Archive for the ‘Blog’ Category

The need for greed

Saturday, December 30th, 2017

Opinion piece by Jonathan Galea, President of Bitmalta

As we near the year’s end, it is perhaps time to look back and sum up what has happened in this incredibly exciting year. It is safe to say that 2017 has been the year in which the public in general is finally aware about Bitcoin and other main cryptocurrencies, 9 years after Satoshi Nakamoto released Bitcoin’s white paper. It has been the year in which we’ve seen a meteoric rise in the price of cryptocurrencies in general, and the year in which the total market capitulation of cryptocurrencies has surpassed the $600 billion mark at one point. And that is the problem.

Before I continue, I must pull out a few pebbles out of my shoes, for the sake of transparency and the laying aside of any hypocrisy from my end. When I got into cryptocurrencies back in 2013, I was mainly lured through the prospect of making money and becoming rich overnight. I didn’t buy Bitcoin, as I deemed it to be priced too high back then at around $80. Instead, I bought Ripple. And no, before you get all excited and ask me to invite you on my non-existent yacht – I sold it all, long ago, back when it was still worth nothing. Do I rue that decision? Not one single bit.

As I started delving deeper into cryptocurrencies, I realized that this is not about making money. The blockchain technology, and other DLT-based platforms, are about saving money. They are about efficiency, connections, and establishing decentralized trust. For years, we have made use of a decentralized protocol, aka the Internet. However, although that same technology has connected us together, it has never truly linked us. Reliance on intermediaries has remained there and strengthened due to the lack of trust itself. As a friend of mine told me once, blockchain is the technology of trust. It enables us to transact, in more ways than monetary ones, directly with each other. However, I am not here to talk about the uses and benefits of the blockchain. Because the uses, so far, have been close to zero.

Why am I, one of the earliest backers of blockchain technology in Malta, suddenly seemingly speaking against it?

The truth is, I am not. I still fully believe in it. I still think it will enable humanity to transcend into the next generation. However, what we have seen this year is not mass adoption, but mass speculation. They are not one and the same thing. In fact, I would go as far as to say that they are diametrically opposite concepts. With mass adoption, you cannot have mass speculation, because adoption in itself serves as an anchor for the monetary value of a thing. With mass speculation, you cannot have mass adoption, because people’s greed will instill the fear of parting with the underlying object. Mass speculation may precede mass adoption, as happened in the dot-com bubble. History tends to repeat itself.

We have arrived to a point where the man on the street will confidently approach you and advise you to buy Ripple, because Ripple only costs 2 EUR and Bitcoin costs over 10,000 EUR, so it is only logical that Ripple will reach 10,000 EUR because it is better than Bitcoin. Leaving aside the economic and fundamental bullshit backing such statements, it is laughable to think that the very concept born out of desperation to thwart the banks’ greed back in 2008, has come round full circle and we are now facing the decentralization of greed. People only care about lining their pockets with wealth, and seemingly do not care about the underlying concept or use. John McAfee, in his greed, has caused several destructive pumps and dumps in exchange for payment, and his sheep were only too happy to oblige to his whims, not caring that such schemes may serve to destroy the underlying project due to the wild volatility in price.

Despite all this enthusiasm, education is still at a worryingly low level.

Blockchain technology still hasn’t been adopted in a mainstream manner by any large company or institution. While a grocer will enthusiastically tell you that he bought Ether when it was $300, he will frown if you ask him whether he has considered switching his sale system to a smart-contracts based one. Whereas people will tell you that Cardano is the best blockchain system around, they will shrug if you ask them about the Waves platform, one of the most widely adopted platforms so far after Ethereum. Greed has blinded us all, and greed may very well be the biggest enemy.

Not the banks.

Not the governments.

Not the regulators.

 

Echoing Vitalik Buterin:

Have we really earned a market cap of over half a trillion? Or are we staring down the barrel of a loaded cannon?

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

Bubble… Bobble… Bockle… Blockchain

Wednesday, May 24th, 2017

While I was writing this article, the total cryptocurrency market value just ticked over $85 billion. At the start of 2017, the figure was a relatively paltry $18 billion. Some quick maths will show that represents an increase of around 470% in the space of a few months, and naturally that has people running around screaming their head off about a bubble. But does this classify as a bubble?

The most (in)famous bubble is perhaps the tulip bubble which took place towards the end of the 1800s. Tulip flowers and seeds reached stratospheric prices before crashing down… hard. Time and time again, mankind has experienced several bubbles, with the end result being triumphant smart investors who pull out before the crash, and bagholders of the asset in question left with a trade gone terribly wrong.

Analogies can certainly be drawn to the current situation in crypto. A sharp increase in price, feverish enthusiasm and mentions on mainstream media can be indicators of a bubble. However, certain fundamentals are being forgotten; fundamentals which potentially skew the whole bubble argument altogether.

