Blockchain, Power and Politics: How Decentralization Engenders Freedom

The distribution of political power could be reshaped by blockchain, which provides a decentralized alternative to existing structures.

The 21st century world is connected, but not centered. These are both good things. Connections link people, cultures and ideas. Indeed, all the great advances in human history have been the result of social and economic networks.

Without the trade routes of the Indian Ocean, the Islamic world would never have acquired the numerals of India that now form the foundation of our mathematics of science. Without the coffeehouses of 17th- and 18th-century Britain, the Enlightenment probably wouldn’t have materialized. Genius dies in isolation; connection is the engine that drives human progress.

By contrast, the centralization of power is highly correlated with disaster and suffering. Some say that this is the iron law of oligarchy — i.e., as any institution, private or public, becomes larger and more complex, power will inevitably become concentrated in the hands of a small elite. It’s also inevitable that we’ll experience earthquakes and hurricanes, but this doesn’t stop us from trying to mitigate the damage of such natural disasters.

The incentives of our traditional economies have made oligarchies a practical certainty. We are now at a technological crossroads, however, which will allow us to change these incentives, keeping power in the hands of the people. And blockchain could be a key component of this process.

Blockchain should be anti-bloc. What does this mean? Simply put, that a truly decentralized blockchain will, by its very nature, resist the centralizing and homogenizing forces that tend to form into power blocs. We must not forget that blockchain is also a means to an idealistic end. When Satoshi Nakamoto mined the Bitcoin genesis block, he embedded a reference to an article in London’s newspaper The Times about the 2008 financial crash. The gesture was not subtle: Satoshi believed that centralized banks and central governments had failed their constituents.

It’s increasingly difficult to distinguish between our “online” and “offline” lives, so it’s hardly a surprise that regimes that wish to control their citizens — or even transform their citizens into “subjects” — do so by controlling the internet. It’s a scandal that even a single country is unfree, but across the world, governments are growing more restrictive and more repressive. These regimes actively ban services, put up firewalls, gather data, monitor critics and mass-produce lies.

Blockchain represents an alternative to this shift toward authoritarianism by enabling ad-hoc, censorship-resistant, peer-to-peer connections. An authoritarian state cannot seize a blockchain’s distributed P2P servers, nor can it flood the market with counterfeit cryptocurrency. The perfect blockchain doesn’t destroy economic, political or financial power, it merely distributes that power by using consensus to hold each other accountable to the truth of history.

We shouldn’t assume that all political power is wielded by explicitly political entities. Some of the largest blocs today are major tech companies and other multinational corporations, which often rival nation-states in influence and power. Where does their power come from? In many cases, it depends on the user data stored in their central servers, as well as the analysis of that data. Privacy and data-gathering scandals have been near-weekly occurrences for the past several years, and they show no signs of stopping.

After all, the biggest companies have more knowledge of their users than ever before. Google already has staggering amounts of personal data for most of its billions of users; after spending billions to acquire Fitbit, it will soon have even more. Netflix doesn’t just track what its viewers watch, it even auto-generates content thumbnails for individual users. Facebook is perhaps the most controversial data-gatherer: Mark Zuckerberg and his associates have received congressional summons to discuss just how grievously the company has abused public trust.

Although blockchain has genuine political potential, truly decentralized blockchains will require deviation from today’s practices. When the first Bitcoin (BTC) was mined in 2009 and 2010, just about any internet-ready computer could participate. The first Bitcoin found its way into dorm room laptops, aging internet cafe machines and PCs in rented studios. Anyone, anywhere — provided they were online — could mine Bitcoin.

As difficulty increased and Bitcoin’s value appreciated, however, centralization became a fact of mining. No longer could anyone with a computer successfully mine. Now, the miners were specialized machines in anonymous server farms clustered near cheap power sources. The technology became ever more powerful, but decentralization broke down.

Related: The Land of the Free: Why Decentralization Matters in the Crypto Republic

Let me be clear: Bitcoin still has a vital role to play in bringing blockchain technology to the masses. And the work it has done in providing a currency to people afflicted by authoritarian oppression and hyperinflation cannot be understated. But the limitations described above are real nonetheless, and future entries into the crypto landscape must strive to overcome them.

Blockchain and decentralization can serve as essential countermeasures to growing political and corporate authoritarianism. In countries that are already free, decentralizing tools grant greater freedom. They permit their users to opt out of systems that they believe are unjust — or even merely inconvenient. In authoritarian regimes, blockchain and related technology provide a way to evade injustice and to organize against it. These are the first steps in reclaiming the freedom that has degraded since the dawn of the 21st century.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Tomer Afek is the CEO and co-founder of Spacemesh, a fair and distributed blockmesh operating system powered by a unique proof-of-space-time consensus protocol. A serial entrepreneur, Tomer has more than 20 years of experience across the tech, digital and finance industries, having co-founded and held C-level roles with ShowBox, ConvertMedia and Sanctum Inc. With Spacemesh, Tomer is on a mission to build the fairest possible decentralized economic infrastructure.

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Bitcoin Fails to Break $7.8K and Now Risks Reversing to New Lows

Bitcoin price failed to break through the $7,800 resistance and now likely to backtest levels that have recently flipped into new support.

Whereas Bitcoin (BTC) was hovering at $6,500 earlier this week, it has since rebounded to the resistance zone of $7,800 but failed to break it on the first attempt.

Crypto market daily performance. Source: Coin360

As the short term trend is still upwards, should traders be cautious about the recent price action? Let’s take a look at the charts. 

Bitcoin still inside the downwards channel

The more notable timeframe — the daily in this case  — is still showing a downward trending channel since the top at the end of June 2019. 

BTC USD daily chart. Source: TradingView

This downwards trending channel is still active as the price bounced back from the “support” line and the 0.618-0.65 golden ratio Fibonacci level earlier this week. 

The green zone around $6,500-6,800 can still be seen as a significant support level here, while the upwards red/yellow area is showing significant resistance. The resistance area is in the $8,000-8,200 zone, which is also around the trendline of the downwards channel.

The total crypto market cap rejected at first resistance

Total crypto market capitalization daily chart. Source: TradingView

The total market capitalization of crypto is showing a similar view as BTC/USD at this point. The market cap held the green zone as support — which is crucial — but couldn’t break the first resistance. 

The overall market cap chart often provides a more unobstructed view than Bitcoin regarding price movements and, in this case, is also showing some clear signals. 

Total market capitalization chart. Source: TradingView

In this regard, the price retraced to the earlier resistance in April of this year. 

Currently, the price has tested whether that level can be confirmed support and did just that with a bounce from $175 to $207 billion. However, the first resistance at $207 billion was rejected, which suggests a potential retest of the purple area is in order. 

If the purple area manages to hold, the total market capitalization is moving inside a vast falling wedge pattern, which is likely to break out in January 2020.

First resistance rejected at smaller time frames

BTC USD 4 hour chart. Source: TradingView

The BTC price has seen a surge of $1,300 during the week from $6.5K. However, it was not able to break through the next resistance at $7,800. But why is this a key resistance level? 

The left side of the chart shows that the price bounced several times at this support level before it broke down. Such a level is a reference point for traders looking for selling opportunities (or opening shorts), and thus, the price reversed and confirmed the $7,800 level as resistance. 

Before this test occurred, the price first flipped the $7,350-7,400 resistance into support. In this regard, the price is now stuck in a range, where these numbers are now defining the bounds. 

