitoring bodies – there needs to be increased support at a governmental level to legitimise the efforts of the crypto-market. The challenge here is that the controls that different jurisdictions put in place need to strike a balance between making crypto assets more secure while still encouraging sector growth in a burgeoning market.
However, if governments can find this middle ground, the result will be a far more reliable market for investors. Fortunately, there have already been some developments in this area, with increased infrastructure for institutions and more accessibility to crypto banking on the rise.
Without more consistent regulation in place, the large institutions will always be nervous about entering the market.
Avoiding bubbles, promoting reliability
Ultimately, institutional buy-in and increased regulation will set the right framework for a more reliable market. This will result in more stable assets to invest in, with assets such as Bitcoin able to stabilise and grow in line with the market changes. The cryptocurrency market will become less volatile, with investors making better decisions on the future of certain assets and recognising the ICOs that have the most potential.
In doing so, the ‘bubbles’ that have previously characterised the market will decline and there will be a clear distinction between the assets being invested in. Some coins will serve the same use as traditional fiat currency, while others – such as Bitcoin – will feature as more of an investment option for traders. Investors – both retail and institutional – will have a much clearer distinction of these assets and will be able to make informed decisions on which coins to purchase.
To date, Bitcoin’s story has been viewed as a reflection of the wider cryptocurrency market. However, the reality is far more complicated. Regulation and buy-in from leaders in financial services is integral for any market growth and will ultimately inform the future of this well known, if hotly debated, currency.
Website: https://bequant.io/
Blockchain has been synonymous with crypto currencies for some time but its range of applications and roles in the wider digital transformation are now much more fully understood. This is certainly true of the financial industry, which is gradually shaking off its legacy systems and incorporating this revolutionary technology into an ever-growing number of uses.
Blockchain is correctly described as the technology behind crypto currencies, recording transactions made between parties. But its key and unique feature is its capacity to provide an undisputed audit trail. It establishes an incorruptible digital ledger of transactions that can be programmed to record every data item of value.
In practice, Blockchain acts like a single spreadsheet copied thousands of times across a network of computers. This spreadsheet can be updated on a constant, real-time basis and is shared identically across the network.
Using Blockchain, two strangers can conduct business with no need for a third party, while creating a legally-indisputable record of an agreement. As such, there is no point of weakness at which data can be corrupted or hacked. This issue is of growing importance for those players involved in deals in which adding more contact points increases vulnerability exponentially.
Using Blockchain, two strangers can conduct business with no need for a third party, while creating a legally-indisputable record of an agreement.
Transactions are more efficient and secure
Each year the financial industry conducts trillions of euros-worth of transactions and Blockchain has the potential to revolutionise how these deals are executed.
Blockchain streamlines and speeds up transactions, facilitating fast and secure payments with less cost, potentially anywhere in the world. The security that Blockchain provides is also a key element in that it renders the tactics used by cybercriminals as obsolete.
JP Morgan, HSBC and Bank of America Merrill Lynch are already exploring Blockchain to facilitate international payments and trade-related transactions but Blockchain can also be used in the real estate sector, for example, to conduct transactions, including the transfer of properties and escrowing of funds.
Smart contracts can deliver powerful changes
Blockchain can also be used to apply ‘smart contracts’, which are still at a nascent stage of development, but which have the potential to deliver powerful changes in a wide range of sectors.
Smart contracts have the terms of agreements written into computer code and this enables the automation of certain functions, such as authorised parties conducting transactions according to the terms. A simple illustration of this is a vending machine, which enables a consumer to buy a bar of chocolate at a fixed price without the need for any third party.
Blockchain can also be used to apply ‘smart contracts’, which are still at a nascent stage of development, but which have the potential to deliver powerful changes in a wide range of sectors.
Smart contracts have tremendous potential. They provide security and consistency and help to reduce transaction costs, not least by reducing the need for ‘middlemen’. At present, they are far from flawless and work still needs to be done to address the grey areas that, in practice, often arise in contracts and transactions. There is much room for refinement, but such contracts do already have clear applications. In real estate, for example, smart contracts can keep track of leases and monitor payments. Going forwards, smart contracts can only become much more commonplace in the financial industry.
Incorruptible long-term data storage
The technology by which computers store information has gone through several cycles over the decades. Data carriers have seen evolution from punch-cards and magnetic tape to floppy and zip discs, to the more familiar CDs, DVDs, hard drives and USBs. While the latter formats are still widely used, they are clunky and perishable.
Drooms is the first virtual data room (VDR) provider to recognise Blockchain’s potential in the transaction space and incorporate it into its product offering. By using this technology, information that was previously archived using DVDs, hard drives and USBs can be authenticated at the click of a button.
Such documentation is invaluable in the legal guarantee phase of a transaction. If there is a legal dispute, then there can be no argument as to who accessed which documents and data and when. Parties cannot argue that they were misled with regards to what they were buying.
Drooms is the first virtual data room (VDR) provider to recognise Blockchain’s potential in the transaction space and incorporate it into its product offering.
Drooms is also storing the data on its servers for a fee for the duration of a warranty period. Whereas DVDs might be lost or corrupted over time, for example, this issue does not exist if a data room is available for reactivation whenever required and all data has been verified and archived according to a unique Blockchain record. All parties with a password will be able to access the data at any time and without the need for notaries.
