CRYPTONAIRE WEEKLY CRYPTO Investment Journal
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Blockchain Law: the Fork Not Taken
Blockchain Law The fork not taken Robert A. Schwinger, New York Law Journal — November 24, 2020 I shall be telling this with a sigh Somewhere ages and ages hence: Two roads diverged in a wood, and I— I took the one less traveled by, And that has made all the difference. — Robert Frost Is the token holder — often the holder of some form of digital currency — always free to choose which branch of the fork to take? A blockchain is often envisioned as a record of a single continuous Background: ‘Two roads diverged in a sequential series of transactions, like the links of the metaphorical chain from which the term “blockchain” derives. But sometimes yellow wood’ the chain turns out to be not so single or continuous. Sometimes situations can arise where a portion of the chain can branch off A blockchain fork occurs when someone seeks to divide a into a new direction from the original chain, while the original chain blockchain into two branches by changing its source code, which also continues to move forward separately. This presents a choice is possible to do because the code is open. For those users who for the current holders of the digital tokens on that blockchain choose to upgrade their software, the software then “rejects about which direction they wish to follow going forward. In the all transactions from older software, effectively creating a new world of blockchain, this scenario is termed a “fork.” branch of the blockchain. However, those users who retain the old software continue to process transactions, meaning that But is the tokenholder—often the holder of some form of digital there is a parallel set of transactions taking place across two currency—always free to choose which branch of the fork to different chains.” See generally N. -
Bitcoin's Decentralized Decision Structure
Number 2019-12 July 16, 2019 Bitcoin’s Decentralized Decision Structure Ben R. Craig and Joseph Kachovec* With the introduction of bitcoin, the world got not just a new currency, it also got evidence that a decentralized control structure could work in practice for institutional governance. This Commentary discusses the advantages and disad- vantages of centralized and decentralized control structures by examining the features of the bitcoin payment system. We show that while the decentralized nature of the Bitcoin network “democratizes” payments, it is not obvious that the approach increases the equity or efficiency of markets or that the costs of the decentralized control structure won’t outweigh the benefits in the long run. In 2009, a paper appeared that established the philosophy The lack of central counterparties and regulatory authorities and implementation of Bitcoin (Nakamoto, 2009). Bitcoin in the Bitcoin network is viewed as a key benefit by many introduced an innovative approach to processing payments, of Bitcoin’s users. Indeed, a central revelation of the Bitcoin wherein a trusted third party in a transaction, such as a “experiment” is that a functioning payments system does bank, is replaced by anonymous people who verify the not necessarily need a central authority, such as a central accuracy and trustworthiness of the transaction over the bank, or even a bank of any kind. internet. The functions of a bank in processing a payment What are the possible advantages and disadvantages of a (establishing that the payer has the -
A Behavioral Economics Approach to Regulating Initial Coin Offerings
A Behavioral Economics Approach to Regulating Initial Coin Offerings NATHAN J. SHERMAN* INTRODUCTION Initial coin offerings (ICOs) are an outgrowth of the cryptocurrency space in which companies raise capital by issuing their own cryptocurrency coin to investors. Although ICOs are an innovative method of raising capital, the growth of the ICO market is troubling considering no investor protection regulations govern the ICO process. Investors pour large amounts of money into these offerings, which are issued by companies that typically have no history of producing a product or revenue, and the prices of coins issued in ICOs are only rising because other investors also funnel money into them.1 This pattern is markedly similar to that of a speculative bubble. A speculative bubble occurs when there are “‘unsustainable increases’ in asset prices caused by investors trading on a pattern of price increases rather than information on fundamental values.”2 In a bubble, “smart money”—informed investors—bid up prices in anticipation of “noise traders” entering the market.3 The noise traders then enter the market due to the psychological biases they encounter in making their investment decisions.4 Eventually, the smart money investors sell their holdings and the bubble bursts. 5 Thus, regulators should create a framework that adequately protects investors in ICOs. The behavioral economics theory of bounded rationality provides insights for building this regulatory framework. Bounded rationality implies that humans make suboptimal choices.6 By understanding the psychological biases that influence investors’ choices, regulators will be able to help investors adopt habits that reduce the harmful effects of speculative bubbles. -