Is that bad? No, the price has been hovering inside such a range for the entire month of October before volatility kicked in. 

Bullish scenario

 

BTC USD bullish scenario. Source: TradingView

Now, several scenarios can be classified as bullish or bearish on multiple timeframes. As long as $7,350-7,400 remains support in the near term, another push towards the red/yellow area can occur with a target of $8,000-8,300.

Personally, I am not expecting to see an immediate breakthrough as that would be the first attempt to be testing this resistance. Usually, resistances don’t get broken on the first attempt. 

For the bulls, breaking and flipping this $8,000-8,300 level into support would be ideal, which would also cause the price to break out of the downtrend. If the price is not able to do this, it will continue to move within this downwards channel. 

Bearish scenario 

BTC USD bearish scenario 1. Source: TradingView

Now, I will explain multiple bearish scenarios as a few different ones are possible. The first scenario is a breakdown towards $7,350-7,400 area for a test of support (as that’s a significant support area). 

A potential weak bounce to $7,700 can occur from this level of support, which I’d classify as a short opportunity before the price is ready to break downwards to $6,900-7,000 area.

BTC USD bearish scenario 2. Source: TradingView

The second bearish scenario is classified as bearish and bullish at the same time. Why? Well, if the price can hold the $7,350-7,400 and bounce significantly from it, another push to the upper resistance zone can be expected.

However, if the price is not able to break through $8,000-8,300 again, then that would be a great short opportunity before another move down towards $7,000. 

In this case, some more upward momentum could occur. Though, I’d be personally looking to short rather than long here at these levels should this scenario play out. 

Conclusion

As a whole, recent price action has presented a nice v-shaped bottom that occurred at the $6,500 level through which the 0.618-0.65 Fibonacci level and trendline held up.

However, does it mean that the downwards pressure is over for now? I don’t think so. To confirm a bottom, I will be expecting some more backtests of lower levels in the $6,900-7,000 region (green zone) in the coming months.

Nevertheless, the macro perspective is still bullish, and in this regard, I still see this retracement as a macro “buy the dip” opportunity if the green zone around $6,500-6,800 can hold. 

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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Criminal Activity in Crypto: The Fact, the Fiction and the Context

An estimated 0.2% of all XRP transactions are used for illicit activity. How true is this figure and how does it impact the industry?

It’s the clichéd rhetoric of choice for anyone seeking to discredit crypto. An ace in the hole for any argument against its proliferation. The go-to thesis for those who know very little about cryptocurrency but wish to appear otherwise. 

The idea that cryptocurrencies are solely utilized within illicit activities has become both a tool for mass media to disparage the industry and, for many, a reason to steer well clear. But besides being a tired stereotype, it may also be true.

That’s one of the prevailing problems with stereotypes: While many derive from truth, they often represent an oversimplified — and sometimes twisted — version of it. It is true, for instance, that cryptocurrencies are used to facilitate criminal activities. 

However, it is also true that any form of value will be used for illegal purposes, whether through crypto or fiat. That being said, digital coins account for just a fraction of the crimes funded with cash — which is also an undeniably more popular means of exchange.

Nevertheless, a lack of regulation and relative anonymity has granted cryptocurrencies infamy along with an air of immorality. In fact, several reports on cryptocurrency’s penchant for illegality have been published in the past two weeks alone. 

XRP’s criminal undertow

On Nov. 20, cryptocurrency forensics and analysis firm Elliptic published an analysis on XRP transactions. Within their findings, the firm disclosed that $400 million worth of XRP had been used for “illicit activity.” This represents just 0.2% of total transactions, something which Elliptic suggests makes the vast majority of activity “legitimate.” Still, $400 million is no insignificant number. This is especially true for XRP, which was designed with institutional and commercial financial systems in mind.

Coincidentally, Elliptic’s reasoning behind exposing XRP’s clandestine transactions was to warn institutional clients before any potential entanglement. Dr. Tom Robinson, co-founder and chief scientist of Elliptic explained the position to Cointelegraph:

“Any payments system, and especially open ones such as XRP, will be used for some level of illicit activity. What is critical is that this activity is identified, so that it can be mitigated.”

Robinson is of the opinion that by shining a light on such illicit activity, the company is helping the regulated financial institutions to engage with crypto assets such as XRP, adding that: 

“They now have access to tools that allow them to identify whether they have received the tiny fraction of XRP funds that originate from illicit activity, and fulfill their AML obligations by reporting it.”

However, the firm declares that support for XRP is still in beta — a fact that could plausibly compromise the legitimacy of the findings. 

Similarly calling the efficacy of Elliptic’s analysis into question was Ripple, the company behind the XRP token. Speaking to Cointelegraph, a Ripple spokesperson questioned the accuracy of data:

“Without more information or a clear methodology shared by Elliptic, it’s impossible to comment on the validity of this report.”

The Ripple representative also stated that the analysis could be little more than a publicity grab:

“We question the motive of this announcement, considering the report and its solution are not yet available, and these activities only account for 0.2% of XRP transactions — it seems like a PR stunt to leverage a better known name.”

As for Elliptic’s modus operandi, Robinson remained fairly tight-lipped, explaining the methodological basics while refraining from too much detail, although he did mention that a number of techniques are used: “We identify crypto-asset wallets that are associated with illicit activity, ranging from dark marketplaces to ponzi schemes or exchange hacks.” When pressed on the dangers of wrongly accusing an address, Robinson urged the efficacy of Elliptic’s methods: 

“This is a risk that we are very conscious of, and which we address in a number of ways. For example we will only link a crypto address to an identified actor if we have clear proof of this attribution.”

PR stunt or not, in order to glean some accord on the reported figure, it’s crucial to get an idea of statistics concerning comparable tokens. With this in mind, Cointelegraph reached out to blockchain analytics firm Chainalysis.

Maddie Kennedy, the director of communications for Chainalysis, remarked that while the firm’s own investigations into XRP are ongoing — and therefore, non-disclosable — analyses on other tokens revealed a fairly sizable chunk of criminality:

“We looked at 27 different cryptocurrencies and found that 0.4% of that transaction value is sent to an illicit entity. While that may seem like a small percent, that equals approximately $3.8B from January to October 2019.”

To clarify, that’s 0.4% of the total transaction value of 27 different cryptocurrencies. Given that 0.2% of total XRP transactions were presumed to be for illicit purposes, Eplipic’s findings are reasonably significant.

However, these figures are overshadowed by the ones the company found when conducting a similar study on Bitcoin. It suggests that dark web purchases currently account for approximately 0.5% of all BTC transactions. Robinson expanded on why he believes this figure is higher for Bitcoin than it is XRP. 

“XRP is not as liquid as BTC, XRP is more centralised than other crypto-assets, and perhaps more associated with traditional finance — this might make it less attractive to illicit actors, who might prefer something more decentralised and ‘neutral,’ such as bitcoin.”

Rotting from the inside out?

While the nefarious use of crypto is still prevailing to some extent, crime within the industry seems to be boldly flourishing. According to a recent report from blockchain forensics firm CipherTrace crypto crimes have increased by 150% over the last year. Digital asset theft and fraud now total $4.4 billion, almost tripling the $1.7 billion witnessed in 2017.

Large-scale robberies are the main reason behind such a year-on-year rise, with alleged Ponzi schemes such as PlusToken claiming the lion’s share. Billing itself as a high-yield investment program, PlusToken is the latest project being discussed as an exit scam, with the report stating that it has appropriated $2.9 billion from its investors/victims.

