Archive for July, 2017

Official statement from Bitmalta regarding the MFSA’s warning on virtual currencies

Monday, July 31st, 2017

In reply to the Malta Financial Services Authority’s (MFSA) warning issued today, the 31st of July, 2017, Bitmalta would like to point out that such a warning would have been justified five years ago in view of the yet-uncertain nature and effect of cryptocurrencies, but not in this day and age when jurisdictions worldwide are readying themselves for acceptance of cryptocurrencies rather than shying away from this technological revolution. 

We are extremely disappointed, to say the least, that whereas Malta’s Prime Minister Dr. Joseph Muscat and Hon. Silvio Schembri, the  Parliamentary Secretary for Financial Services, Digital Economy and Innovation, are actively advocating the adoption of blockchain technologies and cryptocurrencies in Malta, the MFSA are unfortunately still quoting long-since settled risks pertinent to cryptocurrencies and adopting an approach which may be defined as being too cautious. The blockchain technology is firmly rooting itself as “the next big thing”, a disruption which will echo that of the Internet back in the late 90s, and cryptocurrencies are but one single application of such a technology, albeit an important one as they show what can be achieved through the use of blockchain technologies. It is therefore of utmost importance to create incubators for such thriving projects to grow unmolested and study them closely, and  unfortunately the approach adopted by the MFSA is anything but proactive. Cryptocurrencies are here to stay, whether you ban them or not, so it is advisable, even obvious, that measures should be taken to educate the public about them rather than scaremonger. 

The risks cited by the MFSA have been sufficiently covered over the past few years as follows:

Money may be lost on the exchange platform

It is a well-known practice among cryptocurrency holders that funds are best stored on a local PC rather than on an exchange. One of the primary breakthroughs brought about by cryptocurrencies is that they remove the need for any middlemen in transactions, and exchanges should only serve as a temporary means of storage for active trades. Money may also be lost on any other website on which you store e-money too, so that point is moot.

Money may be stolen from your digital wallet

Facebook accounts can also be hacked, and your very identity may be stolen, and anything else connected to the Internet is prone to external attacks. Your data is only as secure as you want it to be, and cryptocurrencies are simply another form of data which is stored onto your computer. If you store your cryptocurrencies on a PC with no security measures in place and no password, for example, then you will be subject to third party attacks. This is another key area in which education would be a godsend, not just for cryptocurrencies but for cyber-security in general. Besides, safe storage solutions such as hardware wallets greatly minimise the risk of any external attacks, as well as multi-signature wallets and additional authentication measures such as Two-Factor Authentication (2FA).

You are not protected when using virtual currencies as a means of payment

Unfortunately neither are you protected when making payment in cash. It all depends on the parties involved in the transaction and the payment channels used. If one were to buy an item using cryptocurrencies from a reputable website with integrated consumer protection, then the applicable risk is the same as if you were to use any other means of payment. If you buy an item from an unknown third party off the dark web, then chances are that whatever means of payment you use, the risks are significantly higher. One should remember that mechanisms such as chargebacks are hotly contested by merchants as a prime avenue for fraud, so there are two sides to the cited argument in the warning.

The value of virtual currency can change quickly, and can even drop to zero

While this statement is partially true, it is likewise possible that the value of the Euro for example due to hyperinflation and unsustainable bailouts. The value of cryptocurrencies is mostly determined through demand and supply, with some cryptocurrencies pegging their value to that of other currencies or commodities, such as Tether which pegs its value to that of the U.S. Dollar (USD). Well-established cryptocurrencies such as Bitcoin have been experienced less volatility as their adoption rate increases, and therefore it is evident that both are correlated and it is simply a matter of time before the issue of volatility diminishes.

Transactions in virtual currencies may be used for criminal activities

The same applies to an even greater extent to transactions in fiat currencies. Suffice it to say that cryptocurrencies rank very low indeed when it comes to use by terrorists. Most cryptocurrencies utilise a public ledger system through which transactions can be tracked, making them a poor choice for money launderers as each and every transaction can be traced once the addresses of the senders/receivers become known. If anything, blockchain technologies allow for a paradigm shift in AML measures as they allow for a much more transparent system than the traditional ones which, safe to say, have been a failure acknowledged by many.

