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Salomón Eid: Regulación FinTech en Latinoamérica

Salomón Eid: Regulación FinTech en Latinoamérica

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Este artículo se publico originalmente en: https://medium.com/@salomneid/regulación-fintech-en-latinoamérica-méxico-cf252a1b8772

Recientemente, México viene desafiando a Brasil por el título de principal mercado de fintech en Latinoamérica. Si bien la presencia de compañías de tecnología financiera (“fintech”) en México fue impulsada en 2012 por el auge de startups en el país, un panorama de empresas emergentes más maduro y la predisposición de los legisladores para colaborar con la industria son algunos de los factores que justifican el modo en que México se está convirtiendo en el ecosistema de fintech más fascinante de la región.

México es el país hispanohablante más poblado de Latinoamérica y tiene el grupo más diverso de fintechs de la región. Los servicios de estas fintechs se centran en soluciones de pago y plataformas de finanzas alternativas, pero también varían de startups de tecnología aplicada a los seguros (insuretech) a servicios de ahorros e inversiones. Además, México alberga las compañías de fintech más desarrolladas de la región: casi un tercio de ellas tiene cuatro años o más de actividad, y más de un tercio tiene 100 empleados o más.

Como resultado, México también posee el ecosistema de fintech mejor financiado de Latinoamérica. La afluencia de inversión en el sector se encuentra hace varios años en una trayectoria ascendente, donde algunas compañías como Kueski y Clip recibieron, hasta el momento alrededor de $38 millones y $17 millones, respectivamente. Estos fondos permitieron a las fintech mexicanas prestar servicios a medio millón de clientes en 2017.

Estas cifras de inversión pueden no parecer significativas cuando se comparan con una población de 120 millones de habitantes, pero resultan muy relevantes cuando se colocan en el contexto de un mercado fintech que se proyecta tendrá más de 110 millones de usuarios potenciales en menos de cinco años.

A pesar del crecimiento y las cifras prometedoras, parte de la comunidad de fintech sentía que se necesitaba una regulación especializada para brindar más certeza a los inversores, los usuarios y las compañías que componen el ecosistema. La mayoría de las compañías de fintech estaban históricamente reguladas por el marco legal general aplicable a las actividades financieras, en lugar de productos o servicios financieros basados en tecnología. La startup de financiamiento colectivo Kubo Financiero, que en 2015 se convirtió en la primera plataforma autorizada de préstamos de persona a persona (crowdfunding), es uno de los pocos ejemplos de interacción de las autoridades reguladoras con compañías de fintech. Por el contrario, otra parte de la industria operaba según regulaciones diseñadas con los servicios financieros tradicionales (no de tecnología) en mente, o bien, operaba en un área indefinida.

Como es muy a menudo el caso en el terreno financiero, la incertidumbre no crea un entorno propicio para la inversión extranjera. “Muchos inversores extranjeros que se acercaron a nosotros y nos dijeron: ‘Creemos que México es un mercado interesante y queremos trabajar en el país’”, indica el experto legal en fintechs Javier Soní. “‘Solo necesitamos una opinión de que nuestro modelo de negocio puede reproducirse legalmente aquí’. La falta de regulación no permitía que los abogados den este consejo con seguridad y, por lo tanto, la falta de certeza legal estaba deteniendo la inversión extranjera”.

Es en este momento que entra en el escenario la Ley para Regular las Instituciones de Tecnología Financiera (Ley Fintech). Los legisladores de México decidieron abordar los nuevos modelos de negocio y las tecnologías creadas por las fintech a través de un proyecto que se sancionó en ley en marzo de 2018. La legislación tiene como objetivo hacer que el público en general tenga mayor acceso a los productos y servicios financieros a través de la tecnología, y es la primera regulación de Latinoamérica que intenta cubrir todos los sectores relacionados con las fintech en una sola iniciativa.

Las conversaciones sobre el proyecto de ley se originaron en 2015 cuando Fintech México, un colectivo de las compañías y los emprendedores de fintech más prominentes de México, se acercó a la Secretaría de Hacienda y Crédito Público para abrir el diálogo respecto de cómo permitir que la industria avance al próximo nivel. “Uno de nuestros mayores logros como Fintech México fue acompañar a las autoridades en este proceso de aprendizaje mutuo desde el inicio”, comenta Jorge A. Ortiz, socio gerente de la empresa de asesoría y centro de estudios de fintech The FinTech Hub, y fundador y expresidente de Fintech México. A partir de estas conversaciones, las autoridades mexicanas comenzaron a asistir a eventos de fintech en el Reino Unido y a reunirse con sus homólogos que supervisan estas actividades allí, y esto, finalmente, permitió que Fintech México y otras partes interesadas de la industria participen activamente en la conversación con respecto al anteproyecto de la Ley Fintech. “Creo que esto ayudó a la Secretaría a elaborar un primer anteproyecto de la Ley Fintech que estaba más en sintonía con la realidad de la industria de fintech en el país”, agrega Soní.

La nueva Ley Fintech regula fundamentalmente dos áreas: un nuevo marco de concesión de licencias para compañías de fintech y las operaciones con activos virtuales (un término general usado en el proyecto de ley que abarca las criptomonedas).

Según el nuevo marco de concesión de licencias, las compañías deben obtener una autorización para operar de la Comisión Nacional Bancaria y de Valores dentro de tres propósitos corporativos diferentes: Instituciones de Financiamiento Colectivo, Instituciones de Fondos de Pago Electrónico y una categoría general denominada Empresas Innovadoras, que servirá como zona protegida (o sandbox) para futuros modelos de negocios innovadores que no estén cubiertos por las dos primeras categorías.

En cuanto al financiamiento colectivo, estas instituciones pueden celebrar acuerdos de intermediación de deuda, de participación de capital y de coparticipación similares a los arreglos de empresas en participación y regalías (joint venture). La ley también procura aumentar la seguridad de los clientes y, para ello, exige la separación entre los fondos propios de las instituciones de financiamiento colectivo y los de sus usuarios, de modo que no queden implicados en procedimientos de quiebra y que estén protegidos de las reclamaciones de acreedores, una protección semejante a la que se observa comúnmente para las instituciones financieras tradicionales.

Asimismo, la ley incluye las instituciones de fondos de pago electrónico, cuyas operaciones implican recibir fondos de sus usuarios y convertirlos en fondos electrónicos. Estos fondos pueden ser recolectados en moneda de curso legal tanto local como extranjera, o con activos virtuales (como criptomonedas). Esto último implica que los servicios de criptocarteras y de intercambio de criptomonedas, en lugar de constituirse como tales, tendrán que operar como instituciones de fondos de pago electrónico y obtener una licencia para manejar activos virtuales. Además, la ley les permite a las instituciones de fondos de pago electrónico negociar con entidades similares e instituciones financieras en el extranjero, lo que les permite ofrecer servicios de remesa a sus clientes.

En relación con las criptomonedas, la regulación de esta actividad finalmente se incluyó en el anteproyecto aprobado por el Senado a pesar de las declaraciones iniciales por parte del gobierno que la regulación específica de esta actividad no era necesaria debido a que la industria de criptomonedas de México es relativamente pequeña, y que la promulgación de reglas podría percibirse como una como un incentivo para una mayor adopción de la tecnología por parte del público en general. La inclusión de la regulación de activos virtuales definitivamente aporta certeza legal a los servicios de cambio de criptomonedas y, en última instancia, los ayudará a establecer colaboraciones con los bancos para expandir su negocio y la captación de clientes. La ley también permite que las instituciones de financiamiento colectivo y de fondos de pago electrónico usen activos virtuales en sus operaciones y abre la puerta para que el Banco de México (el banco central de México) regule los como derivados que utilicen activos virtuales como activos subyacentes.

Uno de los aspectos más importantes de la nueva Ley Fintech es la inclusión de lo que parece ser la regulación del estándar de banca abierta más amplia del mundo (open banking). El objetivo del concepto de banca abierta es lograr que las instituciones bancarias tradicionales compartan los datos de sus clientes con terceros — entre ellos, las compañías de fintech — de una forma segura y estandarizada para que las compañías más pequeñas puedan competir con instituciones financieras tradicionales. Este concepto, que se implementó recientemente en el Reino Unido y obligó a los bancos más grandes del país a abrir el acceso a sus datos, se consideró un movimiento temerario pero al mismo tiempo necesario para mejorar el sistema bancario del país. El estándar de banca abierta de la Ley Fintech de México tiene un alcance considerablemente mayor y es mucho más ambicioso.

“Para darte una idea de la magnitud de este cambio: el estándar de banca abierta del Reino Unido, que es el ecosistema de fintech más avanzado del mundo, abarca las nueve instituciones financieras principales del país y un producto financiero, las cuentas corrientes”, explica Ortiz de FinTech Hub. Lo que actualmente tenemos en México cubre toda la industria financiera, y todos los productos y servicios financieros que esta ofrece. Con esto, los nuevos competidores tendrán acceso a los datos que necesitan para crear nuevos productos y servicios.”

Sin embargo, tendremos que esperar la regulación secundaria para ver cómo se implementa este estándar, como es el caso con la mayoría de las disposiciones importantes de la Ley Fintech. Este sistema legislativo de dos niveles, en el que la ley define los principios fundamentales y la regulación secundaria completa los vacíos, es común en Latinoamérica, pero adquiere especial importancia a la hora de regular las fintech, ya que permite que el marco legal se adapte más fácilmente a la innovación sin requerir el proceso engorroso de negociaciones legislativas y voluntad política que este tipo de decisiones generalmente supone. Este sistema de dos niveles también permitirá que exista un período de adaptación en el que las diferentes autoridades reguladoras tendrán tiempo de comprender cómo funciona el sistema de fintech y cómo regularlo sin impedir su desarrollo o limitar la competencia en el mercado. Por ejemplo, la Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros prevé que le espera un período muy activo después de que se promulgue la ley donde tendrá que analizar cuál es el mejor camino para proteger a los consumidores sin sobrecargar la actividad de las fintech con reglas innecesarias. “El diablo estará en los detalles en esta ley más que en cualquier otra”, afirma Eduardo Guraieb, gerente general de Fintech México. “La legislación secundaria será primordial para el éxito o el fracaso de la ley, y comenzaremos a ver los primeros resultados de esta dinámica aproximadamente en un año.”

“Los abogados serán fundamentales para guiar a los emprendedores en el nuevo régimen regulatorio, y habrá una gran demanda de expertos que puedan liderar a los participantes del mercado de fintech para que cumplan la norma y al mismo tiempo administren sus negocios de manera eficaz; esto requerirá un enfoque integral que incluya todos los aspectos legales”, agrega Eliseo Vite, gerente senior de Ernst & Young México.

Sin embargo, la Ley Fintech no está libre de críticas. Existen inquietudes de que la ley desvirtúa algunos modelos de negocio de las empresas de fintech y aumenta los costos regulatorios de todo el sistema, y que esto podría obstaculizar la innovación y el crecimiento del mercado.

Más específicamente, en el caso de las criptomonedas, la ley le concede al Banco de México amplias facultades para determinar con qué activos virtuales podrán negociar las fintech. Las multas por utilizar activos virtuales no autorizados son considerables.

