Bitcoin Exchange Bitstamp Confirms Sale to Gaming Group NXC

Cryptocurrency exchange Bitstamp has been acquired by NXMH, an investment firm based in Belgium and owned by South Korean conglomerate NXC.

In a deal signed last Thursday, the firm took a majority ownership stake in the exchange. Bitstamp CEO Nejc Kodrič will retain a minority ownership stake and continue running the startup’s operations. The terms of the deal, including the sale price, were not disclosed.

Bitstamp backer Pantera Capital will also retain a 6 percent ownership stake in the exchange, according to statements, and Bitstamp will continue to operate independently.

NXMH’s parent company, NXC, also owns the South Korean cryptocurrency exchange Korbit. NXC owns Nexon, a maker of popular games for both desktop and mobile platforms. Public filings released earlier this year had linked NXC and Bitstamp.

Bitstamp’s customers will not see any immediate change in services, Kodrič told CoinDesk. The exchange has an existing roadmap for improvement, which it intends to stick to for the time being. During negotiations with NXMH, the investment firm essentially agreed with Bitstamp’s goals, he said.

“We realized very early on that our outlook for the crypto industry is very much aligned with them,” he explained. “They’ve given us a lot of confidence that our execution will proceed … They understand the industry.”

NXMH and Bitstamp will continue to work to “bridge the gap between traditional finance and crypto,” a goal that Bitstamp has been working toward for several years already, Kodrič said.

He added:

“Unlike some of our competitors who take more of a lax approach, we want to [set standards] … We’ve already taken the regulatory framework seriously starting back in 2014, we started doing [know-your-customer] before it was an industry standard. All of it comes down to us viewing crypto as being a spark of everyday life.”

In a statement, NXMH investment manager Hendrik Ghys said, “Bitstamp is one of the oldest and most-respected cryptocurrency exchanges and we see positive growth potential as the industry continues to evolve … We acquired Bitstamp because we see it as a strategic, long-term investment.”

Looking ahead

According to the companies, Bitstamp will focus on improving user experience, customer service, trading functions and other operations, as well as maintaining a secure trading environment.

Speaking to concerns about issues withdrawing funds, Kodrič noted that a number of corresponding banks began freezing or examining cryptocurrency-related transactions over the past few months, and mitigating customer impact is “a continuous process.”

Similarly, the exchange is working to prevent its order books from displaying large amounts of volatility, he said.

Earlier this month, a number of Reddit users commented on rapid bitcoin price fluctuations on the exchange, noting that the cryptocurrency’s price changed by as much as 28 percent over a few minutes.

Preventing this sort of issue in the future is “on the top priority list,” Kodrič said. He explained that “there was a one client where its trading algorithm made some irrational choices and effectively triggered a couple of large orders on the market, which was later frozen.”

“It was a mistake [by] the client, that cost them some money. As a part of some of the changes on the road map … specifically tied to technical improvements, we’ll [fix this],” he said.

Bitstamp image Piotr Swat/Shutterstock

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Bitcoin Could End October With 2018’s First Year-Over-Year Decline

With prices trading sideways around $6,400 for the 10th day straight, bitcoin (BTC) risks reporting a yearly loss for its 10th birthday.

The leading cryptocurrency, which turns a decade old this Wednesday, has been flatlined below $6,500 since Oct. 19 and is showing no signs of life with volatility readings at multi-month lows.

At press time, BTC is trading at $6,414, as per CoinDesk’s Bitcoin Price Index (BPI) – up 4.46 percent on a yearly basis.

Because BTC was trading above $6,400 on Oct. 31, 2017, annual performance would turn negative if the lateral trading continues for another 48 hours.

Further, the year-on-year losses would deepen if the cryptocurrency fails to pick up a bid next month, as, in November 2017, prices witnessed a sharp rally to levels above $8,000 on speculation that the launch of the first BTC futures would open the doors for the world’s yield-hungry institutional investors.

Both Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (Cboe) did launch futures contract in December. However, the institutional money is still largely waiting at the gates – a situation that may change if the U.S. Securities and Exchange Commission approves BTC exchange-traded funds in the coming months.