Bitcoin and Cryptocurrencies Law Enforcement Investigative Guide
2018-46528652 Regional Organized Crime Information Center Special Research Report Bitcoin and Cryptocurrencies Law Enforcement Investigative Guide Ref # 8091-4ee9-ae43-3d3759fc46fb 2018-46528652 Regional Organized Crime Information Center Special Research Report Bitcoin and Cryptocurrencies Law Enforcement Investigative Guide verybody’s heard about Bitcoin by now. How the value of this new virtual currency wildly swings with the latest industry news or even rumors. Criminals use Bitcoin for money laundering and other Enefarious activities because they think it can’t be traced and can be used with anonymity. How speculators are making millions dealing in this trend or fad that seems more like fanciful digital technology than real paper money or currency. Some critics call Bitcoin a scam in and of itself, a new high-tech vehicle for bilking the masses. But what are the facts? What exactly is Bitcoin and how is it regulated? How can criminal investigators track its usage and use transactions as evidence of money laundering or other financial crimes? Is Bitcoin itself fraudulent? Ref # 8091-4ee9-ae43-3d3759fc46fb 2018-46528652 Bitcoin Basics Law Enforcement Needs to Know About Cryptocurrencies aw enforcement will need to gain at least a basic Bitcoins was determined by its creator (a person Lunderstanding of cyptocurrencies because or entity known only as Satoshi Nakamoto) and criminals are using cryptocurrencies to launder money is controlled by its inherent formula or algorithm. and make transactions contrary to law, many of them The total possible number of Bitcoins is 21 million, believing that cryptocurrencies cannot be tracked or estimated to be reached in the year 2140. -
First Crypto Index in Hong Kong
First crypto index in Hong Kong Index Review 2021 Q1 1 Market Overview 2 Historical Crypto Market Capitalization (free-floated) & Bitcoin Price (Dec 2018 - Mar 2021) 2021 Q1 Market Cap Bitcoin Price The total Market Cap and Bitcoin price kept the upward trend during this quarter. Source: CoinMarketCap as of 31/03/2021 HKT 3 Crypto market overview Top 10 Cryptos No Name Market Cap Price % Change* 2021 Q1 1 Bitcoin $1,099,939,890,804 $58,917.69 104.28% 2 Ethereum $212,788,788,571 $1,846.03 145.61% 9,000 + Crypto Currencies 3 Binance Coin $48,125,603,373 $311.43 716.54% 4 Tether $40,681,086,817 $1.00 0.00% 131 Billion USD Daily Volume 5 Cardano $38,763,410,938 $1.21 557.47% 6 Polkadot $31,495,837,002 $34.07 369.93% 7 XRP $25,737,663,165 $0.57 167.62% 1.88 Trillion USD Market Cap 8 Uniswap $14,871,243,021 $28.49 588.16% 9 Litecoin $13,129,004,499 $196.68 51.91% 10 THETA $12,977,378,293 $12.98 711.25% Source: CoinMarketCap as of 31/03/2021 HKT • % Change since the end of last quarter 4 Crypto market overview 2020 Q4 2020 Q3 9,000 + Crypto Currencies (+11.1%) 8,100 + Crypto Currencies 131 Billion USD Daily Volume (-29.1%) 185 Billion USD Daily Volume 1.88 Trillion USD Market Cap (+147%) 762 Billion USD Market Cap Compared with last review, total market cap rose by 147%, while the daily volume cooled down by 29.1%. -
Fraud & White Collar Crime 2019
FRAUD & WHITE COLLAR CRIME 2019 EXPERT GUIDE www.corporatelivewire.com 33 CHANCERY LANE Expert Guide | Fraud & White Collar Crime 2019 Alma Angotti United Kingdom | United States [email protected] UK: +44 (0) 20 7550 4604 | US: +1 202 481 8398 www.navigant.com The ability to trace transactions on the blockchain allows for the identification of the originating cryptocurrency wallet address and the beneficiary cryptocurrency wallet address. Elizabeth Sisul Bitcoin is said to offer “pseudo-anonymity” because it United States [email protected] is often difficult to connect the cryptocurrency wallet +1 646 227 4725 www.navigant.com addresses with real-world individuals and entities. Brandy Schindler United States 1. Money Laundering Risks ability to move private keys across borders with a piece of paper [email protected] in his or her pocket, or by handing off that piece of paper to a co- +1 646 227 4881 I. Pseudo-anonymity/Anonymity conspirator crossing a border. www.navigant.com Many erroneously believe that the most popular cryptocurren- The ability to easily move money across borders facilitates the cies, including bitcoin, offer complete anonymity to its users. In layering3 stage of money laundering. Bad actors may leverage reality, bitcoin transactions can be traced on the bitcoin block- the ability to conduct cross-border transactions in order to direct chain. The ability to trace transactions on the blockchain allows complex transactions through multiple countries and/or through Key Considerations and Risk Management Practices in Building for the identification of the originating cryptocurrency wallet countries with weak regulatory frameworks. In addition, the in- address and the beneficiary cryptocurrency wallet address. -
The Lightning Network - Deconstructed and Evaluated
