A parody cryptocurrency just broke $2 billion for its market cap

A parody cryptocurrency just broke $2 billion for its market cap

  • Dogecoin, a cryptocurrency created as a parody after a popular internet meme, saw its market cap crack $2 billion on Sunday
  • The rise of Dogecoin and other bitcoin descendants is due to the fact that they're perceived as being "cheap" compared to bitcoin or ether, according to Dave Chapman from Octagon Strategy
  • One of the Dogecoin founders told a cryptocurrency news site that the token's rise makes him worry about market excess

A cryptocurrency that was created as a parody

and named after an internet meme now has a market value of more than $2 billion. Dogecoin crossed the $2 billion barrier on Sunday, around two weeks after it first touched the $1 billion level on Christmas day. The digital currency traded as high as $0.018773, putting its market capitalization at $2.12 billion, according to CoinMarketCap.

Data from the cryptocurrency site showed dogecoin's current market value is about $1.98 billion — as of Jan. 8, 1:00 p.m. HK/SIN — and traded at $0.017535 per token. That's a roughly 69 percent increase compared to levels seen during Friday's Asian trading session. Last month, the virtual coin rose more than 400 percent and briefly topped $0.0107 in late December. As of Monday, there were a total of 43 cryptocurrencies with a market cap above $1 billion. The largest of those, bitcoin, traded at $15,768.34 as of 1:15 p.m. HK/SIN, according to industry site CoinDesk. That put its market cap at around $264 billion.

Dogecoin is an example of an altcoin, which are peer-to-peer digital tokens that descended from bitcoin. The more popular ones include ethereum, which topped $1,000 for the first time on Thursday, and ripple, which saw a staggering 35,000 percent jump in its value last year. Dogecoin, for its part, was created in 2013 and its mascot is a Japanese shiba inu dog popularized by an internet meme that dates back to 2010. The creators of dogecoin positioned the virtual token as "the internet currency" that can allow users to easily send money online. There are several ways to get dogecoins: Users can buy them at online exchanges, get tipped in the cryptocurrency and even mine them.

The virtual currency's meteoric rise in recent months has the project's creator expressing concern about market excess. Jackson Palmer, the founder of dogecoin who left the team in 2015, told cryptocurrency news site CoinDesk that it was telling that the token saw such a sharp jump in price even when the project hadn't released a software update in over 2 years.

The total value of cryptocurrencies is over $750 billion, according to CoinMarketCap, and bitcoin dominates around 34 percent of that market. "The most significant contributing cause for altcoins to rise so parabolically is owing to the perception of 'cheap' coins," Dave Chapman, managing director at Hong Kong-based commodities and digital assets trading house Octagon Strategy, told CNBC.

"The two most well known cryptocurrencies (i.e. bitcoin and ethereum) are considered too expensive for most new entrants. Despite being able to purchase a fraction of each, there is a real psychological barrier around owning something in its entirety," Chapman added. A buyer, he explained, would feel better knowing they own 2,000 ripple tokens, which would cost a little over $6,000, rather than owning less than half of a bitcoin at the same price. Chapman also said there is a mindset among new investors than they have missed the "upside opportunity with cryptocurrencies that have already demonstrated incredible returns."

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Exponential Growth: Cryptocurrency Exchanges Are Adding 100,000+ Users Per Day

Exponential Growth:
Cryptocurrency Exchanges Are Adding 100,000+ Users Per Day

Major Bitcoin and cryptocurrency trading platforms

within the global market have been adding more than 100,000 users per day. Many of the leading cryptocurrency exchanges such as Coinbase (GDAX), Binance, Bittrex, Bitstamp and Kraken have struggled in dealing with the abrupt surge in demand for cryptocurrencies. Some exchanges have overhauled their systems to improve their scalability, while others have temporarily stopped opening new user accounts.

Unexpected growth rate

This week, Changpeng Zhao, the founder and CEO of Binance, the global market’s largest cryptocurrency exchange with a staggering $9.5 bln daily trading volume, revealed that it has added more than 250,000 users on a single day.