BTC topped out around $20,000 in December 2017 but has dropped significantly this year. However, many believe the cryptocurrency has charted a bottom at around $6,000 in the last four months, although a bullish reversal is seen only above the September high of $7,400.

Disclosure: The author holds no cryptocurrency assets at the time of writing.

Bitcoin image via Shutterstock; charts by Trading View 

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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Institutions Are Coming for Your Crypto

Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.


The term “institutional crypto” sounds like an oxymoron. There’s something quite ironic about financial institutions adopting a renegade technology that was designed to do away with them.

Yet a string of developments this past month suggests that – to put it bluntly – the institutions are coming for your crypto.

Whether this is something to be alarmed, excited or bemused by, depends on what you want out of cryptocurrencies and blockchain technology. Do you want fully independent control over your assets, a more efficient and inclusive global economy, or just to get insanely rich?

What is clear is that, for a time at least, there will be an awkward and increasingly intensified clash of cultures between the pinstripes of Wall Street and the hodlers of crypto land.

And while an influx of institutional money may at some point drive up crypto prices, that clash portends more uncertainty and volatility for at least a while longer.

Institutional-grade custody

An important development came with the news two weeks ago that Fidelity will offer a digital asset trading service. The sixth-biggest fund manager in the world announced a project catering specifically to the trading demands of large institutional investors in which, most importantly, they will provide services such as “institutional-grade custody.”

For believers in the “be your own bank” philosophy of bitcoin, the very idea of third-party custody is contradictory to the “trustless” ideals of cryptocurrency’s origins.

But this was inevitable. If corporations – banks, hedge funds and brokerages, first, then non-financial enterprises, second – are to participate in the crypto economy, the legal, compliance, insurance and risk management demands they live under almost require that they pass off the risk of holding such assets to outside custodians.

And let’s face it, an increasing amount of the world’s crypto holdings is in the custody of third-party operators, whether it’s with custodial wallet providers such as Coinbase or at centralized crypto exchanges that comingle customer assets with those of others.

A key difference is that these kinds of services are now being developed for hedge funds and other professional investment firms by more heavily regulated firms such as Fidelity. Custodial banks such as State Street and Northern Trust are also working on delivering similar services.

At the same time, a number of providers that started as crypto companies have earned regulatory status as qualified custodians, allowing them to also go after compliance-sensitive institutional investors as clients. These include BitGo, which received a charter from the South Dakota Division of Banking in September and Coinbase, which only last week received a similar qualification from the New York Department of Financial Services.

Meanwhile, the Intercontinental Exchange, or ICE, which owns the New York Stock Exchange, is preparing to launch Bakkt, a new bitcoin futures trading service – likely in December, the company said last week. The key difference with the futures contracts that were launched late last year by both the Chicago Mercantile Exchange and the Chicago Board of Options Exchange, is that Bakkt’s will be for physical delivery rather than merely a cash-based settlement. That will, in turn, require custodial and other services.

Goodbye ICO, hello STO

This race to serve institutions comes as the mania for initial coin offerings, or ICOs, has waned on account of the dramatic downturn in the prices of tokens attached to decentralized applications. That was in turn mostly due to a regulatory pushback from the Securities and Exchange Commission, after commissioners argued that most, if not all, ICOs were in breach of securities registration rules.

Now, a new buzzword is emerging in the ICO’s place: the “STO.”

This is the idea of a security token offering. In many respects, it is far less revolutionary than an ICO. Most ICOs purport to be selling “utility tokens” whose governance structure includes a unique cryptoeconomic model for rewarding and incentivizing certain behavior within decentralized networks. STOs, by contrast, are a crypto-based version of more traditional assets such as bonds or equity.

Still, R3, the distributed ledger technology consortium founded by large banks, is already calling security tokens the “third blockchain revolution.”

It’s perhaps a little ironic that a group founded by Wall Street firms, which scoffed at the absurd hype in the ICO market last year, is now using language that could also be deemed hyperbolic. Still, it’s true that STOs could have a big impact, especially in terms of smart contracts helping to more efficiently manage cap tables and, potentially, bypass underwriters in a more direct issuer-to-investor model.