We hope that regulatory authorities such as the MFSA recognise the value and benefits of blockchain technologies as a whole, and that a proactive approach initiated through education is taken so as to enable Malta to become a blockchain hub in practice and not just through words. Bitmalta is readily available for any support in this area, and we would be more than happy to meet with the MFSA in order to address any of their questions and concerns on the subject and furthermore to understand why the MFSA sees a need to (re-)issue such a statement at this particular point in time and how this approach will fit in with the national Blockchain strategy that the Government is working upon. We welcome all cooperation on the matter and advise for a unified approach on the topic.

A new era for ICOs

Monday, July 17th, 2017

It’s safe to say that 2017 has been the year for Initial Coin Offerings (ICOs). For the uninitiated (excuse the pun), an ICO works similarly to an IPO, except that instead of shares, crypto-tokens are issued to the investors. That difference has brought about a whole wave of funding which was previously unattainable for small entities, with hundreds of millions in U.S. dollars being invested in ICOs over the past few months.

Suffice it to say that the largest ICOs this year (Tezos, Bancor, and Status) collected a cool half a billion U.S. dollars in funding between them. In other words, 500 million USD. Whichever way you put it, that’s a heck of a lot of money, and concerns have been put forward on whether any start-up needs that kind of money to build a blockchain product. Most of the ICOs are bought into for pure speculation, with the token price normally rocketing after listing on an exchange, and a dip in the price happening soon afterwards, sometimes even going below the ICO price. And speculative value is indeed the main driving factor behind the price, as most of these ICOs do not even have a beta product ready by the time of the ICO, let alone a viable public one ready for launch at the end of such ICO.

All that however may be set to change after the latest downtrend in the total market cap of cryptocurrencies, which fell by almost 50% from its previous all-time-high a few weeks ago. The next bullish wave might be in the offing (in my opinion a sizable one is due by the end of September), but investors who entered at the peak should be a bit more wary this time round. That, coupled with the fact that the Status ICO has shown us that blockchain technology is still in its infancy when we witnessed the Ethereum blockchain being brought to its knees with the overload of transactions, will make for an interesting new environment for any upcoming ICOs.

Let us also not forget that 2018 will be the year where most of this year’s ICOs will have to abide by their word and deliver a working product as promised in their roadmaps. Will they all do so? Of course not. We live in an analogue world no matter how much we try to digitalise it, and problems will arise which will shift the goalposts and postpone milestones, not to mention that some ICOs will most likely fail to deliver a product at all. It will be interesting to see what sort of legal recourse the investors will have should that happen.

Speaking of laws, the U.S. and China have already made it clear that they intend to regulate ICOs. The Securities and Exchange Commission (SEC) has already expressed its disapproval of ICOs in the past, and the People’s Bank of China (PBOC) wants to bring ICOs under its thumb. Indeed, ICOs as of late have been excluding U.S. citizens from participation due to the contrary position taken by the SEC, and it’s only a matter of time until other jurisdictions start enacting regulation on the matter.

All this makes for an exciting mix that will see ICOs taking a different path than to what was trodden on up until now. ICOs are here to stay, but there will be a lot more focus on the value attributed to the crypto-tokens being issued in exchange for the investors’ funds; such crypto-tokens would need to have an inherent use for the underlying platform being funded through the ICO. Any ICO which is simply racking up funds in exchange for tokens which are not inherently useful for the platform (in other words, any other cryptocurrency can be used for the platform being proposed) will have a harder time than before to attract investors. Moreover, at the very least investors will want a working product, even if still in its testing phase, to convince them to part with their hard-earned money. Lastly, the teams behind ICOs will be scrutinised in greater detail, and one can certainly trust the crypto-community in spotting and weeding out any bad actors in such teams.

