BITCOIN’S VALUE WAS FRAUD?

 The Coordinated Manipulation
According to research done by Professor John Griffin of Texas Finance, last years epic rise for Bitcoin was actually done by coordinated market manipulation.

Professor Griffin goes on to explain that he examined millions of transactions on cryptocurrency exchange Bitfinex, and says that “the US dollar pegged cryptocurrency Tether was used to buy Bitcoin at the times that the latter was falling- which helped ‘stabilize and manipulate’ the price”

First I’ll explain what Griffin’s said, and then I’ll explain why he’s wrong about Bitcoin but right about Tether. And it boils down to his understanding of how Exchanges work and how Bitcoin works.

Griffin said “Fraud and manipulation often leave footprints in the data and it’s nice to have the blockchain to track things,” Griffin told CNBC. Whenever bitcoin fell, Tether was used to buy it to prop up the price again.

“It was creating price support for bitcoin and, over the period that we examined, had huge price effects. Our research would indicate that there are sophisticated people harnessing investor interest for their benefit.”

Bitcoin started 2017 at below $1,000 and by Dec 2017 hit 20,000. But as if February to June 2018 it’s been jumping back and fourth from it’s lowest at $6k to the highest $10k (which didn’t even last)  Tether is the 11th largest cryptocurrency and is pegged to the US dollar. Some critics say Tether owners don’t have enough fiat currency to back its $2.5 billion market capitalization.

Bitfinex CEO J.L. van der Velde told CNBC that neither the exchange nor tether helped to boost bitcoin prices. “Bitfinex nor tether is, or has ever, engaged in any sort of market or price manipulation. Tether issuances cannot be used to prop up the price of bitcoin or any other coin/token on Bitfinex,”

Now here’s what I think:

I’ve personally used Tether but I do worry about it. A lot of people have accused Tether of fraud, and Tether certainly hasn’t proven the naysayers.  Do they have the 2.5 billion USD and how are they raising funds?  Essentially as far as I can see, Tether is a non-backed, way of essentially printing virtual USD.  I think Griffin is way off on this one.  USDT (Tether) is a convenient trading pair that can be used with some of the top cryptocurrencies to trade and exchange directly for other coins.

The issue is that a lot of people don’t realize most tokens and currencies are not directly convertible or tradeable for others on exchanges.  Generally you’ll have to sell your ABC alt-coin or tokens for Bitcoin, or USDT and then use the major currency you sold or exchanged to buy say another coin such as Ripple, Litecoin, Lisk etc..  So this is where USDT comes in, if Griffin thinks it propped up Bitcoin I think he is misunderstanding how the exchanges work.  Yes a lot of people are using USDT to buy other currencies but is USDT a market factor?  No, I don’t think so, it’s just simply convenient and I agree with Bitfinex that it doesn’t appear they are using it to prop up Bitcoin.

However, USDT could not be used in such a way if it wasn’t given prominence and primary trading pairs like Bitfinex and other major exchanges have used.  Could some of the exchanges be in cahoots with currencies like USDT and others?  Absolutely, and this is the more likely scenario of market manipulation in the sense that they essentially largely control which currencies fail and flourish.

Any coin that is used as a primary trading pair or in other words directly convertible has more value and will intrinsically be used more as a vehicle to buy coins like Bitcoin.

I think Griffin just raises the simple question about USDT being a fraud and this is the biggest concern but I highly doubt USDT’s existence or trading patterns are responsible for Bitcoin fluctuations directly.  He may derive this from trading patterns but I really just think USDT is a convenient and easy to understand intermediary trading pair vs how you wrap your mind around how many BTC another coin like Ripple, Ethereum or Litcoin is worth etc…

What do you think?

Cheers!
-A. Yasir

Ethereum: The Story of Casper the Unfriendly Ghost!

A lot of the industry is treating this as new but it has been on the Ethereum team’s roadmap, including this post from Vlad back in 2015.  In plain English, Casper the Friendly Ghost as they call it is the roadmap and implementation that the Ethereum team is beginning to test.  It is the process of how they will switch their network from PoW (mining) to PoS (Proof of Stake).  I will admit I am not envious of how they will go about this task and it is a big job, but the implementation has me shaking my head.  Before anyone cries foul or FUD, I am speaking from an IT and business perspective because the security issues in the crypto world are puzzling to me.

A lot of the key features of this Casper protocol are for example how they plan to “penalize bad nodes” or nodes who misbehave, broadcast false/fake transactions/confirmations etc..  Why should this be possible in the first place?  No one should be able to run a node if they aren’t trustworthy but there is no basis on this elevated privilege in cryptocurrency networks like Ethereum.  Strangers off the street are being trusted to be honest and not mess with the network.  That’s not how business or the world works, nor is it how IT works if you want to stay safe and stay operating.