To be clear, though, the impact will mostly be felt by traditional investment firms and other accredited investors who participate in primary securities markets. It might make it cheaper to raise capital and open up new models for doing so with institutional investors.

But it’s not really about democratizing finance, as the ICO phenomenon, with its direct reach into retail markets, was purported to be.

Institutional framework, non-institutional model

There’s a pattern to all this: new custodial and trading services being offered by large, regulated entities, all in preparation for an expected influx of new securities that use smart contracts and blockchain technology to manage transfers of more traditional assets. All are aimed squarely at the expected arrival of institutional investors into the crypto world.

Holders of bitcoin, ether and other crypto assets that might now receive a flood of incoming orders from these deep-pocketed investors sometimes salivate at this idea – essentially because they expect prices to rise.

That might be the case, but this is not going to be a smooth ride.

One reason is that, for all the efforts to jam the square peg of cryptocurrencies into the round hole of regulated, intermediary-managed capital markets, there is a fundamental contradiction that won’t be easy to reconcile.

Wall Street types like to talk about crypto as a new asset class, one to add next to stocks, bonds and commodities in their clients’ portfolios. But for the time being at least, while early-adopting retail players of varying size still dominate the crypto community, this “asset class,” if it can be called that, is going to behave in a very different way from others.

That’s because, for now at least, when you buy bitcoin, ether or other pure cryptocurrencies, you’re not just buying a piece of real estate or a claim on a company’s equity, you’re buying into an idea.

And that idea, one that’s supported by a very motivated, enthusiastic—if not always rational – community, supports a paradigm that would see these very same intermediating institutions removed from the economy.

I feel Wall Street analysts are going to have a hard time grappling with that contradiction. There will be a lot of surprises. And surprises create volatility.

Making a deal image via Shutterstock.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Singapore Power Unveils Blockchain Market for Renewable Energy Trading

Singapore Power Group, the country’s energy utilities provider, has launched a blockchain-powered marketplace for renewable energy certificates (RECs).

The company announced in a press release Monday that the platform is “designed and built in-house” and enables organizations to trade in RECs – tradable certificates that represent energy generated from renewable sources such as solar. Blockchain technology, it says, bring the platform “security, integrity and traceability of each REC transaction.”

When an entity purchases RECs, renewable energy is generated on their behalf by producers. The release says that buyers are automatically matched with sellers on the blockchain platform, helping companies to achieve their sustainability targets.

“Through blockchain technology, we enable companies to trade in renewable energy certificates conveniently, seamlessly and securely, helping them achieve greener business operations and meet their sustainability targets,” said Samuel Tan, chief digital officer at Singapore Power.

According to the group, the first buyers to have signed up on its blockchain platform are City Developments Limited (CDL) and DBS Bank. Solar power developers such as Cleantech Solar Asia and LYS Energy Solutions have also already joined the platform as sellers. Katoen Natie Singapore, which is expected to launch a solar facility in the country soon, has also joined as an REC seller.

Earlier this month, the Public Utilities Commission of Nevada, the government agency charged with supervising and regulating power utility services in the state, said it was looking to implement blockchain for its energy credit tracking system.

Solar farm image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

CFTC Commissioner Cites CryptoKitties, Dogecoin When Talking DLT Uses

A commissioner of the Commodity Futures Trading Commission (CFTC) spoke positively about the potential uses for blockchain while emphasizing how his agency must respect its role in financial markets during a meeting of international regulators on Thursday.

CFTC Commissioner Rostin Behnam called for “an open mind” with regulating the financial technology space, highlighting a number of applications for distributed ledger technology (DLT) in particular during a speech at the 2018 International Swaps and Derivatives Association (ISDA) Annual Japan Conference in Tokyo.

Regulatory agencies such as the CFTC must better understand how new technologies work and how they might impact global markets in order to help innovators safely access financial networks.