Related: QuadrigaCX Users Lose $190M as Speculations Over Cotten’s Death Swirl

Another high profile fraud case cited by Ciphertrace was that of the QuadrigaCX, a Canadian-based crypto exchange. A scandal involving the mysterious — and highly contested — death of the exchange’s CEO, and a misplaced mater key. All of this amounted to a loss of $190 million in cryptocurrency.

And that only scratches the surface. According to the report, many more crypto crimes aren’t even getting air time due to their relatively insignificant size compared to bigger heists.

The latest incident took place on Nov. 27, Lee Sirgoo — the CEO of crypto exchange Upbit — confirmed a theft had taken place on the platform. Hackers allegedly succeeded in compromising the exchange’s hot wallet, gaining access to, and absconding with, 342,000 Ether ($51 million) in user funds.

Related: Upbit Promises Swift Reimbursement, Theories Over Missing Funds Swell

Putting it all in context

Intriguingly, even amid the rising prevalence of crypto crime, the use of cryptocurrencies for illicit activities appears to be dwindling. Back in 2017, a study by the University of Oxford found that an extensive 44% of all BTC transactions were felonious in nature, associated with financing criminal activity. In contrast, in July 2019, a Chainanalysis report suggested that less than 1% of Bitcoin activity involved crime.   

Yet, the stigma still persists. Detractors often drum up conjecture using the (mostly baseless) argument of cryptocurrency’s more nefarious use cases. Ironically, many of these provocateurs are proponents of fiat money, the stock market, or even gold — markets that hold their own wicked transgressions.

So, while it can unquestionably be argued that there is some criminal undergrowth within crypto, what about fiat? Earlier this year, U.S. Treasury Secretary, Steven Mnuchin, slammed cryptocurrencies for their part in funding illicit activity. 

A briefing on the regulation of crypto observed a hyperbolic reaction from Mnuchin, who advised that digital currencies were a threat to national security, saying “Cryptocurrencies such as Bitcoin have been exploited to support billions of dollars of illicit activity.” However, while attempting to cement the stigma around crypto criminality, Mnuchin failed to provide any clear context.

Luckily, providing a distinct frame of reference was Bitcoin research firm Messari. Following Mnuchin’s damning appraisal of crypto, researchers undertook plotting BTC expenditure on the darknet against dollars laundered.

Employing data from the United Nations Office on Drugs and Crime as well as Chainalysis, researchers revealed that U.S. fiat was used an incredible 800 times more often to launder money than Bitcoin was to fund dark net activities.

In the end, crypto — just like any other value-based asset — will continue to be used for illicit purposes. The best that can be done is to actively track, monitor and blacklist illegal transactions to ensure they don’t slip by unnoticed. Ironically, that’s much easier to do with crypto than it is with cash.

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Scalability Enhancements Kept Bitcoin Decentralized: BitMex Research

Bitcoin node sync would be impossible without the scalability improvements implemented in the node software, according to BitMex Research.

Bitcoin (BTC) node synchronization would be impossible if it were not for the improvements that have been made to the software, according to the research arm of crypto exchange BitMex.

BitMex Research measured the Initial Block Download (IBD) times of Bitcoin Core software releases from 2012 to 2019 needed to download the blockchain and verify it and shared their conclusions in a blog post published on Nov. 29.

The research team claims that the older version of the Bitcoin Core software may be impossible to synchronize now and that the scalability improvements made to the software are essential to the operation of the network:

“Older versions of Bitcoin struggled to get past the pickup in transaction volume which occurred in the 2015 to 2016 period. Therefore we conclude that without the software enhancements, an initial synchronization today could be almost impossible.”

Bitcoin initial block download time in days — an average of three attempts. Source: BitMex

The team also obtained versions of Bitcoin Core prior to 0.8.6, but those versions could not synchronize past the 2015-2016 period. The team also tried to run old software on considerably powerful hardware but to no avail. The researchers noted: 

“We then even tried running Bitcoin Core 0.7.0 on our brand new local machine, with 64 GB of RAM and 8 Intel i9 processors, however, the node was still unable to get past 2016. [...] The large reductions in IBD times and the inability of old nodes to fully synchronize indicate that if it were not for these scalability enhancements, by now Bitcoin would be essentially dead, even if users had the highest specification hardware available.”

The rate of improvement slowed down

The most significant improvement in speed took place after Bitcoin Core version 0.12.0 when developers adopted a signature verification library purpose-built for Bitcoin in place of a standard one. 

This particular version of the node software also does not validate the signatures of Segregated Witness (SegWit) transactions since it did not support them, which further cuts sync times.

Bitcoin initial block download time in days. Source BitMex

Interestingly, until Bitcoin Core 0.14.0 the scalability improvements seemingly kept the pace and maintained the sync times in a relatively narrow time range. After those initial releases, the popularity of the Bitcoin network and its size started to grow much faster than scalability improvements made to the software, resulting in longer sync times. The BitMex research team concludes:

“The data also shows that technological innovation is unlikely to keep up with the growing blockchain going forward and that IBD times will increase.”

Much of the focus in Bitcoin development was devoted to preserving decentralization, which also means keeping the hardware specifications needed to run a node of the network as modest as possible. 

In order to lower requirements, developers also kept a relatively low four-megabyte block weight limit (with SegWit) and a relatively high block time of 10 minutes, which has kept the growth of the blockchain’s size in check.

Currently, the size of the Bitcoin blockchain is 293.37GB, with an average block size of just over 1 megabyte. There are also over 9.5K reachable nodes around the globe today, according to monitoring resource Bitnodes.

As Cointelegraph recently reported, the latest Bitcoin Core software update, 0.19.0.1, further improves on scalability by using Bech32 that natively supports SegWit transactions.

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European AML Regulations Follow the US Path With a Six-Years' Delay

Next year is to be crucial for the crypto industry in Europe, when the EU Fifth Anti-Money Laundering Directive will be transposed into the national legislation of each EU member state.

In January 2020, the regulatory landscape for crypto businesses will completely change in the European Union in comparison with the last decade — and these changes will touch all those who store clients’ crypto funds or provide fiat-to-crypto exchange services, at minimum.

Not long ago, the Anti-Money Laundering regulations were extended to cover cryptocurrency custodian wallet service providers and crypto-to-fiat exchanges in the EU. The legislation known as the EU Fifth Anti-Money Laundering Directive entered into force on July 9, 2018, and shall be transposed into the national legislation of each EU member state by Jan. 10, 2020. Before that, cryptocurrencies, in most cases, fell outside of the EU regulatory regime. 

Related: Do Lawmakers Use AML as an Excuse to Centralize Crypto and Blockchain?

Much like the EU, the United States was also compelled to act on this emerging asset class when, in 2013, the Financial Crimes Enforcement Network, or FinCEN, for the first time introduced an interpretive guidance for cryptocurrency industry participants, mainly exchangers and administrators. Exchangers are persons or entities who engage as a business in the exchange of digital currency for real currency, whereas administrators are persons or entities that engage as a business in issuing or redeeming a digital currency.

As the EU member states transpose the new directive into their national legislation, it will already be over half a decade since cryptocurrency regulation came into force in the U.S. What should we learn from this long-standing experience? And what should we expect from the regulation of the EU market as compared to the U.S.?