“Sorry guys, servicing existing members is higher priority at this point. Full team working around the clock. Both tech and support. Just too much demand. Added 250,000 new users in the last 24 hours,” said Zhao, referencing the official statement released by the company. On Jan. 4, Binance stated, “due to the overwhelming surge in popularity, Binance will have to temporarily disable new user registrations to allow for an infrastructure upgrade. We apologize for any inconvenience caused.”

In December, both Kraken and Coinbase allocated a significant portion of their resources and capital in improving customer support and the scalability of their platforms. On Dec. 23, Kraken, which has found difficulty in processing account verifications, disclosed that it has implemented major system upgrades and improvements in performance and will continue to develop its trading platform to support new users. The Kraken development team admitted that its current infrastructure is “degraded and unreliable,” and vowed to improve it throughout January.

The company said:

“We have made significant progress in the last week with the system upgrades and have realized moderate improvement in performance. Unfortunately, we were not able to complete all of the upgrades and the most impactful measures are yet to come. For the time being, systems should still be considered degraded and unreliable.”

Regional exchanges such as South Korea’s Bithumb, the world’s second largest cryptocurrency exchange in terms of daily trading volume, have also stopped accepting new users.

Why are large exchanges struggling?

In late 2017, South Korea’s third-largest cryptocurrency exchange Korbit was acquired at a valuation of $140 mln by a $10 bln gaming giant in Nexon. Given the size and the market valuation of Korbit, major exchanges like Bithumb, Bitstamp, Kraken and Binance could be worth more than $1 bln, as Coinbase was valued at $1.6 bln in its latest funding round.

Even with such large market valuation, high-profit margins, and many resources, cryptocurrency exchanges are struggling to address the exponentially increasing demand from investors because of the strict Know Your Customer (KYC) and Anti-Money Laundering (AML) systems the companies were forced to implement by the authorities. Each user application must be manually approved and verified. The failure to segregate fraudulent accounts from legitimate users could result in large fines and lawsuits for exchanges. Consequently, the vetting process of users is rigorous and requires significant efforts from the employees of exchanges.

Given that exchanges are adding more than 100,000 users per day, it is likely that exchanges are also receiving more than one mln trading account approval requests per month, at least. That is, if the approval process of accounts take around 10 minutes per account, 166,666 hours on a monthly basis that employees have to cover manually. In the next few months, global cryptocurrency exchanges will make drastic changes to their systems. Until then, users, especially newcomers, will find it difficult to open approved trading accounts.

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New York Stock Exchange Moves on Bitcoin ETFs

New York Stock Exchange Moves on Bitcoin ETFs

The New York Stock Exchange has filed for permission to launch

a number of Bitcoin-related exchange-traded funds (ETF) just one week into 2018. As reported by BusinessInsider, a filing sent to the United States Securities and Exchange Commission shows that the exchange intends to launch five different ETFs offering ‘bull and bear’ futures contracts on the Arca stock exchange. These EFTs will be linked to the price of Bitcoin futures listed on the CME and CBOE exchanges, which launched Bitcoin futures contracts in

December 2017:

“The target benchmark’s value will be calculated as the last sale price published by the CME or the CBOE or any other US exchange that subsequently trades bitcoin futures contracts on or before 11 a.m. E.T.”

Bull Funds

The three ‘Bull Funds’ are categorized as 1.25X, 1.5X and 2X, offering 100 percent, 150 percent and 200 percent returns on the given contract. As stated in the document sent to the SEC, the funds are not intended to be traded any longer than a day – and offer percentage returns based on the given contract entered into:

“According to the Registration Statement, the 1.25X Bull Fund, 1.5X Bull Fund and 2X Bull Fund seeks daily leveraged investment results (before fees and expenses) that correlate positively to either 125 percent, 150 percent or 200 percent the daily return of the target benchmark.” However, investors stand to a chance of facing the same multipliers in loses, should the market move against

their contracts:

“Conversely, its value on a given day (before fees and expenses) should lose approximately 1.25 times, 1.5 times or 2 times, as applicable, as much on a percentage basis as the level of the target benchmark when the benchmark declines.”