“I have come to understand that innovation at the edge allows others to be creative and pursue their dreams and missions,” he said, adding:

“Just take a moment to think about all the possible use cases for DLT from agriculture to healthcare, finance to art, CryptoKitties to dogecoin. These innovations are more than just technology: They inspire us to find solutions for every problem or hurdle we encounter — and sometimes, they are just fun.”

Behnam added that he underwent a “listening tour” to learn more about issues around bitcoin and other crypto assets, DLT, artificial intelligence and cloud-based programming as part of an effort to better understand new technologies.

“I had no single goal in mind, just a desire to avoid being the typical regulator on the tail end of technological advancement, scurrying to keep pace with swift innovations that capture market efficiencies, open markets to new products and participants, and often reward those willing to take risk,” he explained.

The results of his tour now inform his view on the ecosystem, he said.

CFTC emblem image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Planting Bitcoin  Part Two: Seasons

Dan Held is the founder of crypto portfolio service Picks & Shovels. He previously founded data service ZeroBlock, which sold to Blockchain, and served as VP of product at ChangeTip. 

This exclusive opinion piece is part of CoinDesk’s “Bitcoin at 10: The Satoshi White Paper” series.


“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.” — Satoshi Nakamoto

Introduction

In my last article, “Species,” I covered why Satoshi’s design of Bitcoin’s genetic code made it the best species of money ever created.

Satoshi had begun creating Bitcoin’s genetic code in 2007, but had waited for the right moment to plan the seed, the right moment in which the world would understand and embrace what he had created. In this article, I will dive into the moment in which Satoshi precisely chose to plant the Bitcoin seed.

(To enjoy this article in its fullest, I recommend playing this song then continue reading. If you like this music, please follow my playlist on Spotify.)

Central Banks

From the founding of the Bank of England, central banks have been used as a means for states to fund their policies without risking the popular ire caused by direct taxation.

When the capital provided by central banks is misallocated by either the state or in a market distorted by artificially low interest rates, an inevitable collapse occurs.

The central bank is the root of these periodic market dislocations.

“I believe the root cause of every financial crisis, the root cause, is flawed government policies” — Henry Paulson (US Treasury Secretary during the 2008 financial crisis and former Goldman Sachs CEO)

With the recent market dislocation, investors were bailed out. Unfortunately, you cannot subsidize irresponsibility and expect people to become more responsible.

Prior to the 20th century, ordinary people could always flee to gold to save themselves from the effects of the failed, inflationist, policies of the central bank. This ended across much of the world in the 20th century as gold was outlawed. — Vijay Boyapati

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.” — Alan Greenspan (Former Chairman of the Federal Reserve)

Early 2007

Satoshi Nakamoto, after years and years of research, starts coding up Bitcoin.

2008 Financial Crisis

“The problem had grown so big that the end was bound to be cataclysmic and have big social and political consequences” — Michael Lewis (Big Short)

January

Fed tries to stop the housing bust

The Federal Market Open Committee began lowering the fed funds rate (to 3.0%). There were 57 percent more foreclosures than 12 months earlier

February

Bush signs tax rebate as home sales continue to plummet

February 13: President Bush signed a tax rebate bill to help the struggling housing market. The bill increased limits for FHA loans and allowed Freddie Mac to repurchase jumbo loans.

March

Fed begins bailouts

March 14: The Federal Reserve held its first emergency weekend meeting in 30 years.

March 17: The Federal Reserve announced it would guarantee Bear Stearns‘ bad loans.

March 18: The Federal Open Market Committee lowered the fed funds rate by 0.75 percent to 2.25 percent. It had halved the interest rate in six months. That same day, federal regulators agreed to let Fannie Mae and Freddie Mac take on another $200 billion in subprime mortgage debt.

April — June

The Fed buys more toxic bank debt

June 2: The Fed auctions totaled $1.2 trillion. In June, the Federal Reserve lent $225 billion through its Term Auction Facility.

July

IndyMac bank fails

July 11: The Office of Thrift Supervision closed IndyMac Bank. Los Angeles police warned angry IndyMac depositors to remain calm while they waited in line to withdraw funds from the failed bank.