On the same page

Studying both the EU and the U.S. cases, we can note the explicit resemblance of regulatory approaches. Both jurisdictions stress the significance of cryptocurrency regulation to combat money laundering and counter the financing of terrorism. Back in June, the G-20 held a meeting in Japan and underlined some concerns about crypto assets, stating:

“While crypto-assets do not pose a threat to global financial stability at this point, we remain vigilant to risks, including those related to consumer and investor protection, anti-money laundering (AML) and countering the financing of terrorism (CFT).”

As such, specific crypto service providers face the same requirements as traditional financial institutions in terms of authorization from a financial regulator, customer identification (KYC), ongoing account monitoring, recordkeeping and suspicious activity reporting.

Notably, EU member states are free to impose stricter anti-money laundering measures in their national legislation much like the U.S., where states are permitted to impose more stringent regulations as long as they do not conflict with U.S. federal law.

In this way, competent authorities in the EU and the U.S. can more closely monitor the use of cryptocurrency. It allows for the prevention of placing illicit money into the financial system and excludes concealing transfers with unlawful purposes because of the certain degree of anonymity associated with cryptocurrency. 

Nevertheless, both jurisdictions aim to make such monitoring balanced and proportional to safeguard the technical advances of fintech.

Some of the key differences

Definitions — Despite the EU and the U.S. following the same approach to regulating crypto, there are some differences, and they start from the definition. Crypto service providers obtain the status of “obliged entities” under the Fifth Anti-Money Laundering Directive, or 5AMLD, in the EU, which is equal to “covered financial institutions” in the U.S. — both definitions have the same purpose, which is to make crypto service providers comply with the established banking rules in each regulatory jurisdiction.

Focus of regulation — 5AMLD covers custodian wallet service providers and crypto-to-fiat exchanges, while the U.S. federal regulatory regime applies to providers exchanging or transmitting crypto regardless of fiat currency involvement. 

Legislative compliance — The U.S. has two levels of regulation: federal and state. Therefore, crypto service providers must ensure two levels of compliance. Interestingly, a crypto service provider may be exempt by local laws in some U.S. states. Comparably, this is not possible in the EU, where the legislation in each member state must be equal or stricter to 5AMLD provisions.

Data protection — The final distinction is the attitude toward data protection. In the EU, the General Data Protection Regulation applies to the processing of personal data collected for the purposes of AML/CFT under 5AMLD, which means that crypto exchanges and wallet providers are obliged to ensure appropriate measures to protect the information they collect on their customers. To date, no federal privacy or data collection regulation has been enacted in the U.S., although privacy laws have started to appear in some U.S. states.

Related: GDPR and Blockchain: Is the New EU Data Protection Regulation a Threat or an Incentive?

Beneficial ownership vs. customer due-diligence

Another important thing is the introduction of the beneficial ownership rule. In the EU, it requires obliged entities to collect information about the identity of the beneficial owners of its customers. 

Analogous to this, we have the Customer Due Diligence rule in the U.S., which requires financial institutions to collect the beneficial owner information on all legal entity customers. In fact, in the U.S., this rule does not cover crypto service providers directly. Nevertheless, crypto businesses usually consider the CDD rule as a part of their risk-based approach. This also helps to meet the expectations of financial partners.

Besides this, 5AMLD obliges EU member states to make information on beneficial owners available on state public registers, which should be interconnected on the EU level to facilitate cross-border cooperation and access to information by regulators and financial intelligence units. 

To the contrary, many in the U.S. have speculated that states will soon follow suit and create a national database that tracks the beneficial ownership of entities. Currently, there is only the optional FinCEN program under the USA PATRIOT Act’s Section 314(b), allowing financial institutions to share beneficial ownership information on customer entities among the interested parties, including other financial institutions and law enforcement, but exclusively for the purpose of money laundering and terrorism financing prevention. 

What can we learn from the U.S. experience?

Cryptocurrency has been regulated in the U.S. under existing money transmitter laws for six years now. Apart from FinCEN, other U.S. regulators like the Securities and Exchange Commission and the Commodities Futures Trading Commission have sought to bring crypto partially under their jurisdictions. 

As the market evolves, and as financial products built on top of this emerging asset class continue to innovate, the impetus to solve this regulatory overlap may become more pronounced. Regulation also gives a certain level of protection to customers, which extends trust to reliable service providers who seek to avail themselves of the regulated market.

We believe the regulation of crypto in the EU will lead to the same results of bringing greater adoption to the crypto market and facilitating the stability of the EU financial system. We also think that much like in U.S. states, we may see varying degrees of rigidity in regard to crypto service providers and the specifics of their regulation from one EU member state to another. 

The EU is catching up and becoming more harmonized, analogous to what happened after FinCEN provided initial guidance in the U.S. back in 2013, by broadening the definition of regulated institutions and bringing them under the umbrella of AML/CFT requirements. The main difference between the EU and the U.S. approaches lies in the scope of regulation. 5AMLD extends to custodian wallet service providers and crypto-to-fiat exchanges, while FinCEN covers crypto exchange and transmission activity regardless of fiat currency involvement. 

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Serhii Mokhniev is a Certified Anti-Money Laundering Specialist and regulatory-compliance expert specializing in cryptocurrency regulation and prevention of money laundering. He is currently a regulatory affairs counsel at CEX.IO

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Bitcoin Moves 30% in December Since 2015 — Will 2019 Be Different?

Over the past four years the price of Bitcoin has seen moves of more than 30% during the holiday month of December — so will this year also see volatility?

At just over 10 years old, crypto’s largest asset Bitcoin (BTC) has made a name for itself as a volatile asset, as shown by its past price action. December, in particular, has seen a notable chunk of this volatility with price moving more than 30% since 2015. 

As 2019 nears its end, Bitcoin looks back on a standout year in terms — up over 100% from the yearly lows in February of around $3,350. By the end of June, BTC/USD found itself up near $13,800. Then after several months of consolidation and subsequent selling pressure, BTC hit 6-months lows of around $6.5K in November only to recover back to the $7Ks range.

Crypto space participants often look for different narratives to make sense of various price moves, as well as try to make predictions on future price action based on historical trends. 

One such narrative involves speculation that Bitcoin moves significantly in December, in line with the Christmas and New Year holiday season. Historical price data indeed shows this to be the case, particularly over the past 4 years. 

So is Bitcoin set for a volatile December once again? Let’s take a look at some historical data for possible clues.  

December 2015

BTC USD daily chart. Source: TradingView

Starting with data four years ago, December 2015 saw Bitcoin shoot up more than 34% in the month of December. 

Bitcoin began the month with a red day, wicking down to $349 on Dec. 2. The following several days, however, hosted positive price action, leading to Bitcoin’s December 2015 high of $469, $119 higher than its Dec. 2 low. 

Bitcoin rode a bullish trend for the first half of the month, topping out near Dec. 15, followed by consolidation and selling pressure during the latter half of the month. 

December 2016

BTC USD daily chart. Source: TradingView

A year later, Bitcoin saw gains of more than 35% during the same period. But unlike in 2015, however, Bitcoin held a very slight upward trend for the first half of December 2016, posting small daily candles filled with very little price activity. 

Similar to 2015, Bitcoin hit its December 2016 low at the beginning of the month, dropping to a price of $743. It was not until the second half of the month that BTC ramped up its volatility, 

ultimately hitting $1,010 by Jan. 1, 2017.  

December 2017

BTC USD daily chart. Source: TradingView

On Dec. 1, 2017, BTC wicked down to $9,410 before going on its historic ride to $19,700, tallying a price move of more than 109%. 