Asimismo, una disposición controvertida de la Ley exige que las instituciones de financiamiento colectivo compartan el riesgo de los proyectos de los clientes. La Ley establece condiciones previas para que las tarifas de las instituciones de financiamiento colectivo solo sean pagadas una vez que los proyectos de sus clientes alcancen los objetivos previstos. Si no se cumplen esta y otras condiciones allí citadas, este tipo de plataformas corre el riesgo de no recibir compensación por su servicio. Esto es muy probablemente el resultado de un escándalo ocurrido en 2016 en el que el fundador de un proyecto desapareció después de recibir fondos de casi doscientos inversores a través de una plataforma de financiamiento colectivo. Independientemente de las buenas intenciones de que estos requisitos puedan tener, evidentemente desvirtúan el modelo de negocio de estas empresas, ya que las actividades de financiamiento colectivo se limitan a brindar una plataforma donde la oferta de financiamiento encuentra a la demanda, y que las plataformas de financiamiento colectivo no obtienen ganancias del éxito o fracaso de los proyectos de sus usuarios.

Otra sección controvertida de la Ley Fintech limita a las fintech a recibir fondos de sus clientes y proporcionar fondos a estos a través de cuentas bancarias. La única excepción a esta regla es para aquellas fintech que obtienen una licencia para operar con dinero en efectivo, aunque esta parte de la norma deberá ser regulada por la Comisión Nacional Bancaria y de Valores a través de regulaciones secundarias. Si esta limitación no se aborda correctamente, este conjunto de disposiciones podría afectar potencialmente el principio de inclusión financiera de la Ley al dejar de lado a la población no bancarizada y limitar la capacidad de las fintech de llegar a ella, lo que representa una parte fundamental de la legislación, dado que la mayor parte de la población mexicana no está bancarizada o se encuentra infra bancarizada.

Por otra parte, durante la fase de debate público del anteproyecto inicial, hubo comentarios de que el tamaño actual de la industria de fintech no justifica una legislación específica y que los requisitos sustanciales de capitalización que esta impone, similares a los exigidos a las entidades financieras tradicionales, no son adecuados para la naturaleza de las fintech.

Además, las autoridades reguladoras mexicanas tendrán que abordar las fricciones regulatorias de aceptar que las instituciones de financiamiento colectivo permitan que sus clientes ofrezcan títulos valores sin que se usen estas plataformas para evadir los requisitos de registro y calificación del inversor. La Ley Fintech no aborda directamente este asunto, sino que lo delega a las futuras regulaciones secundarias. El enfoque que adoptó la Comisión de Bolsa y Valores (Securities and Exchange Commission, SEC) en los Estados Unidos podría servir como guía. La SEC emitió en 2016 la “Regulation Crowdfunding” (Regulación de financiamiento colectivo) que se basó en dos pilares: por un lado, creó una exención de registro en virtud de la Ley de Valores para ciertas ofertas de valores de “financiamiento colectivo” realizadas a través de “intermediarios de financiamiento colectivo” y, por otro lado, limitó el monto máximo de capital que puede ser recaudado y los montos de inversión individual de los participantes de la plataforma. El objetivo de esta estrategia fue brindar mayor acceso a capital para startups y medianas empresas sin sobrecargarlas con requisitos de registro ni reporte.

A pesar de todas estas dificultades, la mayor parte de la industria dio la bienvenida a la promulgación de la ley con la esperanza de que el aumento en costos regulatorios se compense a través de un aumento en la confianza de los inversores y consumidores en el mercado de fintech.

Del lado de las autoridades reguladoras, la Comisión Federal de Competencia Económica (la autoridad reguladora de la competencia de México) espera que la Ley Fintech ayude a traer más dinamismo e inclusión a un sistema financiero cuyos miembros, según la Comisión, tienen márgenes de rentabilidad superiores a los observados en economías con niveles de ingresos similares, carecen de incentivos apropiados para competir y han tenido un éxito limitado en la inclusión más plena de la población mexicana al sistema bancario.

Si bien es demasiado pronto para determinar cuál será el resultado final de la Ley Fintech, el futuro inmediato es prometedor para México. Al haber asumido el desafío de ser el primer país en legislar la actividad de las fintech en Latinoamérica, el país tiene mucho por ganar al abordar tempranamente la discusión de la regulación de las fintech.

 

Aaron Mangal: What is Bitshares? The ultimate guide for beginners

What is BitShares?

This article was originally published on coincentral.com The 12-November-2017

BitShares (symbol BTS), formerly known as ProtoShares (PTS), is an industrial grade “crypto-equity”, peer to peer distributed ledger and network based on a Delegated Proof of Stake (DPoS) algorithm. It was created in 2014 by visionary Dan Larimer (“Bytemaster”), co-founder of Steemit, EOS and Cryptonomex. 

BitShares is based on Graphene, an open source C++ blockchain implementation, which acts as a consensus mechanism. Graphene is used by several other projects like Steemit.com (decentralized Reddit, blog platform), and PeerPlays.com (gaming site and token PPY) indicating real-world usage.

 BitShares operates more as an equity rather than a purist “currency” since BTS tokens are used as collateral for a variety of decentralized financial services like smart contracts, decentralized exchanges, banking, derivative creation (of market pegged “bitAssets”) and currency rails.  BitShares Technical Details   Consensus algorithm:  Delegated Proof of Stake DPOS   Block time:  1.5-second average, 3 sec max, ~1.5 sec latency for 99.9% irreversibility certainty   Block reward:  1 BTS (from Reserve Pool)   Irreversible blocks:  (2 * BLOCK_INTERVAL * WITNESSES / 3) ~ 34s   Coins not in reserve fund:  2,599,900,000 BTS (2017 Sept 30)   Coins in reserve fund:  1,000,668,097 BTS (2017 Sept 30)   Maximum Coins:  3,600,570,502 (constant)   Maximum Transactions Per Second:  100,000+ potential (proven 3,400+ tx/s)  Noteworthy is the lightning fast blockchain with 1.5 second average block times and throughput potential of 100,000 transactions per second (which is more than all the credit card transactions worldwide combined).  BitShares management is controlled by a Decentralized Autonomous Company (DAC), a framework which allows BitShares holders to contribute and ultimately decide on the future direction of BTS. This DAC operates independently but in tandem with the original open source code base that is developed and tweaked continuously.   Your wallet address is your username   This is way better than long cumbersome strings of letters and numbers which is just asking for bad user experience and errors.  Your username acts as your wallet address (like your social media or google login). It’s much easier to remember and type “john-smith” then 21x9d8sv37sd6m282u4j2hg9h4orbjht2u98f3.  BitShares Financial Service Offerings

BitShares operates more as an equity rather than a purist “currency” since BTS tokens are used as collateral for a variety of decentralized financial services like smart contracts, decentralized exchanges, banking, derivative creation (of market pegged “bitAssets”) and currency rails.

BitShares Technical Details

Consensus algorithm: Delegated Proof of Stake DPOS

Block time: 1.5-second average, 3 sec max, ~1.5 sec latency for 99.9% irreversibility certainty

Block reward: 1 BTS (from Reserve Pool)

Irreversible blocks: (2 * BLOCK_INTERVAL * WITNESSES / 3) ~ 34s

Coins not in reserve fund: 2,599,900,000 BTS (2017 Sept 30)

Coins in reserve fund: 1,000,668,097 BTS (2017 Sept 30)

Maximum Coins: 3,600,570,502 (constant)

Maximum Transactions Per Second: 100,000+ potential (proven 3,400+ tx/s)

Noteworthy is the lightning fast blockchain with 1.5 second average block times and throughput potential of 100,000 transactions per second (which is more than all the credit card transactions worldwide combined).

BitShares management is controlled by a Decentralized Autonomous Company (DAC), a framework which allows BitShares holders to contribute and ultimately decide on the future direction of BTS. This DAC operates independently but in tandem with the original open source code base that is developed and tweaked continuously.

Your wallet address is your username

This is way better than long cumbersome strings of letters and numbers which is just asking for bad user experience and errors.  Your username acts as your wallet address (like your social media or google login). It’s much easier to remember and type “john-smith” then 21x9d8sv37sd6m282u4j2hg9h4orbjht2u98f3.

BitShares Financial Service Offerings

  BitShares competes with banks by issuing collateralizing market-pegged and stable bitAssets (also called smart coins)   This means crypto-based assets track real-world market assets like the US dollar denominated “bitAsset” known as bitUSD. This tracks the movements of the dollar by aggregating a variety of data sources that are maintained by the BitShares community.  This Smart Coin token always has at least 200% (or more) of its value backed by the BitShares core currency (BTS), to which it can be converted at any time, as collateral in a smart-contract based loan managed by the blockchain.   What makes this platform unique is that it’s free from counterparty risk yet still has a loan backed by collateral. This is achieved by allowing the network (and software protocol) to secure collateral and perform settlements.

BitShares competes with banks by issuing collateralizing market-pegged and stable bitAssets (also called smart coins)

This means crypto-based assets track real-world market assets like the US dollar denominated “bitAsset” known as bitUSD. This tracks the movements of the dollar by aggregating a variety of data sources that are maintained by the BitShares community.

This Smart Coin token always has at least 200% (or more) of its value backed by the BitShares core currency (BTS), to which it can be converted at any time, as collateral in a smart-contract based loan managed by the blockchain. 

What makes this platform unique is that it’s free from counterparty risk yet still has a loan backed by collateral. This is achieved by allowing the network (and software protocol) to secure collateral and perform settlements.

 The goal of price stable smart coins (bitAssets):  A predictable stable price with reduced volatility   A relatively reliable solution to predict the future value of a token   A unit of account distinct from assets with capital gains or losses (which has increased tax liability)   Hedging against volatile Cryptocurrency markets and price action  A BitShares market-pegged asset (MPA) can be viewed as a contract between an asset buyer seeking price stability and a short seller seeking greater exposure to BTS price movement.

The goal of price stable smart coins (bitAssets):

A predictable stable price with reduced volatility 

A relatively reliable solution to predict the future value of a token 

A unit of account distinct from assets with capital gains or losses (which has increased tax liability) 

Hedging against volatile Cryptocurrency markets and price action

A BitShares market-pegged asset (MPA) can be viewed as a contract between an asset buyer seeking price stability and a short seller seeking greater exposure to BTS price movement.

  Figure 2  :  Shows price discovery and a short seller who makes a bet to profit from BTS price movements which ensures liquidity as with a 24-hour forced call (selling of position) from call time  BitShares as a Lender  BitShares offers the capability to loan your BTS holdings with customizable reserve levels (a minimum of 200%, reaching as high as 1000 or even 2000%+ reserves). BitShares integrates with any stock, commodity or currency pair provided there are price feeds available. In addition, bitAssets including bitGold, bitSilver, bitOil and other crypto focused commodity pairings can also exist in this construct.   It’s a working, dynamic “smart” economy which adjusts to the needs of the market. To help preserve price stability, large collateralized loans (10-20x) can be created allowing loans to last almost indefinitely.     Decentralized Exchanges (DEX)    Traditional exchanges create counterparty risk as receivers of fiat and issuers of IOUs   Typically with exchanges, there’s a clearinghouse required to facilitate buyers and sellers. While providing a needed service for the market, there is room for improvement as centralized management is a constant security risk.  Exchanges have withdrawal limits and other regulatory restrictions which can include furnishing various forms of identifications, utility bills and other documentation to be onboarded.   How Traditional Cryptocurrency Exchanges Operate:   Receive cryptocurrency and fiat issuing IOUs in its place  Redeem and allow exchange of IOUs  Process the order book   Exchanges issue and redeem IOUs   and   maintain the market ledger    Has anyone ever considered how the same entity doing the above 3 steps is a conflict of interest?  Not to mention a security risk. The same people are responsible for both the security of funds and the “books” of the whole market.   The BitShares financial services white paper elaborates further:   “There is no reason why the same entity needs to be responsible for   issuing IOUs   and for   processing the order book  . In fact, this is actually a disadvantage from a security standpoint.”     Decentralized Exchanges (DEX) remove the single point of failure and counterparty risk   Because these two roles have been combined this causes centralization particularly in the Cryptocurrency space with exchanges. This has proved to be problematic especially when exchanges mismanage wallets, keys or any other vulnerable aspect of the infrastructure. (Causing breaches, hacks and other losses of assets like with  Mt Gox ,  Bitfinex , or  Mintpal )   Gateways broker entry and exit into different asset pairs   Gateways operate as trustless portals to trade various assets that are recorded on the BTS blockchain. A gateway buys the coin and then sends it to your wallet, under your control. They do not hold it for you like  Coinbase  and other exchanges. This is more secure than having others hold your coins because you possess the private keys. 

