Finance

1.

What is yield farming?

Yield farming is the practice of staking or locking up cryptocurrencies in return for rewards. While the expectation of earning yield on investments is nothing new, the overall concept of yield farming has arisen from the decentralized finance sector.

The general idea is that individuals can earn tokens in exchange for their participation in DeFi applications. Yield farming can also be called liquidity mining.

The popularity of yield farming has become a self-fulfilling prophesy comparable to the initial coin offerings boom of 2017 due to the laws of supply and demand.

As each new project that emerges offers new tokens or ways to earn rewards, users have been flocking to it, hoping to get a cut of the yield on offer. In turn, this creates a demand that pushes up the value invested in the project and the tokens.


2.

How does yield farming work?

The precise mechanics of yield farming depend on the terms and features of the individual DeFi application. The practice started out by offering users a small share of transaction fees for contributing liquidity to a particular application, such as Uniswap or Balancer.

However, the most common yield farming method is to use a DeFi application and earn the project token in return. 

This practice became popular early in the summer of 2020 when Compound announced it would start issuing its COMP governance token to lenders and borrowers who use the Compound application. It was an instant hit, pushing Compound to the top of the DeFi rankings. 

Since then, several projects have followed suit by creating DeFi applications with associated governance or native tokens and rewarding users with their tokens.

These copycat tokens have replicated COMP’s success like, for example, Balancer’s BAL token, which gained 230% immediately after launching.

The continued success of each new project fuels more innovation, as projects compete fiercely for users.

The most successful yield farmers maximize their returns by deploying more complicated investment strategies. These strategies usually involve staking tokens in a chain of protocols to generate maximum yield.

Yield farmers typically stake stablecoins, such as Dai, Tether (USDT) or USD Coin (USDC), as they offer an easy way to track profits and losses. However, it’s also possible to farm yield using cryptocurrencies such as Ether (ETH).

3.

What are the benefits and risks of yield farming?

The benefits of yield farming are immediately apparent — profit. Yield farmers who are early to adopt a new project can benefit from token rewards that may quickly appreciate in value. If they sell those tokens at the right time, significant gains can be made.

Those gains can be reinvested in other DeFi projects to farm yet more yield.

Yield farmers generally have to put down a large value of initial capital to generate any significant profits — even hundreds of thousands of dollars can be at stake.

Due to the highly volatile nature of cryptocurrencies and particularly DeFi tokens, yield farmers are exposed to a significant liquidation risk if the market suddenly drops, like it did with HotdogSwap.

Furthermore, the most successful yield farming strategies are complex. Therefore, the risk is higher for those who don’t fully understand how all the underlying protocols work. Yield farmers also take risks on the project teams and underlying smart contract code.

The potential for gains in the DeFi space attracts many developers and entrepreneurs who bootstrap projects from scratch or even copy the code of their predecessors. Even if the project team is honest, its code is often unaudited and may be subject to bugs that make it vulnerable to attackers.

There have been several examples of this risk playing out as yield farming has grown in popularity.

One is bZx, which suffered a series of hacks early this year and, most recently, lost another $8 million, which were later returned, due to a single misplaced line of code.YAM Finance was another high-profile example.

The project’s YAM token went from zero to $57 million in value locked in only two days after its launch in August — then crashed when the founder admitted a major flaw in the underlying code. A subsequent audit revealed several more issues related to security and performance.


4.

What are the key challenges and opportunities for yield farming?

Most DeFi applications are currently based on the Ethereum blockchain, creating some critical challenges for yield farmers. Ahead of the Ethereum 2.0 upgrade, the network is struggling with a lack of scalability.

As yield farming becomes more popular, more transactions clog up the Ethereum network, leading to slow confirmation times and spiraling transaction fees. 

This situation has led to some speculation that DeFi could end up self-cannibalizing.

However, it seems more likely that Ethereum’s woes will ultimately work to the benefit of other platforms.

For example, the Binance Smart Chain has emerged as an alternative option for the yield farmers that flocked to the network to take advantage of new DeFi DApps, such as BurgerSwap. 

Furthermore, Ethereum’s existing DeFi operators are also attempting to alleviate the issue with their own second-layer solutions for the existing platform.

Therefore, assuming that the problems with Ethereum aren’t fatal to DeFi, the practice of yield farming could end up being around for some time to come. 

Last month, the U.S. Securities Exchange Commission (SEC) issued a no-action letter to Pocketful of Quarters, Inc. (PoQ), a Connecticut-based gaming start-up looking to issue tokens on the Ethereum blockchain.

The noaction letter paves the way for PoQ to legally sell its tokens (called "Quarters") to the public on an exempt basis, sparing PoQ from the requirement to file a registration statement.

The no-action letter is only the second ever issued by the SEC to a ryptocurrency company looking to launch a token sale, and the first in respect of an ERC-20 token.

The no-action letter, which distinguishes PoQ's Quarters from securities, offers fresh insight into the qualities that characterize a true "utility token" - i.e., one that will not fall under the umbrella of securities regulation.

Background

The question of whether cryptocurrencies offered to the public are securities that should be subject to securities laws has recently been a subject of focus amongst regulatory bodies, and a point of interest for market participants and observers.

In order to avoid the application of securities laws to their tokens, issuers have often attempted to classify their cryptocurrencies as "utility tokens", a term often applied in the cryptocurrency sector to tokens that are tied to a certain function, such as allowing the holder to purchase particular services using the token.

To date, regulators have been unwilling to accept as a rule that tokens characterized by issuers as "utility tokens" are not securities.

The SEC in the U.S. and the Ontario Securities Commission (OSC) and Canadian Securities Administrators (CSA) in Canada have taken the approach of considering cryptocurrency offerings on a case-by-case basis, considering each token in the context of its particular facts and circumstances to determine whether it constitutes a security for securities law purposes.

In 2018, the CSA issued a staff notice stating that characterizing a token as a "utility token" will not in itself rule out the application of securities laws to the offering of such token.

Instead, regulators in Canada will consider the characteristics of each offering of tokens to determine whether such offering involves the distribution of an "investment contract"2, or if the tokens offered can otherwise be characterized as securities.


For more information on the CSA staff notice, see our June 12, 2018 update Focus on Substance over Form – CSA Provides Further Guidance on Token Offerings.

The PoQ No-Action Letter

PoQ's Quarters, the brainchild of the company's 12-year old CEO, are intended to function as a "universal gaming token" that can be utilized by video gamers to make in-game purchases across multiple platforms and games.

PoQ will function as an exchange for the cryptocurrency, selling the Quarters on its website, and allowing Quarters holders to store the tokens in online "wallets".

On July 25, 2019, PoQ's legal counsel submitted a letter to the SEC's Division of Corporate Finance seeking confirmation that the regulatory body would not take enforcement action against PoQ if the company sold Quarters to the public without filing a registration statement for the tokens.

On the same day, the SEC issued a no-action letter confirming that, based on the representations made in PoQ's submission, no enforcement action would be pursued. The letter noted the following considerations in reaching the position that no action would be taken:Immediate functionality.

The SEC noted that the Quarters platform has been fully developed and PoQ will be fully operational prior to the sale of any tokens. Thus, the Quarters will be fully useable for their intended function as a universal gaming token at the time they are sold to purchasers.

This is in stark contrast to many other sales of utility tokens, in which the proceeds of the offering were stated to be used to fund the development of a platform or service in respect of which the tokens would have functionality at some future date. No secondary market.

As part of the offering of Quarters, PoQ implemented technological and contractual provisions to restrict the transfer of Quarters. Specifically, Quarters holders will only be able to transfer the tokens to game developers and influencers who have opened approved accounts with POQ, and to PoQ in connection with participation in e-sports competitions.

Developers and influencers who receive Quarters will be able to exchange them for "Ether" tokens at pre-determined exchange rates. These rules function to restrict secondary trading of the Quarters for investment purposes, which is one of the important indicia of a security token.

No profit potential. The Quarters are a "stablecoin", meaning that PoQ sets the price of the tokens as the only sellers thereof and the price will not fluctuate, removing the possibility of purchasers acquiring tokens for speculative investment purposes.

Implications

POQ's Quarters, and the SEC's no-action letter regarding the offering of the tokens, help to clarify the relatively narrow circumstances in which securities regulators will accept that "utility tokens" are not securities.

Though the SEC noted the functionality of the tokens was a factor in issuing the no-action letter, its comments regarding the lack of a secondary market, and the stable pricing of the Quarters, highlight other important considerations regarding the application of securities laws to cryptocurrencies, especially when the Quarters are compared against other purported "utility tokens" making recent news.

In particular, the SEC's treatment of PoQ's Quarters stands in sharp contrast with the ongoing case relating to the "Kin" tokens offered by Kik Interactive Inc. (Kik).

Though Kin tokens possess functionality tied to a messaging app developed by Kik, the SEC has taken the view that the Kin tokens are in fact securities, and that Kik's ICO of the tokens amounted to an illegal offering of securities.

Importantly, Kik purportedly represented to investors that rising demand for Kin would drive up the value for the tokens and that Kik's future business activities would spur this increased value, paving the way for token holders to turn a profit by trading the tokens on secondary markets.

For further background on the SEC's lawsuit against Kik, refer to our June 5, 2019 update, SEC Sues Canadian Company for Conducting Illegal Token Offering.

The PoQ no-action letter, combined with the SEC's arguments in the ongoing Kik litigation, highlight the relatively narrow circumstances in which the SEC will accept that a "utility token" should not be treated as a security.

Goodmans Tech Group

To assist clients in the technology sector, Goodmans brings together our acknowledged expertise in corporate/commercial, private equity, corporate finance, mergers and acquisitions, outsourcing, licensing, intellectual property, privacy, regulatory and media, cleantech, tax, litigation, human resources, corporate restructuring and administrative law.

We do so both for innovative businesses in their start-up phase and for well-established businesses of all types. Goodmans continues to lead in the technology sector and is partnered with the DMZ at Ryerson University.

The DMZ is a leading business incubator (selected by UBI as the top-ranked university incubator in the world), which connects its start-ups with resources, customers, advisors, investors, and other entrepreneurs.

Goodmans is also a proud partner of IDEABoost, an initiative of the Canadian Film Centre's Media Lab; building the next generation of technology-based media entertainment products, services and brands.

Through these partnerships, Goodmans provides legal advice, mentorship and networking opportunities to assist start-ups in maximizing their potential. Goodmans is also an internationally recognized leader in other aspects of technology law and transactions.

From our thought leadership, through participation on the Boards of associations such as CanTech (Canadian Technology Law Association), CORE (Centre for Outsourcing Research and Education), CIEG (Canadian Institute for Exponential Growth, which organized the Summit) and iTechLaw (International Technology Law Association), to our involvement in major technology procurement, joint venture and outsourcing transactions, to our representation, in court proceedings and in arbitrations, of major technology providers, and users of technology, in ground-breaking cases, our Technology Group is consistently at the forefront of leading technology transactions and cases.

Members of our Technology Group are recognized as leading technology lawyers in Chambers Global, Lexpert, Legal 500 Canada, Legal Media Group's The Best of the Best, The Best Lawyers in Canada, Law Business Research's The International Who's Who of Business Lawyers, and The Lexpert/American Lawyer Guide to the Leading 500 Lawyers in Canada, teach internet and communications law at Canada's largest law schools, are regular lecturers at technology industry events and legal conferences, and have published articles in the technology law field.

Footnote1 Quarters are built according to the ERC-20 standard, a technical standard applied to most tokens on the Ethereum blockchain.2 Case law in both Canada and the U.S. has identified that the four elements of an "investment contract" are: (i) an investment in money, (ii) in a common enterprise, (iii) with the expectation of profit, (iv) to come significantly from the efforts of others.The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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ContributorAllan Goodman

1.

What is DEX?

A decentralized exchange (DEX) is a peer-to-peer (p2p) online service that allows direct cryptocurrency transactions between two interested parties.

Decentralized cryptocurrency exchanges are aimed at solving problems that are inherent in centralized exchanges. They create p2p markets directly on the blockchain, which allows traders to independently store and operate funds.

Users of such exchanges can make transactions with cryptocurrencydirectly between each other — i.e., without third-party involvement. Decentralized services are supervised either automatically or by the participants.

The safety of assets is provided by a distributed ledger technology (DLT) — in general, mostly the following blockchains are utilized for DEXs: Ethereum (EtherDelta, IDEX, etc.), Graphene (BitShares, CryptoBridge, etc.) or blockchains powered by other cryptocurrencies (Waves, Switcheo, etc.).



 

2.

How are decentralized exchanges different from centralized exchanges?

Centralized — users must be identified, and their coins are kept in the accounts belonging to companies. Decentralized exchanges do the exact opposite.

Centralized exchanges are managed by a specific company or a person focused on making a profit. Such exchanges are responsible for protecting user data and their trading information.

They fully control the platform’s operation and independently make decisions that are important for the development of the service.





Decentralized exchanges, in contrast, are managed automatically or semi-automatically with the involvement of platform participants in the process of making important decisions.

Such platforms provide the technical possibility of direct interaction between the participants and use a distributed registry for storing and processing all — or almost all — data.

A decentralized exchange does not store funds or users’ personal data on its servers and serves only as a platform for finding matches for the purpose of buying or selling.


3.

What are the advantages of decentralized exchanges?

Most of the strengths of decentralized exchanges stem from their distributed architecture and the lack of a single control center.

Security: Decentralized exchanges do not store user assets.

Therefore, neither hacker attacks nor the total collapse of the exchange can lead to a loss of funds. The absence of a single entry point, through which one could gain access to all assets and data, complicates work for hackers and makes an attack meaningless in itself, which radically distinguishes decentralized exchanges from centralized ones that are regularly hacked.

Low risk of manipulation: Another advantage of this kind of service is the minimal risk of price manipulation or falsification of trade volumes, due to the absence of a central structure that is interested in manipulation inside the exchange.

There are no personal accounts on the decentralized exchange, no verification is required and there is no need to even specify an email address, so personal data of users cannot be stolen.

This structure makes services based on a distributed registry more anonymous than exchanges that require personal authentication for the purposes of Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance.

Independence from regulators:

 The distributed architecture protects the exchange from interference by local or international authorities. In the case of a centralized structures, following regulations means that the exchange service can be either completely blocked or partially, in which case the service becomes limited in terms of location or options

.Accessibility for different projects: In contrast to its centralized brother, a decentralized exchange makes it possible not only to place orders for existing cryptocurrencies, but also to create new ones directly in the system.

This allows startup projects to provide minimal liquidity, without having to pay high fees for placement on major platforms.


4.

Are there any disadvantages to decentralized exchanges?

The distributed architecture of decentralized exchanges and full user control over their own funds entails a number of difficulties.Inability to restore access:

For example, due to lack of a KYC process and the ability to cancel a transaction in the event of a broken passwords or loss of a private key, the user cannot recover his or her data and return the assets.

Chargeback and refund procedures are incompatible with a distributed registry. Users who have committed an operation by mistake or have lost control over their keys are not able to recover their access.

Small set of options: Many options for traders, such as stop loss, margin trading or lending, are not available for users of most DEXs. Since many decentralized exchanges are managed by smart contracts, cryptocurrencies that do not support interaction with smart contracts cannot bargain on them.Low liquidity:

Decentralized exchanges usually have a much smaller pool of liquidity compared to centralized sites. Thus, while Bitshares DEX has a daily volume of 197 BTC, the same parameter in Binance reaches 227,123 BTC.





Such a difference is caused by the fact that traders prefer centralized services, where the choice of instruments, currency pairs and orders themselves are much greater than on a DEX.

As a result, the decentralized service falls into the so-called vicious circle — i.e., there are few users due to low liquidity, while the achievement of liquidity is impossible without a large number of traders.

Scalability issues: An influx of a large number of people who wish to trade cryptocurrencies will almost inevitably cause a large load on the network and may cause delays, an increase in commissions and all other problems already familiar from stories with centralized exchanges.

No support service: A decentralized exchange, by definition, cannot have a support service that can handle transactions or user accounts. When choosing such an exchange for trading digital money, the user is fully responsible for their funds and, in the event of losing a private key or sending a wrong transaction, they cannot apply for qualified assistance.

The lack of advance support service also means that a dramatic increase in the number of user requests may lead to difficulties with scalability, and an operator response time may increase in the event of technical problems.

Limited speed: Transactions take time to be checked and confirmed on a blockchain, and the processing time does not depend on the exchange, but on the miners.

Since DEXs are less popular than their centralized analogues, users may face difficulty finding someone to match their buy or sell orders — or with making a deal at a good price. Buying or selling new currencies or those with low trading volumes can be even more difficult.


5.

I have never used a DEX, but I trade on Bittrex and Huobi. Is it difficult to start?

Decentralized exchanges are more complicated and require studying some technical aspects, which are partially associated with the disadvantages described above.

The majority of DEXs operate on the Ethereum platform as a decentralized autonomous organization (DAO) or a decentralized application (DApp), which use Ethereum smart contracts and blockchain.

This means that transactions must be paid with gas and the user must know what value should be chosen in order for the transaction not to stall and be processed on time.






The principles of placing orders are also somewhat different that what users of centralized services might be used to. The trading system mechanisms communicate between orders in accordance with the queue.