Bear Funds

As the name suggests, the ‘Bears Funds’ allow investors the chance to leverage against a decline in the value of Bitcoin. The two funds offered are 1X and 2X, offering 100 percent and 200 percent gains should the contract meet its target on the given day of trading. Once again, should the benchmark rise in value, Bear Fund investors stand to suffer loses compounded by the multiplier (1X or 2X) they’ve agreed to, as per the description of the

2X Bear Fund:

“If the 2X Bear Fund is successful in meeting its investment objective, its value on a given day should gain approximately two times as much on a percentage basis as the level of the target benchmark when the target benchmark declines. Conversely, its value on a given day should lose approximately two times as much on a percentage basis as the level of the target benchmark when the target benchmark rises.” 

Keeping up with the game

Should the NYSE be permitted to launch these ETFs, they will be the third American exchange to offer Bitcoin futures contracts. CME and CBOE have been trading futures since December. Wasting no time in sending their application to the SEC, this move shows that there is plenty of interest in Bitcoin by Wall Street money.

While the likes of Merrill Lynch have denied its financial advisors from offering clients Bitcoin-related investments, exchanges are looking to set up of various offerings. Once a number of ETFs and trading options have been available for a while, there will be more information on how well these options are trading. Given that knowledge, could we see a change in sentiment by financial institutions whose clients are looking to enter the cryptocurrency market?

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U.S. company plans funds that double bitcoin price moves

U.S. company plans funds that double bitcoin price moves

U.S. fund managers are ramping up efforts to tap

into the fever surrounding digital assets, and the latest planned bitcoin products could deliver some head-turning and stomach-churning price movements if they come to market. A Bitcoin logo is seen on a cryptocurrency ATM in Santa Monica, California,

The new idea is to build “leveraged” and “inverse” funds that would rise – or fall – twice as fast as the price of bitcoin on a given day. Direxion Asset Management LLC plans to list such products on Intercontinental Exchange Inc’s NYSE Arca exchange if U.S. securities regulators give the nod, according to a filing by the exchange this week. In the filing, the exchange said the listing “will enhance competition among market participants, to the benefit of investors and the marketplace.”

Bitcoin is a virtual asset that can be used to move money around the world quickly and with relative anonymity, without the need for a central authority, such as a bank or government. Bitcoin is one of the wildest trades in the market today, delivering sharp gains and losses that defy explanation. Trading has been expensive and difficult, with brokerages offering limited access and specialist websites like Coinbase reporting regular outages. Top voices on markets from economist Robert Shiller to JPMorgan Chase & Co CEO Jamie Dimon have warned people off buying bitcoin.

Yet asset managers have been racing to design more than 10 proposals for bitcoin funds that are currently before U.S. regulators. New ETFs could make access to bitcoin easier and, in the case of the Direxion product, mean bigger stakes for investors, with a 25 percent gain or loss on one day doubled to 50 percent. So far the U.S. Securities and Exchange Commission has declined or put on hold all the proposals. A spokesman representing Direxion declined to comment on the latest filing as did a representative from NYSE. Bitcoin gained nearly 12 percent on Friday to $16,928 on the Bitstamp exchange.

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Five predictions for digital currencies in 2018 — including stomach-churning drops, bitcoin-related IPO

Five predictions for digital currencies in 2018 — including stomach-churning drops, bitcoin-related IPO

  • More institutions will get into cryptocurrencies this year, analysts say.
  • They expect more regulation and bitcoin's price to drop, before recovering.
  • Stock investors may also get a chance to invest in a digital currency-related IPO.


After the bitcoin craze rose to a near-fever pitch

in the last several weeks of 2017, several investors and analysts in the space see more growing pains for cryptocurrencies this year. Here are these predictions for digital currencies,
based on those interviews:

More institutions will get into cryptocurrencies.

"Our institutional investor base is very interested in learning more and getting exposure," said Michael Graham, a Canaccord Genuity analyst who has published several reports on digital currencies. "One of our major themes is that as we roll out through 2018, it's the year of institutions getting exposure to the space." The number of institutional-level investment products related to bitcoin is increasing.