Ahead of the technology curve
Drooms’ current goal in relation to Blockchain is to provide tamper-proof, cutting-edge and long-term data storage and protection with quick, secure and unrestricted access for all parties involved. We currently offer all modern formats of storage, but we have no doubt that Blockchain will eventually supersede these, not least because it will not fundamentally alter the costs of a VDR initially and over the longer run it will only reduce them.
Going forwards, financial professionals need to consider the power of Blockchain to disrupt their businesses and industries and to pinpoint ways in which they can leverage this ground-breaking technology to their advantage.
Further ahead, we see tremendous potential in applying Blockchain to the incorporation of digital signatures and improving contract analysis. Enabling clients to sign documents within a data room, thereby avoiding third-party involvement and the need to print and sign documents before re-uploading them to the system, boosts efficiency without creating inferior versions of contracts.
Thanks to Blockchain, future data rooms could enable users to read and pull up previously unsearchable contracts that have been signed by specific parties, thereby automating traditional contract management.
Going forwards, financial professionals need to consider the power of Blockchain to disrupt their businesses and industries and to pinpoint ways in which they can leverage this ground-breaking technology to their advantage. Our plan is to help our partners by staying ahead of the technology curve, finding new and innovative ways in which to help them using Blockchain.
Website: https://drooms.com
Chris Burniske, Placeholder Management partner, discusses the November downturn for crypto assets with Bloomberg's Joe Weisenthal, Caroline Hyde and Romaine Bostick on "Bloomberg Markets: What'd You Miss?"
Below, Finance Monthly kicks off this week with Rob Brockington from Pipster on the ICO ‘train’ damaging the reputation of blockchain, one of industry 4.0s biggest innovations.
When the trading industry experienced the ICO boom in January this year, amongst all the excitement there was a huge increase in available Altcoins. This surge in brand-new tradable ‘coins’ and the demand for them changed the trading landscape. Crypto exchanges such as Binance, Coinbase, BiTFinex and Kraken enabled a world-wide audience gold-rushing to the next big Bitcoin. Each of these relatively new exchanges, ideally positioned to help facilitate the speculators and investors, became key players within a booming sector of the industry worth billions almost overnight.
As unregulated exchanges, obligations for risk-control and customer-care were literally non-existent. Basic KYC (Know Your Customer) procedure was limited if at all practiced, which meant that swarms of uneducated retail investors were throwing money into ‘Blockchain-related’ investments with reckless abandon. A significant proportion of investment was sunk not only within ‘coins’ and ‘tokens’ that were market-ready and currently traded but towards proposed altcoins and technologies that existed only in the form of a white-paper. Many naive consumers were effectively scammed by dodgy entities and classic bucket-shop/pyramid schemes. The press naturally reported on these shady dealings and outright theft, branding ICO’s as by-and-large dangerous and risky.
Compounding this matter, even the more reputable exchanges experienced hacks and security leaks, which dealt further damage to the credibility and investability of the legitimate blockchain-related businesses and ICO’s. In fairness most exchanges responded very quickly to clean up their act and develop their protocols. However as they weren’t and still remain unregulated in most parts of the world, local authorities and enforcement agencies have had to get involved. Naturally, ICO’s, cryptocurrency and subsequently other Blockchain-related investments came under greater scrutiny. But to blame blockchain technology for organisational failings in centralised exchanges or poorly structured white-paper proposals is missing the point. To use a simple analogy, you can’t blame the existence and manufacturers of knives for knife crime. But you can legislate for it (enforcing businesses not to sell to minors or youngsters without ID) and to raise awareness to aid and prevent further potential victims. Tricksters and thieves will always go where the money is and the authorities ain’t. Similar ponzi and pyramid schemes still exist in all other areas of massive investment, such as in property and stake-ownership. Timeshare anyone?! ICOs are simply a new medium for these criminals and we’d all do well not to make the mistake of placing the blame on the ideas and technology the industry is based upon.
So with this slew of new ICO’s popping up during the boom being largely scams, with no product or service promised ever materialising, the impact on trading has been significant, both institutionally and on a retail basis. Investor panic ensued causing a massive sell-off in crypto assets, which signalled the end to crypto’s first boom. Much of the media witnessing fingers getting burnt, but demonstrably uninformed on the technology, were quick to deem blockchain as an untrustworthy platform for transactions. Preferable only to those shady individuals and enterprises who demand anonymity over transparency. Unregulated over regulated.
The detrimental impact to the broader market of equity investments, fundraising and crowdfunding was immediate. ICO’s being unregulated allow companies to acquire huge amounts of capital with a successful campaign (Telegram being a prime example) while avoiding giving away real equity to their investors. Instead investors receive tokens/coins that can potentially be traded for products/services at a later date or sold for a higher value, which unfortunately few have to-date. All of the regulated procedures for funding and investing in companies that other businesses must adhere to are being effectively sidestepped. Given the opportunity to give away 0% of their company for say $40m, with a very good and well executed ICO - rather than use a regulated service such as Kickstarter or Crowdcube, to raise an arbitrarily capped value of either $1m USD or €5m EUR (where they have to give percentage of equity) is a no-brainer.
ICO’s have predominantly adopted a model of tokenizing a service to draw investment. This has resulted in companies having to come up with weird, wonderful and at times completely pointless ways of adding blockchain technology to a concept or service that already functions. There are hoards of people boasting about how blockchain will change the world. I believe it already has. The opportunists and bandwagoners creating an ICO for whatever ludicrous reason (like buying sports cars over blockchain) are only helping to detract from the true entrepreneurs who have fantastic and viable ideas that could help so many people, given the appropriate backing.