All transactions are personally signed by users through their private keys without the participation of the exchange. Some exchanges issue their own tokens that perform different roles in the functioning of the system — from paying a commission to investing in a project.

For example, on the Waves platform, popular currencies as bitcoin (BTC), ether (ETH) and litecoin (LTC) are traded in pair with the internal asset WAVES, which is also used to pay commissions and other payments.

Users may also experience slower operation times when trading on a decentralized site. The reason is a time delay between when a blockchain transaction is made and when it is validated.


6.

Can an exchange be completely decentralized?

Most of the existing exchanges that call themselves decentralized, in fact, are not fully so. The simple fact is that many DEXs use their own servers to store trading data and applications for the purchase or sale of user assets, but the private keys are kept by the users themselves.

Therefore, decentralized exchanges have centralized components that make it possible for a government to control how they operate. A notable example is the IDEX exchange, which prohibits the residents of the state of New York from trading on the platform.

For the same reason, some exchanges may be subject to hacking and attacks. Charlie Lee, the creator of Litecoin, said that the exchange cannot be decentralized if it can lose or freeze the funds of its customers.

The message appeared in his Twitter after the Bancor decentralized exchange was reportedly hacked on July 9, 2018 and lost $13.5 million worth of assets.

A Bancor wallet got hacked and that wallet has the ability to steal coins out of their own smart contracts. 🤦‍♂️

An exchange is not decentralized if it can lose customer funds OR if it can freeze customer funds. Bancor can do BOTH. It's a false sense of decentralization. https://t.co/22UYygIhEF— Charlie Lee [LTC⚡] (@SatoshiLite) July 10, 2018

7.

Any dispute settlement process?

The main issue when talking about regulation of DEXs is that, in most cases, such exchanges are not controlled by a specific legal entity or individual.

Since DEXs are not required to follow regulations, this results in problems with the determination of those responsible in the event of any violation, difficulties with checking trading activity or identifying possible infringements.

For the same reason, some already existing rules applicable to centralized exchanges cannot be applied to decentralized exchanges.

In the United States, regulators are trying to apply a legislative base that already exists, and in Singapore, the authorities are trying to create a new regulatory framework for such exchanges.

However, there is no unambiguous position regarding DEXs in these countries, while in other countries, decentralized exchanges are not regulated at all.

Tech industry insiders and cryptocurrency entrepreneurs are divided on the prospects of Facebook’s (FB) much-anticipated new “GlobalCoin.”Some think it will be a game-changer that spurs crypto adoption.

Others predict an expensive turkey that goes nowhere.Facebook plans to launch its own cryptocurrency — dubbed “GlobalCoin” — next year, according to reporting by the BBC, the Wall Street Journal, the Financial Times, and Bloomberg.

The company has over 60 employees working on the secretive project internally.

“They have almost like a SWAT team that’s very talented,” Tim Byun, the CEO of Silicon Valley-based OKCoin, told Yahoo Finance UK. “They’re serious about it.

”The social media giant has not commented on the reports but there is speculation that the new currency could be used to reward users for watching ads on its platform and spent at major retailers, not just on Facebook. It will be reportedly be pegged to the dollar.

“That’s super exciting,” Antoni Trenchev, the cofounder and managing director of crypto lending business Nexo, told Yahoo Finance UK when asked about the project. “Talking about adoption, who better than Facebook?”

‘It’s going to create interest’

Trenchev is one of a number of crypto enthusiasts who think Facebook’s foray into the industry could prove a tipping point. Cryptocurrencies first emerged with the creation of bitcoin in 2009 but have struggled to find mainstream use or adoption in the decade since.

With 2.3bn monthly users, Facebook could change that. If even a small number of its users adopt the new GlobalCoin it could radically increase the number of people interacting with cryptocurrencies.

“Anything that gets people thinking in terms of financial units that are not just dollars or not just at a bank opens people’s minds to new things,” Erik Voorhees, the cofounder of crypto exchange Shapeshift, said.

Reports about Facebook’s crypto ambitions coincided with a small revival in prices and the official launch of ‘GlobalCoin’ could provide another boost.

“Everyone of those headlines helps because it just spurs more interest in the space,” Steve Quirk, the vice president of trading at US stockbroker TD Ameritrade, told Yahoo Finance UK.

“I’m not saying Facebook announcing this is going to necessarily create a pop in the digital asset space, but it’s going to create interest.”



View photos

Facebook CEO Mark Zuckerberg has reportedly held meetings with Bank of England governor Mark Carney.

Photo: MATT DUNHAM/AFP/Getty Images

Facebook CEO Mark Zuckerberg appears to be planning for big things from his new project. He has met with Bank of England governor Mark Carney, one of the world’s most prominent central bankers, to discuss the implications of creating a new currency, according to the BBC.

“The scale that a coin on Facebook’s platform could achieve is something to reckon with,” ING economists Teunis Brosens and Carlo Cocuzzo wrote in a note sent to clients last week.

The social media giant is likely looking to China’s WeChat for inspiration. The chat app has over 1bn users, mostly in Asia, but 600m of them also use it for payments. It is a huge money spinner.

‘You’re just adding complexity’

Not everyone is so excited by Facebook’s plans.“How on earth are they going to succeed with crypto when they already launched payments for the Messenger platform and that went nowhere?

” Christian Lanng, the CEO and cofounder of supply chain finance platform TradeShift, told Yahoo Finance UK.

Facebook launched payments through its Messenger app in the US in 2015 and expanded it to Europe in November 2017. The service failed to capture users’ imaginations and Facebook last month announced it was discontinuing Messenger payments in Europe.

“You’re essentially taking a business proposition that you’ve already failed at and adding cryptocurrency,” Lanng said. “You’re just adding complexity and something users don’t understand. I don’t exactly see that as a recipe for success.”


View photos

Facebook's founder and CEO Mark Zuckerberg reacts as he speaks at the Viva Tech start-up and technology summit in Paris, France, May 24, 2018.

Photo: REUTERS/Charles Platiau


Lanng believes that the spur to get into cryptocurrencies is not user demand but the string of negative headlines related around Facebook’s treatment of user data and fake news.

“What is evident is Facebook is desperate for a future story that doesn’t involve abusing the users as the world see it right now,” Lanng said.“But this is classic Facebook clunky thinking.

I don’t think they’ve paused and asked would anyone want to do that. Will I use Facebook just because I get money for viewing ads? I think that’s missing the point to begin with.”

Will people trust Facebook?

Recent negative headlines could also pose problems for the launch of GlobalCoin.

“Has Facebook done enough to rebuild their credibility around privacy for users to trust them with their money?” Simon Peters, an analyst at online investment platform eToro, said.

Tom Chippas, the CEO of crypto business ErisX, echoed these concerns. He told Yahoo Finance UK: “Do we want a crypto token built on a closed system with privacy concerns that not the entire world accesses?

“If their token is going to trade and be freely available — fantastic.

But if it’s a closed ecosystem — I don’t know that the world wants another reward point that they can only spend at certain merchants.”Questions about how open the system will be are not just academic.

ING’s Brosens and Cocuzzo point out that the more centralised the currency is the more control Facebook will have and, therefore, the more scrutiny the social media giant must face.

“Strictly speaking, cryptocurrencies are decentralised,” they wrote. “With Facebook’s coin, there is one centralised party which issues and manages the coin on its own platform... So referring to GlobalCoin as a cryptocurrency is wrong, or at best irrelevant.

”Facebook has so far not commented on any of the reports surrounding GlobalCoin. However, reporting from the Financial Times and the Wall Street Journal suggests the new currency will be relatively open.

The FT reported that Facebook is in discussion with cryptocurrency exchanges about listing the new currency for exchange and the WSJ reported that Facebook is talking to online merchants about accepting the new token.

Still, Chippas’s question is one of many that industry observers are asking.“How open is it going to be? How tied is it going to be to only Facebook networks?

Are they going to open source it? All of the things that you would ask any other startup in this space,” Maire Wieck, the general manager of IBM Blockchain, told Yahoo Finance UK.

Chippas said: “I think the conversation is super important so those questions can get asked.”Facebook declined to comment on “speculative reports” when contacted by Yahoo Finance UK about the project.

————

Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.

Cryptocurrency is maturing. While it’s impossible to make any lofty predictions or guarantees about the fluctuations of the market, there are plenty of signs that we’ve entered a new age of investing.


Cryptocurrency is maturing. While it’s impossible to make any lofty predictions or guarantees about the fluctuations of the market, there are plenty of signs that we’ve entered a new age of investing. The top crypto exchange handles a volume of nearly $50 billion. Your next-door neighbor might have a little bit of bitcoin.

A growing number of major banks, hedge funds and even family offices are turning to digital assets to complement their traditional investment portfolios.In what is likely a first for university endowments, the Harvard Management Company (the largest academic endowment in the world) recently invested some $5 to $10 million into cryptocurrency.

This past February, JPMorgan Chase launched JPM Coin, making it the first US bank to create a digital coin representing a fiat currency. Their token is in a prototype phase and is being tested solely with JPMorgan institutional investment clients.

But cryptocurrencies aren’t physical goods that can be locked up in a safe or transported in a Brink’s truck. Digital assets like Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP) exist on the blockchain and are maintained in a decentralized environment.

To establish “ownership” of cryptocurrencies, the transaction activity is tracked on a public ledger - the much-heralded blockchain itself - by public and private keys. Public keys are the address used to send and receive crypto. It’s necessary that everyone knows this address.

Private keys must be kept secret because they are used to authorize the transmission of cryptocurrency held. Keys are stored in what’s typically called a wallet. There are various forms of digital wallets, which I will get into shortly.

While cryptocurrency investment is on the rise, in order for this digitally-based currency to prosper the right infrastructure must be in place.Let’s be honest: cryptocurrency is a ripe target for theft. According to a report by Ledger, nearly $1 billion was stolen in 2018.

The threat landscape faced by cryptocurrency investors is similar to that facing security professionals in all tech spaces. Traditional cyberattack methods like site clones, phishing and SMS hacks coupled with hardware tampering and social engineering are still problems in this new frontier.Hackers have absconded with millions of dollars by hijacking cell phone accounts.

Entire crypto exchanges - handling upwards of hundreds of millions - have been forced to shut down as a result of cyberattacks. And it’s not just hackers to worry about. The nature of crypto storage can lead to the loss of funds as well. Take the recent QuadrigaCX debacle for instance.

At its peak, the Canadian cryptocurrency exchange handled nearly $200 million in assets. Its lone operator, Gerald Cotton, personally held all his clients’ security keys.

Last year, on December 9th, Cotton died after being hospitalized due to complications from Crohn’s disease. Because he was the only one with access to those private keys proving crypto ownership, all the assets under Quadriga’s management followed Cotton to his grave.

Though highly anomalous, the Quadriga event has served as a final wakeup call to both institutional investors and their customers as to how important it is to securely safeguard your digital assets with a trusted platform.

In the cryptocurrency world, there are several ways to store your holdings but they all generally involve some form of wallet. Basically, a “crypto wallet” is a device on which your private keys are stored. Your private keys are a critical piece of information used to authorize spending and selling crypto on the blockchain.

The wallets in which you hold them can be physical devices, software- or solution- based or simply the online exchange from which you’ve purchased your currency.Of those wallets there are two types: hot and cold. Hot wallets are connected to the internet, while cold wallets are not. Cold wallets are considered much more secure than hot wallets.

Hot Wallets

There are two main types of hot wallets:Web/Online/Exchange: Leaving your crypto on an exchange is an example of hot wallet storage. Any type of storage that is online is considered “hot.” These types of online wallets are the most unsecure and susceptible to being hacked, having your email and login info being stolen, or to a counterparty risk.
Software Wallets: A software wallet is an application that you download to your computer or phone. It is considered safer than a web/exchange wallet because you, rather than a third party, have control of your private keys. However, since your computer and phone are vulnerable to hacks, software wallets still aren’t the best option.
Cold WalletsThere are two main types of cold wallets:

Hardware Wallets: Hardware wallets are widely considered the safest option for storing your crypto. Typically, in USB format, a hardware wallet can be connected to the internet to transfer an exchange for trading, but it can be disconnected, with your crypto stored totally offline and inaccessible to hackers. The main principle behind hardware wallets is to provide full isolation between the private keys and your easily-hacked computer or smartphone. 
Paper Wallets: A paper wallet is an offline mechanism for storing. You literally print out your public and private keys on paper and keep them somewhere safe. This is extremely safe - and cheap - but obviously not the best method. If you lose the paper, you completely lose your private keys.So clearly you can’t be running crypto on a bunch of jump drives. Even the most novice crypto holder needs a wallet that has both a secure element and custom OS without compromising security and convenience. While blockchain aims at revolutionizing financial systems, many investors are still decades in the past when it comes to the way they are safekeeping their digital assets.

Hardware wallets have become the de facto best practice amongst individuals serious about their investments but think about enterprises handling millions of dollars’ worth of crypto. In the early stages of institutional investing, asset managers would find themselves securing massive amounts of wealth on hardware wallets with no convenient and efficient way to implement a meaningful segregation of duty.

Finding a Holistic Security Solution

This may have created new jobs for bodyguards and generated revenue for security equipment companies, but it hindered the growth of the segment by exposing crypto funds to an operational risk far above the appetite of the average investor. Institutional investors can’t simply rely on standard wallets, however secure they may be.

The financial industry needs custody solutions that are more holistic in their approach, combining both hot and cold approaches, and encompassing both hardware and software technology solutions.The absolute most secure way to manage crypto assets is through a multi-authorization governance infrastructure.

Secure storage of large digital asset funds is complex, and exchanges and institutions need safe, comprehensive and integrated solutions. This approach employs a multi-authorization self-custody system of management and gives financial institutions security, control and speed of execution along with a reliable governance framework.

Proper security is crucial to the diligent management of crypto assets, whether you’re just a hobby holder or an institutional investor overseeing millions. Mainstream adoption of crypto is gaining momentum and as more come on board, there will be more targets for cyberattacks.

Echoing a common refrain in the tech world: It’s crucial for everyone involved to be aware of the risks and how to mitigate them.

About the Author:

Demetrios Skalkotos leads global business unit operations for Ledger Vault, a multi-authorization cryptocurrency self-custody management solution built to secure large amounts of various digital assets. Skalkotos has decades of experience running global software and infrastructure businesses for the U.S. exchanges Nasdaq and ICE.

While the Crypto Winter may be lingering with us into the spring, crypto exchanges are doing just fine. According to CoinMarketCap, there are now 255 major crypto exchanges. That’s a notable increase from a year ago, when there were 208.

A booming exchange industry sounds like a positive, but we can do with fewer exchanges for cryptocurrencies to establish themselves as a dominant force in the global financial system.For crypto to truly thrive, the ecosystem needs only five or six exchanges — and certainly no more than a dozen — in the long run. Here’s why.

Growing Crypto’s Market Cap Will Be Possible With Fewer Exchanges

To get a sense of crypto’s exchange problem, consider the ratio of crypto exchanges / crypto market cap compared to equities exchanges / total equities market cap.Today’s 255 major crypto exchanges are home to about $175 billion worth of cryptocurrencies (total market cap).

Distributed evenly, this amounts to $686 million in cryptocurrencies per exchange. In equity markets, 60 major stock exchanges control $69 trillion in global equities, or roughly $1 trillion in equities per exchange. Thus, the average stock exchange is 1,457 times bigger (in market cap of listed assets) than its average crypto peer.

The last 200 years of economic progress shows us that investors, companies and the economy all benefit from there being a few regulated exchanges in each jurisdiction. Indeed, New York City became the financial capital of the world with just two exchanges: NYSE and Nasdaq.

The crypto ecosystem similarly needs recognized, name-brand exchanges that retail and institutional investors trust and feel comfortable transacting across. Today’s hodgepodge of exchanges fails to inspire confidence among the many people who are not yet sold on crypto’s long-term viability.

Next-Gen Innovation Will Only Be Possible on a Few Exchanges

The traditional role of a crypto exchange is to provide liquidity. This function is and always will be vital, but for the crypto ecosystem to mature, exchanges must broaden their mandate beyond trade execution and into the world of payments and personal finance.

One possible catalyst for this shift can be crypto’s evolution from a store of value into a form of payment. The former’s domination of crypto’s first decade enabled the launch of countless exchanges, and the 2017 ICO bubble furthered this proliferation as entrepreneurial types realized they could quickly launch exchanges and profit handsomely from listing new tokens.

Even if not, exchanges carry the responsibility to simplify, educate and bring consumers onboard the crypto bandwagon. The crash in crypto prices was an important wake-up call for exchanges and other infrastructure developers. The industry started to realize that crypto’s continued growth will depend on broader usability and scalability.

Exchanges with innovative, customer-centric services will be the ones thriving in 10 years’ time.For example, Lightning Network payments is one form of innovation that crypto exchanges can harness to increase crypto’s everyday functionality.

As a second-layer protocol that enables instantaneous settling of funds, Lightning Network represents the future of point-of-sale crypto payments. Exchanges that incorporate Lightning into their wallet infrastructure can gain access to a vast, untapped market. (We at Zebpay have prioritized Lightning integration).

Once a handful of exchanges develop and scale these next-gen features, there will be organic consolidation as consumers flock to the exchanges with the best services.

