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Is China Trying to Kill Bitcoin

Is China Trying to Kill BitcoinCryptocurrency Bitcoin has been on quite a roller-coaster ride the past weeks. From an all time high of $4,950.72 to $3,537.79 during the first 14 days of September 2017 in four days. That is a loss of nearly $1,413.00 which is over 9 shares of Apple (AAPL) or nearly 19 shares of Microsoft (MSFT). Not only am I skeptical about the value of Bitcoin at these levels, but apparently the Chinese government also is skeptical about cryptocurrencies.

CNET reports that the People’s Bank of China, the central bank of China banned initial coin offerings where bitcoin entrepreneurs and speculators raise funds by launching new digital tokens. ICO’s allowed blockchain startups to raise nearly $2 billion from investors worldwide in 2017. There was no mention of cryptocurrencies such as Bitcoin or its rival Ethereum, but the announcement sent stocks sliding anyway.

CNET says PBC ruled that ICOs are a form of “unauthorized and illegal public financing … (which) seriously disrupted economic and financial order” in China. To that end, the country has banned all sales and currency conversions involving digital tokens, and prohibited all financial institutions and non-bank payment organizations from offering any services to ICOs.

The American Banker speculates that the Chinese government may be trying to kill Bitcoin. In a recent article they lay out the case for Chinese regulators putting an end to cybercurrencies.

They point out that the Communist government of China is known for its strict capital controls and sweeping regulatory judgments. This attitude has spilled over to its relationship with cryptocurrencies.

Some observers are quick to point out that China has a long history of using the “Great Firewall of China” to block Western web sites, from Facebook to YouTube to WhatsApp and even VPN’s.

According to AB, the Chinese regulators have instructed all domestic cryptocurrency exchanges to shut down this month, effectively choking off one of the largest markets for the commercial buying and selling of bitcoin and other digital assets.

Further, cryptocurrency exchanges in China must work closely with authorities as they wind down their operations. AB says four major Chinese exchanges—Huobi, ViaBTC, OKCoin and BTC China, at one time the world’s largest by trading volume—have already announced their shutdown.

The moment could be a pivotal one in the evolution of financial services. It could easily be misread both by traditional bankers who could be disrupted and fintech entertainers who see a profit in disrupting the status quo. Bitcoin skeptics such as JPMorgan Chase’s CEO Jamie Dimon who called bitcoin a “fraud” that would soon “blow up.” American Banker believes Mr. Dimon has grown annoyed at the cryptocurrency’s staying power even though his firm is experimenting with blockchain technology—and filed a patent in late 2013 for a bitcoin-style digital payment system.

Next on the chopping block could be bitcoin miners. Bitcoin miners use tremendous amounts of computing power to verify and record transactions on the bitcoin network. In return, they receive new bitcoins which are minted at a predetermined rate. Some 80% of the world’s bitcoin mining takes place in China, the article claims the bottom could fall out of the business if miners have no way to turn their digital gains into fiat currency.

China is doing this “just to show their power,” Oleg Seydak, CEO of the marketplace lender Blackmoon Financial told AB. “They will temporarily close all of these companies, introduce strong regulations and keep the industry and the sector under their control.”

This approach makes sense if Chinese leaders do not want to be seen as falling behind in a new and growing market. In 2016, China accounted for the majority of global bitcoin trading activity. But with the government clamping down, China’s share has dropped to less than 15% of global volume. Japan now holds the top spot, with the  U.S. and South Korea close behind.

Sasha Ivanov, CEO of Waves, a blockchain platform believes the Chinese ICO ban is a positive development for the industry. Mr. Ivanov told AB that most ICOs were nothing but scams. He says Chinese regulators “finally lost patience, as more and more companies tried to raise millions for nothing.” China, he said, “has a reputation of being a harsh regulator that makes abrupt decisions,” but he feels confident that ICOs will be allowed by Chinese authorities once they have put in place an adequate regulatory framework.

“Fundamentally it all comes back to control, and right now the party’s all about control, especially around the 19th” Communist Party Congress, Bill Bishop, head of The Sinocism China Newsletter told CNBC.

Paul Triolo, practice head, geo-technology, at Eurasia Group, told CNBC, “the cyrptocurrency problem has gotten exponentially more difficult for them to get their head around and regulate.”

“Definitely bitcoin and cryptocurrencies’ free [reign] is over. But the issue of how this will affect the blockchain industry is still unknown,” Mr. Triolo said. “China doesn’t want to be left out of that. They’ll probably still end up allowing some parts of blockchain to survive. The financial piece of bitcoin and the blockchain industry is what they’re after.”

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Seems to me that China wants to reign in cryptocurrencies rather than kill them off. The free-wheeling de-centralized nature of bitcoin makes the centrally controlled Chinese beureartes nervous. However they will probably adapt bitoin to meet their internal needs which is counter to the stated goals of bitcoin.

Ralph Bach has been in IT for fifteen years and has blogged from his Bach Seat about IT, careers and anything else that catches his attention since 2005. You can follow me at Facebook and Twitter. Email the Bach Seat here.

