The Blockchain Bitcoin & Crypto Weekly CXO Briefing is all you need to know, each week, jargon free for CXO level business leaders and investors who will use this technology to change the world. Each week we select the 3 news items that matter and explain why and link to one expert opinion.
Editor’s Note: I know the purists say we should use bitcoin (lc) for the currency/store of value use and Bitcoin (uc) for payment rail/technology. As bitcoin and Bitcoin are going more mainstream, I think it makes sense to capitalise everything because it is a word in common use and it is now common to refer to Blockchain or DLT when we want to only talk about technology.
Decrypted: Bitcoin and cryptocurrencies are seeing spectacular gains, but that is not only thing that’s in huge demand. Companies are hunting for people with blockchain skills, according to data from LinkedIn. Over the last week, 1,000 blockchain jobs were posted on LinkedIn and 9,945 people on the site listed blockchain as a skill. Blockchain jobs are on the up and blockchain engineers are commanding six figure salaries.
Our take: The blockchain job market is booming. At least 1,876 people are working full-tme in the cryptocurrency industry, and the actual total figure is likely well above two thousand if we include large mining and other organizations based on research from the Centre for Alternative Finance at Cambridge University. This is just the beginning, as huge growth is expected in the enterprise blockchain business over the next 10 years. Ameri Research predicts that the global enterprise blockchain market is expected to reach $16.3 billion by 2024, from around $2.3 billion in 2016. Also with “ICO Fever” and more than 850 different cryptocurrencies in the market, no stone will be left unturned. Blockchain will practically infest everything. Every day we read about another story about a new blockchain application, ranging from finance and cybersecurity to government services, education, health care, advertising and entertainment. Today, cryptocurrency dominates blockchain, but with all these other industries making use of blockchain, people with right skills will have plenty of room to maneuver in sectors outside of Fintech.
Demand is up, but supply is still low. The current situation drives two things. One is the pay for those with the skills and on the other end the opportunities for organizations that can teach people these skills. The demand for blockchain developers exceeds by far what is available out there and corporations are struggling to find blockchain expertise, as most of the people with these skills are already working at blockchain startups that emerged over that last few years. Everyone is scrambling to get a blockchain team in play, and this driving the blockchain education market.
If blockchain platforms do their job well, some of these skills will become commoditized. Think back to when being able to read and markup HTML was a premium skill. It should be as easy to deploy to the decentralized network as it is today to deploy to a centralized cloud service. There will always be need for a few people who understand how it works below the covers, but they will be a small minority.
More and more universities, workshops, grass root efforts, bootcamps and online training are popping up everywhere, teaching the basics and offering hands-on training in Blockchain, Bitcoin and Crypto. But one of the problems they are facing, especially at the university level, is the chicken and egg problem. Its hard for them to find qualified people to teach blockchain-related subjects.
It will be interesting to see how things develop. It will take time and the joint efforts of all the players in the ecosystem to build a blockchain talent force that will create future blockchain innovations.
Decrypted: In 1978 the famous $6 million Lufthansa heist went down. In 2014 the infamous $450 million Mt. Gox heist went down, the biggest in Bitcoin history. By all accounts, 850,000 Bitcoins were stolen. Since, 202,185 Bitcoins were recovered, while 650,000 are still missing. You can find an interesting timeline of events surrounding Mt. Gox on CoinDesk.
Now with Bitcoin prices skyrocketing, it has surfaced that Mt. Gox might be able to pay back all its customers, using the recovered Bitcoins. With last week’s value of Bitcoin, these Bitcoins could be worth anywhere between $550-$600 million, leaving some pocket change after everyone is paid back.
Our take: Like many others, Mt. Gox launched in 2010 with a simple idea in mind. It wanted to provide a single place to connect Bitcoin buyers and sellers. It became the world’s most popular Bitcoin exchange, handling over 80% of all Bitcoin transactions around the world. Eventually it failed, causing a tidal wave to hit an entire market.
The Mt. Gox claim was that they lost the money because of a problem with Bitcoin known as transaction malleability, “a bug in Bitcoin.” It’s a great excuse. But Mt. Gox was not a victim of transaction malleability and it’s certainly not the explanation for its epic failure. Actually, there were several failures before the final collapse. Its failure was a combination of several things ranging from lack of standards to pure incompetence.
Many if not most of the entrepreneurs in the digital currency industry come from a technology background with no real understanding of the compliance requirements for financial institutions. As a result, most of the time, compliance gets the shaft.
Can it happen again? The short answer is yes, it can. It has happened. Since the Mt. Gox breakdown, there have been several hacks that resulted in loss of customer funds. The largest incident was Bitfinex. In August 2016, Bitfinex was hacked for 120,000 Bitcoins, worth north of $60 million.
What needs to be done to minimize the risk of loss? Well, let me start by referencing a past BBC post:
“In 2016, Japan passed a bill that mandates that virtual currency exchange operators have to register with the Japanese Financial Services Agency and submit to on-site inspections and KYC practices. This level of regulation encourages insurance companies to step up the plate and offer insurance to Bitcoin exchanges.”
This piece of legislation prompted Mitsui Sumitomo Insurance of offer insurance coverage to Bitcoin exchanges. Insurance is a strong component of the puzzle that could help Bitcoin community, but more needs to be done before an insurance company has to cover the losses due to a breach.
The Bitcoin industry needs an FDIC like organization. The FDIC’s most important role in the banking system is the standards it creates. An idea that has been floated in the past, suggested that experts should police each other. Bitcoin exchanges should create a “common risk pool fund”, that would insure customer funds in case of theft and set standards for Bitcoin exchanges that choose to participate.