“Exchange Overload” Is Against the Crypto Ethos

There’s a more foundational reason why we need fewer crypto exchanges: reducing market friction, i.e., lowering fees.Many of today’s exchanges charge high fees for makers and takers. This business model benefits exchanges, but high fees risk stunting broader adoption of cryptocurrencies.

Today’s consumers are accustomed to using technology platforms like Facebook and Google “free” of charge, and they won’t be lured into crypto if participation is costly.

In the current environment, high competition is causing some exchanges to lower fees, but ironically, this competition (and the fragmented nature of the exchange market) is compelling most exchanges to continue charging fees to meet revenue targets.

In a world with fewer exchanges, there are other ways for these businesses to make money. Mining fees are one option. So too are premium, subscription-based services. The tiered subscription model would allow exchanges to attract a wide range of consumers, but this will only be possible once a few exchanges establish themselves as the dominant players.

That said, I also believe that centralized exchanges are an interim solution to simplify the crypto world for consumers and, as technology evolves, we look forward to the emergence of decentralized exchanges. For crypto to meet its objective, it must empower the individual.

This is a guest post by Ajeet Khurana. Opinions expressed are his own and do not necessarily reflect those of Bitcoin Magazine or BTC Inc.

Bitcoin went on a tear in early morning trading earlier today, popping up to above $4,900 and reminding some investors of the good old days of 2017.The currency is still trading up above 15 percent at $4,782.60, which is a healthy jump for the cryptocurrency (which had been languishing at around $4,000 for the past three months). Indeed, the price was up over 25 percent over the previous month, according to Coinbase .




Bitcoin’s surge also sent the other top cryptocurrencies, including Ethereum and Litecoin, soaring.No one can quite pin down the reason for the currency’s surge, given the string of bad news that has unspooled around the cryptocurrency business in the past few weeks.

Despite an April Fool’s Day article to the contrary, the Securities and Exchange Commission still has not approved an exchange-traded fund that would track to the cryptocurrency.

And one of the big public offerings that was supposed to showcase the strength of the market seems to have been shelved as Bitmain has not renewed its application for a public listing on the Hong Kong Stock Exchange.

One analyst had a simple reason for the Bitcoin price surge; a big, $100 million order for the cryptocurrency that was placed overnight and spread across the U.S. exchanges Coinbase and Kraken and Luxembourg’s Bitstamp .

“There has been a single order that has been algorithmically-managed across these three venues, of around 20,000 BTC,” Oliver von Landsberg-Sadie, chief executive of cryptocurrency firm BCB Group, told Reuters in an interview.

This is an excerpt from a story delivered exclusively to Business Insider Intelligence Fintech Briefing subscribers. To receive the full story plus other insights each morning, click here.

Bank of America's (BofA) tech and operations chief, Cathy Bessant, has expressed skepticism on the benefits of blockchain, despite the bank having received or applied for 82 patents for the technology, the most among financial institutions (FIs), per CNBC.





Business Insider IntelligenceBessant said BofA's patents could allow the bank to plug into blockchain if the need arises going forward. However, she said that she has the most reservations about public blockchains, such as the one used by Bitcoin; she added that private blockchains could potentially enable FIs to cut costs and offer better services in the future.

Notably, Besser also stated that she hasn't seen a use case that makes a lot of sense for finance or that considerably enhances current methods.Here's what it means: Bessant's comments add further fuel to the ongoing debate about the prospects of the technology.

• Some players have demonstrated use cases for blockchain, but questions of its scalability still remain. In February, JPMorgan unveiled plans to launch its own crypto, dubbed JPM Coin, to transform its wholesale payments business, while HSBC said it settled $250 billion in forex trades in 2018 over blockchain and that it wants to make the platform available to its clients, such as FIs, as examples. Both use cases, however, have yet to prove they can scale.
• Others are scrapping some of their blockchain plans, struggling to find substantial value when compared to existing methods. For instance, earlier this month, Citibank announced it's abandoning plans to launch its own crypto, having decided it would create greater value by focusing on improvements to current payment ecosystems, like SWIFT.

The bigger picture: Blockchain is still a nascent technology, but funding continues to pour into the tech and FIs are narrowing in on certain opportunities.

• Despite lack of significant success, money continues to flow into the technology, indicating hopes for more significant results in the future. Financial services firms are spending around $1.7 billion per year on the technology, according to Greenwich Associates, while VCs invested $5.4 billion into blockchain startups in 2018, up 260% YoY, per Autonomous Research cited by CNBC.

• We've already seen some promising applications of the technology. Trade finance, for instance, is well suited for blockchain disruption, bringing benefits such as reduced processing times, transparency, and real-time review and approval of financial documents. And when Citibank announced that it's abandoning its crypto plans, it also said it will continue to experiment with blockchain in trade finance. Further, many large banks belong to trade finance blockchain consortia, such asVoltron, an initiative led by HSBC, ING, NatWest, Standard Chartered, BNP Paribas, and Bangkok Bank.

• Blockchain within banking is in its infancy and continued investigation into its potential benefits is to be expected — but FIs should try to narrow their focus. BofA's slew of blockchain-related patents are indicative of the technology's exploratory status within the industry. It's also vital, however, that FIs' approach to blockchain adoption and innovation is driven by the problems they are looking to solve, rather than blindly following a hype and dipping their toes into all potential use cases.
• 
  

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The Binance Launchpad platform has recorded gains of over 270% for its three Initial Exchange Offerings (IEO) this year. With such returns, it’s no surprise that demand is now rising and other exchanges are now copying the new model. 

271% AVERAGE GAINS ON BINANCE LAUNCHPAD

Tokens of projects launched through Binance Launchpad have gained 271% of their IEO dollar price at the time of this writing.




So far, the platform has launched three projects, namely BitTorrent, Fetch.AI, and Celer Network.As seen on the table above, the tokens of every single one of them has seen its price skyrocket at the time it got listed on Binance.

During its IEO, BitTorrent Token (BTT) was sold at a price of $0.00012. As soon as it got listed, its price catapulted with about 330 percent. It has increased even more since, currently trading at 483 percent higher compared to its IEO dollar value. The cryptocurrency has also increased against Binance Coin (BNB). Presently, it marks gains of around 154 percent

.Fetch.AI (FET) token was sold at a price of $0.0867. Following its listing, its dollar price increased by 367 percent. Currently, FET is trading 119 percent higher compared to its IEO dollar price and 36 percent higher against BNB.

Celer Network (CELR) token was sold at a price of $0.0067 during its IEO. Its listing price was around $0.030 or about 350 percent higher.

At the time of this writing, CELR is trading at a price 213 percent higher compared to its IEO dollar value and 197 percent higher when trading against BNB.On average, the tokens were listed at a price 350 percent higher than their IEO dollar value.

Their ongoing performance is also somewhat impressive, as they’ve managed to retain a notably higher value, marking increases of 271 percent against the USD.

DEMAND LIKELY TO RISE

Despite being undoubtedly successful for the projects themselves, Binance Launchpad has experienced continuous technical issues handling the high buying demand.In fact, it seems that people are getting more and more interested in participating, likely because of the returns outlined above.

Immediately after the last sale – that of Celer Network, Changpeng ‘CZ’ Zhao, CEO at Binance, said that it was “actually the highest buy demand sale we seen so far.

”Yet, out of 39,003 people, only 3,129 managed to buy CELR tokens, suggesting that less than 10 percent of everyone who attempted to buy actually managed to do so. The sentiment was similar throughout the previous sales as well.

VIP ACCESS FOR BNB HODLERS COMING

Since then, Binance has come up with somewhat of a solution. Instead of handling the orders on “first-in-first-served” basis and coping with their technical issues, Binance has decided to conduct the sales using a lottery format.

As Bitcoinist reported, the platform will be implementing a BNB daily holding average criteria for users who want to get tickets to participate in the sales. These tickets will then be selected randomly, allowing their owners to purchase a pre-determined amount of tokens.

OTHER EXCHANGES REPLICATING IEO MODEL

Other exchanges were quick to see the potential in having their in-house IEO factories.

KuCoin announced its so-called Spotlight platform and will host its first IEO on April 3rd. The model they are going for is more or less the same as it was on Binance Launchpad prior to their decision to implement a lottery-like format.

Huobi Global is another well-known exchange which has also boarded the new hypetrain.

Their platform is called Huobi Prime. Unlike KuCoin and Binance, however, they’ve taken a fairly different approach.Instead of conducting a “sale”, per se, Huobi Prime will directly list the new tokens for trading against USDT, Huobi Token (HT), BTC, and ETH.

Each sale will go through three preliminary trading rounds of 30 minutes where users will only be able to place regular market orders at a tradable price which is capped for each round. Once they are through, regular trading of the new token will be allowed.

Huobi Prime will have its first selective token listing on March 26th.It’s also worth noting that this new craze has had a splendid effect on the exchanges’ native tokens.

Binance Coin (BNB) has managed to more than tripple its price in the last three months. Huobi Token (HT) has surged by more than 130 percent in the same period, while KuCoin Shares (KCS) sees gains of about 120 percent.

Retail investors are lining up for the latest twist in the never-ending crypto craze.

BlockFi, a fintech startup backed by billionaire Mike Novogratz’s Galaxy Capital, began providing interest-bearing accounts this month that offer up to 6.2 percent in annualized returns paid in Bitcoin or Ether. Since a March 5 launch, they’ve attracted at least 10,000 customers, 90 percent of whom are retail investors.

The company has taken in over $35 million in deposits, with large accounts pulling the average balance up to about $40,000.

BlockFi’s interest rate is set on a month-to-month basis and is based on a combination of rates BlockFi sees in the institutional cryptocurrency borrowing market, as well as a budget it set for customer acquisitions, Zac Prince, chief executive of New York-based BlockFi, said in an interview.

“We expect the interest rate in the account to be higher in times when prices are falling, and lower when prices are rising because demand to borrow Bitcoin is partially driven by market sentiment,” said Prince.

“We are bullish on the cryptocurrency market and on Bitcoin long term,” he said, which would ultimately result in lower interest rates.

It turns out that investors might do fine just holding onto their coins right now rather than depositing their crypto assets with BlockFi. Bitcoin has rallied about 8.5 percent since December to around $4,000.



The accounts have attracted push back in a world that already lacks expansive regulatory oversight and suffers from a pandemic of scams and unanticipated meltdowns such as the recent shuttering of the digital-asset exchange Quadriga CX following the death of its founder.

BlockFi’s critics point to the terms and conditions that state the company can determine the interest rate each month at its sole discretion.

“A superficial review of their splash page and their terms and conditions shows that their advertising is not necessarily what they’re guaranteeing,” said David Silver, founder of the Silver Miller law firm in Coral Springs, Florida.

“As a securities fraud lawyer, my job is to protect people who are misled into misrepresented investments; and it’s understandable why people would be confused if they didn’t receive their 6.2 percent because BlockFi’s advertising makes it seem like that’s a guaranteed rate of return.”

BlockFi has been open about this and the rate will “definitely” change in the future, said Prince. “The way that it works is we will announce rate changes in advance of the change happening and they won’t go into effect immediately,” he said.

“We didn’t launch with a 6 percent rate with the intention of changing it one month later and pulling a big gotcha on everybody. That would be really bad business.”Clients can deposit either Bitcoin or Ether (the only coins currently accepted) and the company lends the funds to crypto investors for arbitrage, short-selling or market-making trades at rates ranging as high as 12 percent.

BlockFi’s interest rate is nearly three and a half times higher than the next-nearest rate of 2.5 percent from Customers Bank online savings accounts or three and a half times times higher than that offered on 120-month JPMorgan Chase certificates of deposit.

But while deposits held by traditional banks are insured by the federal government in case of default, BlockFi’s accounts offer little downside protection.

FDIC insurance isn’t available in the crypto world. Instead, Tyler and Cameron Winklevoss’s Gemini Capital is providing custody and insurance against cyber theft, said Prince.BlockFi’s also at the mercy of an unstable crypto market, which saw Bitcoin -- its largest cryptocurrency -- lose more than 70 percent of its value last year.

And the interest rates paid out are only as valuable as the price of Bitcoin or Ether at the time of payout.

Obvious Risks

“It struck me that it could be misconstrued by unsophisticated retail investors,” said Tim Swanson, founder and head of research at PostOak Labs. “In order to use some of this cryptocurrency technology, you have to be a little bit tech savvy.

”But BlockFi says risks related to its products are obvious -- and have been part of the crypto market for a while.

“It’s systemic risks,” like failure in the Bitcoin blockchain that could push prices down an order of magnitude more than it previously has, said Prince. “In our terms and conditions, we have thorough, bold print sections on risk disclosures.

”BlockFi also offers crypto-backed loans with rates ranging between 4.5 percent to 11.25 percent, and eventually hopes to offer an array of services similar to what other fintech platforms -- like SoFi -- offer.

“They started with a core market segment, which for them was HENRYs -- high earners, not rich yet,” said Prince.

“They delivered one product to that market segment -- and the one product was student loan refi.” Since then, SoFi’s diversified its product suite to include mortgages, stock trading and savings accounts, among other things. “We think of ourselves as a company kind of like that.”

We’re going to have to take a step back and rethink the whole “Bitcoin exchange traded funds (ETFs) are coming” trope.

In February earlier this year, the Securities and Exchange Commission (SEC) put out a solicitation request opening the floor for the public to comment and provide their thoughts on the possibility of allowing a regulated and recognized Bitcoin $BTC▼1.25% ETF.

Since then, seven letters of commenthave been made publicly available.Most people that actually responded to the Securities and Exchange Commission‘s (SEC) request for public input into a Bitcoin ETF really aren’t too fond of the idea. All but one of the seven letters are vehemently against the idea that any form of Bitcoin ETF be approved.

One respondent, Sam Ahn, goes to great lengths to explore how Bitcoin has no intrinisic value. Stating that the “complicated mathematical equation” used in the mining process is not as complicated as Satoshi Nakamoto implied in their seminal white paper.

Most other respondents, while far more concise, follow a similar argument to Ahn. They claim that Bitcoin‘s inherent value is dubious and should not form part of a digital asset based ETF, such as the Van Eck or Bitwise tools.While still strongly against the idea of a Bitcoin ETF, D. Barnwell asks the SECto “watch and wait.

” They say now is not the time for a Bitcoin ETF, but suggest there may be a financial future in which blockchain plays a pivotal role.

One member of the public did speak in favor of a Bitcoin ETF though, claiming that Bitcoin is fast, low-cost, resistant to manipulation and money laundering.

That said, there are cases of cryptocurrency-based money laundering. And Bitcoin transaction fees fluctuate as widely as the value of the coin itself.

 In January 2018, when Bitcoin‘s price was at its highest, fees were well over $30 per transaction.

Want to find out more about cryptocurrencies and blockchain technology? Check out our Hard Fork track at TNW 2019!

Blockchain is at a tipping point, going from ideation to solving real-world problems. And Deloitte’s EMEA Blockchain Lab in Dublin is at the heart of the action.



Working with major organisations around the world, Deloitte’s EMEA Blockchain Lab in Dublin is spearheading the deployment of blockchain.Blockchain as a technology is only a few years old. And, while it forms the linchpin for developments such as cyryptocurrency, it has the potential for many more use cases.

‘Taking blockchain live is more than just the technology. You are actually creating real transformation; you are creating entirely new ecosystems or processes that didn’t exist before’
– ANTHONY DAY

The technology consists of blocks that hold timestamped batches of recent valid transactions, which form a chain, with each block reinforcing those preceding it. It could be used to provide an indelible ledger to catalogue everything from the distribution of pharmaceuticals to the journey of food, from the farm to the fork.

As outlined earlier this year at a recent Deloitte Community of Practice event in Dublin, the real promise of blockchain is clarity, transparency and traceability.In Dublin, Deloitte has established the EMEA Blockchain Lab, which aims to advise clients on the technology’s application. 

We caught up with some of the leading team members of the Deloitte EMEA Blockchain Lab to see where it is at in bringing blockchain from concept to reality.

From idea to action

“The blockchain lab is an EMEA centre for excellence for blockchain within Deloitte,” explained Cillian Leonowicz, head of business development for the lab.“We do everything from ideation through to the deployment of blockchains for commercial entities.

So, this includes everything between the ideas, the testing of the use cases, right through to the technical architecture and the design and development, and the deployment of it.

“The key point is the multidisciplinary approach we would have. It is not just technology, it is looking at digital transformation, digital innovation and then re-engineering value chains.

”For Anthony Day, chief operating officer of the Deloitte EMEA Blockchain Lab, it is really about pioneering the future. “Taking blockchain live is more than just the technology. You are actually creating real transformation; you are creating entirely new ecosystems or processes that didn’t exist before.

“The technology is really only 20pc of the problem; the other 80pc is getting a multidisciplinary group together, whether that be traditional competitors or a group of executives from industries that don’t typically work together.

The hard part often is the governance; getting the principles in place for how we work together, how we fund, how we onboard and then taking the processes through from conception into reality, making digital things into real-world processes, real-world business challenges or opportunities. That’s the hard part.”

Data and security

In terms of data and security, Antonio Senatore, chief technology officer at the Deloitte EMEA Blockchain Lab, said that organisations are looking at using the technology as a trust layer to enable safe data-sharing.

“You can see blockchain almost as an indexing layer, a trust layer on top of a data exchange facility, and that’s what we’ve been seeing so far.