The nature of this sector is that the people interested in ICO’s are those also exposed and interested in blockchain or vice versa. I expect this will change and we’ll see a broader demographic of people trying to take blockchain out of these more-specialised circles. Still, with a majority of blockchain events flooded with ICO’s and their parade of questionable ideas and proposals, there’s a long way to go for the industry yet to root out the chancers. Whereas blockchain itself is being transformed and built upon around the world to create real next generation technology.
There are so many types of blockchain and utilisations of blockchain and these can be seen over a variety of coins/tokens already out there in the market. Further development of the tech and building the future of decentralised-data-exchange is the main aim. Unfortunately trading on the price of cryptocurrency using this technology is all that attracts a lot of newcomers to blockchain.
It’s down to the financial industry and government to rectify the damage caused to blockchain by ICO’s. Regulation will affect the exchanges that Altcoins are traded on and as soon as cryptocurrency is regulated, ICO’s will likely be taken in under that umbrella. Making it far more difficult for companies to secure the amount of money they have been accruing over the past few years. Hopefully regulation will serve to ‘cleanse’ the ICO industry of these shady dealers, and companies will not be able exploit naive investors and dissuade future potential investors. With regulation recognition and legitimacy will come, thus empowering blockchain technology to fulfil its potential and improve trading as well as society on the whole, as so many like I have promised it will.
Ethereum, currently the second largest cryptocurrency after Bitcoin, will experience a “monumental, defining global breakout” when smart contracts can accept outside data.
The bullish prediction from influential technology expert, Ian McLeod of Thomas Crown Art, the world’s leading art-tech agency, comes as Ethereum’s price jumped 4% on Monday, adding some 8% over the last week, to trade at highs of $210.
Mr McLeod comments: “Ethereum is back in bull territory and is on track to enjoy considerable gains before year-end.
“I maintain that we can expect Ethereum to hit $500 by the end of 2018 and go on an overall upward trajectory throughout 2019.
“However, what will be the monumental, defining driver for its global breakout? Oracles.
“Oracles link Ethereum-run smart contracts to the real world and will be responsible for the digital currency to enter an entirely new phase of mass adoption.”
Oracles are trusted data feeds that deliver information into the smart contract, thereby taking away the requirement for smart contracts to directly access information outside their network. Typically, oracles are usually supplied by third parties which are authorised by the organisations that use them.
Ian McLeod continues: “Oracles are a massive step forward in the practical utilisation of smart contracts. They allow smart contracts to accept outside data to decide upon an action – and this has a myriad of highly-demanded, real-world use-cases in almost every sector.
“For instance, they can help insurance companies with pay-outs on flight delays, sports betting firms with result information coming from various trusted sources, and can help us in the art world by conclusively proving the provenance of artwork quickly and easily.”
He adds: “Using a blockchain to authenticate artwork is an ideal use-case for smart contracts. They provide the ability to store a permanent, immutable record of artwork at the point of creation which can be used to authenticate registered works. Oracles will further enhance this concept and lighten smart contracts’ work processes.”
The tech expert concludes: “When Ethereum-based smart contracts are fed a robust and reliable information through oracles to make precise and correct judgements, Ethereum’s price will explode.”
Last month, Mr Mcleod noted: “We can expect Bitcoin to lose 50% of its cryptocurrency market share to Ethereum, its nearest rival, within five years.
“Ethereum is already light years ahead of Bitcoin in everything but price – and this gap will become increasingly apparent as more and more investors jump into crypto.”
(Source: Thomas Crown Art)
In recent news the world witnessed Venezuela’s turmoiled path to hyperinflation. According to a recent report by the International Monetary Fund, Venezuelan citizens have been experiencing price hikes on consumer items of 200% week to week, and that’s just things like coffee and bread.
Behind the cause of Venezuela’s inflation is rumoured to be corrupt politics, price-fixing and social unrest, but much of the capital crisis began with rising prices of raw materials and a large reliance on imports for day to day living. Since 2015, an estimated 1.6 million people have left the country making themselves economic refugees elsewhere.
However, before we can understand how Venezuela, once a country with one of the strongest economies in South America, came to bust a 3-month annualized inflation rate of over 1,200,000%, we should learn about inflation and how it works.
Inflation is often considered the pinnacle of modern economics, but it’s not just a modern phenomenon. It goes way back, and has impacted exchanges, banking and commerce for hundreds of years. Today, inflation primarily influences interest rates, including but not limited to mortgages, pensions, payments, accounts, and all in all, the price of goods and services. On the back of all these, inflation also impacts investors.
In fact, inflation could be described simply put as the rate at which the price of things increases. The opposite is deflation, the rate at which the price of things decreases.
Inflation is usually measured and discussed according to two systems: The Consumer Prices Index (CPI) and the Retail Prices Index (RPI). These change according to data on how much stuff costs, how much people spend and how much something is valued, over time. The percentage figure shown by the measured CPI, i.e. 1.5%, means that goods and services are costing 1.5% more than the previous year. In theory, CPI should fluctuate according to supply and demand and therefore inflation occurs quite naturally in most countries, like the US and the UK, while in countries like Venezuela, the equation is littered with impacting factors that are difficult to even make sense of.
CPI figures in the UK are measured up to at least three decimal places and reported rounded up to a single decimal place. In Venezuela, they are far from reporting CPI in decimal round-ups, and perhaps they may never again. Once the fast-paced acceleration towards hyperinflation occurs, it’s very difficult to come back. Two famous examples of similar hyperinflation that have occurred are 1920s Germany and 2008 Zimbabwe, and in the latter case the solution was a complete overhaul of the African nation’s currency and dollarization of its economy.