Figure 2: Shows price discovery and a short seller who makes a bet to profit from BTS price movements which ensures liquidity as with a 24-hour forced call (selling of position) from call time

BitShares as a Lender

BitShares offers the capability to loan your BTS holdings with customizable reserve levels (a minimum of 200%, reaching as high as 1000 or even 2000%+ reserves). BitShares integrates with any stock, commodity or currency pair provided there are price feeds available. In addition, bitAssets including bitGold, bitSilver, bitOil and other crypto focused commodity pairings can also exist in this construct. 

It’s a working, dynamic “smart” economy which adjusts to the needs of the market. To help preserve price stability, large collateralized loans (10-20x) can be created allowing loans to last almost indefinitely.  

Decentralized Exchanges (DEX)

Traditional exchanges create counterparty risk as receivers of fiat and issuers of IOUs

Typically with exchanges, there’s a clearinghouse required to facilitate buyers and sellers. While providing a needed service for the market, there is room for improvement as centralized management is a constant security risk.

Exchanges have withdrawal limits and other regulatory restrictions which can include furnishing various forms of identifications, utility bills and other documentation to be onboarded.

How Traditional Cryptocurrency Exchanges Operate:

Receive cryptocurrency and fiat issuing IOUs in its place

Redeem and allow exchange of IOUs

Process the order book

Exchanges issue and redeem IOUs and maintain the market ledger

Has anyone ever considered how the same entity doing the above 3 steps is a conflict of interest? Not to mention a security risk. The same people are responsible for both the security of funds and the “books” of the whole market.

The BitShares financial services white paper elaborates further: “There is no reason why the same entity needs to be responsible for issuing IOUs and for processing the order book. In fact, this is actually a disadvantage from a security standpoint.” 

Decentralized Exchanges (DEX) remove the single point of failure and counterparty risk

Because these two roles have been combined this causes centralization particularly in the Cryptocurrency space with exchanges. This has proved to be problematic especially when exchanges mismanage wallets, keys or any other vulnerable aspect of the infrastructure. (Causing breaches, hacks and other losses of assets like with Mt GoxBitfinex, or Mintpal)

Gateways broker entry and exit into different asset pairs

Gateways operate as trustless portals to trade various assets that are recorded on the BTS blockchain. A gateway buys the coin and then sends it to your wallet, under your control. They do not hold it for you like Coinbase and other exchanges. This is more secure than having others hold your coins because you possess the private keys. 

  Open Ledger is a decentralized exchange (DEX) and Gateway    Open Ledger  is a project by a Danish company which allows users to purchase various assets (called open assets) which are IOUs like any Gateway coin. (Similar to buying from any other exchange IOU system like Bitfinex). Through this platform, ICOs can easily be created and issued in a secure and decentralized way.   The DEX eliminates High-Frequency Trading (HFT), front-running and hidden orders   The DEX levels the playing field for trading by eliminating the ability to conduct the usual Wall Street shenanigans. In that system, shrewd insiders position their trading infrastructure close to the exchanges for faster order filling coupled with trading algorithms which shut out most non-insiders.    You can trade a variety of Crypto based instruments and other derivatives   Things like silver, gold, oil, and other crypto-based derivatives including stocks, bonds and other market baskets. These pairs can be traded against each other so you could trade silver to gold or bitUSD to BTC.   Smart Coins are marked assets (MPA) backed by real-world value   These are built-in features and are pegged to assets such as bitUSD mirrors the USD fiat value. 1 bitUSD will always be redeemed for at least $1 of BitShares. Price parity is retained through a price feed maintained by Witnesses. This allows collateralized shorts and options opening the door for BitShares to take a bite out of the estimated $1 quadrillion derivatives market.    No trading limits and low fees create a new level of financial freedom   Most exchanges require furnishing personal information, bills, tax paperwork and other data compelled through Know Your Customer (KYC), Anti-Money Laundering (AML) and many other regulations. With a DEX there would be no limits and no hoops to jump through or gauntlet to conduct your own transactions.

Open Ledger is a decentralized exchange (DEX) and Gateway

Open Ledger is a project by a Danish company which allows users to purchase various assets (called open assets) which are IOUs like any Gateway coin. (Similar to buying from any other exchange IOU system like Bitfinex). Through this platform, ICOs can easily be created and issued in a secure and decentralized way.

The DEX eliminates High-Frequency Trading (HFT), front-running and hidden orders

The DEX levels the playing field for trading by eliminating the ability to conduct the usual Wall Street shenanigans. In that system, shrewd insiders position their trading infrastructure close to the exchanges for faster order filling coupled with trading algorithms which shut out most non-insiders. 

You can trade a variety of Crypto based instruments and other derivatives

Things like silver, gold, oil, and other crypto-based derivatives including stocks, bonds and other market baskets. These pairs can be traded against each other so you could trade silver to gold or bitUSD to BTC.

Smart Coins are marked assets (MPA) backed by real-world value

These are built-in features and are pegged to assets such as bitUSD mirrors the USD fiat value. 1 bitUSD will always be redeemed for at least $1 of BitShares. Price parity is retained through a price feed maintained by Witnesses. This allows collateralized shorts and options opening the door for BitShares to take a bite out of the estimated $1 quadrillion derivatives market. 

No trading limits and low fees create a new level of financial freedom

Most exchanges require furnishing personal information, bills, tax paperwork and other data compelled through Know Your Customer (KYC), Anti-Money Laundering (AML) and many other regulations. With a DEX there would be no limits and no hoops to jump through or gauntlet to conduct your own transactions.

  BitShares DEX graphical user interface (GUI)      Delegated Proof of Stake (DPoS) and Governance   The problems with expensive, power-hungry proof of work and its rule of the few   Proof of Work (PoW) as seen with  Bitcoin  chews up a significant amount of energy using computing resources to solve math problems. Many consider this unsustainable long term. In addition, with the emergence of ASICs, many users are shut out that cannot afford or scale up quickly enough with the difficulty. Those miners ultimately have the power to support the network or not to, as their machines are the backbone of the blockchains security and validity.    Enter Delegated Proof of Stake (DPoS)   Traditional Proof of Stake (PoS) operates by users holding coins which create additional coins. Delegated Proof of Stake (DPoS) eliminates Proof of Work and adds onto the traditional Proof of Stake architecture with a Governance layer. Users “delegate their stake” and allow electing of Witnesses who collect transactions, bundle them into a block, and broadcast to the network. Witnesses and are paid in shares for this service from the reserves pool.    Proxy voting allows voters to give and retract power to a Witness   1 BitShare = 1 vote in the BitShares network. For most users, this process is burdensome which is why proxy voting was proposed. This helps reduce voter apathy and allows shareholders to react quickly to immediate business and security concerns. Traditional bureaucracies, “red tape”, are slow and make governance slow. With delegated Witnesses, you get temporary contracted centralized management with the right to retract that power thus preserving decentralization.   Witnesses package and validate transactions, publish price feeds (the basis for bitAsset market tracking), maintain the blockchain and improve the BitShares ecosystem

BitShares DEX graphical user interface (GUI)

 

Delegated Proof of Stake (DPoS) and Governance

The problems with expensive, power-hungry proof of work and its rule of the few

Proof of Work (PoW) as seen with Bitcoin chews up a significant amount of energy using computing resources to solve math problems. Many consider this unsustainable long term. In addition, with the emergence of ASICs, many users are shut out that cannot afford or scale up quickly enough with the difficulty. Those miners ultimately have the power to support the network or not to, as their machines are the backbone of the blockchains security and validity. 

Enter Delegated Proof of Stake (DPoS)

Traditional Proof of Stake (PoS) operates by users holding coins which create additional coins. Delegated Proof of Stake (DPoS) eliminates Proof of Work and adds onto the traditional Proof of Stake architecture with a Governance layer. Users “delegate their stake” and allow electing of Witnesses who collect transactions, bundle them into a block, and broadcast to the network. Witnesses and are paid in shares for this service from the reserves pool. 

Proxy voting allows voters to give and retract power to a Witness

1 BitShare = 1 vote in the BitShares network. For most users, this process is burdensome which is why proxy voting was proposed. This helps reduce voter apathy and allows shareholders to react quickly to immediate business and security concerns. Traditional bureaucracies, “red tape”, are slow and make governance slow. With delegated Witnesses, you get temporary contracted centralized management with the right to retract that power thus preserving decentralization.

Witnesses package and validate transactions, publish price feeds (the basis for bitAsset market tracking), maintain the blockchain and improve the BitShares ecosystem