  1. Cryptos are nowhere near being mainstream yet. It is still quite difficult to profitably buy cryptocurrencies without at least an intermediate knowledge of IT and economics, and only a small percentage of businesses accept cryptos as a means of payment.
  2. Most crypto-projects are still in their alpha stages. And that includes Bitcoin, which hasn’t even yet solved its scalability issues. Most recent projects promise a product-delivery date towards the end of 2018/start of 2019, therefore right now prices are mostly based on speculation. If the promises become reality, then that’s a whole different stage altogether
  3. Most people still have no idea what Bitcoin represents. It’s all too easy to be drawn inside the crypto-world and assume that everyone else knows what you know. Try asking someone on the street about what he/she knows about Bitcoin. When you get satisfactory answers on a regular basis, that’s when you should start worrying about a bubble.
  4. Global connections. This can indeed potentially be one of the hugest bubbles ever in history, but I strongly believe we haven’t even started yet. The reason is that we live in a world ruled by social media, where news can get around in an instant and hence no one can truly predict, with full confidence, when and how the crypto-train will stop. It might shoot off like a rocket to die off within a few months, or it might last longer than other bubbles.
  5. Cryptocurrencies have an actual use. Unlike some other bubbles, cryptocurrencies actively set out to solve long-standing problems thanks to innovative and ever-growing uses of the blockchain technology. While most of the cryptos in circulation might have a short shelf-life, others are good candidates for mainstream adoption.

The closest parallel which can be drawn to one particular bubble at this stage is the dotcom bubble which took place at the end of the millennium. All the ingredients above were part of the dotcom concoction, save for the influence of social media – and that should definitely not be taken lightly.

If the total dotcom market cap reached circa $3 trillion in value before bursting… what sort of heights can we expect the crypto-bubble to attain? Time will tell, but one thing is certain – there will be price consolidations, even downward corrections, but the road is long and cryptocurrencies do not look as if they will be stopped any time soon.

The King is ill

Wednesday, May 17th, 2017

Next year will mark the 10th year of Bitcoin’s conception; hard to believe that a decade has gone by since one of the most potentially disruptive technologies has been introduced to wreak havoc on the world. However, wisdom does not always grow exponentially with age.

The truth of the matter is that Bitcoin is in trouble. We are now facing a backlog of around 250,000 transactions and it’s growing day by day. With a ten-minute average block time, that translates to an average wait of 24 hours to have your transaction go through; I myself had to wait 48 hours for the last 2 transactions. This is happening thanks to Bitcoin’s low block-size limit of 1 MB roughly containing 2000 transactions; with 2000 transactions being handled every ten minutes, it’s easy to see that there’s a dire need for improvement in this regard.

Slow transaction times along with increasing fees are irking people greatly, since Bitcoin had promised otherwise. However, another problem is present, and one which is not widely-known to the public since its effects are not as evident. An inherent issue had been discovered quite a while ago which basically allows persons with sufficient technical knowledge to change the transaction ID (TxID) without invalidating it, potentially leading to a similar problem which Bitcoin set out to solve in the first place – double-spending. However, rather than spending the same amount of crypto twice, transaction malleability means that the recipient of the transaction can change its txID before confirmation, which would have the effect of  showing zero Bitcoin being sent on that txID leading to potential fraud by, for example, the recipient, since the amount would still have been received yet the sender can be told that the transaction did not go through by showing them the falsified txID.

“Discovered quite a while ago” you say? How about years ago? A huge fissure has formed in Bitcoin’s armor and for a long while it has gone unsolved and underestimated. The latter happened due to the general public’s lack of technical knowledge in the matter; the former through childish arguing, kicking and screaming between the most influential people in the Bitcoin network. Bitcoin Core, which is normal Bitcoin for you, wants to implement Segwit, a signature-separation fix with the aim of taking care of transaction malleability as well as increasing the block size to see off that nasty backlog. What has stopped it from being adopted? Well, it turns out that the current flawed system benefits a few miners who discovered that ASICs can exploit an underlying vulnerability resulting in up to 30% better returns for them when mining. These same miners have been offering monetary incentives for other miners not to adopt Segwit, hence the stalemate. This other group is proposing a hard fork of Bitcoin where the block size will be increased significantly but the transaction malleability vulnerability is retained.

And so the very invention meant to overcome the Establishment, bring down the ancient, bloated banks and create a brand new world is in danger of falling at the hands of its own children. Cryptocurrencies such as Ethereum and Ripple are slowly creeping up onto their ailing father with unsheathed daggers; yesterday marked a historic turn of the tide where Bitcoin’s dominance over the total cryptocurrency market worth over $ 50 billion has fallen under 50%. Indeed, financial institutions are enamoured with Ripple and its fast settlement times, and are quite eager to dip into the blockchain through partnerships with Ripple Labs. Other industries are investing heavily in the smart contract system of Ethereum and multiple projects are launching off Ethereum’s blockchain.

Right now there is pretty little justifying Bitcoin’s inflated price except for the fact that you need Bitcoin to buy most of the existing altcoins today and therefore serves as a conduit to other coins. The truth is that Bitcoin’s blockchain can easily handle smart contract implementation and lightning-fast transactions, and the fundamental question remains on whether Bitcoin can heal from this malignant disease and receive its much-needed medicine. If it does, then it will pick up its sceptre again and flick away the threats. If it doesn’t within the next twelve months, then we’ll all witness a fight for the number one spot – and rest assured that there will be blood on the streets.

Join us at the Blockchain and Cryptocurrencies conference taking place next November at SiGMA, the largest dedicated iGaming exhibition and conference in Malta, where similar topics will be discussed in greater detail.