The natural turnaround of inflation is that when the prices of items increase, the value of the currency buying the items decreases. For example, if I bought a cup of coffee for £1.50 last year, and this year it cost me £1.55, then for the same cup of coffee, I’ve had to spend more money, which on the flip side means my money is worth less; it’s worth less cups of coffee.
This video explains it well.
If we take a look at the changing prices of a cup of coffee in the UK compared with Venezuela, over the last four or so years, it may look something like this:
Since Venezuela's established position as a leading economy in South America, it has come a long way in doing bad trade. Prices of daily used items and household groceries have been coupling MoM. The main reasons behind this are a, shortages in state manufactured and produced goods, and b, a shortage of imported goods due to poor international relations. Within this equation is oil, which forms a majority stake in Venezuela’s export economy and a greater part of its GDP, given that Venezuela is home to some of the biggest oil reserves in the world. A slowdown in oil production since Maduro’s government came to power, mainly due to a lack of historical investment in the sector compared with the rest of the world’s oil markets, consequently resulted in a 45% reduction in GDP since 2013.
Pre-2013, Chavez was in power, and managed to keep the country’s economy afloat via oil revenues, but when he died of cancer in 2013, Maduro came to power and when global oil prices crashed, he failed to maintain stability. He ordered money to be printed to pay employees and continued to dispense state welfare. He then proceeded to control the price of household groceries, like flour, eggs and cooking oil. As CPI figures increased, the value of the Bolivar decreased, making foreign imports even harder. These events, combined with a collapse of import trade, led to the current hyperinflation that exists today. Further scarcities in food and medicine have also created hostile local environments, with protests and riots taking place across the country.
At this point, having depleted the state’s foreign exchange reserves, nation’s like Russia and China are no longer willing to help. Venezuela also cut off ties with the IMF in 2007, and the chances of a current bailout are slim. Although reports indicate Venezuela is on route to hit the 1 million percent inflation mark this year, according to the BBC, Venezuelan officials plan to resolve the country’s current economic anguish with very unorthodox methods. Nicolas Maduro’s government introduced a new digital currency, launching an Initial Coin Offering (ICO) for Petro this year. Serious doubt surround this move, as it is widely agreed the Petro is simply smoke and mirrors, with no real value. On the other hand, the government claims it raised $735m with the ICO, mostly backed by oil. The aim is to circumvent US and other countries’ economic sanctions, originally put in place due to political squabbles, and open the country up to international investment. They also intend to turn things around by introducing urban chicken and rabbit farming…
Sources: https://nationalpost.com/news/world/an-estimated-1-6-million-people-have-fled-venezuela-since-2015-thats-five-per-cent-of-its-population https://www.finance-monthly.com/2018/03/the-pound-vs-inflation-and-how-this-impacts-investors-today/ https://www.forbes.com/sites/garthfriesen/2018/08/07/the-path-to-hyperinflation-what-happened-to-venezuela/#6b96ff9915e4 https://www.bbc.co.uk/news/uk-45652921 https://www.bbc.co.uk/news/business-12196322 https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic https://www.forbes.com/sites/stevehanke/2017/10/28/zimbabwe-hyperinflates-again-entering-the-record-books-for-a-second-time-in-less-than-a-decade/#776634f03eed https://www.livemint.com/Opinion/7gNrvecy9QlyFrJYmZfiiL/The-how-and-why-of-the-Venezuelan-crisis.html
Nearly 50% of 2017’s Initial Coin Offerings are currently failing, and one serious factor in this lack of success comes from the lack of trust in a business. Investing in ICOs is risky. Little regulation results in a vulnerability to fraud, and is putting off people from contributing - and rightly so, why would you want to just throw away money?
With that said, ICOs can prove an incredible investment opportunity, with huge potential for growth starting at the pre-sale; and if a potential contributor has trust in a project, there is absolutely no reason for them not to invest.
So how can you earn investors’ trust? This week Tomislav Matic, CEO of Crypto Future, provides Finance Monthly with his top five ways to incite trust in potential investors.
1. Be transparent
One key factor in convincing others of your legitimacy is through being as transparent as possible. Of course, not every detail can be given away, but letting potential contributors understand the inner workings of your company can go a long way to showing them all the work being put into your ICO.
Being transparent develops a unique relationship with investors. Show them you align with legal compliance - you could even go as far as showing off clips of on-site testing; whatever it takes to show the world that you are genuine in your efforts, working hard to make this project a success - it goes much further than you might think.
2. Go social
On average, people spend 116 minutes of their day on social media - just under two hours checking what other people are doing. Only a fool would miss out on this opportunity for both exposure, and a chance to involve future contributors.
Use Facebook, LinkedIn and Twitter - and other social media sites too - to give people regular updates on product details, blog posts, interviews, information; anything you can think of. Frequent updates through a channel that people will be checking regardless go a long way to making investors feel involved in the progression of the project, connected and valued - that extra insight only helps towards bridging that relationship.
3. Introduce your team
By now, contributors feel the platform is safe, they know the inner workings of your product, and they feel involved with the project; it’s time to show them the team behind it. It’s all well and good having a brilliant product, but if you’ve got someone running the ICO who isn’t capable of delivering it, how can an investor trust it?