July 23: Secretary Paulson made the Sunday talk show rounds. He explained the need for a bailout of Fannie Mae and Freddie Mac. The two agencies themselves held or guaranteed more than half of the $12 trillion of the nation’s mortgages.

(for the next few paragraphs, I HIGHLY recommend listening to this soundtrack)

September

Global panic

September 7: Treasury nationalizes Fannie and Freddie and will run the two until they are strong enough to return to independent management. The Fannie and Freddie bailout initially cost taxpayers $187 billion.

September 15: Lehman Brothers files for chapter 11 bankruptcy, the largest bankruptcy filing in U.S. history with over $600B in assets. The bankruptcy triggered a one-day drop in the Dow Jones Industrial Average of 4.5%, the largest decline since the September 11, 2001 attacks. Later that day, Bank of America officially announced it would purchase struggling Merrill Lynch for $50 billion.

“It’s terrible. Death. Like a massive earthquake.” — Kirsty McCluskey a Lehman trader in London

September 16: Fed buys AIG for $85 Billion. The company had insured trillions of dollars of mortgages throughout the world. If it had fallen, so would the global banking system. On that same day, the Reserve Primary Fund “broke the buck.” It didn’t have enough cash on hand to pay out all the redemptions that were occurring.

“I asked my wife to please go to the ATM and take as much cash as she could. When she asked why, I said it was because I didn’t know whether there was a chance that banks might not open.” — Mohamed El-Erian (One of the most powerful economists/leaders in finance)

September 17: Economy on the brink of collapse. Panic spreads. Investors withdrew a record $144.5 billion from their money market accounts. During a typical week, only about $7 billion is withdrawn. If it had continued, businesses couldn’t get money to fund their day-to-day operations. In just a few weeks, shippers wouldn’t have had the cash to deliver food to grocery stores.

October

Bailouts

October 3: The bank bailout bill allowed Treasury to buy shares of troubled banks. It was the fastest way to inject capital into the frozen financial system. Despite this, global stock markets continue to collapse.

“Just as our politics are falling apart, our portfolios are falling apart, too.” — Ben Hunt

October 7: The Federal Reserve agreed to issue short-term loads for businesses that couldn’t get them elsewhere, to the tune of $1.7 Trillion.

October 13: Treasury Secretary Hank Paulson sits down with 9 major bank CEOs. The total bailout package looks more like $2.25 trillion, well more than the original $700 billion available.

“September and October of 2008 was the worst financial crisis in global history, including the Great Depression” — Ben Bernanke

October 14: The governments of the EU, Japan, and the United States again took unprecedented coordinated action. The EU committed to spending $1.8 trillion to guarantee bank financing, buy shares to prevent banks from failing, and take any other steps needed to get banks to lend to each other again. This was after the UK committed $88 billion to purchase shares in failing banks and $438 billion to guarantee loans. In a show of solidarity, the Bank of Japan agreed to lend unlimited dollars.

October 21 — Fed lends $540 Billion to bail out money market funds which are continuing to meet a barrage of redemptions.

“People feel like nothing in the country is working — the president, Congress, corporations.” (October 15, 2008) Reuters

October 31: Satoshi publishes the Bitcoin whitepaper

Walking on the street in a city Satoshi looks around and notices a businesswoman on her blackberry, hailing a cab. He passes a newspaper stand and sees Miley Cyrus’ (known as Hannah Montana) controversial photos in Vanity Fair, she’s 15.

George Bush’s approval rating is at a record low of 21%, Congress is at 10% — just above its all-time low. Lehman Brothers had just collapsed a month prior.

“Is now the time? Is the world ready?” Satoshi thought to himself. He had spent the last few years coding up Bitcoin then writing the whitepaper. He had patiently waited to release it to the world, but the moment had to be right… there was only one shot at this. “Is the whitepaper easy enough to read? I want to make sure this resonates with the cypherpunks, I’m hoping cash will be most understandable to the other members on the mailing list who have previously created e-currencies.”