This 2017 December ride coincided with the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE) both launching their respective physically-settled BTC futures trading products. 

The CBOE launched its Bitcoin futures trading product on Dec. 10. Then Bitcoin reached its all-time high near $19,700 on Dec. 17, 2017, right when the CME launched its own cash-settled Bitcoin futures trading product. 

Similar to 2015, the BTC price increased for the first half of the month. After its all-time high, Bitcoin suffered a steep correction during the second half of the month, which ultimately started a bear market that would last more than a year. 

December 2018

BTC USD daily chart. Source: TradingView

Last year, price action was unlike the previous years, however. While BTC did provide over 35% in price movement over the course of December 2018, the net price stayed the same. 

The asset’s price wicked up to $4,275 on Dec. 2, followed by selling pressure until the middle of the month where it tapped its ultimate bear market bottom at $3,125. 

During the second half of the month, Bitcoin proceeded to rally all the way back up to $4,275 before closing out the month with downside consolidation. 

Essentially, Bitcoin saw both a 35% decline and a subsequent 35% rally in the same 31 day period, leaving the market looking back on an overall volatile December. 

Theories explaining the “Santa Claus rally” in markets

The last four years of price data clearly show notable activity during the holiday month of December. A price move of more than 30% is significant, regardless of the asset. 

The data also shows the middle of the month as significant in terms of topping or bottoming price activity, with the exception of 2016.

But while there’s no definite explanation for this seemingly seasonal volatility, Cointelegraph market analyst filbfilb says that traditional markets also often see volatility around this time — a phenomenon sometimes referred to as the “Santa Claus rally.” 

He explained:

“The Santa Claus Rally refers to the tendency for the stock market to rally over the last weeks of December into the New Year. Several theories exist for its existence, including increased holiday shopping, optimism fueled by the holiday spirit, or institutional investors settling their books before going on vacation.”

Crypto trader and Twitter personality Jacob Canfield also weighed in on Bitcoin’s December price action, telling Cointelegraph: 

“While it is easy to create narratives for Bitcoin, I am of the opinion that there is no 'seasonality' to Bitcoin when it comes to the time of the year. Although we have seen significant upward moves before, we've also seen significant downside moves as well.”

BTC USD monthly chart. Source: TradingView (via Jacob Canfield)

Canfield did, however, point out a different concept based on big players and tax implications. 

“One theory that I have heard is that professional traders and institutions take their profits going into January to hedge for their taxes for the new fiscal year,” he said. “So while this doesn't explain we see upward price moves in Bitcoin, it may explain why we see a sell-off in January.”

Regardless of the rationale, December has hosted significant price movements each year since 2015. Will this year continue the trend?

The views and opinions expressed here are solely those of (@benjaminpirus) and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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Why Eurasian Debt, Economic Uncertainty Make a Bull Case for Bitcoin

Bitcoin bulls will be buoyed by talk of the need for “a new, neutral global reserve asset” is rife at the heart of the traditional financial sector.

Bitcoin (BTC) bulls will no doubt keenly watch talk of the need for “a new, neutral global reserve asset” at the heart of the traditional financial sphere. 

Financial Times business columnist and associate editor Rana Foroohar published an opinion piece on Nov. 25, pointing to the renewed, half-justified “paranoia” of the “gold bugs,” which has only been compounded by comments from investors and central bankers in recent weeks.  

“You have to really believe the sky is falling in order to hoard physical bars in a digital age,” Foroohor writes.

And while she does not put her faith in gold itself, the very talk of gold points to a systemically fragile post-2008 horizon and the new urgencies ushered in by an era of acute geopolitical uncertainties.

Need for an asset “that’s not somebody else’s liability”

Foroohar points to the Dutch Central Bank’s (DCB) October warning — one that shocked many — that in the event of a monetary reset and “if the system collapses”:

"The gold stock can serve as a basis to build it up again. Gold bolsters confidence in the stability of the central bank's balance sheet and creates a sense of security."

The world’s 58th wealthiest person — billionaire investor and hedge fund manager Ray Dalio — echoed this at the Institute for International Finance conference this fall, raising the possibility of a potential flight to gold should America’s global creditors betray any signs of jitteriness. 

As early as at least 2016, Foroohar notes, prominent voices like JPMorgan chief Jamie Dimon and hedge fund manager Stanley Druckenmiller have alleged there is an “unsustainable” fiscal situation, pointing to unfunded pension and healthcare entitlements in the United States.

To offset the fiscal imbalance, the U.S. remains locked into inflating its own balance sheet, keeping interest rates low — or even negative. Pushed to the extreme — in this view — this could depreciate the dollar, creating a situation in which investors no longer want to hold federal debt nor the currency itself, Foorohar notes. 

The need for an asset “that’s not somebody else’s liability” — in Dalio’s words — points to gold or something else altogether.

Eurasia’s move away from the dollar?

With China recently issuing its first euro-denominated bonds in 15 years, deepening ties with European firms and edging away from the petrodollar, the gradual de-dollarization of Eurasia is another unfolding factor that could force America to sell dollars in order to settle its balance of payments “in a new, neutral reserve asset,” as Foroohar writes.

Parallel to Dalio and the DCB this October, Cameron Winklevoss — one half of the eponymous family office Winklevoss Capital and co-founder of the Gemini crypto exchange — argued that, in serving as a “Source of Truth,” Bitcoin can offer benefits that aren’t confined to being a safe-haven asset or mere “digital gold.” 

The twins have also previously forecast the cryptocurrency will ultimately surpass the ~$7 trillion market cap of the precious metal.

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The Mechanics of Market Manipulation

The crypto market's fragmented and decentralized structure can make it more vulnerable to manipulation, writes CoinDesk Research’s Galen Moore.

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Research: Bitcoin Futures Settlement Date Suggests 4% Gains Likely

The settlement of monthly futures contracts points to bullish short-term performance for Bitcoin, which has already begun reversing its downward trend.

Bitcoin (BTC) is statistically likely to gain in the coming week as a new futures expiration event comes and goes, according to new data. 

Compiled by trader an analyst Luke Martin on Nov. 25, figures charting Bitcoin price performance before and after each expiration show that overall, higher levels appear afterward.

Data: BTC stands to gain next week

Martin used CME Group’s monthly futures as a basis. Among the first futures to hit the market in December 2017, their settlement dates — of which Friday was one — have already attracted attention as a force for moving price. 

Bitcoin price movements around futures settlement dates. Source: Luke Martin/ Twitter

“Takeaway: Generally experience selling pressure before and positive returns after,” he summarized.

Per the calculations, a negative return for Bitcoin investors a week before futures payout results in a positive return the following week — 73% of the time. 

There are notable exceptions, such as Nov. 30, 2018 — a week prior, BTC/USD fell 1.1%, while after futures settlement, the pair dropped more than 18%. 

On average, says Martin, post-settlement returns are positive the following week at 2.9%. The week after that fares better still, with an average 3.9% increase.

By contrast, the week before each event sees average losses of 2.4%. So far, last week’s performance was worse than usual at 5.1%, but settlement week conversely produced 7.7% gains.

Since Friday, CME Bitcoin futures are up around 2% with a settled price of $7,800, according to the latest data from the company.

No bears in futures markets

As Cointelegraph reported, futures markets, in general, continue to see strong performance despite bearish sentiment which has characterized Bitcoin price action in recent weeks and months. 