Roll out the blogs, the interviews, the Q&As, and get their social media accounts active too. Does your CEO have an incredible track record of getting ICOs off the ground? Shout about it. And an inexperienced leadership team isn’t necessarily a bad thing either - you just need to show to contributors why they are in the position they hold.
4. Create an extensive whitepaper
Not everyone will go through the entire whitepaper from front to back, but having a detailed outline of everything to do with your project gives contributors access to any specific information they might need.
Having a strong, comprehensive whitepaper in place allows investors to complete their due diligence at their own leisure. It’s a recurring theme: access to information. The more access, the more allowance you give for trust to blossom.
5. Outlining a clearly defined roadmap
Actions speak louder than words, but if you’re showing future contributors exactly what you’re planning and how you’re going to implement that plan, and then following through on it, there is absolutely no reason for them to believe that you can’t continue in that vein.
Outlining your strategy is a brilliant way of proving that you follow up on promises, and if you can do it before the ICO even starts, even with the smallest steps, investors will be more inclined to put their faith in you once the sale has kicked off.
Building trust is by no means easy, but it is incredibly vital to aiding your ICO’s success. It can without doubt be the difference between an ICO that hits the ground running, and one that flops completely.
The process starts early, and requires a huge amount of time and effort - much like building trust face to face - but the rewards are tremendous.
For much of 2017, tech news headlines were dominated by the wide-reaching and incredibly costly effects of ransomware. WannaCry and NotPetya infected thousands of computers, holding their data hostage and demanding that the user pay a significant sum for it to be returned to them. These attacks didn’t just affect general users, but businesses and national infrastructure as well, resulting in damage to reputations and a significant loss of capital due to downtime. But in 2018 we find ourselves faced by a different kind of threat, one that arguably hides in plain sight: cryptojacking. Cryptojacking sees malicious actors run cryptocurrency-mining software in the background of a user’s computer without their permission or knowledge. This can have a serious financial impact on a company, with a combination of costs in electricity and lost productivity being enough to be of a concern to financial teams in charge of budgets, as well as the issue of reputational damage associated with unknowingly aiding criminal activity.
Different Shades of Cryptojacking
These attacks generally come in two forms. Firstly, cryptojacking malware works in a similar way to other malware variants, oftentimes with hackers sneaking cryptocurrency miners into software (ranging from apps on a smartphone to videogames on the world’s largest PC gaming platform) which then runs in a computer’s background processing. Cryptojacking malware can gain access to core systems through a variety of attack vectors, including out-of-date applications and operating systems, like Windows XP. In one instance of a cryptojacking malware attack, hackers created a botnet (army of connected devices) of cryptominers, dubbed ‘Smominru’ by security researchers, which exploited over 520,000 machines – that's nearly as large as the Mirai botnet that nearly ‘broke the internet’ in 2016. This attack amassed nearly $2.3 million in the Monero cryptocurrency.
The second form of cryptojacking is far sneakier: ‘drive-by’ cryptojacking attacks can be performed on any device using a web browser. Simply put, these attacks happen when web pages infected with a so-called mining script are open on a user’s computer. The website will then, without the user’s knowledge or consent, mine for cryptocurrency using their PC. Attackers can then use the power of the user’s Core Processing Unit (CPU) to mine for currency – though the criminals lose access immediately when the user leaves the page. A recent, high-profile ‘drive-by’ attack saw 5,000 websites affected by the cryptojacking malware. The attack also infiltrated websites belonging to the UK Information Commissioner and several NHS and local council services.
The fact that cryptojacking lucratively operates “under the radar”, as well as crypto’s rise in popularity, has meant that the number of reported cases of cryptojacking rose by more than 600% in Q1, 2018. Cryptojacking is very hard to detect, particularly if criminals use currencies like Monero which is famous for its level of privacy. Like other cryptocurrencies, Monero uses a public ledger but the difference is that Monero’s is obfuscated to the point where no one can tell its source, amount or destination. For these reasons, it is a popular choice for cybercriminals, including cryptojackers. ‘Drive-by’ attacks are easier to execute than other cyberattacks and, from a cybercriminal’s perspective, can have a higher ROI as they only have to hack one website in order to target all visiting devices. As of the 9th July, 2018, over 30,000 websites have been infected with malicious crypto mining scripts, including sites belonging to Tesla and Aviva. Finally, crypto-mining criminals aren’t relying on users or organisations choosing to transfer money in order to regain access to their data or systems as in the case of ransomware attacks; instead, they are able to mine for as long as the malicious script is running. Experts are even arguing that cryptojacking could soon overtake the use of ransomware because it is simple, more straightforward and less risky.
Running out of Energy: The Effects of Crypto-Mining
The effects of cryptojacking on a PC should be fairly noticeable. Mining for cryptocurrency runs complicated equations which are time and processor intensive. Tell-tale signs are if a device starts acting uncharacteristically sluggishly, or if its fans seem overactive. If the affected device is a laptop the battery will drain noticeably quicker. These symptoms can go undetected, however, particularly if devices are still operational and users don’t think to alert the IT help desk.
