Wall Street Bitcoin

May 29, 2015 · 8 min read

Ok, I’m pretty sure a lot of you caught Adam Ludwin’s (Chain.com CEO’s) post from last week aboutWall Street meeting the blockchain, but I’m highlighting it now, here, again, because a) he called me out for not highlighting it, b) I’m catching up on the past few weeks’ content, and most importantly, c) it’s smart(ish), but I’ve got some commentary to keep it honest.

Adam gets a lot right, but for starters I’m shutting down his whole crusade to make block_chain two words instead of one. Blockchain technology is a revolutionary innovation, and it should be compounded as the innovation that it is, not bastardized like two confused step children, Block and Chain. People that try to separate the two are the Gretchen Weiners of bitcoin.

Here are some other highlights:

1) I wrote a post yesterday on Ethereum, and the first and most vocal objections to Ethereum had to do with its relative insecurity when compared to the smart assets that could ultimately move on its network. Hate to say it, but the bitcoin network isn’t much better: Ludwin says digital assets built on the bitcoin network are “like a postage stamp on an envelope full of assets,” but that’s not exactly true unless the postal service (bitcoin network) can’t tell the difference between a plain vanilla satoshi and its “colored coin” sibling. That doesn’t happen in real life, and if it did (at scale), the network would become extremely insecure. Would you trust a network that is hackable with <$1bn in spending to be the definitive record of $100bns of assets? Probably not.

2) Semantics and macro security issues aside, Adam nails the 5–6 assets that could most easily be traded on the bitcoin blockchain, currencies (duh), rewards/loyalty points (themselves a form of digital currency), private securities (in progress at NASDAQ), stored value cards, pre-paid minutes, and energy credits. It makes sense that any currency or “near-currency” could trade on the bitcoin blockchain…provided that their value roughly equals that of the native currency tokens they represent.

Ironically though, the least likely asset to trade on the bitcoin blockchain might be private company securities, which are actually among the first planned digitized assets via the NASDAQ partnership. I’m bearish on any type of asset getting traded on the bitcoin blockchain that is worth more than its underlying currency; it breaks bitcoin’s fungibility and is more likely to exist on a future sidechain (as long as we’re making big assumptions).

I am dying to find companies with backable entrepreneurs that are liquifying the CC rewards/loyalty market using bitcoin, fixing the massive breakage issues of gift cards using multi-sig technology, and empowering consumers to share their energy, bandwidth or cell phone minutes by leveraging blockchain-based smart contracts.

3) I get what Adam’s saying regarding intranet innovation vs. internet innovation, and the low likelihood of 51% attacks, but neither is totally true. If you’re a bank looking to settle OTC swaps with another few banks, trying to bring transparency to a dark pool under new Dodd-Frank regs, you don’t want to touch or even sniff bitcoin. But you could use an alternative blockchain that has a federated consensus mechanism (i.e everyone who validated txns is trusted). In this case, yay intranet! The internet will get you fined if you don’t get the compliance 100% right.

On the 51% attack front, Adam’s only technically right. There have been numerous times when one party has accumulated the majority of the network’s hashing power, but economic incentives have ensured that those parties continued to act honestly, rather than execute double spending attempts. If we did see a double spending / 51% attack, then yes, we’d halt the network and no *additional* funds would be lost. But the damage to bitcoin’s credibility would be enormous. If it’s true that the longer bitcoin survives, the harder it is to kill, then it’s also true that the longer bitcoin thrives, the more damaging its failure will be for future iterations of digital currency and blockchain tech. i.e. We can barely afford a 51% attack now, but one in five years would be catastrophic.

I liked Adam’s (quite popular) post, but I think he was closer to the mark when he talked about why bitcoin’s app developers and speculators needed each other.


Random thought of the day: I was told Nick Szabo liked Streamium. So where are all of Satoshi’s Girls Gone Bitcoin cam girls?


BTC2015 | Nov in New York City
Bitcoin’s annual can’t miss conference is happening this November in New York City. We are currently finalizing dates and venue. Sponsored by Digital Currency Group. More details in June.

Keynote2015 | Aug 3 in Los Angeles
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Jobs, Jobs, Jobs

Grayscale Investments, New York (a DCG Company)

The manager of the Bitcoin Investment trust, the first publicly traded bitcoin investment vehicle, is making two non-engineering hires. (grayscale.co)

-Account Manager — Min 3 years of demonstrated sales-driven success within the financial industry, preferably in an investor development or capital raising role; Series 7 and 63 licenses certifications. More info here.

-Marketing Manager — Min 4 years of demonstrated success in product marketing, preferably in the financial space; looking for candidates with experience marketing either public or private investment products and/or marketing for asset management businesses. More info here.

ConsenSys, New York (consensys.net)
Blockchain production studio building decentralized applications in the blockchain 2.0 space (mostly on Ethereum). These tools will be packaged into separate ventures that are individually funded and skinned for different business niches. We are hiring 5–15 students for a summer internship program where they will have access to our amazing team and have the opportunity to plug into numerous ongoing projects. (Since ConsenSys is itself a somewhat decentralized company, with personnel in various cities, remote working interns may be considered.)
-Please apply by sending an email to info@consensys.net with work samples, resume, and general interests in the space. If you include a proposal for a dApp, smart contract, or other useful tool you want to build, we may consider the development of that project.