  Committees   Committee members are responsible for adjusting the fee schedule of transactions to ensure they remain at a low level as the price of BTS rises. To be elected, the protocol calculates the difference between up and down votes for each Committee Member. (Similar to Reddit post voting) Then, the median of top rated users will become Committee Members.   Code acts as a channel to submit proposals, contribute value and earn BitShares   You can set up a “worker”, a specific BTS account, to propose work for the BitShares network. You would include a scope of work, start/end dates and your pay rate which would be sent to the network of BTS token holders. They receive and vote on the proposal which can be accepted or rejected by the network. A counteroffer (like with requested pay rate) can also be issued back to the initial user proposing.   BitShares shares network fees among members   BitShares offers membership subscriptions which provide a “lifetime” membership of reduced fees for using the BitShares rails. In addition, there is a referral program for members that is one level deep which allows them to receive reduced fees and a percentage of the fees that are paid by those they refer.   Problems and Risks   Sounds great, but what about the downfalls? There’s always something…   The collateral risk of a “black swan event” (sudden crash in value)   Market pegged assets track the price of real assets through a crypto derivative that’s backed by collateral with established market value. Ultimately all bitAssets are denominated and collateralized by BitShares (BTS). This token is not immune from price action including drastic drops in value.   Although there’s a built-in construct to trigger margin calls (selling out positions to cover original principal), it’s isn’t foolproof. The biggest risk is the value drops too quickly and collateral can no longer purchase the asset. Sort of like if a home drops in value below the total loan due to a market downturn.   While the total market capitalization of Cryptocurrency has overwhelmingly increased exponentially to date, that has not been without a long bumpy ride. This Black Swan event would greatly erode confidence in the system and disrupt the ability to conduct a safe transaction (such as a loan), especially on a large scale.   People and businesses (banks even more so) are sensitive about their money so it must work flawlessly. This is still all very experimental technology, which is probably scary for “big money people”.    Bittrex de-listing    caught the market and community off guard causing massive FUD   Ah FUD (Fear, Uncertainty and Doubt), the community’s favorite word. This is when people create a barrage of negative messaging about a coin (or anything really). Markets are very sensitive to FUD (especially smaller market caps) and can drop significantly as a result.  For unknown reasons not specified by  Bittrex , BitShares was scheduled to be delisted from their exchange on October 13th, 2017. (But it still hasn’t) Some say it’s because the BitShares DEX competes as a decentralized exchange. Others calling it FUD to drive the price down. Then it was that their nodes were “too big” to run.   The above is unverified conjecture. All we know is, Bittrex said they were delisting Bitshares but did not  with zero explanation  to exchange users or the BitShares team.   Speculators are fickle and whether or not it is BitShares’ fault, most speculators scare like a pack of sheep who quickly dumped on the news causing the price of BitShares to tank.   One thing that is noteworthy is that despite this negative news, there has still been a fair bit of buying activity and “support”. (Many other delisted coins have crashed or died altogether)   No one can prevent the possibility of unforeseen breaches, software bugs or exploits   While this argument could be made about any project to date including Bitcoin, it is still valid for this projects. As seen with the $53 million  DAO hack  in Ethereum, they had to hard fork the network which caused a split into two different coins:  Ethereum  and Ethereum Classic.  Or how about the recent  Ethereum wallet Parity debacle?  (A vulnerability causing $300+ million of Ethereum to be frozen and rendered inaccessible)  User error is the documented cause of most problems with IT and cybersecurity. This is a perpetual threat not only with Cryptocurrencies but Technology in general. As with all Crypto, this is experimental tech so a healthy amount of skepticism and caution must be exercised, always.   Final Thoughts    Ultimately, BitShares leads the pack with exemplary thinking and architecture   Just to recap the main ideas covered:   BitShares is a decentralized network, protocol and industrial grade platform  –  Based on a Delegated Proof of Stake (DPoS) algorithm and Graphene (Steemit’s backend engine) with the potential to handle 100,000+ transactions per second.   BitShares offers a variety of decentralized financial services  – Issuing smart coin bitAssets including Market Pegged Assets (MPA) and other crypto derived pairs from recognized commoditized assets (e.g. Gold, Oil, S&P 500)   The Delegated Proof of Stake (DPoS) algorithm adds a governance layer  – Building on the traditional Proof of Stake model which increases and produces coins based on holding.  Despite all of these risks and challenges mentioned, the team perseveres, grows and continuously irons out kinks. Their services are just awesome (despite definite risks and pitfalls). I have personally used their DEX and find it fairly intuitive, smooth and quick.  As the platform matures and proves itself, it will  attract interest from FinTech and financial services players .   I tend to show extra heavy interest in projects that promote decentralization and real-world use cases. This ICO craze is just nauseating at times ( seriously, Paris Hilton?! LOL ) and the space is in dire need of high-quality initiatives  Shaky market confidence, token dilution, hidden hackers, lurking regulations and other unforeseen pitfalls await us. (And frankly many “coins,” maybe even most,  will not make it long term )  That’s why it’s super important that we put our attention toward helping build meaningful long-term focused communities and projects.  I believe BitShares is one of them.

Committees

Committee members are responsible for adjusting the fee schedule of transactions to ensure they remain at a low level as the price of BTS rises. To be elected, the protocol calculates the difference between up and down votes for each Committee Member. (Similar to Reddit post voting) Then, the median of top rated users will become Committee Members.

Code acts as a channel to submit proposals, contribute value and earn BitShares

You can set up a “worker”, a specific BTS account, to propose work for the BitShares network. You would include a scope of work, start/end dates and your pay rate which would be sent to the network of BTS token holders. They receive and vote on the proposal which can be accepted or rejected by the network. A counteroffer (like with requested pay rate) can also be issued back to the initial user proposing.

BitShares shares network fees among members

BitShares offers membership subscriptions which provide a “lifetime” membership of reduced fees for using the BitShares rails. In addition, there is a referral program for members that is one level deep which allows them to receive reduced fees and a percentage of the fees that are paid by those they refer.

Problems and Risks

Sounds great, but what about the downfalls? There’s always something…

The collateral risk of a “black swan event” (sudden crash in value)

Market pegged assets track the price of real assets through a crypto derivative that’s backed by collateral with established market value. Ultimately all bitAssets are denominated and collateralized by BitShares (BTS). This token is not immune from price action including drastic drops in value. 

Although there’s a built-in construct to trigger margin calls (selling out positions to cover original principal), it’s isn’t foolproof. The biggest risk is the value drops too quickly and collateral can no longer purchase the asset. Sort of like if a home drops in value below the total loan due to a market downturn. 

While the total market capitalization of Cryptocurrency has overwhelmingly increased exponentially to date, that has not been without a long bumpy ride. This Black Swan event would greatly erode confidence in the system and disrupt the ability to conduct a safe transaction (such as a loan), especially on a large scale. 

People and businesses (banks even more so) are sensitive about their money so it must work flawlessly. This is still all very experimental technology, which is probably scary for “big money people”.

Bittrex de-listing caught the market and community off guard causing massive FUD

Ah FUD (Fear, Uncertainty and Doubt), the community’s favorite word. This is when people create a barrage of negative messaging about a coin (or anything really). Markets are very sensitive to FUD (especially smaller market caps) and can drop significantly as a result.

For unknown reasons not specified by Bittrex, BitShares was scheduled to be delisted from their exchange on October 13th, 2017. (But it still hasn’t) Some say it’s because the BitShares DEX competes as a decentralized exchange. Others calling it FUD to drive the price down. Then it was that their nodes were “too big” to run. 

The above is unverified conjecture. All we know is, Bittrex said they were delisting Bitshares but did not with zero explanation to exchange users or the BitShares team. 

Speculators are fickle and whether or not it is BitShares’ fault, most speculators scare like a pack of sheep who quickly dumped on the news causing the price of BitShares to tank. 

One thing that is noteworthy is that despite this negative news, there has still been a fair bit of buying activity and “support”. (Many other delisted coins have crashed or died altogether)

No one can prevent the possibility of unforeseen breaches, software bugs or exploits

While this argument could be made about any project to date including Bitcoin, it is still valid for this projects. As seen with the $53 million DAO hack in Ethereum, they had to hard fork the network which caused a split into two different coins: Ethereum and Ethereum Classic.

Or how about the recent Ethereum wallet Parity debacle? (A vulnerability causing $300+ million of Ethereum to be frozen and rendered inaccessible)

User error is the documented cause of most problems with IT and cybersecurity. This is a perpetual threat not only with Cryptocurrencies but Technology in general. As with all Crypto, this is experimental tech so a healthy amount of skepticism and caution must be exercised, always.

Final Thoughts

Ultimately, BitShares leads the pack with exemplary thinking and architecture

Just to recap the main ideas covered:

BitShares is a decentralized network, protocol and industrial grade platform –  Based on a Delegated Proof of Stake (DPoS) algorithm and Graphene (Steemit’s backend engine) with the potential to handle 100,000+ transactions per second.

BitShares offers a variety of decentralized financial services – Issuing smart coin bitAssets including Market Pegged Assets (MPA) and other crypto derived pairs from recognized commoditized assets (e.g. Gold, Oil, S&P 500)

The Delegated Proof of Stake (DPoS) algorithm adds a governance layer – Building on the traditional Proof of Stake model which increases and produces coins based on holding.

Despite all of these risks and challenges mentioned, the team perseveres, grows and continuously irons out kinks. Their services are just awesome (despite definite risks and pitfalls). I have personally used their DEX and find it fairly intuitive, smooth and quick.

As the platform matures and proves itself, it will attract interest from FinTech and financial services players

I tend to show extra heavy interest in projects that promote decentralization and real-world use cases. This ICO craze is just nauseating at times (seriously, Paris Hilton?! LOL) and the space is in dire need of high-quality initiatives

Shaky market confidence, token dilution, hidden hackers, lurking regulations and other unforeseen pitfalls await us. (And frankly many “coins,” maybe even most, will not make it long term)

That’s why it’s super important that we put our attention toward helping build meaningful long-term focused communities and projects.

I believe BitShares is one of them.

Steven Buchko: Blockchain´s Fight Against Fake News

This article was originally published at coincentral.com

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The Rise of Fake News

With the growing ease of communication, fake news and false stories are now spreading quicker than ever. The sheer amount of content shared each day makes it a chore to weed out the authentic from the B.S. And, most people don’t have the time to do so. According to an MIT study on fake news in Twitter, users are 70% more likely to retweet falsehoods than true facts. Simply put, fake news spreads quicker and reaches a wider audience than the truth.   

 As an immutable store of data, blockchain technology has the potential to eradicate fake news for good. Utilizing digital identities and a verifiable reputation system, blockchain-based social media works to promote accurate information while burying falsehoods.  He Said, She Said  In the fight against fake news, blockchain relies on a phenomenon dubbed “the wisdom of the crowd.” The idea behind this phenomenon is that the collective opinion of a group of people is usually more accurate than that of a single expert. With numerous readers verifying the validity of news articles, false information will come to light with more accuracy than if a single source or panel of judges was doing the same job. This decentralized form of verification fits right in line with blockchain systems.  Some blockchain projects are already utilizing the wisdom of the crowd for various purposes.  Augur has built a robust prediction market that taps into crowd wisdom to forecast future events. And,  Cindicator  uses a similar strategy to perform complex financial analysis.   Reputation  You may be wondering, “In a system like this, what’s stopping me from simply verifying fake news to help spread misinformation?” This is where digital identities and reputation come into play. Each content platform can set this up and verify identities in different ways, but the underlying principle is the same. As a news consumer, you have a digital identity on the blockchain. You also have a reputation score associated with this identity. When you promote accurate information, your reputation increases. When sharing some inaccurate, the opposite is true.  You have a few options when an article comes across your feed:   Share + Verify Article. If the majority of other people also verify the article that you promote through these actions, your reputation score increases. On the flip side, promoting an article that the crowd deems fake news lowers your score.    Report Article.  You can also report articles that you consider to contain falsehoods. If the majority of other readers agree with you, your reputation once again grows. Reporting verified articles hurts your reputation.    Do Nothing.  This won’t affect your reputation either way.  The higher your reputation, the more people your posts and shares reach. As your reputation increases so does your influence. Because reputation determines influence, malicious users will quickly ruin their reputation score, losing any influence they may have had.  As users verify or report an article, the reputation score of the article also changes. Articles with a good reputation gain exposure. Additionally, platforms can use your reputation score to give more (or less) weight to the verifications and shares that you give articles as well.  Because articles and their reputation are stored on the public, immutable ledger, you can directly see where an article that you’re interested in ranks on the truth scale. Over time, factual articles shared by legitimate users will rise to the top while articles driven by fake news won’t see the light of the day.  Incentives  In addition to giving a greater reach, platforms can reward high-reputation users with other incentives. Whether it be monetarily, through a leaderboard, or with other types of perks, there are plenty of opportunities to encourage good behavior when creating and sharing content.   An internal rewards system can even be tokenized, automated, and ran using smart contracts alongside the digital identities and reputations already being used on the blockchain.  Blockchain to the Rescue  Although not yet available, there are a couple teams building out solutions to combat fake news.   Userfeeds  is a protocol to provide relevant information to readers so they can allocate their attention more effectively. As a social media platform, you can integrate the Userfeeds protocol to ensure that your users don’t succumb to fake news. The protocol includes “Proof-of-Evaluation” message types to measure the importance of different messages on the protocol. Additionally, it uses reputation currencies to create a reputation system similar to the one mentioned earlier.    PUBLIQ  is a nonprofit foundation also fighting the good fight through blockchain technology. The PUBLIQ platform is censorship-free but rewards authors based on their PUBLIQ score. This score is formed by the reputation that an author receives from readers’ views, shares, likes, and reports. Additionally, PUBLIQ rewards channels that share articles that have garnered quality traffic. Focusing on quality views prevents bots and other fake accounts from gaming the system to promote inaccurate stories.  No project has taken the forefront yet, and the one that does may not exist. With the recent mishaps of Facebook and Twitter, though, it’s clear that a solution needs to surface soon.  Goodbye Fake News, Hello Informed Readership  Even with blockchain technology working to bury fake news, it’s inevitable that some stories will slip through the cracks. It’s our responsibility as readers to be skeptical of what we come across and only share the articles we know to be factually true. With a little effort and skepticism in our reading, we can eradicate the manipulation of fake news once and for all.