”The key to the technology’s success, said David Dalton, consulting partner and financial services lead at Deloitte, is bringing value to Deloitte’s clients through practical applications. “Two-and-a-half years ago, we set up the lab in Dublin. It was our first lab globally; we have since set up two more, one in Hong Kong and one in New York.

“We focus on working with clients and groups of clients because consortia really become important in blockchain applications as a network technology, and we are building production applications on this technology now. We have all of the supports you would expect in a lab.

We have the R&D, we have the thought leadership, we also speak a lot [at conferences] and build awareness around it. But the core of what we do is work with building clients’ real-world solutions on blockchain technology.

”Amy Pugh, manager of the Deloitte EMEA Blockchain Lab, said that 75pc of staff at the lab are technologists focusing on design and development, while the remaining 25pc are strategists working with clients on their blockchain journey, developing valuable use cases.

“It is an exciting space to be in to collaborate and help drive the value across the network.

”Dublin skyline. Image: David_Soanes/Depositphotos




Editor John Kennedy is an award-winning technology
journalist.[email protected]

I live in the Bay Area/Silicon Valley, a region known for its entrepreneurial spirit and breakneck pace of innovation. Here, speed and scale are required, technology disruption is the norm, and business models need to constantly evolve in order to stay relevant.

Yet, interestingly, the venture capital process that feeds this engine of innovation has remained unchanged for many decades. Despite advancing technologies and a global economy, venture capital and its lucrative returns remain the purview of a handful of elite VCs and their respective networks. If our job as VCs is to facilitate innovation, why don’t we innovate ourselves to bring equal access?

How can we make the process better, more efficient, and effective?  I believe today’s blockchain technology and security token offerings (STO) provide an innovative means to do so. After all, we see it in the headlines daily: the blockchain is disrupting the financial services and fintech industry, and completely altering the very face of venture capital as we know it. 

Blockchain’s decentralization model disintermediates “the middleman,” enabling money to be raised directly, peer-to-peer, from the public markets. The rise of the STO/ICO (initial coin offering) is now the equivalent of venture capital fundraising plus IPO, and now, suddenly, the VC industry is turned on its head. 

This is the massive disruption Andra Capital sees on the horizon and the reason we have launched the Silicon Valley Coin (SVC). It’s the first asset-backed, tokenized fund that provides permitted investors from all over the world access to the best pre-IPO technology companies in Silicon Valley—and beyond.

With this groundbreaking endeavor, we have created a tokenized fund and launched a blockchain-based startup that we believe will radically transform the nature of the venture capital business.

Our asset-backed, security token is tradeable and backed by a high-performing, half-trillion dollar asset class. The venture capital business is not an open system. Investors want access to deals, yet the first-tier of institutional investors dominate the deal-flow and profits. Some funds haven’t opened up to new investors in more than a decade.

Ordinary and foreign investors have little to no access, and those who do have access to private shares generally face a long waiting period of 7-10 years on those assets. With our SVC, we are leveraging blockchain technology to create an innovative solution that solves these important problems for fund managers and investors. It enables us to democratize pre-IPO investing, providing global investor access to late-stage, hyper-growth technology firms. 

Just like the advent of the internet in the ‘90s, we can now freely access information to anything, without constraint. Careers that used to require years-long apprenticeships are now learned all over the web. This democratization of information has had a domino effect on every industry sector. The asset-backed, security token is revolutionary.

If this new form of financial investing achieves a sliver of the level of freedom and access that the internet ignited, that impact could be enormous.

Competition always benefits consumers, and bringing transparency and competition to venture capital will likewise benefit investors. We are doing this with an exceptional, diverse team of entrepreneurs and investment banking experts with deep ties in the Valley, rich coverage, and experience in international markets. In addition to critical know-how, our entrepreneurial and international roots provide empathy, connection, and understanding.

We are more than just investors looking at financial statements through the lens of dollar signs. Having sat on the other side of the boardroom, our team understands the daily struggles, aspirations, and creative passions that drive entrepreneurs; we can actually help solve problems. I recall a compelling story that Hermann Liu, one of Andra Capital’s Managing Partners, recounted to me back when he was working at Charles Schwab.

The then-startup set out to disrupt the brokerage field. At the time, stock trading involved brokers and big checks. Schwab recognized how a different approach, coupled with nascent technology, allowed them to open the floodgates and give ordinary investors an affordable way to invest.  

Charles Schwab started a discount brokerage that would grow to serve the mass market, regardless of how much money an individual had to invest.Schwab was operating like an early-stage startup amidst New York City financial firms that did things the way they always did. Similarly, Andra is using the blockchain to disrupt the status quo of traditional venture capital and democratize VC investing.

Our vision is to make venture capital transparent, faster, and more innovative while bringing unprecedented access to permitted global investors. And we are going to do this with the best asset class available in Silicon Valley. 

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About Haydar Haba

Haydar Haba is the managing partner of Andra Capital

Long before Proof of Stake entered crypto consciousness, people were staking Proof of Work coins. In return for locking up a portion of tokens and running a masternode, you can earn verification rewards.

Earning a passive income while helping to secure a network sounds as comfortable as it does noble. The reality, however, is that most masternode coins are a scam.Also read: Crypto Exchange Launches in Gibraltar 

Loads of Nodes But Little Utility

Every trader has a strategy for profiting through good times and lean. Some buy into ICOs and wait for the market to recover; some scalp profits where they can through day trading; and some set up masternodes. Dash is the altcoin credited with starting the craze for masternodes. Back when the coin was trading for under a dollar, the Proof of Work coin introduced a masternode system that called for staking 1,000 Dash.





The top 10 masternode coins by market cap. Check how thin the volume is for many of themThe scheme proved hugely successful, both as a means of governing the network, and as an earner for individuals running a node, who were being handsomely compensated by the time the crypto market mooned in 2017.

At its peak, it would have cost $1.5 million to purchase enough Dash to set up a masternode.

The success of the scheme, which made early adopters of Dash’s masternode system very rich, was soon copied by countless other coins. Dash has at least a modicum of real world utility, but most of the copycats that have sprung up since serve no purpose other than to enrich their early adopters and stakers.

Masternode Coins Are the New Lending Platforms

The crypto winter of 2018 has been especially unkind to masternode coins. Dash has been on a slide since mid December, when it peaked at $1,580 a coin, and sits at $320 today. Lesser known masternode coins have fared even worse. 

Yearto.Date maintains a list of the best and worst performing masternode coins of 2018, and it isn’t pretty – even the third best performing coin of the year is in the red.

Although masternode coins aren’t a scam in the Bitconnect sense, like lending platforms they’re a scheme which looks profitable in a bull market when everything’s pumping, but when the tide turns gets badly found out. Sites like Cryptopia and Trade Satoshi are graveyards where abandoned masternode coins go to die.

Masternodes as a Service

Setting up a masternode is relatively straightforward – all it takes is a VPS and the ability to change a few lines of Linux code – but for those who lack the knowhow, services such as Digital Price will handle setup and hosting.

Even without getting your hands dirty, running a masternode is still a risky business given the potential for your staked coins to shed 90% of their value in a matter of months.

The volatility works both ways though, and it’s also possible to reap huge profits from masternode coins that pump, typically because they’re being bought in bulk by other traders also looking to stake coins. This sort of system is unsustainable of course, and when a bunch of node operators all decide to offload their surplus coins, the market crashes.





This year’s biggest masternode winners and losersDespite these inherent weaknesses, the concept of masternodes remains a solid one: it’s just that for the system to work, the network must be worth protecting in the first place, and for that to happen the coin needs to be used for something other than staking – like remittance, P2P payments, or ecommerce.

As a result, it makes more sense for developers to focus on generating demand for a blockchain first instead of launching masternodes and hoping that the utility follows.

Newer projects such as Origin Protocol, Dadi, Essentia, REMME, and Zencash will all be adding masternodes in the future. The difference, with these networks, is that nodes will be a feature rather than the defining characteristic.

The next generation of masternode coins might actually be worth something. The current generation are mostly scamcoins.Do you think most masternode coins are a scam, or do they serve a purpose aside from providing a passive income to stakers? 

More from Bitcoin.com here: 
https://news.bitcoin.com/most-masternode-coins-are-a-scam/

Facebook is reportedly shaking up its management team in a gigantic way today -- and according to Recode, the head of the company's popular Facebook Messenger app will now be in charge of "a new internal team dedicated to exploring blockchain technology.

" Recode reports that several prominent Instagram executives will be joining the blockchain team as well.You might be wondering: What is Blockchain? And why would Facebook be pursuing the technology? 

We've got a whole article dedicated to answering the former question -- not to mention our series Blockchain Decoded -- but if you're in a hurry: Blockchain is the digital ledger technology that famously powers cryptocurrencies like Bitcoin, but is more generally an encrypted way to keep a record of digital transactions, and can be used as a way to figure out who to trust online. 

Recode doesn't say specifically why Facebook might be looking into Blockchain right now, and Facebook didn't immediately respond to our request for comment. 

But in his January memo, Facebook CEO Mark Zuckerberg wrote that he wanted to study decentralizing technologies like encryption and cryptocurrency -- "that take power from centralized systems and put it back into people's hands," in his words -- and figure out how to use them in Facebook's services.


Blockchain's promise hasn't kept pace with the hype, but it's catching on for everything from tracking shipments through ports and across oceans to guaranteeing the provenance of a diamond necklace.

At Facebook, it could be used in any number of areas, from running advertising infrastructure to easing person-to-person e-commerce to assuring user identities in an era of scams and bots.

Facebook has a lot of users and a lot of industry clout, and that increases the importance of any efforts to form industry-spanning partnerships built on blockchain.

That said, exploring blockchain is hardly a surprise. In this day and age, a tech company doing so is about as shocking as exploring mobile phone apps or artificial intelligence tools.

Disclosure: Sean's wife works for Facebook as an internal video producer.

Discover more on CNET here: https://www.cnet.com/news/facebook-is-reportedly-starting-a-blockchain-team/

https://www.cnet.com/news/facebook-is-reportedly-starting-a-blockchain-team/

The founder of cryptocurrency hedge fund Pantera Capital said on Thursday that he believes the cryptocurrency market cap could one day be worth $40 trillion.Dan Morehead, who is also the firm’s CEO, said in an interview with Bloomberg that he believes the fair market value of the cryptocurrency market cap is an order of magnitude or two above where it currently sits.

“Obviously, we’re very bullish on the space. We think we’re way below, maybe an order of magnitude — or two — below the real fundamental fair value of blockchain,” he said, stating later that “the industry as a whole is $400 billion. It easily could go to $4 trillion, and $40 trillion is definitely possible.”

“Anything that’s a $400 billion asset will not be ignored for long,” he added.For the cryptocurrency market cap to reach $40 trillion, it would need to increase approximately 10,000 percent from its current level. If current market share distribution held constant — which of course is unlikely — the Bitcoin price would trade at a nearly $1 million valuation.

Bloomberg Crypto✔@crypto.@PanteraCapital CEO Dan Pantera says the crypto market could

reach $4 trillion https://bloom.bg/2JtpeSt 



7:23 PM - Apr 26, 2018

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As CCN reported, Pantera recently issued just its fourth trading recommendation on Bitcoin in its seven-year history, arguing that BTC had flashed a buy signal after dipping below its 200-day moving average. Since then, the Bitcoin price has climbed by approximately $2,000, netting investors who followed the firm’s advice a 29 percent profit.

Morehead doubled down on that recommendation during Thursday’s interview, stating that Bitcoin remained a “screaming buy” even after its moderate recovery.

Previously, Morehead said in mid-December that the Bitcoin price could decline by 50 percent or more heading into the new year, after which the flagship cryptocurrency entered a prolonged bear market out of which it has only recently begun to recover.

Notably, the publication reports that Pantera — which was founded in 2011 — currently has approximately $1 billion in assets under management. Of that, about 10 percent is in Bitcoin, though its largest stake in Icon, which ranks outside the top 20 on the market cap charts.

Featured image from Flickr/Techcrunch.

https://www.ccn.com/40-trillion-cryptocurrency-market-cap-definitely-possible-pantera-capital-ceo/

Annaliese Milano  


Ripple has invested $25 million worth of its XRP token in Blockchain Capital's Parallel IV venture fund, the startup announced on Wednesday. The firm's fund is the first to accept capital calls in cryptocurrency.

"Blockchain Capital is the premier fund for any project looking to get off the ground in the blockchain space," Patrick Griffin, Ripple's senior vice president of strategic growth, said in a statement."They have a proven track record for finding and funding the projects that matter."

Last month, Blockchain Capital announced that it had raised $150 million dollars in its fourth funding round, and said the proceeds came in the form of $125 million to its IV LP fund, and $25 million worth of cryptocurrency for its Parallel Fund IV, but it did not identify the cryptocurrency at that time.

Ripple's Wednesday announcement reveals that the cryptocurrency in question was XRP. The companies said the investment will be used to fund blockchain startups in addition to exploring new uses cases for its XRP ledger and Interledger Protocol.

"Whether it's using XRP, bitcoin or just the underlying technology, our goal is to find the best projects and give them the resources to be successful companies that deliver value to customers for the long term," Bart Stephens, co-founder and managing partner of Blockchain Capital, said in a statement.

XRP coins image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Michael Novogratz calls himself “the Forrest Gump of bitcoin,” citing his luck at being in the right place at the right time.


You can Audio: Listen to this story here: https://www.newyorker.com/magazine/2018/04/16/a-sidelined-wall-street-legend-bets-on-bitcoin . To hear more feature stories, download the Audm app for your iPhone.

Michael Novogratz was in a good mood. It was the thirtieth reunion of Princeton’s class of 1987, and the on-again, off-again billionaire was getting a lot of respect. “I want to hit you up about something,” a two-star general said. “Those are the freshest kicks,” a young bro in a dressing gown observed, complimenting Novogratz’s black patent shoes with orange piping and matching tassels. (“It’s all about peacocking,” Novogratz later told me, of his sartorial extravagance.) He huddled with Joseph Lubin, a former roommate and one of the co-founders of the hit cryptocurrency platform Ethereum. It was a warm June day, last year, and the Princetonians were amiably crushing cans of Bud amid chants of “Tiger, tiger, tiger, sis sis sis, boom boom boom, ah!”


The alumni parade, known as the P-rade, started to wind through the neo-Gothic campus, its mob of participants marching past signs for a symposium entitled “Can America Still Lead?” As we joined the P-rade, we heard shouts of “Novo! Novo! Novo!” He stopped by a gaggle of young wrestlers, all of whom seemed monumentally drunker than the rest of Princeton’s population—a notable distinction. Novogratz, formerly the captain of the college’s wrestling team, slapped a half-naked man on the back so hard that he left a red palm print. “I five-starred a guy!” he shouted as we continued down the P-rade, men running up to him as if he were the mayor of a small Sicilian hill town. “Mr. Novogratz! I’m Goldman corporate trading!”



Princeton, like Wall Street, where Novogratz has made at least three fortunes and lost at least two, is full of stories about him. There was the story of how Novogratz never showed up for R.O.T.C. (he was admitted to Princeton on an R.O.T.C. scholarship). And the time, at the previous reunion, when he flew a helicopter—Novogratz did a year’s worth of helicopter-pilot training, at the Army’s flight school in Alabama—down Prospect Avenue, nearly clipping a gate. “He’s bombastic and he’s full of shit,” one of his friends said, “but he doesn’t have a mean bone in his body.” Novogratz, who is properly bald, with a pair of sharp blue eyes and a gravelly voice that can go full Muppet after a volley of drinks, was, uncharacteristically, sober. At the behest of his wife, he was preparing himself for an eleven-day Vipassana meditation retreat in Wales. “I’m trying to regrow my discipline muscle,” he told me as we approached the Tudor hulk of the Tiger Inn, his eating club, where a beer-pong tournament was already well under way in the basement.


Novogratz had risen quickly, at Goldman Sachs and in the hedge-fund world, but each rise was met with a stunning, often humiliating reversal—first a parting with Goldman, in 2000, over what has been referred to in the press as “lifestyle issues,” and then the removal from his partnership, in 2015, at the high-flying Fortress Group after losing a series of currency bets. Once worth north of two billion dollars, Novogratz had been reduced to the ranks of mere centimillionaires. But 2017 was proving to be pivotal for him and a motley band of other sidelined investors seeking redemption—think the Winklevoss twins—as they tethered themselves to the year’s most befuddling financial event: the rise of cryptocurrency.


Novogratz had recognized its potential when one of his partners at Fortress, Peter Briger, introduced him to one of its earlier evangelists, an Argentinean investor named Wences Casares. In 2013, Novogratz put seven million dollars of his own money in cryptocurrency investments when bitcoin was selling at around a hundred dollars a coin. (A single coin currently sells for more than sixty times that amount.) Citing his luck at being in the right place at the right time, Novogratz has called himself “the Forrest Gump of bitcoin.”


Novogratz’s crypto bets had coaxed him out of self-imposed retirement, and soon sprang him back onto CNBC and Bloomberg. Late last year, as the G.O.P.’s tax bill barrelled through Congress, he called Steve Mnuchin, the Treasury Secretary, an “idiot” (spelling out the word, for good measure) and rebuked Trump’s economic adviser Gary Cohn for the tax overhaul, saying that he “shouldn’t be able to live with himself.” Both Mnuchin and Cohn had been partners alongside Novogratz at Goldman Sachs, and this made for an unusual breach of Goldman etiquette.