In addition to the CME and Cboe bitcoin futures that launched in December, Cantor Fitzgerald and Nasdaq are planning their own derivatives products. Analysts also expect regulators will approve a bitcoin exchange-traded fund in the second half of this year, or in early 2019. "With the regulated futures markets going live in 2017, the stage is set for ETFs to gain approval in 2018," Nolan Bauerle, director of research at CoinDesk, said in an email. "In fact, the Cboe filed for 6 cryptocurrency ETFs at the end of 2017 which could go live in 2018. This would dramatically increase how institutional investors can get exposure." The U.S. Securities and Exchange Commission declined to comment.

There will be more regulation and bitcoin's price will drop.

However, in the meantime, regulators will likely try to limit speculation in cryptocurrencies. In the last several months, the SEC has become increasingly vocal in warning investors about the risks of cryptocurrencies. The commission also has suspended trading in some companies due to concerns about their claims regarding their token-related announcements. "One of the things we'll see [is] enforcement here from the regulators," Canaccord's Graham said. He expects that greater regulation will cause a "major price dislocation event for the whole sector."

Bitcoin has soared more than 1,500 percent to near $16,200 over the last 12 months. But it is still down about 18 percent from its all-time high above $19,800 hit in mid-December. Meanwhile, smaller cryptocurrencies have surged hundreds of percent in the last several weeks, bringing the total market value of all digital coins to above $770 billion, according to CoinMarketCap. Action by regulators could halt those gains. Bitcoin fell more than $2,000 in September when China cracked down on digital currencies. Spencer Bogart, managing director and head of research at venture capital firm Blockchain Capital, expects that many cryptofunds will not be prepared to handle a monthly decline of 25 percent.

"I think we could easily purge 60-75% of crypto hedge funds in this type of market," Bogart said in an email. "In this environment, funds that can call capital and deploy it counter-cyclically stand to benefit significantly." More than 120 such funds opened in 2017 for a total of 175 funds, according to financial research firm Autonomous Next. In contrast to Bogart, Autonomous' global director of fintech strategy, Lex Sokolin, predicts the total number of cryptofunds will nearly triple to 500 this year. But he said the focus will be less on the number of funds and more on assets under management, which he expects to reach $20 billion.

It will be a wild, volatile ride. 

The contrasting views on the future of cryptofunds come as some analysts expect bitcoin to ride an even wilder wave this year. Ari Paul, chief investment officer of cryptocurrency investment firm BlockTower Capital, predicts that bitcoin will trade at both $4,000 and $30,000 at some point in 2018. One reason some analysts say bitcoin will ultimately rise further is that investors will bet on a payout from more splits in the digital currency. When some bitcoin developers decide to implement their own upgrade of the bitcoin network, bitcoin investors at the time of the split receive equal amounts of the split-off coin.

Aug. 1's split of bitcoin into bitcoin and bitcoin cash was "a change in the trend," said Ramon Quesada, a vocal member of Spain's cryptocurrency community. Developers "are using the brand bitcoin and they are splitting the main chain. They are making a fork. You create a new chain and you give a new name to this chain." Bitcoin trades near $16,200, while bitcoin cash trades around $2,600. "We think we're going to have more forks in 2018 than 2017," Canaccord's Graham said. "Ultimately we think those forks are going to be a short-term tail wind to bitcoin's value and a long-term headwind"  Bitcoin still faces many challenges, such as improving transaction fees and speed.

 Bitcoin will prevail, while other cryptocurrencies grow. 

While bitcoin's price has stagnated in the last two weeks, smaller digital currencies such as ripple, stellar and tron have surged into the ranks of the largest cryptocurrencies by market capitalization. Erik Voorhees, CEO of digital asset exchange ShapeShift, said that in contrast to bitcoin's dominance on the platform a year ago, about half of transactions on the platform now don't involve the popular digital currency at all. However, bitcoin should still benefit from the increased interest in the "alt-coins." Analysts also point out that since bitcoin is the most established digital currency, it is often the way new investors access the cryptocurrency space. "Bitcoin has such magnificent network effects that I don't see another alt-coin that's a little better at payments" or some other function right now, Autonomous' Sokolin said. "One of the top 10 will collapse."

Stock investors may get a chance to invest in a digital currency-related IPO.