As an immutable store of data, blockchain technology has the potential to eradicate fake news for good. Utilizing digital identities and a verifiable reputation system, blockchain-based social media works to promote accurate information while burying falsehoods.

He Said, She Said

In the fight against fake news, blockchain relies on a phenomenon dubbed “the wisdom of the crowd.” The idea behind this phenomenon is that the collective opinion of a group of people is usually more accurate than that of a single expert. With numerous readers verifying the validity of news articles, false information will come to light with more accuracy than if a single source or panel of judges was doing the same job. This decentralized form of verification fits right in line with blockchain systems.

Some blockchain projects are already utilizing the wisdom of the crowd for various purposes. Augurhas built a robust prediction market that taps into crowd wisdom to forecast future events. And, Cindicator uses a similar strategy to perform complex financial analysis. 

Reputation

You may be wondering, “In a system like this, what’s stopping me from simply verifying fake news to help spread misinformation?” This is where digital identities and reputation come into play. Each content platform can set this up and verify identities in different ways, but the underlying principle is the same. As a news consumer, you have a digital identity on the blockchain. You also have a reputation score associated with this identity. When you promote accurate information, your reputation increases. When sharing some inaccurate, the opposite is true.

You have a few options when an article comes across your feed:

Share + Verify Article. If the majority of other people also verify the article that you promote through these actions, your reputation score increases. On the flip side, promoting an article that the crowd deems fake news lowers your score.

Report Article. You can also report articles that you consider to contain falsehoods. If the majority of other readers agree with you, your reputation once again grows. Reporting verified articles hurts your reputation. 

Do Nothing. This won’t affect your reputation either way.

The higher your reputation, the more people your posts and shares reach. As your reputation increases so does your influence. Because reputation determines influence, malicious users will quickly ruin their reputation score, losing any influence they may have had.

As users verify or report an article, the reputation score of the article also changes. Articles with a good reputation gain exposure. Additionally, platforms can use your reputation score to give more (or less) weight to the verifications and shares that you give articles as well.

Because articles and their reputation are stored on the public, immutable ledger, you can directly see where an article that you’re interested in ranks on the truth scale. Over time, factual articles shared by legitimate users will rise to the top while articles driven by fake news won’t see the light of the day.

Incentives

In addition to giving a greater reach, platforms can reward high-reputation users with other incentives. Whether it be monetarily, through a leaderboard, or with other types of perks, there are plenty of opportunities to encourage good behavior when creating and sharing content. 

An internal rewards system can even be tokenized, automated, and ran using smart contracts alongside the digital identities and reputations already being used on the blockchain.

Blockchain to the Rescue

Although not yet available, there are a couple teams building out solutions to combat fake news.

Userfeeds is a protocol to provide relevant information to readers so they can allocate their attention more effectively. As a social media platform, you can integrate the Userfeeds protocol to ensure that your users don’t succumb to fake news. The protocol includes “Proof-of-Evaluation” message types to measure the importance of different messages on the protocol. Additionally, it uses reputation currencies to create a reputation system similar to the one mentioned earlier. 

PUBLIQ is a nonprofit foundation also fighting the good fight through blockchain technology. The PUBLIQ platform is censorship-free but rewards authors based on their PUBLIQ score. This score is formed by the reputation that an author receives from readers’ views, shares, likes, and reports. Additionally, PUBLIQ rewards channels that share articles that have garnered quality traffic. Focusing on quality views prevents bots and other fake accounts from gaming the system to promote inaccurate stories.

No project has taken the forefront yet, and the one that does may not exist. With the recent mishaps of Facebook and Twitter, though, it’s clear that a solution needs to surface soon.

Goodbye Fake News, Hello Informed Readership

Even with blockchain technology working to bury fake news, it’s inevitable that some stories will slip through the cracks. It’s our responsibility as readers to be skeptical of what we come across and only share the articles we know to be factually true. With a little effort and skepticism in our reading, we can eradicate the manipulation of fake news once and for all.

Aaron Mangal: What´s the next Bitcoin?

This Article was originally published on coincentral.com by Aaron Mangal on October 13th, 2017.

What is the next Bitcoin?

Wow. That’s ballsy to even ask what that is. Is Bitcoin not good enough for you?!

So, you think you’re ready for the next Bitcoin eh? Well, let me be frank, the next “Bitcoin” better be so earth shatteringly awesome that it breaks the universe’s time continuum. (For real tho.)

What I mean is it better be truly  innovative beyond functionality and protocols where Bitcoin has already filled the gap. But hey, this is one of the most common questions asked by cryptocurrency newcomers… So here we are.th, 

Let’s start by reviewing what makes Bitcoin so freakin’ awesome first.

What is Bitcoin, man?

Bitcoin is a digital money ecosystem with units of currency (Bitcoin) that are used to store and transmit value among participants in this glorious distributed and decentralized computer network. The Bitcoin protocol stack is available as open source software and can run on many devices including mobile phones, tablets, desktops and even a Raspberry Pi.

Users communicate through the Bitcoin protocol via the web or other mechanisms (like bluetooth or even radio). It’s a peer to peer system with no central server or point of control. 

Bitcoin is created through a process called mining. This involves computers competing to find solutions to a mathematical problem (think a race to solve a giant Sudoku puzzle) which produces 12.5 BTC per block found. Miners also process and validate bitcoin transactions to ensure no double spending or other fraudulent transactions. 

So let’s review, Bitcoin (and its Blockchain) is composed of:

  • A decentralized peer-to-peer network (the bitcoin protocol)
  • A public transaction ledger (the blockchain)
  • A set of rules for independent transaction validation and currency issuance (consensus rules aka mining)
  • A mechanism for reaching global decentralized consensus on the valid blockchain (Proof-of-Work algorithm)

It’s the Internet of money! It’s insanely innovative is what it is.

 

 So, what’s the next Bitcoin already?

Dude. Bitcoin is a new asset class. That’s a pretty hard show to follow. This means it has created a whole new category of digital “property” which is a whole can of worms and use cases it will open. Even the IRS, IMF world bank and many other governing bodies are still scratching their heads quizzically about what to do with this tech.

Below is a super basic rubric on what would make something the next Bitcoin (which will apply to the coins considered).

The “next Bitcoin” must:

  • Have next-generation market leading architecture – They must evolve the blockchain construct in a big way to be considered ‘the next thing’. Ethereum for example created a platform that has spawned dozens of top notch projects built on top of its network.
  • Be exponentially disruptive in use cases – Disrupting the financial system, fintech and creating a new asset class is a hard show to follow, they must innovate beyond this.
  • Leverage original code and implementations – Bitcoin is composed of previously published concepts (e.g. Hashcash) but evolved those creations into something original, new and robust, they must have a similar accomplishment.
  • Have a network effect of adoption – A “coin” is just an idea without a working product and more importantly, people using it, the more users the better.

Think of these following “picks” as possibilities based on what is known today. We won’t know what the next (or next next) Bitcoin is in the short-term. (If at all, since some might argue nothing could top the ground Bitcoin broke)

 

 

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Ethereum

As discussed in this guide, “What is Ethereum?”, you’ll learn more details about the whole. However, I would like to still touch on some of those points to add a context for why Ethereum could be the next Bitcoin.

Ethereum is a protocol, smart contract platform, code base, and even has an operating system (ethOS) designed for miners. Ethereum facilitates building decentralized applications (dApps) through a blockchain with Turing-complete programming language which allows user to write smart contracts and customized dApps. 

This Turing-complete computing addition allows a more powerful blockchain due to customizable smart contract scripting (which Bitcoin does not have). In addition, there is the Ethereum Virtual Machine (EVM) which runs on Ethereum and allows all Ethereum users to execute smart contracts locally on their device running a node.

A DAO is a decentralized autonomous organization which is a virtual entity that allows for decentralized governance and management. Once over a certain designated majority threshold (e.g. 51%) shareholders can decide how to spend, allocate funds, and even modify code. The DAO has all the mechanisms of traditional corporations or nonprofits but instead using cryptographic blockchain technology for enforcement.

Ethereum contracts can facilitate a decentralized file storage network. (Where users can earn tokens for renting out their hard drives and unused space) Think: A decentralized Dropbox or Google Drive.

 

  The Ethereum Team    Core devs    Vitalik Buterin  – Inventor of Ethereum, co-founder of Bitcoin Magazine   Gavin Wood  – Co-founder of Ethereum, Lead C++ developer   Jeffrey Wilcke  – Lead Go developer  Recent developments include adding privacy features and  reducing blocktimes (Plasma)    Some big projects on Ethereum’s platform include:    

The Ethereum Team

Core devs

Vitalik Buterin – Inventor of Ethereum, co-founder of Bitcoin Magazine

Gavin Wood – Co-founder of Ethereum, Lead C++ developer

Jeffrey Wilcke – Lead Go developer

Recent developments include adding privacy features and reducing blocktimes (Plasma)

Some big projects on Ethereum’s platform include:

 

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Status

Status

Status is a mobile Ethereum operating system (OS), browser, messenger and open-sourced platform. If Ethereum was a Global Computer Network, Status would be similar to the Windows OS with user friendly interfaces that brings Ethereum code and smart contracts to life. The team also has a greater vision around decentralization and rebuilding the Internet as it was intended.

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TenX

TenX is a network, rail, and payment method (through a debit card) with 0% spending and exchange fees. TenX supports various blockchain assets across multiple blockchains including Bitcoin, Dash, Ethereum, Ethereum ERC20 Tokens (REP, CVC, OMG) with more in the works to be added soon. In addition, users get rewards from transactions and card holding (.5% per transaction and .1% for being a card holder)

  Why    could    Ethereum be the next Bitcoin?   It has a superb team of not only veterans of Bitcoin but programming and development. They have evolved the technology, functionality and needs provided by Bitcoin. Their network, protocol and smart contract platform has been such a leader that they have become a go to source for the majority of ICOs which have equally impressive teams and use cases.  Based on the rubric mentioned earlier, Ethereum is a definitely leader of the pack by offering original code (smart contracts, ethOS, EVM) and leading architecture which countless organizations are building upon. The impressive startups and use cases built on top of Ethereum are numerous and top notch.  Finally, they have an absolutely insane network effect and acclaim from Crypto enthusiasts, speculators and even institutional investors. This will be hard to replicate for incumbents.