The craziest part that “has me shaking my head” is the fact that “Validator Nodes” which are essentially “bonded” by depositing at least 1500 ETH which the Ethereum network and team controls.  The onus is then on the node runner to secure the node, keep it running reliably, preventing DDOS attacks and risks that the actions of other nodes could cost you money.  Make no doubt about it, the team is clear you could lose some or all of your money through no fault of your own as a Validator Node.

But let’s back up here, this is an improvement over the current issues but is it solving anything?  At first mining worked to secure the network and stop centralization.  But here we are today where big players with big money and ASICs have centralized most cryptocurrencies, something that wasn’t supposed to happen.  It is clear the small players will hardly play any role in the network of Ethereum with this change to Casper.

Getting back to the security aspect.  What is to stop extremely wealthy people who don’t care about money or have more than enough money to run the majority of Validator Nodes?  Nothing stops them from losing all of their money and they don’t have to care about it if they could setup a one-time heist to fool enough users or even a single user for a single targeted transaction.  Massive bank-heist type frauds would be possible with collusion and owning enough Validator Nodes, and clearly only the wealthy could pull this off.  It would be immoral but not illegal and I would say the Casper system, with bonded node validators is enabling and encouraging it.

Casper is well-intentioned but to me it shows that the cryptocurrency world is far out of touch with basic norms of computing and IT security.  There has got to be a better way that prevents this in the first place.

Ethereum and virtually all coins are already centralized from the start.  This is and continues to be the case since the developers must be trusted whether you like it or not.  Why don’t some teams just centralize under a trustworthy community rather than depending on the honesty and integrity of strangers, or worse inviting only the wealthy to centralize and participate?

One coin I feel that meets my criteria for a secure, functional, fast and affordable coin for both users and business is from the anonymous Sonajin Team (or Team Satoshi 2.0 if I’m correct).    I believe the coin will revolutionize cryptocurrency and will be the best poised for mass adoption.  Naturally I’m going to add that I have bought into it and have a stake, both for my own interest but also with the expectation that it will be a historically smart choice to own some XSJ.

Warren Buffett Wrong About Bitcoin

A lot of seasoned and generally respected investors including Warren Buffett and even Jim Rogers have blasted Bitcoin as everything from a scam to a poor store of value.  Ironically, we view Bitcoin’s number one property as being a good store of value.

The real question is why do so many veteran and seasoned investors warn about Bitcoin?  Some of them say it is because it resembles the tech bubble of the 90’s and others say because the value is derived from nothing.

We feel that this is misinformed somewhat and could it just be that these older investors simply do not understand the technology and viability of cryptocurrency.   Or are they protecting traditional financial assets and tools either as  government shills or inadvertently?

It’s hard to say for sure but Warren Buffett has taken a lot of flak in recent years and has drawn the ire of almost every investor.

Bitcoin Fails To Defend 10K Mark

Let’s let the chart do the talking for the past 3 months where it currently sits at $9327.65

Bitcoin-2018-02-05-PriceChart

Back in February BTC posted the maximum high for the past 3 months of just over 11K.  As you can see from March to April the lowest moves of the recent past were posted around the 7K mark.  To me this looks like a classic sideways trading that eventually breaks out.  You can see since April there has been a steady upward trend.

BTC hasn’t been able to defend the 10K mark but I do believe we have stability around the 9K mark.  Some indicators claim BTC is currently neither overbought or oversold.  But common sense has to tell you that if the price is going down it appears we have more sellers than buyers at the $10K mark.  It could be people cashing out for fear of wondering when does BTC return back to the 20K mark?

Many people have said this  spells disaster but I really do think we are just getting started with the BTC rally and I think much higher prices are around the corner in the near future.  There has been a lot of positive news from around the world that seems to be increasingly towards accepting that BTC is here to stay.

Perhaps some regulators thought twice and realized that “like it or not BTC is too big and risky to ban”.  Because people can move BTC at will and it cannot be frozen or truly banned.  I think regulators are finding just as the case is with exchanges, if you put undue pressure on owners of cryptocurrency they will simply just move away to a friendlier jurisdiction.  I would imagine they should favor BTC as it is not anonymous and is easily and fully trackable.  If people switched to more private based coins they’ll have little chance at regulation such as with Monero.