As interest in digital currencies has grown, the companies involved with the business have become billion-dollar entities. Leading U.S. cryptocurrency marketplace Coinbase, valued at $1.6 billion, has indicated it could pursue an initial public offering.

"I do think the public is going to see some crypto-owned IPOs this year and more broadly blockchain IPOs," Canaccord's Graham said. He said cryptocurrency-related companies that want to give U.S. regulators a better impression are likely "going to rely on old-fashioned equity."But just as greater regulation in the U.S. has encouraged more blockchain development outside the country, the first crypto-related public offering may not happen in America either.

"IPOs are going to happen outside the U.S. first," said Ryan Gilbert, partner at Propel VC, which focuses on financial technology and has a $250 million fund. Propel is indirectly a minority investor in Coinbase, Gilbert said. Regardless, investors will need to be extremely cautious about companies making announcements related to cryptocurrencies and adding "blockchain" to their name. Some tiny stocks have soared on such changes, prompting regulators to issue warnings about potential scams. The market moves mirror the tech bubble, when many stocks saw a dramatic price surge after adding "dot-com" to their names.

A paper published in 2000 through Purdue University found the dot-com name changes began around June 1998 and picked up in the first five months of 1999, at an average rate of seven name changes a month. Most of the companies were traded over the counter, and regardless of their level of involvement with the internet, the name change resulted in returns of about 74 percent for the 10 days surrounding the announcement day, the paper said.

"What the dot-com paper shows is that reasoning goes away when you're looking at a hot industry," co-author Raghavendra Rau told CNBC in a phone interview this week. He is now a professor of finance at the University of Cambridge. If he had to guess, Rau said it may take at least two or three years for the blockchain stock mania to subside. "My personal sense is the technology is good, but like every new technology I don't think the broad pattern [of] history changes very much. There will be manias."

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Off the Leash? Bitcoin Looks North After Breaking $16K

Off the Leash?
Bitcoin Looks North After Breaking $16K

Bitcoin is gaining altitude today, amid a sharp drop

in prices of some alternative currencies. Prices on CoinDesk's Bitcoin Price Index jumped 7 percent to an intraday high of $16,181 in the last two hours. The cryptocurrency has appreciated by 10 percent in the last 24 hours, according to data source CoinMarketCap.

Meanwhile, Ripple's XRP token has depreciated by 9 percent in the last 24 hours, having soared to new heights on Jan. 3. Other alternative currencies like NEM (XEM), Cardano (ADA) and Stellar (STR) are down at least 12 percent each. More importantly, the XRP/BTC (ripple-bitcoin) pair has taken a beating in the last couple of hours. XEM/BTC, ADA/BTC, ETH/BTC (ethereum-bitcoin) and LTC/BTC (litecoin-bitcoin) are also losing altitude.

So, bitcoin (BTC) seems to have caught a bid wave at $14,848.10 (07:29 UTC), tracking the weakness in the cross cryptocurrency pairs (ETH/BTC, LTC/BTC, XRP/BTC) – that is, money made from the altcoin rally is likely being channeled back into BTC. Price chart analysis also suggests BTC could extend the rally to $18,000-$18,600 in the short-run.

A chart (prices as per Coinbase) would show:

  • An inverse head and shoulder breakout. As of writing, BTC is trading well above the neckline hurdle of $15,550, so the bullish breakout is pretty much a done deal. Prices could rise to $18,600 (target as per the measured height method) over the weekend.
  • Other factors – including a breach of the falling trendline, a bullish break of the falling wedge, higher lows as represented by the rising trendline – also favor further upside in BTC.
  • The relative strength index (RSI) is above 50.00 (in the bullish territory) and rising, indicating scope for a rally in prices.
  • BTC could cut through resistance at $16,490 and move towards $18,000–18,600 mark over the weekend. Bearish scenario: A failure to hold above the neckline support (former resistance) of $15,500 followed by a break below $14,230 today would open the doors for a drop to sub-$12,500 levels.