Why could Ethereum be the next Bitcoin?

It has a superb team of not only veterans of Bitcoin but programming and development. They have evolved the technology, functionality and needs provided by Bitcoin. Their network, protocol and smart contract platform has been such a leader that they have become a go to source for the majority of ICOs which have equally impressive teams and use cases.

Based on the rubric mentioned earlier, Ethereum is a definitely leader of the pack by offering original code (smart contracts, ethOS, EVM) and leading architecture which countless organizations are building upon. The impressive startups and use cases built on top of Ethereum are numerous and top notch.

Finally, they have an absolutely insane network effect and acclaim from Crypto enthusiasts, speculators and even institutional investors. This will be hard to replicate for incumbents.

  Ripple       XRP is the Ripple token  which is used for settlement but is a separate component of the protocol, (the rails called RippleNet). The whole of RippleNet encompasses a settlement layer, remittance, API and currency exchange functionality.  Ripple had early iterations as early as 2005  and eventually became backed by Andreessen Horowitz and Google labs in 2011.   In addition, there is a  RippleNet Advisory Board  that has been working with industry leaders in banking to build an industry reviewed and accepted “rulebook” or set of standards that ensures operational consistency and legal clarity for every transaction.  Ripple has offices in San Francisco, New York, London, Sydney and Luxembourg with over 75 customers across 27 countries.   The problem with payments today    Rails are slow and full of many intermediaries adding to both time and cost. Cross-border settlement is also expensive and cumbersome to manage. There is a great need for these systems to be upgraded in this digital age. Ripple aims to tackle these issues.   Specific Ripple products include:    xCurrent  – A enterprise software solution enabling instant bank settlement, cross-border payment and end-to-end tracking.    xRapid  – A exchange mechanism creating low cost liquidity for many world currency pairs   xVia  – A simple Application Programming Interface (API), requiring no software install, that facilitates seamless transparent payments sent across their global network.   xCurrent   The xCurrent software solution works by banks sending a message to each other in real time to confirm payment details prior to generating the transaction. It is confirmed once the delivery arrives and is settled.    The settlement steps include:   (1) Payment Initiation (2) Pre-Transaction Validation (3) Cryptographic Hold of Funds (4) Settlement (5) Confirmation

Ripple

 

XRP is the Ripple token which is used for settlement but is a separate component of the protocol, (the rails called RippleNet). The whole of RippleNet encompasses a settlement layer, remittance, API and currency exchange functionality. Ripple had early iterations as early as 2005 and eventually became backed by Andreessen Horowitz and Google labs in 2011. 

In addition, there is a RippleNet Advisory Board that has been working with industry leaders in banking to build an industry reviewed and accepted “rulebook” or set of standards that ensures operational consistency and legal clarity for every transaction.

Ripple has offices in San Francisco, New York, London, Sydney and Luxembourg with over 75 customers across 27 countries.

The problem with payments today 

Rails are slow and full of many intermediaries adding to both time and cost. Cross-border settlement is also expensive and cumbersome to manage. There is a great need for these systems to be upgraded in this digital age. Ripple aims to tackle these issues.

Specific Ripple products include:

xCurrent – A enterprise software solution enabling instant bank settlement, cross-border payment and end-to-end tracking. 

xRapid – A exchange mechanism creating low cost liquidity for many world currency pairs

xVia – A simple Application Programming Interface (API), requiring no software install, that facilitates seamless transparent payments sent across their global network.

xCurrent

The xCurrent software solution works by banks sending a message to each other in real time to confirm payment details prior to generating the transaction. It is confirmed once the delivery arrives and is settled. 

The settlement steps include: (1) Payment Initiation (2) Pre-Transaction Validation (3) Cryptographic Hold of Funds (4) Settlement (5) Confirmation

                                                             xCurrent’s Flow of Funds    xRapid   Payment providers, financial institutions and almost any entity leveraging cross country transactions can now exchange into currencies instantly and inexpensively. Emerging markets typically require pre-loaded local currency accounts around the world, which gets expensive. xRapid increases liquidity and lowers the need for costly currency reserves.

                                                           xCurrent’s Flow of Funds

xRapid

Payment providers, financial institutions and almost any entity leveraging cross country transactions can now exchange into currencies instantly and inexpensively. Emerging markets typically require pre-loaded local currency accounts around the world, which gets expensive. xRapid increases liquidity and lowers the need for costly currency reserves.

                              xRapid creates low cost liquidity for many world currency pairs       xVia   This Application Programming Interface (API) is for corporations, payment providers and banks who need a standard interface to send payments globally. This means transparent tracking and rich data included such as invoices attached.

                            xRapid creates low cost liquidity for many world currency pairs

 

xVia

This Application Programming Interface (API) is for corporations, payment providers and banks who need a standard interface to send payments globally. This means transparent tracking and rich data included such as invoices attached.

 Ripple is an A player and I would argue a veteran in the FinTech space. Not only were there  earlier Ripple iterations  than Bitcoin (circa 2005) but they also have top VCs including Google Labs guiding their efforts.   In addition, they are tackling the legacy banking system which is in the trillions of dollars managed. To be able to speed up the efficiency, reduce cost and increase trackability and compliance is a true recipe for success.   Here are some of Ripple’s client’s to date:

Ripple is an A player and I would argue a veteran in the FinTech space. Not only were there earlier Ripple iterations than Bitcoin (circa 2005) but they also have top VCs including Google Labs guiding their efforts. 

In addition, they are tackling the legacy banking system which is in the trillions of dollars managed. To be able to speed up the efficiency, reduce cost and increase trackability and compliance is a true recipe for success.

Here are some of Ripple’s client’s to date:

 Even Crypto purist OGs can agree that more opportunities for people to access and be on-boarded into their favorite digital assets is a good thing. Ripple helps that in a big way by making banks ability to move funds cheap, more efficient and liquid across currency pairs. While many may not like that reality, it is the world we live in currently.  Regardless of ethos, it’s hard to make the argument that banks are going away, that’s why Ripple is a definite candidate for being the next Bitcoin. While Crypto OGs may never fully accept it, it’s almost guaranteed to be Bitcoin-level cool (if not moreso) in the eyes of the banking establishment.   Ultimately, Ripple is acting as a bridge for legacy banking systems leveraging these new digital rails, blockchains through RippleNet and their other product suites.

Even Crypto purist OGs can agree that more opportunities for people to access and be on-boarded into their favorite digital assets is a good thing. Ripple helps that in a big way by making banks ability to move funds cheap, more efficient and liquid across currency pairs. While many may not like that reality, it is the world we live in currently.

Regardless of ethos, it’s hard to make the argument that banks are going away, that’s why Ripple is a definite candidate for being the next Bitcoin. While Crypto OGs may never fully accept it, it’s almost guaranteed to be Bitcoin-level cool (if not moreso) in the eyes of the banking establishment. 

Ultimately, Ripple is acting as a bridge for legacy banking systems leveraging these new digital rails, blockchains through RippleNet and their other product suites.

  NEO   Originally released as Antshares,  NEO  is a distributed “smart economy” network that combines digital assets, digital identities and smart contracts. Founded by Da Hongfei and Erik Zhang  NEO has close ties with another privately run and funded company called OnChain  which is also led by NEO’s founders.  In addition, OnChain was recently voted as a  Top 50 FinTech company in China by KPMG  which indicates industry adoption and awareness.  Back to NEO, it is comprised of two native tokens: NEO (symbol NEO) and NeoGas (symbol GAS) which acts as a “fuel” token to use the NEO network and services. This is China’s first widely adopted Cryptocurrency which has allowed NEO to proliferate greatly. Ultimately, NEO employs a myriad of original technologies for its “smart” economy and network infrastructure.   NEO has a total supply of 100 million tokens which represents the right to manage the network, vote for team members and network parameter changes. Blocks are generated every 15-20 seconds and cannot be revoked, rolled back or forked once validated. Transaction throughput can handle up to 1,000tx/s with the potential to reach 10,000tx/s with optimizations and development.   One of NEO’s most noteworthy features is support for more codes bases than Ethereum including:  Java, Kotlin, .NET, C #, Visual Basic, JavaScript, Typescript, Python, and Go. This bridges many more of the 18.5 million software developers out there into Blockchain development with drastically shorter learning curves.   The NEO system includes:   mechanisms for Consensus (DBFT), Cross-chain operability (NeoX), Smart contracts (NEO Contract), Distributed Storage (NeoFS), and Quantum Resistance (NeoQS).    GAS is generated by holding NEO   GAS operates as a Proof of Stake (PoS) reward associated with holding NEO and is generated with each new block. The total supply of 100 million GAS will be released over approximately 22 years. Each block interval is 15-20 seconds with 2 million blocks generated annually.  The initial release will be 8 GAS per block reduced each year by 1 GAS (per block, per year). When it reaches 1 GAS after 7 years, it will be held at 1 GAS per block for the duration of supply estimated at 22 years. After the 44 millionth block and total GAS reaches 100 million supply there will be no new GAS distributed.   The Delegated Byzantine Fault Tolerant (dBFT) Consensus Mechanism   The dBFT stands for Delegated Byzantine Fault Tolerant, a  Byzantine fault-tolerant  consensus mechanism, facilitates agreements through proxy voting. Voters who hold NEO could choose a person for a specific position, voting in real time.   With digital identity technology, any party can be a verified individual or institution. This facilitates the registration of compliant financial assets and instruments in the NEO network. This could then allow freezing, inheriting, and other ownership transfer functions.   NeoContract allows interoperability and compiling of multiple code bases.   NEO’s smart contract system (NeoContract) consists of three parts:   NeoVM  – NeoVM is a lightweight, multi-use blockchain virtual machine (VM) with a similar architecture to the JavaVM and .NET Runtime.   InteropService  – Used to load the blockchain ledger, digital assets, digital identity, persistent storage area and underlying services.    DevPack – Compiler and IDE plugin  – This smart contract compiler and IDE plugin reduces the learning curve for developers and includes support for: C#, Visual Basic, .Net,F#, Visual Studio, Java, Kotlin, Eclipse, C, C++, GO, JavaScript, TypeScript, Python and Ruby on rails.   NeoX allows cross-chain interoperability   NeoX facilitates this with (1) a “cross-chain assets exchange protocol” and (2) “cross-chain distributed transaction protocol”:   1. Cross-chain assets exchange agreement   Allow multiple participants to exchange assets across different chains and to ensure that all steps in the transaction work in sync. Other blockchains can be compatible with NeoX as long as they can provide simple smart contract functionality.   2. Cross-chain distributed transaction protocol   Cross-chain distributed transactions mean that multiple steps of a transaction are scattered across different blockchains and that the consistency of the entire transaction is ensured. It’s also possible for cross-chain smart contracts where a smart contract can perform different parts on multiple chains   NeoQS creates quantum-proof technology   Quantum computers threaten  RSA  and  Elliptic Curve (ECC)  based cryptographic mechanisms. NeoQS integrates a Lattice-based cryptography which provides difficult for quantum computers to crack.   The first decentralized application (dApp) on NEO’s platform:

NEO

Originally released as Antshares, NEO is a distributed “smart economy” network that combines digital assets, digital identities and smart contracts. Founded by Da Hongfei and Erik Zhang NEO has close ties with another privately run and funded company called OnChain which is also led by NEO’s founders.  In addition, OnChain was recently voted as a Top 50 FinTech company in China by KPMG which indicates industry adoption and awareness.