To cap off the reunion, Novogratz had paid for a concert by Duran Duran. “Every five years, he does us well,” a classmate told me. Even in the middle of a streak of sobriety, it was hard for Novogratz to say no to a good party. “We’re a family of near-alcoholics,” he joked earlier that day, referring to the hungover crowd at a Princeton brunch that included his wife, Sukey Cáceres, also an alum, and their four children, three of whom have attended the university. The night ended with a touch of eighties style and contemporary dissonance. As gracefully aging Princetonians drained the booze from their red plastic cups, Simon Le Bon, dressed in what looked like a swath of green vinyl, belted out “A View to a Kill,” and, in one corner, Ted Cruz (class of ’92) darkly made his presence known.


In the past decade, a large number of the friends I had come of age with in Manhattan left the city, displaced by rising costs to Berlin or Los Angeles or the mid-Hudson Valley. These friends, many of whom were fellow-alumni of my alma maters, Stuyvesant High School and Oberlin College, were writers, graphic designers, architects, academics, and journalists—the heart of what used to be the creative middle class. As I walked down the now unfamiliar streets of my city, eying a new breed of closely cropped, athletic individuals, I kept wondering, Who are these people? Eventually, I discovered that they worked mostly for banks or hedge funds or private-equity firms. Around 2012, I decided that my next novel would be about finance. When I first broached the idea of making a fund manager the hero to a friend whose husband works in the industry, she asked me, “Why would you do that? Bankers have no imagination.” (In my research, wives saying unflattering things about their spouses became a consistent theme.)


Do bankers have imagination? That statement felt both like a challenge and like a lodestar for my work. I would find hedge funders worth writing about or invent my own. More than a few reminded me of Novogratz’s wrestling friends—scrappy lower-middle-class kids from the peripheries of New York or Naples or Moscow. As a hungry, insecure kid growing up in eastern Queens, I remember watching the movie “Wall Street” and fantasizing about how I would look in suspenders and a contrasting collar. The men on the big screen did not have to understand themselves; the money made them understood. Although my greed had been expunged at Oberlin, and the financial crisis of 2007-08 had left me with a more or less permanent view of finance as an industry built on fraud, I found it hard to dislike some of my new acquaintances. The more intellectually vibrant ones came with backgrounds in advanced math and physics; they approached their trades like a puzzle, albeit one they were increasingly unable to solve. Others seemed to be flirting with the edges of sociopathy, or, at least, an inability to pass “Blade Runner” ’s Voight-Kampff empathy test.


In the popular imagination, “hedge funder” has become shorthand for a special breed of super-rich, super-intelligent scoundrel. Hedge funds raise money from so-called accredited individuals (a minimum of a million dollars in investable assets is required) and institutions such as university endowments or pension and sovereign wealth funds, and then deploy it in any way they see fit. It may help to think of hedge-fund managers as an army of men—and they are mostly men—walking down the street with dustbusters, trying to suck up cash and assets from every nook and cranny in the universe. In theory, at least, hedge funds are supposed to generate returns in bear as well as bull markets, because the contents of their dustbusters are hedged, by the managers taking long positions on assets that are expected to increase in value and shorting those they expect will decrease.


The rise of this less regulated “buy” side of finance has put to shame the income of the “sell” side. Around Manhattan, “investment banker” now carries the same sad also-ran cachet as “doctor” or “lawyer.” An older managing director at a large bank complained of the struggles of the middle class. When I asked him to define “middle class,” he spoke of people like him, earning between two and four million dollars a year. Young analysts told me they were being priced out of Brooklyn, much less Manhattan, by rising hedge-fund plutocrats and their ilk.


Part of this may be ascribed to a strategy involving two numbers—“the two and twenty.” Traditionally, many hedge-fund managers have collected twenty per cent of a fund’s profits, and they have also kept two per cent of the assets committed to a fund, regardless of the outcome of their bets. Huge losses for clients could still mean a payday for managers. Wall Street has long been a place of outsized compensation for the few who can master its rules, or at least pretend to. (There is a book that handily explains the investor-manager relationship in its title alone: “Where Are the Customers’ Yachts?”) Hedge funds seemed to offer the best and the brightest the quickest road to riches yet. As one hedge-fund manager told me, “There’s money sloshing around and chunks falling off, and people get compensated for standing there.”


These people could be divided into many categories, but the two most useful I’ve found are the rainmakers—the polished, fraternal, athletically built avatars of the Princeton-Colgate-Duke axis—and the Dockers-wearing, kielbasa-munching math whizzes. Some funds seemed to make an art form out of how many brilliant physicists from the former Soviet Union can be squeezed into a small, overlit room. There was no question which of these two groups the socially brilliant but algorithmically challenged Novogratz belonged to.


What struck me about both sets was their desire to live their lives as a competitive sport. “Money has nothing to do with it,” Turney Duff, a former partner at a health-care hedge fund, told me. “It’s literally about winning.” I began to think of the financial world as a tax on the rest of us, a way to transfer wealth into the hands of a select few through their own considerable cleverness and also through the way their income was taxed versus our own.


And yet the majority of the hedge funders I befriended were not living happier or more interesting lives than my friends who had been exiled from the city. They had devoted their intellects and energies to winning a game that seemed only to diminish the players. One book I was often told to read was “Reminiscences of a Stock Operator,” first published in 1923. Written by Edwin Lefèvre, the novel follows a stockbroker named Lawrence Livingston, widely believed to be based on Jesse Livermore, a colorful speculator who rose from the era of street-corner bucket shops. I was astounded by how little had changed between the days of ticker tape and our own world of derivatives and flash trading, but a facet that none of the book’s Wall Street fans had mentioned was the miserableness of its protagonist. Livingston dreams of fishing off the Florida coast, preferably in his new yacht, but he keeps tacking back up to New York for one more trade. “Trading is addictive,” Novogratz told me at the Princeton reunion. “All these guys get addicted.” Livermore fatally shot himself in New York’s Sherry-Netherland Hotel in 1940.



“We’ve been getting a lot of calls saying that you’re a terrible magician.”By 2016, I started drinking more heavily than is usual for me (I was born in Russia). For the second year in a row, there were more shuttered hedge funds than new ones, investors having been turned off by a mixture of high fees and subpar returns, owing in part to a crowded field of funds executing similar strategies and also to an unusual absence of volatility in the markets. Even the legendary traders, like Paul Tudor Jones II, of Tudor Investment, were being walloped. The “two and twenty” model was turning into more of a “1.5 and fifteen” one. The secret-sauce bottles containing trading algorithms and the like had run empty, and to fill the void my new friends and I turned to Scotch—thirty-year-old Balvenie and twenty-one-year-old Hibiki. After a particularly rough night, my wife found me at 4 a.m., sitting in the corner of our bedroom, trying, and failing, to unbutton my shirt. The stress and the consequent loss of control felt familiar. The fund managers’ ambition was like a drug whose potency I had forgotten. At Stuyvesant High School, a competitive math-and-science school in Manhattan with a high proportion of first-generation immigrants, my classmates and I would get up every morning to wage battle over a hundredth of a percentile on our grade-point average; my new friends were fighting over so many basis points on their Bloomberg monitors. When we failed, we failed in front of our families, our ancestors, our future and our past.


Novogratz ran his first quasi hedge fund when he was barely four years old. The Novogratzes were a military family; in the late nineteen-sixties, they found themselves in Torrance, California. Novogratz and his older brother, Robert, went door-to-door in their neighborhood selling leaves, a useless commodity, to neighbors, five cents for yellow ones, ten for red ones. Robert was shy and hung back, but Michael would run up and ring the doorbell. The neighbors would ask him why the red ones were ten cents, and, according to his mother, Barbara, he would answer, “Look around—there are hardly any red leaves.” He had mastered the concept of supply and demand, not to mention the difference between two asset classes. When I mentioned this incident to Novogratz, he laughed, quickly seeing the parallel between his childhood enterprise and his current bet on cryptocurrency, which, like red leaves, relies on a tricky—some would say, imaginary—valuation. “It could be bitcoins,” he said.


Novogratz is the third of seven children, and his charm and his skills as a storyteller are tied to his membership in this brood of hyper-successful siblings. (Robert is a designer; his older sister Jacqueline is the founder of Acumen, a global venture firm; the younger siblings include a Wall Street salesman, a sports manager, the co-founder of a sustainable-agriculture investment fund, and a writer.) When I talked to Novogratz’s brothers and sisters, they all brought up the image of seven children growing up in a house with one bathroom, and living chiefly off their father’s modest government salary. There was also some version of “Our mother raised us like we were the Kennedys.”


Nowadays, Barbara Novogratz and Robert, Sr., who retired as a colonel after a long Army career, spend their winters in Virginia, where Novogratz attended high school, and their summers on Long Island, where he bought them a home near an estate he owns in Amagansett. Robert’s father was an immigrant from Austria. Lacking English skills, he settled in Pennsylvania, where he worked at a cement mill. “Dirty work,” Robert told me. Barbara grew up in Queens, in an Irish-German family. Her father died when she was young and her mother worked long hours as an accountant and a singer to make ends meet.


When Novogratz was twenty-five, he was set up on a blind date with Dora Cáceres, who goes by the nickname Sukey. She was in many ways his opposite—a budding intellectual, interested in semiotics, film theory, and the teachings of Ram Dass. Her parents were from Puerto Rico and had moved to the mainland before she was born.


I met Sukey in her office, which is downstairs from the Novogratzes’ palatial apartment, in Tribeca, and decorated with pachyderms in every form and material possible—“The elephant is my power animal,” she said. During our conversation, she told me about a horrific gang rape she suffered before she entered Princeton. The perpetrators walked free. The experience, in part, led to a life of seeking and, later on, of meditation. (Her book on meditation, “Just Sit,” co-written with Novogratz’s younger sister Beth, came out in December.) Conscripting Novogratz into her spiritual journey was one unlikely outcome of a marriage in which she described her husband as having come from the “privileged white male” baby-boomer generation and “bro culture.”


At the reunion, Novogratz’s friends referred to fearlessness as his best quality. When I asked them if there was anything he did fear, one woman said, “Ask Sukey.” Sukey brought up his parents, making sure to note how much they’ve grown (his father “recently became a vegetarian”). But, in describing Novogratz’s inability to fully connect with her during periods of their marriage, his occasional outbursts of rage over insignificant events (the loss of a jar of foreign currency, for example), and his difficulty in dealing with “the smacks in life,” such as his ouster from Fortress, she said, “Barbara and Bob loved him, but yet they love a winner.”


When I mentioned this to Novogratz, he said, “My mother told everyone I was going to be a senator.” Barbara, when asked, said that she thought he could have been President.


Novogratz started his career at Goldman Sachs as a lowly money-market salesman. It was right around April Fool’s Day, 1989, and he had just spent a year flying helicopters in Alabama. (He continued to serve in the New Jersey National Guard during his first years at Goldman.) The firm moved him to Tokyo, to sell Japanese government bonds to U.S. investors, and, after he expressed his unhappiness over the fact that traders usually made much more than salesmen, Jon Corzine, who was the co-head of the fixed-income division at the time, sent him to Hong Kong, in 1993, where, eventually, he ran the firm’s trading desk. Novogratz’s transition from salesman to trader may be the most salient fact of his career. There is a gulf of difference between the salesman’s ability to schmooze and charm and the trader’s ability to synthesize information about markets and make bets worth hundreds of millions of dollars. “I sometimes think that I was such a good bullshitter as a sales guy that Corzine decided to put me in the job where you couldn’t bullshit,” Novogratz once said, in an interview with Matthias Knab, of Opalesque TV. “The one thing about being a macro trader is that the P. & L. doesn’t lie at the end of the day and there was a real discipline needed.”


Macro funds look for broad social, political, and macroeconomic trends and, in effect, bet on the way they might affect financial markets. They execute trades using equities, bonds, currencies, commodities, and futures. Macro trading is essentially hubris. It is taking on the mantle of a short-term prophet, the Nostradamus of two months (or weeks or days or hours or minutes) from now, and predicting the shape of the world at that instant.


Some of Novogratz’s fellow hedge funders have questioned his grasp of the finer details of his trading strategies. “He acts like a visionary, but at heart he’s still a salesman,” one manager told me. Others dispute that view. “Mike always gave the most lucid, detailed, and compelling explanations of what was going on,” Peter Rose, who worked with Novogratz in Hong Kong, wrote to me. “He had an uncanny ability to see patterns, causes and effects, the butterfly moving its wings in Tokyo and the tsunami in Singapore and what was the connection, where others only saw chaos.” When the Asian financial crisis hit with full force, in 1997, Novogratz survived what Rose called “a nuclear shitstorm.” Novogratz, who successfully shorted the Thai baht, told me, “When Asia blew up, my team made a fortune.”


He has credited his success to his faith in intuition and has said of unsuccessful traders, “They’re bullish but they’re too scared to buy.” Goldman is notorious for its brutal “up or out” culture, but Novogratz thrived in it. He was made partner in 1998. In May, 1999, Goldman went public, entitling Novogratz to shares in the firm, and in December he was named president of Goldman Sachs Latin America, based in São Paulo. He never made it there.


What happened next is one of the most confusing parts of Novogratz’s career. When I brought it up, he reached for a fidget spinner. The year after Goldman Sachs went public, he left the firm. Widely regarded as one of Wall Street’s hardest-charging party animals, Novogratz cited his separation agreement with Goldman to explain why he could not talk at length about what took place, but summarized the nature of his downfall as the consequence of “partying like a rock star.”


“I felt, like, What the fuck did I do to my life?” he said. “What the fuck did I do to my family?”


Sukey Novogratz described the years the family spent in Asia as “very challenging for marriage.” Back then, her husband, she said, was “someone who was constantly hedging his bets, literally, in work and in life, like, eh, I can never fully commit, even though we were married.”


“It was a humiliating exit,” Novogratz said. “Period.” He went to rehab in Arizona to work on himself and his marriage. “I took it stone-cold serious. I’d never had a therapist in my life and since then I’ve had five.” Around that time, he ran six marathons in the Sahara desert over the course of six days. “That brought me back to life in a lot of ways.”


Scandals have a short half-life on Wall Street. In only a few years, Novogratz engineered his comeback, as a partner at Fortress Investments. With the arrival of Novogratz, along with Peter Briger, who had been a specialist in distressed debt, among other things, at Goldman, the new entity, which had been founded in 1998 as a private-equity company by a former partner at BlackRock and two former managing directors of U.B.S., expanded into the world of real estate, debt securities, and hedge funds. The vision for the firm, Novogratz said, was to be the Goldman Sachs of the “alternative management business.” Novogratz’s hedge fund was to focus on macro trading on a worldwide scale. In an interview during his time at Fortress, Novogratz said, “The assets we trade are big stories, the macroeconomic stories of the world. Global imbalances, business cycles. Will the euro survive? Will the Chinese growth model change?”


For Novogratz, macro trading relies on one’s ability to combine intuition with a mind-boggling number of data points prepared by researchers and analysts. “You see the ballet in the chart,” as he puts it. “We call it luck because we don’t have a word for it,” he told me. “It’s a different type of intelligence. It’s pattern recognition. Most great guys at macro, if you put a jar of jelly beans on the table they can outguess you.”


From 2002 to 2007, Novogratz’s hedge fund reached almost nine billion dollars in assets. In 2007, Fortress went public, creating wealth for its partners but also making them answerable to shareholders. “We were the only company, I think to this day, where five guys became billionaires in a day,” Novogratz said. With a net worth of $2.3 billion, a new vista of power and connection opened up for a man still in his early forties. Forbes put him at No. 407 on its list of the world’s billionaires.


Novogratz was a whiz at raising capital, but Fortress, like much of the financial world, was soon blindsided by the 2008 bankruptcy of Lehman Brothers and the ensuing crisis. “I saw it happening,” Novogratz said. “But I couldn’t move the ship fast enough.” He added, “With hindsight, macro shouldn’t be in a public company.” According to him, Lehman’s collapse alone cost the fund between four and five hundred million dollars. An acquaintance of Novogratz’s described running into him outside the offices of Fortress during that time, eating a hot dog as he braced for a meeting with his co-workers. “He says, ‘I don’t want to go up there. It’s all bad up there.’ The world was melting. He was very emotional.”


Novogratz’s fund eventually recovered. The lessons of the financial debacle were not universally learned on Wall Street, however. “Beginning in March, 2009, generally, the faster and more enthusiastically you embraced risk assets, the better you did,” Mary Childs, who has covered hedge funds and credit markets for almost a decade and is currently a senior reporter at Barron’s, told me. “If we were supposed to learn our lesson about risktaking, we didn’t.”


In 2015, after losing a bet of more than a hundred and fifty million dollars on the Swiss franc, Novogratz and his colleagues made the second of two huge bets that Brazilian interest rates would fall. The first had rested on the assumption that Dilma Rousseff, the President, would lose her reëlection bid, that she would be replaced by a leader who would be tougher on inflation, and that interest rates would fall as a result. In 2014, Novogratz predicted that this sequence of events would lead to “a major rally in Brazilian assets,” and, consequently, a windfall for Fortress. Instead, Rousseff won the election. The second bet relied on the belief that rates would fall as a result of the central bank’s actions. They didn’t. Rousseff was eventually impeached, and interest rates did fall after the new President took over, but, according to Novogratz, “it was too late for me.”