Some may argue that cryptojacking is thus just a minor nuisance and a largely victimless crime, but in fact the damage comes from just how energy intensive it is. While the immediate effects may not be as crippling as a large-scale ransomware attack, costs build up because cryptojacking can slow down systems and destroy technology, which are costly on their own but can also lead to downtime. Drains on electricity can also cause incredibly high bills, and are bad for the environment. The electric cost of cryptojacking (Coinhive in this case) on just one desktop computer was 1.212kWh of electricity over the space of 24 hours. According to the Energy Savings Trust, the average cost of electricity in the UK per kWh is 14.37p, so this would cost 17.42p per day, or £5.22 per month. For an organisation made up of hundreds (if not thousands) of computers, this could quickly become very expensive. In some cases, cryptojacking has also been known to completely destroy IT equipment due to the heavy and unrelenting strain that the hardware is put under by mining software. Organisations need to tackle cryptojacking head on in order to protect IT hardware and software, save on extra energy costs and ultimately retain business that may be lost due to downtime.
A Layered Defence against Cryptojackers
To prevent these attacks, organisations need to make sure that everything on their network is monitored and checked regularly, from PCs to websites. And when using third party tools, they should put protections into place and not link directly to source codes (the behind-the-scenes workings of what makes any computer program function) which aren’t their own. Businesses should also invest in resources for IT and security teams that give them a holistic view of what is going on in their environments, because they can’t protect or defend against threats they don’t know about. Finally, a layered approach to cybersecurity reduces attack surfaces, detects attacks that do get through, and helps cybersecurity professionals to take rapid action to contain malicious activity and software vulnerabilities. The financial outlay on a layered cybersecurity solution might seem costly, but finance teams in charge of investing in technology should see this as a critical insurance policy against cyberattacks that could completely cripple a business. Investment in cybersecurity is nothing compared to what cryptojacking could cost an unprotected organisation.
Users, including financial teams who are often targets of cyberattacks, can also do their bit to stop the spread of cryptojacking. It’s important not to download files from suspicious websites, or open attachments from email addresses you don’t recognise. Furthermore, users can protect themselves online through the use of browser plug-ins that block attempts from websites trying to hijack their PCs.
However necessary it may be to introduce precautions, what ultimately might end up being the cure for cryptojacking is cryptocurrency itself. At time of writing, Bitcoin has just experienced a crash of a little under $1,000 in just shy of 24 hours. This volatility – particularly if crypto continues its downward trend since Bitcoin peaked at $19,783.06 in December 2017 (it is currently at $6,431.70 less than 10 months later) – might put criminals off. If cryptojacking can no longer prove to be profitable because the investment in the tools required is not matched by the reward, then it may well be the markets that solve the cryptojacking issue.
While market volatility is out of the control of individual businesses, what is within their means is the ability to shore up their infrastructure. Hackers are at the cutting edge in their attempts to exploit any sort of flaw that exists in a system’s makeup and cryptojacking is currently the shiniest plaything in their toy box. The positive outlook however is that cryptojacking can be protected against with the right tools and mind-set. Out-of-date applications and operating systems are a favourite attack vector for bad guys, but they can easily be fixed. It is the responsibility of IT and Security teams, along with key decision makers who are in charge of purchasing, to stop them. By investing in cybersecurity technology, as well as training users, organisations defend against cryptominers trying to gain access to precious resources and can help to make cryptojacking a less attractive prospect for hackers.
In July, global customer experience provider Voxpro - powered by TELUS International, hosted a major event at its Centre of Excellence in Dublin, Ireland, entitled The Future of Money. Over one hundred FinTech innovators from around the world gathered to discuss the current state of the cryptocurrency industry, regulatory and operational challenges, and the opportunities that lie ahead.
“If you ask any crypto company what their biggest issue is, they're not going to tell you regulation; they're going to tell you getting bank accounts.”
That’s according to Jeremy Allaire, Founder & CEO of Circle - a speaker at The Future of Money event in Dublin. Allaire, whose company recently acquired cryptocurrency exchange Poloniex, revealed the significant obstacles that traditional banking institutions are putting in the path of his industry.
“Banks have pretty systematically limited companies’ ability to operate in this space, and that really is a challenge. I think part of that is regulatory uncertainty and part of it is just hostility to a technology which basically threatens to eliminate a lot of their profit margin and business models.”
Allaire believes the solution lies in the establishment of ‘”crypto-native banks” that will work closely with both crypto companies and central banks to provide the connectivity that is urgently needed.
The fact that traditional banks are under threat at all points to a fundamental shift in how the world views money, something that David Schwartz, Chief Cryptographer at Ripple, believes was inevitable in an increasingly global economy. Schwartz told the Dublin audience that the key problem with money as we know it is that it is neither “universal nor interoperable” and that currency needs to be one or the other if it is to serve the modern economy.
“If it was universal and everybody in the world could accept it with equal ease, then that would be fine. And if it could operate with other systems that other people use, that would be fine too. If you're stuck on an island as the economy becomes increasingly global and more and more people want to do business internationally, but have to do it through intermediaries and slow systems, then we start to really hit the problems created by that system.”
So how exactly does cryptocurrency solve this ‘money problem’? Schwartz pointed to the example of how financial services company Cuallix is using XRP, a digital currency created by Ripple, to move money between the United States and Mexico. Instead of relying on the conventional method, which is very expensive and takes several days, Cuallix buys XRP the moment they need it and a few seconds later sells it for Mexican Pesos. The speed of the transaction avoids the market volatility of both the peso and cryptocurrency, and, according to Schwartz, makes the whole process up to 60% cheaper.
As the adoption of cryptocurrency rapidly grows, so will the need for a new kind of infrastructure to support it, particularly with a view to enhancing the customer experience. Jeremy Allaire of Circle described how a new infrastructure layer of the internet is going to allow a lot of the functions currently performed by the financial industry, mostly record keeping in very proprietary siloed systems, to run on the open internet, at a radically lower cost, and with a much better consumer experience.