The Lightning Network - Deconstructed and Evaluated Anti-Money Laundering (AML) and Anti-Terrorist Financing (ATF) professionals, especially those working in the blockchain and cryptocurrency environment, may have heard of the second layer evolution of Bitcoin's blockchain - the Lightning Network, (LN). This exciting new and rapidly deploying technology offers innovative solutions to solve issues around the speed of transaction times using bitcoin currently, but expandable to other tokens. Potentially however, this technology raises regulatory concerns as it arguably makes, (based on current technical limitations), bitcoin transactions truly anonymous and untraceable, as opposed to its current status, where every single bitcoin can be traced all the way back to its coinbase transaction1 on the public blockchain. This article will break down the Lightning Network - analyzing how it works and how it compares to Bitcoin’s current system, the need for the technology, its money laundering (ML) and terrorist financing (TF) risks, and some thoughts on potential regulatory applications. Refresher on Blockchain Before diving into the Lightning Network, a brief refresher on how the blockchain works - specifically the Bitcoin blockchain (referred to as just “Bitcoin” with a capital “B” herein) - is required. For readers with no knowledge or those wishing to learn more about Bitcoin, Mastering Bitcoin by Andreas Antonopoulos2 is a must read, and for those wishing to make their knowledge official, the Cryptocurrency Certification Consortium, (C4) offers the Certified Bitcoin Professional (CBP) designation.3 Put simply, the blockchain is a growing list of records that can be visualized as a series of blocks linked by chains. Each block contains specific information - in Bitcoin’s case, a list of transactions and their data, which includes the time, date, amount, and the counterparties4 of each transaction. -
In Collaboration with CONTENTS
QUARTERLY REPORT Q3 2018 in collaboration with CONTENTS FOREWORDS BITCOIN’S VALUE PROPOSITIONS TO INVESTORS CRYPTOASSET MCAPS OUTLOOK INDUSTRY EXCHANGES PEER-TO-PEER EXCHANGES DECENTRALIZED EXCHANGES ESCALATING TECH ADOPTION STABLECOINS TOKEN MARKET SUMMARY ASSET RISK-ADJUSTED RETURNS CORRELATIONS INDEXES NETWORK HEALTH LAYER 2 SOLUTIONS LIGHTNING NETWORK LINDY EFFECT REFERENCES FOREWORDS Bitcoin, the digital asset that just celebrated its 10 year anniversary, has been attracting investor attention by offering potentially high returns with relatively low correlation to other traditional asset classes. Bitcoin’s nature as digital payment method and its scarcity in terms of limited supply has also driven many investors to call bitcoin as “digital gold”. Bitcoin was founded shortly after the noto- rious 2008 subprime crisis and following reces- sion, by mysterious person or group called Satoshi Nakamoto. The following text included in bitcoin genesis block: “The Times 03/Jan/2009 Chancel- lor on brink of second bailout for banks”, can be interpreted as a statement questioning fractional- reserve banking system [1]. In summary, Satoshi’s core objective was to create “peer-to-peer elec- tronic cash system”. That objective was fulfilled completely and rest of the bitcoin’s developing story will be among significant financial innovations of our time. In the Q3 report we’ll dive deep into bitcoin & cryp- toassets, including topics within: Cryptocurrency market caps, exchanges, decentralized exchanges, and tech adoption. With Asset Summary, we’ll explore asset correlations, indices, network health, layer 2 solutions, and bitcoin fundamentals. The report aims to provide value for investors, clients, and individuals, by delivering a complete quarterly overview of the industry. -
Cryptocurrencies and Their Impact on Crime a Brief History of Bitcoin/Crypto
Cryptocurrencies and their impact on crime A Brief History of Bitcoin/Crypto • 2008 Satoshi Nakamoto publishes the Bitcoin whitepaper • 2009 First Bitcoin transaction • 2010 Lazlo Hanyecz paid 10,000 bitcoins for two delivered pizzas • 2011 Bitcoin reached parity with the U.S. dollar for the first time (1 USD = 1 BTC) • 2012 First Bitcoin Halving Day observed • 2013 Total bitcoin market capitalization exceeded $1billion USD for the first time 2 A Brief History of Bitcoin/Crypto • 2014 Tokyo-based bitcoin exchange Mt. Gox begins to collapse • 2015 European Union issued its first ever ruling on bitcoin • 2016 Bitfinex was hacked • 2017 Japan categorized bitcoin as legal tender • 2018 Bitcoin the price dropped 60% • 2019 Hackers stole $41 million in BTC from Binance • 2020 The third bitcoin halving occurred 3 Characteristics of Bitcoin and other Cryptocurrencies • Private • Decentralized • Digital • Cryptocurrency 4 Classic bank payment / BTC payment 5 Bitcoin Blockchain • Highly durable • Highly portable • Highly fungible • Highly divisible • Highly resistant to counterfeiting 6 Bitcoin and Cryptography • A decentralized peer-to-peer network • A public transaction ledger (the blockchain) • Distributed mining and the “Proof-of-Work” consensus algorithm • A decentralized transaction verification system • Cryptographic hash functions • Public Key Cryptography (i.e. ECDSA) 7 Generating a Bitcoin Address https://bitcoinpaperwallet.com 8 Cryptocurrencies • Bitcoin • Bitcoin Cash • Litecoin • Privacy Coins (Monero, Zcash, Dash, Grin) • Ethereum -
Bitcoin Lightning Network