Fortress’s macro fund shut down in 2015 and Novogratz left the company. Investors lost between seven and fifteen per cent of their assets, depending on their share class. After he and Goldman parted ways, in 2000, Novogratz had described himself to the acquaintance who later ran into him eating the hot dog as a “discredited rich guy.” Now he was twice discredited, but the “rich” part certainly stuck, even after the Fortress fiasco. Novogratz’s shares were bought back by Fortress for approximately two hundred and fifty million dollars. (“In what other business can you blow yourself up, and still raise five hundred million for the next fund?” the ex-hedge funder, and now writer, Turney Duff once asked me.)


The loss of his partnership hurt on a personal as well as a financial level. If there was a single larger-than-life personality who inspired Novogratz as a child, it was his uncle Ed, a tax collector and a lover of jazz. “My dad was a quiet, tough guy,” he told me, “But his brother had the personality. He loved Wall Street gambling. The last words my uncle ever said to me: ‘Michael, what the hell is going on? I just got the new Forbes and you’re falling like a stone.’ He died thirty minutes later.”


According to Novogratz, cryptocurrencies were a direct result of the 2008 crisis, when people lost faith in banks and bankers. He talks about this with the ardor of a true believer. “I call it the decentralized revolution,” he said. “We don’t trust institutions, we don’t trust authority.” Bitcoin was launched in 2009 as a peer-to-peer-based currency, which allowed users to carry out payment transactions without an intermediary, like a bank or a credit-card company, while maintaining anonymity. The identity of Bitcoin’s founder, Satoshi Nakamoto—and whether the name represents an individual or a group of people—remains unknown.


After the collapse of his Fortress fund, Novogratz found himself on the coast of the Bay of Bengal in India, talking to his guru, Krishnaji, at the One World Academy, trying to figure out what to do with his life. (Tony Robbins connected the two men in 2007, and the meditation academy has many adherents from the worlds of finance and entertainment.) “What’s your vision now?” Krishnaji asked him. “What’s your purpose now?” According to Krishnaji, Novogratz’s answers vacillated between trying out a political career and giving finance another go. Back in Manhattan, the vision, aided by bitcoin, turned out to be finance again.


During the first dot-com bubble, the technology behind the boom and its subsequent bust was at least understood: you went on Pets.com and bought your dog a leash, which would then be delivered to you. Cryptocurrencies cannot be held or understood in any physical way; they have no central location, and this gives them, and their acolytes—Reddit libertarians, for example—an air of a religious experience. Novogratz told me, of a panel on crypto at which he spoke, “I got off the stage, some girl came up to me, she started, like, quaking, just wanted to tell me it was, like, life-changing for her. That the whole speech was. And then the Chinese wanted selfies, and then the Orthodox Jews wanted selfies. I must have done twenty selfies.”


Fiat currencies such as the dollar are backed by both central governments and their users, but cryptocurrencies are almost always backed by nothing more than their users. From bitcoin’s inception, production of the currency was limited by Satoshi Nakamoto to a maximum of twenty-one million coins, insuring eventual scarcity. A few holders of bitcoin and other cryptocurrencies have earned (or “mined,” as the terminology goes) their coins by providing the computing power that enables and verifies transactions in the network. Other holders have purchased them. Currency exchanges such as Coinbase, headquartered in San Francisco, allow anyone to buy a coin or a fraction of a coin for either fiat or cryptocurrencies, thus opening up the market to new users. The opaque universe in which the coins move, in conjunction with widespread uncertainty regarding future regulation—and the future of the crypto market itself—have created speculation and almost unheard of amounts of volatility. Some cryptocurrency pump-and-dump and pyramid schemes have resulted in Bernie Madoff-like levels of fraud. Wide-scale legitimate uses for the currency have proved elusive, and many now see bitcoin as a store of value rather than something with which you can buy a cheesesteak or pay for a manicure. There is also an environmental cost, a byproduct of the amount of computing power it can take to mine cryptocurrencies.


But that hasn’t stopped the crypto boom. Initial coin offerings, a form of crowdfunding, carry on apace. Companies on the verge of irrelevance, such as Kodak, are planning to mint their own currency (KodakCoin), as is the government of Venezuela (the petro).


The underlying technology is the blockchain system—a decentralized, algorithm-generated, regularly updated database distributed across a network of computers. What can you do with blockchain beyond buying drugs on the dark Web? Potentially, quite a lot. A ledger kept among a vast number of computers can transfer money more securely than traditional banks, and, possibly, faster, all the while denying Wells Fargo, say, a cut of the transaction. But that is only the start. Ethereum’s platform, for example, can work as a lawyer-free contract database dealing with everything from property sales to estate transfers.


Novogratz has certainly been making the most of the speculative bubble to rebuild his fortune, but he claims to be invested in the utopian aspects of blockchain as well. He doesn’t think that cryptocurrencies will replace the dollar or the yen, but he believes that they will be a boon to countries in the developing world, where people don’t have trust in their fiat currencies, and that blockchain can revolutionize the way information is logged and shared and, in our age of data breaches, protected. “I’m good at selling the dream,” he said. “I can get onstage and get people to start saying ‘Hallelujah! Hallelujah!’ ”


Novogratz’s enthusiasm is genuine and contagious. Then again, Twitter and Facebook were supposed to usher in a new era of democracy and transparency.


When I next saw Novogratz, in July of 2017, about a month after the Princeton reunion, he had recently returned from his Vipassana retreat. “This is not my normal vacation,” he told me, over a lunch at the Mercer Kitchen, in SoHo, a few blocks from his office, on Grand Street. “They put you into noble silence. You can’t lie, because you can’t talk. No thumbs-upping, no sign language. No sexual activity, including masturbation. It’s all self-monitoring.”



By the time he left the retreat, the lack of self-love and of communication with others seemed to have paid off on a grand karmic scale. Most of Novogratz’s profits had stemmed from his initial seven-million-dollar investment in 2013. “The ‘genius,’ if there was any, was riding the bet and switching,” Novogratz told me on another occasion, explaining that in early 2016 he had also bought Ethereum currency at around a dollar a coin, called an ether. Now he was toggling back and forth among various currencies, trying to minimize his risk as his fortune increased dramatically.


The price of ether had spiked during his meditation. “I got out,” he said, “and things had gone from two-fifty to three-fifty. I was, like, O.K., I just made a zillion dollars meditating. I should probably make two hundred million on this whole thing.” He cashed out some of his cryptocurrency to buy a G550 jet, a seaplane, and a Georg Baselitz sculpture. “For the first time, I kind of spoiled myself.”


The intense meditation and the hours of silence and physical restraint had led to a volley of daydreams. “But all of it had the hero-warrior archetype,” Novogratz said. “The archetype I grew up with. And it got to be cartoony at times. Jesus fucking Christ, dude, I saved the plane. Or saved the woman from being harmed. Or, you know, re-created the way Robin Hood”—a philanthropy co-founded by Paul Tudor Jones—“should raise money. Or ran for office. Or made more money on Ethereum so I can donate more. I was, like, Man, how big is your fucking ego? I got probably four years of daydreams or thought process in eleven days.”


A few weeks after our lunch, in the height of the summer, we were standing on a makeshift dock in the Bronx watching black men in shackles and orange jumpsuits board the Vernon C. Bain Center, a barge brought up from New Orleans to serve as a jail and a New York City Department of Corrections intake-and-processing center for the borough. “The boat is symbolic,” Novogratz said. “It’s a slave ship.” Cheap black shoes nicknamed Patakis, for the former New York governor, who was in office when they were first distributed, were strewn around. Released detainees get rid of them as a sign of their new freedom. An employee of the Bail Project, a young Yale graduate, was posting bail for two detainees on the boat. Novogratz is the chairman of the Bail Project’s board and its principal contributor. His daughter Anna encouraged his interest in the fund after working for the Bronx Defenders, a nonprofit legal-services group. The project’s mission is simple: to provide bail for detainees, who often cannot afford even small amounts and get trapped in the system.


On the boat, a clerk told a middle-aged Latina that she needed twenty-five thousand dollars instead of twenty-five hundred in order to bail out her son. Apparently, there had been a computer error. “They keep sending me back and forth,” the woman said. Her son suffered from multiple sclerosis. “He can’t pick up his hand, his face twitches. His muscles don’t work with this weather.” Her case was not being handled by the Bail Project, and it appeared that her disabled son would remain on the jail boat.


“The Bail Project is a radical move in its own right,” Novogratz said. “It’s a huge fuck-you to the system. We know the first three to five days in jail are the most damaging.” He listed sexual assault, job loss, suicide, and lost places in homeless shelters as potential outcomes.


Anthony Romero, the head of the American Civil Liberties Union, which has received substantial funding from Novogratz, told me, “A lot of hedge-fund-investor types are mostly thinking about throughputs and R.O.I.”—return on investment. “He has a better appreciation of the nuance of trying to tackle social issues.”


Novogratz thinks about philanthropy more than any other financier I met during the course of my research. As a result, spending time with him means witnessing the near sum total of New York’s fund-raisers. Some of them take place in the Novogratzes’ vast Tribeca apartment (joining Robert De Niro’s former duplex and Harvey Keitel’s former one-story pad). Here one could see the singer Cassandra Wilson at a fund-raiser for the Jazz Foundation of America, as the Puerto Rican musician Joe Quijano shyly watched the festivities from his wheelchair. On another night, a dinner in a hotel ballroom was accompanied by a video procession of parents explaining how they were bankrupted by their children’s cancer diagnoses. On another day, Novogratz hovered over Times Square on a digital billboard as he introduced a wrestling tournament between Japan and the United States to benefit his charity Beat the Streets, which uses wrestling to help at-risk kids.


It is hard not to think that in a fundamentally humane society none of this glittering largesse would even be necessary—that inner-city kids would get proper schooling, elderly jazz musicians would have hot meals and shelter, young people in the Bronx who have committed minor nuisance crimes would not be locked up on repurposed jail barges, the parents of children stricken with near death sentences would not be forced to declare bankruptcy. Novogratz, who considers himself “halfway between center-left and progressive,” would probably agree. During my lunch with him at the Mercer Kitchen, he told me, “I’ve always said I’d run for office if I had a five-year period in my life where really I felt, like, Hey, my behavior is laudable.” He laughed. “That I haven’t done stuff that would embarrass myself, or my kids, or my family, or my parents. Maybe I’ve got two months’ traction on that in the past.”


By the fall, Novogratz was a billionaire once more. The price of a single bitcoin had been close to three thousand dollars during the summer; now it was clawing at five thousand. I visited him one Wednesday in October, at his office, walking in past a large statue of Evel Knievel in the lobby—the base reads “Bones heal, pain is temporary and chicks dig scars.” Plush sofas were occupied by representatives of the Brown University endowment, a member of the board of Tesla, and the heads of a major publicity firm, among others.


Two weeks earlier, Novogratz had announced his decision to rejoin the hedge-fund world and launch a cryptocurrency fund with a hundred and fifty million dollars of the money he had personally made on crypto and three hundred and fifty million from outside investors. (Boaz Weinstein, who is the founder of the hedge fund Saba Capital Management and also a former classmate of mine at Stuyvesant, told me, “I like his tactic: ‘It’s a bubble! Ride the rocket, baby!’ ”) Novogratz gathered some members of his staff to discuss the emerging fund. Most were dressed casually, in sweatshirts and jeans. Novogratz typically wears T-shirts that read “Coach” or “Clam Bar” and his favorite speed-racer pants, and today he was dressed in similar regalia. “I want to raise money as fast as we can,” he said. “I have a foreboding feeling markets are going to be a lot higher in six months.”


He continued, “When you meet with people, you’re doing the same dog-and-pony show—it’s boring. I want to bring someone who has a different skill set than me, someone who’s younger and smarter. At Pantera”—an established fund—“they rolled out a teen-ager. He was giving out odds on bitcoin code being cracked.” Novogratz smiled. “I’m feeling like a California V.C.!” he said.


“How much have we spent on alcohol?” a woman asked. “Three thousand seven hundred?” Novogratz threw a raucous crypto party every Wednesday night, describing it as the cantina scene in the original “Star Wars.” In George Lucas’s universe, Novogratz would presumably play the role of resident Yoda by dint of age and stature. In an effort to maintain standards, a motion to ban bankers in suits was passed (often, it is hard to figure out whether Novogratz’s bro culture is co-opting the crypto-geeks or it’s the other way around) before the staffers dispersed.


After that discussion concluded, the meetings started. Novogratz has a desk in his office, but I’ve rarely seen him behind it. He prefers his couch, sometimes adjudicating disputes from it like a don, sometimes sprawled across it with his reading glasses on, a sliver of belly visible beneath a T-shirt. Among Novogratz’s favorite phrases are “It’s above my pay grade” and “I’m going to grab one of my geeks.”


“I’m a decent leader, but I’m not a manager,” he later told me. “A leader has to be inspirational. A manager has to stay in the lane.”


Two well-tanned publicists, a woman and a man, came in with an idea for a gender-specific coin. “A lot of women don’t understand finance,” the woman said, pitching a concept she was calling Y-Coin.


After they left, I asked Novogratz what he thought. He shook his head.


A thick-bearded producer in a black hat and a tuxedo jacket came in to discuss a film that Novogratz was producing. He has been in the film business since leaving Fortress, and recently funded the under-the-radar, oddly mesmerizing “My Friend Dahmer,” a film about the early years of the serial killer. He was now staking some of his crypto wealth on a more commercial project, called “Assassination Nation,” a thriller written and directed by Sam Levinson.


“If we don’t get into Sundance—” the producer started to say.


“We’re fucked,” Novogratz finished. (The film did get into Sundance.)


A fresh-faced young man with Fordham and Citibank on his résumé came in.
“Did you play sports?” Novogratz asked right away.


“Ice hockey.”


“What’s the worst morally shitty investment you ever did?”


“Payday-lending stuff.”


“We’re rich enough not to have to do shitty things.”


“I knew I was going to get shit for wearing a suit,” the young man said, to Novogratz’s laughter.

“I’m fifty-two,” Novogratz told him. “I can probably still beat you in a wrestling match. My knees are the only problem.”


At 6 p.m., the cantina was in full swing in a large back office, with idealistic young people presenting me with an endless array of uses for the new technology, including some kind of medical or pharmaceutical blockchain scheme and a “smart fabric” company that is launching its own token. “My white paper is in your possession!” a man with a Slavic accent yelled at Novogratz. “If my guy says yes, I’ll do it,” Novogratz yelled back.


After we left the party, Novogratz told me, “My role is spokesperson and adult. They’re all young and they could use some guidance.” His message to the youth making millions in the (currently) underregulated crypto space: “Pay your taxes!”


Cryptocurrency has been compared to the seventeenth-century Dutch tulip mania, when tulip bulbs sold at outrageous prices, completely divorced from their intrinsic value, until the market inevitably collapsed. Crypto’s “tulip camp” includes a variety of investors and thinkers, among them Warren Buffett and JPMorgan Chase’s C.E.O., Jamie Dimon. One of Wall Street’s so-called “permabears,” the economist Nouriel Roubini, has predicted that bitcoin eventually will crash to zero. “There is no there there,” Aswath Damodaran, a noted expert on valuation at N.Y.U.’s Stern School of Business, told me. “I don’t think that there has been so much ink spilled, so much talk generated, and so much analysis done of so little in the history of markets as I have seen in the last two years on cryptocurrencies.”


After bitcoin and other currencies soared over the summer and fall, Novogratz presented this stage of crypto as a “speculative mania phase” that would crash like the dot-com bust but then reëmerge with more mature players. Out with AltaVista, in with Google. In Novogratz’s estimation, individual cryptocurrencies would fail—although he is bullish on bitcoin and ether retaining their value in the long term. “I don’t know if the speculative phase ends in March, ends in a year from now, eighteen months from now,” Novogratz told me, “but it will end.” He suggested that it will end when “too many people have bought in.” (At a dinner during the fall of 2017, one of my favorite Oberlin professors, a Marxist, told me that he had just bought some ether.)


I asked Jed McCaleb, a founder of the popular cryptocurrencies ripple and stellar, whether the financial industry has been too late to the party. “Not too late—too early,” he said. “It’s still pretty early, technically. There’s a hype preceding the reality similar to what you saw in the dot-com bubble. There are lots of good ideas but lots of nonsense that doesn’t warrant the kind of money that’s been dumped in it. A lot of investors don’t know which is which.” I asked him if he thought Novogratz knew. “It’s easy to look smart in a bull market,” McCaleb told me, “which is not to say he’s not a smart guy.”



“Thanks, Doc—you’ve put me back in business.”A friend who works in finance once told me, “Nobody survives a billion.” From my own research, I’ve found that immense wealth often leads to regrettable personal and business decisions. Novogratz’s billionaire survival tactic seems to be a blend of excessive personal spending, over-the-top philanthropy, and meditation.