And he foresees a new wave of industry enabling this shift: “There are going to be very significant large technology companies built that support the move to crypto finance, just like there have been really big technology companies that have supported the move into digital media and digital communications.”
Gregoire Vigroux, a Vice President at TELUS International Europe, shared a powerful prediction with the audience at The Future of Money event. “Within just a few years, over 95% of the world’s population will hold cryptocurrencies.” Moreover, he believes that we are currently witnessing a landmark moment in history, telling the audience:
“If this was the early 1990s, we would have a panel of internet professionals telling us that the internet is coming and is going to represent a major disruption. Well, it’s now 2018 and today we’re talking about the biggest revolution since the dawn of the internet – cryptocurrency.”
The disruption of traditional financial institutions is being fuelled in part by cutting-edge customer (CX) and user (UX) experiences that are now being offered by digital currency providers. Today, more and more FinTech innovators are forming partnerships with customer experience experts like Voxpro – powered by TELUS International, in order to successfully capitalise on crypto’s increasing popularity.
With experience powering customer operations for some of the world’s leading technology companies, Voxpro has the agility, talent, and digital capabilities to ensure a world-class end-to-end experience for every user, even during periods of intense onboarding.
Leading exchange Binance, for example, recently experienced onboarding rates of up to 250,000 new users per day. If that company fails to successfully deal with the increased levels of customer contact that will naturally come their way, those users may head straight to a competitor. As crypto approaches mass adoption, companies must prioritise investments in their customer experience in order to avoid brand-devaluing issues that can come with a major spike in business.
At the end of the day, the overall customer experience provided by companies is what will differentiate them in an increasingly competitive market. Simply put, the FinTech and cryptocurrency brands that ‘put their money where their mouths are’ when it comes to investing in their customer and user experience will win the day in the modern economy.
Contact details:
telusinternational.com
voxprogroup.com
Bitcoin was created in the aftermath of a catastrophic economic recession and a fiasco in the worldwide banking system. It was the poster-child of the ‘cypherpunk’ movement, which believed in the transformative power of cryptography to mitigate that of governments and of capitalism. More broadly, it was the latest in a long line of political movements that have occurred throughout human history – from the French revolution in the 18th Century to the communist revolutions that gripped the 20th – all of which have aimed to give power “back to the people”.
But Bitcoin, the cryptocurrency once heralded by anarchists and libertarians as a technology that would unfetter us from a domineering financial system, now stands on the cusp of assimilating with the very sector which it was supposed to circumvent. For staunch advocates of total crypto liberty, that philosophical sea-change might feel like an expedient betrayal – and they would be right. But Bitcoin has evolved in a way that even its founder surely didn’t anticipate: its popularity has forged a whole new financial market, and an entire crypto ecosystem in its wake.
That’s no small feat, and it’s not one that financial institutions can realistically ignore. The power of blockchain, crypto’s underlying technology, may be in its decentralised nature – and in many sectors, that level of decentralisation is viable. But for the world of finance, this simply isn’t the case, and it never will be. The destiny of all successful financial products is institutionalisation, and given the triumph of crypto, institutional involvement – and the regulation that follows from that involvement – was always inevitable. If the client demand is there, which it is, then institutions have every right to meet that demand – and many already are.
The horse bolted last year, when two exchange giants, CME and CBOE, launched bitcoin future trading operations. That set the gears turning for other exchanges and banks. In May this year, Goldman Sachs, the most prestigious of the major Wall Street Banks, waded into the crypto world with a crypto futures trading operation and a dedicated trading desk. There’s plenty of activity on the horizon too: the New York Stock Exchange, part of the Intercontinental Exchange, is reportedly setting up an online platform for buying and holding crypto.
Crypto has also strayed into the world of asset management, where the number of funds currently stands at around 251, with $3.5 - 5 billion in assets under management. Considering only 20 hedge funds for cryptocurrency existed in 2016, this represents substantial growth. Even George Soros is said to have given approval to trade virtual assets in the last few months, having called it a bubble in January of this year.
Firms like Soros Fund Management and Goldman Sachs are far from outliers in the world of finance. According to a recent survey from Reuters, one in five financial institutions is considering trading cryptocurrencies within the next 12 months. That’s a noteworthy shift from 2017, when BTC and crypto were derided by the financial world as a scam and an avenue for criminality. Financial institutions may be saying one thing, but they’re doing quite another, and there will be fast followers now that Goldman has put the wheels in motion: very few want to lead, but everyone wants to be second.
As tends to be the case with the crypto market, wherever BTC goes, others follow. Ethereum futures appear to be on the horizon, at least as far as CBOE is concerned. The Initial Coin Offering market as a whole has also witnessed rapid institutionalisation. Back in 2017, all token sales were public, and widely advertised. Now, most ICOs get their money in private sales from a handful of investors. Even if start-ups do decide to run public sales, the vast majority of funding still comes from institutional money.
The elephant in the room is now working out the effect of all this institutional involvement. Most obviously, we’ll soon be seeing the impact of big money, as the process unlocks billions on billions of dollars that float in the world’s financial systems. With that, we’ll see more block trades occurring. Prices are likely to rise. Volatility may increase, or indeed, it may decrease as the market becomes more liquid.
Regardless of price movements, institutionalisation looks set to be a positive thing for the market, providing legitimacy in the space: after all, the more positive actors there are in the market, the better.
Cryptocurrencies are now “undeniably part of mainstream finance,” affirms the deVere Group.