SED 605 Transcript EPISODE 605 [INTRODUCTION] [0:00:00.3] JM: Big blocks or small blocks? This is the fundamental question of Bitcoin scalability. The argument for big blocks is also known as on-chain scalability. Under this strategy, each block in this append-only chain of Bitcoin transaction blocks would grow in size to be able to support lower transaction fees and higher on-chain throughput. A set of Bitcoin users who supported this idea forked Bitcoin to create Bitcoin Cash, a version of Bitcoin that has a larger block size. The argument for small blocks asserts that scaling Bitcoin does not require a larger block size. Under the model of the small blocks, the scaling demands of the Bitcoin blockchain will be handled by sidechains. A sidechain is a network of person-to-person payment channels that only reconcile with the Bitcoin blockchain to checkpoint batches of transactions. These sidechains can be connected together to form the Lightning Network. Lightning Network is hard to implement. To implement a Lightning Network requires solving real- world distributed systems problems that are unprecedented. It's much more complicated than deploying a blockchain with a larger block size. In addition, opponents of Lightning Network suggest this will lead to a centralized banking system of being constructed on top of Bitcoin. Opponents of Lightning Network fear that instead of a decentralized payments network, the world of a Lightning Network would be a lower-cost version of the present-day financial system; a world in which JP Morgan and Blockstream would partner up to battle Coinbase in a decentralized, but actually centralized war for control of the unbanked. -
SEPTEMBER 2018 | 11 MINUTE READ Nicolas Darbo Partner Martin
BLOCKCHAIN EPISODE 1 - BLOCKCHAIN TECHNOLOGY IS BRINGING ABOUT THE REMODELLING OF ECONOMIC LIFE TECH SEPTEMBER 2018 | 11 MINUTE READ Nicolas Darbo Martin Della Chiesa Clément Téqui Partner Manager Associate Blockchain technology is effecting fundamental change in the structure and organisation of economic life. We can appreciate and understand its impact through an analogy between blockchain and the internet. When the internet first appeared, it allowed a number of new players to emerge, such as the GAFA1 companies. Their economic models are almost entirely internet-based, making them pure players. Nevertheless, we cannot limit the impact of the internet to the creation of these companies: each business in the traditional economy has been able to use the internet to create new functions (e.g. online orders) or improve internal processes (e.g. reduction of communication costs thanks to videoconferencing). Blockchain technology can therefore have as much of an impact on economic life as the internet: on one hand, pure players will emerge whose economic models will be entirely based on the technology; on the other hand, traditional businesses will be able to develop new functions and improve internal processes. 1 Google, Amazon, Facebook and Apple | 1 The blockchain ecosystem is structured around two axes: the level of decentralisation and the complexity of use cases. – The horizontal axis measures the level of decentralisation of the organisation, facilitating the distinction between centralised and more decentralised players. The most centralised players are those who use permissioned or private blockchains as well as those gravitating around the blockchain ecosystem without using its technology. The most decentralised players are those using public blockchains2. -
The Bitcoin Cash Backbone Protocol
On Bitcoin Cash's Target Recalculation Functions Juan Garay1 and Yu Shen1 1Texas A&M University, fgaray, [email protected] June 3, 2021 Abstract Bitcoin Cash, created in 2017, is a \hard fork" from Bitcoin responding to the need for allowing a higher transaction volume. This is achieved by a larger block size, as well as a new difficulty adjustment (target recalculation) function that acts more frequently (as opposed to Bitcoin's difficulty adjustment happening about every two weeks), resulting in a potentially different target for each block. While seemingly achieving its goal in practice, to our knowledge there is no formal analysis to back this proposal up. In this paper we provide the first formal cryptographic analysis of Bitcoin Cash's target recalculation functions|both ASERT and SMA (current and former recalculation functions, respectively)|against all possible adversaries. The main distinction with respect to Bitcoin's is that they are no longer epoch-based, and as such previous analyses fail to hold. We overcome this technical obstacle by introducing a new set of analytical tools focusing on the \calibration" of blocks' timestamps in sliding windows, which yield a measure of closeness to the initial block generation rate. With that measure, we then follow the analytical approach developed in the Bitcoin backbone protocol [Eurocrypt 2015 and follow-ups] to first establish the basic properties of the blockchain data structure, from which the properties of a robust transaction ledger (namely, Consistency and Liveness) can be derived. We compare our analytical results with data from the Bitcoin Cash network, and conclude that in order to satisfy security (namely, properties satisfied except with negligible probability in the security parameter) considerably larger parameter values should be used with respect to the ones used in practice.