A FDIC-like organization for Bitcoin would set standards in accounting and security for Bitcoin exchanges. Unlike the banks protected by FDIC, the Bitcoin exchanges would not be legally required to abide by these standards. If a Bitcoin exchange doesn’t agree with the standards, they would be free to continue to operate under their own guidelines. Now if we were to couple standards and audits with insurance protection, then Bitcoin exchanges would be in a much better place.
The history of Bitcoin exchanges is marked by failures triggered by security breaches. Things breakdown, things get hacked. But there is light at the end of the tunnel and ways to minimize the risk of loss when and if it happens.
Before we close, it looks like Mt. Gox’s creditors will be getting back the the money. With the ruling of the Japanese court to liquidate Mt. Gox, now its the trustee’s job to convert Mt. Gox’s recovered Bitcoins into cash and pay back the creditors, at the value when Mt. Gox shutdown. DRW offered to help liquidate and four hedge funds are already buying or offering to buy claims from thousands of former Mt. Gox customers who lost their Bitcoins.
Decrypted: Initial Coin Offerings (ICO) are driving a wedge in the startup investment landscape. They are changing the way founders raise money, outside the traditional venture capital world. In the most recent ICO last week, Bancor set a new record high raising $153 million.
Our take: ICOs are hot. They are here to stay. The amounts they raise will continue to grow, while the time it takes to raise money will drop. But it looks and sounds just like the late 90’s, when too many companies saw their stocks skyrocket, even though they didn’t make a dime.
Are we living a 1999 bubble crypto-style?
It all started in 2013, when Mastercoin raised 4,740 Bitcoins worth approximately $613,000. Fast forward to April 2017, GNOSIS raises $12.5 million in just 12 minutes. Wow!
From a founder’s perspective, ICO is a win-win. Founders have access to fast cash own their own terms, instead of going through a lengthy fundraising process and giving up equity to angels or VCs on their terms. Startups are no longer limited on how much they can raise because of their geography. They can raise enough money to compete with companies that are fundraising in Silicon Valley, New York, London or in other big startup ecosystems with lots of available venture capital. People using the network, the ones creating the value, now have a stake in the project. ICOs combine efficient ways to raise money, build a motivated community and give people a sense of ownership.
But then just like in in the 90’s, when an IPO was more important than profits and was the primary goal of all the stakeholders involved, it just looks to me like too many ICOs have one goal in mind.: how to raise as much money as quickly as possible, overstating a promise and not necessarily building a product. In many cases, they don’t even have a product, they just publish a white paper. Doesn’t sound to you like someone with an idea raising millions? Isn’t that what happened in the nineties and then the bubble popped.
We are now, predictably, seeing traditional funding rounds dressed up as ICOs. These are mostly not scams (some are). Some are good ideas and have good MVP implementations (some are not). The point is that the ICO label is now just a marketing buzzword. In these hyper-speed times, we reached the top of the hype roller coaster in only a matter of weeks.
Yet ICOs are exciting and have real sustainable value if done right. They have all the makings and possibilities to truly drive faster innovation on a global scale. Even though big VC firms, like Andreessen Horowitz and Union Square Ventures, have backed some cryptocurrency hedge funds, traditional investors have stayed away. They have stayed away because because they lack regulations, they have high valuations, over-capitalization and lack of control over financials.
ICOs have a lot of similarities to securities, but they are also very different. Most ICO’s don’t actually offer equity in startup ventures, instead they only offer discounts on cryptocurrencies before they hit the exchanges. They are global, funded by bitcoin, ether and other cryptocurrencies, not controlled by any central authority or bank.
The ICO trend is still in its infancy, and just like Internet changed everything, ICOs can do the same exact thing. But, real value needs to come out these projects and solve everyday problems of the users that make up their networks. A bubble market can only create bubble companies. ICO will become what we allow it to be. We can only hope that regulators and the community will define a set of rules so it does not turn into a bubble.
Opinion: Bitcoin is tumbling
What a week its been. With the price going as high as $3,016.30 on Monday and dipping as low as $2,207.77 on Thursday its been a roller coster for Bitcoin and all of us. Then it bounced back. Pity the poor financial journalists who have quickly come up with explanations for the price change and their explanation is often made irrelevant by the time they hit post.
Crypto is a 24/7/365 market. So is FX. However FX does not have 10% daily mood swings on a regular basis. Nor do you have to understand nuances around how exchanges and miners work.
But why is the price fluctuating? Well, there has been a lot of talk about Bitmain’s threat to hard fork. Fork that!
Market sentiment is usually bearish or bullish. When bears are in control, prices go down and when bulls are in control, prices are going up. Markets are driven by sentiment and that’s not always synonymous with value.
This week, almost all the cryptocurrencies experienced lows, so it could be a market correction which happens in financial markets.
In the past, Bitcoin was traded only by the people who have been dealing with cryptocurrencies. This year, regular people started to join, making trading volatile. I don’t think most regular people understand anything about forks and segwit or whether Bitcoin should be viewed as finite digital gold or unlimited digital cash. What they do understand, is sentiment. A “fork just doesn’t sound like a good thing.
Any digital currency at its early stage will experience volatility and fluctuation. We can expect Bitcoin’s price to continue to fluctuate in weeks to come. When you buy Bitcoin, you’re buying a share of BTC blockchain. Blockchain is at a very early stage., but at some point over the next few years, companies and governments will be trading in blockchain.
In the long run, the price can only go up.
Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.
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