This week, fellow operator Bakkt saw a clear record high for its futures trading volume. The personal best came on Nov. 27, when $42.5 million worth of contracts changed hands. 

The previous record was $20.3 million on Nov. 22, while subsequent days also saw strong performance. On Friday, Bakkt traded $24.6 million.

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Bitcoin Price Set to Reclaim $8K But a Rising Wedge Is Worrying Bulls

Bitcoin price popped above the $7.8K resistance, opening the door for gains to $8K but bulls need to supply serious volume to break above the bearish rising wedge.

Bitcoin price (BTC) is taking a bit of a breather after breaking flipping the $7,600 resistance to support during the morning trading hours of Nov 29. 

While the current technical setup is exciting, bulls will need to supply significant enough volume for the price to break to the upside of the rising channel, above the $7,800 resistance and the 61.8% Fibonacci retracement level. 

Crypto market daily performance. Source: Coin360

Buyers stepped in on Friday morning, pushing Bitcoin price from $7,430 to $7,880 before pulling back to $7,750. Currently, Bitcoin trades in a rising wedge and the price remains capped below the resistance at $7,800. 

Today’s upside move brought the price above the midpoint of the long term descending channel and the moving average convergence divergence (MACD) on the daily and 6-hour time frame suggests that additional upside is in store. 

At the time of publishing the MACD line is crossing above the signal line and the histogram has flipped from negative to positive. Since the move to $7,400, many traders have set their short term targets at $8,000 to $8,100

BTC USD weekly chart. Source: TradingView

On the weekly timeframe, the volume profile visible range (VPVR) and previous price action history show that $7,800 to $8,200 zone will be difficult to overcome but a positive note is that the MACD histogram appears to be in the early stages of an uptrend as selling pressure lessens. 

The weekly relative strength index (RSI) has also sharply reversed course and now aims for 46. Another positive sign is that Bitcoin’s price has recovered back above the 100-week moving average. 

As mentioned earlier, Bitcoin price has already recovered to the descending channel midpoint and traders who opened positions at $6,540 will look for Bitcoin price to reach $8,000 before taking partial profits and leaving the remainder in play with the hope that the digital asset will set a weekly higher high at $8,550.

Bullish scenario

BTC USD 6-hour chart. Source: TradingView

It appears that Bitcoin has flipped the $7,600 resistance to support and over the short-term as price consolidates Bitcoin could pull back to the bottom trendline of the descending wedge at $7,658. This point also lines up with the descending channel midpoint and a high volume node on the VPVR. 

On the 6-hour timeframe, the Stochastic RSI and relative strength index (RSI) look ready to roll over but a bounce off the $7,600 support could set Bitcoin price above the $7,800 resistance and toward the main trendline of the rising wedge. Meanwhile, the VPVR shows minimal overhead resistance of $8,069. This $8,069 level lines up with the main trendline of the rising wedge and also the 61.8% Fibonacci retracement level. 

If bulls interpret a cross above the 61.8% Fibonacci retracement level as a bullish signal, a high volume breakout could push Bitcoin price above the 200-day moving average (DMA) to $8,700 which is quite near the main trendline of the long-term descending channel. 

Such an occurrence would be very bullish for Bitcoin and likely lead analysts and crypto Twitter to call for a sky-high pre-halving bull run price estimates again.

Bearish scenario

Rising wedges patterns can lead to price reversals. They are marked by the loss of momentum as the asset’s price rises to higher highs but with shorter candles and a decline in trading volume as the price contracts within the triangle. As the Stochastic RSI and 6-hour RSI rollover, selling pressure at the $7,800 resistance and profit-taking at $8,000 (the 61.8% Fib retracement) could all be signals that the pattern will break to the downside. 

It will take a high volume spike from bulls to break out of the rising wedge and above the overhead resistances mentioned above. If Bitcoin price does reverse below the rising wedge, the price could find support at $7,500 and $7,178. 

The views and opinions expressed here are solely those of the author (@HorusHughes) and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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American Citizen Arrested For Educating North Korea On Blockchain And Crypto

Prosecutors announced the arrest of a U.S. citizen who traveled to North Korea to deliver a presentation on how to use blockchain and crypto to avoid sanctions.

Today United States prosecutors announced the arrest of Virgil Griffith, who allegedly traveled to the Democratic People’s Republic of Korea (DPRK) to deliver a presentation on how to use cryptocurrencies and blockchain technology to circumvent sanctions.

According to the November 29 announcement, the 36-year-old Griffith was arrested at the Los Angeles International Airport, and will be charged with conspiring to violate the International Emergency Economic Powers Act (IEEPA). The charges carry a maximum term of 20 years in prison. U.S. Attorney Geoffrey S. Berman stated:

“As alleged, Virgil Griffith provided highly technical information to North Korea, knowing that this information could be used to help North Korea launder money and evade sanctions. In allegedly doing so, Griffith jeopardized the sanctions that both Congress and the president have enacted to place maximum pressure on North Korea’s dangerous regime.”

The IEEPA prohibits any U.S. citizens from exporting any goods, services, or technology to the DPRK without a license from the Department of the Treasury, Office of Foreign Assets Control.

Griffith, a U.S. citizen living in Singapore, was previously denied permission to travel to the DPRK by the U.S. Department of State. Griffith went against the decision and presented at the DPRK Cryptocurrency Conference, violating the U.S. sanctions against the DPRK. FBI Assistant Director-in-Charge William F. Sweeney Jr. said:

“There are deliberate reasons sanctions have been levied on North Korea. The country and its leader pose a literal threat to our national security and that of our allies. Mr. Griffith allegedly traveled to North Korea without permission from the federal government, and with the knowledge of what he was doing was against the law. We cannot allow anyone to evade sanctions, because the consequences of North Korea obtaining funding, technology, and information to further its desire to build nuclear weapons put the world at risk. It’s even more egregious that a U.S. citizen allegedly chose to aid our adversary.”

North Korea trying to evade sanctions

North Korea is reportedly in the early stages of developing a cryptocurrency to help the DPRK evade international sanctions and find a way around “the U.S.-dominated global financial system.”

Alejandro Cao de Benos, the official in charge of North Korea’s crypto conferences, said at the time that the digital currency will be similar to Bitcoin (BTC) but that they are still in the very early stages in the creation of the token and that there are “no plans to digitize the [North Korean] won for now.”

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If Bitcoin Price Drops — an Opportunity for Crypto Tax Planning

Bitcoin traders can use Bitcoin price drops to reduce their tax liabilities.

After many countries around the world such as the United States, the United Kingdom, France, and Portugal published their own cryptocurrency tax guidelines this year, it is only reasonable they will expect to see an increase in crypto tax filing. They may even follow suit with the U.S. Internal Revenue Service and begin their own crypto tax compliance campaign.

As the price of Bitcoin (BTC) jumped this year, so too did the tax liability for every profitable sale, trade or exchange for Bitcoin traders. The recent drop in Bitcoin price presents traders with a great opportunity to reduce tax liabilities accumulated since January 2019.

Many people don’t know it, but cryptocurrency tax liability can be significantly reduced by a recently developed practice called crypto tax planning.

Just like you can plan your taxes in stocks trading, countries that consider cryptocurrency to be an asset subject to capital gain tax also enable crypto traders to report capital losses, which means two things:

1. If you have made profits from crypto trading since the beginning of this year, and have some losses now that the price has fallen, you can offset this loss and reduce your tax liability.
2. Some countries, like the U.S., enable you to choose which particular Bitcoin token to sell. Therefore, you can choose to sell the same Bitcoin you purchased when the price was high now at a lower price. This can assist you in optimizing your tax liability. This tax planning method calls for the use of specific identification, a common way to calculate and plan taxes in many countries.