The bold statement from the founder and CEO of deVere Group, Nigel Green, comes as the Financial Stability Board (FSB), has released a report that concludes Bitcoin and cryptocurrencies do not currently pose a risk to the global financial system.
It also comes as Bitcoin (BTC), the world’s largest and most influential digital currency, climbed the 50-day moving average (MA) on Monday for the first time in nearly two months, hiking its price above $6,700.
Mr Green comments: “Cryptocurrencies are the future of money and they are already undeniably part of mainstream finance.
“This is underscored today by the report by the Financial Stability Board (FSB), the international watchdog, which finds that cryptocurrencies do not pose a material risk to the global financial system – which many traditionalists with vested interests have hitherto argued in order to knock digital currencies.”
He continues: “This report comes after the FSB, which is headed by Bank of England Governor Mark Carney, previously wrote a letter to the G20 finance ministers and central bank governors earlier this year stating that Bitcoin does not pose a ‘systemic risk’ to the global financial system
“As such, the latest report can be seen as further recommendation of cryptocurrencies from the influential FSB — which has members from all the G20 major economies.”
Mr Green goes on to say: “The FSB's conclusion follows more and more global financial institutions, major corporations and household name investors now working with cryptocurrencies and blockchain, the technology that underpins them, and as international regulation is developed further."
In May, deVere revealed findings of a global survey that found 35% of wealthy investors will have exposure to cryptocurrencies by the end of 2018.
At that time, Mr Green said: “The survey’s findings demonstrate that high net worth individuals are increasingly unable to ignore the huge potential of cryptocurrencies.”
The deVere CEO concludes: “There’s now surging awareness of the value, need and demand for digital, global currencies in a digitalised, globalised world.
“The world of money has fundamentally changed – and despite what some crypto cynics want, it can’t and will not go backwards. Therefore, the FSB’s proactive and positive work in this sector must be championed.”
(Source: deVere Group)
Neil Williams, Senior Associate Solicitor at business crime experts Rahman Ravelli, considers the possible fate of cryptocurrencies.
It has been reported that more than 800 cryptocurrency projects have died a death in the past year and a half. It is a statistic that cannot be ignored for a number of reasons.
There is little doubt that the rise – and, from what we are seeing, the fall – of cryptocurrencies has been dramatic. It wasn’t a slow and steady rise in popularity. Cryptocurrency seemed to arrive in a bang. Suddenly, as if from nowhere, it was everywhere. And now, it appears, we are seeing a dramatic reversal of that trend.
To explain such a reversal requires a brief examination of the way cryptocurrency functions. In a nutshell, new digital tokens are created through an initial coin offering (ICO); which sees those behind the start-up issuing a new coin. Investors can then choose to buy that coin. By doing this, any investor is not purchasing equity in that company but the cryptocurrency that they do purchase can be used on the company's product. Such a process is, in effect, speculation. Those who invest in an ICO do so because the coins are usually cheap in their early days – and they hope that they will increase in value and provide a tidy profit if and when they cash in.
It is a process that has attracted plenty of enthusiastic followers. Researchers examining the market have stated that companies raised £3.8 billion through ICO’s last year, whereas the figure for this year is expected to be more than triple that. The sheer scale of investment in cryptocurrency demands that we pay attention to the problems it is currently suffering. Those problems may have implications for the financial wellbeing of many individuals and organisations who have staked a lot on the continued rise of cryptocurrency – only to discover that hundreds of such coins are already dead or worthless.
This is due largely to cryptocurrency’s unreliability factor. Many were set up with the simple intention of making fraudulent gains. Fake start-ups have been known to see the initial hard sell swiftly followed by those behind an ICO disappearing with investors’ money. Others were created but the company’s product never became a reality. And even those that have been regarded as the “major players’’ have struggled. Bitcoin, the biggest cryptocurrency, has seen its value fall by about 70% since 2017’s record high of $20,000. It is certainly still in existence and still has its enthusiastic following. But the fact that even Bitcoin has suffered a major battering to its reputation and its value shows that cryptocurrency has a credibility problem. Cryptocurrency has to be seen as a risk. And the more its credibility is eroded, the less chance cryptocurrencies – both the legitimate and fraudulent ones – may have of attracting and retaining investment.
Cryptocurrencies may, therefore, face a struggle to regain credibility – and see that reflected in rising values. Cryptocurrencies, as originally devised, are by their nature a friend of the fraudster. They have no tangible product, they allow anonymity and the lack of regulation historically has made them a virtual haven for those who want to conduct their dealings away from the authorities’ prying eyes. An awareness of this may be behind the sudden attack of cold feet among many who were so keen to invest not so long ago. But conversely, we may still be some way off the logical outcome.
What has to be recognised is that as cryptocurrencies attract the attention of mainstream investors, and even banking institutions, the lure and attraction of them is diminishing for those who wish to remain in the shadows: the very people who have given the currencies their damaging credibility problem. If such mainstream investment in cryptocurrencies continues, it is sure to be followed by closer official scrutiny and / or regulation – either of which will have the effect of further driving out those looking to make fraudulent gains. The consequence of this may not only be these types of currencies having less appeal to those who originally traded in them, it may also lead to a more stable market being created for honest investors.
We may, therefore, see another swing upwards in cryptocurrencies’ fortunes, as they become increasingly marketable and viewed as safer and more legitimate than at present. This is something that could only be hastened if and when regulation is introduced. It would be unwise, therefore, to announce the demise of cryptocurrencies.