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Bitcoin price: CEO says cryptocurrency WILL surge in next 2 years as coin supply PLUMMETS

Bitcoin price:
CEO says cryptocurrency WILL surge in next 2 years as coin supply PLUMMETS

BITCOIN price is expected to rise for the next two and half years

as the supply of the cryptocurrency will decrease substantially, according to CEO of BTCC Bobby Lee.price will see a continuous surge for the next couple of years as the supply of the virtual coin continues to get smaller and smaller. CEO and co-founder of cryptocurrency exchange company BTCC, Bobby Lee, told Mr Lee said: “We just had a monster of a year in 2017, I think the price went up close to 20 times. Bitcoin will continue to surge for the next two years as supply will decrease to 900 coins a day

We just had a monster of a year in 2017

“What we do see is that things like this happen, this massive growth of bitcoin happens every three or four years. Most recently before that, it was 2013. “Every four years bitcoin the block reward goes down by half, we think there is a natural impetus for that to be more restriction and less supply. “With less supply, the price seems to go up, especially with more investment in this area.”

Bogart: Bitcoin could top record levels of $50,000 in 2018. Mr Lee added: “Today we're at only 1,800 of newly mined bitcoin of every day. That used to be 7,200 as recently as five years ago. “So in just a few short, maybe two and a half more years, we'll see the supply go down again to only 900 bitcoins a day. "So if you talk about multi-million dollars of inflow with an only new supply of 900 bitcoins a day, you can imagine where prices could be at in three, five, or 10 years.”Economic experts share Bitcoin opinions

Is Bitcoin's bubble about to burst?

JPMorgan Chase head Jamie Dimon is one of Bitcoin's harshest critics. Bitcoin expert Spencer Bogart said he is confident the cryptocurrency will “evolve” and “mature” to eventually become a deep market for investors. Mr Bogart said the Bitcoin price will rise with the help of institutional investors. He told CNBC: “Institutional investors that want to play in this market, even if they do, they are going to wait a little bit and either dip their toes in the water or just wait on the sidelines until they see the products themselves function.” 

Bitcoin price has been stable since the start of the new year. According to CoinDesk at 1:45 pm on January 4, the cryptocurrency is valued at $14,555.85. Technology investor Glenn Hutchins has claimed the bitcoin price is a distraction. The Silver Lake Partners investor said he is far more excited by the broader cryptocurrency ecosystem than he is the dramatic price of bitcoin. He told the Financial Times: “I just really think people are missing the point. “They should be talking about the companies. Bitcoin could turn out to be the winner; it could also turn out to be Betamax.”

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Use of Tor in Iran Is at an All-Time High Amid Political Struggles

Use of Tor in Iran Is at an All-Time High Amid Political Struggles

More and more consumers need to start taking their privacy seriously.

Especially when it comes to using the internet, there’s no reason to expose sensitive and personal information to third parties. With the use of VPNs and Tor on the rise, an interesting trend is created. Especially in Iran, reliance on Tor is skyrocketing as we speak. Given the political turmoil in that part of the world, this is no real surprise.

Iran Starts Flocking to Tor for Political Reasons

There are many reasons why people would start using Tor or a VPN connection to mask their online activity. While some people may think this always has to do with illegal activity, that is far from the case. In fact, the number-one reason for using such tools is simply to ensure privacy for all online activities and keep information away from prying eyes such as the government and internet service providers. After all, we should never give up such information either willingly or unwillingly.

At the same time, governments all over the world are cracking down on such tools. Especially in countries with oppressive regimes, there is a growing concern over the use of Tor and VPN connections. After all, such governments don’t want their residents to have any freedom of speech whatsoever, even though it is a basic human right in the eyes of most internet users. Restricting access to specific websites and platform has become the new normal in some places. China is a good example of such political interference.

It seems things are slowly evolving in this direction in Iran as well. More specifically, the public has protested against some decisions made by their country’s government in recent months. When such turmoil comes to light, the first step oppressive governments tend to take is ensuring no one can voice any public concerns over the situation. That often involves restricting access to social media and other platforms on which anyone can share their opinions on these sensitive topics.  

However, restricting access to platforms such as Instagram, Telegram, and a few others is almost never the answer (though one would expect the Iranian government to know better by now). Furthermore, the government started blocking access to Tor in August 2016, even though its efforts seem to have been less successful than originally anticipated. In fact, they have backfired.