Furthermore, you may benefit from tax planning based on the specific identification method even if you did not accumulate crypto activity profits this year and instead incurred capital losses. You can offset losses against any other capital gain you made this year or keep them to offset in the next year that you gain profits. A capital loss will occur as long as the price you paid when you purchased the Bitcoin is higher than the amount you get when selling the same Bitcoin.

As the tax season of many countries begins in two months, there is one month left to plan your crypto tax liability for this current year. It is essential to remember that tax rules vary by country. Therefore, it is advisable to consult a local crypto tax professional. For maximum accuracy on your tax planning, you can use a crypto tax platform that will check all of your crypto addresses and recommend which one to use.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Or Lokay Cohen is a vice president at Bittax, a crypto tax calculation platform. Or has 10 years’ experience with regulation, managing a leading tax consultant firm. She holds a LL.M. law degree, a B.A. in communications and an M.A. in management and public policy. In her work at Bittax, Or promotes the goal of bridging cryptocurrency to the taxation reality to enable tax reporting under a clear regulatory framework and specific identification methods.

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Study: Blockchain Can Reduce Food Fraud By $31 Billion Within 5 Years

By applying blockchain technology and IoT the food industry could save up to $31 billion in food fraud savings.

The food industry could save up to $31 billion in global fraud savings by tracking food on its way from farms to consumers via the blockchain.

A Nov. 25 study by Juniper Research reveals that blockchain technology, in combination with Internet of Things (IoT) sensors and trackers, will greatly reduce retailers’ costs by streamlining supply chains, while simplifying regulatory compliance, offering more efficient food recalls, and tackling fraud.

The study points out that the increased adoption of blockchain and IoT in the supply chain industry will add significant value to the food business’s supply chain. By stacking these innovative technologies, the food industry could stack up to $31 billion in food fraud savings in just five years. Research author Dr Morgane Kimmich said:

“Today, transparency and efficiency in the food supply chain are limited by opaque data forcing each company to rely on intermediaries and paper-based records. Blockchain and the IoT provide an immutable, shared platform for all actors in the supply chain to track and trace assets; saving time, resources and reducing fraud.”

Juniper’s research further shows that substantial savings in food fraud can be realized as early as 2021, while compliance costs reportedly can be reduced 30% by 2024.

Blockchain tech for the food and beverage industry

Blockchain and IoT, which each bring their respective strengths, continue to be adopted by the food and beverage industry. Over the past few months, a variety of players, including giants like Nestlé and Carrefour, have reported on their blockchain-powered initiatives within the field.

The most-adopted blockchain tracking solution within the field is IBM’s Food Trust, which is based on the Hyperledger Fabric blockchain protocol. The platform went live in October 2018, “millions of individual food products” were reportedly tracked by retailers and suppliers using the Food Trust blockchain.

Most recently, it was reported that salmon farming company Cermaq and smoked salmon producer Labeyrie were using IBM’s cloud blockchain technology to trace their product supply chains..

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Largest Indian State to Pilot Blockchain-Based Solar Energy Trading

The Indian state of Uttar Pradesh will pilot a peer-to-peer solar power trading project in partnership with Australian blockchain energy company Power Ledger.

The Indian state of Uttar Pradesh (UP) will pilot a peer-to-peer (P2P) solar power trading project in partnership with Australian blockchain energy company Power Ledger.

The state power utility UP Power Corporation Limited and UP New and Renewable Energy Development Agency have partnered with Power Ledger to launch a trial of P2P solar energy trading to examine its practicability, according to a Nov. 28 press release. The first phase of the project is set to be completed by March 2020.

During the trial, Power Ledger will integrate its blockchain-based platform with smart meter systems to enable residents with rooftop solar infrastructure to set prices, track energy trading and settle surplus solar energy transactions via smart contracts. 

One of the main problems facing renewable energy sources is storing surplus energy when unpredictable elements like wind and sun create more or less power than is needed. As such, the project aims to make it easier for small producers to find users for surplus energy and make renewable sources more viable. 

Once the pilot is completed, Power Ledger will examine the results and purportedly work with the local government to tailor regulations that further enable P2P energy trading. 

Photovoltaic solar capacity in Uttar Pradesh — the largest state in India with a population of nearly 200 million — is set to expand in order to meet growing energy demands. In 2017, the state had 12,500 megawatts of photovoltaic power generation capacity.

India’s forward-thinking approach to blockchain

Power Ledger has previously worked on P2P renewable energy trading in India. Earlier this month, the firm announced that it completed a trial in the Dwarka region, South West Delhi. Similar to the pilot project in Uttar Pradesh, the trial in Dwarka aimed to give participants access to cheaper, renewable energy and let solar infrastructure owners monetize their surplus energy.

India has proved itself as a jurisdiction with a proactive approach toward blockchain adoption. On Nov. 27, India’s Ministry of Electronics and Information Technology said that it recognizes the potential of blockchain technology and the need for the development of a shared infrastructure to carry out related use cases. The Ministry added that it is working on a “National Level Blockchain Framework.”

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WATCH: Thiel Capital’s Eric Weinstein Talks About the Nature of Money

Eric Weinstein of Thiel Capital talks with Leigh Cuen about the philosophy behind the crypto markets.

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Coinbase Denies Report of $150M Acquisition of Tagomi Brokerage Firm

Coinbase has denied reports that it acquired digital currency brokerage firm Tagomi for $150 million.

Coinbase, a major American cryptocurrency exchange and wallet service, has not acquired digital currency brokerage firm Tagomi.

On Nov. 29, sources told CoinDesk that Coinbase acquired Tagomi for $150 million that morning, following purported negotiations between the firms last month. According to The Block, Tagomi’s lending and borrowing services made it a tempting target for an acquisition.

Responding to Cointelegraph’s request for comment on the purported acquisition, Coinbase VP of communications Rachael Horwitz simply said, “100% false.”

Tagomi had reportedly been targeting more retail trading clients, high-net-worth individuals and active traders in recent months, which put it in competition with Coinbase’s professional offering, Coinbase Pro. A hypothetical merge would thus help Coinbase Pro enhance its share in the cryptocurrency market. 

Tagomi expands its services

Tagomi, meanwhile, has been actively expanding its services. The firm recently partnered with Binance’s cryptocurrency trading platform for United States-based users, Binance.US. The cooperation enables Binance.US to offer institutional liquidity for Tagomi’s users, including quant funds, venture funds, family offices, individual retirement accounts and high-net-worth individuals.

In September, Tagomi enabled its users to lend or borrow Bitcoin (BTC) and Ether (ETH) to facilitate long or short trades.

Tagomi also secured a BitLicense from the New York State Department of Financial Services in late March, which made it legally authorized to trade virtual currency assets and to engage in money transmission in the state.

This spring, the firm secured $12 million in a funding round with investors including the Paradigm Fund and crypto industry giant Pantera Capital.

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Block.One Joins EOS Elections as One Entity Allegedly Has 37% Control

Block.One’s announced participation in EOS’s block producer elections has reignited concerns regarding the network’s centralization.

The centralization of EOS has again emerged as a contentious issue within the cryptocurrency community, with the firm that created the EOSIO software, Block.One, participating in electoral procedures to choose the Block Producers for the EOS blockchain.