Dubai Establishes Business Blockchain Registry

This is the first I’ve heard of it but Dubai has made a business registry out of blockchain and what’s more they want all government services to be blockchain powered by 2020.  It has been setup to help companies establish themselves in Dubai and also as a well of getting direct investment from overseas.

I am having trouble finding the technical details but it certainly sounds like a very interesting application of blockchain technology.

The only other thing mentioned is that it appears IBM is behind the blockchain being used or at least involved:

 

Amr Refaat, general manager, IBM Middle East said: “IBM is proud to collaborate with DED, Smart Dubai Office and Dubai Silicon Oasis on this journey to revolutionize the business ecosystem in the UAE. Dubai is a leader in innovation with many ambitious projects that have already become a reality. With the first phase of this project already in place to form the first active Blockchain commerce registry network, there is keen interest from other public and private entities to join the network.

Bitcoin vs Bitcoin Cash

This has been one of the most controversial issues in cryptocurrency.  The Bitcoin Cash Hardfork emanates from this issue of what amounts to basically a setting in a config file.

The issue was real back then with Bitcoin only having a 1MB (megabyte) blocksize.  You would think 1MB could store a lot of transactions and this was fine until Bitcoin exploded and began to be used by millions worldwide (something not exactly expected or planned for by the original devs).  Bitcoin can only do 7 transactions per second which is way too slow and what was happening is that the entire block was already fully utilized as soon as it was mined.  It would be like your banks ATM or POS machine crashing before you could do a transaction.  In other words Bitcoin was overloaded and couldn’t keep up with the transactions that were being demanded causing slow processing that could take days to send some Bitcoin!

Some of the devs felt that this wasn’t an issue and wanted to keep things the same as Satoshi created them (with the 1MB blocksize). They felt Bitcoin was never meant to be used for payments such as a cup of coffee and that very slow transactions weren’t an issue.  They also voiced concerns that a larger blocksize would stop people from running full nodes and increase centralization since a larger blocksize requires more computing power.

The Bitcoin Cash team disagreed and did a hardfork which is essentially a copy and counterfeit of the original Bitcoin.   The only real change they made was the blocksize to 8MB which means faster and cheaper transactions than the original Bitcoin.

There were problems initially with potential reply attacks since to get this Bitcoin Cash you have to use your real Bitcoin wallet/private keys to receive it.  This meant that nefarious wallet creators could steal your coins from the real Bitcoin network if you didn’t move your original coins to another wallet first.  There is also the threat of a replay attack.  Replay attacks work on the fact that both chains are identical.  If you send a transaction on one chain, an attacker could see it and then broadcast the transaction on the other chain to their own address.

This is one big reason I don’t like hardforks aside from the confusion, scams and devaluation, it’s one more huge problem to have a reply attack.

These issues are why I believe hardforks shouldn’t be possible.  If it means the blockchain is not 100% open source and permissionless then this is acceptable.  Open Source is currently what makes most currencies vulnerable.  Let’s take it back to the secure, traditional IT methods of a secure server vs client model (where the secure server should be Bitcoin or whatever currency we are talking about).

My money is on the real Bitcoin.  Bitcoin Cash could have been interesting if they did more than just increase the blocksize and didn’t copy the blockchain.  I pick the original Bitcoin for the long run.

Nasdaq Plans To Become Cryptocurrency Exchange

This is huge news with the CEO of Nasdaq saying they would consider becoming a cryptocurrency exchange.   One caveat is that Adena Friedman said she is waiting for the market to mature.   I anticipate she sees the threat to cryptocurrency as the fact that we don’t know for sure which currencies will be around in the coming years.  She is waiting for the dot-com like bubble to burst which is an excellent strategy for managing the risk.

The fact that Nasdaq would even contemplate this plus the big money from Wall Street going into cryptocurrency is a very positive sign of where the industry is heading.  The coins that survive the bust will become incredibly valuable and I think Bitcoin is one of them dispute its many issues and drawbacks.  It is a tricky call, with one risk of course being hardforks.  After more Bitcoin scams and hardforks will people possibly lose interest in Bitcoin or will it increase interest in the real Bitcoin?

Either way it may be a bumpy and turbulent ride, but cryptocurrency is looking like its about to create its own economy.  Trading cryptocurrency is not the issue though, as we still wait the “messiah coin” which will hopefully resolve the many issues that we have today.  I’d like to see a coin that does everything right or most things right rather than focusing on just a single aspect.

The time will come and the market will follow.  Everyone hold on things are about to keep getting interesting in 2018!

Federal Reserve Says Bitcoin Cannot Replace the US Dollar

The new chief of the San Francisco branch, of the privately held, Federal Reserve Bank has stated that Bitcoin cannot, and will not ever replace the US Dollar.  First of all, they are doing a fantastic job and understand their market and duties.  They cannot step into this job and say anything else and expect to keep it.