Whereas the number of people connecting to Tor was relatively low in December 2016, it increased significantly starting in March 2017. A spike appeared on the charts in December 2017, and the current protests will only make more people flock to tools such as Tor. That is only normal, as people want to access the blocked social networks first and foremost.

Whether or not we will see a further increase in Tor usage across Iran remains to be seen. It is evident the government will not be too pleased with the way things are unfolding right now, especially considering that it tried to block Tor in the past without much success. It seems unlikely that it will crack down on this tool any further, although anything is possible at this point. Even so, there is still the option to connect through a bridge if needed, which would bypass most restrictions.

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‘Blockchain’ Mentions in Press Releases Have Soared This Year

‘Blockchain’ Mentions in Press Releases Have Soared This Year

 

 
  • Word appeared in 110 releases in 2018, up from five a year ago
  • It’s part of the frenzy surrounding all things cryptocurrency

If you want to create the next hot stock, just say the magic word: blockchain. In the four days since the start of the year, there have been more than 110 corporate releases that contain the word “blockchain,” data compiled by Bloomberg shows. That’s up from five in the same span last year. The surge in citations comes amid a frenzy surrounding cryptocurrencies following bitcoin’s 1,400 percent gain last year. Companies mentioning the term often see their stock jump, with some even renaming themselves despite having no ties to blockchain in their businesses.

Long Island Iced Tea Corp., for instance, soared as much as 289 percent Dec. 21 after rebranding itself Long Blockchain Corp., while Hooters franchisee Chanticleer Holdings Inc. rose 41 percent Tuesday after announcing plans to start a blockchain-based customer loyalty program. However, there is a question over how much longer this can last, and analysts and investors continue to warn of a bubble in bitcoin. Warren Buffett, GMO’s Jeremy Grantham and even bitcoin-bull Mike Novogratz have urged caution.

Government Think Tank to Trial Blockchain Verification in India

An Indian government policymaking body is eyeing the potential applications of blockchain technology across various sectors.As part of that process, the National Institution for Transforming India, known as NITI Aayog, is developing a proof-of-concept to explore blockchain in key sectors including education, health and agriculture, the Economic Times says. An anonymous senior government official reportedly said that blockchain's promise in secure document verification is the primary reason for potential adoption of the tech.

The move comes after the think tank conducted a hackathon in November 2017 on the use of blockchain technology – an event jointly organised with Harvard-based blockchain startup Proffer. While India's government has been largely skeptical on cryptocurrencies, it has looked on blockchain technology more favorably. In June 2017, several regional governments in India, including Andhra Pradesh, revealed they were looking into applications of blockchain technology in land registries – systems used to keep track of who owns which properties. Further, in September of last year, India's central bank research group announced plans to launch a new blockchain platform to build and support a range of banking-related services.

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Bank Blockchain Integration: A Challenge Overcome

Bank Blockchain Integration:
A Challenge Overcome

For the past couple of years, there has been an extraordinary

amount of hype around the potential of blockchain (or more correctly distributed ledger technology) to transform the banking industry. The reason for this hype is quite profound: DLT has given us the opportunity to rearchitect the financial industry. In the years ahead, we will move from a system of many banks with many ledgers (with all the associated reconciliation, central clearing parties, auditing, etc) to a simpler system of many banks but fewer ledgers where reconciliation is automatic. Central clearing parties may no longer be necessary and regulators will have a real-time view of the positions and risks across the industry.

But this transition, if it finally happens, is going to take a long time, and the chief reason is simple: legacy bank infrastructure and the tens of billions of dollars that have already been spent on building that infrastructure. The core bank systems of today, designed with security in mind, are extremely robust and secure. But as a result, they sacrifice flexibility and aren't exactly friendly in how they communicate with other technologies. Luckily though, over the past several years, the APIs of core bank systems have been upgraded to be REST-compliant and some even support events and web sockets. So, integrating a DLT platform with a core bank system can be relatively straightforward even though the underlying DLT network topology, architecture and security considerations may still be a work in progress.