On Nov. 28, EOS Block Producer EOS New York tweeted screenshots of Whois search results that suggest that six of EOS’s 21 Block Producers are managed by just a single entity, intensifying criticism of the network’s centralization.

EOS’s blockchain is secured using a delegated proof-of-stake model, with 21 Block Producers elected to operate EOS token holders to exclusively operate the network’s nodes. According to Block.One, EOS’s model offers improvements over proof-of-work systems, facilitating “the highest performance output with minimal energy requirements.”

As the maintenance and verification of EOS’s blockchain requires the coordination of a small network of nodes, Block.One claims that the network can produce block times of half a second and deliver a throughput capable of performing “more than 5,000 actions per second.”

Block.One participates in BP elections

On Nov. 13, Block.One announced that it will be participating in elections to delegate EOS’ Block Producers, describing itself as “a small but significant EOS token holder and an anticipated user of the EOS public blockchain” in possession of “less than 9.5%” of the circulation supply of EOS.

“Ultimately, we will begin participating in block producer voting to more actively join other EOS token holders in ensuring the EOS network remains as healthy and revolutionary as ever.”

The press release also emphasized that the share of circulation supply owned by Block.One “continues to decline as new tokens are created through inflation and are used to reward elected Block Producers that run and operate the network.”

28% of BPs purportedly comprise a single entity

Tweets published by EOS Block Producer, EOS New York, have intensified concerns surrounding EOS’s centralization, with the BP appearing to have discovered that six of EOS’ Block Producers are, in fact, one entity.

The tweets include screenshots of Whois search results evidencing that the domains managed by EOS Block Producers stargalaxybp, validatoreos, eoszeusiobp1, eosunioniobp, eosathenabp1, and eosrainbowbp were registered by the same company operating under the name “fun eos” and based in Shenzhen, China. EOS New York also proposed removing the six BPs from the network. The message stated: 

“This is unacceptable. We have requested the signatures of the top 50 registered producers so that all token-holders may know who does and who does not condone such impropriety.”

The co-founder of Ethereum, Vitalik Buterin, suggested that EOS introduce sharding to alleviate its centralization issues, tweeting in response to a Cointelegraph article: 

“Honestly I think EOS should adopt sharding and assign each block producer to a random shard so that there are little-to-no gains from two validators sharing infrastructure as they’d have different data to validate. Would increase their TPS too.”

Weiss Ratings criticizes EOS

On the same day as Block.One’s announcement, Weiss Crypto Ratings took to Twitter to criticize EOS, accusing the network of having “problems with centralization” and recently failing to “process any transactions for anyone who doesn’t have a substantial amount of EOS locked up and staked.” 

Weiss downgraded its rating for EOS in June, similarly citing “serious problems with centralization” as the catalyst for the downgrade. The firm had previously ranked EOS above Bitcoin (BTC) as the second-best cryptocurrency according to the criteria of “technology and adoption.” According to Jake Yocom-Piatt, the co-founder and project lead for Decred — a community-driven digital currency with built-in governance:

"EOS’ governance model was flawed from the start, and it’s allowing a centralized oligarchy and VC interests to profit short-term rather than build for the long-term. Governance shouldn’t and doesn’t need to be this way. It’s incredibly difficult to remove bad actors from power and supplant a bad model. While this model incentivizes gains for the few, governance can and should be built with ‘skin in the game’ for all involved and with a sustainable, enforceable spending model to last the long haul.”

EOS developers express centralization concerns

The issue of centralization has long plagued EOS, with Block.One Chief Technology Officer Dan Larimer previously stating that “decentralization isn’t what we’re after,” before emphasizing that the project is focused on providing “anti-censorship and robustness against being shut down.”

Related: Block.One Slapped With $24M Fine — Cost of Doing Business?

The concerns have been voiced not just by EOS critics, but developers building on top of EOS’ blockchain too. In August, Larry Sanger, co-founder of Wikipedia and chief investment officer of Everipedia — an online encyclopedia built on EOS — issued a warning regarding the geography of the network’s centralization:

“We cannot continue to build dapps on EOS if the network is de facto centralized in the hands of the Chinese. I’ve been making noise internally at EP about this since I learned about it earlier this summer. Sorry, but it can’t go on much longer, as far as I’m concerned.”

Despite his remarks, Sanger later clarified that Everipedia would not be moving away from EOS. At the time, roughly nine of the top 21 EOS Block Producers were based in China — nearly 43%. 

According to EOSForce, this centralization could lead to collusion between BPs, who could trade votes to maintain their operation of EOS’ nodes. Data from EOS Authority gives weight to this claim, demonstrating that many top BPs share a vote confluence exceeding 80%.

Some analysts support Block.One’s electoral participation

John Todaro, the director of digital currency research at Tradeblock — a firm providing trading tools for cryptocurrencies — also emphasized the “long-standing” disquiet held by the crypto community with regard to EOS’ centralization, however, conceded that “a greater degree of centralization has allowed for greater scalability compared to similar networks.” Todaro told Cointelegraph that: 

“Because block producers can still be voted off, there is some degree of continued decentralization in that various block producers can cycle in over time, limiting the degree to which a handful of entities can control the network.”

David Gold, the CEO of Dapix Inc., the company behind the development of the FIO Protocol — an EOS fork — offered support for Block.One’s decision to participate in BP elections, telling Cointelegraph that the community should see this as a big positive:

“As a significant but <10% holder of tokens, it is important that BlockOne does vote and support the best block producers in the EOS ecosystem. BlockOne has more knowledge than most of the ecosystem about the underlying EOS technology and is in a fantastic position to guide its further progress.” 

Andy Cheung, head of operations at the cryptocurrency exchange OKEx, told Cointelegraph that the firm expects EOS’ centralization issues will be resolved with time, and predicted that Block.One’s electoral participation may influence Block Producers to be more active in meeting their governance responsibilities.

“Blockchain governance is a complicated task and controversies can quickly erupt when sides don’t see eye-to-eye. EOS is the most active blockchain in the world by a significant amount, and we truly believe that issues regarding centralization can be worked out, because rival sides certainly understand the potential of the technology. Lastly, we see a scenario where Block.One’s influence could lead to block producers more actively participating in their governance duties.”

EOS faces congestion issues

In addition to the ongoing narrative concerning EOS’ centralization, the network has suffered from congestion for approximately one month. The congestion has been attributed to the network’s EIDOS airdrop that took place on Oct. 31, with Coinbase subsequently reporting that it was forced to increase its quantity of staked CPU in order to process customers’ EOS transactions. Coinbase estimated that as of Nov. 8th, approximately 95% of EOS transactions were related to EIDOS.

Related: Research Claims EOS Network Can Freeze, Block.One Denies Any Errors

On Nov. 25, Earnbet, a decentralized application running on EOS, published a blog issuing a “30-day notice” that the company will leave the EOS network if the congestion issue is not solved within one month. In the post, the company asserts that “The EOS mainnet is in a sad state,” adding that many users are unable to access their accounts:

“The network requires around 30 EOS staked to an account in order to perform a single transaction each day. Once billed as ‘free transactions for all,’ effective EOS transaction fees now surpass even those of BTC. Instead of needing to pay $0.25 to transfer BTC, EOS users need to stake over $100 of EOS to make a single transaction on the network.”

Many from within the EOS community have criticized the EIDOS airdrop, with EOS Israel describing it as an “attack on the EOS network.”

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