Back to NEO, it is comprised of two native tokens: NEO (symbol NEO) and NeoGas (symbol GAS) which acts as a “fuel” token to use the NEO network and services. This is China’s first widely adopted Cryptocurrency which has allowed NEO to proliferate greatly. Ultimately, NEO employs a myriad of original technologies for its “smart” economy and network infrastructure. 

NEO has a total supply of 100 million tokens which represents the right to manage the network, vote for team members and network parameter changes. Blocks are generated every 15-20 seconds and cannot be revoked, rolled back or forked once validated. Transaction throughput can handle up to 1,000tx/s with the potential to reach 10,000tx/s with optimizations and development.

One of NEO’s most noteworthy features is support for more codes bases than Ethereum including: Java, Kotlin, .NET, C #, Visual Basic, JavaScript, Typescript, Python, and Go. This bridges many more of the 18.5 million software developers out there into Blockchain development with drastically shorter learning curves.

The NEO system includes: mechanisms for Consensus (DBFT), Cross-chain operability (NeoX), Smart contracts (NEO Contract), Distributed Storage (NeoFS), and Quantum Resistance (NeoQS).

GAS is generated by holding NEO

GAS operates as a Proof of Stake (PoS) reward associated with holding NEO and is generated with each new block. The total supply of 100 million GAS will be released over approximately 22 years. Each block interval is 15-20 seconds with 2 million blocks generated annually.

The initial release will be 8 GAS per block reduced each year by 1 GAS (per block, per year). When it reaches 1 GAS after 7 years, it will be held at 1 GAS per block for the duration of supply estimated at 22 years. After the 44 millionth block and total GAS reaches 100 million supply there will be no new GAS distributed.

The Delegated Byzantine Fault Tolerant (dBFT) Consensus Mechanism

The dBFT stands for Delegated Byzantine Fault Tolerant, a Byzantine fault-tolerant consensus mechanism, facilitates agreements through proxy voting. Voters who hold NEO could choose a person for a specific position, voting in real time. 

With digital identity technology, any party can be a verified individual or institution. This facilitates the registration of compliant financial assets and instruments in the NEO network. This could then allow freezing, inheriting, and other ownership transfer functions.

NeoContract allows interoperability and compiling of multiple code bases.

NEO’s smart contract system (NeoContract) consists of three parts:

NeoVM – NeoVM is a lightweight, multi-use blockchain virtual machine (VM) with a similar architecture to the JavaVM and .NET Runtime.

InteropService – Used to load the blockchain ledger, digital assets, digital identity, persistent storage area and underlying services. 

DevPack – Compiler and IDE plugin – This smart contract compiler and IDE plugin reduces the learning curve for developers and includes support for: C#, Visual Basic, .Net,F#, Visual Studio, Java, Kotlin, Eclipse, C, C++, GO, JavaScript, TypeScript, Python and Ruby on rails.

NeoX allows cross-chain interoperability

NeoX facilitates this with (1) a “cross-chain assets exchange protocol” and (2) “cross-chain distributed transaction protocol”:

1. Cross-chain assets exchange agreement

Allow multiple participants to exchange assets across different chains and to ensure that all steps in the transaction work in sync. Other blockchains can be compatible with NeoX as long as they can provide simple smart contract functionality.

2. Cross-chain distributed transaction protocol

Cross-chain distributed transactions mean that multiple steps of a transaction are scattered across different blockchains and that the consistency of the entire transaction is ensured. It’s also possible for cross-chain smart contracts where a smart contract can perform different parts on multiple chains

NeoQS creates quantum-proof technology

Quantum computers threaten RSA and Elliptic Curve (ECC) based cryptographic mechanisms. NeoQS integrates a Lattice-based cryptography which provides difficult for quantum computers to crack.

The first decentralized application (dApp) on NEO’s platform:

Called a “next generation intelligence and content ecosystem” for Chinese markets Red Pulse has introduced a token, RPX. This token powers a platform which manages content production and distribution focused initially on China’s capital markets. The goal is to incentivize research by compensating producers for their insight. Red Pulse leverages market intelligence, machine learning and traditional research practices to provide top data to users.

https://coin.red-pulse.com/#overview

On the front end, consumers can access the research that is most relevant to them to make informed decisions. Red Pulse maintains the quality of information with oversight of the platform, incentive structure, and vetting of expert-level contributors. 

NEO Analysis

NEO is like seeing Ethereum before it became so popular. With its Asian roots and network effect, NEO could take us to new highs and levels of adoption. (Not to mention being in the Asia Pacific region puts them near upwards of 4 billion people). 

It has similar features that made Ethereum popular but they greatly exceeded that by allowing support for new code bases. This reduces the learning curve for developers vs having to train on completely original code bases.

As we’ve seen, there is a huge bottleneck in having enough Blockchain developers to meet the current market demand. That’s why NEO allowing many more codes based allows them to pick from the 18.5 million software developers out there vs the 5000 estimated developers out there for Blockchain.

With having a close alliance with OnChain which is already acclaimed in China’s FinTech industry, NEO is poised for significant growth and integration with the Asia Pacific region and beyond.

  Bitshares    Bitshares  (Symbol BTS) is a “crypto-equity”, business engine, decentralized exchange (DEX), software, network, ledger, exchange, bank, currency and idea, whose time has come. Based on a delegated proof of stake (DPOS) algorithm, Bitshares was created by visionary Dan Larimer, founder of Steemit, EOS and Cryptonomex. Bitshares boast powerful features and use cases that take on some of the biggest global markets and industry needs.   First off, your user name acts as your wallet address (think your email login as an example) vs long cumbersome strings of letters and numbers. They have a smoking fast blockchain with 1.5 second block times and throughput potential of 180,000 tx/s (which is more than Visa, Mastercard and Amex combined).

Bitshares

Bitshares (Symbol BTS) is a “crypto-equity”, business engine, decentralized exchange (DEX), software, network, ledger, exchange, bank, currency and idea, whose time has come. Based on a delegated proof of stake (DPOS) algorithm, Bitshares was created by visionary Dan Larimer, founder of Steemit, EOS and Cryptonomex. Bitshares boast powerful features and use cases that take on some of the biggest global markets and industry needs. 

First off, your user name acts as your wallet address (think your email login as an example) vs long cumbersome strings of letters and numbers. They have a smoking fast blockchain with 1.5 second block times and throughput potential of 180,000 tx/s (which is more than Visa, Mastercard and Amex combined).

                                                                Source:   @Bitshares    A Decentralized Exchange (DEX) offers a trading floor built on the blockchain   The DEX allows users to buy and trade Cryptocurrencies without a central authority or single point of failure. This eliminates the need for a clearinghouse. The DEX has growing Chinese market penetration and popularity due to stiff and uncertain emerging government regulations.   Smart Coins are market-pegged assets backed by real world value   This built-in feature and are  pegged to assets such as bitUSD  mirrors the USD fiat value. This allows collateralized shorts and options opening the door for Bitshares to take a bite out of the  estimated $1 quadrillion derivatives market . The assets retain price parity based on Bitshares decentralized market.

                                                              Source: @Bitshares

A Decentralized Exchange (DEX) offers a trading floor built on the blockchain

The DEX allows users to buy and trade Cryptocurrencies without a central authority or single point of failure. This eliminates the need for a clearinghouse. The DEX has growing Chinese market penetration and popularity due to stiff and uncertain emerging government regulations.

Smart Coins are market-pegged assets backed by real world value

This built-in feature and are pegged to assets such as bitUSD mirrors the USD fiat value. This allows collateralized shorts and options opening the door for Bitshares to take a bite out of the estimated $1 quadrillion derivatives market. The assets retain price parity based on Bitshares decentralized market.

  Decentralized Autonomous Companies (DAC) are given a platform to exist   As one of the first DACs, Bitshares provides a framework for other entities to organize themselves in a similar way and offer the tools, community and rails to do so in a legal and compliant manner creating an environment of trust.    100% Delegated Proof of Stake (DPOS) removes the need for power hungry Proof of Work (PoW)   Similar to NXT and Peercoin, the Bitshares architects felt that the sole purpose of transactions should be for propagation and confirmation. Proof of Work as seen with Bitcoin chews up a significant amount of energy using computing resources to solve math problems. Some consider this unsustainable long term. Bitshares leverages the framework from proof of stake so holders can delegate their vote to a key.   

Decentralized Autonomous Companies (DAC) are given a platform to exist

As one of the first DACs, Bitshares provides a framework for other entities to organize themselves in a similar way and offer the tools, community and rails to do so in a legal and compliant manner creating an environment of trust. 

100% Delegated Proof of Stake (DPOS) removes the need for power hungry Proof of Work (PoW)

Similar to NXT and Peercoin, the Bitshares architects felt that the sole purpose of transactions should be for propagation and confirmation. Proof of Work as seen with Bitcoin chews up a significant amount of energy using computing resources to solve math problems. Some consider this unsustainable long term. Bitshares leverages the framework from proof of stake so holders can delegate their vote to a key.

 

  Network fees and transaction costs are shared among members.   Bitshares offers membership subscriptions which will range from annual to lifetime memberships and allow a reduced fees for using the Bitshares rails. Shorter term subscriptions have a designated time frame for getting the the reduced rate. In addition, there is a referral program for members that is one level deep which allows them to receive reduced fees and a percentage of the fees that are paid by those they refer.

Network fees and transaction costs are shared among members.

Bitshares offers membership subscriptions which will range from annual to lifetime memberships and allow a reduced fees for using the Bitshares rails. Shorter term subscriptions have a designated time frame for getting the the reduced rate. In addition, there is a referral program for members that is one level deep which allows them to receive reduced fees and a percentage of the fees that are paid by those they refer.

  Bitshares offers banking services including collateralized loans   Bitshares collateralizes your BitAssets with capabilities to  loan you up to 33.33% of your total BTS holdings  allowing for a much more conservative reserve of total loan (over 200%). This decentralized banking model is creating a robust and safe alternative to traditional banking. The fact there are actual 2x the collateralized reserves is a great improvement on the current fractional reserve banking system which requires a meager 10% reserve of assets.    Founders of Bitshares have previous experience from creating EOS and Steemit   Bitshares the company has made a point to separate themselves as a third party consulting firm  https://cryptonomex.com/  that serves the network based on the wishes put forth by the members, committees and witnesses. This was to ensure that there was no centralized control or biases as we’ve seen with other big name coins while still making their expertise and skill sets available to the community in a professional manner.  They bring significant experience from building and promoting previous Crypto projects which gives them experience and hard knocks to draw from which will potentially speed up their progress and expertise to grow Bitshares.  Ultimately, Bitshares is cray cray you guys. The fact that they are tackling the derivatives market (estimated at $1 QUADRILLION…that’s a trillion x 1000!) with their SmartCoins being pegged to assets is just nuts. I can’t think of a bigger market for them to target.   In addition to that, there is a great movement toward creating a DEX (decentralized exchange) which is truly a next generation need of the marketplace. Problems with centralized exchanges include hacks, breaches, theft and even market manipulation. Single points of failure along with zealous financial regulators is a great premise for needing a DEX.  In particular, as a result of recent worry about regulation in China, there has been a lot of adoption in the market of the Bitshares DEX which bodes well for their network effect.