Keeping it simple

The key to any successful integration is to minimize complexity. Certain use cases and transaction processes (e.g. cross-currency swaps) are complex and touch upward of 20 computer systems. And although very promising for the application of DLT, they may not be the obvious place to start as we move forward with the first real-money pilots. Other transaction processes like cross-border payments are simpler, and it is these kinds of applications that are probably the closest to production. So, how do integrations work in practice? At Banco Santander, our Blockchain Lab starts by building a prototype to tackle a specific business problem on a particular DLT platform (ethereum, Hyperledger Fabric, R3's Corda). In order to make the prototype as close as possible to the real thing, first we will build a limited core bank simulator that emulates the core bank systems for that particular application.

Next, we will map out the process flow for the use case that we are building and then spend the next two to three months in a series of sprints that result in an application that is robust enough to demonstrate to the business. If the business leaders like what they see, they may support taking the application to the next phase: pilot. At Santander when we say "pilot," we mean running the application on real money systems, though at limited scale. (The pilot phase is when the bank's IT teams – corporate IT and ops, security, infrastructure – get involved.)

Together, we will do an architecture and security review of the prototype application and figure out all the necessary modifications that will need to be made to plug it into the bank’s pre-production environment. But because we have already been building on core bank simulators, connecting to the real core bank systems becomes significantly easier. These pilot integrations have been taking us four to 12 weeks, depending on the amount of work involved.

Once the pilot integrations have been done, performing a robust series of tests on a defined schedule is the next step. It is during these tests that bugs are identified and squashed. The chief concern here is maintaining atomicity between the core bank system and the blockchain. In other words, it is imperative that the numbers that are reflected in the core bank are exactly the same as the numbers that are present in the blockchain. In practice, though, this is not too difficult to achieve and the two systems play quite nicely with each other. Very nicely, in fact.

A sample use case

A good example of a hypothetical integration process might be the development of a killer app like digital cash (aka a "fiat-backed stablecoin" in industry parlance) that will support micropayments, pay-per-download of digital content and the natural extension of Internet of Things, the machine-to-machine economy. Digital cash as a concept is not new and has been tried before, starting with the original Ripple gateways in 2013 and followed by later attempts like BitAssets that involved backing the stablecoin with a non-fiat asset.

More recent efforts like basecoin are at the white paper stage, with theoretical approaches to creating an algorithmically backed stablecoin. And, while we are waiting for central banks to issue digital versions of their own currencies (very possible, but unlikely to happen for quite some time) existing commercial banks could get the ball rolling. So, what integrations would be needed to deploy a fiat-backed stablecoin? First, we would have to identify the components and integration points needed for a simple tokenized digital cash system as follows:

  • User wallet:
    The user registers his or her blockchain wallet with the digital cash platform. Know your customer(KYC) checks would be performed at this time. An integration with a KYC system is required.
  • Escrow account:
    The account at the bank where the funds from all the different users are pooled. Segregation of those funds happens on the distributed ledger.
  • Tokenizer:
    The interface between the core bank system and the blockchain. This application detects incoming transfers to the escrow account and creates the matching amount of digital tokens in the user’s wallet. It also handles redemptions of tokens and triggers their destruction and the corresponding transfer of real funds from the escrow account back to the user’s bank account.
  • Transactions:
    These occur directly between user wallets on the blockchain. No integration as such is needed, although regulations may require that both wallets conduct KYC in advance and anti-money-laundering (AML) screening might be required for transactions above a certain size

From a technical point of view, building a digital cash application is quite straightforward. Very few integrations with core bank systems are required. The "tokenizer" does most of the work, with KYC and AML being done off-chain if needed. Of course, there are many legal and regulatory challenges that will need to be overcome before bank-backed digital cash becomes a reality on public blockchains.

But for blockchains, particularly smart contract platforms, to reach their true potential and become an integral part of the lives of the Earth's 7 billion people, enabling tokenized versions of real money is an essential step. Admittedly some of the technology is not quite ready to support digital cash at scale. But the good news is that from an integration point of view at least, creating a fiat-backed stablecoin might not be too difficult. In fact, it might be the easiest integration of all.

Chuck Reynolds


Marketing Dept
Contributor

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