To conclude, ICOs bring about an interesting mix of crowdfunding and venture capital, at times surpassing both in the funds collected while making participation even easier as long as you have the corresponding cryptocurrencies to invest. However, I am definitely eager to see whether I’ll have to eat my words should all ICOs deliver on what they’re promising, or whether it will be a case of bolting shut the barn door after one or more ICOs do a Houdini (Horseini?) with the investors’ funds. I believe that for each legitimate ICO there will be one other which is the mirror opposite, but after all that holds true for any other venture in other markets.

Disclaimer – this is my own personal opinion and does not reflect that of any other person, whether natural or legal. I act as an advisor to select ICOs in my own personal capacity. Please feel free to contact me on admin@bitmalta.com should you wish to discuss this article further – Jonathan Galea

Official statement from Bitmalta regarding the MGA’s white paper to future proof Malta’s Gaming Legal Framework

Thursday, July 13th, 2017

The Malta Gaming Authority’s (MGA) white paper on the future of the iGaming regulatory framework featured a short but promising piece about the acceptance of cryptocurrencies, recognising them as “fast and cost-effective alternatives to traditional payment mechanisms” while promising the allowance of usage by MGA licensees of such cryptocurrencies.

Bitmalta welcomes this position taken by the MGA which is in line with what the Prime Minister has been stating over the past few weeks when expressing his wishes that Malta becomes one of the leading jurisdictions championing the blockchain technology and cryptocurrencies. Since Malta prides itself as being one of the main hubs for remote gaming, it is only logical that it should support suppliers and operators alike in adopting one of the most promising technological advances of the last decade.

However, this is just but one small step which has been taken in progressing towards full adoption of the blockchain technology and cryptocurrencies, and possibly a late one at that. Other jurisdictions such as the United Kingdom have already legislated in favour of the use of cryptocurrencies by remote gaming operators, and unless Malta wants to play second fiddle to such other jurisdictions, it should ramp up its efforts to embrace such technologies by speeding up the process and employing the services of experts readily available in the Maltese islands who would be more than glad to aid Malta in repeating its resounding success achieved in 2004 when it was the first jurisdiction in Europe to successfully regulate remote gaming. The opportunity is ripe for such another historic advance, which would even dwarf what was achieved in 2004.

Bitmalta offers its full support to the MGA in this decision and believes that while one should never legislate in haste, the excuse that one should preferably err on the side of caution when considering cryptocurrencies has long since expired, and Malta as a jurisdiction should either ride the wave or be buried under it.

Storage wars – Sia vs. Storj vs. Maidsafe

Saturday, July 8th, 2017

Storage services on top of a blockchain have piqued the interest of quite a few developers and investors alike, with the three most popular solutions being Storj, Sia and Maidsafe. Although all three promise a similar product, the means in some instances is quite different to the end and what follows is a short analysis of all three with their strengths and weaknesses.

Sia

Having the largest market cap of all three, Sia took the cryptomarket by storm this year, growing from a price of 24 satoshis and peaking to 844 satoshis, settling down to 435 satoshis at the time of writing. Their solution promises to be fast, ridiculously cheap and secure; uploaded user data is fragmented and distributed among the network, with replication of your data fragments introduced for good measure to protect against any nodes who happen to be offline when you request your data to be “re-assembled” and accessed by you.

Sia utilizes its own native crypto by the name of Siacoin, which is required to buy storage on the Sia network, and likewise the hosts/contributors are rewarded in Siacoin. Hosts set up their own prices, making it a free-for-all market with the best hosts being those who can offer maximum reliability (online availability) for the cheapest prices. The only caveat is that you need to lock up funds in order to buy storage, with any non-utilised funds being returned after 3 months. I can’t say I’m much in favour of this solution; users should be free to have a top-up-as-you-go facility, even in micropayments if need be. That is the beauty of crypto after all.