“When the moment is ripe, a fanatic leader galvanizes the ripe population and pushes it to a point of no return. The leader translates the ideals published by the “men of words [cypherpunks]” into doctrines [whitepaper] promising sudden and spectacular change.” — Eric Hoffer, author of “The True Believer” (via Tony Sheng)

He returned to his home and reviewed the whitepaper for any glaring mistakes the 47th time, he couldn’t find any. He leaned back and stared at the wall. He realized this was the moment, it was time to plant the seed. He popped open his e-mail client, checked the draft e-mail to the cryptographer (cypherpunk) e-mailing list and pressed send. There was no going back.

“Indeed, Bitcoin rose like a phoenix from the ashes of the 2008 global financial catastrophe — a catastrophe that was precipitated by the policies of central banks like the Federal Reserve.” — Vijay Boyapati

With the 2008 financial crisis, trust had been lost in a world that ran on trust.

Bitcoin was launched in a time of absolute necessity, Satoshi planted the seed at precisely the right moment.

Part 3… “Soil”

In Part 3, I will cover Satoshi’s distribution strategy – or the soil in which he planted the seed: the Cypherpunks community. Part 3 of this article will be published in the next few days and linked from Twitter via Tweet storm (follow me).

Seasons image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Defending Decentralization, Like a Twice in a Millennium Chance

“We haven’t had an opportunity like this in the past 500 years.”

That’s Amir Taaki speaking on a closing panel at the Web3 Summit in Berlin Wednesday, and his statement was greeted with breathless applause by the audience. An early bitcoin developer, Taaki addressed a crowd of more than a thousand coders that had gathered to discuss “Web 3.0” – or the restructuring of internet infrastructures with an emphasis on decentralization.

“Maybe the technological proposals that people are talking about are not very well grounded, but I do see a huge amount of young, idealistic people with a lot of capital,” Taaki said, adding:

“If we can form a vision and direct that energy, it could be an extremely powerful force.”

A concept which originated from ethereum co-founder and Parity Technologies founder Gavin Wood, Web 3.0 has evolved into a tech base that encompasses a wide range of decentralized technologies, ethereum and beyond.

Web 3.0 is intended to replace the existing online infrastructure with software that is decentralized from the start. To this end, much of the discussion over the three-day conference echoed Taaki’s sentiment – that with the right combination of technology and vision, Web 3.0 can usher in a new era of digital emancipation.

And while that may sound idealistic – several attendees remarked that the event seemed to tip into naïveté at times – it was met with a wave of technological advances that reinforced this positivity.

“It’s different this time around, and we have a chance to use these tools in a way that empowers and protects people,” Patrick Nielsen, CTO of Web 3.0 startup Clovyr, said. “But it won’t build itself, and just because the tools exist does not mean it’s going to get used.”

Ethereum developer Lane Rettig echoed this point in an interview with CoinDesk.

According to him, the Web 3.0 community is at a crucial turning point. Either it succumbs to the classic “rich get richer” dynamics or the community takes “the uncharted path” of permissionless innovation.

“But it’s not something we get for free, and it is not something we get by default,” Rettig contended.

What’s more, such a vision requires careful coordination and an awareness of history, such as the failure of former technological movements that got co-opted by corporates. To this end, several moments during the conference reflected this idea in more cautionary terms.

For instance, ethereum developer Vlad Zamfir took the stage on Monday, saying: “Expect every layer to be captured. Defend every layer.”

The ‘protocol commons’

During the event on Monday, Harry Halpin, an academic and a former chairperson of the World Wide Web Consortium (W3C), gave some concrete examples of the risks currently facing the nascent industry.

According to Haplin, decentralized, open-source technologies have a historical tendency to fall prey to capture by corporations that implement the tech – thus further centralizing the Web.

Clovyr’s Nielson seconded that, explaining that strategies – such as the so-called “embrace and extinguish” method – exist within corporations to allow them to take open-source software and reimplement it within their own systems (without so much as a thank you). And the tech, at that juncture, has been abstracted from its guiding principles and even be used for malignant ends, he said.