In November of 2017, I went to Tamil Nadu, India, to meet Novogratz’s spiritual guru, Krishnaji, at his meditation academy. Krishnaji, a handsome man smelling of good soap, has imparted to Novogratz his philosophy of acknowledging and dissolving the “suffering state” and living his life from what he called “the beautiful state.” (I kept thinking of his philosophy as “the two-state solution.”) Krishnaji and Novogratz travelled across India in January of 2015, looking for distressed properties owned by India’s Central Bank in which to invest. During the trip, Novogratz told me, all he wanted was to meditate with Krishnaji, while all his business-minded guru wanted to do was work on their private-equity deals. “In the next seven years we’ll package the property, developing it, making it plots and lots, depending on where the land is situated,” Krishnaji explained when I met him in November.


The Web site for Krishnaji’s real-estate ventures, White Lotus Structures, declares that “a palpable touch of the sacred is experienced in all its creations.” (“He’s a piece of work,” Sukey Novogratz told me, when I brought up his business dealings. Krishnaji, for his part, told me that he pumps a lot of money back into the academy.)


As I walked down the frangipani-strewn “Silent Path” that connected my villa with the beach on the Bay of Bengal, one of the academy’s gurus told me that Krishnaji “does various businesses from a beautiful state of being. That is the reason for his success.”


Yet Krishnaji was straightforward when it came to Novogratz’s departure from Fortress: “He saw that throughout his life he’s had this image of himself as a great financial genius, and that, in that particular incident, he had made such a huge blunder that his image was shaken. He was not a financial genius at that moment—it was a stupid decision he had made. He saw that his suffering was not so much the loss of money, because he could again make it back. His suffering was actually the death of an identity.”


Novogratz’s cryptocurrency hedge fund never launched. In December, after the price of a single bitcoin rocketed to more than nineteen thousand dollars, Novogratz told me that “it would be a different proposition raising a crypto hedge fund today than it was three months ago.” He said he was not comfortable running other people’s money when the currency was at its peak, and predicted that bitcoin would consolidate at between eight and sixteen thousand dollars. “I’d rather look stupid than be stupid,” he added. Right after he told me of his plans to shelve his hedge fund, bitcoin experienced one of its habitual micro-crashes, falling to under fourteen thousand dollars a coin.


Some people thought that Novogratz had simply not raised enough capital to launch the fund. Others focussed on the fact that, despite his penchant for showmanship, he was not making a good case for his fund. “To build a fund, you need a lot of focus and attention to detail and have ambition to be institutional,” the manager who’d proclaimed Novogratz a mere salesman told me. “A great trade is not a fund.”


Before he bailed, Novogratz had described another idea to me, one several magnitudes more audacious—certainly more institutional, and potentially more durable—than a mere half-a-billion-dollar hedge fund. He wanted to launch a publicly traded merchant bank solely for cryptocurrencies, which, with characteristic immodesty, he described as “the Goldman Sachs of crypto,” and was calling Galaxy Digital. “I’m either going to look like a genius or an idiot,” he said.


Novogratz announced the bank’s launch in early January, the same week that Dimon, of JPMorgan Chase, who is one of the most vocal critics of cryptocurrency, publicly regretted calling bitcoin a fraud (“The blockchain is real,” he told Fox Business). Shortly afterward, I sat down with Novogratz in his Tribeca apartment’s far-flung kitchen to discuss Galaxy Digital.


“Goldman Sachs can make money if the stock market goes up and if the stock market goes down,” Novogratz said. “That’s what we’re trying to build. Right now, we’re still going to be way correlated to the way the market goes for at least the first year or two,” he conceded. “But we’re trying to build enough diversity into the business that we can withstand hurricanes.” He told me that Galaxy Digital would combine his considerable crypto holdings with an asset-management operation, a trading business, a venture that would invest in new initial coin offerings, and an advisory arm that would counsel companies.


The new entity’s launch was not so much an I.P.O. as a complex R.T.O., or reverse takeover, involving a Canadian shell company called Bradmer Pharmaceuticals. Galaxy Digital would still be based in New York, but because Canada offered easier and faster access to the public market Novogratz had decided to launch on the Canadian TSX venture exchange, with plans to eventually transfer to Canada’s main exchange. He would contribute around three hundred and fifty million dollars, while raising another two hundred and fifty million dollars.


“It’s a brilliant move,” Josh Brown, the C.E.O. of Ritholtz Wealth Management, in New York, said. “It’s always better to own the casino than to play.” The hedge-fund manager Jeff Gramm told me, “If you really believe in crypto, this is an opportunity to dominate a growing niche that Goldman Sachs and the other big banks might be too risk-averse to bother with. Even if ninety per cent of these cryptos are total bullshit, you could build a really nice business. Think about Michael Milken and Drexel Burnham in the late seventies and early eighties. None of the big investment banks wanted to touch high-yield trading, and Drexel ultimately became the most profitable bank on Wall Street.” (Milken, known at the time as the “junk-bond king,” was also sentenced to ten years in prison for securities fraud. He was released after two years. Novogratz has publicly appealed to cryptocurrency tycoons to play by the rules and avoid Milken-like fates.)


Jed McCaleb, of ripple and stellar, predicted that in the next couple of years a lot of crypto companies with big balance sheets will acquire one another. “A merchant bank can facilitate that,” he told me. “It’s a timely thing to do.”


Of course, not everyone is on board with the idea of a finance billionaire Goldmanizing the new space. A self-described “crypto lawyer” wrote on Twitter, “Hey I know—let’s use crypto to recreate precisely the fucked up institutional structures that crypto was created to surpass.”


Recently, Novogratz showed up at a staid dinner for retired Goldman Sachs partners wearing his speed-racer pants. He had attended these dinners before, but not from his current position of success in crypto. The prodigal son had returned. The investment bank—encapsulating the highs and lows of his career—finds its way into many of his conversations. “We hired Goldman’s best guy in blockchain,” Novogratz told me on several occasions.


Government regulation remains the greatest challenge to the future of cryptocurrency. “It’s stressful, because the regulatory environment’s not clear,” Novogratz said. “You don’t even know what the rules are. In every country. Even in the U.S.”


On the day we met at his apartment, a regulatory crackdown in China, preceded by one announced in South Korea, was pushing the price of bitcoin down. (It hasn’t returned to its December high, and is currently priced at around seven thousand dollars.) Meanwhile, it appeared that hedge funds, many of which had ended 2016 either ailing or dead, were reporting their best returns in years. After six years of exploring finance, I concluded that, despite the expertise and the intelligence on display, nobody really knows anything. “In two years, this will be a big business,” Novogratz said, of Galaxy Digital. “Or it won’t be.”


His attitude seems to come from a battle-hardened place. “You know, when you’ve screwed up as much as me in life, you’re not so worried about it,” he said, over a glass of fine Burgundy, his voice echoing across his palatial kitchen. “I’ve tried my best. I think I’m right on this thing.” ♦


This article appears in the print edition of the April 16, 2018, issue, with the headline “One Good Bet.”

• Gary Shteyngart’s new novel, “Lake Success,” will be published in September, 2018. He is also the author of “Super Sad True Love Story” and “Little Failure.”Read more »

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The IRS has its eye on cryptocurrency investments. If you traded or sold any kind of cryptocurrency last year, here’s what you need to know before tax day.In 2014, the IRS issued one notice — IRS Notice 2014-21, 2014-16 IRB 938 — about cryptocurrency (let’s call it “the 2014 Notice”).

This is considered tax authority, although it does not have the same weight or effect as a law or regulation. But it’s all we have so far, and given no other official IRS guidance, it’s pretty informative of how the IRS thinks about cryptocurrency.

The 2014 Notice gives some very high-level background on how existing tax code applies to cryptocurrency and how the IRS views it as property. This classification as “property” requires a lot of effort on your part.

Most importantly, you need to know the adjusted cost basis of your property (cryptocurrency) so you can determine your gain or loss when you go to trade in or sell that property. Typically, basis is first determined by cost – in other words, the amount in U.S. dollars you paid for the property –  and adjusted by certain events (this might include stock splits if you held stock).

Each Bitcoin you have will have its own cost basis, and it is possible this cost basis needs to be adjusted as you hold the Bitcoin – although adjustments to basis are as yet unclear in the cryptocurrency context.There doesn’t yet exist a global reporting mechanism to confirm adjusted basis for people who bought or sold cryptocurrency in the past year and are now in the process of figuring out gains or losses.

 So if you aren’t getting any kinds of reports from your investments (which isn’t unusual), you’ll have to determine the adjusted basis and any associated gain or loss on your own. Moreover, you will need to track the character of your gain or loss from your cryptocurrency sales or trades. The character depends on whether the virtual currency is a capital asset in the hands of the taxpayer.

To make these determinations, you will likely have to go back through your bank or wallet receipts and emails to find out what you paid for a cryptocurrency in U.S. dollars (or the U.S. dollar equivalent of another cryptocurrency) to determine the cost basis of the property in question.


Then you will need to consider whether you engaged in any events since the date of acquisition that require an adjustment to the basis. Ultimately, that should get you to the adjusted basis at the time you sold or exchanged the property. And if you only sold or traded a portion of your cryptocurrency, you will need to determine which portion of your adjusted basis was sold or exchanged.

Most often, FIFO, or a “first in, first out” method, is applied for this determination. It’s a challenging endeavor for those who just got started investing in this area and could be nearly impossible for early adopters, who may not have kept detailed records.


Nevertheless, the IRS has said it expects taxpayers to comply with general tax law for all virtual currency transactions, even those enacted before the 2014 Notice. If you don’t, there is potential for penalties or audits.

Adding another layer of complication is when cryptocurrencies are mined instead of purchased with cash. You’ll need to determine if you were an employee or independent contractor mining for someone else, if you were getting wages for mining cryptocurrency, if those wages were in U.S. dollars or virtual currency, and how much each of those transactions was worth in U.S. dollars on the day they were recognized as transactions.

If you were mining for someone else, your earnings are considered wages, subject to regular wage withholding by your employer. If you were doing it as an independent contractor, those earnings have to be considered self-employment earnings. In other words, those earnings will not be reported as capital.

So you have both the initial difficulty of determining fair market value of the virtual currency and the added complication of properly categorizing your mining activity. Note, this is assuming employees or contractors are getting paid in cryptocurrency; regular salary paid in cash and similar payments are treated under standard income tax principles.

If it sounds complicated, it is. Here are a few ways to prepare yourself for a tax filing.

1. Don’t neglect to report any amount of cryptocurrency gains or losses from your investments. Be mindful of the limitations on losses that could apply. For example, generally capital losses of individual taxpayers (as opposed to ordinary losses, which are subject to special rules) are limited to $3,000 per year.

If you sold a portion of even one Bitcoin for any amount of money (even a small amount), the IRS has made it pretty clear they expect you to make best efforts to report any gain or loss triggered by the sale. The IRS, in fact, reinforced this position on March 23, 2018, by releasing a reminder to taxpayers to report virtual currency transactions, and stated in the reminder that taxpayers who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions and, when appropriate, can be liable for penalties and interest.


2. Start an ongoing spreadsheet that captures when you bought a cryptocurrency and how much it was worth in U.S. dollars on that day, when you sell or trade it and how much it is worth in equivalent U.S. dollars on that day, what you sell or trade for it and the value of what you get in return for that sale or trade. Make efforts also to track any possible adjustments to the cost basis in your cryptocurrency such as splits or forks, even if it is unclear yet whether those adjustments should be taken into account. In the long run, it will serve you better to get everything in order now, as more regulations are expected, and they may increase your reporting requirements.


3. Think more broadly about what you do with your cryptocurrency beyond strictly selling it. As I said above, tax law considers convertible virtual currencies like Bitcoin to be property. So you potentially have gains or losses if you trade Bitcoin for tangible things like a cup of coffee or goods on a third-party website. Technically, that’s a reportable transaction for tax purposes, and Uncle Sam wants a cut of any gain you earned on the transaction. It’s not intuitive that you would have to report this, so pay special attention to tracking the value of the good you bought and if that value resulted in a gain or loss compared to the adjusted basis of the cryptocurrency on that specific day. If you track those things and report accordingly for tax purposes, you’ll be in a much better position to defend your actions in an audit.


4. This trading concept applies to inter-cryptocurrency trades too. If you trade one type of cryptocurrency for another, it could also trigger these same issues. Under prior law, a trade of one cryptocurrency for another could in some cases be considered a tax-free like-kind exchange. Some cryptocurrency investors relied on that principle to treat cryptocurrency swaps as tax-free like-kind exchanges. The most recent tax reform has made that an impossibility, as all like-kind exchanges are now required to be exchanges of real property, such as exchanges of rental houses or commercial buildings.


So for those who are exchanging cryptocurrency, you’d still need to determine the adjusted basis of the virtual currency on the day you traded it and see if that was worth more or less than the currency you were exchanging it for on the day you swapped it and report gain or loss accordingly.

To recap: Cryptocurrency has to be looked at as property, not cash, when doing a tax return. So if you bought Bitcoin or a similar convertible virtual currency as a sole investor during the year and have held onto it (with no dividend or fork, either of which could lead to other tax complications), you probably don’t have any reporting obligation.

But if you sold or traded it last year, you may have to report your gain or loss to the IRS. So grab a spreadsheet. As cryptocurrency becomes more legitimate, the rules become more significant.

This article is provided as general informational and should not be construed as legal advice. Sarah-Jane Morin is an attorney with Morgan Lewis. She represents public and private companies, private equity funds, venture capital funds, real estate funds, portfolio companies, and real estate investment trusts in the tax aspects of complex business transactions and fund formations. You can reach her at [email protected].

See more from Venturebeat here: https://venturebeat.com/2018/04/07/cryptocurrency-and-taxes-its-complicated/

Everything you need to know about hot wallets, cold storage and seed phrases.
One of the hallmark qualities of cryptocurrency is its virtuality. Unlike most other forms of currency, crypto has no physical embodiment. You can't get it as paper, coin, bar of gold or fancy bead. There's no token that needs to be locked up in a bank vault or buried beneath a mattress.But like anything valuable, cryptocurrency needs to be protected.

It exists as a natively digital entity that requires an internet connection for any transaction -- and that connectedness makes it vulnerable to hacking. In fact, despite its ethereal nature, it's at least as susceptible to plunder as cash or gold. And with cryptocurrency, these violations are likely to come remotely.

Read: Bitcoin explained -- everything you need to know


Exchanges' default wallets are risky

Many newcomers buy cryptocurrency from an exchange, such as Coinbase or BitFlyer, and leave their holdings in those sites' "custodial" wallets. But like any other online entity, the exchanges are vulnerable to hacking -- and as the crossroads for many billions of dollars of transactions every day, they make for particularly attractive targets.

The cautionary tales of Mt. Gox, which "lost" 750,000 of its customers' bitcoins in 2014; NiceHash, which was robbed of $60 million in December 2017; and a recent close call at Binance show the risks associated with leaving your coins in an exchange's online wallet.


Cold storage vs. hot wallets

Conventional wisdom dictates that if you've got more virtual currency than you'd be comfortable carrying around on your person, or you intend to hold it as a long-term investment, you should keep it in "cold storage." This could be a computer that's disconnected from the internet or a specialized USB drive called a hardware wallet. (We'll take a look at how those work in a future explainer.)

Dedicating a computer to store your cryptocurrency or shelling out for a hardware wallet isn't an option for everyone, however. Well known devices such as the Trezor and Ledger cost between $75 and $100 and, by design, add complexity and a few extra steps to every transaction. Software wallets, by contrast, are usually free and easily accessed though, ultimately, less secure.


Three kinds of software wallets

A cryptocurrency wallet's primary function is to store the public and private keys you need to conduct a transaction on the blockchain. Many also offer features such as integrated currency swapping. There are three main kinds of software wallets -- desktop, online and mobile -- and each offers a different combination of convenience and security. Desktop wallets are software you install on your computer.


They give you lots of control over your assets but, if connected to the internet, remain vulnerable. A malware infection, the remote takeover of your computer or -- even if you're not online -- a hard-drive failure could be a catastrophe.

Read: Blockchain Decoded on CNET

Online wallets are hosted on a website. This makes them convenient because they're accessible from any internet-connected device. The downside: Your private keys are (theoretically) known to the website owner and, from a technical perspective, there's not much to stop them from simply taking your coins.


Mobile app wallets are optimized for retail transactions -- that is, paying for stuff with bitcoin or another cryptocurrency. But because your encryption keys are stored on your phone, you lose your coins if you lose your device. You thought it was a bummer to leave your phone in a taxi? Imagine how bad it will be if it has thousands of dollars of cryptocurrency locked on it.




28 things you didn't know you could buy with bitcoins


Security fundamentals 


Whether you choose a hardware, software or paper wallet to manage your passwords and private keys, there are a handful of things you can do to keep your stash safer. These include:

Be super careful with any online service -- any device connected to the internet is vulnerable Encrypt your wallet with a strong passwordMake regular backups and store them in multiple locationsUse multisignature security, which helps maintain control of your coins even if one of your devices is compromisedGenerate, write down and hide your wallet's mnemonic seed -- a group of words you can use to restore your wallet in the event of a hardware failure
Some software wallet options

We'll take a high-level view of some well known software wallets to provide an overview of the different features and tradeoffs to consider. Note: There are many wallet options available, and we have not comprehensively tested any of these. As such, we cannot recommend any of them. As with everything related to cryptocurrency, you are advised to do your own research before making any decisions. Caveat emptor! 