Cryptocurrencies

CryptocurrenciesThe attackers behind last month’s WannaCry ransomware were planning to extort $300 in Monero cryptocurrency to unlock encrypted files. Until this crisis, who had ever heard of Monero? How could you even buy Moneros to unlock your PC, if you wanted to take that chance? More people are probably aware of Bitcoin (BTC). The Visual Capitalist explains that Bitcoin is the original cryptocurrency, and its meteoric rise has made it a mainstay of conversation for investors, media, and technologists alike.

cryptocurrencyDespite its shady history, Bitcoin has spawned over 800 new markets and cryptocurrencies. While Bitcoin is the dominate cryptocurrency, with a market cap of $37.2 billion, the rest of the cryptocurrencies are worth even more, in combination they are worth nearly $40 billion. The leaders of the altcoin movement are:

Ethereum (ETH) launched in 2015, is the second largest by market capitalization. It is also quite different from Bitcoin. The Visual Capitalist explains that while Bitcoin is designed to be a payments protocol first, Ethereum is designed to work as a blockchain-based computing platform for developers to build and deploy decentralized applications, while also enabling smart contracts. The tokens used to power the network are called Ether, but they can also be traded online. At time of writing, Ethereum’s market capitalization is $15.4 billion.

Ripple logoRipple (XRP) is the native currency of the Ripple Protocol – a broader catch-all for an open-source, global exchange according to the Visual Capitalist. Ripple is aiming to be a settlement protocol for major banks, It’s already being used by banks such as Santander, Bank of America Merrill Lynch, UBS, and RBC. Ripple has a market cap of $10.9 billion.

Ethereum Classic (ETC) The Ethereum network actually split into two in 2016.The Visual Capitalist says it’s a complicated situation. You can read about the hack v. hack battle here. Ethereum Classic is based on the original Ethereum blockchain, and has a market capitalization of $1.4 billion.

Litecoin logoLitecoin (LTC) is one of the first altcoins, and it is nearly identical to Bitcoin after being “forked” in 2011. Litecoin aims to process blocks 4x faster than Bitcoin to speed up transaction confirmation time, though this creates several other challenges as well according to the Visual Capitalist. At time of writing, Litecoin’s market capitalization is worth $1.3 billion.

Monero (XMR) is an open-source, privacy-oriented cryptocurrency launched in April 2014. It is the result of a fork of the Bytecoin cryptocurrency According to CoinDesk, Monero is private by default, and it has achieved the widespread adoption of those interested in using cryptocurrencies to remain anonymous. Monero has a market capitalization of $6.2 million.

Coin Market Cap Monero chartThe price of Monero’s XMR has experienced significant volatility at times, climbing more than 1,300% since it began trading on CoinMarketCap. Since its start, the cryptocurrency has fluctuated between roughly $0.25 (in January 2015) and close to $60 (in May 2017).

Monero leverages ring signatures and stealth addresses to obscure the senders and recipients identity. Ring signatures combine or ‘mix’ a user’s account keys with public keys obtained from Monero’s blockchain to create a ‘ring’ of possible signers, meaning outside observers cannot link a signature to a specific user.

Monero logoOriginally, ring signatures obscured the senders and recipients involved in a Monero transaction without hiding the amount transferred. However, an update called RingCT implemented a new ring signature that concealed both the value of each transaction and the senders and recipients identities to make transaction tracking harder.

In addition to leveraging ring signatures, Monero also enhances anonymity through stealth addresses, which are randomly generated, one-time addresses created for each transaction on behalf of the recipient. With this feature, recipients publish a single address and transactions they receive go to separate, unique addresses. As a result, Monero transactions cannot be linked to the published address of the sender or recipient.

By providing a high level of anonymity, Monero offers fungibility, meaning that each individual unit of a currency can be substituted for another. Another way of putting this is that every coin has equal value.

Due to Monero’s untraceable nature, no two coins are distinguishable from one another, and they are both equal in the eyes of merchants. Without this level of fungibility, a vendor that accepts cryptocurrency might refuse a unit of one of these assets because of its past possibly illegal transaction history.

CoinDesk points out that Monero has enjoyed a steady increase in adoption since its release. This adaption seems to be led by Dark web marketplaces like AlphaBay and Oasis which have embraced it, reportedly due to popular demand.

For those who want to purchase Monero’s, to pay a ransom or for other reasons, can purchase them at an exchange. The Monero market operates like that of many other cryptocurrencies. Those interested in buying the cryptocurrency can get it through exchanges including Poloniex, Bitfinex and Kraken.

Bitfinex, offers XMR/USD and XMR/BTC exchanges along with deposits and withdrawals of Monero. Kraken offers the same options as Bitfinex as well as XMR/EUR.

Other cryptocurrencies in the altcoin universe include NEM, Dash, ByteCoin and Golem.

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If the fraudsters who set off the WannaCry crisis were expecting to make a fortune in cryptocurrenncy, it didn’t work. Apparently there have only made approx. BTC 50.91735344 or just under $150,000 on 320 payments world-wide according to a twitter bot actual_ransom from @collinskeith which is watching the bitcoin wallets tied to the ransomware attack.

I dunno know – Until somehow cryptocurrencies break their implied link to illegal activities online, they will be relegated to the black market. 

The value of cryptocurrencies are really hard to pin down because no one really knows how much they should be worth. Unlike a company there are no assets or revenues that can be used to assess a predictable valuation. So they are subject to wide swings in valuations because they operate without any tangible value behind it.

The underlying technology of blockchain seems to have a brighter future

 

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Ralph Bach has blogged from his Bach Seat about IT, careers and anything else that catches his attention since 2005. You can follow me at Facebook and Twitter. Email the Bach Seat here.

 

Visual Capitalist The Coin Universe Keeps Expanding