Today’s Tid Bits

Accenture: UK Government Should Regulate Bitcoin Wallets
Multinational management consulting company Accenture responded to the UK Treasury’s call for information on digital currencies by proposing minimal regulation on bitcoin wallets. While taking an overall positive stance on the digital currency, Accenture believes that government regulation of bitcoin wallets will encourage larger UK bank participation in the industry, and add security features such as individual wallet identification and money laundering oversight. In addition, the company proposes creating an Authorized Digital Currency Wallet Institutions list that would monitor transactions, ensure payments are between identifiable wallets, and be able to freeze wallets in case of suspicious activity. Accenture has begun to experiment with blockchain technology in its Technology Labs to test how its financial services clients can leverage the technology in their own businesses’.

Regulation and Tax Breaks for Bitcoin Proposed by N.J. Lawmakers
New Jersey lawmakers proposed a bill, dubbed the Digital Currency Jobs Creation Act, that would create regulatory guidelines for bitcoin companies and offer tax breaks to firms that service or exchange bitcoin. The bill aims to be less strict in regulation than the current iteration of New York’s BitLicense. The legislation is incentivizing bitcoin companies to operate in the state by offering very favorable tax credits for jobs created and exempting companies from paying taxes on money spent on electricity. The proposed legislation would add clarity to the regulatory environment for bitcoin and can possibly set a model for other states to follow.

Top 10 Countries in Which Bitcoin is Banned
The bitcoin industry has experienced a tumultuous regulatory environment globally. Although some countries, such as America and UK, have shown positive attitudes toward the technology, other countries have banned the currency due to fear, desire to protect their local currency, or ignorance surrounding the technology. China has deemed the currency illegal strictly for banks, even though the country has the world’s largest bitcoin trading market. Other countries include India, Russia, Sweden, Thailand, Bangladesh, Vietnam, Bolivia, Ecuador, and Iceland.

Official ‘Life on Bitcoin’ Documentary Trailer Released
The trailer for a new documentary called Life on Bitcoin has been released. The two-minute video starts with the newly wed couple’s goal to live 90 days strictly on bitcoin. However, the couple runs into serious roadblocks as there were few places that even heard of bitcoin and even fewer that accepted the currency for payment. The documentary is expected to launch summer 2015.

Richard Branson’s Block Chain Summit Asked to Address Bitcoin’s Massive Potential Power Drain
Richard Branson hosted a gathering of leaders in the bitcoin industry on his private island for the Block Chain Summit. One of the key issues surrounding the summit is with the large amount of electricity used to mine bitcoins. According to a model built by Australian think tank Long Future Foundation, someday bitcoin mining can consume 60% of the global electricity or 13,000 terawatt hours. Industry leaders will discuss ways to combat the rising demand for electricity by bitcoin miners.

Announcing Xapos Advisory Board
In a blog post on its website, Xapo officially announced its advisory board with three key figures in the financial industry. Dee Hock, founder of Visa and visionary who developed the payment system we still use today, states that bitcoin offers a solution to dated command and control organizational structures. John Reed, former Chairman & CEO of Citibank, cites that bitcoin is the most effective way to keep a universal ledger for today’s payment system. Finally, former Secretary of the Treasury Larry Summers believes that bitcoin is the first real method of transferring value without the need of any intermediary.

The EBA Looks Ahead at Blockchain and e-Identity
Vincent Brennan, Chairman of the European Banking Association (EBA), states that banks need to understand block-chain technology and how the innovative system can be leveraged for long-term benefits. He cites that banks should not focus on the mystique surrounding the technology and cryptocurrency, but instead begin to explore how the underlying technology can reduce costs and be used for various banking services such as foreign exchange remittances, faster payments, and collateral management.

Long Way From Accepting Bitcoin at New Firm: Lawsky
In an interview with CNBC, Superintendent of the New York Department of Financial Services Benjamin Lawsky spoke about his goal for regulating the bitcoin industry. Through the BitLicense, he wishes to impose modern regulatory guidelines that would protect consumers, add anti-money laundering controls, and ensure longevity for bitcoin firms handling consumer’s money, while avoiding over-regulation that would stifle innovation. Lawsky also said that his new consulting firm is a long way from bitcoin as a means of payment.

Risks & Rewards of Investing in Bitcoin
The investing site site Investopedia covered several different methods to invest in bitcoin as well as the risks and rewards associated. One of the easiest methods to gain exposure is to simply buy bitcoin through an exchange. More complicated methods include mining bitcoin, trading bitcoin derivatives, or investing in several tradable securities, including the bitcoin investment trust ($GBTC). Several risks include the anonymity of the creators, the volatile price movement, and no government recognizes the currency as any form of legal tender.

Have a tip or feedback? Email me! (2bitidiot@gmail.com)


    Written by

    Messari Founder. Crypto since it was “bitcoin 2.0” Formerly ConsenSys, DCG, and CoinDesk. Sign up for my Unqualified Opinions: https://messari.substack.com/