Bitshares offers banking services including collateralized loans

Bitshares collateralizes your BitAssets with capabilities to loan you up to 33.33% of your total BTS holdings allowing for a much more conservative reserve of total loan (over 200%). This decentralized banking model is creating a robust and safe alternative to traditional banking. The fact there are actual 2x the collateralized reserves is a great improvement on the current fractional reserve banking system which requires a meager 10% reserve of assets. 

Founders of Bitshares have previous experience from creating EOS and Steemit

Bitshares the company has made a point to separate themselves as a third party consulting firm https://cryptonomex.com/ that serves the network based on the wishes put forth by the members, committees and witnesses. This was to ensure that there was no centralized control or biases as we’ve seen with other big name coins while still making their expertise and skill sets available to the community in a professional manner.

They bring significant experience from building and promoting previous Crypto projects which gives them experience and hard knocks to draw from which will potentially speed up their progress and expertise to grow Bitshares.

Ultimately, Bitshares is cray cray you guys. The fact that they are tackling the derivatives market (estimated at $1 QUADRILLION…that’s a trillion x 1000!) with their SmartCoins being pegged to assets is just nuts. I can’t think of a bigger market for them to target. 

In addition to that, there is a great movement toward creating a DEX (decentralized exchange) which is truly a next generation need of the marketplace. Problems with centralized exchanges include hacks, breaches, theft and even market manipulation. Single points of failure along with zealous financial regulators is a great premise for needing a DEX.

In particular, as a result of recent worry about regulation in China, there has been a lot of adoption in the market of the Bitshares DEX which bodes well for their network effect.

Ivan Nabalon: What do cryptocurrencies need to go mainstream?

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This article was originally published on Electronic Identification on December 18, 2017. https://www.electronicid.eu/criptocurrencies/

 

Now, eight years after the first bitcoin was issued in 2009, there are hundreds of cryptocurrencies and the market cap is in the tens of trillions of dollars. Growth seems to be exponential. Their impact on an economy could be global and without precedent in an attempt to democratise it: make it more transparent, efficient, and with more competitive in any banking or financial service. They will have a high impact on project financing, on how financing services are provided, on equity trading, on payments, basically on any asset moved between people.

All of these ideas are very interesting but the truth about how they are going to be used in real life is different: barely few hundred thousand people, the early-adopters, are using cryptocurrency. The market size is tiny compared to traditional money and its impact on the real economy, beyond its speculative use, is minuscule.

Projects around cryptocurrencies challenge the creation of a global economic order, however, their anarchic vision based on anonymity and the lack of trust from the lack of control mechanisms and their volatility means that their maturity is still far from turning into a commonly used project.Why isn’t it really taking off? What can we do? This post is some of our thoughts.

Although several sources were used, most of this post’s analysis is based on a study called “Global Cryptocurrency Benchmarking Study” by Dr. Garrick Hileman and Michel Rauchs, 2017, sponsored by VISA, studying 144 cryptocurrency organisations.

In 2012, we started a project to change the paradigm of democracy using electronic means, creating the first citizen participation network with legal backing. This project aims to allow citizens to exercise their sovereignty from their cell phone every day.

E-democracy and cryptocurrencies herald an unprecedented positive change in our society. They are similar in the challenges they face to become commonly used in developed societies. They’re the same since the economy and democracy are intrinsically related: they’re two sides of the same coin. Over time I’ve begun to see in the e-democracy project civitana.org how much it is like the diagnostic of cryptocurrencies and solutions for them to go mainstream.

Cryptocurrencies are at early stage adoption, far from widespread

Although there are many more wallets, most studies, including the one this article is based on, point to three to five million active users who own cryptocurrencies. The most conservative estimates limit unique users to 700k, if you look at the number of unique addresses used annually in e-trade.

A 2016 report by Coinbase and ARK Invest estimates that more than 74% of users adopt cryptocurrencies only as an investment, for speculative reasons.

If we put aside wallets for now and look at payments, it is very hard to develop cryptocurrencies for payment services. Seventy-nine percent of payments companies using cryptocurrencies work through existing relationships with financial institutions and payment networks. While there are more and more merchants who accept cryptocurrencies as a means of payment, cryptocurrencies seem to mostly be used as a standard B2B exchange between major financial institutions.

Geographically, 81% of the wallets are in the US and Europe. That would be 99% if we included ASIAPAC. That means that the development in South American countries and in Africa is nigh on inexistent.

Even keeping in mind the main driver behind the use of cryptocurrencies in investment or speculation, its market cap hit tens of trillions in March 2017, just a drop in the bucket in a traditional paper-money based market cap of $90 trillion.

To move forward we have to solve a dilemma…

The dilemma is whether to be inside or outside the system. I’m afraid there’s no middle road option.

Change from anonymity. Anonymity is one of the major values of today’s cryptocurrencies in an attempt by most service providers to guarantee it. This shift would create a new world order based on only individual rights, without obligations, beyond all regulations meaning beyond the state’s grasp.

The other option is to consider a currency change from the inside: to decentralise and gain transparency for the economy within today’s model, with obligations (paying taxes) and generating trust. We’re basically talking about advanced democracies where citizens are represented and politics are organised through the state.

I see the first option as Utopian since it tries to change value between people against a background of distrust and lack of solidarity. We assume the fact that equity trading is key for human relationships and to generate a sustainable way to coexist: the anonymity, the 0 trust, the individualisation and lack of community solidarity since it’s outside of regulation and taxation, make it a paradox and a techno-utopia.

The final consequence of anonymity is that the decision to pay taxes is up to the person. I have rights, but do I have obligations? “We’ll see, maybe.” Imagine a normal family, where the parents work, pay rent or the mortgage with anonymous cryptocurrencies, one of them is paid anonymously, the other gets his company’s bills paid by his customers and makes them anonymous with cryptocurrencies. They pay for their services: their children’s schools, food, insurance. They invest with capital gains. All within a context of anonymity. What do you think will happen when they have to pay taxes? Will they pay them? Will they contribute out of the good of their hearts? And will they, at the same time, use public services like scholarships or the national health system? Do you see where I’m going with this?

As of today, cryptocurrencies have meant voracious speculative investment and a slathering of criminal cases: money laundering, terrorist financing, and concealment of funding sources, ramsonware, etc.

This is why we think that anonymity is hurting the image of cryptocurrencies and is the main obstacle keeping it from going mainstream. I’m sorry to disappoint fans of anonymity since they should know that it’s not entirely real, it’s just a first attempt. There’s an abundance of literature explaining the concept of pseudo-anonymity. In general, operations online leave more traces than transactions in the real world. It’s a matter of time before there are tools, even outside of regulation, to track any crime that might be committed, even the sophisticated ransoms paid with cryptocurrencies in cryptovirology. Research is already underway to overcome this challenge, whose major customers are in the police and computer-related crime departments in state’s security units.

My solution to the dilemma comes from the second option: maybe it’s still flawed but definitely more charitable, reasonable, and easy to put into practice. Making cryptocurrencies come under the umbrella of regulatory compliance would prevent crimes, create a climate of trust to help its use, and cultivate fellowship by paying taxes, the basis for a democracy that aims to achieve a fair society and can offer the most opportunities for growth. Remember that society built by paying taxes has generated the most benefits for our community in the history of humanity: the impact of that solidarity is enormous in our lives and can improve even more with an economy based on cryptocurrencies because it will be more transparent and competitive by replacing today’s monopolies and oligopolies, making the economy more democratic. To illustrate the idea of the impact of advanced democracies on our lives, let’s see what happens when there is more solidarity. Solidarity materialises when we pay taxes and paying taxes means more resources to exercise democracy with. This graph relates the level of democracy and its consequences: Human Development Index, Per capita income, Inequality Index:

 

Criptocurrencies-Data-1080x687.png

[Graph, Source: designed in-house]

I’m an avid critic of today’s democracies; I think that they still have much to discover and that they’re just the start for something much bigger. That said, it’s a fact that our society, if we look at the relationship between the data and the historical context, has never had more progress and well-being in any other political system than today in democracies.

Unfinished business: Privacy

E-trade is traceable, even operations with supposedly anonymous cryptocurrencies. In the future, electronic operations will be more secure but they will also create more ways for states and/or private corporations to control citizens. The aim behind creating anonymous cryptocurrencies was also to find privacy in transactions in the face of the outpouring of online products and services that use personal data in what seems like to be arbitrarily and indiscriminately for the profit and, potentially, more control of private companies like Google or Facebook with the resulting loss of privacy.

This is an important matter and we have to deal with it: Privacy is a right. We have to protect that right, since it guards us against interference. We must protect it and with all our strength in online relationships and transactionsWe shouldn’t, however, confuse it with anonymity. Anonymity can make privacy possible but at the same time make it possible for people to find impunity for crimes committed from money laundering and terrorist financing or child molestation by allowing false names or identity theft on social media.

This situation isn’t easy to solve, not, at least, with a simple blanket solution. In 2014, we created civitana.org, the first voting project in the world that was fully online, and we faced the same problem a referendum would when a person goes to vote at a polling station: you have to identify yourself with your ID and you also have to make the vote anonymous by putting the ballot into the box in an anonymous envelop and mixing it in with the rest. The system we created was the same as a ballot box and responds to a universal voting requirement. To put it another way, we resolved the problem by generating trust in identity in a first step so an audit and verification could be done throughout the process and the anonymity of the electronic vote preserved.

Regardless of the solutions, we are faced with a challenge with how people’s privacy is managed privately and in cryptocurrencies. The ways to solve it can be technical, like the one above, or by giving control and power over the information to people. The regulation is also advancing: the new European GDPR regulation applies stricter rules to how general data should be handled by service providers, getting to the root of the problem. The Internet is still young and so are its business models: there’s no history to compare this situation to but all signs point to the fact that part of the solution to privacy is for users to be more conscious and know more about the services they use and that over time they should better limit what they want to do with their data and draw a line in the sand between the data and services they want to share and use and the ones they don’t.

So…

cryptocurrencies will quickly go mainstream as soon as they get regulated. Anonymity is the main barrier and should be changed to a correct management of people’s identity and the use sources of the money. There are best practices like those by FAFT, AML European regulations, or KYC processes to address this challenge. There are already some ICOs and wallets that have the guarantees required by the regulation. The ICOs will probably suffer at the beginning since they won’t be able to capture money that has been laundered but, in the long run, they will generate more trust among average investors, regulators, and will become an alternative to today’s financing options.

Cryptocurrencies offer more transparency and more competitiveness, with benefits for all people and for society at large since they make the economy more democratic.

By generating more trust, equities can be traded commonly with cryptocurrencies, increasing their use for the real non-speculative economy, making it harder for crimes to be committed, preventing money laundering and financing of terrorism. The volatility of cryptocurrencies will decrease to stable levels.

Links related to the graphic shown above:

Democracy IndexLife ExpectancyHuman Development IndexGini Index

Iván Nabalón is the founder of Civitana (www.civitana.org), the first, biggest and legally supported social network in the world for Citizenship Participation and CEO of Electronic Identification (https://www.electronicid.eu/), the company leader in video identification of clients.