Zamfir specifically directed his warning about this process toward blockchain governance – where an economic elite can buy up crypto token ownership and divert the outcomes of a project.

According to Halpin, Web 2.0 technology underwent a corporate capture of its own, and the leaders of the projects “lacked the backbone to push back and fight for users rights.” For example, Halpin drew attention to digital rights management (DRM) – a heavily criticized copyright-enforcing technology that led him to quit the W3C following its implementation as a Web standard.

To protect against such eventualities, Halpin proposed the notion of a “protocol commons,” an overarching blockchain governance body for “certain things which are in everyone’s best interest.”

This could include the development of Web 3.0 standards, as well as protection against software patents, Halpin said, adding that such governing bodies should avoid deifying specific people, a process that can create single points of failure for blockchain projects.

As Halpin argued:

“We need to remove charismatic leaders, they are good at the beginning but they will become corrupt, or they will just go crazy, and either way it has the same impact.”

A surveillance machine

Privacy was another significant theme discussed during the summit. While much in the way of privacy tooling is in development within the cryptocurrency community, there are still plenty of unanswered questions.

Halpin called privacy protection “the largest technological task facing the Web 3.0 community.”

He continued: “Peer-to-peer and blockchain technologies are by design very hostile to privacy. There needs to be a lot of work.”

It was a notable trend at the summit, with many, like Halpin, warning that the use of peer-to-peer and blockchain technologies could result in a new surveillance machine – one that is even more threatening than the current Web as it exists today.

And that’s because not only do technologies like ethereum reveal transactional data, but they also expose subtler computational activity which can be a concern, especially as it relates to smart contracts that deal with sensitive tasks like voting, location data, social media and identity.

As Zamfir explained:

“Blockchain is a surveillance wet dream.”

Still, several talks touched on the privacy question, sparking a sense of renewed interest in developing the tools necessary to protect users and even developer information.

Advancements in zero-knowledge cryptography, ring signatures, mixnets, privacy-enforcing contracts and messaging were discussed, and even lower level cryptography that enforces privacy as a default, instead of needing end users to adopt.

One such project is Centrifuge, a financial supply chain startup that performs transactions apart from the ethereum blockchain in order to preserve their privacy, while still communicating with the blockchain by way of non-fungible tokens (NFTs).

“From a technical point of view, there’s a huge improvement in terms of the technologies we can use to preserve privacy,” CTO of Centrifuge Lucas Vogelsang said.

He added that the implementations of such technologies are “just a matter of time.”

All about freedom

Still, the mood at the conference was generally optimistic. For example, several participants pointed to innovations particular to the blockchain ecosystem that could help overcome dystopian outcomes.

Zamfir, for instance, said that stable blockchain governance can be achieved using systems that enforce distributed control, incentive mechanisms and general fault tolerance.

Halpin echoed this point by stating that Web 3.0’s main protection against the failures of former software movements is the novel economic models underpinning much of the industry.

“Blockchain technologies have a fighting chance because they have an economic model built into how you use and work on the technology,” he stated.

These economic models can help avoid outcomes like the onslaught of corporations that occurred in Web 2.0 and protect against the economic model underlying most of the internet – one that relies on user data and tracking as a primary business model.

Haplin continued:

“You can see a new route of innovation on the Web that is not based on mass surveillance, that is based on decentralization, the respect for human life and new economic models based on payments.”

Speaking on the panel, Taaki reminded the audience of the importance of having a fixed ideological position to guide the Web 3.0 movement.

And while there are subtle disagreements about what the term “Web 3.0” actually means, Zamfir said in an interview that ideology can be boiled down to “emancipation.”

“It’s not clear that it is going to be good for people’s privacy, it’s not clear that it gives people control, but it certainly gives people a lot of freedom,” Zamfir told CoinDesk.

In a similar vein, according to Halpin, while we won’t know for years as the technology and the industry around it unfolds, but it’s worth the risk, given the underlying promise – freedom from corporate control – the technology stands for.

Gavin Wood image via the Web3 Foundation

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.