Jaxx

JaxxA versatile online wallet, Jaxx can be installed on a computer (Windows, Mac or Linux), added as an extension to the Chrome web browser, or downloaded as an app on an Android or Apple phone or tablet. In addition to helping you store dozens of cryptocurrencies, Jaxx's support for the ShapeShift API makes it easy to swap coins -- say, Litecoin for Ether -- right inside the wallet.

ShapeShift's exchange rates aren't always as low as what you'll find on major exchanges and they do charge a transaction fee (or "miner fee"), which was about 40 cents on the Bitcoin to Ether transaction we priced out. Jaxx offers novices an easy pathway into alt-coins that aren't yet supported by Coinbase or Bittrex.Learn more: jaxx.io


MetaMask


Super simple to install and use, MetaMask is a specialist, supporting only ERC20tokens -- that is, any cryptocurrency built on the Ethereum platform. The good news: there are about 50,000 or so tokens (and projects) built on Ethereum, accounting for roughly 90 percent of the total cryptocurrency market cap, which was more than $200 billion at the time of writing, according to CoinMarketCap.com. 

MetaMaskMetaMask can be used to send, receive and store Ethereum tokens and private keys. All of the data is encrypted and stored locally, making it difficult for the developers or anyone else to steal your keys or coins remotely. And, in addition to its storage and transactional capabilities, the MetaMask extension connects most web browsers (Chrome, Firefox, Opera and Brave) with the growing universe of decentralized applications, also known as dApps, being built on the Ethereum platform.Learn more: metamask.io


Exodus.io


The Exodus software wallet is a good entry-level wallet for cryptocurrency newcomers. It's known for responsive customer support, copious user documentation and a refined design and interface. It accommodates dozens of coins (here's a full list) and was the first wallet to support Shapeshift. There's no mobile app yet, however, and Exodus doesn't offer two-factor authentication or multisignature addressing, which gives you the power to require approval from multiple devices before finalizing a transaction. This could give security-minded coin owners pause. Learn more: exodus.io

Mycelium


One of the first mobile wallets, Mycelium has since established a solid reputation as a secure and user-friendly way to store bitcoin (and, so far, only bitcoin). Like any credible wallet, it lets you generate a set of 12 "seed words" that will help you restore the wallet if you lose access to your private keys.

There's no desktop interface, but it can be used in tandem with a cold storage solution, managing your accounts on a hardware device like a Trezor or Ledger. (The company also produces a USB key that generates paper wallets; plug it into your printer and out comes a paper wallet without any need for a computer.)

Mycelium Instead of using ShapeShifter, Mycelium runs its own reputation-based exchange platform, which helps coordinate bitcoin trades between buyers and sellers. Transactions incur a fee that ranges from about 70 cents to $8 depending on the priority you set -- that is, how quickly you want it to be confirmed and added to the blockchain. Learn more: wallet.mycelium.com

Remember: Do your own research before installing or using any of these wallet technologies -- or trading or investing in any cryptocurrency. 

Buying and selling bitcoin: A quick and dirty introduction to trading cryptocurrency.

Initial coin offerings, explained: How can this possibly be a legitimate way to raise money?

Cnet is is one of the leading publishers of technology over the last 2 decades. Discover more from Cnet here: https://www.cnet.com/how-to/how-to-keep-your-cryptocurrency-safe/

The game isn’t over for Bitcoin yet. And neither is its price volatility, which divides cryptocurrency experts on where bitcoin price is heading next. On one side is the bullish camp, which argues that Bitcoin is still in an uptrend, betting that it will eventually reach $30,000.

Marshall Taplits, Chief Strategy Officer for NYNJA, is one of them. “Speculation on price is always difficult, says Taplits. “However, the trend for Bitcoin is clear - UP, going to about $20,000 USD from zero in 10 years.  Each time Bitcoin corrects, the media wrenches.  However, anyone who has been watching crypto currency since the beginning knows to bet on $30,000.


Daniel Worsley Chief Operating Officer of Local CoinSwap is another Bitcoin bull. “There is no other network that has been as battle tested as the Bitcoin blockchain,” says Worsley.  


“It has resisted serious adversaries, and coordinated attacks designed to disrupt its functioning. It has survived all assaults. It wouldn't surprise me at all to see the price above $20,000 USD this year. Especially given the amount of negative press which is now priced in, and investor expectation of another bull run, it will only take a couple of positive developments to set off the train.”


On the other side is the bearish camp, which argues that Bitcoin is a mania that sooner or later will come to an end, the way every mania ends: falling demand in the face of rising supply (in this case from competing coins). And when these conditions are met, Bitcoin prices could be driven back to $1000.

That’s according to some estimates which set the fundamental value of Bitcoin at $1,142.Still, it may take quite some time before the price of Bitcoin reaches its fundamental value, even in a rational world.

“Rationality of behavior and expectations is not enough to prevent bubbles, as it is not enough to guarantee that the price of an asset is equal to its fundamental value,” explains Christos Giannikos, Professor of Finance at Baruch College....continue reading page 2 of this article here on Forbes: https://www.forbes.com/sites/panosmourdoukoutas/2018/04/08/wheres-bitcoin-price-heading-next-1k-or-3...

BY STAN SCHROEDER


In the past month, two major online advertising platforms — Google AdWords and Facebook — have announced a full-on ban of cryptocurrency-related ads, and rumors say Twitter will follow their lead. Few will mourn the barrage of ads for shady ICOs (initial coin offerings) that promise 10x returns.

But the cryptocurrency space is a booming new economy, and such an all-encompassing ban is sure to hurt some legitimate crypto businesses. 

SEE ALSO: This space heater mines bitcoin while keeping your house warmBlockchain might just be the next big thing in finance, and blockchain-based Uber  and Airbnb are already being envisioned. 


In fact, you'd be hard-pressed to find an industry that a blockchain-based startup isn't threatening to disrupt. Surely, not all of these businesses are scams. So why ban them all from advertising on the internet's major platforms?Trevor Gerszt, CEO of cryptocurrency IRA company CoinIRA isn't afraid of the bans, though he doesn't exactly welcome them, either.

"It is frustrating that companies like Coin IRA who offer legitimate investment products and have done everything we have to do to be in compliance are punished along with nebulous ICO schemes," he told Mashable via e-mail. 

Ultimately, however, the "ad bans won’t affect larger, more established, and more reputable cryptocurrency businesses as much as they will affect smaller businesses who are looking to use advertising to gain greater name recognition," he claims. 

That's the trick: For a cryptocurrency startup, the ad ban means it may be harder to get funded via an ICO. And for strictly crypto-related businesses, such as crypto exchanges and wallets, the ad bans are bad news. But blockchain-based startups will be able to advertise their products on Google and Facebook, as long as they don't mention the crypto aspects of it, such as ICOs, tokens, wallets and such. 

I've contacted Google, Facebook, and Twitter regarding the crypto ad ban. "Our new policy applies to the advertisement of cryptocurrencies and related content (including but not limited to initial coin offerings, cryptocurrency exchanges, cryptocurrency wallets, and cryptocurrency trading advice)," a Google spokesperson told me.

"This will include ads for aggregators and affiliates for cryptocurrencies," but the policy "will not apply to other blockchain technologies that are unrelated to cryptocurrencies and ICOs," he said, while noting that the ads also must adhere to Google's other policies. 

Facebook hasn't responded at the time of publish, and Twitter, which hasn't publicly announced any ban yet, had no comment. Interestingly enough, several crypto-related companies I've contacted said they actually welcome the ad ban. Darren Marble, the CEO of fintech marketing firm CrowdfundX, which is marketing the widely publicized KodakCoin, is one of them. 

"The only people who are disappointed in Twitter’s purported ban of crypto ads are the scammers and con artists"

“The only people who are disappointed in Twitter’s purported ban of crypto ads are the scammers and con artists. The big money raised in ICOs is relationship-based, and the most legitimate issuers are well connected to active crypto and blockchain funds. I think the ban on crypto advertising is actually positive change for the industry, and will help clean up a lot of the garbage," Marble told me via e-mail. 

Nicolas Van Hoorder, CEO and co-founder of cryptocurrency tracking app Delta, isn't particularly worried, either. "Twitter, Facebook and Google want a better ad experience for their users, and the cryptocurrency community wants legitimacy as a financial market.

Their restrictions are part of a gradual process to filter out illicit activities from genuine companies with innovative products," he told me via e-mail.  The market will eventually stabilize and "misleading activities" will be weeded out, he claims. Meanwhile, "the focus for companies going through ICOs should be on building great products and showing evidence of their value.

Then platforms should gladly allow advertising for these products, whether it's crypto or not," he says. In a way, it's no wonder that legitimate, blockchain-based startups aren't afraid of the ad ban. Many of them have to actively fend off investors; some, like Theta and Gems have recently cancelled ICOs, largely due to raising too much money in private pre-sales. 

While some startups that don't have access to Silicon Valley's VC wealth will undoubtedly be hurt by the inability to advertise their token sales, it appears that overall, the blockchain space is so hot right now that even a wide-ranging ad ban won't kill or even hurt it — perhaps only slow it down a little. 

Disclosure: The author of this text owns, or has recently owned, a number of cryptocurrencies, including BTC and ETH. WATCH: 'Uber' co-founder Garrett Camp is creating a new cryptocurrency

Richard B. Levin,

By Michael S. Foster, Mark A. Olthoff, and Richard B. Levi, Shareholders in Polsinelli PC and TABBforum contributors.

Cryptocurrencies, like Bitcoin and Ethereum1, had a breakout year in 2017. The price of Bitcoin rose from approximately $1,000 per Bitcoin on January 1, 2017, to $13,000 per Bitcoin on December 31, 2017, with a high of approximately $20,000 per Bitcoin.

Ethereum increased from approximately $10 per Ether to $755 during the same time period. Both Ether and Bitcoin are used by investors to buy into Initial Coin Offering (“ICO”) opportunities, which are similar to Initial Public Offerings (“IPOs”) and were an extremely popular way of raising capital in exchange for “crypto tokens” in 2017.

These ICOs, however, have spurred recent class action lawsuits.Given the wide fluctuations in the price of cryptocurrencies—and recent precipitous drop—and the fact that many people paid for tokens of blockchain-based start-ups, we have only likely begun to see the beginning of class action lawsuits filed relating to blockchain-related companies or companies that participated in ICOs.

Because anyone with an idea for a project can gain financial backing without going through the formalities of an IPO, there are obvious chances for the public to be scammed, leading to potential lawsuits.

We believe it is highly likely other issuers of tokens will face class action lawsuits. Any company planning to conduct a token offering using an ICO should proceed with caution.

Similarly, anyone looking to invest in a token offering should make sure the offering is conducted in compliance with applicable state and federal laws.


Initial Coin OfferingsIn the past 12 months, there has been an explosion of sales of digital tokens through ICOs that are viewed by regulators in many jurisdictions as a form of crowdfund investing using cryptocurrencies.

These ICOs often raise money through white papers that generally describe the individuals involved in the project, provide details on the project to be developed and seek the public to assist in its development by offering its tokens in exchange for cryptocurrencies.

The ICO’s founders may also put together a webpage and make forum posts touting the project. ICOs raised approximately $4 billion in 2017 alone, outpacing all venture capital raised in the United States.

Recent Class Actions Against Token ICO IssuersIn October and November 2017, four class action lawsuits were filed against Dynamic Ledger Solutions, Inc., the founders of the Tezos project, the Tezos Foundation established to conduct the Tezos ICO, and others [see Case Nos. 3:17-cv-6779-RS; 3:17-cv-6829-RS; 3:17-cv-6850-RS (all in the Northern District of California) and Case No. 6:17-cv-1959-ORL-40-KRS (in the Middle District of Florida)].

These class action lawsuits arise out of an ICO that raised approximately $232 million (of cryptocurrency) in exchange for tokens known as Tezzies, which allow their holders to facilitate payments or execute smart contracts on the Tezos blockchain network.

The plaintiffs generally alleged that because of an internal dispute between the Tezos founders and the Tezos Foundation that was established to conduct the Tezos ICO, the Tezos project was delayed and the futures price for the Tezos token fell, losing nearly 50 percent of its value.

The lawsuits also allege that the defendants misrepresented how the funds used during the ICO would be spent, when the Tezos network would be running (similar to the Butterfly Labs matter), and that the Tezzies should have been registered with the SEC.

The causes of actions in the lawsuits vary, as two of the suits merely allege violations of the Securities Act and the other two contain various causes of action, including state law false advertising, unfair competition and deceptive trade practices act claims as well as seeking rescission and alter ego liability.Several other lawsuits started near the end of 2017 and in early 2018:

On December 13, 2017, another class action was filed, this time against Centra Tech, Inc., and the individuals involved in the Centra ICO [see Rensel v. Centra Tech Inc., et al., 17-cv-24500-JLK (S.D. Fla.)]. In this complaint, the plaintiff alleged that the sale constituted an unregistered offering and sale of securities. The complaint also accused the defendants of misleading investors about the nature of its relationship with Visa and MasterCard, as well as listing fake team members on its website.On December 19, 2017, Monkey Capital, a company seeking to create a decentralized hedge fund, was hit with a class action lawsuit alleging a fraudulent issuance of securities [see Hodges, et al. v. Monkey Capital, LLC, et al., Case No. 17-81370 in the U.S. District Court for the Southern District of Florida].On December 21, 2017, a class action was filed against ATBCoin LLC and others based on allegations that ATBCoin had violated the Securities Act by issuing unregistered securities [see Balestra v. ATBCOIN, LLC, et al., Case No. 17-10001 in the U.S. District Court for the Southern District of New York].On December 28, 2017, investors in the Giga Watt ICO filed a class action lawsuit alleging the tokens had all the makings of a security, yet the company did not register the coins with regulators [see Stormsmedia, LLC v. Giga Watt, Inc., et al., Case No. 17-438 in the U.S. District Court for the Eastern District of Washington]. Giga Watt held its ICO to raise money to build a cryptocurrency mining facility. Like the Butterfly Labs matter, the plaintiffs alleged that it was unclear whether the mining project remained in development and would ever be fully developed.On January 30, 2018, a cryptocurrency marijuana startup was hit with a $70-million-dollar class action relating to allegations that the defendants violated United States securities laws [see Davy, et al. v. Paragon Coin, Inc., et al., Case No. 18-671 in the U.S. District Court for the Northern District of California].
Analysis of Potential Token Class ActionsThe thread running through many ICO models is that they are often sold in a manner that may be contrary to state and federal securities laws.

For example, the company that puts together the ICO receives cryptocurrencies during the ICO sale (usually a short period of time—typically one month or less) and tokens are then issued to those people or entities who contributed to the ICO.

The cryptocurrency raised through the issuance of the tokens is then (or is supposed to be) used to advance the project. ICOs, therefore, may be fodder for lawsuits by investors alleging harm by being taken advantage of by the founders and the lack of regulatory oversight (assuming the entities and/or founders have enough ties to the United States—as many ICOs are started offshore but may have United States based founders or owners).


The Terms and Conditions of the ICO may attempt to prohibit causes of action from being filed in the United States, but, depending on how those Terms and Conditions were drafted, courts may find the provisions unenforceable or even unconscionable.

An ICO may also include class action waivers or mandatory arbitration clauses. But these and other disclaimers may not hold up in court. Cases conflict whether a disclaimer may be valid with different rules in different jurisdictions.

Further, many (if not all) ICOs publish a white paper describing the project, and many of the putative class members would have reviewed the same white paper.

This white paper could be Exhibit A to any class action complaint or at trial.Why is a class action a potential risk? In order for a class action to be certified, the plaintiff will need to meet all four requirements under Rule 23(a)—numerosity, commonality, typicality, and adequacy—and one requirement under Rule 23(b)—likely, predominance and superiority under (b) (3)—of the Federal Rules of Civil Procedure.

Numerosity would likely be established in a class action involving an ICO because there may be hundreds, if not thousands, of putative class members.

Common questions must be of such a nature that they are capable of class-wide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.

Common questions relating to ICOs gone bad could surround whether the tokens constitute securities, whether material facts were misrepresented about the network, whether the terms were unconscionable or even whether the members of the class have been injured and what type of damages they are entitled to.

A court may also compare whether individual actions against the founders of an ICO would be superior to a class-wide trial. Predominance and superiority may fail if there is a wide variation in state laws, an inability to identify or provide notice to class members, or a large number of individualized inquiries.

But, because the causes of action may implicate federal securities laws, breach of contract and consumer protection laws (assuming there is not a nationwide consumer protection act claim), plaintiffs may argue this requirement is satisfied when trying to certify a class.

The likelihood of certification will depend on the particular ICO, underlying facts and what has been pled in the Complaint.

Note 1: In extremely simple terms, Bitcoin and Ether are a digital unit of value on a distributed online ledger. The ledger is what is known as the blockchain.

No single institution controls the cryptocurrency market. And, while governmental agencies have sat on the sidelines for the first few years, this is no longer the case.

Many regulators have their eye on the industry, including the Commodities Futures Trading Commission, Securities and Exchange Commission, and state agencies.

Bravenewcoin publish some of the most insightful analysis and research on cryptocurrencies and blockchain. Discover them here: https://bravenewcoin.com/news/cryptocurrency-class-action-lawsuits-a-new-frontier/