The fact that they’re going to introduce proof-of-burn for hosts (I’m a big fan of PoB) is a big plus in my book, and having their own blockchain is another one. The UX can do with some streamlining, and their latest development, Obelisk, has been met with criticism rather than praise; ASICs do strengthen the mining “loyalty” of a network but it also concentrates mining power into the hands of fewer people. Still, Siacoin is proving to be a strong project and one of the contenders for best-performing crypto in 2017.

Storj

With the smallest market cap of all three, Storj has been a long-undervalued project in my opinion. It is more enterprise-based than Sia, and has a fixed-pricing pay-as-you-go model which I personally see as being better. Their UX is simple and intuitive and hosting (“farming” in Storj’s instance) is as easy as 1-2-3. Storj also utilizes file-sharding/fragmentation to store data and protect it with end-to-end encryption, but the network leans more towards decentralization rather than distribution as in Sia’s case; Storj utilizes bridges which act as trusted third parties and basically take care of finding farmers to hold your data, essentially acting as middlemen. Yes, one of the strengths of crypto is to eliminate middlemen, but it does allow a much faster and easier solution than Sia’s (albeit less secure than Sia’s).

One of the main bones I have to pick with Storj is their less-than-smooth transition from SJCX, their Counterparty-based token, to STORJ, their Ethereum-based token. The move to the Ethereum blockchain was well conceived but ill-executed, with SJCX tokens still being more valuable than the STORJ ones. I would say that the problems in the transition were mainly two: the STORJ tokens ICO which took place before the transition from SJCX to STORJ, and the pricing of STORJ tokens being a lower one than SJCX’s price at the time, leading to an instant dip of SJCX’s price which caused investors some anguish. If the transition picks up pace a bit and SJCX is weeded out soon, I strongly believe that Storj will pick up the pace again.

Maidsafe

I’ll be straight – I have a bit of a love-hate relationship with this one since it’s taking longer than the Pyramids to build. Good things take a long time to be ready, but this one might just be taking the cake. Still, it’s my favourite project out of all three and it is by far the most ambitious one of them all as well. Maidsafe doesn’t just promise a decentralized storage solution; its aim is to create a new backbone on which data can be stored, accessed, and exchanged. In short, Maidsafe is a new network made up of all the participants who contribute their computing capacity in P2P fashion. dApps (Decentralised Applications) can be built on Maidsafe, with one of the most prominent ones so far being Project Decorum, a social media platform built on the SAFE network.

It is quickly cycling through its alpha testing stages and beta stage is being targeted by the end of 2017. Each testing stage is being meticulously studied, with the latest one having taken place this week (which predominantly focused on the front-end of things; hopefully, that means the back-end is getting somewhere at last!). On the negative side of things, the immensity of Maidsafe’s project is hard to understand even by tech-savvy people, and it is often dismissed as another storage-focused project which is taking too long to deliver on its promises, having spent more time in development than Bitcoin itself. Connecting normal browers to the SAFE network is not a process which beginners can easily follow; however, I have tried out their SAFE Launcher which connects the user to the SAFE network, and the UI is simple and performs well; it then becomes a question of adoption i.e. whether users would actually switch to a custom browser to access the SAFE network.

Maidsafe should be releasing Safecoins as the currency of choice for the platform sometime in the near future, with the existing MAID tokens being exchangeable for the Safecoins. Hopefully their transition from Maidsafe tokens to Safecoin will be a lot smoother than Storj’s.

Conclusion

In reality, comparing Maidsafe to Storj and Sia is not the fairest of comparisons, as Maidsafe’s objective is not storage but creating a new, more secure Internet. Although it is my pick of the bunch, development has been frustratingly slow and has only picked up pace in the last 14 months or so.

Choosing between the two storage-focused coins is difficult. Both have their pros and cons, and both aim at slightly different markets. Until Storj sorts out its tokens debacle I would stay away from it, but be careful not to miss the rollercoaster once it sorts out that. Sia has been more consistent and better-met by the crypto-community, but its slower speeds and transition to ASIC mining have chipped away slightly at its otherwise strong performance. All in all, all three can be rated as SAFE investments (sorry for the pun), with Storj promising the best returns.