I get it, Bitcoin is printed without supposed backing, although it is backed by a lot of physical hardware assets and electricity.  Fiat currency, especially the US Dollar is printed and floated without any controls or restrictions.  Well, actually, the only control and restriction is that there is none.  The Federal Reserve prints at will and on demand, without limitation or backing of any sort, and they have long abandoned the gold standard.

The fact that the Federal Reserve would comment at all on this matter and mention Bitcoin, to me, is very telling that it is very much a possibility.  When you have this much money put into something that is being traded worldwide, every second, and such an ecosystem I think it is an excellent contender to the US Dollar and fiat currency in general.  Remember, fiat is backed by nothing as well and printed without any limit.  Most cryptocurrencies actually are limited in how many coins can be mined or minted at any rate.

Cryptocurrency is currently at a $421 Billion USD market cap and I think it won’t be long before it is in the trillion dollar range.  This is ultimately the worst nightmare for any central banker with so many competitors, of course your number one priority should be outlawing them and shutting them down.

On that end the Fed is right to do it and is doing their job well.  However, for people who don’t essentially control the fiat financial system, we would do well to root for cryptocurrency as an alternative system.  I think both systems can survive and work together, but if fiat pushes it too much, I think there may be a digital currency revolution that far surpassed the digital rights movement of the late 90s and early 2000s that caught the RIAA and MPAA by surprise.

Verge XVG Mining Exploit Results in $1.1M Heist

In all fairness it was just 3 hours, they have corrected the issue and have apologized which is the way to handle it.  This won’t make me panic sell my Verge coins.


XVG-Verge-ApologiesforMiningAttack
However, a scam closely followed right into the tweet discussion about this with a fake Verge account scamming users by apologizing for the hack (very ironic).

 

 

Because of how well they handled it I have a lot of faith in their team.  Lately a lot of blockchains have been attacked and exploited which is only natural.  Contrary to popular belief blockchain is not invincible or infallible.  Likewise, the people who code the applications and algorithms that run them are only human, so let’s give them a break.

To close this attack vector permanently it looks like a hardfork will be necessary (I generally dislike hardforks but this is a case of necessity).  But once again I’ll say it is a flaw in the majority of permissionless blockchains.  The client side shouldn’t care about this (just as we don’t care about the backend of our bank we only care about using our money).

I see the value of XVG has plummeted as a result, even though similar issues have happened with Bytecoin and Monero due to a flaw that allowed the creation of extra coins in Cryptonight.  I would fathom that a lot, if not most blockchains have been attacked and this has gone undetected and/or unreported.  It is likely just a matter of time.  This still puzzles me more because I think the Ethereum, parity issue, Bitcoin Gold Scam and what I suspect was a similar issue with Raiblocks didn’t impact the value as much.  With that said, this is one more reason I feel PoW is unsustainable and doesn’t help secure networks at all, as even without technical exploits you can still cause damage by having more hashing power than others.

I am not overly concerned about this issue and a big part of that is how the team handles things and it looks like they’ve taken ownership of the problem and have corrected it (something rare in this industry).

Swiss Researchers Forecast Sideways Trading and Downward Pressure on Bitcoin for 2018

They have based it on Metcalfe’s law which says at this point that Bitcoin could lose another 27%.  The group also cites the part I agree with, in that so far cryptocurrency prices are mainly driven by Bitcoin which means Altcoins (other than Bitcoin) have risen and fallen in direct correlation.

Where I am not sure if I agree or disagree is their theory that a lot of this is driven by fear in the news.  While I am sure it is, if the fear is unfounded why should bad news reflect on the long-term valuation?

A sensible market would be wise to react to say the hacks that have happened to Ethereum or the fact that illegal content has been inserted into the Bitcoin Blockchain.  That is bad news that has relevance since these issues potentially threaten the integrity of the entire blockchain.

While we’re on the topic of Metcalfe’s law, since cryptocurrency is a completely new and largely irrational market can we trust this is a valid predictor?  I am not aware that any other traditional models have successfully called any of the major events in cryptocurrency.

I do agree it was time for a significant correction but the same has happened in commodities and stocks before, yet the stock markets keep moving (albeit with a lot of money printing and manipulation-is that what regulators mean by regulation for cryptocurrency? :) ).

Only time will tell where things head but I do think that currencies that are efficient, secure and easy to use will stand the test of time (which admittedly are very few and I cannot think of a single one that solves all of the issues just yet).